ABRAMS INDUSTRIES INC - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT

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

For the quarter ended October 31, 2003

Commission file number 0-10146

ABRAMS INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)


Georgia		58-0522129

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

1945 The Exchange, Suite 300, Atlanta, GA 30339-2029

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (770) 953-0304

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.

Yes þ No o

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

Yes o No þ

The number of shares of $1.00 par value Common Stock of the Registrant outstanding as of November 30, 2003, was 2,914,051.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	ITEM 1. 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 3. LEGAL PROCEEDINGS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
EX-31.1(A) SECTION 302 CERTIFICATION OF THE CEO
EX-31.2(B) SECTION 302 CERTIFICATION OF THE CFO
EX-32.1(A) SECTION 906 CERTIFICATION OF THE CEO
EX-32.2(B) SECTION 906 CERTIFICATION OF THE CFO

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ABRAMS INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)


				October 31, 2003			April 30, 2003

ASSETS
CURRENT ASSETS:
	Cash and cash equivalents			$	3,786,193		$	5,157,639
	Receivables (Note 4)				10,189,078			12,902,281
		Less: Allowance for doubtful accounts			(511,459	)		(492,045	)
	Assets of discontinued operations (Note 5)				—			102,146
	Costs and earnings in excess of billings				1,048,216			503,113
	Income tax receivable				171,907			171,907
	Deferred income taxes				607,845			610,980
	Other				756,778			554,396

			Total current assets		16,048,558			19,510,417

INCOME-PRODUCING PROPERTIES, net					42,541,128			43,179,037
PROPERTY AND EQUIPMENT, net					383,642			471,813
OTHER ASSETS:
	Real estate held for future development or sale				3,952,812			3,952,812
	Intangible assets, net (Note 8)				2,166,427			2,335,827
	Goodwill (Note 8)				1,741,831			1,741,831
	Other				2,587,595			2,605,361

				$	69,421,993		$	73,797,098

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
	Trade and subcontractors payables			$	5,670,891		$	6,163,796
	Accrued expenses				2,236,350			1,831,990
	Liabilities of discontinued operations (Note 5)				—			563,584
	Billings in excess of costs and earnings				605,284			682,674
	Current maturities of long-term debt				2,686,874			2,630,282

			Total current liabilities		11,199,399			11,872,326

DEFERRED INCOME TAXES					2,294,468			2,772,132
OTHER LIABILITIES					4,420,239			4,371,374
MORTGAGE NOTES PAYABLE, less current maturities					22,697,555			23,216,407
OTHER LONG-TERM DEBT, less current maturities					9,781,245			10,306,907

			Total liabilities		50,392,906			52,539,146

COMMITMENTS AND CONTINGENCIES (Note 9)

SHAREHOLDERS’ EQUITY:
	Common stock, $1 par value; 5,000,000 shares authorized; 3,060,239 issued and 2,914,151 outstanding in October 2003, 3,060,239 issued and 2,914,351 outstanding in April 2003				3,060,239			3,060,239
	Additional paid-in capital				2,153,505			2,153,505
	Deferred stock compensation				(6,329	)		(16,598	)
	Retained earnings				14,496,519			16,734,753
	Treasury stock, common shares, 146,088 in October 2003 and 145,888 in April 2003				(674,847	)		(673,947	)

			Total shareholders’ equity		19,029,087			21,257,952

				$	69,421,993		$	73,797,098

See accompanying notes to consolidated financial statements.

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


				SECOND QUARTER ENDED						FIRST SIX MONTHS ENDED
				OCTOBER 31,						OCTOBER 31,

				2003			2002			2003			2002

REVENUES:
	Construction			$	10,375,580		$	20,100,576		$	21,408,625		$	34,528,609
	Rental income				2,649,560			2,616,381			5,375,277			5,187,543
	Energy management				716,480			732,955			1,375,284			1,398,542

					13,741,620			23,449,912			28,159,186			41,114,694
	Interest				4,116			19,378			9,952			35,385
	Other				47,863			840			61,870			42,368

					13,793,599			23,470,130			28,231,008			41,192,447

COSTS AND EXPENSES:
	Construction				9,997,762			19,776,804			20,617,445			34,022,219
	Rental property operating expenses, excluding interest				1,678,047			1,565,132			3,297,370			3,226,360
	Energy management				418,632			320,582			822,607			732,602

					12,094,441			21,662,518			24,737,422			37,981,181

	Selling, general and administrative
		Construction			1,251,845			711,342			2,297,491			914,807
		Real estate			145,046			248,629			370,772			453,070
		Energy management			638,029			454,570			1,201,756			843,644
		Parent			525,987			550,622			1,156,104			1,185,155

					2,560,907			1,965,163			5,026,123			3,396,676

Interest costs incurred					724,947			717,801			1,467,565			1,453,103

					15,380,295			24,345,482			31,231,110			42,830,960

			LOSS BEFORE INCOME TAXES FROM CONTINUING OPERATIONS		(1,586,696	)		(875,352	)		(3,000,102	)		(1,638,513	)
INCOME TAX BENEFIT					(530,000	)		(338,787	)		(995,000	)		(637,000	)

			LOSS FROM CONTINUING OPERATIONS		(1,056,696	)		(536,565	)		(2,005,102	)		(1,001,513	)

DISCONTINUED OPERATIONS (Note 5):
	Earnings (loss) from discontinued operations, adjusted for applicable income tax expense (benefit) of $0, $(3,195), $0 and $3,413, respectively				—			(6,017	)		—			4,762
	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		—			(6,017	)		—			622,749

			NET LOSS	$	(1,056,696	)	$	(542,582	)	$	(2,005,102	)	$	(378,764	)

NET LOSS PER SHARE - BASIC AND DILUTED (Note 7):
	From continuing operations			$	(.36	)	$	(.18	)	$	(.69	)	$	(.34	)
	From discontinued operations				—			—			—			.21

