Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
|
|
|
|
þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
quarterly period ended March 31, 2007
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
transition period from ________ to ________
COMMISSION
FILE NUMBER: 1-7525
THE
GOLDFIELD CORPORATION
(Exact
Name of Registrant as Specified in Its Charter)
Delaware
|
88-0031580
|
(State
or other Jurisdiction of Incorporation or
Organization)
|
(I.R.S.
Employer Identification No.)
|
1684
West Hibiscus Blvd., Melbourne, Florida, 32901
(Address
of Principal Executive Offices)(Zip Code)
(321)
724-1700
(Registrant’s
Telephone Number, Including Area Code)
Not
Applicable
(Former
Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate
by check mark whether the registrant: (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days.
Yes
þ
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer o
Accelerated
filer o
Non-accelerated
filer þ
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No
þ
As
of May
7, 2007, 25,451,354 shares of the Registrant’s Common Stock were
outstanding.
THE
GOLDFIELD CORPORATION AND SUBSIDIARIES
QUARTERLY
REPORT ON FORM 10-Q
FOR
THE
QUARTER ENDED MARCH 31, 2007
INDEX
PART
I.
|
FINANCIAL
INFORMATION
|
|
3
|
Item
1.
|
Financial
Statements
|
|
3
|
|
Consolidated
Balance Sheets
|
|
3
|
|
Consolidated
Statements of Operations
|
|
4
|
|
Consolidated
Statements of Cash Flows
|
|
5
|
|
Notes
to Consolidated Financial Statements
|
|
6
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
13
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
|
21
|
Item
4T.
|
Controls
and Procedures.
|
|
21
|
PART
II.
|
OTHER
INFORMATION
|
|
22
|
Item
1.
|
Legal
Proceedings
|
|
22
|
Item
1A.
|
Risk
Factors
|
|
22
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
22
|
Item
6.
|
Exhibits
|
|
23
|
SIGNATURES
|
|
24
|
PART
I. FINANCIAL INFORMATION
THE
GOLDFIELD CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
March
31,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
5,493,886
|
|
$
|
6,801,600
|
|
Accounts
receivable and accrued billings
|
|
|
5,515,326
|
|
|
4,908,511
|
|
Contracts
receivable (Note 2)
|
|
|
12,778,842
|
|
|
10,623,909
|
|
Remediation
insurance receivable (Note 5)
|
|
|
273,349
|
|
|
329,888
|
|
Current
portion of notes receivable
|
|
|
38,529
|
|
|
41,453
|
|
Construction
inventory (Note 3)
|
|
|
62,774
|
|
|
216,989
|
|
Real
estate inventories (Note 3)
|
|
|
600,220
|
|
|
801,411
|
|
Costs
and estimated earnings in excess of
|
|
|
|
|
|
|
|
billings
on uncompleted contracts
|
|
|
2,740,847
|
|
|
2,358,738
|
|
Deferred
income taxes (Note 8)
|
|
|
240,950
|
|
|
263,400
|
|
Income
taxes recoverable
|
|
|
465,169
|
|
|
309,922
|
|
Residential
properties under construction (Note 4)
|
|
|
5,055,555
|
|
|
3,784,165
|
|
Prepaid
expenses
|
|
|
1,041,929
|
|
|
431,441
|
|
Other
current assets
|
|
|
149,470
|
|
|
17,614
|
|
Total
current assets
|
|
|
34,456,846
|
|
|
30,889,041
|
|
Property,
buildings and equipment, at cost, net of depreciation
|
|
|
|
|
|
|
|
of
$13,548,417 as of March 31, 2007 and
|
|
|
|
|
|
|
|
$13,715,313
as of December 31, 2006
|
|
|
11,049,528
|
|
|
9,465,378
|
|
Notes
receivable, less current portion
|
|
|
389,975
|
|
|
407,409
|
|
Deferred
charges and other assets
|
|
|
|
|
|
|
|
Land
and land development costs (Note 4)
|
|
|
710,495
|
|
|
710,495
|
|
Cash
surrender value of life insurance
|
|
|
318,022
|
|
|
321,724
|
|
Other
assets
|
|
|
502,345
|
|
|
110,129
|
|
Total
deferred charges and other assets
|
|
|
1,530,862
|
|
|
1,142,348
|
|
Total
assets
|
|
$
|
47,427,211
|
|
$
|
41,904,176
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
5,489,490
|
|
$
|
5,359,893
|
|
Billings
in excess of costs and estimated
|
|
|
|
|
|
|
|
earnings
on uncompleted contracts
|
|
|
-
|
|
|
24,444
|
|
Notes
payable (Note 6)
|
|
|
12,935,727
|
|
|
8,663,768
|
|
Capital
leases, due within one year (Note 6)
|
|
|
323,532
|
|
|
317,160
|
|
Current
liabilities of discontinued operations (Note 5)
|
|
|
166,411
|
|
|
208,221
|
|
Total
current liabilities
|
|
|
18,915,160
|
|
|
14,573,486
|
|
Deferred
income taxes (Note 8)
|
|
|
861,400
|
|
|
861,400
|
|
Other
accrued liabilities
|
|
|
23,178
|
|
|
20,821
|
|
Notes
payable, less current portion (Note 6)
|
|
|
2,817,072
|
|
|
1,207,745
|
|
Capital
leases, less current portion (Note 6)
|
|
|
811,664
|
|
|
894,976
|
|
Total
liabilities
|
|
|
23,428,474
|
|
|
17,558,428
|
|
Commitments
and contingencies (Notes 6 and 7)
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
Common
stock, $.10 par value per share, 40,000,000
|
|
|
|
|
|
|
|
shares
authorized; 27,813,772 shares issued
|
|
|
2,781,377
|
|
|
2,781,377
|
