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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

For the fiscal year ended December 31, 2002

For the transition period from ______ to ______

Commission file number 0-25428

MEADOW VALLEY CORPORATION

Registrant’s telephone number, including area code: (602) 437-5400

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

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     X         No        

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes                No    X  

     On March 14, 2003, the aggregate market value of the registrant’s voting stock held by non-affiliates was $3,791,228.

     On March 14, 2003, there were 3,601,250 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

     The registrant incorporates by reference into Part III of this Report, information contained in its definitive proxy statement to be disseminated in connection with its Annual Meeting of Shareholders for the year ended December 31, 2002.

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MEADOW VALLEY CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2002

TABLE OF CONTENTS

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PART I

Item 1. Business

Recent Developments

     Meadow Valley Corporation (“Company”) experienced improvements in several key areas over the past year. From year end 2001 to year end 2002, working capital increased from a deficit of $1,194,786 to a surplus of $805,159, the debt to equity ratio improved from 1.42:1 to 1.35:1, the current ratio improved from 0.97 to 1.03 and cash flow from operations increased from $.09 million to $2.9 million, respectively. These improvements have marginally decreased the challenge of managing the Company’s working capital, however, as has been previously reported, working capital will likely continue to remain at decreased levels until successful resolution of the construction contract claims filed against the New Mexico State Highway and Transportation Department and the Clark County Department of Public Works.

     The Company’s bonding capacity (that determines the size and number of projects the Company can bid on and obtain as a provider of construction services) has been constrained since 2001 when, in general, it was reduced to an aggregate program of $75 million and a single project limit of $10 million. The Company’s aggregate bonding capacity had peaked in 2000 at approximately $300 million with a single project limit of approximately $110 million. Operating losses in 2000 and 2001, mostly stemming from cost overruns on contracts for which claims are now being pursued, were the primary cause of decreased bonding capacity.

History

     The following is a summary of certain information contained in this Report and is qualified in its entirety by the detailed information and financial statements that appear elsewhere herein. Except for the historical information contained herein, the matters set forth in this Report include forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially. These risks and uncertainties are detailed throughout this Report and will be further discussed from time to time in the Company’s periodic reports filed with the Commission. The forward-looking statements included in this Report speak only as of the date hereof.

     Meadow Valley Corporation was incorporated in Nevada on September 15, 1994. In October and November 1995, the Company sold 1,926,250 Units of its securities to the public at $6.00 per Unit (the “Public Offering”). Each Unit consisted of one share of $.001 par value common stock and one common stock purchase warrant exercisable to purchase one additional share of common stock at $7.20 per share until October 16, 2000. In September 2000, the exercise price of the warrants was reduced to $5.00 per share and the exercise period was extended until June 30, 2002. In June 2002, the Company announced the Board’s decision to extend the exercise period of the warrants to December 31, 2002. In December 2002, the Company announced its intent to de-list the warrants following their expiration on December 31, 2002. The warrants expired and were de-listed at the time of market closing on December 31, 2002.

     The Company currently has two wholly owned subsidiaries, Meadow Valley Contractors, Inc. (“MVCI”) and Ready Mix, Inc (“RMI”). MVCI was founded in 1980 as a heavy construction contractor and has been engaged in that activity since inception. Since the Company purchased all of the outstanding Common Stock of MVCI on October 1, 1994, references to the Company’s history includes the history of MVCI.

     Through MVCI, the Company primarily operates as a heavy construction contractor. MVCI specializes in public infrastructure projects including the construction of bridges and overpasses, channels, roadways, highways and airport runways. MVCI generally serves as the prime contractor for public sector customers (such as federal, state and local governmental authorities) in the states of Nevada, Arizona, and Utah. MVCI primarily seeks public sector customers because public sector projects are less cyclical than private sector projects, payment is more reliable, work required by the project is generally standardized and little marketing expense is incurred in obtaining projects.

     In 1996, the Company expanded into the materials segment of the construction industry with the formation of Ready Mix, Inc. RMI manufactures and distributes ready mix concrete, crushed landscaping rock and other miscellaneous rock and sand products. RMI owns and operates four ready mix concrete batch plants – two in the Las Vegas, NV area and two in the

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Phoenix, AZ area and 95 ready mix trucks as well as a small fleet of aggregate hauling tractors and trailers. RMI produces the majority of its own rock and sand for its Nevada plants from a crushing and screening plant in Moapa, NV. RMI primarily targets prospective customers such as concrete subcontractors, prime contractors, homebuilders, commercial and industrial property developers, pool builders and homeowners. RMI began its ready mix concrete operation from its first location in North Las Vegas in March 1997, began processing rock and sand from its Moapa pit in November 1999 and expanded into the Phoenix market with two plants in 2000.

     Consistent with the Company’s dual interests in construction services and construction materials, the Company owns and leases two portable hot mix asphalt plants, a rubberized asphalt plant, and related asphalt paving equipment. The portability of these asphalt paving capabilities provides the Company with an opportunity to expand its existing geographic market, enhance its construction operations in its existing market, improve its competitiveness and generate increased revenues on projects that call for large quantities of asphaltic concrete, recycled asphalt, or rubberized asphalt. These capabilities also afford the Company the opportunity to provide construction materials or to subcontract its services to other construction companies.

     The Company’s backlog (anticipated revenue from the uncompleted portions of awarded projects) was approximately $69 million at December 31, 2002, compared to approximately $76 million at December 31, 2001, and consists of various projects in Nevada, Arizona and Utah. Approximately $60 million of the Company’s backlog is scheduled for completion during 2003. The Company has acted as the prime contractor on projects funded by a number of governmental authorities, including the Federal Highway Administration, the Arizona Department of Transportation, the Nevada Department of Transportation, the Utah Department of Transportation, the Clark County (Nevada) Department of Public Works, the Salt Lake City (Utah) Airport Authority, the New Mexico State Highway and Transportation Department and the City of Phoenix.

     In 1996, the Company formed Prestressed Products Incorporated (“PPI”) as a wholly owned subsidiary to design, manufacture and erect precast prestressed concrete building components for use on commercial, institutional and public construction projects throughout the Southwest. Product lines included architectural and structural building components and prestressed bridge girders for highway construction. During 1997, PPI began operations with a precast yard and concrete batch plant located on leased property adjacent to the Company’s office in Moapa, Nevada. As a result of continuing operating losses, in June 1998, the Company adopted a formal plan (the “Plan”) to discontinue the operations of PPI. The Plan included the completion of approximately $2.8 million of uncompleted contracts and the disposition of approximately $1.2 million of equipment. The Company recorded an estimated loss of $1,950,000 (net of income tax benefit of $1,300,000), related to the disposal of assets of PPI, which included a provision of $1,350,000 for estimated losses during the phase-out period of July 1, 1998 through June 30, 1999.

Business Strategy

     Given the Company’s current bonding constraints, the Company’s strategy is to maintain recent historical revenue levels and improve profitability by pursuing the following business strategy:

     (i)  Continue to actively bid in the construction markets in Arizona, Nevada and Utah and improve construction project profitability. The Company will continue to actively bid on transportation infrastructure and other related heavy civil projects in its core geographic market of Arizona, Nevada and Utah. The Company will strive to improve margins on new contracts by, among other things, increasing, when possible, margins on new work bidding, maximizing labor and equipment productivity, negotiating more favorable material purchase contracts and employing the most competitive subcontractors.

     (ii)  Due to the need for additional working capital, the Company may seek to sell certain mineral lease assets and other assets. The increase in working capital will improve its liquidity and should provide additional bonding capacity, thereby allowing the Company to bid larger more profitable projects.

