UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





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


For
the Fiscal Year Ended December 31, 2009




or




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




Commission
File Number 1-13752





Smith-Midland
Corporation


(Exact
Name of Registrant as Specified in its Charter)




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





P.O.
Box 300, 5119 Catlett Road


Midland,
Virginia  22728


(Address
of Principal Executive Offices, Zip Code)





(540)
439-3266


(Registrant's
Telephone Number, Including Area Code)





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





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




Common Stock, $.01 par value
per share


(Title
of Class)





Preferred Stock Purchase
Rights


(Title
of Class)




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





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




Indicate by check mark whether the
issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days.


Yes xNo o




Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit
and post such files).         Yes o    No o




Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K (§232.405 of this
chapter) is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o




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




Large
      Accelerated Filer o
              Accelerated
      filer  oNon-accelerated
      Filer  o
              Smaller
      reporting company  x




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




The aggregate market value of the
shares of the voting and non-voting common equity held by non-affiliates
computed by reference to the price at which common equity was last sold, or the
average bid and asked price of such common equity, as of June 30, 2009 (the last
business day of the Company’s most recently completed second fiscal quarter) was
$6,249,370.  For the sole purpose of making this calculation, the term
“non-affiliate” has been interpreted to exclude directors, officers and holders
of 10% or more of the Company’s common stock.





As of March 1, 2010, the Company had
outstanding 4,661,962 shares of Common Stock, $.01 par value per share, net of
treasury shares.




Documents Incorporated By
Reference




None










FORWARD-LOOKING
STATEMENTS





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





·
            our
      level of indebtedness and ability to satisfy the
  same,




·
            Our
      revenues  decreased in 2009 as compared to 2008, due in part to
      current economic conditions,




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




·
            the
      extent to which we are successful in developing, acquiring, licensing or
      securing patents for proprietary
products,




·
            changes
      in economic conditions specific to any one or more of our markets
      (including the availability of public funds and grants for
      construction),




·
            changes
      in general economic conditions, such as the continued weakeness in
      construction activity in 2010 in the Company’s primary service
      area,




·
            adverse
      weather which inhibits the demand for our
  products,




·
            our
      compliance with governmental
regulations,




·
            the
      outcome of future litigation,




·
            on
      material construction projects, our ability to produce and install product
      that conforms to contract specifications and in a time frame that meets
      the contract requirements ,




·
            the
      cyclical nature of the construction
industry,




·
            our
      exposure to increased interest expense payments should interest rates
      change,




·
            the
      board of directors, which is composed of four members, has only one
      outside, independent director,




·
            the
      Company does not have a separate  audit committee; the board of
      directors functions in that role,




·
            the
      Company’s board of directors does not have a member that qualifies as an
      audit committee financial expert as defined in the
      regulations,




·
            the
      Company has experienced a high degree of employee turnover,
      and




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




Investors and shareholders should
carefully consider such risks, uncertainties and other information, disclosures
and discussions which contain cautionary statements identifying important
factors that could cause actual results to differ materially from those provided
in the forward-looking statements. We undertake no obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.




2


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





The
Company was incorporated in Delaware on August 2, 1994. Prior to a corporate
reorganization completed in October 1994, the Company conducted its business
primarily through Smith-Midland Virginia, which was incorporated in 1960 as
Smith Cattleguard Company, a Virginia corporation, and which subsequently
changed its name to Smith-Midland Corporation in 1985. The Company’s principal
offices are located at 5119 Catlett Road, Midland, Virginia 22728 and its
telephone number is (540) 439-3266. As used in this report, unless the context
otherwise requires, the term the “Company” refers to Smith-Midland Corporation
and its subsidiaries. The Company’s wholly owned subsidiaries consist of
Smith-Midland Corporation, a Virginia corporation; Smith-Carolina Corporation, a
North Carolina corporation; Easi-Set Industries, Inc., a Virginia corporation;
Concrete Safety Systems, Inc., a Virginia corporation; and Midland Advertising
and Design, Inc., a Virginia corporation doing business as Ad
Ventures.





Market





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





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





Products





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




3




Easi-Set
SlenderwallTMLightweight
Construction Panels





Each
SlenderwallTM system is a prefabricated, energy-efficient, lightweight exterior
cladding system that is offered as a cost-effective alternative to the
traditional, piecemeal construction of the exterior walls of buildings. The
Company's Slenderwall system combines the essential components of a wall system
into a single unit ready for interior dry wall mounting immediately upon
installation. The base design of each SlenderwallTM 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.





SlenderwallTM
panels are approximately one-third the weight of traditional structural concrete
walls of equivalent size, permanence and durability, and are also significantly
improved as to permanence and durability.  The lighter weight translates
into reduced construction costs resulting from less onerous structural and
foundation requirements as well as lower shipping costs. Additional savings
result from reduced installation time and ease of erection and from the use of
smaller cranes for installation.





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





Easi-Set
Sierra WallTM





The
Easi-Set Sierra WallTM (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 WallTM can also be used as a retaining wall to retain earth in both
highway and residential construction. The Sierra WallTM is typically constructed
of four-inch thick, steel-reinforced concrete panels with an integral column
creating a tongue and groove connection system. This tongue and groove
connection system makes the Sierra WallTM 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 WallTM to conform to the
specifications provided by the contractor. The width, height, strength, and
exterior finish of each wall vary depending on the terrain and
application.  The Company also produces post and panel design sound barrier
wall systems.  These systems are constructed of steel or precast concrete
columns (the Company manufactures the precast columns) with precast concrete
panels which slide down into the groove in each column.





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





Easi-Set J-J Hooks® Highway
Safety Barrier





The
Easi-Set J-J Hooks® highway safety barrier (the "J-J Hooks Barrier") is a
crash-tested (privately funded), positively connected, safety barrier that the
Company sells, rents, delivers, installs and licenses for use on roadways to
separate lanes of traffic, either temporarily for construction work zone
purposes or permanently for traffic control.  Barriers are deemed to be
positively connected when the connectors on each end of the barrier sections are
interlocked with one another.  The J-J Hooks Barriers interlock without the
use of a separate locking device. The primary advantage of a positive connection
is that a barrier with such a connection can withstand vehicle crashes at higher
speeds without separating.  The Federal Highway Administration (the "FHWA")
requires that states use only positively connected barriers, which meet
NCHRP-350 or MASH 08 crash test requirements.  J-J Hooks Barrier meets the
requirements and is NCHRP-350 TL3 approved.  In November 2009 the Company
was issued a patent which contains deflection limitation blocks which improve
the J-J Hooks connection performance.The Company has applied for “design
protection” of the “end taper” on each end of the barrier sections and the
“J-Hook” in the United States, Canada, Australia and New Zealand.  If
successful, these features cannot be copied by others.





4




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





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





In
November 1990, the FHWA approved the J-J Hooks Barrier for use on federally
aided highway projects following the successful completion of crash testing
based on criteria from the National Cooperative Highway Research Program. 
The Company intends to perform two privately funded crash tests (bolted down and
pinned down) to MASH 08 levels to expand the use of J-J Hooks barrier in those
states employing those attachment methods.


The J-J
Hooks Barrier has also been approved for use in state funded projects by 41
states, plus Washington, D.C. and Puerto Rico. The Company is in various stages
of the application process in nine states and seven Canadian provinces and
believes that approval in some of the states and provinces will be granted;
however no assurance can be given that approval will be received from any or all
of the remaining states and provinces or that such approval will result in the
J-J Hooks Barrier being used in such states. In addition, the J-J Hooks Barrier
has been approved by the appropriate authorities for use in the countries of
Canada, Australia, New Zealand, Spain, Portugal, Belgium, Germany and
Chile.





Easi-Set
Precast Building and Easi-SpanTMExpandable
Precast Building





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





The
Company also offers Easi-SpanTM, a line of expandable precast all concrete
buildings. Easi-SpanTM is identical to and incorporates the technology of the
Easi-Set Precast Building, but is available in larger sizes and, through its
modular construction, can be combined in varied configurations to permit
expansion capabilities.  Since these larger buildings have less competition
from other materials and methods, they produce higher profit
margins.





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





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





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





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




5




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




Easi-Set Utility
Vault





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





SoftsoundTM Soundwall
Panels





SoftsoundTM
soundwall panels, recently developed by the Company, utilize a “wood aggregate”
sound absorptive material applied to the face of soundwall panels, which are
used to absorb highway noise.  SoftsoundTM is a proprietary product
developed and tested by the Company and is currently approved for use in
Virginia and Maryland.  The Company is in the process of obtaining
approvals for all 50 states and Canada.





Beach PrismsTM Erosion
Control modules





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





The
Company currently has orders and is also accepting new orders with deposits for
the Beach Prism product, and the Company is working with the states of Virginia
and Maryland to secure approval of each state’s environmental agency.  Such
approval is meeting resistance from the environmental agencies, however, the
Company believes approval will be forthcoming.





H2OutTM Secondary Drainage
System





The
Company was issued a patent in February 2010 for H2OutTM, the first "in the caulk
joint" secondary drainage and street level leak detection product for panelized
exterior cladding. A second line of caulking and drainage strip located behind
the exterior line of caulking exits all water leakage to the exterior of the
building preventing moisture and mold, and hence deterring lawsuits from tenants
and owners of buildings.  H2OutTM has been added as a feature of the
SlenderwallTM system and is being included in the product literature, website,
and all sales presentations.





Although
the Company is optimistic about the success of Beach PrismsTM and H2OutTM, there
can be no assurance of the commercial acceptance of these products.




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, particularly in light of the slowdown in the construction
industry.





6




Licensing





The
Company presently grants licenses, through its wholly-owned subsidiary Easi-Set
Industries, for the manufacturing and distribution rights of certain proprietary
products, such as the J-J Hooks Barrier, Easi-SetTM and
Easi-SpanTM Precast Buildings, SlenderwallTM,
SoftsoundTM and Beach PrismsTM as well
as certain non-proprietary products, such as the Company's cattleguards, and
water and feed troughs.  Generally, licenses are granted for a point of
manufacture.  The Company receives an initial one-time license
administration and training fee ranging from approximately $20,000 to
$60,000.  License royalties vary depending upon the product licensed, but
the range is typically from 4% to 6% of the net sales of the licensed
product.  In addition, Easi-SetTM/Easi-SpanTMbuildings and
SlenderwallTM
licensees pay the Company a flat monthly fee for co-op advertising and
promotional programs.  The Company produces and distributes advertising and
promotional materials and promotes the licensed products through its own
advertising subsidiary, Ad Ventures.





The
Company has entered into 47 licensing agreements in the United States; has
established five licensees in Canada; one each in Belgium, New Zealand and
Mexico with sub-licensees in Canada and Australia, for a total of 58 licensees
worldwide.





The
Company is currently negotiating several new license arrangements and, although
no assurance can be given, expects to increase its licensing activities. 
Additional licensees were added in 2009 with initial licensee fees of $92,000
compared to $125,000 for 2008.





Marketing
and Sales





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





The
Company has also established a cooperative advertising program in which the
Company and its Easi-SetTM/Easi-SpanTMbuildings and
SlenderwallTM
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, the District of Columbia, Maryland, North Carolina, South
Carolina, and parts of Pennsylvania, New York, New Jersey and West
Virginia.





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





Competition





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





The
Company believes that the principal competitive factors for its products are
price, durability, ease of use and installation, speed of manufacture and
delivery time, ability to customize, FHWA and state approval, and customer
service.  The Company believes that its plants in Midland, Virginia and
Reidsville, North Carolina compete favorably with respect to each of these
factors in the Northeast and Mid-Atlantic regions of the United States and also
in the newly added markets in the Midwest and Southeast.  Finally, the
Company believes it offers a broad range of products that are very competitive
in these markets.





