SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

                Annual Report pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934
                   For the Fiscal Year Ended December 31, 1997
                         Commission File Number 1-13752



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


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

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


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

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

                                                        Name of Each Exchange on
Title of Each Class                                          Which Registered
-------------------                                     ------------------------

Common Stock, $.01 par value per share                   Boston Stock Exchange
Redeemable Common Stock Purchase Warrants                Boston Stock Exchange

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

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

                    Redeemable Common Stock Purchase Warrants
                    -----------------------------------------
                                (Title of Class)



<PAGE>
         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days.
                           Yes [ X ]  No [  ]

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]

         The Issuer's net sales and revenues for its most recent fiscal year are
$12,005,000.

         The  aggregate  market  value of the  shares of Common  Stock,  held by
non-affiliates,  based upon the average of the closing bid and asked  prices for
such stock on March 26,  1998,  was  approximately  $3,879,000.  As of March 26,
1998, the Company had  outstanding  3,044,798  shares of Common Stock,  $.01 par
value per share.

                       DOCUMENTS INCORPORATED BY REFERENCE

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

Definitive    Proxy    Statement    for   the                   Part III
Registrant's  Annual Meeting of  Stockholders
for the fiscal year ended  December 31, 1997,
to be filed pursuant to Regulation 14A.


                                      -ii-
<PAGE>

                                     PART I

Item 1.  Business

         General

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

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

         Market

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

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


                                       3
<PAGE>

         Products

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

         Slenderwall(TM) Lightweight Construction Panels

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

         Slenderwall(TM)  panels are approximately  one-half the weight of brick
walls of  equivalent  size,  permanence  and  durability.  This  lighter  weight
translates  into  reduced   construction   costs  resulting  from  less  onerous
structural  and  foundation  requirements  as  well  as  lower  shipping  costs.
Additional savings result from  Slenderwall's(TM)  reduced installation time and
ease of erection, and from the use of smaller cranes for installation.

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

         Easi-Set(R) Sierra Wall

         The  Easi-Set(R)  Sierra Wall (the "Sierra Wall") combines the strength
and  durability  of precast  concrete  with a variety of  finishes to provide an
effective and  attractive  sound and sight  barrier for use around  residential,
industrial,  and commercial  properties and alongside highways.  With additional
reinforcement,  the Sierra Wall can also be used as a  retaining  wall to retain
earth in both highway and residential construction. The Sierra Wall is typically
constructed  of four  inch  thick,  steel-reinforced  concrete  panels  that are
securely joined at an integral column by a tongue and groove connection  system.
This tongue and groove  connection  system makes the Sierra Wall easy to install
and move if boundaries  change or highways are relocated after the completion of
a project.



                                       4
<PAGE>

         The Company custom designs and manufactures each Sierra Wall to conform
to the specifications provided by the contractor.  The width, height,  strength,
and  exterior  finish  of  each  wall  varies   depending  on  the  terrain  and
application.  In addition, the Company offers increased noise abatement benefits
through   the  use  of   DuriSol(R),   an   optional,   durable   and   patented
sound-absorbing, material that can be cast onto the exterior of the Sierra Wall.
In January 1996,  the Company  entered into a licensing  agreement with DuriSol,
Inc.  of  Ontario,  Canada,  ("DuriSol")  permitting  the Company to utilize the
DuriSol(R) sound-absorbing technology until January 20, 1999.

         Under the Company's licensing  agreement with DuriSol,  the Company has
an exclusive  license to use DuriSol(R) in Virginia and a right of first refusal
for any new  proprietary  products  developed  by DuriSol.  The  Company  pays a
royalty to DuriSol equal to $.25 per square foot of product  manufactured  using
DuriSol(R).

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

         Easi-Set(R) J-J Hooks(TM) Highway Safety Barrier

         The  Easi-Set(R)  J-J  Hooks(TM)   highway  safety  barrier  (the  "J-J
Hooks(TM) Barrier") is a patented, positively connected, safety barrier that the
Company  sells,  rents,  delivers,  installs and licenses for use on roadways to
separate  lanes of traffic,  either  temporarily  for  construction  purposes or
permanently for traffic control.  Barriers are deemed to be positively connected
when the connectors on each end of the barrier sections are interlocked with one
another without the use of a separate locking device. The primary advantage of a
positive  connection  is that a barrier  with such a  connection  can  withstand
vehicle  crashes  at higher  speeds  without  separating.  The  Federal  Highway
Administration  (the  "FHWA") now  recommends  that  states use only  positively
connected barriers.

         The proprietary  quality of the J-J Hooks(TM)  Barrier is the design of
its positive  connection.  Protruding  from each end of a J-J Hooks(TM)  Barrier
section is a 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(TM)  Barrier to another,  a
contractor merely positions the hook of an elevated section of the barrier above
the hook of a set  section  and lowers the  elevated  section  into  place.  The
positive connection is automatically engaged.

         The Company believes that the J-J Hooks(TM)  Barrier  connection design
is superior to those of earlier  highway  safety  barriers that were  positively
connected  through  the "eye and pin"  technique.  Barriers  incorporating  this
technique have eyes or rings protruding from each end of the barrier, which must


                                       5
<PAGE>

be aligned during the setting process. Once set, a crew inserts pins through the
eyes and bolts the barrier sections  together.  Compared to this technique,  the
J-J Hooks(TM)  Barrier is easier and faster to install,  and remove,  requires a
smaller crew and eliminates the need for loose hardware to make the connection.

         In November 1990,  the FHWA approved the J-J Hooks(TM)  Barrier for use
on federally-aided highway projects following the successful completion of crash
testing based on National Cooperative Highway Research Program criteria. The J-J
Hooks(TM)  Barrier has also been approved for use in state funded projects by 32
states, plus Washington,  D.C. and Puerto Rico. The Company is in various stages
of the  application  process in 17 states and believes  that approval in most of
the states will be granted; however no assurance can be given that approval will
be received from any or all of the  remaining  states or that such approval will
result in the J.J. Hooks(TM) Barrier being used in such states. In addition, the
J-J Hooks(TM)  Barrier has been approved by the appropriate  authorities for use
in the countries of Spain, Belgium, Germany and Chile.

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

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

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

         The Company has sold its Easi-Set(R) Precast Building and Easi-Span(TM)
for the following uses:

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

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



                                       6
<PAGE>

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

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

         Easi-Set(R) Utility Vault

         The Company  produces a line of precast  concrete  underground  utility
vaults ranging in size from 36 to 702 cubic feet. Each Easi-Set(R) utility vault
normally  comes  with a manhole  opening on the top for  ingress  and egress and
openings around the perimeter, in accordance with the customer's specifications,
to access  water  and gas  pipes,  electrical  power  lines,  telecommunications
cables, or other such media of transfer. The utility vaults may be used to house
equipment  such  as  cable,  telephone  or  traffic  signal  equipment,  and for
underground storage.  The Company also manufactures  custom-built utility vaults
for special needs.

         Sources of Supply

         All of the raw materials necessary for the manufacture of the Company's
products are  available  from  multiple  sources.  To date,  the Company has not
experienced  significant delays in obtaining materials and believes that it will
continue to be able to obtain  required  materials from a number of suppliers at
commercially reasonable prices.