     (iii)  Diligently pursue the successful resolution of the Company’s construction claims. The Company has incurred substantial cost in completing certain projects in New Mexico and Clark County, Nevada and strongly believes that the costs are compensable due to changed conditions, owners’ plan errors and omissions, conflicting utility right of ways, delays not caused by the Company and misadministration by third party construction managers employed by the owners. The total amount of claims that have been submitted and remain unpaid is approximately $46.7 million. This amount includes costs

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that are attributable to subcontractors and to a prime contractor. The Company’s portion of the claims is approximately $30.1 million. The Company recorded approximately $8.3 million in claim revenue to offset a portion of costs incurred on the claims. In addition, the Company has also recorded approximately $.1 million for unpaid quantities, unpaid change orders and pending change orders in advance of receipt. On the average, the Company has recorded approximately 27.7% of the total claim amount into revenue. Management believes that successful resolution to the claims constitutes the most important strategic course of action to restoring financial health and increased surety credit. See “Insurance and Bonding”.

     iv) Maintain operating costs and SG&A costs at competitive levels. The Company strives to adjust its overhead costs based on its contract backlog by reducing personnel, consolidating functions at the area and corporate office levels and disposing of under-utilized equipment. Costs are continually monitored to identify trends that may require timely management action.

     v) Increase revenue and profit from construction materials segment. The Company will add to its ready mix truck fleet to increase delivery capacity to better service its customers and increase sales. The Company will also strive to negotiate strategic arrangements to provide delivery of product to increased geographic areas within existing markets.

Market Overview

     The construction market for 2003 is faced with uncertainty. Budget deficits at both State and Federal levels will undoubtedly put pressure on funding for transportation infrastructure construction. The overall sluggish economy is not expected to provide any fuel for increased construction. At best, 2003 will see single digit percentage declines in the various segments of the construction industry. Commercial construction (non-residential buildings) will probably be the slowest segment while single-family housing, made attractive by low mortgage rates, will see the smallest declines. From a national perspective, transportation infrastructure will likely see a decline in activity, but still less than ten percent. Most funding for State highway construction budgets originate from user fees, gas taxes or sales taxes and are generally earmarked for construction spending. In addition, for States to utilize Federal Highway funds, in most cases, they must match a certain percentage of the Federal contribution. These factors will likely minimize declines in State construction budgets.

     One of the more significant issues facing the transportation infrastructure segment of the construction industry is the reauthorization of Federal highway legislation. TEA-21, passed into law in 1998, provided approximately $164 billion in transportation funding during its six-year term. But TEA-21 is set to expire in 2003. Assuming no increase in the Federal gas tax, the projected revenue from gas tax receipts between fiscal 2004 and fiscal 2009 (the assumed duration of the next highway program legislation) would be approximately $194 billion. Some industry experts believe this to be the worst-case scenario for the next highway bill – an 18.5% increase over TEA-21. However, the last two iterations of highway legislation reauthorizations have failed to be completed prior to its predecessor’s expiration. The same thing is likely to happen this year, with reauthorization probably not being completed until sometime in 2004. This situation may cause piece-meal bid lettings and inhibit States from effectively managing capital improvement programs until they are able to see more clearly what the future holds. For contractors, this means bidding on what manages to come through the pipeline, but by not being able to formulate clear plans for future projects, be ready to size the organization accordingly.

     One of the Company’s strengths is its geography. With operations in Nevada, Arizona and Utah, the Company is in the heart of some of the fastest growing markets in the U.S. Nevada has shown the fastest population growth since the 2000 Census at 5.4%, followed by Arizona at 3.4%. Nevada has been the fastest growing state in the United States for the past 15 years. In addition, Nevada was ranked number one in the Country in job growth from September 2001 to September 2002. The U.S. population continues to move toward the sunbelt states. Population growth is a key indicator for the construction industry as it drives increases in housing and commercial and industrial construction, not to mention transportation facilities. Freeway construction programs, funded by sales tax measures, continue to create opportunities for the Company in Phoenix and Las Vegas.

     The Company’s construction materials operations are impacted to a greater degree by the conditions of the residential and commercial sectors of the construction economy – both sectors also driven by population and job growth. Residential construction activity in 2002 in the greater Phoenix, Arizona area was second only to 2001. If interest rate levels remain low, residential construction could continue to contribute to another successful year for RMI sales in both Phoenix and Las Vegas.

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Operations

     In addition to the construction of highways, bridges, overpasses and airport runways, the Company constructs other heavy civil projects. From its Phoenix, Arizona corporate office and area offices in Phoenix, Arizona, Las Vegas, Nevada, North Las Vegas, Nevada and Springville, Utah, the Company markets (primarily by responding to solicitations for competitive bids) and manages all of its projects. Project management is also located on-site to provide direct supervision for operations.

     In addition to profitability, the Company considers a number of factors when determining whether to bid on a project, including the location of the project, likely competitors and the Company’s current and projected workloads. The Company uses a computer-based project estimating system which reflects its bidding and construction experience and performs detailed quantity take-offs from bidding documents, which the Company believes helps identify a project’s risks and opportunities. The Company develops comprehensive estimates with each project divided into phases and line items for which separate labor, equipment, material, subcontractor and overhead cost estimates are compiled. Once a project begins, the estimate provides the Company with a budget against which ongoing project costs are measured. There can be no assurance that every project will attain its budgeted costs. A number of factors can affect a project’s profitability including weather, availability of a quality workforce and actual productivity rates. Each month the project manager updates the project’s projected performance at completion by using actual costs-to-date and re-forecasted costs-to-complete for the balance of the work remaining. Regular review of these estimated costs-at-completion reports allow project, area and corporate management to be as responsive as possible to cost overruns or other problems that may affect profitability.

     The Company owns or leases most of the equipment used in its business lines, including cranes, backhoes, graders, loaders, trucks, trailers, pavers, rollers, construction material processing plants, batch plants and related equipment. On occasion, equipment owned by the Company may be rented on a short-term basis to third parties. The net book value of the Company’s equipment at December 31, 2002 was approximately $14.6 million.

     The Company’s corporate management oversees operational and strategic issues and, through the corporate accounting staff, provides administrative support services to subsidiary managers, area managers and individual project management at the project site. The latter are responsible for planning, scheduling and budgeting operations, equipment maintenance and utilization and customer satisfaction. Subsidiary managers, area managers and project managers monitor project costs on a daily and weekly basis while corporate management monitors such costs monthly.

     Raw materials (primarily concrete, aggregate and steel) used in the Company’s operations are available from a number of sources. There are a sufficient number of materials suppliers within the Company’s market area to assure the Company of adequate competitive bids for supplying such raw materials. Generally, the Company will obtain several bids from competing concrete, asphalt or aggregate suppliers whose reserves of such materials will normally extend beyond the expected completion date of the project. Costs for raw materials vary depending upon project duration, construction season, and other factors; but, generally, prices quoted to the Company for raw materials are fixed for the project’s duration.

     The Company initiated its construction materials operations in the first quarter 1997 with the start-up of RMI. RMI currently operates four ready mix concrete batch plants — two in the Las Vegas, NV area and two in the Phoenix, AZ area and a total of 95 ready mix trucks. Most of RMI’s internal sand and gravel requirements in the Las Vegas market are manufactured from its rock quarry in Moapa, Nevada. Production capacity at the Moapa quarry was increased substantially during 1999 with further refinements added in 2000. A fulltime sales staff promotes sales of ready mix concrete, rock and sand products and landscape rock.

     Through mineral leases, the Company also controls pits or quarries in or near Nephi, UT, Ruidoso, NM, Alamogordo, NM, Albuquerque, NM, El Paso, TX and Yuma, AZ. Of these locations, only the Nephi, UT pit is actively mined. At the Nephi, UT location, MVCI manufactures and sells rock and sand products, and from time to time asphalt or concrete from portable plants, to its own projects or to third parties. Due to the need for additional working capital, the Company may seek to sell the mineral leases in New Mexico, or alternatively, to form a strategic alliance to operate the pits as commercial sources for aggregate sales to third parties.

