Fill and Sign the Special Event Rental Agreement Form Urban Rethink

ABRAMS INDUSTRIES, INC. ANNUAL REPORT 1945 THE EXCHANGE, SUITE 300 ATLANTA, GEORGIA 30339-2029 770.953.0304 FAX 770.953.9922 WWW.ABRAMSINDUSTRIES.COM 4 ANNUAL REPORT Established in 1925, Abrams Industries, Inc. (the “Company”), operating through its wholly owned subsidiaries, provides energy engineering services and maintenance and service request solutions CONTENTS LETTER TO 1 SHAREHOLDERS for facilities; implements energy saving lighting programs and provides other energy services, including facility-related FORM 10-K 3 FOUNDER Alfred R. Abrams (1899-1979) FORMER CHAIRMAN Bernard W. Abrams (1925-2001) OFFICERS OF ABRAMS INDUSTRIES, INC. AND SUBSIDIARIES Alan R. Abrams J. Andrew Abrams Barry C. Abramson Carrie L. Billiam Melinda S. Garrett CHAIRMAN EMERITUS Edward M. Abrams Stephen D. Hassett PARENT COMPANY ABRAMS INDUSTRIES, INC. 1945 The Exchange Suite 300 Atlanta, Georgia 30339-2029 (770) 953-0304 (770) 953-9922 (fax) www.abramsindustries.com M. Todd Jarvis BOARD OF DIRECTORS Alan R. Abrams (E) Co-Chairman of the Board Chief Executive Officer and President Abrams Industries, Inc. Jo Toney Mundy Rick A. Paternostro Jim Poulos Mark J. Thomas Claire J. Wiggill J. Andrew Abrams (E) Co-Chairman of the Board Vice President-Business Development Abrams Industries, Inc. Paul M. Williams ENERGY AND FACILITIES SOLUTIONS SEGMENT SERVIDYNE SYSTEMS, LLC 1945 The Exchange Suite 325 Atlanta, Georgia 30339-2029 (770) 933-4200 (770) 933-4201 (fax) www.servidyne.com improvements; and engages in real estate investment and development. Servidyne Systems, LLC provides energy engineering services and maintenance and service request solutions that assist DIRECTORS, Inside Back Cover OFFICERS AND DIRECTORY David L. Abrams President Silver Star Management Corp. its commercial office, hospitality, institutional, and other customers in reducing building operating costs by lowering energy consumption, increasing work efficiency, and improving occupant Environmental Protection Agency, marking the fourth consecutive year that Servidyne has received the ENERGY STAR Partner of Samuel E. Allen (A) (C) (N) Chairman and Chief Executive Officer Globalt, Inc. Gilbert L. Danielson (A) (C) (N) Executive Vice President, Chief Financial Officer Aaron Rents, Inc. Melinda S. Garrett (E) Vice President and Secretary Abrams Industries, Inc. Chief Executive Officer and President Abrams Properties, Inc. energy-related services that reduce energy consumption and operating costs to commercial, industrial, and institutional facilities. Suite 320 Atlanta, Georgia 30339-2029 (770) 916-7111 the Year award.The Wheatstone Energy Group, LLC provides turnkey implementation of energy saving lighting programs and THE WHEATSTONE ENERGY GROUP, LLC 1945 The Exchange satisfaction. In early 2004, Servidyne Systems was presented the ENERGY STAR® Sustained Excellence Award by the U.S. ENERGY SERVICES SEGMENT Abrams Properties, Inc. engages in the acquisition, development, (770) 916-7112 (fax) www.wheatstoneenergy.com REAL ESTATE SEGMENT ABRAMS PROPERTIES, INC. 1945 The Exchange Suite 400 Atlanta, Georgia 30339-2029 redevelopment, leasing, asset management, ownership, and sale Robert T. McWhinney, Jr. (C) (N) Chief Executive Officer and President Douglass, McCarthy and McWhinney of shopping centers and office buildings. The Company currently owns or controls approximately 1.1 million square feet of shopping centers in the Midwest and Southeast and more than 200,000 Felker W. Ward, Jr. (A) (N) Chairman of the Board Pinnacle Investment Advisors, LLC square feet of office properties in metropolitan Atlanta, Georgia. ANNUAL MEETING TRANSFER AGENT The annual meeting of Shareholders of Abrams Industries, Inc. will SunTrust Bank be held at 11:00 a.m. on Wednesday, August 25, 2004, at the Corporate Post Office Box 4625 Committees: Headquarters, 1945 The Exchange, Suite 300, Atlanta, Georgia. Atlanta, Georgia 30302 A-Audit C-Compensation E-Executive N-Nominating (770) 953-1777 (770) 953-9922 (fax) Dear Fellow Shareholders In fiscal 2004, we remained true to our strategic objective of repositioning earning assets in activities that we believe will produce more consistent and improved financial results. Because of this focus, we believe Abrams Industries is a stronger company. 1 BPE Building Performance Engineers 2 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended April 30, 2004 Commission file number 0-10146 ABRAMS INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Georgia (State or other jurisdiction of incorporation or organization) 58-0522129 (I.R.S. Employer Identification No.) 1945 The Exchange, Suite 300, Atlanta, GA (Address of principal executive offices) 30339-2029 (Zip Code) Registrant’s telephone number, including area code: (770) 953-0304 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Name of each exchange on which registered: None Title of each class: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $1.00 Par Value Per Share (Title of Class) 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 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 the 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 Exchange Act 12b-2). YES NO The aggregate market value of Common Stock held by nonaffiliates of the registrant as of October 31, 2003 was $5,575,967. See Pa rt III for a definition of nonaffiliates. The number of shares of Common Stock of the registrant outstanding as of April 30, 2004, was 3,180,340. DOCUMENTS INCORPORATED BY REFERENCE The information called for by Part III (Items 10, 11, 13 and 14) is incorporated herein by reference to the registrant’s definitive proxy statement for the 2004 Annual Meeting of Shareholders which is to be filed pursuant to Regulation 14A. PART I ITEM 1 | BUSINESS Abrams Industries, Inc. (i) provides energy engineering services and develops, implements and supports maintenance and service request solutions for facilities; (ii) implements energy saving lighting programs and provides other energy services, including facility-related improvements that reduce energy and operating costs; and (iii) engages in real estate investment and development. As used herein, the term "Company" refers to Abrams Industries, Inc. and its subsidiaries and predecessors, unless the context indicates o t h e rwise, and the term “Parent” or “Parent Company” refers solely to Abrams Industries, Inc. The Company historically provided commercial construction and general contracting services. Construction revenues in fiscal 2004 continued to decrease significantly from prior years due to the Company’s decision to reduce revenue volume rather than contract at prices that offered the Company unacceptable levels of potential profit relative to the inherent risks. During fiscal 2004, the Company continued to see an ongoing lack of attractive project opportunities, in a competitive marketplace, that would meet its risk/reward requirements. Accordingly, the Company has elected to discontinue its operations as a multi-purpose general contractor. The Company’s strategy is to continue to add new service offerings that are expected to generate lower gross revenues, but at higher profit margins, than general contracting. The Company is pursuing this strategy partially through selective acquisitions. In December 2003, the Company acquired the business and assets of The Wheatstone Energy Group, Inc., a provider of energy efficient lighting system installation services and other energy-related services. In April 2004, the Company expanded its capabilities through the purchase of the business and assets of iTendant, Inc., (“iTendant”). The iTendant software platform is a comprehensive Web and wireless maintenance and service request solution that connects property