7




Patents
and Proprietary Information





The Company currently holds U.S. and
Canadian patents for J-J Hooks highway barrier and Easi-Set Precast Building
features and U.S. patents for SlenderWall exterior cladding system features. In
1997, a European patent for J-J Hooks was allowed and it has been registered in
the U.K. and Belgium. The Company also has patents pending on improved J-J Hooks
barrier features in Canada, Australia, and New Zealand. Additionally, the
Company has “trade dress” applications for J-J Hooks features filed in the U.S.,
Australia, and New Zealand and “distinguishing guise” applications for J-J Hooks
features filed in Canada. A U.S. “trade dress” application for Beach Prisms has
been filed in the U.S.




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





While the
Company intends to vigorously enforce its patent rights against infringement by
third parties, no assurance can be given that the patents or the Company's
patent rights will be enforceable or provide the Company with meaningful
protection from competitors or that its patent applications will be
allowed.  Even if a competitor's products were to infringe patents held by
the Company, enforcing the patent rights in an enforcement action would be very
costly, and assuming the Company has sufficient resources, would divert funds
and resources that otherwise could be used in the Company's operations.  No
assurance can be given that the Company would be successful in enforcing such
rights, that the Company's products or processes do not infringe the patent or
intellectual property rights of a third party, or that if the Company is not
successful in a suit involving patents or other intellectual property rights of
a third party, that a license for such technology would be available on
commercially reasonable terms, if at all.





Government
Regulation





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





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





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





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





8




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





Employees





As of
March 1, 2010, the Company had 132 full-time and 3 part-time employees, 122 of
which are located at the Company's Midland, Virginia facility, and 13 of which
are located at the Company's facility located in Reidsville, North
Carolina.  None of the Company's employees are represented by labor
organizations and the Company is not aware of any activities seeking such
organization.  The Company considers its relationships with its employees
to be satisfactory.





Item
      1A.
            Risk
      Factors





Not applicable




Item
      1B
            Unresolved
      Staff Comments





Not applicable




Item
      2.
            Property





Facilities





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





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





The
Company believes that its present facilities are adequate for its current needs
and that they are adequately covered by insurance.  Substantially all of
the Company’s facilities and equipment are used as collateral for long-term
notes, which as of December 31, 2009 had a balance of $2.8 million (see
“Liquidity and Capital Resources”).




Item
      3.
            Legal
      Proceedings





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




Item
      4.
            Reserved




9


PART
II




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





The
Company's Common Stock trades on the OTC Bulletin Board System under the symbol
"SMID".





As of
March 1, 2010, there were approximately 62 record holders of the Company's
Common Stock. Management believes there are at least 400 beneficial owners of
the Company's Common Stock.





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





High
                    
                    
                    Low2009First
      Quarter
                    
                    $
                    1.05
                    
                    
                    $
                    0.58Second
      Quarter
                    
                    
                    1.80
                    
                    
                    
                    1.05Third
      Quarter
                    
                    
                    2.28
                    
                    
                    
                    1.52Fourth
      Quarter
                    
                    
                    2.14
                    
                    
                    
                    1.452008First
      Quarter
                    
                    $
                    1.79
                    
                    
                    $
                    1.25Second
      Quarter
                    
                    
                    1.75
                    
                    
                    
                    1.13Third
      Quarter
                    
                    
                    1.24
                    
                    
                    
                    0.88Fourth
      Quarter
                    
                    
                    1.02
                    
                    
                    
                    0.43




Dividends





The Company has not paid dividends on
its Common Stock since its inception and may not pay any dividends to its
stockholders in the foreseeable future.  The Company currently intends to
reinvest earnings, if any, in the development and expansion of its
business.  The declaration of dividends in the future will be at the
election of the Board of Directors and will depend upon earnings, capital
requirements and financial position of the Company, general economic conditions
and other pertinent factors.  The Company’s current loan agreement with
Summit Community Bank prohibits the payment of dividends to stockholders without
the bank’s prior written consent, except for dividends paid in shares of the
Company’s Common Stock.




Shareholder
Rights Plan





The Company’s Board of Directors
adopted a Shareholder Rights Plan (the “Plan”) in January 2003. Under the Plan,
preferred stock purchase rights (each, a “Right”) were distributed as a dividend
at the rate of one Right for each share of Common Stock outstanding as of the
close of business on February 11, 2003 and automatically attach to shares issued
thereafter. Each Right entitles the holder to purchase one one-hundredth of a
share of newly created Series A Junior Participating Preferred Stock of the
Company at an exercise price of $8.00 (the “Exercise Price”) per Right. In
general, the Rights will be exercisable if a person or group (“Acquiring
Person”) becomes the beneficial owner of 15% or more of the outstanding Common
Stock of the Company or announces a tender offer for 15% or more of the Common
Stock of the Company. When the Rights become exercisable, a holder, other than
the Acquiring Person, will have the right to receive upon exercise Common Stock
having a value equal to two times the Exercise Price of the Right. If, after the
Rights become exercisable, the Company is acquired in a merger or similar
transaction, each Right will entitle the holder thereof, other than the
Acquiring Person, to purchase, at the Exercise Price, shares of the acquiring
corporation having a value equal to two times the Exercise Price of the Right.
After a person or group becomes an Acquiring Person, but before an Acquiring
Person owns 50% or more of the outstanding Common Stock of the Company, the
Board of Directors of the Company may extinguish the Rights by exchanging one
share of Common Stock or an equivalent security for each Right, other than
Rights held by the Acquiring Person. The Board of Directors will in general be
entitled to redeem the Rights for $.001 per Right at any time prior to any
person or group becoming an Acquiring Person. The Rights will expire on January
20, 2013.





10





Item
      6.
            Selected
      Financial Data





Not
applicable.




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





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





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





Overview





Overall, the Company’s performance
increased significantly in 2009 with net income of $1,809,064 as compared to net
income of $420,993 for 2008, or an increase of $1,388,071 or 330%.  In
2008, there was a charge for approximately $418,000 (net of applicable federal
and state income taxes) that was related to the settlement of a lawsuit with JPI
Construction Services, GP LLC (“JPIC”).  The settlement required the
Company to forgive outstanding retainage receivables from JPIC of approximately
$199,000, make a $426,000 cash payment to JPIC and to pay attorney’s fees in the
amount of $160,000.





The Company accrued approximately
$200,000 and $210,000 in the third and fourth quarters of 2009, respectively,
related to a profit sharing bonus plan with employees.  Additionally, the
Board of Directors approved additional bonuses in the aggregate of $100,000 in
the fourth quarter of 2009 payable to certain key executives of the
Company.  Accrued expense includes $510,000 at December 31, 2009 for all
bonuses which are to be paid in 2010.





Results
of Operations





Year ended December 31, 2009 compared
to the year ended December 31, 2008





For the year ended December 31, 2009,
the Company had total revenue of $29,515,483 compared to total revenue of
$29,855,779 for the year ended December 31, 2008, a decrease of $340,296, or
1%.  Sales include revenues from product sales, royalty income, barrier
rental income, installation and shipping income.  Product sales are further
divided into wall sales, which include soundwall, architectural and SlenderwallTM
panels, highway barrier, Easi-Set® and Easi-Span® buildings and utility and farm
products.  The following table summarizes the sales by product type and a
comparison for the years ended December 31, 2009 and 2008:




11




Sales
      By Type2009
                      
                      
                      2008
                      
                      
                      Change
                      
                      
                      %
      of
                        ChangeProduct
      Sales:Soundwall Sales
                      
                      $
                      3,663,708
                      
                      
                      $
                      8,486,198
                      
                      
                      $
                      (4,822,490
                      )
                      
                      
                      -57
                      %Architectural Panel Sales
                      
                      
                      5,195,796
                      
                      
                      
                      2,849,823
                      
                      
                      
                      2,345,973
                      
                      
                      
                      82
                      %Miscellaneous Wall  Sales
                      
                      
                      921,022
                      
                      
                      
                      350,025
                      
                      
                      
                      570,997
                      
                      
                      
                      163
                      %Total
      Wall Sales
                      
                      
                      9,780,526
                      
                      
                      
                      11,686,046
                      
                      
                      
                      (1,905,520
                      )
                      
                      
                      -16
                      %Barrier
      Sales
                      
                      
                      4,748,973
                      
                      
                      
                      5,871,096
                      
                      
                      
                      (1,122,123
                      )
                      
                      
                      -19
                      %Easi-Set
      and Easi-Span Building Sales
                      
                      
                      3,842,672
                      
                      
                      
                      2,327,919
                      
                      
                      
                      1,514,753
                      
                      
                      
                      65
                      %Utility
      and Farm Product Sales
                      
                      
                      2,186,253
                      
                      
                      
                      3,024,361
                      
                      
                      
                      (838,108
                      )
                      
                      
                      -28
                      %Miscellaneous
      Product Sales
                      
                      
                      825,675
                      
                      
                      
                      886,429
                      
                      
                      
                      (60,754
                      )
                      
                      
                      -7
                      %Total
      Product Sales
                      
                      
                      21,384,099
                      
                      
                      
                      23,795,851
                      
                      
                      
                      (2,411,752
                      )
                      
                      
                      -10
                      %Royalties
      income
                      
                      
                      1,573,028
                      
                      
                      
                      1,479,689
                      
                      
                      
                      93,339
                      
                      
                      
                      6
                      %Barrier
      Rentals
                      
                      
                      1,632,957
                      
                      
                      
                      517,037
                      
                      
                      
                      1,115,920
                      
                      
                      
                      216
                      %Shipping
      and Installation
                      
                      
                      4,925,399
                      
                      
                      
                      4,063,202
                      
                      
                      
                      862,197
                      
                      
                      
                      21
                      %Total
      Service Revenue
                      
                      
                      8,131,384
                      
                      
                      
                      6,059,928
                      
                      
                      
                      2,071,456
                      
                      
                      
                      34
                      %Total
      Sales
                      
                      $
                      29,515,483
                      
                      
                      $
                      29,855,779
                      
                      
                      $
                      (340,296
                      )
                      
                      
                      -1
                      %





Wall
Sales – Wall sales are generally large contracts issued by general
contractors for production and delivery of a specific wall product for a
specific construction project.  Changes in the mix of wall sales depends on
what contracts were in production during the period.  In 2009, the Company
had several architectural panel contracts in production as compared to the same
period in 2008.  Soundwall sales decreased significantly in 2009 as several
large soundwall contracts started in 2008 were coming to an end in 2009, with
the bulk of production occurring in 2008.  There were no sales of
SlenderwallTM in 2009 or 2008 due primarily to the downturn in the commercial
construction industry.  The Company believes this trend will continue until
the commercial construction industry recovers from the current
recession,





Barrier
Sales – Barrier sales are dependent on the number of road projects active
during the period and whether customers are more prone to buy barrier than to
rent.  In 2009, barrier sales were down while barrier rentals increased, a
decision by customers based partly on the downturn in construction
activity.  In addition, the Company was awarded the contract to provide
rental barrier for the presidential inauguration held in January 2009.  It
is anticipated by the Company that barrier sales will continue to moderate in
2010.





Easi-Set®
and Easi-Span® Building Sales – While the construction industry showed
signs of weakness in 2009, the Company was able to increase its sales of
Easi-Span® buildings (our larger buildings).  While the actual number of
buildings sold decreased in 2009, the size of the buildings sold as well as the
sales dollars increased.  The increased sales of Easi-Span buildings were
mainly military and other government agencies.  Increasing Easi-Set® and
Easi-Span® building sales is a major marketing goal for the Company in
2010.