|
Capital
surplus
|
|
|
18,481,683
|
|
|
18,481,683
|
|
Retained
earnings
|
|
|
4,043,864
|
|
|
4,390,875
|
|
Treasury
stock, 2,362,418 shares, at cost
|
|
|
(1,308,187
|
)
|
|
(1,308,187
|
)
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
23,998,737
|
|
|
24,345,748
|
|
Total
liabilities and stockholders' equity
|
|
$
|
47,427,211
|
|
$
|
41,904,176
|
|
See
accompanying notes to consolidated financial statements
THE
GOLDFIELD CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
Electrical
construction
|
|
$
|
7,354,043
|
|
$
|
10,492,005
|
|
Real
estate development
|
|
|
2,454,432
|
|
|
3,502,947
|
|
Total
revenue
|
|
|
9,808,475
|
|
|
13,994,952
|
|
|
|
|
|
|
|
|
|
Costs
and expenses
|
|
|
|
|
|
|
|
Electrical
construction
|
|
|
6,801,704
|
|
|
8,123,209
|
|
Real
estate development
|
|
|
1,693,925
|
|
|
2,321,429
|
|
Depreciation
|
|
|
742,347
|
|
|
599,291
|
|
Selling,
general and administrative
|
|
|
1,050,971
|
|
|
1,098,355
|
|
Gain
on sale of assets
|
|
|
(8,857
|
)
|
|
(18,310
|
)
|
Total
costs and expenses
|
|
|
10,280,090
|
|
|
12,123,974
|
|
Total
operating income (loss)
|
|
|
(471,615
|
)
|
|
1,870,978
|
|
|
|
|
|
|
|
|
|
Other
income (expense), net
|
|
|
|
|
|
|
|
Interest
income
|
|
|
61,332
|
|
|
24,712
|
|
Interest
expense, net
|
|
|
(79,645
|
)
|
|
(36,991
|
)
|
Other
|
|
|
9,149
|
|
|
3,494
|
|
Total
other expenses, net
|
|
|
(9,164
|
)
|
|
(8,785
|
)
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
|
|
|
|
|
|
before
income taxes
|
|
|
(480,779
|
)
|
|
1,862,193
|
|
|
|
|
|
|
|
|
|
Income
taxes (Note 8)
|
|
|
(133,768
|
)
|
|
717,702
|
|
Net
income (loss)
|
|
$
|
(347,011
|
)
|
$
|
1,144,491
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share of common stock -
|
|
|
|
|
|
|
|
basic
and diluted (Note 9)
|
|
$
|
(0.01
|
)
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares
|
|
|
|
|
|
|
|
outstanding
– basic and diluted
|
|
|
25,451,354
|
|
|
25,572,192
|
|
See
accompanying notes to consolidated financial statements
THE
GOLDFIELD CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
Cash
flows from operating activities
|
|
|
|
|
|
Net
income (loss) from continuing operations
|
|
$
|
(347,011
|
)
|
$
|
1,144,491
|
|
Adjustments
to reconcile net income (loss) to net
|
|
|
|
|
|
|
|
cash
used by operating activities
|
|
|
|
|
|
|
|
Depreciation
|
|
|
742,347
|
|
|
599,291
|
|
Deferred
income taxes
|
|
|
22,450
|
|
|
195,477
|
|
Gain
on sale of assets
|
|
|
(8,857
|
)
|
|
(18,310
|
)
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
Accounts
receivable and accrued billings
|
|
|
(606,815
|
)
|
|
323,834
|
|
Contracts
receivable
|
|
|
(2,154,933
|
)
|
|
(1,653,547
|
)
|
Construction
inventory
|
|
|
154,215
|
|
|
(412,375
|
)
|
Real
estate inventories
|
|
|
201,191
|
|
|
-
|
|
Costs
and estimated earnings in excess
|
|
|
|
|
|
|
|
of
billings on uncompleted contracts
|
|
|
(382,109
|
)
|
|
(2,388,573
|
)
|
Land
and land development costs
|
|
|
-
|
|
|
1,085,616
|
|
Residential
properties under construction
|
|
|
(1,271,390
|
)
|
|
(836,650
|
)
|
Income
taxes recoverable
|
|
|
(155,247
|
)
|
|
951
|
|
Income
taxes payable
|
|
|
-
|
|
|
258,360
|
|
Prepaid
expenses and other assets
|
|
|
(1,134,560
|
)
|
|
(648,291
|
)
|
Accounts
payable and accrued liabilities
|
|
|
(628,903
|
)
|
|
1,553,692
|
|
Billings
in excess of costs and estimated
|
|
|
|
|
|
|
|
earnings
on uncompleted contracts
|
|
|
(24,444
|
)
|
|
(51,575
|
)
|
Net
cash used by operating
|
|
|
|
|
|
|
|
activities
of continuing operations
|
|
|
(5,594,066
|
)
|
|
(847,609
|
)
|
Net
cash provided by (used by) operating
|
|
|
|
|
|
|
|
activities
of discontinued operations
|
|
|
14,729
|
|
|
(28,588
|
)
|
Net
cash used by operating activities
|
|
|
(5,579,337
|
)
|
|
(876,197
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
Proceeds
from the disposal of property and equipment
|
|
|
66,055
|
|
|
76,280
|
|
Proceeds
from notes receivable
|
|
|
20,358
|
|
|
10,801
|
|
Purchases
of property and equipment
|
|
|
(1,622,838
|
)
|
|
(746,882
|
)
|
Cash
surrender value of life insurance
|
|
|
3,702
|
|
|
3,463
|
|
Net
cash used by investing activities of
|
|
|
|
|
|
|
|
continuing
operations
|
|
|
(1,532,723
|
)
|
|
(656,338
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Proceeds
from term debt
|
|
|
3,973,439
|
|
|
908,832
|
|
Repayments
on term debt
|
|
|
(216,666
|
)
|
|
(221,753
|
)
|
Net
borrowings (repayments) under lines of credit
|
|
|
2,124,513
|
|
|
(627,693
|
)
|
Repayments
on capital leases
|
|
|
(76,940
|
)
|
|
-
|
|
Net
cash provided by financing activities of
|
|
|
|
|
|
|
|
continuing
operations
|
|
|
5,804,346
|
|
|
59,386
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(1,307,714