owners, managers, engineers, building occupants and service providers in order to improve communication and increase visibility into building operations. In May 2004, the Company further expanded its energy engineering and design capabilities through the purchase of the business and assets of Building Performance Engineers, Inc. (“BPE”). BPE specializes in the optimization of building performance through energy analyses, simulation and modeling, on-site investigative engineering, building and engineering systems design, and qualification of buildings for LEED™ (Leadership in Energy and Environmental Design) certification. These transactions have expanded the Company’s portfolio of offerings designed to improve facility operating performance and lower building operating costs, while improving the level of service and comfort for building occupants. The Company was organized under Delaware law in 1960 to succeed to the business of A. R. Abrams, Inc., which was founded in 1925 by Alfred R. Abrams as a sole proprietorship. In 1984, the Company changed its state of incorporation from Delaware to Georgia. Further information on the businesses of the Company’s operating segments is discussed below. Financial information for the segments is set forth in Note 13 to the consolidated financial statements of the Company. | ENERGY AND FACILITIES SOLUTIONS SEGMENT In May 2001, the Company acquired the business and assets of Servidyne Systems, Inc., establishing the Company’s Energy and Facilities Solutions Segment. Se rvidyne Systems, LLC (“Servidyne”), a wholly-owned subsidiary of the Company, provides energy engineering s e rvices and maintenance and service request solutions that assist its customers in optimizing facility performance and reducing the costs of owning and operating buildings, by lowering energy consumption, increasing work efficiency, and improving occupant satisfaction. Se rvidyne acquired the business and assets of iTendant and BPE in April 2004 and May 2004, respectively. These acquisitions have expanded Servidyne’s capabilities in engineering and in developing, implementing, and supporting maintenance and service request solutions. Servidyne’s engineering services include energy audits; engineering design services; energy monitoring and analyses; LEED™ certification; building commissioning; energy modeling; mechanical, electrical and plumbing surveys; and Energy Star® qualification. Se rvidyne also assists customers in managing facility equipment maintenance for the highest efficiency and useful equipment life, and in managing service requests to improve building occupant satisfaction while maximizing labor productivity, by implementing and supporting its proprietary computerized maintenance and service request systems, and by providing consulting services. Servidyne’s customers are building owners and operators and energy services companies in the commercial office, hospitality, retail, institutional, government, healthcare, residential and industrial sectors. The primary focus for the business is the continental United States, although the Company does business internationally as well. Contracts for energy engineering services and maintenance and service request solutions are primarily obtained through negotiations, but may also be obtained through competitive bids on larger proposals. | ENERGY SERVICES SEGMENT In December 2003, the Company acquired the business and assets of The Wheatstone Energy Gro u p, Inc., establishing the Company’s Energy Se rvices Segment. The Wheatstone Energy Group, LLC (“Wheatstone”), a wholly owned subsidiary of the Company, p rovides turnkey implementation of energy saving lighting programs and other energy-related services that reduce energy consumption and operating costs to commercial, industrial and institutional facilities. As a vendor-neutral company, Wheatstone takes an unbiased approach to evaluating and implementing energy saving systems and developing recommendations of cost-saving strategies. Wheatstone focuses its marketing and sales activities on national accounts, energy services companies, facility owners and owners’ agents throughout the United States. Se rvices are mainly obtained through negotiations, but may also be obtained thro u g h competitive bids for large contracts. | REAL ESTATE SEGMENT Abrams Properties, Inc. (“Abrams Properties”), a wholly owned subsidiary of the Company, has engaged in real estate activities since 1960. These activities primarily involve the acquisition, development, redevelopment, leasing, asset management, ownership, and sale of shopping centers and office buildings in the Southeast and Midwest. Abrams Properties uses third-party property managers and leasing agents for all of its multitenant properties. Abrams Properties currently owns five shopping centers, three that it developed and two that it acquired. The centers are held as long-term investments or will be marketed for sale, as management determines is appropriate. See “ITEM 2. PROPERTIES – Owned Shopping Centers.” In March 2004, Abrams Properties sold its Company-developed shopping center located in North Fort Myers, Florida. See Note 3 to the consolidated financial statements of the Company. Abrams Properties is also currently lessee and sublessor of six Company-developed shopping centers that were sold by and leased back to Abrams Properties, and then subleased to Kmart Corporation. See “ITEM 2. PROPERTIES – Leaseback Shopping Centers.” During fiscal 2004, Abrams Properties terminated its leasehold interest in one such property. The Company owns three office properties, including a professional medical office building located in Douglasville, Georgia, which the Company acquired in April 2004. See “ITEM 2. PROPERTIES – Office Buildings.” The Company also owns, through its wholly owned subsidiary, AFC Real Estate, Inc., a vacant former manufacturing facility located in Atlanta, Georgia. | CONSTRUCTION SEGMENT The Company has elected to discontinue the operations of Abrams Construction, Inc. (“Abrams Construction”), a wholly owned subisdiary, as a multi-purpose general contractor, as is discussed elsewhere. Abrams Construction’s activities included building, expanding, remodeling and renovating retail stores, shopping centers, banks, office buildings, and distribution and manufacturing facilities. Although Abrams Construction historically worked throughout much of the United States, it concentrated its activities principally in the southern and mid-western states. | EMPLOYEES AND EMPLOYEE RELATIONS At April 30, 2004, the Company employed 83 salaried employees and 8 hourly employees. The Company believes that its relations with its employees are good. | SEASONAL NATURE OF BUSINESS The businesses of the Energy and Facilities Solutions, Energy Services, and Real Estate Segments generally are not seasonal. However, certain retail customers of the Energy Services Segment choose to delay lighting installation during the winter holiday season. The business of the Construction Segment historically was somewhat seasonal, affected by weather conditions and its retail customers’ store opening schedules. | COMPETITION The industries in which the Company operates are highly competitive. The Energy and Facilities Solutions Segment’s competition is widespread and ranges from multi-national firms to local small businesses. Competition in the Energy Services Segment consists primarily of local and regional companies. The Real Estate Segment also operates in a competitive environment, with numerous parties competing for available financing, properties, tenants and investors. In the Construction Segment, the Company competed with a large number of national and local construction companies, many of which had proprietary customer relationships or greater financial