ABRAMS INDUSTRIES INC - 10-Q Quarterly Report

Former name, former address, former fiscal year, if changed since last report: N/A

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

The number of shares of $1.00 par value Common Stock of the Registrant outstanding as of February 29, 2004, was 3,057,793.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ABRAMS INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)


	January 31, 2004			April 30, 2003
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	4,048,172		$	5,157,639
Short-term investments		200,000			—
Receivables (Note 4)		7,667,127			12,902,281
Less: Allowance for doubtful accounts		(477,377	)		(492,045	)
Assets of discontinued operations (Note 5)		—			102,146
Costs and earnings in excess of billings		289,597			503,113
Income tax receivable		171,907			171,907
Deferred income taxes		607,845			610,980
Other		877,182			554,396

Total current assets		13,384,453			19,510,417

INCOME-PRODUCING PROPERTIES, net		42,891,231			43,179,037
PROPERTY AND EQUIPMENT, net		686,326			471,813
OTHER ASSETS:
Real estate held for future development or sale		3,952,812			3,952,812
Intangible assets, net (Note 8)		2,594,930			2,335,827
Goodwill (Note 8)		4,611,257			1,741,831
Other		2,777,622			2,605,361

	$	70,898,631		$	73,797,098

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Trade and subcontractors payables	$	3,924,541		$	6,163,796
Accrued expenses		1,884,082			1,831,990
Liabilities of discontinued operations (Note 5)		—			563,584
Billings in excess of costs and earnings		426,553			682,674
Bank loans payable		3,000,000			—
Current maturities of long-term debt		2,792,837			2,630,282

Total current liabilities		12,028,013			11,872,326

DEFERRED INCOME TAXES		1,839,792			2,772,132
OTHER LIABILITIES		6,530,455			4,371,374
MORTGAGE NOTES PAYABLE, less current maturities		22,442,198			23,216,407
OTHER LONG-TERM DEBT, less current maturities		9,511,738			10,306,907

Total liabilities		52,352,196			52,539,146

COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS’ EQUITY:
Common stock, $1 par value; 5,000,000 shares authorized; 3,204,081 issued and 3,057,793 outstanding in January 2004, 3,060,239 issued and 2,914,351 outstanding in April 2003		3,204,081			3,060,239
Additional paid-in capital		2,562,639			2,153,505
Deferred stock compensation		(41,414	)		(16,598	)
Retained earnings		13,496,776			16,734,753
Treasury stock, common shares, 146,288 in January 2004 and 145,888 in April 2003		(675,647	)		(673,947	)

Total shareholders’ equity		18,546,435			21,257,952

	$	70,898,631		$	73,797,098

See accompanying notes to consolidated financial statements.

ABRAMS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)


							FIRST
	THIRD QUARTER ENDED						NINE MONTHS ENDED
	JANUARY 31,						JANUARY 31,
	2004			2003			2004			2003
REVENUES:
Energy management	$	756,981		$	723,490		$	2,132,265		$	2,122,032
Facility services (Note 10)		546,744			—			546,744			—
Construction		2,378,540			11,824,634			23,787,165			46,353,243
Rental income		2,589,705			2,818,376			7,964,982			8,005,919
Real estate sales		—			434,561			—			434,561

		6,271,970			15,801,061			34,431,156			56,915,755

Interest		322			13,484			10,274			48,869
Other		23,328			10,737			85,198			53,105

		6,295,620			15,825,282			34,526,628			57,017,729

COSTS AND EXPENSES:
Energy management		383,263			432,551			1,205,870			1,165,153
Facility services (Note 10)		369,192			—			369,192			—
Construction		2,581,359			11,460,006			23,198,804			45,482,225
Rental property operating expenses, excluding interest		1,597,335			1,824,637			4,894,705			5,050,997
Cost of real estate sold		—			196,087			—			196,087

		4,931,149			13,913,281			29,668,571			51,894,462

Selling, general and administrative
Energy management		487,378			442,380			1,689,134			1,286,024
Facility services (Note 10)		244,388			—			244,388			—
Construction		607,077			734,505			2,904,568			1,649,312
Real estate		217,900			263,381			588,672			716,451
Parent		393,445			631,347			1,549,549			1,816,502

		1,950,188			2,071,613			6,976,311			5,468,289

Interest costs incurred		730,464			818,074			2,198,029			2,271,177

		7,611,801			16,802,968			38,842,911			59,633,928

LOSS BEFORE INCOME TAXES FROM CONTINUING OPERATIONS		(1,316,181	)		(977,686	)		(4,316,283	)		(2,616,199	)
INCOME TAX BENEFIT		(433,000	)		(375,000	)		(1,428,000	)		(1,012,000	)

LOSS FROM CONTINUING OPERATIONS		(883,181	)		(602,686	)		(2,888,283	)		(1,604,199	)