	NET LOSS PER SHARE - BASIC AND DILUTED			$	(.36	)	$	(.18	)	$	(.69	)	$	(.13	)

DIVIDENDS PER SHARE				$	.04		$	.04		$	.08		$	.08

WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED					2,914,167			2,910,148			2,914,219			2,909,632

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS


				SIX MONTHS ENDED OCTOBER 31,

				2003			2002

Cash flows from operating activities:
	Net loss			$	(2,005,102	)	$	(378,764	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Income from discontinued operations, net of tax			—			(622,749	)
		Depreciation and amortization			1,210,245			1,296,671
		Deferred tax benefit			(1,030,922	)		—
		Recovery of doubtful accounts, net			(19,414	)		(506,386	)
		Changes in assets and liabilities:
			Receivables, net		2,685,884			(2,006,036	)
			Costs and earnings in excess of billings		(545,103	)		163,353
			Other current assets		(202,382	)		(101,826	)
			Other assets		17,766			86,871
			Trade and subcontractors payable		(492,905	)		552,885
			Accrued expenses		404,360			169,813
			Billings in excess of costs and earnings		(77,390	)		54,409
			Other liabilities		48,865			(92,375	)

		Net cash used in operating activities			(6,098	)		(1,384,134	)

Cash flows from investing activities:
	Additions to income-producing properties, net				(154,296	)		(36,186	)
	Additions to property and equipment, net				(31,819	)		(57,414	)
	Additions to intangible assets				(61,298	)		(165,464	)
	Repayments received on notes receivable				66,147			4,967

		Net cash used in investing activities			(181,266	)		(254,097	)

Cash flows from financing activities:
	Debt proceeds				—			4,900,000
	Debt repayments				(1,045,893	)		(5,518,284	)
	Deferred loan costs paid				—			(107,788	)
	Repurchase of common stock				—			(470	)
	Cash dividends				(233,144	)		(232,770	)

		Net cash used in financing activities			(1,279,037	)		(959,312	)

Cash flows from discontinued operations:
	Operating activities				94,955			(120,325	)
	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			1,162,876

Net decrease in cash and cash equivalents					(1,371,446	)		(1,434,667	)
Cash and cash equivalents at beginning of period					5,157,639			7,911,205

Cash and cash equivalents at end of period				$	3,786,193		$	6,476,538

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

See accompanying notes to consolidated financial statements.

ABRAMS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2003, 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 engages in: (i) commercial construction services; (ii) real estate investment and development; and (iii) energy and maintenance management.

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.

Certain reclassifications have been made to the fiscal 2003 consolidated financial statements to conform to classifications adopted in fiscal 2004.

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 second quarter and six months ended October 31, 2003, and 2002, using the Black-Scholes option pricing model.

Options to purchase 672,252 shares were outstanding at October 31, 2003, of which 425,252 options were vested. No stock options or stock awards were granted in the second quarter or six months ended October 31, 2003. No options were granted in the second quarter ended October 31, 2002, and 609,000 options were granted in the six months ended October 31, 2002. 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						Six Months
		Ended October 31,						Ended October 31,

		2003			2002			2003			2002

Net loss, as reported		$	(1,056,696	)	$	(542,582	)	$	(2,005,102	)	$	(378,764	)
Deduct: Total stock-based compensation expense as determined under fair value based method for all awards, net of related tax effects			(42,095	)		(54,322	)		(86,228	)		(66,549	)

Pro forma net loss		$	(1,098,791	)	$	(596,904	)	$	(2,091,330	)	$	(445,313	)

Net loss per share:
	Basic and diluted - as reported	$	(0.36	)	$	(0.18	)	$	(0.69	)	$	(0.13	)

	Basic and diluted - pro forma	$	(0.38	)	$	(0.21	)	$	(0.72	)	$	(0.15	)

NOTE 4. RECEIVABLES

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

NOTE 5. DISCONTINUED OPERATIONS

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. 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. As of October 31, 2003, the Company had no assets that qualified as held for disposition or sale as defined by SFAS No. 144. Summarized financial information for discontinued operations for the second quarter and six months ended October 31 is as follows:


	Quarter ended
	October 31,
Results of operations	2003		2002

Revenues	$	—	$	—
Operating expenses, including amortization and interest		—		9,212

	$	—	$	(9,212	)


	Six months ended
	October 31,
Results of operations	2003		2002

Revenues	$	—	$	289,173
Operating expenses, including amortization and interest		—		280,998

	$	—	$	8,175


	Balances at
Assets of discontinued operations	October 31, 2003		April 30, 2003

Receivables	$	—	$	57,020
Other		—		45,126

	$	—	$	102,146


	Balances at
Liabilities of discontinued operations	October 31, 2003		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 less operating expenses of continuing operations, including depreciation and interest. Parent company expenses have not been allocated to the subsidiaries.