         Licensing

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

         The Company  has entered  into 22  licensing  agreements  in the United
States,  and has  established  at least one  licensee  in each of  Puerto  Rico,
Canada, Belgium and Spain and sub-licensees in Portugal and Chile.



                                       7
<PAGE>

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

         Marketing and Sales

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

         The Company has also established a cooperative  advertising  program in
which the Company and its licensees combine resources to promote certain precast
concrete  products.  Licensees  pay a flat  monthly fee and the Company pays any
additional  amounts  required to  advertise  the  products  across the  country.
Although the Company advertises nationally,  the Company's marketing efforts are
concentrated on the region within a 250 mile radius from its  facilities,  which
includes most of Virginia,  Delaware,  Maryland, North Carolina, South Carolina,
and parts of Pennsylvania, New York, New Jersey and West Virginia.

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

         Competition

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

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



                                       8
<PAGE>

         Patents and Proprietary Information

         The Company  holds U.S.  and  Canadian  patents  for the J-J  Hooks(TM)
Barrier  and  the  Easi-Set(R)  Precast  Building,  and a U.S.  patent  for  the
Slenderwall(TM)  exterior cladding system. The European patent for J-J Hooks(TM)
Barrier was allowed in December 1997 and has been  registered in eleven European
countries.  The  earliest  of the  issued  patents  considered  material  to the
Company's  business expires in 2001 with a new patent pending.  The Company also
owns  two  U.S.  registered  trademark  and  licenses  the  rights  to  another:
Easi-Set(R),  Smith  Cattleguard(R)  and DuriSol(R),  respectively.  The Company
licenses the  technology  used in DuriSol(R)  products  pursuant to an agreement
that expires on January 20, 1999.

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

         Government Regulation

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

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

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

         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


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<PAGE>

of such waste as much as  possible,  and to recycle  such waste where  possible.
Remaining wastes are disposed of in permitted  disposal sites in accordance with
applicable regulations.

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

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

         Employees

         As of March 20,  1998,  the Company had 140  full-time  and 3 part-time
employees, 121 of which are located at the Company's Midland facility, and 22 of
which are  located  at the  Company's  facility  located  in  Reidsville,  North
Carolina. Of the 143 employees,  nine are executive officers or managers,  eight
are responsible for sales and marketing, 113 are in manufacturing,  and thirteen
are administrative  personnel. None of the Company's employees is represented by
labor  organizations and the Company is not aware of any activities seeking such
organization.  The Company considers its relationships  with its employees to be
satisfactory.

Item 2.  Description of Properties

         Facilities

         The  Company  operates  two  manufacturing   facilities.   The  primary
manufacturing  operations  are conducted in a 28,000  square foot  manufacturing
plant  on  approximately  22  acres  of  land in  Midland,  Virginia,  of  which
approximately  19 acres are owned by the Company and three acres are leased from
Rodney I. Smith,  the Company's  President,  at an annual rental rate of $6,000.
This area houses two concrete mixers,  and one concrete blender.  The plant also
includes an  environmentally  controlled  casting area, two batch plants, a form
fabrication  shop, a welding and metal fabrication  facility,  a carpentry shop,
and a quality control center. In addition, the Company conducts outdoor concrete
pouring and curing  operations.  The Company's  Midland facility also includes a
large storage yard for inventory and stored materials.

         In  addition,  the Company  carries out  administration,  research  and
development, sales and marketing, and licensing operating in a 4,500 square foot
office building located on its Midland property.  The Company also owns 19 acres
of undeveloped industrial property in Midland, not adjacent to the manufacturing
facility.

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



                                       10
<PAGE>

         The Company  believes that its present  facilities are adequate for its
current needs, however, the Company currently performs a portion of its concrete
pouring and curing processses on uncovered,  outdoor  manufacturing  areas. This
processing is adversely affected by wet and cold weather. Management is going to
bring these operations under roof in 1998, thereby increasing efficiency.

Item 3.  Legal Proceedings

         In late 1995, the Company filed four separate  informal claims totaling
approximately   $502,000  for  damages  and  costs   incurred  as  a  result  of
specification, policy and operating changes to contracts primarily instituted by
the State of Maryland, including the then newly issued "Noise Barrier Acceptance
Criteria,"  all of which were  undertaken  after the award of the  contracts and
after unit production in accordance  with the contracts was virtually  complete.
In 1996,  the  Company  filed  additional  claims  against the State of Maryland
related to the same contracts in the amount of $578,500 which brought the amount
of the total claims to $1,080,500.  In early 1996, the Company  received several
counterclaims  from the State of  Maryland.  All  amounts  due to each party are
currently in dispute. The Company has considered the counterclaims in estimating
the  recoverability  of its claims and  certain  trade  accounts  receivable  at
December 31, 1997. (See footnote six in the accompanying consolidated  financial
statements).

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

Item 4.  Submission of Matters to Vote of Security Holders

         No matters  were  submitted  to a vote of security  holders  during the
fourth  quarter  of the  fiscal  year  ended  December  31,  1997,  through  the
solicitation of proxies or otherwise.





                                       11
<PAGE>

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

         The Company's  Common Stock has traded on the National  Association  of
Securities Dealers Automated Quotation System ("NASDAQ") under the symbol "SMID"
and on the Boston Stock  Exchange  ("BSE") under the symbol "SMC" since December
13, 1995. As of March 26, 1998,  there were  approximately  52 record holders of
the Company's  Common Stock.  Management  believes there are  approximately  750
beneficial owners of the Company's Common Stock.

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

                                                             Sale
                                                      High         Low
                                                      ----         ---

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

1997
First Quarter                                       $2 1/8       $1
Second Quarter                                      $1 3/8       $  11/16
Third Quarter                                       $1 15/32     $  9/16
Fourth Quarter                                      $1 3/16      $  3/4

1998
First Quarter (through March 26, 1998)              $1 19/32     $  3/4

         The Company is currently  being reviewed for compliance with the Nasdaq
SmallCap Market  eligibility  requirements.  As of December 31, 1997 the Company
was in  compliance  with all  current  applicable  requirements  and the Company
believes that it will continue to meet all the current requirements.

         Dividends

         The  Company  has not paid  dividends  on its  Common  Stock  since its
inception  and has no intention of paying any dividends to its  stockholders  in
the foreseeable  future. The Company currently intends to reinvest earnings,  if
any, in the  development  and  expansion of its  business.  The  declaration  of
dividends in the future will be at the  election of the Board of  Directors  and
will depend upon the earnings,  capital  requirements and financial  position of
the Company,  general  economic  conditions  and other  pertinent  factors.  The
Company's current loan agreement with Riggs Bank, N.A.  prohibits the payment of
dividends to stockholders  without the bank's prior written consent,  except for
dividends paid in shares of the Company's Common Stock.




                                       12
<PAGE>

Item 6.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

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

         General

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

         Results of Operations

         Year ended  December 31, 1997  compared to the year ended  December 31,
         1996

         The Company's operations for 1997 resulted in a profit of $263,803,  or
$0.09 per share,  representing  an increase in profits of $562,268 when compared
to a loss in 1996 of $(298,465), or $(0.10) per share.

         For 1997,  the Company  had total  revenue of  $12,004,897  compared to
total revenue of  $11,410,510 in 1996, an increase of $594,387,  or 5.2%.  Total
product sales decreased slightly to $10,102,121 in 1997, compared to $10,146,925
in 1996. Shipping and installation  revenue increased to $1,902,776 in 1997 from
$1,263,585 in 1996, an increase of $639,191,  or 50.6%,  primarily attributed to
an increase in highway sound barrier installation contracts.