DISCONTINUED OPERATIONS (Note 5):
Earnings (loss) from discontinued operations, adjusted for applicable income tax expense of $0, $0, $0, and $3,413, respectively		—			(479	)		—			4,283
Gain on sale of assets of discontinued operations, adjusted for applicable income tax expense of $0, $0, $0 and $372,228, respectively		—			—			—			617,987

EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS		—			(479	)		—			622,270

NET LOSS	$	(883,181	)	$	(603,165	)	$	(2,888,283	)	$	(981,929	)

NET EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED (Note 9):
From continuing operations	$	(.30	)	$	(.21	)	$	(.98	)	$	(.55	)
From discontinued operations		—			—			—			.21

NET EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED	$	(.30	)	$	(.21	)	$	(.98	)	$	(.34	)

DIVIDENDS PER SHARE	$	.04		$	.04		$	.12		$	.12

WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED		2,980,878			2,910,051			2,936,438			2,909,771

See accompanying notes to consolidated financial statements.

ABRAMS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)


	NINE MONTHS ENDED JANUARY 31,
	2004			2003
Cash flows from operating activities:
Net loss	$	(2,888,283	)	$	(981,929	)
Adjustments to reconcile net loss to net cash used in operating activities:
Income from discontinued operations, net of tax		—			(622,270	)
Depreciation and amortization		1,809,232			1,910,170
Gain on sale of real estate		—			(238,474	)
Deferred tax benefit		(1,485,598	)		—
Recovery of doubtful accounts, net		(14,668	)		(516,936	)
Changes in assets and liabilities:
Receivables		5,737,170			388,796
Costs and earnings in excess of billings		309,756			(707,828	)
Other current assets		(255,268	)		(27,904	)
Other assets		(172,261	)		244,023
Trade and subcontractors payable		(2,778,923	)		(2,266,944	)
Accrued expenses		(26,699	)		(167,269	)
Billings in excess of costs and earnings		(511,841	)		422,883
Other liabilities		212,451			(71,815	)

Net cash used in operating activities		(64,932	)		(2,635,497	)

Cash flows from investing activities:
Proceeds from sale of real estate, net		—			422,048
Additions to income-producing properties, net		(899,456	)		(36,185	)
Additions to property and equipment, net		(46,922	)		(68,597	)
Additions to intangible assets		(65,339	)		(202,168	)
Acquisition, net of cash acquired		(1,059,210	)		—
Purchase of short-term investments		(200,000	)		—
Repayments received on notes receivable		66,147			7,543

Net cash (used in) provided by investing activities		(2,204,780	)		122,641

Cash flows from financing activities:
Debt proceeds		—			4,900,000
Proceeds from line of credit		3,000,000			—
Debt repayments		(1,583,304	)		(6,015,320	)
Deferred loan costs paid		—			(107,788	)
Repurchase of common stock		(1,700	)		(470	)
Cash dividends		(349,706	)		(349,177	)

Net cash provided by (used in) financing activities		1,065,290			(1,572,755	)

Cash flows from discontinued operations:
Operating activities		94,955			(138,787	)
Mortgage payoff		—			(12,206,700	)
Proceeds from sale of property, net of costs of sale		—			13,489,901

Net cash provided by discontinued operations		94,955			1,144,414

Net decrease in cash and cash equivalents		(1,109,467	)		(2,941,197	)
Cash and cash equivalents at beginning of period		5,157,639			7,911,205

Cash and cash equivalents at end of period	$	4,048,172		$	4,970,008

Supplemental disclosure of noncash financing activities:
Issuance of common stock under Stock Award Plan	$	41,700		$	5,500

See accompanying notes to consolidated financial statements.

ABRAMS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2004, AND APRIL 30, 2003
(UNAUDITED)

NOTE 1. ORGANIZATION AND BUSINESS

Abrams Industries, Inc. (together with its subsidiaries, the “Company”) was organized under Delaware law in 1960. In 1984, the Company changed its state of incorporation from Delaware to Georgia. The Company (i) provides energy management and maintenance management services; (ii) provides facility services including energy efficient lighting system installation services; (iii) provides commercial construction services; and (iv) engages in real estate investment and development.

NOTE 2. UNAUDITED STATEMENTS

The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to such rules and regulations, although management believes that the accompanying disclosures are adequate to make the information presented not misleading. In the opinion of management, the accompanying financial statements contain all adjustments, consisting of normal recurring accruals, that are necessary for a fair statement of the results for the interim periods presented. These financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended April 30, 2003. Results of operations for interim periods are not necessarily indicative of annual results.

NOTE 3. SIGNIFICANT ACCOUNTING POLICIES

As of January 31, 2003, the Company adopted the fair value disclosure provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” Under SFAS No. 148, the Company is required to disclose the effects on reported net (loss) earnings with respect to stock-based compensation.

For purposes of the required pro forma disclosures, the Company has computed the value of all stock option awards granted for the third quarter and nine months ended January 31, 2004, and January 31, 2003, using the Black-Scholes option pricing model.