							Energy
For the Quarter Ended October 31, 2003		Construction			Real Estate		Management			Parent			Eliminations			Consolidated

Revenues from unaffiliated customers		$	10,375,580		$	2,649,560	$	716,480		$	—		$	—		$	13,741,620
Interest and other income			568			51,352		—			59			—			51,979
Intersegment revenue			98,422			114,439		—			—			(212,861	)		—

	Total revenues from continuing operations	$	10,474,570		$	2,815,351	$	716,480		$	59		$	(212,861	)	$	13,793,599

Earnings (loss) before income taxes from continuing operations		$	(937,245	)	$	264,168	$	(340,700	)	$	(576,489	)	$	3,570		$	(1,586,696	)


							Energy
For the Quarter Ended October 31, 2002		Construction			Real Estate		Management			Parent			Eliminations			Consolidated

Revenues from unaffiliated customers		$	20,100,576		$	2,616,381	$	732,955		$	—		$	—		$	23,449,912
Interest and other income			3,157			12,417		—			4,644			—			20,218
Intersegment revenue			—			112,388		—			—			(112,388	)		—

	Total revenues from continuing operations	$	20,103,733		$	2,741,186	$	732,955		$	4,644		$	(112,388	)	$	23,470,130

Earnings (loss) before income taxes from continuing operations		$	(450,797	)	$	207,781	$	(42,429	)	$	(597,066	)	$	7,159		$	(875,352	)


							Energy
For the Six Months Ended October 31, 2003		Construction			Real Estate		Management			Parent			Eliminations			Consolidated

Revenues from unaffiliated customers		$	21,408,625		$	5,375,277	$	1,375,284		$	—		$	—		$	28,159,186
Interest and other income			1,290			69,167		—			1,365			—			71,822
Intersegment revenue			98,422			227,932		—			—			(326,354	)		—

	Total revenues from continuing operations	$	21,508,337		$	5,672,376	$	1,375,284		$	1,365		$	(326,354	)	$	28,231,008

Earnings (loss) before income taxes from continuing operations		$	(1,635,843	)	$	529,759	$	(649,854	)	$	(1,254,895	)	$	10,731		$	(3,000,102	)


							Energy
For the Six Months Ended October 31, 2002		Construction			Real Estate		Management			Parent			Eliminations			Consolidated

Revenues from unaffiliated customers		$	34,528,609		$	5,187,543	$	1,398,542		$	—		$	—		$	41,114,694
Interest and other income			8,116			56,785		—			19,186			(6,334	)		77,753
Intersegment revenue			—			222,563		—			—			(222,563	)		—

	Total revenues from continuing operations	$	34,536,725		$	5,466,891	$	1,398,542		$	19,186		$	(228,897	)	$	41,192,447

Earnings (loss) before income taxes from continuing operations		$	(532,242	)	$	331,326	$	(184,683	)	$	(1,267,239	)	$	14,325		$	(1,638,513	)

NOTE 7. EARNINGS (LOSS) PER SHARE

Basic earnings per share are computed by dividing net earnings (loss) by the weighted average shares outstanding during the reporting period. Diluted earnings per share are computed giving effect to dilutive stock equivalents resulting from outstanding stock options. The dilutive effect on the number of common shares for the second quarter and the first six months of fiscal 2004 were 0 for both periods, and were 12,119 and 20,822 for the second quarter and the first six months of fiscal 2003, respectively. Since the Company had losses from continuing operations for all periods presented, all stock equivalents were antidilutive during these periods, and are therefore excluded when determining the diluted weighted average shares outstanding.

NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS

The gross carrying amounts and accumulated amortization for all of the Company’s intangible assets as of October 31, 2003, are as follows:


	Gross Carrying		Accumulated
Amortized intangible assets	Amount		Amortization

Proprietary customer software solutions	$	969,386	$	485,252
Computer software		352,339		299,736
Real estate lease costs		1,639,215		779,757
Deferred loan costs		946,954		513,477
Other		28,660		7,166

	$	3,936,554	$	2,085,388


Unamortized intangible assets

Goodwill	$	1,741,831
Trademark		315,261

	$	2,057,092

NOTE 9. COMMITMENTS AND CONTINGENCIES

As previously disclosed on Form 10-K for the year ended April 30, 2003, the Company announced on July 7, 2003, that an internal investigation, which was conducted by the Company’s legal counsel at the request of senior management, revealed information suggesting that behavior in violation of Federal antitrust laws may have taken place in a certain job bidding process for one customer of the Company’s subsidiary, Abrams Construction, Inc. The results of this investigation were reported to the Board of Directors of the Company on June 9, 2003. The Company has also voluntarily communicated the results of its investigation to the United States Department of Justice (“DOJ”) and is fully cooperating in the inquiry that resulted. The DOJ, on July 1, 2003, issued a conditional letter of amnesty to the Company and its subsidiaries for their cooperation in recognizing and then immediately reporting the irregularities. The Company believes, based on its internal investigation, that the specific improprieties were confined to a bidding process for The Home Depot, Inc. (“Home Depot”), its largest customer. At this time, the Company has no reason to believe that any other customers were affected by such behavior. The Company has also communicated its concerns about the job bidding process to Home Depot. The Company has conducted extensive additional training of all employees and has implemented additional procedures to prevent a recurrence of this behavior. Costs associated with this matter, including the Company’s internal investigation and its ongoing cooperation with the DOJ, are estimated to approximate

$1.2 million in the current fiscal year ending April 30, 2004. Such cost estimates, however, are particularly difficult to make with any precision, and as a result the actual costs may be lower or higher than this amount. To date, no third party has made, or threatened to make, any claim in connection with this matter. It is possible, however, that claims could be made as a result of this situation.

On December 18, 2002, ASK Financial, counsel for Montgomery Ward LLC (“Ward”), filed a complaint in U.S. Bankruptcy Court in Delaware to recover approximately $1.84 million in alleged “preference” payments made by Montgomery Ward & Company to the Company, prior to Montgomery Ward & Company’s Chapter 11 bankruptcy filing on December 28, 2000. During the second quarter of fiscal 2004, the Company reached an agreement with representatives of the Ward estate to settle the claim for $84,184. The funds were paid and the claim was released in November 2003.

On September 20, 2002, the Company’s subsidiary, Abrams Properties, Inc. (“API”), filed a claim in the Superior Court of Cobb County, Georgia, against API’s former real estate asset manager. The defendant subsequently made a demand against API for arbitration and filed a counterclaim. In January 2003, the Cobb County Superior Court denied the defendant’s demand for arbitration, but in July 2003 this decision was reversed by the Georgia Court of Appeals. The Company sought certiorari from the state of Georgia Supreme Court, which was denied in November 2003. The case was remanded to the Cobb County Superior Court. The dispute arises out of the defendant’s former provision of real estate asset management services to API. The Company believes API’s claims against its former asset manager and its defenses to the manager’s claims are meritorious and intends to continue to vigorously pursue its claims and assert its defenses.