Utility
and Farm Sales – Utility and farm product sales decreased in 2009, due
primarily to a slowdown in construction of several large government projects and
in commercial construction overall.





Royalty
Income – Royalty revenue increased slightly during 2009 as a result of
increased sales of Easi-Span buildings (our larger sized buildings) by our
licensees.  The Company signed four new licensees during 2009.





Barrier
Rentals – Barrier rentals were up significantly in 2009 compared to 2008,
primarily due to the rental of barrier for the Presidential Inauguration in
January 2009.





Shipping
and Installation – Shipping and installation revenue also increased
during 2009 due primarily to the increase sales of architectural panels which
require installation as opposed to soundwall panels which normally do not
require installation by the Company.





12





Cost of
Goods Sold – Total cost of goods sold for the year ended December 31,
2009 was $20,877,321, a decrease of $2,300,275, or 10%, from $23,177,596 for the
year ended December 31, 2008.  Total cost of goods sold, as a percentage of
total revenue, decreased to 71% for the year ended December 31, 2009 from 78%
for the year ended December 31, 2008.  The decrease in cost of goods sold
as a percentage of total revenue was primarily attributable to the decreased
cost of raw materials, particularly steel, cement and fuel costs for delivery of
raw materials.  The Company also focused on improving production processes
in 2009, which helped lower production labor during the period.  In
addition, approximately $426,000 of the costs associated with the settlement of
the JPIC lawsuit was included in cost of goods sold for the year ended December
31, 2008.





General
and Administrative Expenses – For the year ended December 31, 2009, the
Company's general and administrative expenses decreased by $130,776, or 4%, to
$3,194,069 from $3,324,845 during the same period in 2008.  The decrease in
general and administrative expenses primarily resulted from a decrease in bad
debt expense of $138,000 and  legal fees of approximately $136,000 offset
by increased expenses in certain other administrative expenses for the same
period in 2008.  General and administrative expense as a percentage of
total revenue was 11% for the years ended December 31, 2009 and
2008.





Selling
Expenses-Selling expenses for the year ended December 31, 2009 decreased $73,340,
or 3%, to $2,319,426 from $2,392,766 for the year ended December 31, 2008. 
The decrease was primarily due to reduced advertising costs.





Operating
Income – The Company had operating income for the year ended December 31,
2009 of $3,124,667 compared to operating income of $960,572 for the year ended
December 31, 2008, an increase of $2,164,095.  The increase in operating
income was primarily the result of a decrease in cost of goods sold of
$2,300,275 or 10% from the same period ending December 31, 2008, as well as
decreased sales, general and administrative expenses.





Interest
Expense – Interest expense was $212,192 for the year ended December 31,
2009 compared to $343,107 for the year ended December 31, 2008.  The
decrease of $130,915, or 38%, was due primarily to the lower interest rates in
2009 as well as a decrease in notes payable outstanding.





Income
Tax Expense – The Company had an income tax expense of $1,192,000 for the
year ended December 31, 2009 compared to $268,000 for the year ended December
31, 2008.





Net
Income – The Company had net income of $1,809,064 for the year ended
December 31, 2009, compared to net income of $420,993 for the same period in
2008.  Basic and diluted net income per share in 2009 were $.39 and $.38,
respectively, compared to basic and diluted net income per share of $.09 for the
year ended December 31, 2008.  There were 4,673,430 basic and 4,777,451
diluted weighted average shares outstanding in the 2009 and 4,670,882 basic and
4,738,001 diluted weighted average shares outstanding in the 2008.





Liquidity
and Capital Resources





The Company financed its capital
expenditures and operating requirements in 2009 primarily with proceeds provided
by operating activities.





The Company has a note payable to
Sonabank (the “Bank”), headquartered in Mclean, Virginia, with a balance of
$2,812,429 as of December 31, 2009.  The note payable was acquired by
Sonabank from Greater Atlantic Bank on December 4, 2009 in a transaction through
the Federal Deposit Insurance Corporation.  The note had an original term
of twenty-three years beginning on June 25, 1998 with an interest rate of .5%
above prime, secured by principally by all of the assets of the Company. 
The loan is guaranteed in part by the U.S. Department of Agriculture Rural
Business-Cooperative Service’s loan guarantee.  Under the terms of the
note, the Bank will permit chattel mortgages on purchased equipment not to
exceed $250,000 for any one individual loan so long as the Company is not in
default.  Also, the Company is limited to $700,000 for annual capital
expenditures.  At December 31, 2009, the Company was in compliance with all
covenants required pursuant to the loan agreement as amended.





The Company also has a $1,500,000 line
of credit with Summit Community Bank of which there was no outstanding balance
at December 31, 2009.  The line matures May 28, 2010, and bears interest at
the prime rate, as published by the Wall Street Journal, and is collateralized
by a second priority lien on all accounts receivable, inventory, and certain
other assets of the Company.  The Company expects to renew this line of
credit prior to maturity.





13


At December 31, 2009, the Company had
cash totaling $2,929,868 compared to cash totaling $1,363,284 at December 31,
2008.  During 2009, the Company’s operating activities provided $3,171,191
due mainly to the profit from operations as well as changes in current asset and
current liability accounts during 2009.  In 2009, investing activities
absorbed $591,162 primarily for the purchase of equipment.  In 2009,
financing activities absorbed $1,013,445 in cash, which resulted mainly from
payment on the Company’s line of credit in the amount of $500,000 and the
payment of other notes payable during the year.


Capital spending, including financed
additions, increased from $654,740 in 2008 to $683,571 in 2009, for vehicles,
other equipment and rental barriers, plus various improvements in the plant and
the existing infrastructure.  In 2010, the Company intends to continue to
make capital improvements including upgrades to its shipping equipment and batch
plants as necessary.





As a result of the Company's variable
rate debt, the Company is especially sensitive to changes in the prevailing
interest rates.  Increases in such interest rates may materially and
adversely affect the Company's ability to finance its operations either by
increasing the Company's cost to service its current debt, or by creating a more
burdensome refinancing environment.  Each 1% increase in interest rates
affecting the Company’s outstanding debt will reduce income by approximately
$30,000 annually.





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 could result in liquidity problems for the Company because it must bear
the cost of production for its products before it receives payment. 
However, with a vigorous collection effort, the Company has been able to lower
the days sales outstanding from 76 days in 2008 to 70 days in 2009. 
Although no assurance can be given, the Company believes that anticipated cash
flow from operations with adequate project management on jobs will be sufficient
to finance the Company’s operations and necessary capital expenditures for at
least the next 12 months.





The Company’s inventory at December 31,
2009 was $2,603,370 and at December 31, 2008 was $2,424,224 or an increase of
$179,146.  The annual inventory turns for December 31, 2009 and 2008 were
6.7 and 7.7, respectively.





Significant
Accounting Policies and Estimates





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





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





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





14
 
  Seasonality
 
 The Company services the construction
industry primarily in areas of the United States where construction activity may
be inhibited by adverse weather during the winter.  As a result, the
Company may experience reduced revenues from December through February and
realize the substantial part of its revenues during the other months of the
year.  The Company may experience lower profits, or losses, during the
winter months, and as such, must have sufficient working capital to fund its
operations at a reduced level until the spring construction
season.  The failure to generate or obtain sufficient working capital
during the winter may have a material adverse effect on the
Company.
 
 Inflation
 
 Management believes that the Company's
operations were significantly affected by inflation through the first half of
2008, particularly in the purchases of certain raw materials such as steel and
fuel, which affected the cost of raw materials due to the weight of the
Company’s raw materials used in the production of its precast
products.  As the economy began to slow down, especially in the
construction industry, in the second half of 2008, raw material prices began to
moderate.  The moderation of raw materials continued through 2009 with
little or no inflation for the year.  The Company believes that raw
material pricing will remain constant at least during the first half of 2010,
although no assurance can be given regarding future pricing.
 
 Other
Comments
 
 As of March 2, 2010 the Company's sales
backlog of inventoried products and unbilled construction contracts was
approximately $14,300,000 as compared to approximately $9,000,000 (plus a letter
of intent for approximately $8.6 million) at approximately the same time in
2009.  The majority of the projects relating to the sales backlog as
of March 2, 2010 are scheduled to be shipped during 2010.  It is
anticipated that the contracts that are reflected in the March 2, 2010 backlog
will not be as profitable as those in the year ago backlog, as the more recent
contracts were negotiated in a more recessionary environment.
 
 The Company also maintains a regularly
occurring repeat customer business, which should be considered in addition to
the orders in the sales backlog described above.  These orders
typically have a quick turn around and represent purchases of the Company’s
inventoried standard products, such as highway safety barrier, utility and
Easi-Set building products.  Historically, this regularly occurring
segment of our customer base is equal to approximately $5,000,000 to $7,000,000
annually.
 
 The risk exists that recessionary
economic conditions may adversely affect the Company more than it has
experienced to date.  To mitigate these economic and other risks, the
Company has a broader product offering than most competitors and has
historically been a leader in innovation and new product development in the
industry.  The Company is continuing this strategy through the
development, marketing and sales efforts for two still emerging products for the
industry:
 
 The Company is continuing its
marketing, advertising and promotional efforts for both Beach PrismsTM , a
shoreline erosion control product that uses the preferred natural "soft"
approach as opposed to the "hard" approach of seawalls and jetties, to solve
this worldwide problem and H2OutTM,  the world’s first “in the caulk
joint” secondary drainage and street level leak detection product for panelized
exterior cladding.  At this time, the Company is still in the process
of securing the approval and support of the appropriate environmental agencies
in neighboring states for its Beach PrismsTM.  Although the Company is
optimistic about the success of Beach Prisms TM and H2OutTM, there can be no
assurance of the commercial acceptance of these products.
 
 Recent
Accounting Pronouncements
 
 In June 2009, the FASB issued FASB ASC
105, Generally Accepted
Accounting Principles,which establishes the FASB Accounting Standards
Codification (“ASC”) as the sole source of authoritative generally accepted
accounting principles.  Rules and interpretive releases of the SEC
under authority of federal securities laws are also sources of authoritative
GAAP for SEC registrants. Pursuant to the provisions of FASB ASC 105, the
Company has updated references to GAAP in its consolidated financial
statements.  The Company adopted the requirements of ASC 105 in the
third quarter of 2009. This adoption did not have a material impact on the
Company’s consolidated financial position or results of operations, as it does
not alter existing GAAP.




15




In May 2009, the FASB issued guidance
now codified as FASB ASC Topic 855-10 “Subsequent Events” (“ASC 855-10”), which
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before the financial statements are
issued or are available to be issued.  The Statement sets forth the period
after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognitions
or disclosure in the financial statements the circumstances under which an
entity should recognize events or transactions that occurred after the balance
sheet date in its financial statements and the disclosures that an entity should
make about events or transactions that occurred after the balance sheet
date.  ASC 855-10 became effective for the Company for the period ended
June 30, 2009 and is to be applied prospectively.  The impact of adoption
was not significant.





In December 2007, the FASB issued
guidance now codified as FASB ASC Topic 810, “Noncontrolling Interests in
Consolidated Financial Statements – an Amendment of ARB 51” (“ASC 810”), to
establish accounting and reporting standards for the noncontrolling interest in
a subsidiary and for the deconsolidation of a subsidiary.  Topic 810
requires the company to clearly identify and present ownership interests in
subsidiaries held by parties other than the company in the consolidated
financial statements within the equity section but separate from the company’s
equity.  It also requires the amount of consolidated net income
attributable to the parent and to the noncontrolling interest be clearly
identified and presented on the face of the consolidated statement of income;
changes in ownership interest be accounted for similarly, as equity
transactions; and when a subsidiary is deconsolidated, any retained
noncontrolling equity investment in the former subsidiary and the gain or loss
on the deconsolidation of the subsidiary be measured at fair value.  ASC
810 applies to fiscal years beginning after December 15, 2008.  Earlier
adoption is prohibited.  ASC 810 became effective for the Company for the
year ended December 31, 2009.  The impact of adoption was not
significant.