Options to purchase 690,592 shares were outstanding at January 31, 2004, of which 303,592 options were vested. The Company granted 186,000 stock options and 10,000 shares of stock in the third quarter and in the nine months ended January 31, 2004. No options or shares of stock were granted in the third quarter ended January 31, 2003, and 609,000 options and 1,100 shares of stock were granted in the nine months ended January 31, 2003. The number of options forfeited in the third quarter of fiscal 2004 and fiscal 2003 was 23,294 and 12,683, respectively. The number of options forfeited in the nine months of fiscal 2004 and fiscal 2003 was 237,294 and 17,183, respectively. If the Company had accounted for its stock-based compensation awards in accordance with SFAS No. 123, pro forma results would have been as follows:


	Quarter						Nine Months
	Ended January 31,						Ended January 31,
	2004			2003			2004			2003
Net loss, as reported	$	(883,181	)	$	(603,165	)	$	(2,888,283	)	$	(981,929	)
Deduct: Total stock-based compensation expense as determined under fair value based method for all awards, net of related tax effects		(62,920	)		(51,098	)		(136,042	)		(114,974	)
Add: Forfeitures, net of related tax effects		10,631			1,630			119,778			1,947

Pro forma net loss	$	(935,470	)	$	(652,633	)	$	(2,904,547	)	$	(1,094,956	)

Net loss per share:
Basic and diluted - as reported	$	(0.30	)	$	(0.21	)	$	(0.98	)	$	(0.34	)

Basic and diluted - pro forma	$	(0.31	)	$	(0.22	)	$	(0.99	)	$	(0.38	)

NOTE 4. RECEIVABLES

All net contract and trade receivables are expected to be collected within one year.

NOTE 5. DISCONTINUED OPERATIONS

The Company is in the business of creating long-term value by periodically realizing gains through the sale of existing real estate assets, and then redeploying its capital by reinvesting the proceeds from such sales. Effective May 1, 2002, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which requires, among other things, that the operating results of certain income-producing assets, sold subsequent to April 30, 2002, be included in discontinued operations in the statements of operations for all periods presented. The Company classifies an asset as held for sale when the asset is under a binding sales contract with minimal contingencies and the buyer is materially at risk if the buyer fails to complete the transaction. However, each potential transaction is evaluated based on its separate facts and circumstances. Pursuant to this standard, as of January 31, 2004, the Company had no assets that were classified as held for disposition or sale. In February 2004, however, the Company entered into a contract to sell its shopping center located in North Fort Myers, Florida, which sale closed in March 2004. See Note 11 to the consolidated financial statements.

On June 28, 2002, the Company sold its shopping center located in Englewood, Florida, and recognized a pretax gain of $990,215. As a result of the sale, the Company’s financial statements have been prepared with the property’s assets and liabilities, results of operations, cash flows, and the gain from the sale shown as discontinued operations. Summarized financial information for discontinued operations for the third quarter and nine months ended January 31 is as follows:


	Quarter ended
	January 31,
Results of operations	2004		2003
Revenues	$	—	$	—
Operating expenses, including amortization and interest		—		479

	$	—	$	(479	)


	Nine months ended
	January 31,
Results of operations	2004		2003
Revenues	$	—	$	289,173
Operating expenses, including amortization and interest		—		281,477

	$	—	$	7,696


	Balances at
Assets of discontinued operations	January 31, 2004		April 30, 2003
Receivables	$	—	$	57,020
Other		—		45,126

	$	—	$	102,146


	Balances at
Liabilities of discontinued operations	January 31, 2004		April 30, 2003
Income taxes	$	—	$	476,635
Accrued expenses		—		86,949

	$	—	$	563,584

NOTE 6. OPERATING SEGMENTS

The table below exhibits selected financial data on a segment basis. Earnings (loss) from continuing operations before income taxes are total revenues of continuing operations less operating expenses of continuing operations, including depreciation and interest. Parent company expenses have not been allocated to the subsidiaries.


Georgia		58-0522129
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer identification No.)


PART I. FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
EX-31.(A) SECTION 302 CERTIFICATION OF THE CEO
EX-31.(B) SECTION 302 CERTIFICATION OF THE CFO
EX-32.(A) SECTION 906 CERTIFICATION OF THE CEO
EX-32.(B) SECTION 906 CERTIFICATION OF THE CFO


					Facility
For the Quarter Ended		Energy			Services
January 31, 2004		Management			(Note 10)			Construction			Real Estate		Parent			Eliminations			Consolidated

Revenues from unaffiliated customers		$	756,981		$	546,744		$	2,378,540		$	2,589,705	$	—		$	—		$	6,271,970
Interest and other income			—						12,820			10,656		174			—			23,650
Intersegment revenue			—						702,977			117,041		—			(820,018	)		—

	Total revenues from continuing operations	$	756,981		$	546,744		$	3,094,337		$	2,717,402	$	174		$	(820,018	)	$	6,295,620

Earnings (loss) before income taxes from continuing operations		$	(114,025	)	$	(70,559	)	$	(849,530	)	$	188,056	$	(450,150	)	$	(19,973	)	$	(1,316,181	)


					Facility

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