Other than the costs of the Company’s internal investigation and ongoing cooperation associated with the DOJ, the Company believes the ultimate disposition of the above noted legal proceedings and claims or potential claims, and those previously disclosed on Form 10-K for the year ended April 30, 2003, will not have a material adverse affect on the financial condition, cash flows, or results of operations of the Company; however, the Company cannot predict the ultimate disposition of the above noted claims, potential claims and proceedings, and therefore, the Company cannot be certain that the above noted legal proceedings and claims or potential claims will not have a material adverse affect on the financial condition, cash flows, or results of operations of the Company.

The Company is subject to other various legal proceedings and claims that arise in the ordinary course of business. While the resolution of these matters cannot be predicted with certainty, the Company believes that the final outcome of these matters will not have a material adverse effect on the Company’s financial position or results of operations.

ITEM 2. 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, including the notes to those statements, which are presented elsewhere in this report. The Company also recommends that this discussion and analysis be read in conjunction with management’s discussion and analysis and consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended April 30, 2003.

The Company’s fiscal year 2004 ends April 30, 2004.

Changes in CONSOLIDATED BALANCE SHEETS between April 30, 2003, and October 31, 2003

Net accounts receivable decreased by $2,732,617, primarily due to the timing of the submission and payment of invoices for construction work performed and a decrease in construction revenues.

Costs and earnings in excess of billings increased by $545,103 primarily due to the timing of the submission of invoices for construction work performed.

Accrued expenses increased by $404,360, primarily due to legal costs that had been incurred, but that had not been billed as of October 31, 2003, related to the legal proceedings discussed in Note 9 to the consolidated financial statements.

Results of operations of the second quarter and first six months of fiscal 2004 compared to the second quarter and first six months of fiscal 2003

REVENUES From Continuing Operations

For the second quarter of fiscal 2004, consolidated revenues from continuing operations, including interest income and other income, and net of intersegment eliminations, were $13,793,599, compared to $23,470,130 for the second quarter of fiscal 2003, a decrease of 41%. For the first six months of fiscal 2004, consolidated revenues from continuing operations were $28,231,008, compared to $41,192,447 for the first six months of fiscal 2003, a decrease of 31%.

The figures in Chart A are segment revenues from continuing operations, net of intersegment eliminations, and do not include interest income or other income.

CHART A
REVENUES FROM CONTINUING OPERATIONS SUMMARY BY SEGMENT
(Dollars in Thousands)


	Second Quarter Ended										Six Months Ended
	October 31,				Amount			Percent			October 31,				Amount			Percent
					Increase			Increase							Increase			Increase
	2003		2002		(Decrease)			(Decrease)			2003		2002		(Decrease)			(Decrease)

Construction (1)	$	10,376	$	20,101	$	(9,725	)		(48	)	$	21,409	$	34,529	$	(13,120	)		(38	)
Real Estate (2)		2,650		2,616		34			1			5,375		5,187		188			4
Energy Management		716		733		(17	)		(2	)		1,375		1,399		(24	)		(2	)

	$	13,742	$	23,450	$	(9,708	)		(41	)	$	28,159	$	41,115	$	(12,956	)		(32	)

NOTES TO CHART A

(1) Revenues decreased for the second quarter and the first six months of fiscal 2004 from the comparable periods in 2003 primarily due to the Company’s ongoing election to reduce revenue volume rather than contract at prices that offer the Company unacceptable levels of potential profitability on a number of jobs for the Company’s largest customer (revenues from this customer decreased by approximately $8.5 million in the second quarter and $11.7 million in the first six months of 2004 as compared to the same periods in 2003, a 55% and 46% decrease, respectively). The Company is currently not negotiating or bidding any new work for this customer. A majority of the revenues in fiscal 2003 and the second quarter and first six months of fiscal 2004 were from jobs that the Company would not bid on today, because they would not meet the Company’s current profitability and risk criteria. The Company expects the trend of decreasing revenues from its largest customer to continue. The Company has continued to see a reduction in the number of construction jobs available in a very competitive marketplace, which is a result of a continuing weakness in capital spending by many retail companies. These factors are expected to continue to depress construction segment revenues, as is reflected in the construction backlog table below. Although the Company has seen little indication that the possible construction job bidding improprieties described in Note 9 to the consolidated financial statements will negatively impact the Company’s ability to achieve future revenues, there can be no assurance that these possible improprieties will not have such effect. In fiscal 2003, the Company increased its new business development capabilities and continues in its efforts to identify customers and contracts that place more value on the Company’s high quality and high service approach. Additionally, it is currently exploring different commercial market sectors for potential opportunities to broaden and increase construction segment revenues.

(2) Revenues for the first six months of fiscal 2004 increased from that in 2003 primarily due to an increase in common area maintenance income of approximately $181,000 and percentage rent of approximately $56,000.

The following table indicates the backlog of contracts and rental income for the next twelve months, by industry segment.


		October 31,

		2003			2002

Construction (1)		$	2,746,000		$	15,011,000
Real Estate-rental income (2)			9,070,000			9,172,000
Real Estate-sales (3)			—			850,000
Energy Management (4)			664,000			619,000
	Less: Intersegment eliminations		(935,000	)		(467,000	)

	Total Backlog	$	11,545,000		$	25,185,000

(1) See Note 1 to Chart A above. The intersegment eliminations reported include intercompany revenues of $493,000 related to construction work to be performed for the real estate segment at one of its shopping centers.