resources than the Company. | PRINCIPAL CUSTOMERS In fiscal 2004, the Company derived approximately 38% ($14,706,748) of its consolidated revenues from continuing operations from direct transactions with The Home Depot, Inc. These revenues resulted principally from construction activities, which are being discontinued as is discussed elsewhere. See Note 13 to the consolidated financial statements of the Company. No other single customer accounted for 10% or more of the Company's consolidated revenues during the year. | BACKLOG The following table indicates the backlog of contracts and expected rentals for the next twelve months by industry segment: Ap ril 30, 2004 Energy and Facilities Solutions(1) Energy Services (2) Real Estate (3) Construction(4) Less: Intersegment eliminations Total Backlog $ 875,000 2,234,000 7,407,000 124,000 (517,000) $ 10,123,000 Ap ril 30, 2003 $ 768,000 – 9,302,000 15,262,000 (442,000) $24,890,000 (1) Contracts that can be cancelled with less than one year’s notice are not included in backlog. As of April 30, 2004, and April 30, 2003, such contracts not inlcuded in backlog totaled $1.43 million and $1.14 million, respectively, in potential revenue over the ensuing twelve months, assuming cancellation provisions are not invoked. (2) The Energy Services Segment was formed in December 2003. See Note 14 to the consolidated financial statements. (3) Included in Real Estate income at April 30, 2003, is approximately $255,000 related to a Kmart leaseback that was assigned to the fee owner by the Company in October 2003, and approximately $2.14 million related to the Company’s shopping center located in North Fort Myers, Florida, which was sold at a gain in March 2004. See Note 3 to the consolidated financial statements. The intersegment eliminations re p o rted include only intercompany rent of approximately $517,000 and $442,000, in the fiscal years ended April 30, 2004, and April 30, 2003, respectively. (4) The difference between 2004 and 2003 is primarily due to the Company’s election to discontinue its operations as a multipurpose general contractor. The Company estimates that most of the backlog at April 30, 2004, will be completed prior to April 30, 2005. No assurance can be given as to future backlog levels or whether the Company will realize earnings from revenues resulting from the backlog at April 30, 2004. | REGULATION The Company is subject to the authority of various federal, state and local regulatory agencies including, among others, the Occupational Health and Safety Administration and the Environmental Protection Agency. The Company is also subject to local zoning regulations and building codes. Management believes that it is in substantial compliance with all such governmental regulations, except for the Construction Segment to the extent set forth under “ITEM 3. LEGAL PROCEEDINGS” regarding past conduct that may have contravened antitrust laws. Management believes that compliance with federal, state and local provisions, which have been enacted or adopted for regulating the discharge of materials into the environment, does not have a material adverse effect upon the capital expenditures, earnings, or competitive position of the Company. | EXECUTIVE OFFICERS OF THE REGISTRANT The Executive Officers of the Company as of June 30, 2004, were as follows: Alan R. Abrams (49) Officer since 1988 Co-Chairman of the Board since 1998 and a Di rector of the Company since 1992, he has been Chief Executive Officer since 1999 and President since 2000. From 1998 to 1999, he was President and Chief Operating Of f i c e r. He also served as President and Chief Executive Officer of Se rvidyne Systems, LLC from May 2002 to July 2003. Mark J. Thomas (48) Officer since 2003 Chief Financial Officer since 2003. Prior to joining the Company, he was employed by Paragon Trade Brands (a manufacturing company), serving as Vice President of Finance & Corporate Controller from October 2000 to October 2002. He also was employed by Mead Corporation (a paper packaging company), serving as Director of Finance from April 1997 to October 2000. Melinda S. Garrett (48) Officer since 1990 A Director of the Company since 1999, she has been Secretary since 2000 and Vice President since May 2004, and was Chief Financial Officer from 1997 to 2003. She also has served Abrams Properties, Inc. as Chief Executive Officer since 2003, President since 2001, Chief Financial Officer from 1998 to 2000, and Vice President from 1993 to 2000. J. Andrew Abrams (44) Officer since 1988 Co-Chairman of the Board since 1998 and a Director of the Company since 1992, he has been Vice President-Business Development since 2000. He served as President and Chief Operating Officer from 1999 to 2000. From 1997 to 1999, he was Executive Vice President. Claire J. Wiggill (38) Officer since 2003 Vice President since 2001, she also has served as Interim President of Se rvidyne Systems, LLC since July 2003. Prior to joining the Company, she was employed by iXL, Inc. (an interactive design company), serving as Senior Manager from May 2000 to September 2001. She also was employed by Wachovia Securities (an investment bank) from 1992 to May 2000, most recently serving as Senior VicePresident. Executive Officers of the Company are elected by the Board of Directors of the Company or the Board of the respective subsidiary to serve at the pleasure of the Board. Alan R. Abrams and J. Andrew Abrams are brothers, and are the sons of Edward M. Abrams, the Company’s Chairman Emeritus, who retired as a member of the Board of Directors in 2003. David L. Abrams, a member of the Board of Directors, is first cousin to Alan R. Abrams and J. Andrew Abrams, and nephew to Edward M. Abrams. There are no other family relationships between any Executive Officers or Directors of the Company. ITEM 2 | PROPERTIES The Company, through its Real Estate Segment, owns its corporate headquarters building, which contains approximately 65,880 square feet of office space. The building is located in the North x Northwest Office Park, 1945 The Exchange, in suburban Atlanta, Georgia. The Parent Company and all the operating segments have their main offices located in this building. In addition to the 25,928 square feet of offices leased by Abrams entities, another 33,500 square feet is leased to unrelated tenants, and 6,452 square feet is currently available for lease. The Company also owns a vacant former metal manufacturing facility located in Atlanta, Georgia. In December 2003, as part of the Energy Services Segment’s acquisition of the business and assets of The Wheatstone Energy Group, Inc., the Company assumed two leases for a total of 10,000 square feet of office and warehouse space located at 1231 Collier Road in Atlanta, Georgia, which leases expired in June 2004. The Energy Services Segment relocated its main offices to the corporate headquarters building in June 2004 upon expiration of one of the leases, but retained the other 5,000 square feet of space under an amended lease for use as a warehouse, extending the lease to March 2007. The Company owns, or has an interest in, the following properties: | OWNED SHOPPING CENTERS As of April 30, 2004, the Company’s Real Estate Segment owned three shopping centers that it developed and two that it acquired. The following chart provides relevant information relating to the owned shopping centers: Location 1100 W. Argyle Street Jackson, MI(5) 1075 W. Jackson Street Morton, IL (6) 2500 Airport Thruway Columbus, GA (6) (7) 5700 Harrison Avenue Cincinnati, OH (8) 8106 Blanding Blvd. Jacksonville, FL (9) Percentage of Square Leasable Footage Square Leased as of Feet in Ap ril 30, Acres Building(s) 2004 10.5 110,070 97% 7.3 92,120 100 Rental Principal Calendar Income Amount of Year(s) Per Leased Debt Debt Placed in Rental