|
)
|
|
(1,473,149
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
6,801,600
|
|
|
2,912,494
|
|
Cash
and cash equivalents at end of period
|
|
$
|
5,493,886
|
|
$
|
1,439,345
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
Cash
paid for interest, net of amount capitalized
|
|
$
|
74,579
|
|
$
|
31,623
|
|
Cash
paid for income taxes
|
|
|
-
|
|
|
262,914
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
Capital
leases for equipment
|
|
|
-
|
|
|
99,963
|
|
Liability
for equipment acquired
|
|
|
760,857
|
|
|
-
|
|
See
accompanying notes to consolidated financial statements
THE
GOLDFIELD CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2007 and 2006
Note
1 - Description of Business and Basis of Financial Statement Presentation
Overview
The
Goldfield Corporation (the “Company”) was incorporated in Wyoming in 1906 and
subsequently reincorporated in Delaware in 1968. The Company's principal lines
of business are electrical construction and real estate development. The
principal market for the Company's electrical construction operation is electric
utilities in the southeastern and mid-Atlantic region of the United States.
The
primary focus of the Company's real estate operations is on the development
of
luxury condominium projects.
Basis
of Presentation
In
the
opinion of management, the accompanying unaudited interim consolidated financial
statements include all adjustments necessary to present fairly the Company’s
financial position, results of operations and changes in cash flows for the
interim periods reported. These adjustments are of a normal recurring nature.
All financial statements presented herein are unaudited with the exception
of
the consolidated balance sheet as of December 31, 2006, which was derived from
the audited consolidated financial statements. The results of operations for
the
interim periods shown in this report are not necessarily indicative of results
to be expected for the fiscal year. These
statements should be read in conjunction with the financial statements included
in the Company’s annual report on Form 10-K for the year ended December 31,
2006.
Use
of Estimates
Generally
accepted accounting principles require management to make estimates and
assumptions during the preparation of the Company’s financial statements and
accompanying notes. Such estimates and assumptions could change in the future
as
more information becomes available, which in turn could impact the amounts
reported and disclosed herein.
Note
2 - Contracts Receivable
Contracts
receivable represents the amount of revenue recognized in the real estate
segment using the percentage-of-completion method for condominium units under
firm contract. As of March 31, 2007, outstanding contracts receivable amounted
to $12,778,842, all of which is for our Pineapple House condominium project.
As
of December 31, 2006, outstanding contracts receivable amounted to $10,623,909,
all of which related to our Pineapple House project. As of both March 31, 2007
and December 31, 2006, $1,469,280 of non-refundable earnest money deposits
were
held by a third party for the Pineapple House project.
The
Company’s real estate development operations do not extend financing to buyers
and, therefore, sales proceeds are received in full upon closing.
Note
3 - Construction Inventory
Construction
inventory, which consists of condominium construction materials, is stated
at
the lower of cost or market.
Real
estate inventories, which consist of completed condominium units held for sale,
are carried at the lower of cost or fair value, less cost to sell. We had three
completed condominium units held for sale within our Oak Park project at March
31, 2007 compared to four at December 31, 2006.
Note
4 - Land and Land Development Costs and Residential Properties under
Construction
The
costs
of a land purchase and any development expenses up to the initial construction
phase of any new condominium development project are recorded under the asset
“land and land development costs.” Once construction commences, the land and
land development costs associated with the project under construction and the
costs of construction are recorded under the asset “residential properties under
construction.” The assets “land and land development costs” and “residential
properties under construction” relating to specific projects are recorded as
current assets when the estimated project completion date is less than one
year
from the date of the consolidated financial statements, or as non-current assets
when the estimated project completion date is more than one year from the date
of the consolidated financial statements.