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Projects and Customers

     The Company specializes in public sector construction projects and its principal customers are the state departments of transportation in Nevada, Arizona and Utah and bureaus and departments of municipal and county governments in those states. Since completing the final contracts in New Mexico, the Company has ceased operations in New Mexico. For the year ended December 31, 2002, revenue generated from 10 projects in Nevada, Arizona and Utah represented approximately 40% of the Company’s revenue. The discontinuance of any projects, a general economic downturn or a reduction in the number of projects let out for bid in any of the states in which the Company operates, could have an adverse effect on its future results of operations. For the years ended December 31, 2002, 2001 and 2000, the Company recognized a significant portion of its consolidated revenue from four customers (shown as an approximate percentage of consolidated revenue):

Backlog

     The Company’s backlog (anticipated revenue from the uncompleted portions of awarded projects) was approximately $69 million at December 31, 2002, compared to approximately $76 million at December 31, 2001. At December 31, 2002, the Company’s backlog included approximately $60 million of work that is scheduled for completion during 2003. Accordingly, revenue in the future will be significantly reduced if the Company is unable to obtain substantial new projects in 2003. The Company includes a construction project in its backlog at such time as a contract is awarded or a firm letter of commitment is obtained. The Company believes that its backlog figures are firm, subject to provisions contained in its contracts, which allow customers to modify or cancel the contracts at any time upon payment of a relatively small cancellation fee. The Company has not been materially adversely affected by contract cancellations or modifications in the past. Revenue is impacted in any one period by the backlog at the beginning of the period. The Company’s backlog depends upon the Company’s success in the competitive bid process. Bidding strategies and priorities may be influenced and changed from time to time by the level of the Company’s backlog and other internal and external factors. A portion of the Company’s anticipated revenue in any year is not reflected in its backlog at the start of the year because some projects are initiated and completed in the same year.

Competition

     The Company believes that the primary competitive factors as a prime contractor in the heavy construction industry are price, reputation for quality work, financial strength, knowledge of local market conditions and estimating abilities. The Company believes that it competes favorably with respect to each of the foregoing factors on projects that it is able to bid. Most of the Company’s projects involve public sector work for which contractors are first pre-qualified to bid and then are chosen by a competitive bidding process, primarily on the basis of price. The Company competes with a large number of small owner/operator contractors that tend to dominate smaller (under $4 million) projects. When bidding on larger infrastructure projects, the Company also competes with larger, well capitalized regional and national contractors (including Granite Construction Incorporated, Peter Kiewit Sons’, Inc., Sundt Corp., among others), many of whom have larger net worth, higher bonding capacity and more construction personnel than the Company. In the event of a decrease of work available in the private construction market, it is foreseeable that contractors may exit the private market and enter the public market segment resulting in increased competition.

     Currently the Company is limited to a single project bond approval of up to $15 million and an aggregate program bond capacity of approximately $75 million. The Company believes its bonding capacity is sufficient to sustain operations, but will limit growth. Larger competitors typically have unlimited bonding capacity and, therefore, are able to bid on more work than the Company. Except for bonding capacity and liquidity, the Company does not believe it is at a competitive disadvantage in relation to its larger competitors. With respect to its smaller competitors, the Company believes that its current bonding capacity and long relationships with subcontractors and suppliers may be competitive advantages.

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     Often, the Company faces the same competitors for sales of construction materials as it does for its contracting work. It is common for prime contractors in the heavy highway construction industry to develop some degree of vertical integration into construction materials. Companies such as Granite Construction, Kiewit, Oldcastle and LaFarge, among others, provide contracting services and produce construction materials. The quality of the product and the customer service are often just as important, if not more so, than price in successfully marketing construction materials. Vertical integration into construction materials may occasionally allow the Company to be more competitive in its bidding for construction contracts. However, the Company’s marketing strategy is to make third party sales a top priority. To accomplish this, the Company recognizes it must provide quality products and service to its construction materials customers.

The Contract Process

     The Company’s projects are obtained primarily through competitive bidding and negotiations in response to advertisements by federal, state and local government agencies and solicitations by private parties. The Company submits bids after a detailed review of the project specifications, an internal review of the Company’s capabilities and equipment availability and an assessment of whether the project is likely to attain targeted profit margins. The Company owns, leases, or is readily able to rent, most equipment necessary to complete the projects upon which it bids. After computing estimated costs of the project to be bid, the Company adds its desired profit margin before submitting its bid. The Company believes that success in the competitive bidding process involves (i) being selective on projects bid upon in order to conserve resources, (ii) identifying projects which require the Company’s specific expertise, (iii) becoming familiar with all aspects of the project to avoid costly bidding errors and (iv) analyzing the local market to determine the availability and cost of labor and the degree of competition. Since 1995, the Company has been awarded contracts for approximately 19.42% of the projects upon which it has bid. A substantial portion of the Company’s revenue is derived from projects that involve “fixed unit price” contracts under which the Company is committed to provide materials or services at fixed unit prices (such as dollars per cubic yard of earth or concrete, or linear feet of pipe). The unit price is determined by a number of factors including haul distance between the construction site and the warehouses or supply facilities of local material suppliers and to or from disposal sites, site characteristics and the type of equipment to be used. While the fixed unit price contract generally shifts the risk of estimating the quantity of units for a particular project to the customer, any increase in the Company’s unit cost over its unit bid price, whether due to inefficiency, faulty estimates, weather, inflation or other factors, must be borne by the Company.

     Most public sector contracts provide for termination of the contract at the election of the customer. In such event the Company is generally entitled to receive a small cancellation fee in addition to reimbursement for all costs it incurred on the project. Many of the Company’s contracts are subject to completion requirements with liquidated damages assessed against the Company if schedules are not met. These provisions in the past have not materially adversely affected the Company.

     The contractor is also obligated to perform work as directed to do so by the owner. If the contractor believes the directives to be outside the scope of the original bid documents, or if the physical conditions as found on the project are different than provided in the bid documents, or for any variety of reasons the contractor believes the directive to perform the work creates costs that could not reasonably be ascertained from the bid documents, the contract permits the contractor to make a claim for equitable adjustment to the contract price. Such equitable adjustment requests are often called contract claims. The process for resolving claims may vary from one contract to another, but in general there is a process to attempt resolution at the project supervisory level or with higher levels of management within the organizations of the contractor and the owner. Depending upon the terms of the contract, claim resolution may employ a variety of resolution methods including mediation, arbitration, binding arbitration, litigation or other methods. Regardless of the process, it is typical that when a potential claim arises on a project, the contractor fulfills the obligation to perform the work and must incur the costs in doing so. The contractor does not recoup the costs until the claim is resolved. It is not uncommon for the claim resolution process to take months, or, if it entails litigation, years to resolve.

     Contracts often involve work periods in excess of one year. Revenue on uncompleted fixed price contracts is recorded under the percentage of completion method of accounting. The Company begins to recognize revenue on its contracts when it first incurs direct costs. Pursuant to common construction industry practice, the customer may retain a portion of billings, generally not exceeding 10%, until the project is completed satisfactorily and all obligations of the contractor are paid.

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     The Company acts as prime contractor on most of its construction projects and subcontracts certain activities such as electrical, mechanical, guardrail and fencing, signing and signals, foundation drilling, steel erection and other specialty work to others. As prime contractor, the Company bills the customer for work performed and pays the subcontractors from funds received from the customer. Occasionally the Company provides its services as a subcontractor to another prime contractor. As a subcontractor, the Company will generally receive the same or similar profit margin as it would as a prime contractor, although revenue to the Company will be smaller because the Company only contracts a part of the project. As prime contractor, the Company is responsible for the performance of the entire contract, including work assigned to subcontractors. Accordingly, the Company is subject to liability associated with the failure of subcontractors to perform as required under the contract. The Company occasionally requires its subcontractors to furnish bonds guaranteeing their performance, although affirmative action regulations require the Company to use its best efforts to hire minority subcontractors for a portion of the project and some of these subcontractors may not be able to obtain surety bonds. On average, the Company has required performance bonds for less than 10% of the dollar amount of its subcontracted work, but will likely increase the percentage of bonded subcontractors in the future. The Company is generally aware of the skill levels and financial condition of its subcontractors through its direct inquiry of the subcontractors and contract partners of the subcontractors, as well as its review of financial information provided by the subcontractors and third party reporting services including credit reporting agencies and bonding companies.

     In connection with public sector contracts, the Company is required to provide various types of surety bonds guaranteeing its own performance. The Company’s ability to obtain surety bonds depends upon its net worth, working capital, past performance, management expertise and other factors. Surety companies consider such factors in light of the amount of the Company’s surety bonds then outstanding and the surety companies’ current underwriting standards, which may change from time to time. See “Insurance and Bonding”.

Insurance and Bonding

     The Company maintains general liability and excess liability insurance covering its owned and leased construction equipment and workers’ compensation insurance in amounts it believes are consistent with its risks of loss and in compliance with specific insurance coverage required by its customers as a part of the bidding process. The Company carries liability insurance of $6 million per occurrence, which management believes is adequate for its current operations and consistent with the requirements of projects currently under construction by the Company. The Company carries builders risk insurance on a limited number of projects and depends upon management’s assessment of individual project risk versus the cost of insurance.