In March, 2008, the FASB issued now
codified as FASB ASC Topic 815, Disclosures about Derivative
Instruments and Hedging Activities - an Amendment of FASB Statement 133, (“ASC
815”).  ASC 815 enhances required disclosures regarding derivatives
and hedging activities, including enhanced disclosures regarding how: (a) an entity uses derivative
instruments; (b)
derivative instruments and related hedged items are accounted for under FASB
Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities; and (c) derivative instruments and
related hedged items affect an entity's financial position, financial
performance, and cash flows. Specifically, ASC 815 requires:





·
            Disclosure
      of the objectives for using derivative instruments be disclosed in terms
      of underlying risk and accounting
designation;


·
            Disclosure
      of the fair values of derivative instruments and their gains and losses in
      a tabular format;


·
            Disclosure
      of information about credit-risk-related contingent features;
      and


·
            Cross-reference
      from the derivative footnote to other footnotes in which
      derivative-related information is
disclosed.





In June
2008, the FASB ratified guidance on determining whether an instrument (or an
embedded feature) is indexed to an entity’s own stock, located in ASC 815-40,
Derivative and Hedging – Contract in Entity’s Own Stock (“ASC 815-40”). 
ASC 815-40 requires that an entity should use a two-stem approach to evaluate
whether an equity-linked financial instrument (or embedded feature) is indexed
to its own stock, including evaluation the instrument’s contingent exercise and
settlement provisions.  It also clarifies the impact of foreign currency
denominated strike prices and market-based employee stock option valuation
instruments on the evaluation.  ASC 815-40 is effective for fiscal years
beginning after December 15, 2008.  This pronouncement was adopted with no
material effect on the Company’s statements of financial condition or results of
operations.




Item
      7A
            Quantitative
      and Qualitative Disclosures about Market
Risk





Not
applicable.




16





Item
      8.
            Financial
      Statements and Supplementary Data





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





PageReport
      of Independent Registered Public Accountants
                  F-3Consolidated
      Balance Sheets as of December 31, 2009 and 2008
                  F-4-5Consolidated
      Statements of Operations for the years ended December 31, 2009 and
      2008
                  F-6Consolidated
      Statements of Changes in Stockholders' Equity for the years
      endedDecember
      31, 2009 and 2008
                  F-7Consolidated
      Statements of Cash Flows for the years ended December 31, 2009 and
      2008
                  F-8-9Summary
      of Significant Accounting Policies
                  F-10-13Notes
      to Consolidated Financial Statements
                  F-14-21





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





None.




Item
      9A(T).
            Controls
      and Procedures.





Management’s
Report on Internal Control over Financial Reporting





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





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





Our management assessed the
effectiveness of our internal control over financial reporting based on the
framework in “Internal Control – Integrated Framework” issued by the Committee
of Sponsoring Organizations of the Treadway Commission (“COSO”) as of December
31, 2009, and concluded that its controls were effective as of such
date.




17





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





Disclosure
controls and procedures





We
carried out our evaluation, under the supervision and with the participation of
our management, including our chief executive officer and our chief financial
officer, of the effectiveness of our disclosure controls and procedures as of
the end of the period covered by this report, pursuant to Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended.  Based on
our evaluation, our principal executive officer and chief financial officer
concluded that our disclosure controls and procedures as of the end of the
period covered by this report were effective.





Changes in Internal Control over
Financial Reporting





There has been no changes in the
Company’s internal control over financial reporting during the quarter ended
December 31, 2009 that has materially affected, or is reasonably likely to
materially affect, its internal control over financial reporting.




Item
      9B.
            Other
      Information.





None.




18


PART
III




Item
      10.
            Directors,
      Executive Officers and Corporate
Governance





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





Name
                  
                  Age
                  
                  Director
      or
                    Executive
                    Officer
      Since
                  
                  PositionRodney
      I. Smith
                  
                  71
                  
                  1970
                  
                  Chief
      Executive Officer, President andChairman
      of the Board of DirectorsAshley
      B. Smith
                  
                  47
                  
                  1994
                  
                  Vice
      PresidentDirectorWesley
      A. Taylor
                  
                  62
                  
                  1994
                  
                  Vice
      President of Administration,Secretary
      and DirectorAndrew
      G. Kavounis
                  
                  84
                  
                  1995
                  
                  DirectorWilliam
      A. Kenter
                  
                  63
                  
                  2008
                  
                  Chief
      Financial OfficerSteve
      Ott
                  
                  43
                  
                  2005
                  
                  Vice
      President of Engineering
                    Smith-Midland
      - Virginia





Background





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





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





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





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





19





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





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





Steve Ott.  Vice President of Engineering, Smith
Midland Corp.(Virginia).  Mr. Ott joined the Company in October
2005. Prior to joining the Company, Mr. Ott served as Engineering Manager for
the Shockey Precast Group in Fredericksburg, Virginia from June 2001 to October
2005. Mr. Ott worked at Shockey Precast Group’s Winchester plant from 1998 to
2001. From 1991 through 1997 Mr. Ott worked in Belgium for a consulting
structural engineering firm and for a precast concrete manufacturer. From 1988
to 1991 Mr. Ott worked at Brandow and Johnston Structural Engineers in Los
Angeles California. Mr. Ott holds a Bachelor of Science degree in Structural
Engineering from the University of California at San Diego and a Masters of
Business Administration from the University of Mary Washington





Section
      16(a)
            Beneficial
      Ownership Reporting Compliance





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





Based
solely on a review of the copies of such forms furnished to the Company, the
Company believes that all Section 16(a) filing requirements applicable to its
executive officers, Directors and greater than ten percent (10%) beneficial
owners were satisfied during 2009, except as follows:  Ashley B. Smith
filed late one Form 4 reporting three transactions.





Code
of Ethics





The Company adopted a code of ethics
that applies to the Chief Executive Officer, Chief Financial Officer, Controller
and persons performing similar functions.  The Board of Directors approved
the code of ethics at their meeting on December 17, 2003.  A copy of the
code of ethics was filed as an exhibit to the Company’s Form 10-KSB for the year
ended December 31, 2003, and a copy may be obtained by requesting one in writing
from Secretary, Smith-Midland Corporation, P.O. Box 300, 5119 Catlett Road,
Midland, VA 22728.





Audit
Committee





The Company does not have an Audit
Committee of the Board of Directors; the entire Board of Directors serves the
functions of the Audit Committee.  No member of the Board of Directors
qualifies as an “audit committee financial expert”.  As a small company,
the Company has not had the resources to recruit a person that so
qualifies.




Item 11.
            Executive
      Compensation.





The
following table sets forth the compensation paid by the Company for services
rendered for 2009 and 2008 to the principal executive officer and the Company’s
two most highly compensated executive officers (the “named executive officers”)
whose cash compensation exceeded $100,000 during 2009:




20




Summary
Compensation Table





Name and Principal
                                      Position
                                    
                                    Year
                                    
                                    Salary
                                      ($)(1)
                                    
                                    
                                    Bonus
                                      ($)(2)
                                    
                                    
                                    Stock
                                      Awards
                                      ($)
                                    
                                    
                                    Option
                                      Awards
                                      ($)
                                    
                                    
                                    Non-Equity
                                      Incentive
                                      Compen-
                                      sation ($)
                                    
                                    
                                    Non-qualified
                                      Deferred
                                      Compen-sation
                                      Earning ($)
                                    
                                    
                                    All Other
                                      Compen-
                                      sation
                                      ($)(3)(4)
                                    
                                    
                                    Total
                                      ($)Rodney
      I. Smith
                                    
                                    2009
                                    
                                    
                                    99,971
                                    
                                    
                                    
                                    90,292
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    131,222
                                    
                                    
                                    
                                    321,485President,
      Chief
                                    
                                    2008
                                    
                                    
                                    120,154
                                    
                                    
                                    
                                    8,420
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    32,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    102,137
                                    
                                    
                                    
                                    262,711Executive
      Officerand
      Chairman of theBoard.Ashley
      B. Smith
                                    
                                    2009
                                    
                                    
                                    125,185
                                    
                                    
                                    
                                    167,296
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,567
                                    
                                    
                                    
                                    294,048Vice
      President
                                    
                                    2008
                                    
                                    
                                    125,955
                                    
                                    
                                    
                                    4,723
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    11,840
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,261
                                    
                                    
                                    
                                    143,779William
      A. Kenter
                                    
                                    2009
                                    
                                    
                                    105,000
                                    
                                    
                                    
                                    20,498
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    125,498Chief
      Financial Officer
                                    
                                    2008
                                    
                                    
                                    38,723
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    38,723




(1) 
Represents salaries and commissions paid, (unless accrued in prior year) or
accrued in 2009 and 2008 for services provided by each named executive officer
serving in the capacity listed.




(2) 
Represents amounts paid, (unless accrued in prior year) and accrued in 2009 for
annual performance-based bonuses related to operations in 2009.




(3) 
Mr. Rodney Smith was paid $99,000 in 2009 and 2008, which is included in the
column titled “All Other Compensation”, for royalty payments due under his
employment contract with the Company, which is more fully described in the
following section titled “Employment Contracts and Termination of Employment and
Change in Control Arrangements”.  In addition, Mr. Rodney Smith exercised
options for 20,000 shares of the Company’s common stock resulting in income to
Mr. Smith in the amount of $23,500.  Mr. Rodney Smith received director’s
compensation in the amount of $1,500 and $2,000 for the years 2009 and 2008,
respectively.




(4) 
Mr. Ashley Smith received director’s compensation in the amount of $1,500 and
$1,000 for the years 2009 and 2008, respectively.




21




Outstanding
Equity Awards At Fiscal Year-End





The following table sets forth
information for the named executive officers regarding any common share purchase
options, stock awards or equity incentive plan awards that were outstanding as
of December 31, 2009.




Name
                                            
                                            Number
      of
                                              Securities
                                              Underlying
                                              Unexercised
                                              Options
      (#)
                                              Exercisable
                                            
                                            
                                            Number
      of
                                              Securities
                                              Underlying
                                              Unexercised
                                              Options
      (#)
                                              Unexercisable
                                            
                                            
                                            Option
                                              Exercise
      Price
                                              ($/Sh)
                                            
                                            Option
                                              Expiration DateRodney
      I. Smith
                                            
                                            
                                            20,000
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            0.80
                                            
                                            04/22/201180,000
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            0.81
                                            
                                            05/03/201120,000
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1.39
                                            
                                            12/25/201120,000
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            0.83
                                            
                                            12/16/201320,000
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            2.52
                                            
                                            09/29/201520,000
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            2.25
                                            
                                            05/21/201613,334
                                            
                                            
                                            
                                            6,666
                                            
                                            
                                            
                                            2.15
                                            
                                            05/21/201713,334
                                            
                                            
                                            
                                            26,666
                                            
                                            
                                            
                                            1.21
                                            
                                            06/29/2018206,668
                                            
                                            
                                            
                                            33,332TOTALAshley
      B. Smith
                                            
                                            
                                            10,000
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            0.80
                                            
                                            04/22/201110,000
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1.39
                                            
                                            12/25/201110,000
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            0.83
                                            
                                            12/16/201310,000
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            2.52
                                            
                                            09/29/20157,000
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            2.25
                                            
                                            05/21/20164,666
                                            
                                            
                                            
                                            2,334
                                            
                                            
                                            
                                            2.15
                                            
                                            05/21/20174,933
                                            
                                            
                                            
                                            9,867
                                            
                                            
                                            
                                            1.21
                                            
                                            06/29/2018TOTAL
                                            
                                            
                                            56,599
                                            
                                            
                                            
                                            12,201Wesley
      A. Taylor
                                            
                                            
                                            6,667
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            0.83
                                            
                                            12/16/201310,000
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            2.52
                                            
                                            09/29/20157,000
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            2.25
                                            
                                            05/21/20164,666
                                            
                                            
                                            
                                            2,334
                                            
                                            
                                            
                                            2.15
                                            
                                            05/21/20172,333
                                            
                                            
                                            
                                            4,667
                                            
                                            
                                            
                                            1.21
                                            
                                            06/29/2018TOTAL
                                            
                                            
                                            30,666
                                            
                                            
                                            
                                            7,001TOTAL
                                            
                                            
                                            293,933
                                            
                                            
                                            
                                            52,534





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




22


Compensation
of Directors





All
non-employee Directors receive $1,000 per meeting as compensation for their
services as Directors and are reimbursed for expenses incurred in connection
with the performance of their duties. All employee Directors receive $500 per
meeting as compensation for their services and are reimbursed for expenses
incurred in connection with the performance of their duties.