(2) Included in Real Estate-rental income at October 30, 2002, is approximately $255,000 related to a Kmart leaseback sublease that was terminated by the Company in November 2003. This amount is offset by several lease renewals in fiscal 2004.

(3) Contracts to sell an outparcel in Jackson, Michigan, and an outparcel and an anchor store pad in Davenport, Iowa were included in Real estate-sales backlog at October 31, 2002. The Davenport properties and the Jackson outparcel were each sold at a gain. Real estate backlog at October 31, 2003, does not include a contract, which has been executed, to sell the Company’s remaining undeveloped land in Oakwood, Georgia, for approximately $1.5 million. The contract may be cancelled on or before March 1, 2004. The intersegment eliminations reported include intercompany rent of $442,000 and $467,000 as of October 31, 2003 and 2002, respectively.

(4) All energy management contracts that can be cancelled with less than one year’s notice are not included in backlog. As of October 31, 2003, and 2002, such contracts totaled $1.09 million and $1.05 million, respectively, in potential revenue over the next twelve months, assuming cancellation provisions are not invoked.

COSTS AND EXPENSES APPLICABLE TO REVENUES
From Continuing Operations

As a percentage of total segment revenues from continuing operations (See Chart A) for the second quarters and the first six months of fiscal 2004 and 2003, the total applicable costs and expenses (See Chart B) were 88% and 92%, respectively. In reviewing Chart B, the reader should recognize that the volume of revenues generally will affect the amounts and percentages.

The figures in Chart B are net of intersegment eliminations.

CHART B
COSTS AND EXPENSES APPLICABLE TO REVENUES
FROM CONTINUING OPERATIONS SUMMARY BY SEGMENT
(Dollars in Thousands)


					Percent of Segment								Percent of Segment
					Revenues for								Revenues for
	Second Quarter Ended				Second Quarter Ended				Six Months Ended				Six Months Ended
	October 31,				October 31,				October 31,				October 31,

	2003		2002		2003		2002		2003		2002		2003		2002

Construction (1)	$	9,998	$	19,777		96		98	$	20,617	$	34,022		96		99
Real Estate (2)		1,678		1,565		63		60		3,297		3,226		61		62
Energy Management (3)		419		321		59		44		823		733		60		52

	$	12,095	$	21,663		88		92	$	24,737	$	37,981		88		92

NOTES TO CHART B

(1) The decrease in the percentage of costs and expenses applicable to revenues for the second quarter and first six months of fiscal 2004 compared to the same periods in 2003 is primarily attributable to a reduction in the number of loss jobs and the amount of losses taken on jobs as well as better profitability on a few jobs than comparable work in prior periods.

(2) The increase in the dollar amount and percentage of costs and expenses applicable to revenues from continuing operations for the second quarter of fiscal 2004 compared to the same period in 2003 is primarily attributable to: (a) an increase in fiscal 2004 common area maintenance expenses (See Note 2 to Chart A) of approximately $61,000; (b) recoveries of bad debt expense of approximately $86,000 in fiscal 2003, which reduced costs and expenses for that period; and (c) the Company no longer outsourcing asset management responsibilities resulting in a decrease in fiscal 2004 management fees of approximately $42,000.

(3) The increase in the dollar amount and percentage of costs and expenses applicable to revenues from continuing operations for the second quarter and first six months of fiscal 2004 compared to the same periods in 2003 is primarily a result of the change in the mix of services and products sold as well as an increase in personnel and personnel related costs incurred in order to enhance the quality of the Company’s service offerings.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
From Continuing Operations

For the second quarters of fiscal 2004 and 2003, selling, general and administrative expenses from continuing operations, net of intersegment eliminations, were $2,560,907 and $1,965,163, respectively. As a percentage of consolidated revenues from continuing operations, these expenses were 19% and 8%, respectively. For the first six months of 2004 and 2003, selling, general and administrative expenses from continuing operations, net of intersegment eliminations, were $5,026,123 and $3,396,676, respectively. As a percentage of consolidated revenues from continuing operations, these expenses were 18% and 8%, respectively. In reviewing Chart C, the reader should recognize that the volume of revenues generally will affect the amounts and percentages. The percentages in Chart C are based upon expenses as they relate to segment revenues from continuing operations (Chart A), except that parent and total expenses relate to consolidated revenues from continuing operations.

CHART C
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
FROM CONTINUING OPERATIONS BY SEGMENT
(Dollars in Thousands)


					Percent of Segment								Percent of Segment
					Revenues for								Revenues for
	Second Quarter Ended				Second Quarter Ended				Six Months Ended				Six Months Ended
	October 31,				October 31,				October 31,				October 31,

	2003		2002		2003		2002		2003		2002		2003		2002

Construction (1)	$	1,252	$	711		12		4	$	2,297	$	915		11		3
Real Estate (2)		145		249		5		10		371		453		7		9
Energy Management (3)		638		455		89		62		1,202		844		87		60
Parent (4)		526		550		4		2		1,156		1,185		4		3

	$	2,561	$	1,965		19		8	$	5,026	$	3,397		18		8

NOTES TO CHART C

(1) On a dollar and percentage basis, selling, general and administrative expenses were higher for the second quarter and for the first six months of fiscal 2004 compared to the same periods in 2003 primarily due to: (a) an increase in legal and professional fees in the second quarters and the first six months of fiscal 2004 of approximately $535,000 and $902,000, respectively, primarily due to

the Company’s internal investigation and ongoing cooperation with the U.S. Department of Justice as discussed in Note 9 to the consolidated financial statements; (b) the one-time reduction of $450,000 in the first six months of fiscal 2004 relating to fiscal 2003 expenses, resulting from the decrease in an allowance for doubtful accounts reserve for a receivable from Montgomery Ward & Company; offset by (c) a reduction in salary costs of $112,000 and $136,000 offset by hiring and severance costs of $51,000 and $98,000 in the second quarter and first six months of fiscal 2004, respectively.