Note
5 - Discontinued Operations
On
December 4, 2002, effective November 30, 2002, the Company completed the sale
of
the capital stock of its mining subsidiaries.
Commitments
and Contingencies Related to Discontinued Operations
On
September 8, 2003, the United States Environmental Protection Agency (the “EPA”)
issued a special notice letter notifying the Company that it is a potentially
responsible party (“PRP”), along with three other parties, with respect to
investigation and removal activities at the Anderson-Calhoun Mine/Mill Site
(the
“Site”) in Stevens County, Washington.
The
Company sold the Site property in 1964. The Company has investigated the
historic operations that occurred at the Site as well as the nature and scope
of
environmental conditions at the Site that may present concerns to the EPA.
Based
upon its investigation to date, the Company has determined that its operations
at the Site were primarily exploratory and that the Company never engaged in
any
milling or other processing activities at the Site. The Company’s records
reflect that between the years 1950 and 1952 it extracted a limited amount
(111,670 tons) of surface ore from the Site for off-site processing. The Site
has changed owners several times since it was sold by the Company, and the
Company believes that a substantial majority of the mining activities and all
of
the milling and related processing and process waste disposal activities likely
were conducted by subsequent owners.
In
April
of 2007, the EPA approved as final an Engineering Evaluation/Cost Analysis
Report (“EE/CA Report”) for the Site. The EE/CA Report proposes to adopt as the
preferred remedy a removal action primarily focused on addressing ore processing
areas and wastes that were created after the Company sold the Site. The EPA
has
indicated that it intends to issue a Proposed Plan for the site in June of
2007,
followed by a 30-day public comment period. At the close of the comment period,
the EPA expects to adopt a formal Action Memorandum that will most likely adopt,
as the remedy for the Site, the proposed removal action described in the EE/CA
Report.
The
EE/CA
Report, following cost estimation procedures applicable to EE/CA documents,
estimates that the net present value of the proposed removal action is $1.5
million. This figure includes amounts for contingencies and is based on
currently available information, certain assumptions and estimates. In light
of
the Company’s limited role in the creation of the wastes that are the primary
focus of the removal action, the Company believes that the other two PRPs,
particularly Blue Tee Corporation (successor to American Zinc), will be liable
for most of the cleanup costs, as they were directly responsible for all on-site
ore processing activities and wastes. However, there can be no assurance as
to
the scope of the Company’s share of liability for cleanup costs. The EPA has
indicated that it expects response actions at the Site to be completed during
the 2007 construction season.
Under
the
Comprehensive Environmental Response, Compensation and Liability Act, any of
the
PRPs may be jointly and severally liable to the EPA for the full amount of
any
response costs incurred by the EPA, including costs related to investigation
and
remediation, subject to a right of contribution from other PRPs. In practice,
PRPs generally agree to perform such response activities, and negotiate among
themselves to determine their respective contributions to any such multi-party
activities based upon equitable allocation factors that focus primarily on
their
respective contributions to the contamination at issue.
It
is
impossible at this stage to estimate the total costs of the remediation at
the
Site or the Company’s share of liability for those costs due to various factors,
including incomplete information regarding the Site and the other PRPs,
uncertainty regarding the extent of actual remediation costs and the Company’s
equitable share of liability for the contamination.
One
of
the Company’s former general liability insurance carriers has accepted the
defense of this matter and has agreed to pay an 80% share of costs of defense
incurred to date, subject to certain reservation of rights as to coverage.
As of
December 31, 2006, the Company recorded a receivable for estimated future
insurance reimbursements in the amount of $329,888 and recorded this as a
reduction to net expense within discontinued operations. During the quarter
ended March 31, 2007, the Company was reimbursed $56,539, which reduced the
balance of the estimated receivable for future insurance reimbursements. In
addition to the amount received in the current quarter, the Company received
$238,315 during the year ended December 31, 2006, for a total reimbursement
to
date of $294,854, which represents 80% of the Company’s insurable costs incurred
from the inception of this matter through November 30, 2006. Another of the
Company’s former general liability insurance carriers has also accepted the
defense of this matter, subject to certain reservation of rights as to coverage,
and has agreed to pay a 20% share of the costs of defense incurred to date.
However, that insurer has not yet made any payment to the Company. The Company
will record any change to the estimated insurance reimbursements as a change
to
the net expense within discontinued operations. The Company cannot predict
the
extent to which its costs will ultimately be covered by insurance.
Beginning
in September 2003, in accordance with Financial Accounting Standards Board
(“FASB”) Interpretation (“FIN”) No. 14, “Reasonable Estimation of the Amount of
a Loss - an Interpretation of Statement of Financial Accounting Standards No.
5
(Accounting for Contingencies),” and Statement of Position No. 96-1,
“Environmental Remediation Liabilities,” the Company has recognized a net
expense (within discontinued operations) for this matter. The provision was
decreased by $0 for both the quarter ended March 31, 2007 and the quarter
ended March 31, 2006. As of March 31, 2007 the cumulative
net expense was $31,493. This represents the current estimate of the
Company’s share of the costs associated with both an emergency removal action
previously undertaken by the EPA and actual remediation costs, the professional
fees associated with the EE/CA Report, the anticipated professional fees
associated through the completed remediation all reduced by both actual and
estimated insurance recoveries. Total actual costs to be incurred at the Site
in
future periods may vary from this estimate, given inherent uncertainties in
evaluating environmental costs. As of March 31, 2007, the Company has recorded
a
reserve balance for future applicable costs of $166,411 (accrued as a current
liability within discontinued operations). The accrual will be reviewed
periodically based upon facts and circumstances available at the time, which
could result in changes to its amount.