     The Company is required to provide a surety bond on nearly all publicly funded projects. The Company’s ability to obtain bonding, and the amount of bonding required, is primarily determined by the Company’s management experience, net worth, liquid working capital (consisting of cash and accounts receivable in excess of accounts payable and accrued liabilities), the Company’s performance history, the number and size of projects under construction and other factors. Surety companies consider such factors in light of the amount of the Company’s surety bonds then outstanding and the surety companies’ current underwriting standards, which may change from time to time. The larger the project and/or the more projects, in which the Company is engaged, the greater the Company’s bonding, net worth and liquid working capital requirements. Bonding requirements vary depending upon the nature of the project to be performed. The Company generally pays a fee to bonding companies based upon the amount of the contract to be performed. Because these fees are generally payable at the beginning of a project, the Company must maintain sufficient working capital to satisfy the fee prior to receiving revenue from the project. Operating losses in 2000 and 2001, due primarily to losses on contracts with New Mexico and Clark County, Nevada, resulted in decreased liquidity and a change in the Company’s surety credit. Currently the Company has surety credit up to $15 million on a single project and an aggregate program bond capacity of approximately $75 million. The Company believes its bonding capacity is sufficient to sustain existing levels of workload but will limit growth. As the Company’s performance continues to improve, it is reasonable to assume that corresponding improvements in bonding capacity will follow.

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Marketing

     The Company obtains its projects primarily through the process of competitive bidding. Accordingly, the Company’s marketing efforts are limited to subscribing to bid reporting services and monitoring trade journals and other industry sources for bid solicitations by various government authorities. In response to a bid request, the Company submits a proposal detailing its qualifications, the services to be provided and the cost of the services to the soliciting entity which then, based on its evaluation of the proposals submitted, awards the contract to the successful bidder. Generally, the contract for a project is awarded to the lowest bidder, although other factors may be taken into consideration such as the bidder’s track record for compliance with bid specifications and procedures and its construction experience.

     A more focused marketing effort and greater emphasis on customer care and service are important tools in promoting sales of construction materials. Membership and participation in selected industry associations help increase the Company’s exposure to potential clients and are two means by which the Company stays informed on industry developments and future prospects within the marketplace. Building and maintaining customer relations and reputation for quality work are essential elements to the marketing efforts of RMI.

Government Regulation

     The Company’s operations are subject to compliance with regulatory requirements of federal, state and municipal authorities, including regulations covering labor relations, safety standards, affirmative action and the protection of the environment including requirements in connection with water discharge, air emissions and hazardous and toxic substance discharge. Under the Federal Clean Air Act and Clean Water Act, the Company must apply water or chemicals to reduce dust on road construction projects and to contain water contaminants in run-off water at construction sites. The Company may also be required to hire subcontractors to dispose of hazardous wastes encountered on a project. The Company believes that it is in substantial compliance with all applicable laws and regulations. However, future amendments to current laws or regulations imposing more stringent requirements could have a material adverse effect on the Company.

Employees

     On December 31, 2002, the Company employed approximately 63 salaried employees (including its management personnel and executive officers) and approximately 190 hourly employees. The number of hourly employees varies depending upon the amount of construction in progress. For the year ended December 31, 2002, the number of hourly employees ranged from approximately 175 to approximately 225 and averaged approximately 200. At December 31, 2002, the Company was party to three project agreements in Arizona with the Arizona State District Council of Carpenters, AFL-CIO that covers approximately 4% of the Company’s hourly workforce. At December 31, 2002, the Company believed its relations with its employees are satisfactory.

Item 2. Properties

     The Company leased the following properties at December 31, 2002:

	(1)		8,315 square feet of executive office space at 4411 South 40th Street, Suites D-8, D-10 and D-11, Phoenix, Arizona, 85040, pursuant to a lease that expires in December 2003, at a monthly rental rate of $8,280 through December 2001, $8,694 from January 2002 through December 2002 and $9,108 from January 2003 through December 2003.
	(2)		2,000 square feet of office space for the Company’s ready mix operations, at 3430 E. Flamingo, Suite 100, Las Vegas, Nevada, 89118, pursuant to a lease that expires in April 2003, at a monthly rental rate of $3,425.
	(3)		2,260 square feet of office space for the Company’s ready mix operations, at 2601 E. Thomas Road, Suite 235, Phoenix, Arizona, 89121, pursuant to a lease that expires August 2003, at a average monthly rental rate of $3,074.
	(4)		4,000 square feet of office space at 2250 West Center St. Bldg. 1, Suite A, Springville, Utah, 84663, pursuant to a lease that expires April 2003, at a monthly rental rate of $3,400 per month with a 5% increase each year.
	(5)		4,320 square feet of office space at 4635 Andrews Street, North Las Vegas, Nevada, 89031, pursuant to a lease that expires November 2006, at a monthly rental rate of $2,998 with a 3% increase each year.

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     The Company owns approximately five acres of land at 109 W. Delhi, North Las Vegas, Nevada 89030, which is used for the manufacturing of ready mix concrete.

     The Company owns approximately 24.5 acres of land in Moapa, Nevada.

     The Company owns approximately 12 acres of land in Las Vegas, Nevada, which it has available for sale.

     The Company has determined that the above properties are sufficient to meet the Company’s current needs.

Item 3. Legal Proceedings

     The Company is a party to legal proceedings in the ordinary course of its business. With the exception of those matters detailed below, the Company believes that the nature of these proceedings (which generally relate to disputes between the Company and its subcontractors, material suppliers or customers regarding payment for work performed or materials supplied) are typical for a construction firm of its size and scope, and no other pending proceedings are material to its financial condition.

     The following proceedings represent matters that may become material and have already been or may soon be referred to legal counsel for further action:

Requests for Equitable Adjustment to Construction Contracts. The Company has made claims as described below on the following contracts:

	(1)		Five contracts with the New Mexico State Highway and Transportation Department – The approximate total value of claims on these projects is $27,605,303 of which approximately $23,889,452 is on behalf of the Company and the balance of $3,715,851 is on behalf of the prime contractor or subcontractors. The primary issues are changed conditions, plan errors and omissions, contract modifications and associated delay costs. In addition, the projects were not completed within the adjusted contract time because of events giving rise to the claims. The prosecution of the claims will include the appropriate extensions of contract time to offset any potential liquidated damages.
	(2)		Clark County, Nevada – The approximate total value of claims on this project is $19,135,397 of which approximately $12,885,265 is on behalf of subcontractors. The primary issues are changed conditions, constructive changes, plan errors and omissions, contract modifications and associated delay costs.

     The above claims combined total approximately $46,740,700. Of that sum, the Company’s portion of the claims total was approximately $30,139,584 and the balance of approximately $16,601,116 pertains to prime contractor or subcontractors’ claims. Total claim amounts reported by the Company are approximate and are subject to revision as final documentation progresses and as issues are resolved and/or payments made. Relative to the aforementioned claims, the Company has recorded approximately $8,348,985 in claim revenue to offset a portion of costs incurred to date on the claims. The claims receivable is comprised of a long-term portion of $7,961,107 and a current portion of $387,878. The current portion of claims receivable results from an NMSHTD-authorized December 2002 pay estimate containing, among other past due payments, settlements on only a portion of the claims on one project. In addition, the Company has also recorded approximately $126,860 for unpaid quantities, unpaid change orders, and pending change orders in advance of receipt. Although the Company believes these amounts represent a reasonably conservative posture, any claims proceeds and payments for previously unpaid quantities, unpaid change orders and pending change orders ultimately paid to the Company less than $8,475,845, net of professional fees, will reduce income. Conversely, a payment for those same items in excess of $8,475,845, net of professional fees, will increase income.

     The portion of accounts receivable pertaining to retention withheld on the contracts for which claims have been filed amounts to $2,013,897. The degree to which the Company is successful in recovering its costs from the claims may also impact the amount of retention paid by the owner. The Company believes that all retention amounts currently being held by the owners on the contracts with outstanding claims will be paid in full in accordance with the contract terms. Therefore, no allowance has been made to reduce the receivables due from the retention on the disputed contracts.