(2) On a dollar and percentage basis, selling, general and administrative expenses were lower for the second quarter and the first six months of fiscal 2004 compared to the same periods in 2003 primarily due to: (a) the decrease in legal and professional fees of approximately $89,500 and $65,000 in the second quarter and first six months of fiscal 2004, respectively; and (b) the decrease in asset management fees paid to a third party of approximately $43,500 and $87,000 in the second quarter and the first six months of fiscal 2004, respectively.

(3) On a dollar and percentage basis, selling, general and administrative expenses were higher for the second quarter and first six months of fiscal 2004 compared to the same periods in 2003, primarily due to an increase in the number of personnel and other personnel costs. Such personnel related costs are primarily a result of enhanced sales and marketing resources as well as severance costs.

(4) Although, selling, general and administrative expenses were lower on a dollar basis, on a percentage basis, selling, general and administrative expenses were higher for the second quarter and the first six months of fiscal 2004 compared to the same periods in 2003 primarily due to the reduction of revenues.

Liquidity and capital resources

Between April 30, 2003, and October 31, 2003, working capital decreased by $2,788,932 primarily due to losses from continuing operations, the collection of receivables, and the reduction of revenues during the first six months of fiscal 2004. Operating activities used cash of $6,098, primarily due to losses incurred during the first six months of fiscal 2004, an increase in costs and earnings in excess of billings, offset by a decrease in receivables. Investing activities used cash of $181,266. Financing activities used cash of $1,279,037, primarily for scheduled principal payments of mortgage notes and other long-term debt. Discontinued operations provided cash of $94,955 due to the collection of receivables.

In fiscal 2004, the Company plans to invest approximately $800,000 of its available cash to complete the build-out of approximately 21,000 square feet of vacant space in its Jackson, Michigan shopping center. The Company is also currently marketing this center for sale. The mortgage loan on the property may be assumed by the buyer or paid off at closing if such sale takes place. There is a prepayment penalty associated with the early repayment of the mortgage loan which can be prepaid with 60 days prior written notice. The prepayment penalty is equal to the greater of 1% of the principal balance or the difference between the present value of the remaining principal and interest payments, using the designated annual Treasury note yield as the discount rate, and the loan amount. Management estimates that the Company could incur a prepayment penalty of approximately $925,000 if a sale takes place and the loan is not assumed by the buyer. There can be no assurance that the property will be sold or that sufficient proceeds from the sale of the property would be available to pay off the loan.

In conjunction with the origination of the mortgage loan on the Jackson, Michigan shopping center, the Company obtained an irrevocable, standby letter of credit in the amount of $500,000. The letter of credit was originally issued in July 1997, and has been extended to mature on March 31, 2004. The mortgage lender is allowed to draw on the letter in order to reduce the related mortgage loan if certain leasing requirements are not met. The letter of credit is secured by a bank line of credit, as discussed below.

Except for certain real estate construction loans and occasional short-term operating loans, the Company generally has been able to finance its working capital needs through funds generated internally. If adequate funds are not generated through normal operations or from the sale of income producing properties, the Company has available bank lines of credit. In October 2003, the lines of credit were renewed and currently provide commitments from a bank for unsecured lines of credit totaling $7 million, of which a total of $650,000 is restricted as it secures letters of credit. These lines of credit bear interest at the prime rate or LIBOR plus 2%, and have a commitment fee of 0.375% on any unused portion. The bank lines of credit expire on October 30, 2004. At October 31, 2003, no amounts were outstanding under these lines of credit.

In October 2003, the maturity date of the loan related to the Company’s shopping center in North Ft. Myers, Florida, was extended to February 2005. The Company is currently marketing the shopping center for sale. There can be no assurance that the property will be sold or that sufficient proceeds from the sale of the property would be available to pay off the loan on or before its maturity.

The Company estimates the costs associated with the U.S. Department of Justice investigation described under “ITEM 3. LEGAL PROCEEDINGS,” including the Company’s internal investigation and its ongoing cooperation with the Justice Department, are expected to approximate $1.2 million in the current fiscal year ending April 30, 2004. Such cost estimates, however, are particularly difficult to make with any precision, and as a result the actual costs may be lower or higher than this amount.

The Company anticipates that its equity, lines of credit, potential proceeds from sales of real estate, potential cash flow provided by financing or refinancing of debt, and cash flow generated from operations will, for the foreseeable future, provide adequate liquidity and financial flexibility to meet the Company’s needs to fund working capital, capital expenditures, and investment activities.

Cautionary statement regarding forward-looking statements

Certain statements contained or incorporated by reference in this Quarterly Report on Form 10-Q, including without limitation, statements containing the words “believes,” “anticipates,” “estimates,” “expects,” “plans,” and words of similar import, are forward-looking statements within the meaning of the federal securities laws. Such forward-looking statements involve known and unknown risks, uncertainties and other matters which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or uncertainties expressed or implied by such forward-looking statements.

Factors relating to general global, national, regional, and local economic conditions, including international political stability, national security, employment levels, wage and salary levels, consumer confidence, availability of credit, taxation policies, interest rates, capital spending, deflation, and inflation could negatively impact the Company and its customers, suppliers, and sources of capital. Any significant negative impact from these factors could result in material adverse effects on the Company’s results of operations and financial condition.