Assets
and liabilities of the discontinued operations have been reflected in the
accompanying consolidated balance sheets as follows:
|
|
|
March
31, 2007
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Remediation
insurance receivable
|
|
$
|
273,349
|
|
$
|
329,888
|
|
|
|
|
|
|
|
|
|
Total
assets of discontinued operations
|
|
$
|
273,349
|
|
$
|
329,888
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Reserve
for remediation
|
|
$
|
166,411
|
|
$
|
208,221
|
|
|
|
|
|
|
|
|
|
Total
liabilities of discontinued operations
|
|
$
|
166,411
|
|
$
|
208,221
|
|
Note
6 - Notes Payable and Capital Leases
Notes
Payable
On
August
26, 2005, the Company, the Company’s wholly owned subsidiaries, Southeast Power
Corporation (“Southeast Power”), Bayswater Development Corporation
(“Bayswater”), Pineapple House of Brevard, Inc. (“Pineapple House”) and Oak Park
of Brevard, Inc. (“Oak Park”) and Branch Banking and Trust Company (the “Bank”),
entered into three loan agreements and a series of related ancillary agreements
providing for: (1) a revolving line of credit loan for a maximum principal
amount of $1.0 million, which was subsequently increased to $3.0 million by
amendment dated March 14, 2006, to be used as a “Working Capital Loan,” (2) a
revolving line of credit loan for a maximum principal amount of $2.0 million
to
be used as an “Equipment Loan” and (3) a revolving line of credit for a maximum
principal amount of $6.0 million to be used as a “Real Estate
Loan.”
The
$3.0
million Working Capital Loan will
be
used by the Company for working capital, capital expenditures and general
corporate purposes. Under
the
terms of the agreement, interest is payable monthly at an annual rate equal
to
monthly LIBOR rate plus one and eight-tenths percent (7.12% and 7.15% as of
March 31, 2007 and December 31, 2006, respectively). On September 28, 2006,
the
Company entered into a loan renewal with the Bank, effective as of August 26,
2006, which extended the maturity date of the loan until August 26, 2007. The
Company expects to renew this loan at that time for an additional year. The
loan
is guaranteed by the Company and named subsidiaries and includes a cross default
provision pursuant to which a default under the loan agreement constitutes
a
default with respect to all other indebtedness of the Company and named
subsidiaries to the Bank and a default under any other loan agreement of the
Company or any of the foregoing affiliates constitutes a default under the
loan
agreement. There were no borrowings outstanding under this agreement as of
March
31, 2007 and December 31, 2006. The loan agreement contains various financial
covenants including, but not limited to, minimum tangible net worth, outside
debt limitation and maximum debt to tangible net worth ratio. Other loan
covenants prohibit, among other things, incurring additional indebtedness,
issuing loans to other entities in excess of a certain amount, entering into
a
merger or consolidation and any change in the Company’s current Chief Executive
Officer without prior written consent from the lender. The Company was in
compliance with all such covenants as of March 31, 2007.
The
$2.0
million Equipment Loan
draws
are at the request of the Company and the discretion of the Bank. Under
the
terms of the agreement, principal plus interest are payable monthly composed
of
$72,222 principal plus accrued interest. The interest is payable at an annual
rate equal to monthly LIBOR rate plus one and eight-tenths percent (7.12% and
7.15% as of March 31, 2007 and December 31, 2006, respectively). The maturity
date of the loan is February 26, 2008. The loan is secured by the equipment
purchased with the proceeds of the loan, and any replacements, accessions or
substitutions thereof and all cash and non-cash proceeds received thereof.
Borrowings outstanding under this agreement were $433,332 and $649,998 as of
March 31, 2007 and December 31, 2006, respectively. The loan agreement contains
various financial covenants, including, but not limited to, minimum tangible
net
worth, outside debt limitations and maximum debt to tangible net worth ratio.
Other loan covenants prohibit, among other things, a change in fiscal year
and
any change in the Company’s current Chief Executive Officer without prior
written consent from the lender. The Company was in compliance with all such
covenants as of March 31, 2007.
The
proceeds of the $6.0 million Real Estate Loan will be used by the Company for
financing the costs of certain qualified real estate projects in Florida. Under
the terms of the agreement, interest is payable monthly at an annual rate equal
to the monthly LIBOR rate plus one and eight-tenths percent (7.12% and 7.15%
as
of March 31, 2007 and December 31, 2006, respectively). On September 28, 2006,
the Company entered into a loan renewal with the Bank, effective as of August
26, 2006, which extended the maturity date of the loan until August 26, 2007.
The Company expects to renew this loan at that time for an additional year.