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Lawsuits Filed Against Meadow Valley Contractors, Inc.

	(1)		Innovative Construction Systems, Inc. (“ICS”), District Court, Clark County, NV – ICS was a subcontractor to MVCI on several projects. ICS failed to make payments of payroll, pension fund contributions and other taxes for which the Internal Revenue Service garnished any future payments due ICS on MVCI’s projects. As a result, ICS failed to supply labor to perform its work and defaulted on its subcontracts. MVCI terminated the ICS subcontracts and performed the work with MVCI’s personnel. ICS alleges it was wrongfully terminated and is asserting numerous claims for damages. ICS claims against MVCI total approximately $15,000,000. The Company does not believe ICS’ claims have merit and intends to vigorously defend against these claims and MVCI has filed counter-claims for approximately $3,000,000 seeking to recover the damages ICS has caused MVCI through its failure to perform.
	(2)		Independent from, but related to the ICS issue, the Nevada State Labor Commissioner (“Commission”) filed a lawsuit against MVCI seeking payment of $452,921 from MVCI, as the prime contractor, for wages and fringes owed but not paid by ICS, MVCI’s subcontractor. In December 2002, the parties agreed to a settlement and the lawsuit was dismissed. MVCI has paid $209,888.88 and will add this amount to its counterclaims against ICS.
	(3)		AnA Enterprises, LLC (“AnA”), District Court, Clark County, NV – AnA supplied equipment to MVCI on a project under terms of a variety of agreements. AnA is suing MVCI for non-payment. MVCI counter-sued for cost overruns deemed to be the responsibility of AnA. AnA’s suit against MVCI is for approximately $3,000,000. MVCI’s countersuit against AnA is for approximately $3,000,000. AnA also filed a complaint on two other projects completed in 1997 where, as a subcontractor to MVCI, they claim damages of approximately $715,000 for changed conditions. In June 2002, AnA’s lawsuit was dismissed and in November 2002 a judgment was awarded to MVCI against AnA and one of two of AnA’s managing partners. It is highly unlikely that MVCI will ever see any portion of the awarded damages due to AnA having ceased operations.
	(4)		Progressive Contracting Inc. (“PCI”), District Court, Clark County, NV – PCI was a subcontractor to MVCI on a project where there is a dispute with the owner regarding delays to the project. PCI claims they were damaged by these delays in an amount in excess of $300,000. The Company believes that under the terms of the contract with PCI they are only entitled to compensation for the delays if MVCI is compensated by the owner. MVCI has submitted PCI’s claims to the owner and they are included in the total claim amount MVCI has submitted.
	(5)		MVCI is defending a claimed preference, in the Third Judicial Court of Salt Lake County, in connection with a payment made to it by an insurance company, Southern America Insurance Company, in the approximate amount of $100,000. MVCI believes that the payment is not a preference, and is vigorously defending the action.
	(6)		Johnson & Danley Construction Co., Inc. (“JDCC”), J.D. Materials, Inc. (“JDM”) and Joel T. Danley (“Danley”) (collectively “J&D”), Twelfth Judicial District, District of New Mexico – JDCC was the prime contractor and MVCI was a subcontractor to JDCC on two of the five contracts involved in MVCI’s disputes with the state of New Mexico. JDCC was also a subcontractor to MVCI on other contracts in New Mexico. JDM is the owner of an aggregate pit in Alamogordo, NM and leases the pit to MVCI under a mineral lease agreement. Danley is believed to be an officer and owner of JDCC and JDM. JDCC filed for Chapter 11 bankruptcy protection, which in accordance with the contract, resulted in the termination of its contracts with the New Mexico State Highway and Transportation Department (“NMSHTD”). The payment and performance bonds supplied by JDCC in connection with the two contracts for which JDCC was the prime contractor had been furnished by MVCI’s surety companies. MVCI indemnified the surety companies against losses and claims on the two contracts. Upon JDCC’s termination, the NMSHTD entered into a takeover agreement with the surety companies who subsequently entered into an agreement with MVCI to complete the work. MVCI has successfully completed the projects. In its complaint, J&D alleged, among other things, that MVCI was partially responsible for the cause of its bankruptcy and sought damages in an undetermined amount. On February 10, 2003 for mutual consideration, J&D and MVCI entered into a settlement agreement whereby the two parties dismiss their claims and counterclaims in their entirety. The parties have agreed to jointly prosecute their respective claims against the NMSHTD.

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	(7)		The Company and all of its Directors were served with a civil Complaint by Silver State Materials Corp. and Cyrus Spurlino (collectively “Plaintiffs”) in case no. CV-S-01-1436-KJD-LRL (USDC-NV). The Complaint primarily alleges that the Company’s October 1995 Registration Statement on Form S-1 was misleading in stating that the Company’s Directors were elected on a staggered basis because the Company’s Bylaws, providing for such staggered terms, were not so amended until April 1997, and that such amendment was not filed with the Securities and Exchange Commission. The Complaint seeks (i) injunctive relief compelling a Special Meeting of Shareholders to remove all of the Company’s Directors for cause, (ii) the election of a new Board of Directors, (iii) to compel the Company to enact amended and restated Bylaws, (iv) monetary damages in an undisclosed amount, (v) recovery of interest, fees and costs, and (vi) such other relief as the District Court may deem appropriate.
			The Company and its Directors believe that the Complaint is without merit and intend to continue their vigorous defense. On December 19, 2001, based upon the Stipulation of the Company, its Directors and the Plaintiffs, the District Court ordered an open extension of time for the Defendants to respond to the Complaint, subject to a ten (10) day written notice from Plaintiffs. At that time, the Company and the Plaintiffs were engaged in settlement discussions that included the possible sale of the Company’s subsidiary, Ready Mix, Inc. (“RMI”). NRS 78.416(2), and related statutes, apparently prohibits the Company from selling 5 percent or more of the aggregate market value of its assets to an interested stockholder. Due to this probable restriction, the Company’s Board of Directors concluded and advised the Plaintiffs that the proposed transaction involving the sale of RMI would not be in the best interests of the Company or its Shareholders. The Plaintiffs have since threatened resumption of the litigation and their intent to file an Amended Complaint (as interested Shareholders) against the Company’s Board. As of this date, the extension of time to respond to the Complaint remains open and the Plaintiffs have not served written notice requiring the Defendants’ response. Plaintiffs have not filed an Amended Complaint. The Company’s subsidiary, RMI, has not been sold, nor are there any ongoing discussions with the Plaintiffs regarding the sale of RMI. Unless the Company elects to sell RMI or its assets and redeem Plaintiffs’ Shares, further legal proceedings against the Company may occur.

Item 4. Submission of Matters to a Vote of Security Holders

     There were no matters submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the year ended December 31, 2002.

PART II

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

     The Company’s Common Stock was listed on the Nasdaq National Market from October 1995 to August 2001. In August 2001, the Company’s securities were transferred to the Nasdaq SmallCap Market and are traded under the symbol “MVCO”. The following table represents the high and low closing prices for the Company’s Common Stock on the Nasdaq SmallCap Market and the Nasdaq National Market.

Holder of Record

     As of March 14, 2003, there were 446 record and beneficial owners of the Company’s Common Stock.

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Securities Authorized for Issuance Under Equity Compensation Plan

     The following table provides information as of December 31, 2002 regarding compensation plans (including individual compensation arrangements) under which equity securities of Meadow Valley Corporation are authorized for issuance.

Equity Compensation Plan Information

     See Note 18 to the Consolidated Financial Statements for information regarding the material features of the above plan. The plan provides that the number of shares with respect to which options may be granted, and the number of shares of Common Stock subject to an outstanding option, shall be proportionately adjusted in the event of a subdivision or consolidation of shares or the payment of a dividend on Common Stock, and the purchase price per share of outstanding options shall be proportionately revised.

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Item 6. Selected Financial Data

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

Introduction

     The following is a summary of certain information contained in this Report and is qualified in its entirety by the detailed information and financial statements that appear elsewhere herein. Except for the historical information contained herein, the matters set forth in this Report include forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially. These risks and uncertainties are detailed throughout the Report and will be further discussed from time to time in the Company’s periodic reports filed with the Commission. The forward-looking statements included in the Report speak only as of the date hereof.