         Royalty  revenue  increased  $23,456 or 9.8% from  $238,801  in 1996 to
$262,257 in 1997.  The increase  was  principally  attributed  to an increase in
royalty fees earned on production of Easi-Set(R) precast buildings.

         Total cost of goods sold for 1997 was $9,090,998 compared to $8,525,266
in 1996,  an increase of $565,732.  Total cost of goods sold as a percentage  of
total  revenue  increased  from 74.7% in 1996 to 75.7% in 1997.  The  percentage
increase  was  primarily  attributed  to a sales mix shift in 1997  towards less
profitable highway sound barrier products.



                                       13
<PAGE>

         General and administrative expenses decreased $440,215 to $1,915,510 in
1997 from  $2,355,725 in 1996. The decrease was primarily the result of expenses
incurred  in  1996  relating  to  increased   compensation,   professional  fees
associated  with being a publicly traded company in December,  1995,  staff time
and  professional  fees  incurred in  connection  with filing of claims with the
State of Maryland relating to contract disputes,  increased expenditures related
to  the  licensing  activities  conducted  by  Easi-Set  Industries,  Inc.,  and
increased  costs related to the  introduction  of the  Slenderwall(TM)  systems.
Profitability   initiatives  begun  in  1996  to  lower  overall  expenses  also
contributed  to the decrease.  Selling and  marketing  expenses in 1997 remained
relatively flat with the prior year.

         Interest  expense  and loan fees  decreased  to  $372,118  in 1997 from
$468,820 in 1996, a decrease of $96,702,  or 20.6%.  The decrease was  primarily
due to a reduction  in both the  weighted  average  interest  rates paid and the
retirement of debt.

         As  a  result  of  cumulative  net  operating  loss   carryforwards  of
approximately  $2,124,000  available  to the  Company as of January 1, 1997,  no
income tax expense was recorded for 1997.

         Liquidity and Capital Resources

         During 1997, the Company increased net cash provided by operations over
the prior year by $954,889, to net cash provided of $526,004 in 1997 compared to
the  absorption  of net cash of  $428,885  in  1996.  The  increase  in net cash
provided by operations during 1997 was primarily  attributed to increases in net
income, trade payables and customer deposits.  The net increase in cash provided
by operations was partially offset by increases in accounts receivable.

         Capital  spending  increased to $524,232 in 1997, from $371,785 in 1996
as the Company  implemented  programs to improve  manufacturing  efficiencies as
well as overall plant capacity and yard storage capacity.

         As a result of the  Company's  debt burden,  the Company is  especially
sensitive  to  changes  in the  prevailing  interest  rates.  Increases  in such
interest  rates may  materially  and adversely  affect the Company's  ability to
finance its  operations  either by increasing  the Company's cost to service its
current  debt,  or  by  creating  a  more  burdensome  refinancing  environment.
Management  intends  to  refinance  this debt as it  becomes  due.  The  Company
currently has an outstanding letter of intent with a bank for the placement of a
20 year  commercial  mortgage and equipment  loan, the proceeds of which will be
used in part, to repay the  Company's  existing debt with Myers' Trust and Riggs
Bank. The letter of intent also includes a line-of-credit and mortgage for plant
expansion and new equipment  financing.  In addition,  the Company has agreed in
principle  with the Trustee for the Myers'  Trust debt,  of which  $623,252  was
outstanding  at December  31, 1997,  to extend the due dates from dates  ranging
from July 26, 1997 through  November 26, 1997 to June 26, 1998.  The Company has
also  received an extension to July 8th from Riggs Bank for a note  payable,  of
which  $935,000 was  outstanding at December 31, 1997.


                                       14
<PAGE>

         The  Company's  cash flow from  operations  is affected  by  production
schedules set by contractors,  which generally provide for payment 45 to 75 days
after the products are produced. This payment schedule has resulted in liquidity
problems  for the Company  because it must bear the cost of  production  for its
products  before it receives  payment.  Although no assurance can be given,  the
Company  believes that anticipated cash flow from operations and existing credit
facilities  will be sufficient to finance the Company's  operations for at least
the next 12 months.  In the event cash flow from  operations and existing credit
facilities  are not  adequate to support  operations,  the Company is  currently
investigating alternative sources of short-term financing.

         The Company has formed a team to address the affect of the year 2000 on
the Company's systems and operations. The Company expects that costs incurred in
the  preparation  for the year  2000 will not have a  significant  impact on the
Company's cash flow or results of operations.  The Company plans to be fully Y2K
compliant by the fourth quarter of 1998.

         Seasonality

The Company  performs a portion of its concrete  pouring and curing processes on
uncovered,  outdoor  manufacturing  areas.  During  the winter  months,  cold or
adverse  weather  causes a slowdown or  cessation  of these  outdoor  production
activities,   thereby  severely  reducing  the  Company's  production  capacity.
Management  intends to bring these  operations under cover in 1998. In addition,
the Company services the construction  industry primarily in areas of the United
States where  construction  activity is inhibited by adverse  weather during the
winter.  As a result,  the Company  experiences  reduced  revenues from December
through March and realizes the substantial part of its revenues during the other
months of the year. The Company typically  experiences lower profits, or losses,
during the winter months,  and must have sufficient  working capital to fund its
operations at a reduced level until the spring construction  season. The failure
to generate or obtain  sufficient  working  capital during the winter may have a
material adverse effect on the Company.

         Inflation

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

         Recent Accounting Pronouncements

         Effective  January 1, 1997, the Company adopted  Statement of Financial
Accounting Standards No. 128, "Earnings per Share" (SFAS 128). SFAS 128 provides
a different  method for calculating  earnings per share than was previously used
in  accordance  with APB 15,  "Earnings  per Share."  SFAS 128  provides for the
calculation  of Basic and Diluted  earnings per share.  Basic earnings per share
includes no dilution  and is computed  by dividing  income  available  to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution of securities
that could share in earnings of an entity, similar to fully diluted earnings per
share.  Adoption  of  this  Statement  did not  have a  material  impact  on the
financial statements of the Company.



                                       15
<PAGE>

         In June 1997, the Financial  Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income," which establishes standards for reporting
and display of  comprehensive  income and its  components  (revenues,  espenses,
gains and losses) in a full set of general purpose  financial  statements.  SFAS
130 is effective for financial  statement  periods  beginning after December 31,
1997.

         In June 1997, the Financial  Accounting  Standards Board issued SFAS No
131, "Disclosure about Segments of an Enterprise and Related Information," which
supersedes  SFAS  No.  14,  "Financial  Reporting  for  Segments  of a  Business
Enterprise."  SFAS 131 establishes  standards for the way that public  companies
report information about operating  segments in annual financial  statements and
requires  reporting of selected  information about operating segments in interim
financial  statements  issued to the public.  It also establishes  standards for
disclosures  regarding  products  and  services,   geographic  areas  and  major
customers.  SFAS 131 defines operating segments as components of a company about
which separate financial information is available that is evaluated regularly by
the chief operating  decision maker in deciding how to allocate resources and in
assessing performance.