Square Service Outstanding Service by Income Foot EBITDA Payments as of April 30, Company 2004 2004 (1) 2004 (2) 2004 (3) 2004 (4) 1972, 1996 $ 565,753 $ 5.30 $ 395,059 $ 396,933 $ 2,584,318 2004 1980, 1992 515,259 5.59 439,723 405,249 2,340,652 8.0 87,543 100 1980, 1988 441,286 5.04 396,296 391,356 1,385,623 10.8 86,396 97 1998 628,749 7.50 382,069 – – 18.8 174,220 90 1999 1,594,759 10.17 1,138,911 887,187 8,315,124 (1) Calculated by dividing annual rental income by leased square feet in building, as of April 30, 2004. (2) EBITDA is defined as earnings before the following: interest, income taxes, depreciation, and amortization of loan and lease costs. See table following in this “ITEM 2. PROPERTIES - EBITDA,” which reconciles earnings before income taxes from continuing operations to EBITDA. (3) Includes principal and interest. (4) The Company's liability for repayment is limited by exculpatory provisions to its interest in the respective mortgaged properties. (5) 2004 rental income and EBITDA for the shopping center in Jackson, Michigan, included partial year re venues of $4,667 from a portion of the 21,000 square feet of newly created shop space that first opened in April 2004. This center is currently being marketed for sale. (6) Land is leased, not owned. (7) The center in Columbus, Georgia, is owned by Abrams-Columbus Limited Partnership, in which Abrams Properties, Inc. serves as general partner and owns an 80% interest. (8) Originally developed by third parties in 1982. This center is currently in the process of being marketed for sale. (9) Originally developed by third parties in 1985. The Company’s former shopping center located in North Fort Myers, Florida, was sold at a gain in March 2004. This property is not included above. The two centers located in Morton, Illinois, and Columbus, Georgia, are leased exclusively to Kmart. The Kmart lease in Columbus, Georgia, expires in 2008 and has ten five-year renewal options, and the Kmart lease in Mo rton, Illinois, expires in 2016 and has eight five-year renewal options. Anchor tenant lease terms for the other owned centers are shown in the following table: Anchor Tenant (1) Big Lots Kroger Kroger (2) Harbor Freight Tools Publix (3) Office Depot Location Jackson, MI Cincinnati, OH Jacksonville, FL Lease Expiration Date 2007 2021 2005 2010 2010 2008 Square Footage 26,022 63,024 42,456 13,500 85,560 22,692 Options to Renew 2 for 5 years each 6 for 5 years each 3 for 5 years each 2 for 5 years each 6 for 5 years each 2 for 5 years each (1) A tenant is considered to be an “Anchor Tenant” if it leases 12,000 square feet or more for an initial lease term in excess of five years. (2) Tenant has subleased the premises to Mattress Distribution Center, Inc., but remains liable for the lease until the expiration date. (3) Tenant has subleased the premises to Floor and Decor Outlets, but remains liable for the lease until the expiration date. With the exception of the Kmart lease in Columbus, Georgia, and the Harbor Freight Tools lease in Cincinnati, Ohio, all of the anchor tenant and many of the small shop leases provide for contingent rentals if sales generated by the respective tenant in the leased space exceed specified amounts. In some cases, contingent rentals are subject to certain rights of offset for the amounts that the ad valorem taxes exceed specified amounts. In fiscal 2004, the Company recognized $56,656 in contingent rent, net of offsets, from owned shopping centers, which amounts are included in the aggregate rentals set forth above. Typically, tenants are responsible for their pro rata share of ad valorem taxes, insurance and common area maintenance costs (subject to the rights of offset against contingent rents mentioned above). Kmart has total maintenance responsibility for the centers in Morton, Illinois, and Columbus, Georgia. | OWNED OFFICE BUILDINGS The Company, through its Real Estate Segment, owns three office properties: the corporate headquarters building located at 1945 The Exchange, in suburban Atlanta, Georgia; an office park in suburban Atlanta, Georgia; and a professional medical office building in Douglasville, Georgia. The following chart provides pertinent information relating to the office buildings: Location 1945 The Exchange Atlanta, GA (4) 1501-1523 Johnson Ferry Rd. Marietta, GA (5) 4586 Timber Ridge Dr. Douglasville, GA (6) Percentage Rental of Square Calendar Income Leasable Footage Year(s) Per Leased Square Leased as of Placed in Rental Square Feet in April 30, Service by Income Foot EBITDA Acres Building(s) 2004 Company 2004 2004 (1) 2004 (2) 3.12 65,880 85% 1997 $ 1,107,319 $ 19.77 $ 654,872 Principal Amount of Debt Debt Service Outstanding Payments as of Ap ril 30, 2004 (3) 2004 $ 443,690 $ 4,785,829 8.82 121,476 62 1997 1,621,901 21.53 955,505 536,382 6,059,460 2.534 28,404 81 2004 57,393 N/A 43,558 17,526 2,941,469 (1) Calculated by dividing annual rental income by leased square feet in building, as of April 30, 2004. (2) EBITDA is defined as earnings before the following: interest, income taxes, depreciation, and amortization of loan and lease costs. See table following in this “ITEM 2. PROPERTIES - EBITDA,” which reconciles earnings before income taxes from continuing operations to EBITDA. (3) Includes principal and interest. (4) The Company’s corporate headquarters building of which the Company leases approximately 25,928 square feet. Rental income and EBITDA include $497,235 of intercompany rent at a competitive rate paid by the Parent Company, Real Estate Segment and the Construction Segment. The building was originally developed by third parties in 1974 and acquired and re-developed by the Company in 1997. (5) The Company, through a subsidiary of its Real Estate Segment, is the lessee of 10,661 square feet of space under a master lease agreement to satisfy a condition required by the lender, of which 5,445 square feet has been leased to third parties as of April 30, 2004. Rental income and EBITDA include $138,681 of intercompany rent at a competitive rate paid by the Real Estate Segment. The buildings were originally developed by third parties in 1980 and 1985. (6) The Company acquired this professional medical office building on April 5, 2004. The rental income is only for the short period following the acquisition through April 30, 2004. | EBITDA Earnings before interest, taxes, depreciation and amortization of loan and lease costs (“EBITDA”) is not a measure of performance defined in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Management, however, believes that EBITDA is useful to investors and management in evaluating performance, because it is a commonly used financial analysis tool for measuring and comparing individual properties in the area of operating performance. EBITDA should not be considered as a substitute for earnings (loss) before income taxes as an indicator of the Company’s performance, or as an alternative to net cash provided by operating activities as a measure of liquidity, and may not be comparable to similarly titled measures used by other companies. The following table reconciles earnings before income taxes from continuing operations under GAAP to EBITDA presented in the Owned Shopping Center and Owned Office Buildings tables above: Jackson Michigan Earnings before income taxes from continuing operations Add: Depreciation Amortization Interest Expense EBITDA OWNED SHOPPING CENTERS Morton Columbus Cincinnati Jacksonville Illionois Georgia Ohio Florida OWNED OFFICE BUILDINGS Atlanta Marietta Douglasville Georgia Georgia Georgia $ 90,245 $ 83,027 $ 153,029 $ 324,392 $ 40,371 $ 76,839 $ 147,077 $ 1,086 52,648 22,452 229,714 $ 395,059 125,151 7,236 224,309 $ 439,723 104,299 29,037 109,931 $ 396,296 50,789 6,888 $ 382,069 147,141 22,546 928,853 $ 1,138,911 