All
of the net proceeds from the sale of a qualified project shall first be applied
against the principal balance due on the note until the note is satisfied in
full. As security for the loan, the Company and the subsidiary of the Company
which has legal title to the real property to be developed have agreed to
execute an agreement not to encumber or transfer property with respect to the
property to be developed. The loan is guaranteed by the Company and named
subsidiaries and draws for all projects are not to exceed the total costs of
all
projects. There were no borrowings outstanding under this agreement as of March
31, 2007 and December 31, 2006. The loan agreement contains various financial
covenants including, but not limited to, minimum tangible net worth, outside
debt limitation and maximum debt to tangible net worth ratio. Other loan
covenants prohibit, among other things, incurring additional indebtedness,
issuing loans to other entities in excess of a certain amount, entering into
a
merger or consolidation and any change in the Company’s current Chief Executive
Officer without prior written consent from the lender. The Company was in
compliance with all such covenants as of March 31, 2007.
On
November 18, 2005, the Company, the Company’s wholly owned subsidiaries,
Southeast Power, Bayswater, Pineapple House and Oak Park, and the Bank, entered
into a loan agreement and a series of related ancillary agreements for a
revolving line of credit loan for a maximum principal amount of $14.0 million
to
be used by Pineapple House to fund the construction of residential condominium
units. Under the terms of the agreement interest is payable monthly at an annual
rate equal to the monthly LIBOR rate plus one and eighty-five one-hundredths
percent (7.17% and 7.20% as of March 31, 2007 and December 31, 2006,
respectively). The maturity date of the loan is November 18, 2007. At the Bank’s
option, the loan may be extended for two eighteen-month periods upon payment
of
a fee to the Bank in connection with each extension. These extensions do not
necessarily provide for future advances, but solely for extension and
preservation of the commitment related to the construction of a second and
third
building on the Pineapple House site. Borrowings outstanding under this
agreement were $11,819,467 and $7,846,028 as of March 31, 2007 and December
31,
2006, respectively. The loan is secured by a Mortgage and Security Agreement.
The loan agreement includes covenants and agreements that are customary for
loan
agreements of this type, and also provides that construction on the initial
phase of the Pineapple House development must be completed by October 1, 2007.
In addition, the loan agreement includes a cross default provision pursuant
to
which a default under the loan agreement constitutes a default with respect
to
all other indebtedness of the Company, Southeast Power, Bayswater, Pineapple
House or Oak Park to the Bank and a default under any other loan agreement
of
the Company or any of the foregoing affiliates constitutes a default under
the
loan agreement. Pursuant to the loan agreement, the Company has agreed that
$1.0
million of the $6.0 million Real Estate Loan will not be available to the
Company until a specified level of progress with respect to the concrete
structure has been achieved on the initial phase of Pineapple House. The Company
was in compliance with all such covenants as of March 31, 2007.
On
July
13, 2006, the Company, the Company’s wholly owned subsidiary, Southeast Power,
and the Bank, entered into a loan agreement and other related ancillary
agreements for a revolving line of credit loan for a maximum principal amount
of
$3.5 million to be used by Southeast Power for durable equipment purchases.
The
Company agreed to guarantee Southeast Power’s obligations under the loan
agreement. Under the terms of the agreement, interest is payable monthly at
an
annual rate equal to the monthly LIBOR rate plus one and eight-tenths percent
(7.12% as of March 31, 2007 and 7.15% as of December 31, 2006, respectively).
The maturity date of the loan is December 13, 2010. Southeast Power must make
monthly payments of interest to the Bank in arrears on the principal balance
outstanding until July 2007, and thereafter, Southeast Power must pay monthly
installments of principal, in addition to interest on the principal balance
outstanding, until maturity. Borrowings outstanding under this loan agreement
were $3,500,000 and $1,375,487 as of March 31, 2007 and December 31, 2006,
respectively. The loan is secured by the grant of a continuing security interest
in all equipment purchased with the proceeds of the loan, and any replacements,
accessions, or substitutions thereof and all cash and non-cash proceeds thereof.
The loan agreement includes covenants and agreements that are customary for
loan
agreements of this type. In addition, at the Bank’s option, the Bank may treat
any default in payment or performance by Southeast Power, the Company or any
of
their subsidiaries or affiliates under any other loans, contracts or agreements
with the Bank or its affiliates as a default under this loan agreement. The
Company was in compliance with all such covenants as of March 31, 2007.
Interest
costs related to the construction of condominiums are capitalized. During the
three month periods ended March 31, 2007 and 2006, the Company capitalized
interest costs of $173,296 and $87,736, respectively.
Capital
Leases
The
Company enters into non-cancelable capital leases for the acquisition of certain
machinery and equipment needs. Under the current capital leases, ownership
transfers to the Company at the end of the lease term. No restrictions are
imposed by the lease agreements regarding additional debt or further leasing.
As
of March 31, 2007 the cost and accumulated depreciation of equipment under
capital leases amounted to $1,403,602 and $210,540, respectively. As of December
31, 2006, the cost and accumulated depreciation of equipment under capital
leases amounted to $1,403,602 and $140,360, respectively. The remaining
principal balance under these lease agreements was $1,135,196 as of March 31,
2007. Depreciation for assets under capital leases is included in depreciation
and amortization expenses.