         SFAS 131 is effective for financial  statements  for periods  beginning
after December 15, 1997 and requires  comparative  information for earlier years
to be restated.  Management has determined that financial  statement  disclosure
will not be affected by implementation of this standard due to the fact that the
Company has only one operating segment.




                                       16
<PAGE>
<TABLE>

Item 7.  Financial Statements

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

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

Consolidated Balance Sheets as of December 31, 1997 and 1996 ...........................     F-3

Consolidated Statements of Operations for the years ended December 31,
1997 and 1996              .............................................................     F-5

Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1997 and 1996 .............................................................     F-6

Consolidated Statements of Cash Flows for the years ended December 31,
1997 and 1996      .....................................................................     F-7

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

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

Item 8.  Changes In and Disagreements With Accountants on Accounting and
              Financial Disclosure

         Not Applicable.

</TABLE>





                                       17
<PAGE>




                                    PART III

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

Item 13.  Exhibits and Reports on Form 8-K

(a)      Exhibits.

         (1)      The following exhibits are filed herewith:

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

10a            Agreement  by Roderic H. Slaton,  Trustee of the Myers Trust,  to
               extend the due dates of the four Myers Trust  Notes,  dated April
               2, 1998.

10b            Third  Amendment to Loan  Agreement by and among Riggs Bank N.A.,
               the Company and all of the  Company's  subsidiaries,  dated as of
               March 8, 1998.

10c            Promissory Note from Rodney I. Smith to the Company,  dated as of
               December 31, 1997.

27             Financial Data Schedule

      (2)      The  following  exhibits  were  filed  as part  of the  Company's
               Quarterly  Report on Form 10-QSB for the quarter ended  September
               30, 1996 and are incorporated herein by reference:

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

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

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

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

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

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



                                       18
<PAGE>

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

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

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

21             List of Subsidiaries of the Company.


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

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

3a             Certificate of Incorporation, as amended.

3b             Bylaws, as amended.

4b             Specimen Common Stock Certificate.

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

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

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

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

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

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

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

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



                                       19
<PAGE>

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

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

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

10w            1994 Stock Option Plan.

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

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

(b)  Reports on Form 8-K

         The Company did not file any Current Reports on Form 8-K during 1997.




                                       20
<PAGE>




                                   SIGNATURES

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

                                          SMITH-MIDLAND CORPORATION


Date:    April 14, 1998                By: /s/ Rodney I. Smith
                                          -------------------------------------
                                          Rodney I. Smith, President

         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  registrant in the  capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Name                                               Capacity                                    Date
----                                               --------                                    ----
<S> <C>

/s/ Rodney I. Smith                         Chairman of the Board,                        April 1, 1998
--------------------------------            Chief Executive Officer
Rodney I. Smith                             and President (principal
                                            executive officer)

/s/ Robert V. McElhinney                    Vice President of Finance                     April 1, 1998
--------------------------------            (principal finance and
Robert V. McElhinney                        accounting officer)


/s/ Wes Taylor                              Vice President of                             April 1, 1998
--------------------------------            Administration and
Wes Taylor                                  Director


/s/ Ashley Smith                           Vice President of Sales and                   April 1, 1998
--------------------------------            Marketing and Director
Ashley Smith


/s/ Andrew Kavounis                         Director                                      April 1, 1998
--------------------------------
Andrew Kavounis


/s/ Bernard R. Patriacca                    Director                                      April 1, 1998
--------------------------------
Bernard R. Patriacca
</TABLE>
                                       21

<PAGE>
                                                       Smith-Midland Corporation
                                                                and Subsidiaries








<PAGE>





                                                       Smith-Midland Corporation
                                                                and Subsidiaries



                                               Consolidated Financial Statements
                                          Years Ended December 31, 1997 and 1996



                                                                        Contents

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





      Report of Independent Certified Public Accountants                 F - 2

      Consolidated Financial Statements

        Balance Sheets                                                   F - 3

        Statements of Operations                                         F - 5

        Statements of Stockholders' Equity                               F - 6

        Statements of Cash Flows                                         F - 7

      Summary of Significant Accounting Policies                         F - 9

      Notes to Financial Statements                                     F - 12











                                       F-1



<PAGE>




Report of Independent Certified Public Accountants



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

We have audited the  accompanying  consolidated  balance sheets of Smith-Midland
Corporation  and  subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
the years then ended.  These financial  statements are the responsibility of the
Corporation's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of  Smith-Midland
Corporation  and  subsidiaries at December 31, 1997 and 1996, and the results of
their  operations  and their cash  flows for the years then ended in  conformity
with generally accepted accounting principles.





                                                                BDO Seidman, LLP


Richmond, Virginia
March 27, 1998








                                       F-2




<PAGE>

<TABLE>

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


                                                                                           Smith-Midland Corporation
                                                                                                    and Subsidiaries

                                                                                         Consolidated Balance Sheets



<CAPTION>
December 31,                                                                          1997                1996
-------------------------------------------------------------------------------------------------------------------
<S> <C>

   Assets

Current assets
  Cash                                                                             $  288,310           $ 438,079
  Accounts receivable (Notes 2 and 6)
    Trade - billed, (less allowance for doubtful
      accounts of $231,000 - 1997 and  $334,000 - 1996)                             3,254,993           2,705,325
    Trade - unbilled                                                                  410,158             113,299
  Inventories (Note 2)
    Raw materials                                                                     486,583             440,225
    Finished goods                                                                    942,427           1,090,815
  Prepaid expenses and other assets                                                    69,801              92,383
-------------------------------------------------------------------------------------------------------------------


Total current assets                                                                5,452,272           4,880,126
-------------------------------------------------------------------------------------------------------------------


Property and equipment, net (Notes 1 and 2)                                         1,531,062           1,380,871
-------------------------------------------------------------------------------------------------------------------


Other assets
  Cash - restricted (Notes 2 and 6)                                                   196,977             194,617
  Note receivable, officer (Notes 3 and 7)                                            632,472             659,000
  Other                                                                                79,443              80,260
-------------------------------------------------------------------------------------------------------------------


Total other assets                                                                    908,892             933,877
-------------------------------------------------------------------------------------------------------------------












                                                                                   $7,892,226          $7,194,874
-------------------------------------------------------------------------------------------------------------------



                                       F-3





<PAGE>


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



                                                                                           Smith-Midland Corporation
                                                                                                    and Subsidiaries

                                                                                         Consolidated Balance Sheets


<CAPTION>
December 31,                                                                          1997                1996
-------------------------------------------------------------------------------------------------------------------


   Liabilities and Stockholders' Equity

Current liabilities
  Current maturities of notes payable (Note 2)                                     $2,199,228          $2,066,253
  Accounts payable - trade                                                          1,744,127           1,439,934
  Accrued expenses and other liabilities (Note 6)                                     570,693             515,479
  Customer deposits                                                                   450,474             200,623
-------------------------------------------------------------------------------------------------------------------


Total current liabilities                                                           4,964,522           4,222,289

Notes payable - less current maturities (Note 2)                                      759,440           1,068,124

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


Total liabilities                                                                   5,839,560           5,406,011
-------------------------------------------------------------------------------------------------------------------