The Company is at risk for many other matters beyond its control, including, but not limited to: the possible impact, if any, on revenues due to the possible construction job bidding improprieties described in Note 9 to the consolidated financial statements; the ultimate disposition of legal proceedings in which the Company is involved, including the U.S. Department of Justice’s inquiry into the aforementioned construction job bidding matter; the potential loss of significant customers; co-tenancy provisions in anchor tenant leases; the Company’s ability to sell or refinance its real estate; the Company’s ability to acquire a qualified replacement property for tax deferral purposes; the possibility of not achieving projected backlog revenues or not realizing earnings from such revenues; continuing competitive pressures on the availability and pricing of construction projects; the cost and availability of insurance; the ability of the Company to attract and retain key personnel; weather conditions; changes in laws and regulations, including changes in accounting standards, generally accepted accounting principles, and regulatory requirements of the SEC and NASDAQ; overall vacancy rates in markets where the Company leases retail and office space; overall capital spending trends in the economy; the timing and amount of earnings recognition related to the possible sale of real estate properties held for sale; delays in or cancellations of customers’ orders; the ultimate collectibility of the Company’s receivable from the Montgomery Ward & Company bankruptcy; the level and volatility of interest rates; the failure of a subcontractor to perform; and the deterioration in the financial stability of an anchor tenant, significant subcontractor or other significant customer.

Critical Accounting Policies

A critical accounting policy is one that is both important to the portrayal of a Company’s financial position and results of operations, and requires the Company to make estimates and assumptions in certain circumstances that affect the amounts reported in the accompanying consolidated financial statements and related notes. In preparing these financial statements, the Company has made its best estimates and used its best judgments regarding certain amounts included in the financial statements, giving due consideration to materiality. The application of these accounting policies involves the exercise of judgment and the use of assumptions regarding future uncertainties, and as a result, actual results could differ from those estimates. Management believes that the Company’s most critical accounting policies include:

Revenue recognition

Construction revenues are reported on the percentage-of-completion method, using costs incurred to date in relation to estimated total costs of the contracts, to measure the stage of completion. Original contract prices are adjusted for cumulative effects of changes in estimated total contract costs and revenues (change orders) in the amounts that are reasonably estimated based on the Company’s historical experience. The change orders are recorded in the period in which the facts requiring such revisions become known, and are accounted for using the percentage-of-completion method. At the time it is determined that a contract is expected to result in a loss, the entire estimated loss is recorded.

The Company leases space in its income-producing properties to tenants, and recognizes minimum base rentals as revenue on a straight-line basis over the lease terms. Tenants may also be required to pay additional rental amounts based on property operating expenses. In addition, certain tenants are required to pay incremental rental amounts, which are contingent on their store sales. These percentage rents are recognized only as earned.

Revenue from the sale of real estate is recognized when all of the following has occurred: (a) the property is transferred to the buyer; (b) the buyer’s initial and continuing investment is adequate to demonstrate a commitment to pay for the property; and (c) the buyer has assumed all future ownership risks of the property. Costs of sales related to real estate are based on the specific property sold. When a

portion or unit of a development property is sold, a proportionate share of the total cost of the development is charged to cost of sales.

Energy management revenues primarily consist of services and product sales. Revenues are recognized as services are rendered, and depending upon the product type and customer agreement, product sales are recognized when products are shipped or delivered.

Income-producing properties and property and equipment

Income-producing properties are stated at cost, and are depreciated for financial reporting purposes using the straight-line method over the estimated useful lives of the assets.

Property and equipment are stated at cost, and are depreciated for financial reporting purposes using the straight-line method over the estimated useful lives of the assets. Significant additions that extend asset lives are capitalized. Normal maintenance and repair costs are expensed as incurred.

Interest and other carrying costs related to real estate assets under construction are capitalized. Costs of development and construction of real estate assets are also capitalized. Capitalization of interest and other carrying costs are discontinued when a project is substantially completed or if active development ceases.

Impairment of long-lived assets and assets to be disposed of

Long-lived assets and certain intangible assets, are required to be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to estimated future net cash flows expected to be generated by the asset. If an asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the asset’s fair value. Assets to be disposed of are reported at the lower of their carrying amount or fair value less cost to sell.

Income taxes

Income taxes are accounted for 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 of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date of such change.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See “ITEM 2. Liquidity and capital resources” for discussion regarding the debt on the Company’s shopping centers in Jackson, Michigan, and North Ft. Myers, Florida and the renewal of the Company’s lines of credit. There have been no other material changes since April 30, 2003. Refer to the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2003, for detailed disclosures about quantitative and qualitative disclosures about market risk.

ITEM 4. CONTROLS AND PROCEDURES

Management has evaluated the Company’s disclosure and controls and procedures as defined by Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. This evaluation was carried out with the participation of the Company’s Chief Executive Officer and Chief Financial Officer. Based on this evaluation, these officers have concluded that the Company’s disclosure controls and procedures were effective as of such date.

There was no change in the Company’s internal control over financial reporting that occurred during the period covered by this quarterly report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 3. LEGAL PROCEEDINGS

this decision was reversed by the Georgia Court of Appeals. The Company sought certiorari from the state of Georgia Supreme Court, which was denied during the second quarter of fiscal 2004. The case was remanded to the Cobb County Superior Court. The dispute arises out of the defendant’s former provision of real estate asset management services to API. The Company believes API’s claims against its former asset manager and its defenses to the manager’s claims are meritorious and intends to continue to vigorously pursue its claims and assert its defenses.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the Company’s Annual Meeting, held on September 10, 2003, the shareholders voted upon and approved the Nominees for the Board of Directors. The voting was as follows:


DIRECTORS	VOTES FOR		VOTES WITHHELD

Alan R. Abrams		2,766,541		24,972
David L. Abrams		2,780,561		10,952
J. Andrew Abrams		2,779,361		12,152
Samuel E. Allen		2,780,561		10,952
Gilbert L. Danielson		2,780,461		11,052
Melinda S. Garrett		2,779,261		12,252
Robert T. McWhinney, Jr.		2,780,461		11,052
Felker W. Ward, Jr.		2,780,561		10,952

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K


(a)	Exhibits

	31(a)	Certification of Chief Executive Officer, pursuant Rules 13a-14(a)/15d-14(a)

	31(b)	Certification of Chief Financial Officer, pursuant Rules 13a-14(a)/15d-14(a)

	32(a)	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes Oxley Act 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		ABRAMS INDUSTRIES, INC.