The
schedule of principal payments of our notes payable and capital leases as of
March 31, 2007 is as follows:
|
|
|
|
2007
|
|
$
|
12,982,081
|
|
2008
|
|
|
1,400,347
|
|
2009
|
|
|
1,379,591
|
|
2010
|
|
|
1,293,655
|
|
Total
payments of debt
|
|
|
17,055,674
|
|
Less:
Amount representing interest on capital leases
|
|
|
(167,679
|
)
|
Total
net payments
|
|
$
|
16,887,995
|
|
Note
7 - Commitments and Contingencies
In
certain circumstances, the Company is required to provide performance bonds
to
secure its contractual commitments. Management is not aware of any performance
bonds issued for the Company that have ever been called by a customer. As of
March 31, 2007, outstanding performance bonds issued on behalf of the Company’s
electrical construction subsidiary amounted to approximately $15,077,000.
Note
8 - Income Taxes
At
March
31, 2007, the Company had alternative minimum tax (“AMT”) credit carryforwards
of approximately $377,000, which are available to reduce future federal income
taxes over an indefinite period. The net deferred tax asset decreased from
$263,400 at December 31, 2006 to $240,950 at March 31, 2007 due to the
utilization of AMT credit carryforwards on an annualized basis. The net deferred
tax liability of $861,400 did not change for this same period. The minimum
amount of future taxable income required to be generated to fully realize the
deferred tax assets is approximately $1,617,000.
The
following table presents our provision for income tax and effective income
tax
rate from continuing operations for the three months ended March 31 as
indicated:
|
|
2007
|
|
2006
|
|
Income
taxes (benefit)
|
|
$
|
(133,768
|
)
|
$
|
717,702
|
|
Effective
income tax rate (benefit)
|
|
|
(27.8
|
%)
|
|
38.5
|
%
|
The
Company’s expected tax rate for the year ending December 31, 2007, which was
calculated based on the estimated annual operating results for the year, is
40.0%.
On
January 1, 2007, the Company adopted FIN No. 48 “Accounting for Uncertainty in
Income Taxes - an Interpretation of SFAS No. 109,” which clarifies the
accounting and reporting for uncertainties in income tax law. This
Interpretation prescribes a comprehensive model for the financial statement
recognition, measurement, presentation and disclosure of uncertain tax positions
taken or expected to be taken in income tax returns. FIN No. 48 prescribes
a
more-likely-than-not threshold of a tax position taken or expected to be taken
in a tax return being sustained on audit based on the technical merits for
financial statement recognition and measurement.
On
implementation of FIN No. 48, the Company reviewed prior year tax filings and
other corporate records for any uncertain tax positions in accordance with
recognition standards established. As a result of this review, there were no
requirements to accrue income taxes.
The
Company will classify interest and penalties recognized in accordance with
this
Interpretation as interest expense and other general and administrative
expenses, respectively, and not as a component of income taxes.
Note
9 - Earnings (Loss) Per Share of Common Stock and Stock Repurchase
Plan
Basic
earnings (loss) per common share is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the period.
Diluted earnings per share include dilution from potential common stock
equivalents, such as stock options outstanding. As of March 31, 2007 and
December 31, 2006, respectively, there were no common stock
equivalents.
Since
September 17, 2002, the Company has had a stock repurchase plan which, as last
amended by the Board of Directors on May 25, 2006, permits the purchase of
up to
3,500,000 shares of Common Stock until September 30, 2007. The Company may
repurchase its shares either in the open market or through private transactions.
The volume of the shares to be repurchased is contingent upon market conditions
and other factors. During each of the years ended December 31, 2006, 2005 and
2004, pursuant to the Repurchase Plan, the Company repurchased 120,838, 379,058
and 489,195 shares of its Common Stock, respectively, at a cost of $132,953
(average cost of $1.10 per share), $209,179 (average cost of $0.55 per share)
and $271,390 (average cost of $0.55 per share), respectively. The Company did
not repurchase shares of its Common Stock during the three month periods ended
March 31, 2007 and 2006. As of March 31, 2007, the total number of shares
repurchased under the Repurchase Plan was 2,345,060 at a cost of $1,289,467
(average cost of $0.55 per share) and the remaining number of shares available
to be repurchased under the Repurchase Plan is 1,154,940. The Company currently
holds the repurchased stock as Treasury Stock, reported at cost. Prior to
September 17, 2002, the Company had 17,358 shares of Treasury Stock which it
had
purchased at a cost of $18,720.
Note
10 - Business Segment Information
The
Company is currently involved in two segments, electrical construction and
real
estate development. There were no material amounts of sales or transfers between
segments and no material amounts of foreign sales. Any intersegment sales have
been eliminated.