167,055 37,546 373,432 $ 654,872 286,289 62,321 459,818 $ 955,505 17,168 7,778 17,526 $ 43,558 | LEASEBACK SHOPPING CENTERS The Company, through its Real Estate Segment, has a leasehold interest in six shopping centers that it developed, sold, and leased back under leases expiring from years 2006 to 2014. Each of the centers is entirely subleased by the Company to Kmart Corporation. The Kmart subleases provide for contingent rentals if sales exceed specified amounts, and contain nine five-year renewal options, except Jacksonville, Florida, which has eight five-year renewal options. The Company's leases with the fee owners contain renewal options coextensive with Kmart's renewal options. Kmart is responsible for insurance and ad valorem taxes, but has the right to offset against contingent rentals for any such taxes paid in excess of specified amounts. In fiscal 2004, the Company recognized $83,773 in contingent rentals, net of offsets, from leaseback shopping centers, which amounts are included in the aggregate annual rentals set forth below. The Company has responsibility for structural and roof maintenance of the buildings. The Company also has responsibility for underground utilities, parking lots and driveways, except for routine upkeep, which is the responsibility of the subtenant, Kmart. The Company’s leases contain exculpatory provisions, which limit the Company’s liability for payments to its interests in the respective leases. The following chart provides certain information relating to the leaseback shopping centers: Location Bayonet Point, FL Orange Park, FL Davenport, IA Minneapolis, MN Jacksonville, FL Richfield, MN Acres 10.8 9.4 10.0 7.1 11.6 5.7 Square Feet in Building(s) 109,340 84,180 84,180 84,180 97,032 74,217 Calendar Years Placed in Service by Company 1976, 1994 1976 1977 1978 1979 1979 Rental Rental Income Rent Income Per Square Foot Expense 2004 2004 (1) 2004 $ 368,565 $ 3.37 $ 269,564 264,000 3.14 226,796 255,308 3.03 204,645 368,127 4.37 230,570 303,419 3.13 258,858 300,274 4.05 241,904 (1) Calculated by dividing rental income by square feet in building. | REAL ESTATE LEASED OR HELD FOR FUTURE DEVELOPMENT OR SALE The Company, through its Real Estate Segment, owns the following real estate held for future development or sale: Location Dixie Highway Louisville, KY Mundy Mill Road Oakwood, GA North Cleveland Avenue North Fort Myers, FL Metropolitan Parkway Atlanta, GA (2) Acres 4.7 Calendar Year Development Completed 1979 5.3 1987 11.6 1993 3.6 (3) Intended Use (1) Food store and/or retail shops Commercial development pad or up to four outlots Five outlots, anchor pads and retail shops Warehouse, industrial or commercial building (1) “Outlot” as used herein refers to a small parcel of land platted separately from the shopping center parcel, which is generally sold for, leased for, or developed as a fast-food restaurant, bank, small retail shops, or other similar use. (2) Land and buildings, originally utilized by the Company as its metal manufacturing facility; owned by AFC Real Estate, Inc., formerly known as Abrams Fixture Corporation. (3) The Company assembled the property in a series of transactions. The buildings were developed by third parties prior to 1960. There is no debt on any of the above properties. The Company will either develop the properties described above or will continue to hold them for sale or lease to others. For further information on the Company’s properties, see Notes 3, 5, 7 and 8 to the consolidated financial statements, and “SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION.” ITEM 3 | LEGAL PROCEEDINGS 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, re vealed information suggesting that activities 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 also voluntarily communicated the results of its investigation to the United States Department of Justice (“DOJ”). 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 in fiscal 2004. At this time, the Company has no reason to believe that any other customers were affected by such inappropriate activity. The Company 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. Currently, the Company believes that it has satisfied all of the DOJ’s requests for document production in conjunction with its on-going cooperation with the DOJ investigation, and has otherwise complied with the conditions of the letter of amnesty. The remaining estimated costs are not expected to be material. Such cost estimates, however, are particularly difficult to make with any precision. To date, no private 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, and such claims could be material. 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, who subsequently made a demand against API for arbitration and filed a counterclaim. The case is currently being arbitrated. The dispute arises out of the former asset management’s provision of real estate services to API. The Company believes API’s claims against its former asset manager and its defenses to the asset manager’s claims are meritorious, and intends to continue to vigorously pursue its claims and assert its defenses. The Company believes the ultimate disposition of the above noted legal proceedings and claims or potential claims will not have a material adverse effect 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 effect on the financial condition, cash flows, or results of operations of the Company. ITEM 4 | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5 | MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS. CLOSING MARKET PRICES FISCAL 2004 FISCAL 2003 HIGH LOW HIGH LOW TRADE TRADE TRADE TRADE First Quarter Second Quarter Third Quarter Fourth Quarter $ 4.05 4.75 4.49 4.55 $ 3.60 3.57 3.76 3.80 $ 5.31 4.84 4.58 4.10 $ 4.60 3.37 3.47 3.75 DIVIDENDS PAID PER SHARE FISCAL 2004 FISCAL 2003 $ 0.04 0.04 0.04 0.04 $ 0.04 0.04 0.04 0.04 The common stock of Abrams Industries, Inc. is traded on the NASDAQ National Market System (Symbol: ABRI). The approximate number of holders of common stock was 485 (including shareholders of record and shares held in street name) at June 30, 2004. The information contained under the heading “Equity Compensation Plan” in the Company’s definitive proxy materials for its 2004 Annual Meeting of Shareholders will be filed with the Securities and Exchange Commission under a separate filing, and is hereby incorporated by reference. The Company did not repurchase any of the shares of its common stock during its fiscal year ended April 30, 2004. On April 16, 2004, an indirect wholly-owned subsidiary of the Company acquired the business and substantially all of the assets and assumed certain liablitites of iTendant, Inc. The consideration included 123,547 newly-issued shares of the Company’s common stock, par value $1.00 per share. See Note 14, “Acquisitions,” to the consolidated finanacial statements for more information. The issuance of the stock is exempt from registration as private placements pursuant to the Securities Act of 1933 and the rules promulgated there under. ITEM 6 | SELECTED FINANCIAL DATA The following table sets forth selected financial data for the Company and should be read in conjunction with the consolidated financial statements and the notes thereto: Year Ended April 30, Net Earnings (Loss) (1) Net Earnings (Loss) Continuing Operations (2) Net Earnings (Loss) Discontinued Operations Net Earnings (Loss) Per Share (1) Net Earnings (Loss) Per Share Continuing Operations (2) Net Earnings (Loss) Per Share Discontinued Operations Consolidated Revenues Continuing Operations (2) Shares Outstanding at Year-End Cash Dividends Paid Per Share Shareholders' Equity Shareholders' Equity Per Share Working Capital Depreciation and Amortization - Continuing Operations (3) Total Assets Income-Producing Pro p