Director
Compensation Table





Name
                    
                    FeesEarned
                      or Paidin
                      Cash($)
                    
                    
                    Stock
                      Awards($)
                    
                    
                    Option
                      Awards($)
                    
                    
                    Non-Equity
                      Incentive
                      Plan
                      Compen-
                      sation
                    
                    
                    Non-
                      Qualified
                      Deferred
                      Compen-
                      sation
                      Earnings
                    
                    
                    All Other
                      Compen-
                      sation
                    
                    
                    Total ($)Rodney
      I. Smith
                    
                    
                    1,500
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,500Andrew
      G. Kavounis (1)
                    
                    
                    3,000
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    3,000Ashley
      B. Smith
                    
                    
                    1,500
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,500Wesley
      A. Taylor
                    
                    
                    1,500
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,500





(1)
            4,000
      options were outstanding as of December 31, 2009, of which all were
      exercisable as of December 31,
2009.




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





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





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




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





23




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





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





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




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





The
following table sets forth, as of March 1, 2010, certain information concerning
ownership of the Company’s Common Stock by (i) each person known by the Company
to own of record or be the beneficial owner of more than five percent (5%) of
the Company’s Common Stock, (ii) named executive officers and Directors, and
(iii) all Directors and Executive Officers as a group.  Except as otherwise
indicated, the stockholders listed in the table have sole voting and investment
powers with respect to the shares indicated.





Name and Adress of Beneficial Owner (1)
                    
                    Number ofShares
                      Beneficially
                      Owned (2)
                    
                    
                    Percentage
                      of ClassRodney
      I. Smith (1)(3)(4)(5)
                    
                    
                    760,066
                    
                    
                    
                    15.5
                    %Ashley
      B. Smith (1)(3)(4)(6)
                    
                    
                    161,216
                    
                    
                    
                    3.4
                    %Wesley
      A. Taylor (1)(7)
                    
                    
                    55,749
                    
                    
                    
                    1.2
                    %Andrew
      G. Kavounis (1)(8)
                    
                    
                    4,000
                    
                    
                    
                    *Al
      Frank Asset Management, Inc. (10)
                    
                    
                    290,860
                    
                    
                    
                    6.2
                    %All
      directors and executive officersas
      a group (4 persons)(2)(9)
                    
                    
                    981,031
                    
                    
                    
                    19.6
                    %




* Less
than 1%





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




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




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




(4)
            Does not include options to
      purchase 16,000 shares held by Matthew Smith and Roderick Smith and an
      aggregate of 86,489 shares of Common Stock held by Matthew Smith and
      Roderick Smith.  Matthew Smith and Roderick Smith are sons of Rodney
      I. Smith, and brothers of Ashley B. Smith.  Also, does not include
      shares held by Merry Robin Bachetti, sister of Rodney I. Smith and aunt of
      Ashley B. Smith, for which each of Rodney I. Smith and Ashley B. Smith
      disclaims beneficial
ownership.




24




(5)
            Includes 50,000 shares of Common
      Stock held by Hazel Bowling, former wife of Rodney I. Smith, and mother of
      Mr. Smith’s children. Mr. Smith disclaims beneficial ownership of the
      shares held by Hazel Bowling.  Includes options to purchase 206,667
      shares.




(6)
            Includes options to purchase
      56,599 shares.




(7)
            Includes
      options to purchase 30,666 shares.




(8)
            Includes options to purchase
      4,000 shares.




(9)
            Includes
      options to purchase 297,932 shares for all directors, executive officers
      as a group.




(10)
            Address
      of holder is 32392 Coast Highway, Suite 260, Laguna Beach, CA
      92651.




EQUITY
COMPENSATION PLAN INFORMATION




Plan Category
                  
                  Number of
                    securities to be
                    issued upon
                    exercise of
                    outstanding
                    options,warrants
                    andrights
                  
                  
                  Weighted
                    averageexercise
                    priceof
                    outstanding
                    options,
                    warrants and
                    rights
                  
                  
                  Number of
                    securities
                    remaining
                    available for
                    future issuance
                    under equity
                    compensation
                    plansEquity
      compensation plans approved by security holders
                  
                  
                  594,990
                  
                  
                  
                  1.62
                  
                  
                  
                  500,000Equity
      compensation plans not approved by security holders
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
                  
                  
                  594,990
                  
                  
                  
                  1.62
                  
                  
                  
                  500,000




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





The sole independent director of the
Company is Andrew G. Kavounis.  The test utilized for the determination of
independence is that of the New York Stock Exchange.





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




Item
      14.
            Principal
      Accountant Fees and Services





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





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





Audit-Related
Fees. There were no audit related fees paid in either of the two most recent
fiscal years.





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





All Other
Fees. There were no other fees paid to BDO Seidman, LLP for the two most recent
fiscal years.





25




The
Company does not have an Audit Committee.  The Board of Directors has the
responsibility normally assigned to the Audit Committee. The Board of Directors
has not adopted any blanket pre-approval policies and procedures.  Instead,
the Board pre-approves the provision by BDO Seidman, LLP of all audit or
non-audit services.




2009
                      
                      
                      2008Audit
      Fees
                      
                      $
                      146,874
                      
                      
                      $
                      171,489Tax
      Fees
                      
                      
                      30,985
                      
                      
                      
                      23,696Total
      Fees
                      
                      $
                      177,859
                      
                      
                      $
                      195,185




26


PART
IV





Item
      15.
            Exhibits
      and Financial Statement Schedules





(1) 
         The financial statements of the Company are
included in Part II, Item 8, page 17 of this Form 10-K:





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





(3)
            The
      following exhibits are filed
herewith:





ExhibitNumber
                  
                  Description3.1
                  
                  Certificate
      of Incorporation, as amended (Incorporated by reference to the Company’s
      Registration Statement on Form SB-2 (No. 33-89312) declared effective by
      the Commission on December 13, 1995).3.2
                  
                  Bylaws
      of the Company adopted on January 21, 2003 (Incorporated by reference to
      the Company’s Registration Statement on Form 8-A (No. 000-25964) filed
      with the Commission on January 24, 2003).4.1
                  
                  Specimen
      Common Stock Certificate (Incorporated by reference to the Company’s
      Registration Statement on Form SB-2 (No. 33-89312) declared effective by
      the Commission on December 13, 1995).4.2
                  
                  Rights
      Agreement, dated as of January 21, 2003, between the Company and
      Computershare Trust Company, Inc., as rights agent, including the Form of
      Certificate of Designations, the Form of Rights Certificate and the
      Summary of Rights to Purchase Preferred Shares attached thereto as
      Exhibits A, B, and C, respectively (Incorporated by reference to the
      Company’s Registration Statement on Form 8-A (No. 000-25964) filed with
      the Commission on January 24, 2003).10.1
                  
                  Lease
      Agreement, dated January 1, 1995, between the Company and Rodney I. Smith
      (Incorporated by reference to the Company’s Registration Statement on Form
      SB-2 (No. 33-89312) declared effective by the Commission on December 13,
      1995).10.2
                  
                  Collateral
      Assignment of Letters Patent, dated between the Company and Rodney I.
      Smith (Incorporated by reference to the Company’s Registration Form SB-2
      (No. 33-89312) declared effective by the Commission on December 13,
      1995).10.3
                  
                  First
      National Bank of New England Loan Agreement, assumed by Sonabank, dated
      June 25, 1998 (Incorporated by reference to the Company’s Quarterly Report
      on Form 10-QSB for the quarter ended June 30, 1998).10.4
                  
                  First
      National Bank of New England Loan Note, assumed by Sonabank, dated June
      25, 1998 (Incorporated by reference to the Company’s Quarterly Report on
      Form 10-QSB for the quarter ended June 30, 1998).10.5
                  
                  Employment
      Agreement, dated September 30, 2002, between the Company and Rodney I.
      Smith.  (Incorporated by reference to the Company’s Annual Report on
      Form 10-KSB for the year ended December 31, 2003).10.6
                  
                  Amendment
      No. 1 to Employment Agreement, dated as of December 31, 2008, between the
      Company and Rodney I. Smith (Incorporated by reference to the Company’s
      Annual Report on Form10-K for the year ended December 31,
      2008).10.7
                  
                  2004
      Stock Option Plan (Incorporated by reference to the Company’s Annual
      Report on Form 10-KSB for the year ended December 31,
    2004).10.8
                  
                  2008
      Stock Option Plan (Incorporated by reference to the Company’s Registration
      Statement on Form S-8 (No. 333-155920) filed on December 4,
      2008).




27


10.9
              
              Promissory
      Note, dated May 29, 2009, in the amount of $1,500,000 issued by the
      Company to Summit Community Bank (Incorporated by reference to the
      Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on June 4, 2009).10.10
              
              Loan
      Commitment Letter, dated April 8, 2009, in the amount of $1,500,000 issued
      by Summit Community Bank to the Company (Incorporated by reference to the
      Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on June 4, 2009).10.11
              
              Loan
      Commitment Letter, dated April 8, 2009, in the amount of $700,000 issued
      by Summit Community Bank to the Company (Incorporated by reference to the
      Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on June 4, 2009).14.1
              
              Code
      of Professional Conduct (Incorporated by reference to the Company’s Annual
      Report on Form 10-KSB for the year ended December 31,
    2003).21.1
              
              List
      of Subsidiaries of the Company (Incorporated by reference to the Company’s
      Annual Report on Form 10-KSB for the year ended December 31,
      1995).23.1
              
              Consent
      of BDO Seidman, LLP.31.1
              
              Certification
      of Chief Executive Officer.31.2
              
              Certification
      of Principal Financial Officer.32.1
              
              Certification
      pursuant 18 U.S.C. Section 1350 as adapted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.