     The financial performance of fiscal year 2002 was a considerable improvement over the prior two years. The improvement is attributable to two primary factors. First, Ready Mix Inc. had their best year ever and the expansion plans that contributed to losses in 2000 and 2001 produced increased revenue and increased profit on much-improved margins. RMI revenue has grown 148% since year-end 1999. Second, highway contracts on which claims have been filed were completed prior to 2002 and did not have any additional material losses in 2002.

     During the year, considerable progress was achieved in progressing the claims through the mandatory claim review process. For the five projects in dispute with the New Mexico State Highway and Transportation Department (“NMSHTD”), all but one have now been heard by the State Claims Review Board (“Review Board”), the third and final step in the administrative review process required before a contractor would resort to litigation. The fifth New Mexico project will go before the Review Board in April 2003. At any point in the review process, or even after litigation may be initiated, it is possible that the Company and the NMSHTD may seek to open settlement discussions. The Clark County, Nevada claim is scheduled to be heard by a three-member arbitration panel in the fall of 2003 and it is conceivable that the binding arbitration will be completed before year-end.

     Non-payment of claim costs has been the primary cause for the Company’s decreased working capital and weakened financial condition, which in turn, has decreased the Company’s bonding capacity. Due to the Company’s bonding capacity constraint the Company’s backlog at December 31, 2002 of $68.7 million declined from the preceding year’s $76.0 million. The decreased bonding capacity continues to limit the Company’s ability to bid on contracts for which the Company would historically compete. These circumstances create a very real challenge to maintain, let alone increase, backlog. Company management continually looks at all reasonable and available options to improve cash balances and working capital, including the sale or disposition of assets, cost cutting and containment, personnel reductions, financing alternatives or attracting capital. To the degree that the Company succeeds in that effort, bonding capacity may improve.

Results of Operations

     The following table sets forth statement of operations data expressed as a percentage of revenues for the periods indicated:

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Year Ended December 31, 2002 compared to Year Ended December 31, 2001

     Revenue and Backlog. Revenue decreased 13.2% to $151.0 million for the year ended December 31, 2002 (2002) from $174.1 million for the year ended December 31, 2001 (2001). The decrease was the result of a $28.9 million decrease in construction service revenue offset by a $5.8 million increase in revenue generated from construction materials production and manufacturing sold to non-affiliates. Backlog decreased to $68.7 million at December 31, 2002 compared to $76.0 million at December 31, 2001. Revenue is impacted in any one period by the backlog at the beginning of the period. Because so much of the Company’s business stems from competitively bid public works, backlog will fluctuate depending upon the amount and type of contracts that the Company bids on and wins. Bid bonds provided by the Company’s surety company are required on most of the contracts that the Company bids, therefore, any restrictions or limitations in the extension of surety credit can impact the amount and type of contracts available to be bid by the Company. Recent limitations to the Company’s surety credit have contributed to the Company’s declining backlog. Surety credit limits may be improved as the Company’s financial performance improves, but there can be no assurance that surety credit will improve as there also exist insurance industry and individual insurance company dynamics that are unrelated to the Company’s performance.

     Gross Profit. Consolidated gross profit increased to $7.5 million for 2002 from $4.7 million for 2001 and consolidated gross margin, as a percent of revenue, increased to 4.99% in 2002 from 2.68% in 2001. Gross profit from construction services increased to $3.6 million in 2002 from $3.1 million in 2001 and the gross profit margin increased to 3.19% from 2.15% in the respective periods. The increase in the construction services gross profit margin was the result of reductions in costs related to claims and costs overruns on certain projects and by increased profit recognition related to several projects nearing completion at December 31, 2002. Gross profit margins are affected by a variety of factors including construction delays and difficulties due to weather conditions, availability of materials, the timing of work performed by other subcontractors and the physical and geological condition of the construction site. Gross profit from construction materials increased to $3.9 million in 2002 from $1.6 million in 2001 and the gross profit margin increased to 10.6% from 5.13% in the respective periods. The improved performance for the construction materials segment during 2002 is the result of a 19.0% increase in revenue from 2001 that resulted from the expansion of the construction materials operations.

     General and Administrative Expenses. General and administrative expenses decreased to $6.60 million for 2002 from $8.06 million for 2001. The decrease resulted primarily from the Company recording an impairment loss of goodwill in the amount of $1.4 million during 2001 and no impairment loss of goodwill during 2002, a $.6 million decrease in administrative salaries, wages and related payroll taxes, and a $.1 million decrease in administrative vehicle expense, offset by a $.3 million increase in various employee incentive plans, a $.5 million increase in legal fees.

     Interest Income and Expense. Interest income for 2002 decreased to $.2 million from $.3 million for 2001 resulting primarily from a decrease in invested cash reserves. Interest expense decreased for 2002 to $.4 million from $.5 million for 2001, due primarily to the lower variable interest rate on the LOC in 2002 compared to the variable interest rate in 2001.

     Net Income (loss). Net income was $.7 million for 2002 as compared to a net loss of $2.5 million for 2001. The increase from a net loss to a net income was the result primarily of the Company’s ability to increase gross profits and to decrease in general and administrative expenses, offset by a net reduction in other income (expense).

Year Ended December 31, 2001 compared to Year Ended December 31, 2000

     Revenue and Backlog. Revenue increased 6.4% to $174.1 million for the year ended December 31, 2001 (2001) from $163.6 million for the year ended December 31, 2000 (2000). The increase was the result of a $12.0 million increase in revenue generated from construction materials production and manufacturing sold to non-affiliates offset by a $1.5 million decrease in construction services revenue. Backlog increased to $76.0 million at December 31, 2001 compared to $75.0 million at December 31, 2000. Revenue is impacted in any one period by the backlog at the beginning of the period.

     Gross Profit. As a percentage of revenue, consolidated gross profit margin decreased from 2.84% for 2000 to 2.68% for 2001. The decrease in the construction services gross profit margin was the result of costs related to claims and costs overruns on certain projects offset, in part, by increased profit recognition related to several projects nearing completion at December 31, 2001. Gross profit margins are affected by a variety of factors including construction delays and difficulties due to weather conditions, availability of materials, the timing of work performed by other subcontractors and the physical

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and geological condition of the construction site. The decrease in the construction services gross profit margin was offset by an increase in the construction materials gross profit margin.

     General and Administrative Expenses. General and administrative expenses increased to $8.06 million for 2001 from $6.78 million for 2000. The increase resulted primarily from the Company recording an impairment loss of goodwill in the amount of $1.4 million, a $.1 million increase in various employee incentive plans, offset by a $.3 million decrease in bad debt expense.

     Interest Income and Expense. Interest income for 2001 decreased to $.3 million from $.6 million for 2000 resulting primarily from a decrease in invested cash reserves. Interest expense increased for 2001 to $.5 million from $.3 million for 2000, due primarily to the Company borrowing on the line of credit.

     Net Income (loss). Net loss was $(2.5) million for 2001 as compared to $(1.6) million for 2000. The increase in net loss resulted primarily from the Company recording a goodwill impairment loss of $(1.4) million, offset by a $.4 million increase in other income (expense).

Liquidity and Capital Resources

     The Company’s primary need for capital has been to finance growth in its core business as a heavy construction contractor and its expansion into the other construction and construction related businesses previously discussed. Historically, the Company’s primary source of cash has been from operations.

     The following table sets forth, for the periods presented, certain items from the Statements of Cash Flows of the Company.

     Cash provided by operating activities during 2002 amounted to $2.95 million, primarily the result of a decrease in accounts receivable of $.4 million, decrease in costs in excess of billings of $3.8 million, a decrease in inventory, net of $1.4 million, decrease in net deferred taxes of $.5 million, an increase in accrued liabilities of $1.9 million, depreciation and amortization of $2.8 million, and a net income of $.7 million, offset by, an increase in claims receivable of $2.4 million, a decrease in billings in excess of costs of $.9 million, decrease in accounts payable of $7.1 million and a decrease in allowance for doubtful accounts of $.3 million.