e rties and P ro p e rty and Equipment, net (4) Long-Term Debt Interest Rate Sensitive Debt (5) Return on Average Shareholders' Equity (1) 2004 $ (1,850,126) 2003 $ (1,073,524) $ 2002 811,774 $ 2001 676,172 $ 2000 (456,605) $ (4,706,963) $ (2,092,653) $ (1,268,685) $ 211,906 $ 2,069,756 $ 2,856,837 $ $ 2,080,459 $ 464,266 $ (2,526,361) $ (.62) $ (.37) $ .28 $ .23 $ (.16) $ (1.58) $ (.72) $ (.43) $ .07 $ .70 $ .96 $ .35 $ .71 $ .16 $ (.86) 1,019,129 $ 39,082,120 3,180,340 $ .16 $ 19,997,527 $ 6.29 $ 7,207,333 $ 71,278,440 2,914,351 $ .16 $ 21,257,952 $ 7.29 $ 7,638,091 $ 112,761,140 2,909,079 $ .16 $ 22,778,876 $ 7.83 $ 9,875,096 $149,818,972 2,943,303 $ .16 $ 22,505,543 $ 7.65 $ 11,442,348 $ 169,878,196 2,936,356 $ .16 $ 22,346,138 $ 7.61 $ 10,820,179 $ 1,685,809 $ 61,876,019 $ 1,638,322 $ 73,797,098 $ 2,280,284 $ 91,784,369 $ 1,934,870 $ 97,619,685 $ 1,986,362 $ 102,845,867 $ 30,234,144 $ 27,411,653 $ 1,000,000 $ 43,650,850 $ 33,523,314 $ 11,351,353 $ 45,188,295 $ 35,163,492 $ 16,916,652 $ 28,134,764 $ 50,180,619 $ 17,941,479 $ 61,456,455 $ 51,929,637 $ 18,302,855 (9.0)% (4.9)% 3.6% 3.0% (2.0)% (1) Includes continuing operations, discontinued operations and extraord i n a ry items, if any. (2) Although, as of April 30, 2004, the operations of the Construction Segment were substantially discontinued, the results, neve rtheless, are included in continuing operations pursuant to SFAS No. 144. (3) Depreciation and amortization for sold properties have been reclassified as discontinued operations and are not included above. (4) Does not include property held for sale or real estate held for future development or sale. (5) Includes short-term and long-term debt. ITEM 7 | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | INTRODUCTION As discussed in “ITEM 1. BUSINESS” above, the amount and percentage of the Company’s revenues derived from its Construction Segment, historically the Company’s largest business, have declined dramatically in recent years, and the Company has elected to discontinue its activities as a multi-purpose general contractor, as is discussed elsewhere. The Company has added and is continuing to add new service offerings that are expected to generate lower gross revenues, but at higher profit margins, than did the Construction Segment. The Company is pursuing this strategy partially through selective acquisitions. This trend and strategy is expected to result in higher proportions of the Company’s revenues in the future being attributable to service and product sales. Because service and product sales are generally recognized as the service is performed and when the product is shipped or delivered, the Company expects backlog to become less significant to the Company in the future. In “RESULTS OF OPERATIONS” below, changes in revenues, costs and expenses, and selling, general and administrative expenses from period to period are analyzed on a segment and consolidated basis. For net earnings and similar profit information on a consolidated basis, please see “ITEM 6. SELECTED FINANCIAL DATA” above or the Company’s consolidated financial statements. | RESULTS OF OPERATIONS REVENUES Revenues from continuing operations for 2004 were $39,082,120, compared to $71,278,440 and $112,761,140, for 2003 and 2002, respectively. This represents decreases in revenues of 45% in 2004 and 37% in 2003. Revenues included interest income of $12,581, $50,127, and $158,207, for 2004, 2003, and 2002, respectively, and other income of $122,423, $65,172, and $90,418, for 2004, 2003, and 2002, respectively. The figures in Chart A below, however, do not include interest income, other income or intersegment revenues. When more than one segment is involved, revenues are reported by the segment that sells the product or service to an unaffiliated purchaser. REVENUES FROM CONTINUING OPERATIONS SUMMARY BY SEGMENT CHART A (Dollars in Thousands) Years Ended April 30, 2004 2003 Energy and Facilities Solutions Energy Services (1) Real Estate (2) Construction (3) Total $ 2,962 2,602 7,882 25,500 $ 38,946 $ 2,900 – 8,735 59,528 $ 71,163 Increase (Decrease) Amount Percent $ 62 2,602 (853) (34,028) $ (32,217) 2 – (10) (57) (45) Years Ended April 30, 2003 2002 $ 2,900 – 8,735 59,528 $ 71,163 $ 2,995 – 8,830 100,688 $ 112,513 Increase (Decrease) Amount Percent $ (95) – (95) (41,160) $ (41,350) (3) – (1) (41) (37) NOTES: (1) The Energy Se rvices Segment was formed in December 2003. See Note 14 to the consolidated financial statements. (2) Represents rental revenues and revenues from sales of land, if any. Rental re venues for all periods presented do not include rental revenues generated by income-producing properties which were subsequently sold. Such revenues have been reclassified to discontinued operations. Rental revenues from continuing operations for 2004 were $7,882,431, compared to $7,875,530 in 2003, and $8,364,764 in 2002. Rental revenues exclude intercompany rents of $457,414 in 2004, $449,549 in 2003, and $461,818 in 2002. There were no sales of land in 2004. Revenues from sales of land were $859,561 in 2003, resulting from the sale of an outparcel in Jackson, Michigan, and an outparcel and an anchor store pad in Da venport, Iowa. Revenues from sales of land were $465,000 in 2002, resulting from the sale of an outlot in North Fort Myers, Florida. (3) Revenues decreased for fiscal 2004 from the comparable period in fiscal 2003, and for fiscal 2003 from the comparable period in fiscal 2002, primarily due to the Company’s election to reduce re venue volume rather than contract at prices that offered the Company unacceptable levels of potential profitability relative to the inherent risks. As discussed previously, the Company has elected to discontinue its role as a multi-purpose general contractor. Although, as of April 30, 2004, the operations of the Construction Segment were substantially discontinued, the results, neve rtheless, are included in continuing operations pursuant to SFAS No. 144. COST AND EXPENSES: APPLICABLE TO REVENUES As a percentage of total segment revenues (See Chart A), the applicable total segment costs and expenses (See Chart B)of $33,443,421 for 2004, $64,260,964 for 2003, and $104,889,811 for 2002, were 86%, 90%, and 93%, respectively. COSTS AND EXPENSES: A P P L I CABLE TO REVENUES FROM CONTINUING OPERATIONS SUMMARY BY SEGMENT CHART B (Dollars in Thousands) Energy and Facilities Soltuions (1) Energy Services (2) Real Estate (3) Construction (4) Total 2004 Years Ended April 30, 2003 $ 1,630 1,822 4,899 25,093 $ 33,444 $ 1,573 – 5,409 57,279 $ 64,261 2002 $ 1,760 – 5,980 97,150 $ 104,890 Percent of Segment Revenues For Years Ended April 30, 2004 2003 2002 55 70 62 98 86 54 – 62 96 90 59 – 68 96 93 NOTES: (1) The change in the dollar amount and percentage of costs and expenses applicable to revenues from continuing operations for fiscal 2003, compared to the same period in 2002, was primarily the result of a change in the mix of services. (2) The Energy Se rvices Segment was formed in December 2003. See Note 14 to the consolidated financial statements. (3) Costs and expenses for all periods presented do not include the costs and expenses of income-producing properties that were subsequently sold, and do not include the costs of sale of these properties. These costs and expenses have been reclassified to discontinued operations. Costs and expenses from continuing operations for 2004 were $4,898,526, compared to $5,113,013 in 2003, and $5,574,522 in 2002. There were no sales of land in 2004. Costs of the sale of real estate were $295,813 in 2003, resulting from the sale of an outparcel in Jackson, Michigan, and an outparcel and an anchor store pad in Davenport, Iowa, and $405,647 in 2002, resulting from the sale of an outlot North Fort Myers, Florida. The decrease in the dollar amount