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


Stockholders' equity (Note 7)
  Preferred stock, $.01 par value; authorized
    1,000,000 shares, none outstanding                                                    -                    -
  Common stock, $.01 par value; authorized
    8,000,000 shares; 3,085,718 issued,
    3,044,798 outstanding                                                              30,857              30,857
  Additional capital                                                                3,450,085           3,450,085
  Retained deficit                                                                 (1,325,976)         (1,589,779)
-------------------------------------------------------------------------------------------------------------------


                                                                                    2,154,966           1,891,163
Treasury stock, at cost, 40,920 shares (Note 7)                                      (102,300)           (102,300)
-------------------------------------------------------------------------------------------------------------------


Total stockholders' equity                                                          2,052,666           1,788,863
-------------------------------------------------------------------------------------------------------------------


                                                                                   $7,892,226          $7,194,874
-------------------------------------------------------------------------------------------------------------------



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



                                       F-4



<PAGE>


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


                                                                                           Smith-Midland Corporation
                                                                                                    and Subsidiaries

                                                                               Consolidated Statements of Operations



<CAPTION>
Year Ended December 31,                                                                1997               1996
-------------------------------------------------------------------------------------------------------------------


Revenue                                                                            $12,004,897        $11,410,510

Cost of goods sold                                                                   9,090,998          8,525,266
-------------------------------------------------------------------------------------------------------------------


Gross profit                                                                         2,913,899          2,885,244
-------------------------------------------------------------------------------------------------------------------


Operating expenses
  General and administrative expenses                                                1,915,510          2,355,725
  Selling expenses                                                                     680,489            672,430
-------------------------------------------------------------------------------------------------------------------


Total operating expenses                                                             2,595,999          3,028,155
-------------------------------------------------------------------------------------------------------------------


Operating income (loss)                                                                317,900           (142,911)
-------------------------------------------------------------------------------------------------------------------


Other income (expense)
  Royalties                                                                            262,257            238,801
  Interest expense and loan fees                                                      (372,118)          (468,820)
  Interest income                                                                       45,795             68,326
  Gain on disposal of fixed assets                                                         -               14,517
  Other, net                                                                             9,969             (8,378)
-------------------------------------------------------------------------------------------------------------------


Total other income (expense)                                                           (54,097)          (155,554)
-------------------------------------------------------------------------------------------------------------------


Net income (loss)                                                                   $  263,803         $ (298,465)
-------------------------------------------------------------------------------------------------------------------


Basic and diluted income (loss) per share                                           $      .09         $     (.10)
-------------------------------------------------------------------------------------------------------------------


Weighted average common shares outstanding                                           3,044,798          3,071,595
-------------------------------------------------------------------------------------------------------------------




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







                                       F-5



<PAGE>



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


                                                                                           Smith-Midland Corporation
                                                                                                    and Subsidiaries

                                                                     Consolidated Statements of Stockholders' Equity

<CAPTION>


                                                    Additional        Retained
                                        Common        Paid-In         Earnings        Treasury
                                        Stock          Capital      ( Deficit )         Stock          Total
-------------------------------------------------------------------------------------------------------------------



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

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

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

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


Balance, December 31, 1996                30,857     3,450,085      (1,589,779)       (102,300)      1,788,863

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


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



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





                                       F-6



<PAGE>


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


                                                                                           Smith-Midland Corporation
                                                                                                    and Subsidiaries

                                                                               Consolidated Statements of Cash Flows



<CAPTION>
Year Ended December 31,                                                              1997               1996
-------------------------------------------------------------------------------------------------------------------


Cash Flows From Operating Activities
  Cash received from customers                                                     $11,670,478       $ 11,641,847
  Cash paid to suppliers and employees                                             (10,876,160)       (11,634,441)
  Interest paid                                                                       (372,118)          (453,939)
  Other                                                                                103,804             17,648
-------------------------------------------------------------------------------------------------------------------


Net cash provided (absorbed) by operating activities                                   526,004           (428,885)
-------------------------------------------------------------------------------------------------------------------


Cash Flows From Investing Activities
  Purchases of property and equipment                                                 (524,232)          (371,785)
  Proceeds from sale of property and equipment                                             -               14,517
  Repayments (advances) on officer note receivable                                      26,528            (53,526)
-------------------------------------------------------------------------------------------------------------------


Net cash absorbed by investing activities                                             (497,704)          (410,794)
-------------------------------------------------------------------------------------------------------------------


Cash Flows From Financing Activities
  Proceeds from borrowings                                                             192,565          1,543,606
  Repayments of borrowings                                                            (368,274)        (1,404,498)
  Repayments on borrowings - related
    parties, net                                                                           -               (1,155)
  Proceeds from issuance of common stock, net                                              -              396,333
-------------------------------------------------------------------------------------------------------------------


Net cash provided (absorbed) by financing activities                                  (175,709)           534,286
-------------------------------------------------------------------------------------------------------------------


Increase in cash - restricted                                                           (2,360)          (194,617)
-------------------------------------------------------------------------------------------------------------------


Net decrease in cash                                                                  (149,769)          (500,010)

Cash, beginning of year                                                                438,079            938,089
-------------------------------------------------------------------------------------------------------------------


Cash, end of year                                                                   $  288,310        $   438,079
-------------------------------------------------------------------------------------------------------------------





                                                                                                        continued...
                                       F-7



<PAGE>


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


                                                                                           Smith-Midland Corporation
                                                                                                    and Subsidiaries

                                                                               Consolidated Statements of Cash Flows
                                                                                                         (continued)


<CAPTION>
Year Ended December 31,                                                                1997               1996
-------------------------------------------------------------------------------------------------------------------


Reconciliation of net income (loss) to net cash
  provided (absorbed) by operating activities

Net income (loss)                                                                     $263,803          $(298,465)
Adjustments to reconcile net income (loss) to net
  cash provided (absorbed) by operating activities
    Depreciation and amortization                                                      374,041            421,200
    Interest on officer's note paid with stock                                             -              (42,300)
    Gain on disposal of fixed assets                                                       -              (14,517)
    Decrease (increase) in other assets                                                    817             (4,157)
    (Increase) decrease in
      Accounts receivable - billed                                                    (549,668)          (145,529)
      Accounts receivable - unbilled                                                  (296,859)           (11,426)
      Inventories                                                                      102,030           (304,896)
      Prepaid expenses and other assets                                                 22,582             67,107
    Increase (decrease) in
      Accounts payable - trade                                                         304,193           (163,392)
      Accrued expenses and other liabilities                                            55,214            (82,001)
      Customer deposits                                                                249,851            149,491
-------------------------------------------------------------------------------------------------------------------


Net cash provided (absorbed) by operating activities                                  $526,004          $(428,885)
-------------------------------------------------------------------------------------------------------------------


Supplemental Schedule of Investing and Financing Activities
 Cash paid for interest                                                              $381,232           $ 453,939
 Treasury stock received in exchange for amount
  due from officer note receivable                                                   $   -              $(102,300)
-------------------------------------------------------------------------------------------------------------------



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






                                       F-8

</TABLE>


<PAGE>


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



                                                       Smith-Midland Corporation
                                                                and Subsidiaries

                                      Summary of Significant Accounting Policies




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


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


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

Property and 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:

                                                                           Years

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


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



                                       F-9



<PAGE>



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


                                                       Smith-Midland Corporation
                                                                and Subsidiaries

                                      Summary of Significant Accounting Policies
                                                                     (continued)


Revenue Recognition      The  Company  recognizes  revenue  on the  sale  of its
                         standard  precast  concrete  products at shipment date,
                         including  revenue  derived  from  any  projects  to be
                         completed  under  short-term  contracts.   Installation
                         services  for precast  concrete  products,  leasing and
                         royalties are  recognized as revenue as they are earned
                         on an  accrual  basis.  Licensing  fees are  recognized
                         under the accrual  method unless  collectibility  is in
                         doubt,  in which event revenue is recognized as cash is
                         received.