     Cash provided by operating activities during 2001 amounted to $.09 million, primarily the result of an increase in accounts payable of $9.4 million, a decrease in costs in excess of billings of $4.5 million, a decrease in income tax receivable of $.8 million and the impairment of goodwill of $1.4 million and depreciation and amortization of $2.8 million, offset by, an increase in accounts receivable of $7.2 million, a decrease in billings in excess of costs of $1.4 million, an increase in claims receivable of $6.0 million, an increase in inventory of $1.2 million, an increase in net deferred taxes of $.6 million and a net loss of $2.5 million.

     Cash used in operating activities during 2000 amounted to $3.0 million, primarily the result of a decrease in billings in excess of costs of $2.4 million, a decrease in accounts payable of $3.2 million, an increase in inventory of $1.1 million, a decrease in accrued liabilities of $1.1 million, an increase in costs in excess of billings of $1.0 million, an increase in income tax receivable of $.8 million, a net loss of $1.6 million, offset in part by a decrease in accounts receivable of $4.7 million, a decrease in prepaid expenses and other of $.6 million and depreciation and amortization of $2.7 million.

     Cash provided by investing activities during 2002 amounted to $1.6 million related primarily to the proceeds from the sale of property and equipment in the amount of $1.6 million, a decrease in restricted cash of $.7 million and the proceeds from the sale of mineral rights and pit development of $.5 million, offset by the purchase of property and equipment of $.5 million and the purchase of land held for sale of $.7 million.

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     Cash provided by investing activities during 2001 amounted to $1.1 million related primarily to the proceeds from the sale of property and equipment in the amount of $2.4 million, offset by the increase in restricted cash of $.6 million, the purchase of property and equipment of $.5 million and the increase in pit development of $.1 million.

     Cash used by investing activities during 2000 amounted to $1.7 million related primarily to the purchase of property and equipment of $1.6 million, an increase in pit development of $.7 million, offset by proceeds from the sale of property and equipment in the amount of $.3 million and a decrease in restricted cash of $.3 million.

     Cash used in financing activities during 2002 amounted to $3.5 million related primarily to repayment of notes payable and capital lease obligations in the amount of $4.1 million, offset by the proceeds received from a note payable in the amount of $.6 million.

     Cash used in financing activities during 2001 amounted to $.8 million related primarily to repayment of notes payable and capital lease obligations in the amount of $5.0 million, offset by the proceeds received from a note payable of $4.2 million.

     Cash provided by financing activities during 2000 amounted to $.3 million related primarily to the proceeds received from a note payable of $6.0 million, offset by the repayment of notes payable and lease obligations in the amount of $5.7 million.

Impact of Inflation

     The Company believes that inflation has not had a material impact on its operations. However, substantial increases in labor costs, worker compensation rates and employee benefits, equipment costs, material or subcontractor costs could adversely affect the operations of the Company for future periods.

Critical Accounting Policies

     Our significant accounting policies are described in Note 1 to the consolidated financial statements included in Item 8 of this Form 10-K. We believe our most critical accounting policies are the revenue recognition and cost estimation on certain contracts for which we use a percentage of completion accounting method, our allowance for doubtful accounts and the allowance for obsolete inventory. The revenue recognition and cost estimation accounting method is applied by our Construction Services Operations to heavy construction projects executed under multi-year contracts with various customers. Approximately 76%, 82% and 88% of total net revenue was recognized under the percentage of completion method of accounting during 2002, 2001 and 2000, respectively.

     Revenues and costs from fixed-price and modified fixed-price construction contracts are recognized for each contract on the percentage-of-completion method, measured by the percentage of costs incurred to date to the estimated total of direct costs. Direct costs include, among other things, direct labor, field labor, equipment rent, subcontracting, direct materials, and direct overhead. General and administrative expenses are accounted for as period costs and are, therefore, not included in the calculation of the estimates to complete construction contracts in progress. Project losses are provided in the period in which such losses are determined, without reference to the percentage-of-completion. As contracts can extend over one or more accounting periods, revisions in costs and earnings estimated during the course of the work are reflected during the accounting period in which the facts that required such revisions become known.

     The asset “costs and estimated earnings in excess of billings on uncompleted contracts” represents revenue recognized in excess of amounts billed. The liability “billings in excess of costs and estimated earnings on uncompleted contracts” represents billings in excess of revenues recognized.

     The complexity of the estimation process and all issues related to the assumptions, risks and uncertainties inherent with the application of the percentage of completion method of accounting affects the amounts reported in our financial statements. A number of internal and external factors affect our percentage of completion estimates, including labor rate and efficiency variances, estimated future material prices and customer specification changes. If our business conditions were different, or if we used different assumptions in the application of this accounting policy, it is likely that materially different amounts would be reported in our financial statements.

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     We are also required to estimate the collectibility of our account receivables. A considerable amount of judgment is required in assessing the realization of these receivables, including the current creditworthiness of each customer and the related aging of the past due balances. Our provision for bad debts during the years ended December 31, 2002 and 2001 amounted to $287,333 and $562,412, respectively. We determine our reserve by using percentages applied to certain aged receivable categories and percentages of certain types of revenue generated.

     In addition, we are required to state our inventories at the lower of cost or market. In assessing the ultimate realization of inventories, we are required to make judgments as to the future demand requirements and compare these with the current inventory levels. Our reserve requirements generally increase as our projected demand requirements decrease due to market conditions and longer than expected usage periods. At December 31, 2002 and 2001, inventories of $2,103,100 and $3,365,750 respectively, are net of reserves of $1,000,000 and $0 respectively. It is possible that significant changes in required inventory reserves may continue to occur in the future if there is a further decline in market conditions.

Summary of Contractual Obligations and Commercial Commitments

     Contractual obligations at December 31, 2002, and the effects such obligations are expected to have on liquidity and cash flow in future periods, are summarized as follows:

Recent Accounting Pronouncements

     In June 2001, Financial Accounting Standards Board (FASB) issued Statement No. 143 (SFAS No. 143), “Accounting for Asset Retirement Obligations,” effective for fiscal years beginning after June 15, 2002. The Statement requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The adoption of SFAS No. 143 is not expected to have a material effect on the Company’s financial position or results of operations.

     In June 2002, FASB issued Statement No. 146 (SFAS No. 146), “Accounting for Costs Associated with Exit or Disposal Activities,” effective for activities that are initiated after December 31, 2002, with early application encouraged. This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies

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Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The adoption of SFAS No. 146 is not expected to have a material effect on the Company’s financial position or results of operations.

     In October 2002, FASB issued Statement No. 147 (SFAS No. 147), “Acquisitions of Certain Financial Institutions, An Amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9,” effective for acquisitions on or after October 1, 2002. SFAS No. 72, and FASB Interpretation No. 9, provided interpretive guidance on the application of the purchase method to acquisitions of financial institutions. Except for transactions between two or more mutual enterprises, this Statement removes acquisitions of financial institutions from the scope of both SFAS No. 72 and FASB Interpretation 9 and requires that those transactions be accounted for in accordance with SFAS No. 141, “Business Combinations,” and No. 142, “Goodwill and Other Intangible Assets.” Thus, the requirement in paragraph 5 of SFAS No. 72 to recognize (and subsequently amortize) any excess of the fair value of liabilities assumed over the fair value of tangible and identifiable intangible assets acquired as an unidentifiable intangible asset no longer applies to acquisitions within the scope of SFAS No. 147. In addition, SFAS No. 147 amends SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor-and borrower-relationship intangible assets and credit cardholder intangible assets. Consequently, those intangible assets are subject to the same undiscounted cash flow recoverability test and impairment loss recognition and measurement provisions that Statement 144 requires for other long-lived assets that are held and used. The adoption of SFAS No. 147 is not expected to have a material effect on the Company’s financial position or results of operations.

     In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 expands on the accounting guidance of SFAS No. 5, 57 and 107 and incorporates without change the provisions of FASB Interpretation No. 34, which is being superceded. FIN 45 elaborates on existing disclosure requirements for most guarantees, including standby letters of credit. It also clarifies that guarantees must be recognized as an initial liability for fair value, or market value, of the obligations assumed under the guarantee and that this information must be disclosed in interim and annual financial statements. FIN 45 applies on a prospective basis to guarantees issued or modified after December 31, 2002. The Company does not anticipate the adoption of FIN 45 to have a material effect on its consolidated financial position or results of operations.