applicable to revenues from continuing operations for 2004 compared to 2003 is primarily attributable to: (a) a decrease in lease costs of approximately $141,000 due to the cancellation of a Kmart sublease; and (b) the Company no longer outsourcing asset management responsibilities, resulting in a decrease in fiscal 2004 asset management fees of approximately $83,000. The decrease in the dollar amount and percentage of costs and expenses applicable to revenues from continuing operations for 2003 compared to 2002 was primarily attributable to: (a) a decrease in lease costs of approximately $380,000 due to the cancellation of two Kmart subleases; (b) a decrease in depreciation expense of approximately $46,000; and (c) a decrease in management fees of approximately $177,000 paid to an outside asset manager that only served for a partial year in 2003; offset by (d) an increase in common area operating expenses of approximately $127,000, primarily due to parking lot repairs. (4) The increase in the percentage of costs and expenses applicable to revenues from continuing operations for 2004 compared to 2003 is primarily attributable to losses taken on two jobs and the decrease in revenues (see Note 3 to Chart A). Although, as of April 30, 2004, the operations of the Construction Segment were substantially discontinued, the results, nevertheless, are included in continuing operations pursuant to SFAS No. 144. | SELLING, GENERAL AND ADMINISTRATIVE EXPENSES For the fiscal years 2004, 2003, and 2002, selling, general and administrative (“SG&A”) expenses from continuing operations (see Chart C) were $10,203,916, $8,043,576, and $7,536,971, respectively. As a percentage of consolidated revenues from continuing operations, these expenses were 26%, 11%, and 7%, in 2004, 2003, and 2002, respectively. In reviewing Chart C, the reader should recognize that the volume of re venues generally affects these amounts and percentages. The percentages in Chart C are based on expenses as they relate to segment revenues in Chart A, with the exception that parent expenses and total expenses relate to consolidated revenues. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES FROM CONTINUING OPERATIONS SUMMARY BY SEGMENT CHART C (Dollars in Thousands) Energy and Facilities Solutions (1) Energy Services (2) Real Estate (3) Construction (4) Parent (5) Total 2004 Years Ended April 30, 2003 2002 $ 2,424 788 862 3,604 2,526 $ 10,204 $ 1,795 – 841 2,426 2,982 $ 8,044 $ 1,360 – 494 3,092 2,591 $ 7,537 NOTES: (1) On a dollar and percentage basis, SG&A expenses were higher for fiscal 2004 compared to the same period in 2003 and 2002, primarily due to an increase in the number of personnel and other personnel costs, as well as a charge to earnings of approximately $267,000 in 2004 related to a change in estimated useful life of one of the Company’s proprietary software offerings. In fiscal 2004, the increase in SG&A was also due to higher sales and marketing expenditures, which did not generate the growth in revenues that was intended. The Company believes the recent acquisitions of the business and assets of iTendant, Inc. and Building Performance Engineers, Inc. will generate additional incremental revenue, and management has made operational adjustments, which it believes will result in sales and marketing costs being spent more effectively. (2) The Energy Services Segment was formed in December 2003. See Note 14 to the consolidated financial statements. (3) SG&A expenses for all periods presented do not include SG&A expenses of income-producing properties that were subsequently sold. These expenses have been reclassified as discontinued operations. On a dollar and percentage basis, SG&A expenses from continuing operations were higher for fiscal 2004 compared to 2003, primarily due to: (a) a decrease in legal and professional fees of approximately $242,000; offset by (b) an increase in personnel and staffing costs of approximately $285,000. On a dollar and percentage basis, SG&A expenses were higher for 2003 compared to 2002, primarily due to: (a) increased legal and professional fees of approximately $201,000, largely attributable to Kmart’s bankruptcy, a legal dispute with the Company’s former asset manager, and the employment of an outside consultant to assist in asset management; and (b) increased personnel and staffing costs of approximately $149,000 due to the Company’s return to internal asset management. (4) On a dollar and percentage basis, SG&A expenses were higher for Percent of Segment Revenues For Years Ended April 30, 2004 2003 2002 82 30 11 14 6 26 62 – 10 4 4 11 45 – 6 3 2 7 fiscal 2004 compared to 2003, primarily due to: (a) an increase in legal and professional fees of approximately $1,258,000, primarily due to the Company’s internal investigation and ongoing cooperation with the U.S. Department of Justice, as discussed in “ITEM 3. LEGAL PROCEEDINGS;” (b) the onetime expense reduction of $450,000 in fiscal 2003, resulting from the decrease in an allowance for doubtful accounts reserve for a receivable from Montgomery Ward & Company; offset by (c) a reduction in SG&A salary costs of approximately $895,000, which in turn was partially offset by hiring and severance costs of $222,000; and (d) lower revenues during 2004. On a dollar basis, SG&A expenses were lower for 2003 compared to 2002, due to: (a) the one-time expense reduction of $450,000 in 2003 discussed in the previous sentence; and (b) a reduction in personnel and incentive compensation costs of approximately $278,000; offset by (c) an increase in information technology costs of approximately $122,000. Although, as of April 30, 2004, the operations of the Construction Segment were substantially discontinued, the results, nevertheless, are included in continuing operations pursuant to SFAS No. 144. (5) Although, SG&A expenses were lower on a dollar basis in fiscal 2004, on a percentage basis SG&A expenses were higher for fiscal 2004 compared to the same period in 2003 due to the reduction of consolidated revenues. On a dollar basis, SG&A expenses were lower for 2004 compared to 2003 primarily due to: (a) the a c c rual in 2003 of an expense of $484,000 related to a retirement agreement, which replaced the previous employment agreement of a former officer and director of the Company; and (b) a d e c rease in personnel and personnel related costs of approximately $117,000. On a dollar and percentage basis, SG&A expenses were higher in 2003 compared to 2002 primarily due to the accrual of the expense of $484,000 mentioned in (a) above. | INTEREST COSTS Most of the interest costs expensed of $2,512,688, $2,377,553, and $2,437,738, in 2004, 2003, and 2002, respectively, is related to debt on real estate. T h e re was no capitalized interest in any of the years presented. | FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION In 2004, accounts receivables and trade and subcontractors payables decreased by $6,958,019 and $3,239,185, respectively, primarily due to the timing of the payment of invoices for construction work p e rformed and a decrease in construction revenues. In 2004, income-producing pro p e rties decreased by $13,550,860, primarily due to: (1) the sale of the Company’s shopping center located in North Fo rt Myers, Florida, in March 2004 (See Note 3 to the consolidated financial statements); and (2) depreciation expense; offset by (3) the acquisition of a professional medical office building located in Douglasville, Georgia (see Note 14 to the consolidated financial statements); and (4) the additions to income-producing properties resulting from the completion of approximately 21,000 square feet of leasable space in the Company’s shopping center located in Jackson, Michigan. In 2004, goodwill increased by $3,256,411 and intangibles