SIGNATURES





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




SMITH-MIDLAND
      CORPORATIONDate:  March
      29, 2010
              By: /s/ Rodney I. SmithRodney
      I. Smith, President(principal
      executive officer)Date:  March
      29, 2010
              By: /s/ William A.
KenterWilliam
      A. Kenter(principal
      financial and accounting
officer)




28


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





Name
                  
                  Capacity
                  
                  Date/s/ Rodney I. Smith
                  
                  Director
                  
                  March
      29, 2010Rodney
      I. Smith/s/ Wesley A. Taylor
                  
                  Director
                  
                  March
      29, 2010Wesley
      A. Taylor/s/ Ashley B. Smith
                  
                  Director
                  
                  March
      29, 2010Ashley
      B. Smith/s/ Andrew G. Kavounis
                  
                  Director
                  
                  March
      29, 2010Andrew
      G. Kavounis




29





Smith-Midland
Corporation


and
Subsidiaries





Consolidated
Financial Statements


Years
Ended December 31, 2009 and 2008







Smith-Midland
Corporation


and
Subsidiaries





Contents








Report
      of Independent Registered Public Accountants
              F-3Consolidated
      Financial StatementsBalance
      Sheets
              F-4-5Statements
      of Operations
              F-6Statements
      of Stockholders' Equity
              F-7Statements
      of Cash Flows
              F-8-9Summary
      of Significant Accounting Policies
              F-10-13Notes
      to Consolidated Financial Statements
              F-14-21




F-2




Report
of Independent Registered Public Accountants
 
  Board of
Directors and Stockholders
 Smith-Midland
Corporation
 Midland,
Virginia
  We have
audited the accompanying consolidated balance sheets of Smith-Midland
Corporation and subsidiaries as of December 31, 2009 and 2008 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
Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
  We
conducted our audits in accordance with auditing standards generally accepted in
the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Smith-Midland Corporation
and subsidiaries at December 31, 2009 and 2008, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of
America.
  BDO
Seidman, LLP
  Richmond,
Virginia
 March 29,
2010


F-3


Smith-Midland
Corporation


and
Subsidiaries





Consolidated
Balance Sheets





December 31,2009
                  
                  
                  2008ASSETS (Note 2)Current
      assetsCash
      and cash equivalents
                  
                  $
                  2,929,868
                  
                  
                  $
                  1,363,284Accounts
      receivableTrade
      - billed, (less allowance for doubtful accounts of $253,082 and
      $396,665)
                  
                  
                  4,134,729
                  
                  
                  
                  5,831,182Trade
      - unbilled
                  
                  
                  713,322
                  
                  
                  
                  660,165InventoriesRaw
      materials
                  
                  
                  648,023
                  
                  
                  
                  851,394Finished
      goods
                  
                  
                  1,955,347
                  
                  
                  
                  1,572,830Prepaid
      expenses and other assets
                  
                  
                  80,786
                  
                  
                  
                  155,772Prepaid
      income taxes (Note 4)
                  
                  
                  138,003
                  
                  
                  
                  258,150Deferred
      taxes (Note 4)
                  
                  
                  444,000
                  
                  
                  
                  471,000Total
      current assets
                  
                  
                  11,044,078
                  
                  
                  
                  11,163,777Property
      and equipment, net (Note 1)
                  
                  
                  4,183,124
                  
                  
                  
                  4,223,555Total
      other assets
                  
                  
                  127,552
                  
                  
                  
                  163,735Total
      assets
                  
                  $
                  15,354,754
                  
                  
                  $
                  15,551,067





See
accompanying summary of accounting policies


and notes
to consolidated financial statements.


F-4


Smith-Midland
Corporation


and
Subsidiaries





Consolidated
Balance Sheets


(continued)





December 31,2009
                    
                    
                    2008LIABILITIES AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable - trade
                    
                    $
                    1,205,228
                    
                    
                    $
                    2,142,478Accrued
      expenses and other liabilities
                    
                    
                    1,063,445
                    
                    
                    
                    1,074,889Current
      maturities of notes payable (Note 2)
                    
                    
                    481,078
                    
                    
                    
                    1,022,476Customer
      deposits
                    
                    
                    704,270
                    
                    
                    
                    858,437Total
      current liabilities
                    
                    
                    3,454,021
                    
                    
                    
                    5,098,280Notes
      payable - less current maturities (Note 2)
                    
                    
                    3,077,302
                    
                    
                    
                    3,569,321Deferred
      tax liability (Note 4)
                    
                    
                    337,000
                    
                    
                    
                    317,000Total
      liabilities
                    
                    
                    6,868,323
                    
                    
                    
                    8,984,601Commitments
      and contingencies (Note 7)Stockholders’
      equity (Note 6)Preferred
      stock, $.01 par value; authorized 1,000,000 shares, none
      outstanding
                    
                    
                    -
                    
                    
                    
                    -Common
      stock, $.01 par value; authorized 8,000,000 shares; 4,702,882 and
      4,670,882 issued and outstanding, respectively
                    
                    
                    47,029
                    
                    
                    
                    46,709Additional
      paid-in capital
                    
                    
                    4,812,401
                    
                    
                    
                    4,701,820Retained
      earnings
                    
                    
                    3,729,301
                    
                    
                    
                    1,920,2378,588,731
                    
                    
                    
                    6,668,766Treasury
      stock, at cost, 40,920 shares
                    
                    
                    (102,300
                    )
                    
                    
                    (102,300
                    )Total
      stockholders’ equity
                    
                    
                    8,486,431
                    
                    
                    
                    6,566,466Total
      liabilities and stockholders' equity
                    
                    $
                    15,354,754
                    
                    
                    $
                    15,551,067




See
accompanying summary of accounting policies


and notes
to consolidated financial statements.


F-5


Smith-Midland
Corporation


and
Subsidiaries





Consolidated
Statements of Operations





December 31,2009
                
                
                2008RevenueProducts
      sales and leasing
                
                $
                23,017,056
                
                
                $
                24,312,888Shipping
      and installation revenue
                
                
                4,925,399
                
                
                
                4,063,202Royalties
                
                
                1,573,028
                
                
                
                1,479,689Total
      revenue
                
                
                29,515,483
                
                
                
                29,855,779Cost
      of goods sold
                
                
                20,877,321
                
                
                
                23,177,596Gross
      profit
                
                
                8,638,162
                
                
                
                6,678,183Operating
      expensesGeneral
      and administrative expenses
                
                
                3,194,069
                
                
                
                3,324,845Selling
      expenses
                
                
                2,319,426
                
                
                
                2,392,766Total
      operating expenses
                
                
                5,513,495
                
                
                
                5,717,611Operating
      income
                
                
                3,124,667
                
                
                
                960,572Other
      income (expense)Interest
      expense
                
                
                (212,192
                )
                
                
                (343,107
                )Interest
      income
                
                
                25,892
                
                
                
                28,040Gain
      on sale of assets
                
                
                63,905
                
                
                
                44,581Other,
      net
                
                
                (1,208
                )
                
                
                (1,093
                )Total
      other (expense)
                
                
                (123,603
                )
                
                
                (271,579
                )Income
      before income tax expense
                
                
                3,001,064
                
                
                
                688,993Income
      tax expense (Note 4)
                
                
                1,192,000
                
                
                
                268,000Net
      income
                
                $
                1,809,064
                
                
                $
                420,993Basic
      earnings per share (Note 8)
                
                $
                0.39
                
                
                $
                0.09Diluted
      earnings per share (Note 8)
                
                $
                0.38
                
                
                $
                0.09





See
accompanying summary of accounting policies


and notes
to consolidated financial statements


F-6


Smith-Midland
Corporation


and
Subsidiaries





Consolidated
Statements of Stockholders' Equity





Common
                  Stock
                
                
                Additional
                  Paid-in
                  Capital
                
                
                Retained
                  Earnings
                
                
                Treasury
                  Stock
                
                
                TotalBalance, December 31,
      2007
                
                $
                46,709
                
                
                $
                4,558,947
                
                
                $
                1,499,244
                
                
                $
                (102,300
                )
                
                $
                6,002,600Stock
      option compensation
                
                
                -
                
                
                
                142,873
                
                
                
                -
                
                
                
                
                
                
                
                142,873Net
      income
                
                
                -
                
                
                
                -
                
                
                
                420,993
                
                
                
                
                
                
                
                420,993Balance, December 31,
      2008
                
                
                46,709
                
                
                
                4,701,820
                
                
                
                1,920,237
                
                
                
                (102,300
                )
                
                
                6,566,466Stock
      options exercised
                
                
                320
                
                
                
                19,651
                
                
                
                -
                
                
                
                
                
                
                
                19,971Stock
      option compensation
                
                
                -
                
                
                
                90,930
                
                
                
                -
                
                
                
                -
                
                
                
                90,930Net
      income
                
                
                -
                
                
                
                -
                
                
                
                1,809,064
                
                
                
                -
                
                
                
                1,809,064Balance, December 31,
      2009
                
                $
                47,029
                
                
                $
                4,812,401
                
                
                $
                3,729,301
                
                
                $
                (102,300
                )
                
                $
                8,486,431





See
accompanying summary of accounting policies


and notes
to consolidated financial statements.


F-7


Smith-Midland
Corporation


and
Subsidiaries





Consolidated
Statements of Cash Flows





December 31,2009
                
                
                2008Reconciliation
      of net  income to net cash provided by operating
      activitiesNet
      income
                
                $
                1,809,064
                
                
                $
                420,993Adjustments
      to reconcile net income to net cash provided by operating
      activitiesDepreciation
      and amortization
                
                
                695,497
                
                
                
                642,805Deferred
      taxes
                
                
                47,000
                
                
                
                38,000Stock
      option compensation expense
                
                
                90,930
                
                
                
                142,873Gain
      on sale of fixed assets
                
                
                (63,905
                )
                
                
                (44,581
                )(Increase)
      decrease inAccounts
      receivable - billed
                
                
                1,696,453
                
                
                
                69,502Accounts
      receivable - unbilled
                
                
                (53,157
                )
                
                
                (344,106
                )Inventories
                
                
                (179,146
                )
                
                
                199,382Prepaid
      expenses and other assets
                
                
                111,169
                
                
                
                60,839Prepaid
      income taxes
                
                
                120,147
                
                
                
                64,685Increase
      (decrease) inAccounts
      payable - trade
                
                
                (937,250
                )
                
                
                365,884Accrued
      expenses and other liabilities
                
                
                (11,444
                )
                
                
                487,490Accrued
      income taxes
                
                
                -
                
                
                
                (656,370
                )Customer
      deposits
                
                
                (154,167
                )
                
                
                214,928Net
      cash provided by operating activities
                
                $
                3,171,191
                
                
                $
                1,662,324




F-8


Smith-Midland
Corporation


and
Subsidiaries





Consolidated
Statements of Cash Flows


(continued)





December 31,2009
                
                
                2008Cash
      Flows From Investing ActivitiesPurchases
      of property and equipment
                
                $
                (683,571
                )
                
                $
                (654,740
                )Proceeds
      from sale of fixed assets
                
                
                92,409
                
                
                
                77,878Net
      cash absorbed by investing activities
                
                
                (591,162
                )
                
                
                (576,862
                )Cash
      Flows From Financing ActivitiesProceeds
      (repayments) of  Line of Credit, net
                
                
                (500,000
                )
                
                
                500,000Proceeds
      from long-term borrowings
                
                
                63,137
                
                
                
                171,022Repayments
      of long-term borrowings
                
                
                (596,553
                )
                
                
                (675,640
                )Proceeds
      from options exercised
                
                
                19,971
                
                
                
                -Net
      cash absorbed by financing activities
                
                
                (1,013,445
                )
                
                
                (4,618
                )Net
      increase in cash and cash equivalents
                
                
                1,566,584
                
                
                
                1,080,844Cash and cash
      equivalents, beginning of year
                
                
                1,363,284
                
                
                
                282,440Cash and cash
      equivalents, end of year
                
                $
                2,929,868
                
                
                $
                1,363,284Supplemental
      schedule of non-cash investing activitiesCash
      Payments for interest
                
                $
                212,192
                
                
                $
                343,107Cash
      Payments for income taxes
                
                $
                1,018,350
                
                
                $
                1,144,424





See
accompanying summary of accounting policies


and notes
to consolidated financial statements.