                         Certain  sales of Soundwall  and  Slenderwall  concrete
                         products  are  recognized   upon  completion  of  units
                         produced  under  long-term  contracts.  Provisions  for
                         estimated  losses  on these  contracts  are made in the
                         period in which such losses are determined.  Changes in
                         job  performance,  conditions and contract  settlements
                         which  affect  profit are  recognized  in the period in
                         which the changes  occur.  An amount  equal to contract
                         costs  attributable  to claims is  included in revenues
                         when  realization  is  probable  and the  amount can be
                         reliably estimated.  Unbilled trade accounts receivable
                         represents revenue earned on units produced and not yet
                         billed.



Risks and                The  Company  sells  products  to  highway  contractors
Uncertainties            operating under government  funded highway programs and
                         other   customers  and  extends   credit  based  on  an
                         evaluation  of  the  customer's   financial  condition,
                         generally  without  requiring  collateral.  Exposure to
                         losses on receivables is principally  dependent on each
                         customer's  financial  condition.  The Company monitors
                         its exposure to credit losses and maintains  allowances
                         for anticipated losses.

                         Due  to  inclement  weather,  the  Company  experiences
                         reduced  revenues  from December  through  February and
                         realizes the  substantial  part of its revenues  during
                         the other months of the year.


Fair Value               The  estimated  fair  value  of  financial  instruments
of Financial             approximate  their carrying  amounts as of December 31,
Instruments              1997 and 1996.  The  estimated  fair value of long term
                         debt is based on current  rates offered the Company for
                         debt of the same maturities.


Estimates                The  preparation of financial  statements in conformity
                         with generally accepted accounting  principles requires
                         management  to  make  estimates  and  assumptions  that
                         affect the reported  amounts of assets and  liabilities
                         at  the  date  of  the  financial  statements  and  the
                         reported  amounts of revenues and  expenses  during the
                         reporting  period.  Actual  results  could  differ from
                         those estimates.


                                      F-10



<PAGE>


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


                                                       Smith-Midland Corporation
                                                                and Subsidiaries

                                      Summary of Significant Accounting Policies
                                                                     (continued)


Earnings (Loss)          For the year  ended  December  31,  1997,  the  Company
per share                adopted Statement of Financial Accounting Standards No.
                         128  (SFAS  128),  "Earnings  Per  Share".  SFAS 128 is
                         effective for financial  statements  issued for periods
                         ending after December 15, 1997 and requires restatement
                         of all  prior  period  EPS  data  presented.  SFAS  128
                         provides  for the  calculation  of  basic  and  diluted
                         earnings  per  share.   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.   The
                         application  of this  statement  had no effect on prior
                         period EPS.



Long-Lived Assets        Effective   January  1,  1996,   the  Company   adopted
                         Statement of  Financial  Accounting  Standards  No. 121
                         (SFAS  121),   "Accounting   for  the   Impairment   of
                         Long-Lived  Assets  and  For  Long-Lived  Assets  to Be
                         Disposed Of." SFAS 121 requires that long-lived  assets
                         and  certain  intangibles  to be  held  and  used by an
                         entity  be  reviewed  for  impairment  when  events  or
                         changes in  circumstances  indicate  that the  carrying
                         amount may not be  recoverable.  In addition,  SFAS 121
                         requires  long-lived assets and certain  intangibles to
                         be  disposed of to be reported at the lower of carrying
                         amount of fair value less  costs to sell.  The  Company
                         reviews  the  carrying  values  of its  long-lived  and
                         identifiable  intangible assets for possible impairment
                         whenever  events or changes in  circumstances  indicate
                         that  the   carrying   amount  of  assets  may  not  be
                         recoverable  based  on  undiscounted  estimated  future
                         operating  cash flows.  As of December  31,  1997,  the
                         Company has determined no impairment has occurred.


Recent Accounting        In June 1997, the Financial  Accounting Standards Board
Pronouncements           issued SFAS No. 130, "Reporting  Comprehensive Income,"
                         which  establishes  standards for reporting and display
                         of comprehensive  income and its components  (revenues,
                         expenses,  gains and  losses)  in a full set of general
                         purpose financial statements. SFAS 130 is effective for
                         financial  statement  periods  beginning after December
                         15, 1997.

                         In June 1997, the Financial  Accounting Standards Board
                         issued SFAS No. 131,  "Disclosures about Segments of an
                         Enterprise and Related  Information ", (SFAS 131) which
                         supersedes  SFAS  No.  14,   Financial   Reporting  for
                         Segments of a Business Enterprise. SFAS 131 establishes
                         standards  for the way  that  public  companies  report
                         information   about   operating   segments   in  annual
                         financial statements and requires reporting of selected
                         information   about   operating   segments  in  interim
                         financial  statements  issued  to the  public.  It also
                         establishes   standards   for   disclosures   regarding
                         products  and  services,  geographic  areas  and  major
                         customers.  SFAS  131  defines  operating  segments  as
                         components of a company about which separate  financial
                         information is available that is evaluated regularly by
                         the chief  operating  decision maker in deciding how to
                         allocate resources and in assessing performance.

                         SFAS 131 is  effective  for  financial  statements  for
                         periods  beginning after December 15, 1997 and requires
                         comparative   information   for  earlier  years  to  be
                         restated.   Management  has   determined   that  future
                         financial  statements  disclosures will not be affected
                         by implementation of this standard due to the fact that
                         the Company has only one operating segment. 


                                      F-11

<PAGE>
<TABLE>

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


                                                       Smith-Midland Corporation
                                                                and Subsidiaries

                                                   Notes to Financial Statements







1.    Property and       Property and equipment consist of the following:
      Equipment
                         December 31,                                                          1997              1996
                         ----------------------------------------------------------------------------------------------
<S> <C>

                         Land and land improvements                                        $  435,110        $  349,513
                         Buildings                                                            955,386           945,805
                         Machinery and equipment                                            4,772,713         4,389,745
                         Rental equipment                                                      39,240            39,240
                         Construction in progress                                              68,612             1,558
                         ----------------------------------------------------------------------------------------------


                                                                                            6,271,061         5,725,861
                         Less: accumulated depreciation                                     4,739,999         4,344,990
                         ----------------------------------------------------------------------------------------------


                                                                                           $1,531,062        $1,380,871
                         ----------------------------------------------------------------------------------------------




2. Notes Payable         Notes payable consist of the following:
<CAPTION>
                         December 31,                                                         1997              1996
                         ---------------------------------------------------------------------------------------------


                         Note payable to Riggs Bank, maturing July 8, 1998
                          with monthly principal payments of $2,000 plus
                          interest, at a rate of prime plus
                          1.5%, 11.25% at December 31, 1997;
                          collateralized by accounts receivable.                            $935,000          $800,000