increased by $1,191,895, primarily due to the acquisition of assets and the assumption of certain liabilities of The Wheatstone Energy Group, Inc. and iTendant, Inc. (See Note 14 to the consolidated financial statements.) In 2004, investment held to maturity increased due to a $2,000,000 investment in a long-term securities bond that matures in April 2006, which management intends to hold to maturity. In 2004, mortgage notes payable increased by $2,293,461 primarily due to the assumption of the mortgage debt related the professional medical office building. (See Note 14 to the consolidated financial statements.) In 2004, other long-term debt decreased by $8,405,122, primarily due to the repayment of the North Fo rt Myers, Florida, construction loan upon the Company’s sale of the shopping center (see Note 3 to the consolidated financial statements), offset by the assumption of certain liabilities of The Wheatstone Energy Group, Inc. (see Note 14 to the consolidated financial statements). | LIQUIDITY AND CAPITAL RESOURCES Except for certain real estate construction loans and occasional s h o rt-term operating loans, the Company is usually able to finance its working capital needs through funds generated internally. If adequate funds are not generated through normal operations or the sale of real estate, the Company has available bank lines of credit. See Note 8 to the consolidated financial statements. Wo rking capital was $7,207,333 at April 30, 2004, compared to $7,638,091 at April 30, 2003. Operating activities used cash of $2,059,704, primarily due to losses incurred during fiscal 2004 and a decrease in trade and subcontractors payable, offset by a decrease in accounts receivable. In vesting activities used cash of $6,262,513, primarily due to: (1) the acquisition of the business and assets and the assumption of certain liabilities of The Wheatstone Energy Group, Inc. and the acquisition of the business and assets and the assumption of certain liabilities of iTendant, Inc. (see Note 14 to the consolidated financial statements); (2) additions to income-producing properties due to the completion of approximately 21,000 square feet of leasable space in the Company’s shopping center in Jackson, Michigan; (3) the investment of $2,000,000 in a securities bond for cash management purposes; and (4) the acquisition of a professional medical office building located in Douglasville, Georgia. Financing activities used cash of $1,541,684, primarily for scheduled principal payments of mortgage notes and other long-term debt. Discontinued operations provided cash of $11,085,941, from the sale of the Company’s former shopping center located in North Fort Myers, Florida. In 1999, in connection with the financing of the purchase of the Company’s owned shopping center in Jacksonville, Florida, the Company obtained a permanent mortgage loan in the amount of $9,500,000, which is secured by the center. Prior to being restructured, as is discussed below, the loan bore interest at 7.375% and was scheduled to be fully amortized over twenty years. The loan was to mature in 2019, but the lender had the right to call the loan at any time after September 1, 2002, upon thirteen months’ notice. If the loan had been called, the Company would have had up to thirteen months to repay the principal amount of the loan without penalty, by selling or refinancing the loan on the shopping center. However, the Company’s liability for repayment was limited to its interest in the center. In conjunction with the loan, an Additional Interest Agreement was executed, which had entitled the lender to be paid additional interest equal to fifty percent of the quarterly net cash flow and fifty percent of the appreciation in the property upon sale or refinance. The liability related to the lender’s fifty percent share of the appreciation in the property was $3,048,264 at April 30, 2004. The mortgage debt and related unamortized loan discount was $1,699,731 and $8,315,124, respectively, at April 30, 2004. On July 8, 2004, the Company restructured the loan on the Company’s owned shopping center in Jacksonville, Florida. The Company paid the lender $1.5 million as payment in full of the Additional Interest Agreement, which was then terminated. The restructured loan is for $7.8 million, bears interest at 6.125%, and matures on July 1, 2029, but may be called after July 1, 2011, with thirteen months’ notice. However, the Company’s liability for repayment is limited to its interest in the center. In March 2004, the Company’s Board authorized the repurchase of up to 200,000 shares of the Company Stock in the twelve-month period beginning March 4, 2004, and ending on March 3, 2005. Any such purchases, if made, could be in the open market at prevailing prices or in privately negotiated transactions. The Company did not repurchase any shares in the period between May 1, 2003, and June 30, 2004. In conjunction with the refinancing of a mortgage on an incomeproducing property in July 2002, the Company is required to provide for potential future tenant improvement expenses and lease commissions through additional collateral, in the form of a letter of credit, in the amount of $150,000 for each of the first three loan years, $300,000 during the fourth, fifth, and sixth loan years, and $450,000 during the seventh, eighth, ninth, and tenth loan years. The letter of credit, currently $150,000, is secured by a bank line of credit. Effective April 30, 2003, the Company terminated an employment agreement and entered into a new retirement agreement with a former officer and director of the Company. Beginning May 1, 2003, the new agreement required the Company to pay a retirement benefit of approximately $87,000 through August 19, 2003, and requires payments of approximately $100,000 per year thereafter for a term of four years, ending on August 19, 2007. In addition, the Company will also continue to provide certain medical insurance benefits through the term of the retirement agreement. The new agreement provides that the retiree’s stock options expire no later than August 19, 2004. The retirement agreement would terminate early in the event of the death of the retiree. In December 2003, the Company acquired the business and substantially all of the assets and assumed certain liabilities of The Wheatstone Energy Group, Inc. for a purchase price of approximately $4.8 million. The consideration consisted of 23,842 newly-issued shares of the Company’s common stock with a fair value of $89,645, the payment of approximately $1.3 million to certain trade creditors, and assumed approximately $2.9 million of liabilities. Also in connection with the transaction, the Company issued 110,000 shares of Common Stock with a fair value of $424,380, and a warrant to purchase an additional 40,000 shares at an exercise price of $5.10 per share with a fair value of approximately $36,800 determined using the Black-Scholes option pricing model. In December 2003, the Company purchased a one year certificate of deposit in the amount of $200,000 that is used as collateral for an irrevocable letter of credit. In 1992, the Company secured a construction loan for the development of the shopping center in North Fort Myers, Florida, from SunTrust Bank. The original term of the construction financing was five years, and the loan was most recently extended to Febru a ry 2005. In March 2004, the Company closed on the sale of the shopping center in North Fort Myers, Florida, for a sales price of $21.8 million, resulting in a pre-tax gain of approximately $4.0 million. After repayment of the remaining balance on the loan secured by the shopping center (approximately $10.5 million) and other expenses, the sale generated net cash proceeds of approximately $10.6 million. The sale did not include an