F-9


Smith-Midland
Corporation


and
Subsidiaries





Summary
of Significant Accounting Policies





Nature
of Business





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





Principles
of Consolidation





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





Cash
and Cash Equivalents





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





Inventories





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





Property
and Equipment





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





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





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





Income
Taxes





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


F-10





As of
December 31, 2009, the Company has not identified any unrecognized tax
positions. The Company files tax returns in the in the U.S. Federal and various
state jurisdictions. The Company is no longer subject to U.S. or state tax
examinations for the years prior to 2005. The Company does not believe there
will be any material changes in unrecognized tax positions over the next twelve
months.





Stock
Options





Stock
based compensation is measured based on the fair value of the award on the date
of grant and the corresponding expense is recognized over the period during
which an employee is required to provide services in exchange for the award. The
fair of each stock option is estimated using a Black-Scholes option pricing
model based on certain assumptions including expected term, risk-free interest
rate, stock price volatility and dividend yield. The assumption for expected
term is based on evaluations of historical and expected future employee exercise
behavior. The risk-free interest rate is based on the U.S. Treasury rates at the
date of grant with maturity dates approximately equal to the expected term at
the grant date. The historical volatility of the Company’s stock is used as the
basis for the volatility assumption. The Company has never paid cash dividends,
and does not currently intend to pay cash dividends, and thus assumed a 0%
dividend yield. See Note 6 of Notes to the Consolidated Financial Statements for
additional information related to stock based compensation. There were no option
grants in 2009, while the Company granted 127,825 for the year ended December
31, 2008. The fair value of each 2008 option on the date of grant was estimated
using the Black-Scholes option pricing model with the following assumptions: no
dividend yield, expected volatility of 72% and a risk-free interest rate of 3.34
and with an expected life of six years. The weighted average per share fair
value of options granted during the years ended December 31, 2008 was $.80.
Substantially all options become vested and exercisable ratably over a
three-year period.





Revenue
Recognition





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





Leasing
fees are paid at the beginning of the lease agreement and recorded to a deferred
revenue account. As the revenue is earned each month during the contract, the
amount earned is recorded as lease income and an equivalent amount is debited to
deferred revenue.





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





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





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





Smith-Midland
products are typically sold pursuant to an implicit warranty as to
merchantability only. Warranty claims are reviewed and resolved on a case by
case method. Although the Company does incur costs for these types of expense,
historically the amount of expense is immaterial.





Shipping
and Handling





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


F-11





Sales
and Use Taxes





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





Risks
and Uncertainties





The
Company sells products to highway contractors operating under government funded
highway programs and other customers and extends credit based on an evaluation
of the customer’s financial condition, generally without requiring collateral.
Exposure to losses on receivables is principally dependent on each customer’s
financial condition. The Company monitors its exposure to credit losses and
maintains allowances for anticipated losses. Management reviews accounts
receivable on a monthly basis to determine the probability of collection. Any
accounts receivable that are deemed to be uncollectible along with a general
reserve, which is calculated based upon the aging category of the receivable, is
included in the overall allowance for doubtful accounts. Management believes the
allowance for doubtful accounts at December 31, 2009 is adequate. However,
actual write-offs may exceed the recorded allowance. Due to inclement weather,
the Company may experience reduced revenues from December through February and
may realize the substantial part of its revenues during the other months of the
year.





Fair
Value of Financial Instruments





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





Estimates





The
preparation of financial statements in conformity with 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.





Advertising
Costs





The
Company expenses all advertising costs as incurred. Advertising expense was
approximately $336,000 and $333,000 in 2009 and 2008, respectively.





Earnings
Per Share





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





Long-Lived
Assets





The
Company reviews the carrying values of its long-lived and identifiable
intangible assets for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of assets may not be recoverable
based on undiscounted estimated future operating cash flows. When any such
impairment exists, the related assets will be written down to fair value. No
impairment losses have been recorded through December 31, 2009.





Recent
Accounting Pronouncements





In June
2009, the FASB issued FASB ASC 105, Generally Accepted Accounting Principles
("GAAP"), which establishes the FASB Accounting Standards Codification (“ASC”)
as the sole source of authoritative generally accepted accounting principles.
Rules and interpretive releases of the SEC under authority of federal securities
laws are also sources of authoritative GAAP for SEC registrants. Pursuant to the
provisions of FASB ASC 105, the Company has updated any references to GAAP in
the consolidated financial statements presented in this Form 10-K. The Company
adopted the requirements of ASC 105 in the third quarter of 2009. This adoption
did not have a material impact on the Company’s consolidated financial position
or results of operations, as it does not alter existing GAAP.


F-12





In May
2009, the FASB issued guidance now codified as FASB ASC Topic 855-10 “Subsequent
Events” (“ASC 855-10”), which establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date but before the
financial statements are issued or are available to be issued. The Statement
sets forth the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition, or disclosure in the financial statements the
circumstances under which an entity should recognize events or transactions that
occurred after the balance sheet date in its financial statements and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. ASC 855-10 became effective for the
Company for the period ended June 30, 2009 and is to be applied prospectively.
The impact of adoption was not significant.





In
December 2007, the FASB issued guidance now codified as FASB ASC Topic 810,
“Noncontrolling Interests in Consolidated Financial Statements – an Amendment of
ARB 51” (“ASC 810”), to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. Topic 810 requires the company to clearly identify and present
ownership interests in subsidiaries held by parties other than the company in
the consolidated financial statements within the equity section but separate
from the company’s equity. It also requires the amount of consolidated net
income attributable to the parent and to the noncontrolling interest be clearly
identified and presented on the face of the consolidated statement of income;
changes in ownership interest be accounted for similarly, as equity
transactions; and when a subsidiary is deconsolidated, any retained
noncontrolling equity investment in the former subsidiary and the gain or loss
on the deconsolidation of the subsidiary be measured at fair value. ASC 810
applies to fiscal years beginning after December 15, 2008. Earlier adoption is
prohibited. ASC 810 became effective for the Company for the year ended December
31, 2009. The impact of adoption was not significant.





In March,
2008, the FASB issued now codified as FASB ASC Topic 815, Disclosures about Derivative
Instruments and Hedging Activities - an Amendment of FASB Statement 133, (“ASC
815”). ASC 815 enhances required disclosures regarding derivatives and
hedging activities, including enhanced disclosures regarding how: (a) an entity uses derivative
instruments; (b)
derivative instruments and related hedged items are accounted for under FASB
Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities; and (c) derivative instruments and
related hedged items affect an entity's financial position, financial
performance, and cash flows. Specifically, ASC 815 requires:





·
            Disclosure
      of the objectives for using derivative instruments be disclosed in terms
      of underlying risk and accounting
designation;


·
            Disclosure
      of the fair values of derivative instruments and their gains and losses in
      a tabular format;


·
            Disclosure
      of information about credit-risk-related contingent features;
      and


·
            Cross-reference
      from the derivative footnote to other footnotes in which
      derivative-related information is
disclosed.





In June
2008, the FASB ratified guidance on determining whether an instrument (or an
embedded feature) is indexed to an entity’s own stock, located in ASC 815-40,
Derivative and Hedging – Contract in Entity’s Own Stock (“ASC 815-40”). ASC
815-40 requires that an entity should use a two-stem approach to evaluate
whether an equity-linked financial instrument (or embedded feature) is indexed
to its own stock, including evaluation the instrument’s contingent exercise and
settlement provisions. It also clarifies the impact of foreign currency
denominated strike prices and market-based employee stock option valuation
instruments on the evaluation. ASC 815-40 is effective for fiscal years
beginning after December 15, 2008. This pronouncement was adopted with no
material effect on the Company’s statements of financial condition or results of
operations.


F-13





Smith-Midland
Corporation


and
Subsidiaries





Notes
to Consolidated Financial Statements





1.
            Property and Equipment





Property
      and equipment consists of the following:December 31,2009
                
                
                2008Land
      and land improvements
                
                $
                514,601
                
                
                $
                514,601Buildings
                
                
                3,308,160
                
                
                
                2,826,380Machinery
      and equipment
                
                
                7,780,038
                
                
                
                7,694,488Rental
      equipment
                
                
                687,402
                
                
                
                764,71012,290,201
                
                
                
                11,800,179Less:
      accumulated depreciation
                
                
                8,107,077
                
                
                
                7,576,624$
                4,183,124
                
                
                $
                4,223,555





Depreciation
expense was approximately $695,000 and $643,000 for the years ended December 31,
2009 and 2008, respectively.


F-14


Smith-Midland
Corporation


and
Subsidiaries




Notes
to Consolidated Financial Statements


(continued)





2.
            Notes
      Payable





Notes
payable consist of the following:





December 31,2009
                
                
                2008Note
      payable to a Bank, maturing June 2021; with monthly payments of
      approximately $36,000 of principal and interest at prime plus .5% (3.75%
      at December 31, 2009); collateralized by principally all assets of the
      Company.
                
                $
                2,812,429
                
                
                $
                3,003,810Note
      payable to a Bank, originally maturing on October 15, 2010; with monthly
      payments of approximately $8,400 of principal and interest at 5-year
      treasury plus 3.25%; collateralized by a second priority lien on Company
      assets.  Paid off in 2009.
                
                
                -
                
                
                
                177,496A
      $1,500,000 line of credit with a Bank. The line bears interest at variable
      rate (4.75% at December 31, 2009); collateralized by a second priority
      lien on all accounts receivable, inventory, and certain other assets of
      the Company.
                
                
                -
                
                
                
                500,000Capital
      lease obligations, for machinery and equipment maturing through 2013, with
      interest at approximately 7% through 8.25%.
                
                
                342,033
                
                
                
                449,637Installment
      notes, collateralized by certain machinery and equipment maturing at
      various dates, primarily through 2014, with interest at 4.75% through
      10.16%.
                
                
                403,918
                
                
                
                460,8543,558,380
                
                
                
                4,591,797Less
      current maturities
                
                
                481,078
                
                
                
                1,022,476$
                3,077,302
                
                
                $
                3,569,321





The
Company’s note payable, with a balance of $2,812,429 at December 31, 2009, is
guaranteed in part by the U.S. Department of Agriculture Rural Business -
Cooperative Services (USDA).  The note payable is secured by all of
the assets of the Company.  The loan agreement includes certain
restrictive covenants, which require the Company to maintain minimum levels of
tangible net worth and places limits on annual capital
expenditures.  At December 31, 2009, the Company was in compliance
with all covenants pursuant to the loan agreement as amended.





In
addition to the scheduled notes payable, the Company has a $1,500,000 line of
credit which matures on May 28, 2010 and bears interest at the Wall Street
Journal U.S. prime rate with an interest rate floor of 4.75% (4.75% at December
31, 2009); the line is collateralized by a second priority lien on all accounts
receivable, inventory, and certain other assets of the Company.  There
was no outstanding balance at December 31, 2009.


F-15





Smith-Midland
Corporation


and
Subsidiaries





Notes
to Consolidated Financial Statements


(continued)





2.
            Notes Payable (continued)





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





Year
      Ending December 31,2010
                
                $
                481,0782011
                
                
                446,0332012
                
                
                407,5072013
                
                
                323,2072014
                
                
                335,174Thereafter
                
                
                1,565,381$
                3,558,380





The
aggregate amounts of capitalized lease payments in each of the next five years
are as follows:





Year
      ending December 31,2010
                
                $
                137,0222011
                
                
                137,0222012
                
                
                99,0822013
                
                
                3,336Total
      payments
                
                
                376,462Less
      amounts representing interest (at approximately 7%)
                
                
                34,429$
                342,033





Fixed
assets under capital leases at December 31, 2009 and 2008 were approximately
$443,000 and $507,000, net of accumulated depreciation of approximately $140,000
and $76,000, respectively.