		(Registrant)

Date: December 12, 2003		/s/ Alan R. Abrams

		Alan R. Abrams
		Chief Executive Officer

Date: December 12, 2003		/s/ Mark J. Thomas

		Mark J. Thomas
		Chief Financial Officer

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes Oxley Act 2002

Reports on Form 8-K during the quarter ended October 31, 2003

(1)		Revenues decreased for the second quarter and the first six months of fiscal 2004 from the comparable periods in 2003 primarily due to the Company’s ongoing election to reduce revenue volume rather than contract at prices that offer the Company unacceptable levels of potential profitability on a number of jobs for the Company’s largest customer (revenues from this customer decreased by approximately $8.5 million in the second quarter and $11.7 million in the first six months of 2004 as compared to the same periods in 2003, a 55% and 46% decrease, respectively). The Company is currently not negotiating or bidding any new work for this customer. A majority of the revenues in fiscal 2003 and the second quarter and first six months of fiscal 2004 were from jobs that the Company would not bid on today, because they would not meet the Company’s current profitability and risk criteria. The Company expects the trend of decreasing revenues from its largest customer to continue. The Company has continued to see a reduction in the number of construction jobs available in a very competitive marketplace, which is a result of a continuing weakness in capital spending by many retail companies. These factors are expected to continue to depress construction segment revenues, as is reflected in the construction backlog table below. Although the Company has seen little indication that the possible construction job bidding improprieties described in Note 9 to the consolidated financial statements will negatively impact the Company’s ability to achieve future revenues, there can be no assurance that these possible improprieties will not have such effect. In fiscal 2003, the Company increased its new business development capabilities and continues in its efforts to identify customers and contracts that place more value on the Company’s high quality and high service approach. Additionally, it is currently exploring different commercial market sectors for potential opportunities to broaden and increase construction segment revenues.

(2)		Revenues for the first six months of fiscal 2004 increased from that in 2003 primarily due to an increase in common area maintenance income of approximately $181,000 and percentage rent of approximately $56,000.

(2)		Included in Real Estate-rental income at October 30, 2002, is approximately $255,000 related to a Kmart leaseback sublease that was terminated by the Company in November 2003. This amount is offset by several lease renewals in fiscal 2004.

(3)		Contracts to sell an outparcel in Jackson, Michigan, and an outparcel and an anchor store pad in Davenport, Iowa were included in Real estate-sales backlog at October 31, 2002. The Davenport properties and the Jackson outparcel were each sold at a gain. Real estate backlog at October 31, 2003, does not include a contract, which has been executed, to sell the Company’s remaining undeveloped land in Oakwood, Georgia, for approximately $1.5 million. The contract may be cancelled on or before March 1, 2004. The intersegment eliminations reported include intercompany rent of $442,000 and $467,000 as of October 31, 2003 and 2002, respectively.

(4)		All energy management contracts that can be cancelled with less than one year’s notice are not included in backlog. As of October 31, 2003, and 2002, such contracts totaled $1.09 million and $1.05 million, respectively, in potential revenue over the next twelve months, assuming cancellation provisions are not invoked.

(2)		The increase in the dollar amount and percentage of costs and expenses applicable to revenues from continuing operations for the second quarter of fiscal 2004 compared to the same period in 2003 is primarily attributable to: (a) an increase in fiscal 2004 common area maintenance expenses (See Note 2 to Chart A) of approximately $61,000; (b) recoveries of bad debt expense of approximately $86,000 in fiscal 2003, which reduced costs and expenses for that period; and (c) the Company no longer outsourcing asset management responsibilities resulting in a decrease in fiscal 2004 management fees of approximately $42,000.

(3)		The increase in the dollar amount and percentage of costs and expenses applicable to revenues from continuing operations for the second quarter and first six months of fiscal 2004 compared to the same periods in 2003 is primarily a result of the change in the mix of services and products sold as well as an increase in personnel and personnel related costs incurred in order to enhance the quality of the Company’s service offerings.

		the Company’s internal investigation and ongoing cooperation with the U.S. Department of Justice as discussed in Note 9 to the consolidated financial statements; (b) the one-time reduction of $450,000 in the first six months of fiscal 2004 relating to fiscal 2003 expenses, resulting from the decrease in an allowance for doubtful accounts reserve for a receivable from Montgomery Ward & Company; offset by (c) a reduction in salary costs of $112,000 and $136,000 offset by hiring and severance costs of $51,000 and $98,000 in the second quarter and first six months of fiscal 2004, respectively.

(2)		On a dollar and percentage basis, selling, general and administrative expenses were lower for the second quarter and the first six months of fiscal 2004 compared to the same periods in 2003 primarily due to: (a) the decrease in legal and professional fees of approximately $89,500 and $65,000 in the second quarter and first six months of fiscal 2004, respectively; and (b) the decrease in asset management fees paid to a third party of approximately $43,500 and $87,000 in the second quarter and the first six months of fiscal 2004, respectively.

(3)		On a dollar and percentage basis, selling, general and administrative expenses were higher for the second quarter and first six months of fiscal 2004 compared to the same periods in 2003, primarily due to an increase in the number of personnel and other personnel costs. Such personnel related costs are primarily a result of enhanced sales and marketing resources as well as severance costs.

(4)		Although, selling, general and administrative expenses were lower on a dollar basis, on a percentage basis, selling, general and administrative expenses were higher for the second quarter and the first six months of fiscal 2004 compared to the same periods in 2003 primarily due to the reduction of revenues.