     In December 2002, FASB issued Statement No. 148 (SFAS No. 148), “Accounting for Stock-Based Compensation — Transition and Disclosure — An Amendment of FASB Statement No. 123.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company is required to follow the prescribed format and provide the additional disclosures required by SFAS No. 148 in its annual financial statements for the year ended December 31, 2002 and must also provide the disclosures in its quarterly reports containing condensed financial statements for interim periods beginning with the quarterly period ended March 31, 2003. The adoption of SFAS No. 148 is not expected to have a material effect on the Company’s financial position or results of operations

     In January 2003, FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46) which requires the consolidation of variable interest entities, as defined. FIN 46 is applicable to financial statements to be issued by the Company after 2002; however, disclosures are required currently if the Company expects to consolidate any variable interest entities. The Company does not currently believe that any material entities will be consolidated with the Company as a result of FIN 46.

Known and Anticipated Future Trends and Contingencies

     With continued improvement in profitability and working capital, it is anticipated that the Company’s bonding limits will increase proportionately, thereby allowing the Company to bid on and perform more and larger projects. Conversely, if the Company fails to maintain or further enhance the improving trends started in 2002, bonding capacity could decline. Any decline in bonding below existing levels would require significant reorganization of personnel and resources.

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     The Company believes that government, at all levels, will continue to be the primary source of funding for infrastructure work. The national transportation legislation, TEA-21, established a total budget authority of $215 billion over the six-year period 1998-2003. TEA-21 ensured that tax revenue deposited into the Highway Trust Fund would be spent on transportation improvements by guaranteeing $164 billion for highways and $35 billion for transit and by further stipulating that appropriators can spend trust fund dollars only on transportation. Annual spending authorizations under TEA-21 have been consistent with anticipated levels, however, a component of the TEA-21 legislation called Revenue Aligned Budget Authority (“RABA”), may increase or decrease funding proportionate to tax proceeds increases or decreases. Just months ago, declines in tax revenues, due to the recent recession, created a downward adjustment in funding from the RABA component of TEA-21 and it looked as though the Bush administration was going to cut highway funding by approximately $5 billion from 2002 to 2003. Debate over highway funding for TEA-21’s final year of 2003 appears to be reaching a close and it appears that the 2003 funding level will rest somewhere between the $31.8 billion approved by the U.S. Senate or the $27.7 billion supported by the House. Interim resolutions (until final spending authorization is passed) have allowed funding to continue at the 2002 annual rate of $31.8 billion. Over the next few months until funding authority is finalized, State Departments of Transportation may not let as many contracts until they are fully aware of the funding available to them.

     The competitive bidding process will continue to be the dominant method for determining contract award. However, other innovative bidding methods will be tried and may gain favor, namely “A Plus B” contracts, where the bidders’ proposals are selected on both price and scheduling criteria. Design-build projects are becoming more common and are likely to increase in frequency. Design-build projects also tend to be of more worth to the owner when the contract size is substantial, usually $50 million or more.

     In light of the rising needs for infrastructure work throughout the nation and the tendency of the current needs to out-pace the supply of funds, it is anticipated that alternative funding sources will continue to be sought. Funding for infrastructure development in the United States is coming from a growing variety of innovative sources. An increase of funding measures is being undertaken by various levels of government to help solve traffic congestion and related air quality problems. Sales taxes, fuel taxes, user fees in a variety of forms, vehicle license taxes, private toll roads and quasi-public toll roads are examples of how transportation funding is evolving. Transportation norms are being challenged by federally mandated air quality standards. Improving traffic movement, eliminating congestion, increasing public transit, adding or designating high occupancy vehicle (HOV) lanes to encourage car pooling and other solutions are being considered in order to help meet EPA-imposed air quality standards. There is also a trend toward local and state legislation regulating growth and urban sprawl. The passage of such legislation and the degree of growth limits imposed by it could dramatically affect the nature of the Company’s markets.

Seasonality

     The construction industry is seasonal, generally due to inclement weather occurring in the winter months. Accordingly, the Company may experience a seasonal pattern in its operating results with lower revenue in the first and fourth quarters of each calendar year than other quarters. Quarterly results may also be affected by the timing of bid solicitations by governmental authorities, the stage of completion of major projects and revenue recognition policies. Results for any one quarter, therefore, may not be indicative of results for other quarters or for the year.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

     Market risk generally represents the risk that losses may occur in the values of financial instruments as a result of movements in interest rates, foreign currency exchange rates and commodity prices. The Company does not have foreign currency exchange rate and commodity price market risk.

     Interest Rate Risk – From time to time the Company temporarily invests its excess cash and restricted cash in interest-bearing securities issued by high-quality issuers. The Company’s management monitors risk exposure to monies invested in securities in its financial institutions. Due to the short time the investments are outstanding and their general liquidity, these instruments are classified as cash equivalents in the consolidated balance sheet and do not represent a material interest rate risk to the Company. The Company’s primary market risk exposure for changes in interest rates relates to the Company’s long-term debt obligations. The Company manages its exposure to changing interest rates principally through the use of a combination of fixed and floating rate debt.

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     The Company evaluated the potential effect that near term changes in interest rates would have had on the fair value of its interest rate risk sensitive financial instruments at December 31, 2002. Assuming a 100 basis point increase in the prime interest rate at December 31, 2002 the potential increase in the fair value of the Company’s debt obligations would have been approximately $76,000 at December 31, 2002. See notes 9 and 10 in the accompanying consolidated financial statement.

Item 8. Financial Statements and Supplementary Data

     The Company’s Consolidated Financial Statements are indexed on page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     Not Applicable

PART III

Item 10. Directors and Executive Officers of the Registrant

     Information on directors and executive officers of the Company will be included under the caption “Directors and Executive Officers” of the Company’s definitive Proxy Statement relating to the Annual Meeting of Shareholders for the year ended December 31, 2002, which is hereby incorporated by reference.

     Section 16(a) Beneficial Ownership Reporting Compliance

     Earle May, one of the Company’s directors, failed to timely file Forms 4 with the U.S. Securities and Exchange Commission covering four transactions made by him in the Company’s common stock purchase warrants occurring over a five-day period in December 2002. All of these transactions were reported by Mr. May in December 2002.

Item 11. Executive Compensation

     Information on executive compensation will be included under the caption “Compensation of Executive Officers” of the Company’s definitive Proxy Statement relating to the Annual Meeting of Shareholders for the year ended December 31, 2002, which is hereby incorporated by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

     Information on beneficial ownership of the Company’s voting securities by each director and all officers and directors as a group, and by any person known to beneficially own more than 5% of any class of voting security of the Company will be included under the caption “Beneficial Ownership of the Company’s Securities” of the Company’s definitive Proxy Statement relating to the Annual Meeting of the Shareholders for the year ended December 31, 2002, which is hereby incorporated by reference.

Item 13. Certain Relationships and Related Transactions

     Information on certain relationships and related transactions including information with respect to management indebtedness will be included under the caption “Certain Relationships and Related Transactions” and “Information Regarding Indebtedness of Management to the Company” of the Company’s definitive Proxy Statement relating to the Annual Meeting of Shareholders for the year ended December 31, 2002, which is hereby incorporated by reference.

Item 14. Controls and Procedures

     The Company’s Chief Executive Officer and its Principal Accounting Officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c) as of a date within 90 days of the filing date of this annual report on Form 10-K (the “Evaluation Date”)), have

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concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities, particularly during the period in which this annual report on Form 10-K was being prepared.

     There were no significant changes in the Company’s internal controls or in other factors that could significantly affect the Company’s disclosure controls and procedures subsequent to the Evaluation Date, nor any significant deficiencies or material weaknesses in such disclosure controls and procedures requiring corrective actions. As a result, no corrective actions were taken.

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PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)(1)		Financial Statements
		See Item 8 of Part II hereof.
(a)(2)		Financial Statement Schedules
		The schedules specified under Regulation S-X are either not applicable or immaterial to the Company’s consolidated financial statements for the years ended December 31, 2002, 2001 and 2000.
(b)		Reports on Form 8-K
		The Company filed a Form 8-K during the fourth quarter ended December 31, 2002.
(c)		Exhibits

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