F-16


Smith-Midland
Corporation


and
Subsidiaries




Notes
to Consolidated Financial Statements


(continued)





3.
            Related Party Transactions





The
Company currently leases some of its Midland, Virginia property from its
President and CEO, on a month-to-month basis, as additional storage space for
the Company's finished work product. The lease agreement calls for an annual
rent of $24,000.  See additional items discussed in Note
7.





4.
            Income
      Taxes





Income
tax expense is comprised of the following:





December 31,2009
                
                
                2008Federal:Current
                
                $
                1,017,000
                
                
                $
                168,000Deferred
                
                
                (41,000
                )
                
                
                31,000976,000
                
                
                
                199,000State:Current
                
                
                222,000
                
                
                
                62,000Deferred
                
                
                (6,000
                )
                
                
                7,000216,000
                
                
                
                69,000$
                1,192,000
                
                
                $
                268,000





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





December 31,2009
                  
                  
                  2008Income
      taxes at statutory rate
                  
                  $
                  1,020,000
                  
                  
                  
                  34.0
                  %
                  
                  $
                  234,000
                  
                  
                  
                  34.0
                  %Increase
      (decrease) in taxes resulting from:State
      income taxes, net of federal benefit
                  
                  
                  142,000
                  
                  
                  
                  4.8
                  %
                  
                  
                  34,000
                  
                  
                  
                  4.9
                  %Other
                  
                  
                  30,000
                  
                  
                  
                  0.9
                  %
                  
                  
                  -
                  
                  
                  
                  -$
                  1,192,000
                  
                  
                  
                  39.7
                  %
                  
                  $
                  268,000
                  
                  
                  
                  38.9
                  %





Prepaid
income taxes at December 31, 2009 relate to amounts due from federal and state
tax authorities for overpayment of 2009 estimated taxes.  Overpayments
at December 31, 2009 will be used to offset estimated taxes due in
2010.


F-17





Smith-Midland
Corporation


and
Subsidiaries





Notes
to Consolidated Financial Statements


(continued)





4.
            Income
      Taxes (continued)





Deferred
tax assets (liabilities) are as follows:





December 31,2009
                
                
                2008Net
      operating loss and AMT carrybacks
                
                $
                -
                
                
                $
                63,000Depreciation
                
                
                (337,000
                )
                
                
                (317,000
                )Provision
      for doubtful accounts
                
                
                99,000
                
                
                
                155,000Vacation
      accrued
                
                
                121,000
                
                
                
                77,000Deferred
      income
                
                
                151,000
                
                
                
                108,000Other
                
                
                73,000
                
                
                
                68,000Net
      deferred tax asset
                
                
                107,000
                
                
                
                154,000Current
      portion, net
                
                
                444,000
                
                
                
                471,000Long-term
      portion, net
                
                
                (337,000
                )
                
                
                (317,000
                )$
                107,000
                
                
                $
                154,000




5.
            Employee Benefit Plans





The
Company has a 401(k) retirement plan (the "Plan") covering substantially all
employees. Participants may contribute up to 10% of their compensation to the
Plan. The Company contributes 50% of the participant's contribution, up to 4% of
the participant's compensation, as a matching contribution. Total contributions
for the years ended December 31, 2009 and 2008 were approximately $60,000 and
$65,000, respectively.





6.
            Stock
      Options and Shareholder Rights Plan





On
September 9, 2004, the Board of Directors and Stockholders of the Company
adopted the 2004 Stock Option Plan (the "2004 Plan"), which allows the Company
to grant up to 500,000 options to employees, officers, directors and consultants
to purchase shares of the Company's Common Stock. Options granted under the plan
may be either Incentive Stock Options or Non-Qualified Stock Options. Incentive
Stock Options may be granted only to employees of the Company, while
Non-qualified options may be issued to non-employee directors, consultants, and
others, as well as to employees of the Company. The Company granted 127,825
stock options during the year ended December 31, 2008. On September 19, 2008,
the Board of Directors and Stockholders of the Company adopted the 2008 Stock
Option Plan (the "2008 Plan"), which allows the Company to grant up to 500,000
options to employees, officers, directors and consultants to purchase shares of
the Company's Common Stock. There were no grants of options during the year
ended December 31, 2009.





Options
generally vest over a three year period. The Company recorded stock option
expense of $90,930 and $142,873 included in general and administrative expense
for the years ended December 31, 2009 and 2008 respectively. The Company
estimates approximately $49,000 of remaining expense to be recognized over the
next two years for options outstanding at December 31, 2009.





There
were 32,000 options exercised in the year ending December 31, 2009 with an
intrinsic value of approximately $36,000 at the time of exercise. The intrinsic
value of outstanding and exercisable options at December 31, 2009 is
approximately $287,000 and $234,000, respectively.


F-18





Smith-Midland
Corporation


and
Subsidiaries





Notes
to Consolidated Financial Statements


(continued)





The
following tables summarize activity under the stock option plans of the Company
and the stock options outstanding at December 31, 2009:





Weighted
                    Average
                    Exercise
                    Price
                  
                  
                  Options
                    Outstanding
                  
                  
                  Vested and
                    ExercisableBalance,
      December 31, 2007
                  
                  $
                  1.26
                  
                  
                  
                  542,157
                  
                  
                  
                  372,613Granted
                  
                  
                  1.21
                  
                  
                  
                  127,825
                  
                  
                  
                  -Forfeited
                  
                  
                  1.00
                  
                  
                  
                  (27,825
                  )
                  
                  
                  (27,825
                  )Exercised
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Vested
                  
                  
                  2.30
                  
                  
                  
                  -
                  
                  
                  
                  88,211Balance,
      December 31, 2008
                  
                  
                  1.26
                  
                  
                  
                  642,157
                  
                  
                  
                  432,999Granted
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Forfeited
                  
                  
                  1.37
                  
                  
                  
                  (15,167
                  )
                  
                  
                  (15,167
                  )Exercised
                  
                  
                  0.62
                  
                  
                  
                  (32,000
                  )
                  
                  
                  (32,000
                  )Vested
                  
                  
                  1.73
                  
                  
                  
                  -
                  
                  
                  
                  102,930Balance,
      December 31, 2009
                  
                  $
                  1.62
                  
                  
                  
                  594,990
                  
                  
                  
                  488,762





The Company’s Board of Directors
adopted a Shareholder Rights Plan (the “Plan”) in January 2003. Under the Plan,
preferred stock purchase rights (each, a “Right”) were distributed as a dividend
at the rate of one Right for each share of Common Stock outstanding as of the
close of business on February 11, 2003 and automatically attach to shares issued
thereafter. Each Right entitles the holder to purchase one one-hundredth of a
share of newly created Series A Junior Participating Preferred Stock of the
Company at an exercise price of $8.00 (the “Exercise Price”) per Right. In
general, the Rights will be exercisable if a person or group (“Acquiring
Person”) becomes the beneficial owner of 15% or more of the outstanding Common
Stock of the Company or announces a tender offer for 15% or more of the Common
Stock of the Company. When the Rights become exercisable, a holder, other than
the Acquiring Person, will have the right to receive upon exercise Common Stock
having a value equal to two times the Exercise Price of the Right. If, after the
Rights become exercisable, the Company is acquired in a merger or similar
transaction, each Right will entitle the holder thereof, other than the
Acquiring Person, to purchase, at the Exercise Price, shares of the acquiring
corporation having a value equal to two times the Exercise Price of the Right.
After a person or group becomes an Acquiring Person, but before an Acquiring
Person owns 50% or more of the outstanding Common Stock of the Company, the
Board of Directors of the Company may extinguish the Rights by exchanging one
share of Common Stock or an equivalent security for each Right, other than
Rights held by the Acquiring Person. The Board of Directors will in general be
entitled to redeem the Rights for $.001 per Right at any time prior to any
person or group becoming an Acquiring Person. The Rights will expire on January
20, 2013.


F-19


Smith-Midland
Corporation


and
Subsidiaries





Notes
to Consolidated Financial Statements


(continued)





7.
            Commitments and
      Contingencies





The Company has an employment agreement
with its current President and CEO (the ”CEO”) which automatically renews on an
annual basis for an additional year, unless earlier terminated or not renewed as
provided for therein. The agreement provides for an annual base salary of
$99,000 and an annual royalty fee of $99,000 payable as consideration for the
CEO’s assignment to the Company of all of his rights, title and interest in
certain patents. Payment of the royalty continues only for as long as the
Company is using the inventions underlying the patents. Additionally, if the CEO
(i) voluntarily leaves the employ of the Company within six months of his
becoming aware of a Change of Control (as defined in the agreement) of the
Company, then he shall be entitled to receive a lump sum amount equal to three
times the five-year average of his combined total annual compensation, which
includes the Base Salary and bonus, less one dollar ($1.00), and certain other
unpaid accrued amounts as of the date of his termination, or (ii) is terminated
by the Company without Cause (as defined in the agreement) or leaves the Company
with Good Reason (as defined in the agreement), the CEO shall be entitled to a
lump sum payment equal to three times the combined Base Salary and bonus paid
during the immediately preceding calendar year, and such other unpaid accrued
amounts. In any of such cases, the Company will provide the CEO with certain
Company fringe benefits for two years, subject to certain conditions as provided
for in the agreement, and all of the CEO’s unvested options to purchase Company
stock shall become fully vested and exercisable on the date of termination. The
CEO will be entitled to exercise all such options for three years from the date
of termination.





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





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





A
settlement agreement (as reported on Form 8-K dated February 19, 2009) between
JPI Construction Services, GP LLC (“JPIC”) and the Company for breaches of a
subcontract between the parties was executed on February 9, 2009. The
significant terms of the agreement are as follows:





1.
            The
      Company was required to forgive outstanding retainage receivables from
      JPIC of approximately $199,000, of which the Company had previously
      reserved for in the amount of
$100,000.




2.
            The
      Company was required to make a $426,000 cash payment to JPIC in
      2009.




3.
            Both
      parties agreed to release each other from any and all other claims arising
      out of this dispute.




In
addition, each party is required to pay their own attorney’s fees, which for the
Company, was approximately $160,000.




All
amounts described above were accrued and charged to expense as of, and for the
year ended December 31, 2008.


F-20


Smith-Midland
Corporation


and
Subsidiaries





Notes
to Consolidated Financial Statements


(continued)





8.
            Earnings
      Per Share





Earnings
per share is calculated as follows:





December 31,2009
                
                
                2008Basic
      earnings per shareIncome
      available to common shareholder
                
                $
                1,809,064
                
                
                $
                420,993Weighted
      average shares outstanding
                
                
                4,673,430
                
                
                
                4,670,882Basic
      earnings per share
                
                $
                0.39
                
                
                $
                0.09Diluted
      earnings per shareIncome
      available to common shareholder
                
                $
                1,809,064
                
                
                $
                420,993Weighted
      average shares outstanding
                
                
                4,673,430
                
                
                
                4,670,882Dilutive effect of stock options
                
                
                104,021
                
                
                
                67,119Total
      weighted average shares outstanding
                
                
                4,777,451
                
                
                
                4,738,001Diluted
      earnings per share
                
                $
                0.38
                
                
                $
                0.09





Outstanding
options excluded from the diluted earnings per share calculation because they
would have an anti-dilutive effect were 258,166 and 440,491 for the years ended
December 31, 2009 and 2008, respectively.


F-21