                         Note payable to John Schied,  maturing May 21,
                          1998;  with monthly  payments of $1,169 of
                          principal and interest, at a rate of 10%;
                          collateralized by certain vehicles.                                  5,699            18,451














                                      F-12
--------------------------------------------------------------------------------


                                                       Smith-Midland Corporation
                                                                and Subsidiaries

                                                   Notes to Financial Statements
                                                                     (continued)





<CAPTION>

2.    Notes Payable      December 31,                                                          1997              1996
      (continued)        ----------------------------------------------------------------------------------------------


                         Note payable to Security Bank maturing
                            July 13, 1999; monthly payments of
                            $4,280 of principal and interest, at
                            a rate of prime plus 3%; 12.75% at
                            December 31, 1997; collateralized by
                            a first deed of trust on certain
                            land.                                                            $ 83,115          $117,091

                         Note payable to Midland Loan Service
                            maturing March 1, 1999; with varying
                            monthly payments of principal and
                            interest at a rate of 14%;
                            collateralized by plant buildings.                                103,918           118,049

                         Note payable to State Bank of
                            Remington, maturing December 22,
                            2000; with monthly payments of
                            $5,788 of principal and interest, at
                            a rate of 10.75%; collateralized by
                            equipment and vehicles.                                           180,300           225,000

                         Note payable to State Bank of
                            Remington, maturing February 11,
                            1999; with monthly payments of
                            interest at a rate of 6.85%;
                            collateralized by a certificate of
                            deposit.                                                          185,689           180,300

                         Note payable to State Bank of Remington
                            maturing November 1, 2001; with
                            monthly payments of $293 of
                            principal and interest, at a rate of
                            8%; collateralized by certain vehicles.                            11,787                -















                                      F-13

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


                                                       Smith-Midland Corporation
                                                                and Subsidiaries

                                                   Notes to Financial Statements
                                                                     (continued)






<CAPTION>
2.    Notes Payable      December 31,                                                           1997             1996
      (continued)        ----------------------------------------------------------------------------------------------


                         Notes payable to Myers' trusts, each of
                            four maturing June 26, 1998; with
                            monthly payments of $3,241 of
                            principal and interest at a rate of
                            12%; collateralized by a third deed
                            of trust on land, inventory and 
                            accounts receivable.                                             $623,252          $718,650


                         Notes payable to Branch Banking and
                            Trust maturing November 5, 1998;
                            with monthly payments of $2,000 of
                            principal and interest at a rate of
                            8%; collateralized by accounts
                            receivable, inventory and equipment
                            of Smith-Carolina Corporation.                                     83,064            98,273

                         Note payable to Obrey Messick, maturing
                            May 31, 2001; with monthly payments
                            of $1,461 of principal and interest,
                            at a rate of 10%; collateralized by
                            equipment.                                                         50,559            62,383

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

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

                         Notes payable to State Bank of
                            Remington, maturing June 21, 1998;
                            with varying monthly payments of
                            principal and interest at a rate of
                            9.26%; collateralized by machinery.                                17,574            36,941







                                      F-14



<PAGE>


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


                                                       Smith-Midland Corporation
                                                                and Subsidiaries

                                                   Notes to Financial Statements
                                                                     (continued)


<CAPTION>



2.    Notes Payable      December 31,                                                           1997              1996
      (continued)        ----------------------------------------------------------------------------------------------


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

                         Notes payable to Poland Brothers Farm,
                            maturing August 2009, with monthly
                            payments of $598 of principal and
                            interest at a rate of 10.00%;
                            collateralized by land.                                            49,268                 -

                         Notes payable to United Leasing,
                            maturing June 29, 1999, with monthly
                            payments of $2,987 of principal and
                            interest at a rate of 21.7%;
                            collateralized by equipment.                                       39,974            61,668

                         Notes payable to United Leasing,
                            maturing October 4, 2000, with
                            monthly payments of $9,039 of
                            principal and interest at a rate of
                            19.7%; collateralized by equipment,
                            machinery, and a second deed of
                            trust on land.                                                    209,502           256,879

                         Installment notes and capitalized
                            leases collateralized by certain
                            machinery, equipment and stock
                            maturing at various dates, primarily
                            June 1998 and July 2001, with
                            interest rates primarily at 10% and
                            11.5%.                                                            135,440           166,077

                         Unsecured notes payable maturing at
                            various dates, primarily May 1998,
                            with interest rates primarily at
                            11.5% and 10%.                                                    134,329           266,027
                         ----------------------------------------------------------------------------------------------
                                                                                            2,958,668         3,134,377
                         Less current maturities                                            2,199,228         2,066,253
                         ----------------------------------------------------------------------------------------------
                                                                                           $  759,440        $1,068,124
                         ----------------------------------------------------------------------------------------------

</TABLE>




                                      F-15



<PAGE>


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


                                                       Smith-Midland Corporation
                                                                and Subsidiaries

                                                   Notes to Financial Statements
                                                                     (continued)







2.    Notes Payable      The Company has a  substantial  portion of its debt due
      (continued)        contractually  within the next fiscal year.  Management
                         has shown the ability to  refinance  and/or  extend its
                         debt in prior  years,  and  intends  to  extend  and/or
                         refinance  certain debt as it becomes due in 1998.  The
                         Company  currently has an outstanding  letter of intent
                         with a bank for the  placement  of a 20 year  term loan
                         which  proceeds  will be used in  part,  to  repay  its
                         existing debt with Riggs Bank and the Myers' Trust. The
                         letter of intent  also  includes a  line-of-credit  and
                         mortgage  for plant  expansion.  The  Company  also has
                         received a commitment letter from another bank, subject
                         to certain  terms,  for a $1.5  million  line of credit
                         secured by  eligible  accounts  receivable.  Management
                         believes  it will be able  to  secure  a new  borrowing
                         arrangement in the near future. Substantially all notes
                         payable  have  been   personally   guaranteed   by  the
                         Company's President and majority stockholder.


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

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

                                        1998                     $2,199,228
                                        1999                        491,813
                                        2000                        157,731
                                        2001                         67,290
                                        2002 and thereafter          42,606
                              ---------------------------------------------
                                                                 $2,958,668




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

                         Notes payable - related parties are unsecured,  with no
                         fixed  maturity  date (but no earlier  than  January 1,
                         1999) and bear interest at 10%. Total interest  expense
                         on these  notes was  $11,500  and $13,000 for the years
                         ended December 31, 1997 and 1996, respectively.







                                      F-16



<PAGE>


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


                                                       Smith-Midland Corporation
                                                                and Subsidiaries

                                                   Notes to Financial Statements
                                                                     (continued)








3.    Related Party      The Company had an unsecured note  receivable  from its
      Transactions       President  and majority  stockholder  with a seven year
      (continued)        term bearing  interest at 6%. During 1996,  $102,300 of
                         the note was  reduced  for the  Company's  purchase  of
                         40,920 common shares from the stockholder (see Note 7).
                         On  Decemeber  31,  1997 the  terms  of the  note  were
                         changed  to  call  the  annual   payments   of  $45,948
                         beginning on December 31, 1998, and continuing  through
                         maturity on December 31, 2002. Total interest income on
                         this note was approximately $39,500 and $42,300 for the
                         years ended December 31, 1997 and 1996, respectively.


                         As of December  31, 1997 and 1996,  the Company was the
                         beneficiary of individual  life  insurance  policies on
                         the life of the President  with a total cash  surrender
                         value   of   approximately   $139,000   and   $135,000,
                         respectively. Borrowings of approximately $117,500 were
                         outstanding   against  the  cash  surrender   value  at
                         December 31, 1997 and 1996, respectively.



4.    Income Taxes       The  provision for income taxes differs from the amount
                         determined  by applying the federal  statutory tax rate
                         to pre-tax income as a result of the following:
<TABLE>
<CAPTION>
<S> <C>
                         Year ended December 31,                                   1997                        1996
                         --------------------------------------------------------------------------------------------------
                                                                             Amount     Percent         Amount      Percent
                         --------------------------------------------------------------------------------------------------
                         Income taxes at statutory rate                    $   89,700     34%        $   (101,500)     34%
                         Increase (decrease) in taxes resulting from:
                         Utilization of net operating loss carryforward       (97,800)   (37)
                         Increase in valuation allowance                                                   81,700     (27)
                         Other                                                  8,100      3               19,800      (7)
                         --------------------------------------------------------------------------------------------------
                                                                           $       -       -%        $         -        -%
                         --------------------------------------------------------------------------------------------------



                         Deferred tax assets (liabilities) are as follows:

<CAPTION>
                         December 31,                                  1997            1996
                         ---------------------------------------------------------------------
<S> <C>

                         Depreciation                                $  (4,400)      $ (92,900)
                         Allowance for doubtful accounts                92,500         133,600
                         Vacation accrued                               68,300          54,600
                         Operating loss carryforwards                  753,000         790,500
                         ---------------------------------------------------------------------


                         Net deferred tax asset                        909,400         885,800
                         Deferred tax asset valuation allowance       (909,400)       (885,800)
                         ---------------------------------------------------------------------


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

</TABLE>

                         At December  31,  1997,  the Company had  approximately
                         $1,900,000   of   cumulative    net   operating    loss
                         carryforwards  with expiration  dates through  December
                         31, 2011.




5.    Employee Benefit   The Company has a 401(k)  retirement  plan (the "Plan")
      Plans              covering substantially all employees.  Participants may
                         contribute up to 10% of their compensation to the Plan.
                         The  Company   contributes  25%  of  the  participant's
                         contribution,   up   to   1%   of   the   participant's
                         compensation,   as  a  matching   contribution.   Total
                         contributions for the years ended December 31, 1997 and
                         1996 were $3,908 and $3,750, respectively.

                         Also,  the  Company  has a profit  sharing  plan  which
                         provides for employee  bonuses based upon the Company's
                         results of operations. No payments were made during the
                         years ended December 31, 1997 and 1996.



                                      F-17



<PAGE>


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


                                                       Smith-Midland Corporation
                                                                and Subsidiaries

                                                   Notes to Financial Statements
                                                                     (continued)









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

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







                                      F-18



<PAGE>


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


                                                       Smith-Midland Corporation
                                                                and Subsidiaries

                                                   Notes to Financial Statements
                                                                     (continued)










6.    Commitments        The 1994 Plan is administered by disinterested  members
      and                (as defined by Section  16b-3 of the  Exchange  Act) of
      Contingencies      the Board of Directors.  These disinterested members of
      (continued)        the Board determine those individuals who shall receive
                         options,  the time period  during which the options may
                         be partially or fully  exercised,  the number of shares
                         of  Common  Stock  that  may be  purchased  under  each
                         option,  and the option price.  The per share  exercise
                         price of the Common  Stock  subject to options  granted
                         pursuant to the 1994 Plan may not be less than the fair
                         market value of the Common Stock on the date the option
                         is  granted,  except that in the case of a grant to any
                         person who owns, directly or indirectly, at the time of
                         the granting of an incentive stock option,  10% or more
                         of the total  combined  voting  power of all classes of
                         stock of the Company (a "10% Stockholder") shall not be
                         eligible to receive any  incentive  stock options under
                         the 1994 Plan unless the option  price is at least 110%
                         of the fair market value of the Common Stock subject to
                         the   option,   determined   on  the  date  of   grant.
                         Non-qualified   options   are  not   subject   to  this
                         limitation. In a prior year the Company granted options
                         to  purchase  20,000  shares  under the 1994 Plan at an
                         exercise  price of $3.60 per  share  which was equal to
                         the  price  per  share  of  Common  Stock  sold  in the
                         Company's  initial public offering.  The options vested
                         upon the effective date of the Company's initial public
                         offering.  During the year ended  December 31, 1997 the
                         Company  granted  employees  options to purchase 18,450
                         shares of common  stock at an excise price of $1.00 per
                         share.  These options vest over a period of nine years.
                         No options have been  exercised  or  cancelled  through
                         December 31, 1997.

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













                                      F-19



<PAGE>


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


                                                       Smith-Midland Corporation
                                                                and Subsidiaries

                                                   Notes to Financial Statements
                                                                     (continued)








6.    Commitments        Specifically,  the state of Maryland adjusted its noise
      and                barrier  acceptance  criteria  over a period of several
      Contingencies      months  during  1995  with  the  latest  version  dated
      (continued)        October  13,  1995.  According  to the  Company,  these
                         changes  were  significantly  different  than  contract
                         provisions  and  historical  acceptance  criteria  upon
                         which the jobs were bid and for which the  Company  was
                         contracted.  The Company incurred  significant costs to
                         rework  panels and in certain  instances  construct new
                         panels to comply with the new standards.  Additionally,
                         the Company lost  production  time and revenue on other
                         contracts  due to  the  time  devoted  to  address  the
                         criteria  changes.  The Company has continued to pursue
                         collection  on  the  claims  filed  and  has  hired  an
                         attorney who specializes in this area. According to the
                         Company's attorney, there is substantial likelihood the
                         State Highway  Administration (SHA) will compensate the
                         prime contractors for SHA's improper  actions,  and the
                         Company   will   receive    additional    compensation.
                         Approximately  $270,000 of the total contract claims is
                         included in trade  accounts  receivable at December 31,
                         1997.

                     d)  The  company  owes  prior  benefit  plan   participants
                         approximately  $205,000  and  $211,000 at December  31,
                         1997 and 1996,  respectively,  related to the Company's
                         terminated   retirement  plan,  which  is  included  in
                         accrued expenses and other liabilities. At December 31,
                         1997,  the Company had a certificate  of deposit with a
                         balance of approximately $197,000,  which has also been
                         pledged as collateral  on a $180,300  loan, to fund the
                         plan obligation  with all interest earned  allocated to
                         the participants.

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















                                      F-20



<PAGE>


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


                                                       Smith-Midland Corporation
                                                                and Subsidiaries

                                                   Notes to Financial Statements
                                                                     (continued)








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

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
























                                      F-21


<PAGE>

                                  EXHIBIT INDEX


Exhibit
   No.                                      Title
-------                                     -----
 10a              Agreement by Roderic H. Slaton, Trustee of the Myers Trust, to
                  extend  the due dates of the four  Myers  Trust  Notes,  dated
                  April 2, 1998.

 10b              Third  Amendment  to Loan  Agreement  by and among  Riggs Bank
                  N.A., the Company and all of the Company's subsidiaries, dated
                  as of March 8, 1998.

 10c              Promissory Note from Rodney I. Smith to the Company,  dated as
                  of December 31, 1997.

 27               Financial Data Schedule