The
following table sets forth certain segment information for the periods ended
as
indicated:
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
Revenues
|
|
|
|
|
|
|
|
Electrical
construction
|
|
$
|
7,354,043
|
|
$
|
10,492,005
|
|
Real
estate development
|
|
|
2,454,432
|
|
|
3,502,947
|
|
Total
revenues
|
|
|
9,808,475
|
|
|
13,994,952
|
|
Operating
expenses
|
|
|
|
|
|
|
|
Electrical
construction
|
|
|
7,544,917
|
|
|
8,698,867
|
|
Real
estate development
|
|
|
1,896,303
|
|
|
2,608,762
|
|
Corporate
|
|
|
838,870
|
|
|
816,345
|
|
Total
operating expenses
|
|
|
10,280,090
|
|
|
12,123,974
|
|
Operating
income (loss)
|
|
|
|
|
|
|
|
Electrical
construction
|
|
|
(190,874
|
)
|
|
1,793,138
|
|
Real
estate development
|
|
|
558,129
|
|
|
894,185
|
|
Corporate
|
|
|
(838,870
|
)
|
|
(816,345
|
)
|
Total
operating income (loss)
|
|
|
(471,615
|
)
|
|
1,870,978
|
|
Other
income (expense), net
|
|
|
|
|
|
|
|
Electrical
construction
|
|
|
(34,909
|
)
|
|
(17,815
|
)
|
Real
estate development
|
|
|
-
|
|
|
-
|
|
Corporate
|
|
|
25,745
|
|
|
9,030
|
|
Total
other income (expense), net
|
|
|
(9,164
|
)
|
|
(8,785
|
)
|
Net
income (loss) before taxes
|
|
|
|
|
|
|
|
Electrical
construction
|
|
|
(225,783
|
)
|
|
1,775,323
|
|
Real
estate development
|
|
|
558,129
|
|
|
894,185
|
|
Corporate
|
|
|
(813,125
|
)
|
|
(807,315
|
)
|
Total
net income (loss) before taxes
|
|
$
|
(480,779
|
)
|
$
|
1,862,193
|
|
Operating
income (loss) is total operating revenue less operating expenses inclusive
of
depreciation and amortization, and selling, general and administrative expenses
for each segment. Operating income (loss) excludes interest expense, interest
income and income taxes. Corporate expenses are comprised of general and
administrative expenses and corporate depreciation and amortization expenses.
The
following table sets forth certain segment information as of the dates
indicated:
|
|
March
31,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
Identifiable
assets
|
|
|
|
|
|
Electrical
construction
|
|
$
|
22,418,212
|
|
$
|
21,317,634
|
|
Real
estate development
|
|
|
19,470,596
|
|
|
16,225,823
|
|
Corporate
|
|
|
5,265,054
|
|
|
4,030,831
|
|
Discontinued
operations
|
|
|
273,349
|
|
|
329,888
|
|
Total
|
|
$
|
47,427,211
|
|
$
|
41,904,176
|
|
Note
11 -Executive Long-term Incentive Plan
In
1998,
the stockholders of the Company approved The Goldfield Corporation 1998
Executive Long-term Incentive Plan (the “Plan”), which permits the granting of
nonqualified stock options, incentive stock options, stock appreciation rights,
restricted stock, restricted stock units, performance units, performance shares
and other awards to all officers and key employees of the Company and its
subsidiaries. Shares granted pursuant to the Plan may be authorized but unissued
shares of common stock, treasury shares or shares purchased on the open market.
The exercise price under such grants, if applicable, will be based on the fair
market value of the common stock at the date of grant. The maximum number of
shares available for grant under the Plan is 1,300,000. Any options granted
under the Plan must be exercised within 10 years of the date of grant and are
vested equally over a three year period.
On
January 1, 2006, the Company adopted Statement of Financial Accounting Standard
(“SFAS”) No. 123R, “Share-Based Payment (Revised 2004)” and its related
implementation guidance in accounting for stock-based employee compensation
arrangements. SFAS No. 123(R) requires the recognition of the fair value of
stock compensation in net income. SFAS No. 123(R) also requires a public entity
to measure the cost of employee services received in exchange for an award
of
equity instruments based on the grant-date fair value of the award (with limited
exceptions). Stock-based compensation expense will be recognized over the period
during which an employee is required to provide service in exchange for the
award—the requisite service period (usually the vesting period), net of
estimated forfeitures. No stock options were granted during the three month
periods ended March 31, 2007 and 2006. As of March 31, 2007 and December 31,
2006 there were no options outstanding and no expense for the three months
ended
March 31, 2007 and 2006, respectively.
Note
12 - Recent Accounting Pronouncements
In
November 2006, the Emerging Issues Task Force (“EITF”) reached a consensus on
EITF Issue No. 06-8, “Applicability of the Assessment of a Buyer’s Continuing
Investment under SFAS No. 66, Accounting for Sales of Real Estate, for Sales
of
Condominiums.” EITF No. 06-8 will require condominium sales to meet the
continuing involvement criterion of SFAS No. 66 in order for profit to be
recognized under the percentage of completion method. EITF No. 06-8 will be
effective for annual reporting periods beginning after March 15, 2007. This
consensus could require that additional deposits be collected by developers
of
condominium projects that wish to recognize profit during the construction
period under the percentage-of-completion method. The cumulative effect of
applying EITF No. 06-8, if any, is to be reported as an adjustment to the
opening balance of retained earnings in the year of adoption. The Company is
currently evaluating the potential impact of adopting EITF No. 06-8 on its
consolidated financial position and results of operations. If the Company is
unable to meet the requirements of EITF No. 06-8, it will be required to delay
revenue recognition until the aggregate investment tests described in SFAS
No.
66 and EITF No. 06-8 have been met.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement.” SFAS No.
157 defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. SFAS No. 157 is effective
for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. The Company is currently
evaluating the impact of SFAS No. 157 on its consolidated financial position
and
results of operations.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities - Including an Amendment of FASB
Statement No. 115” which is effective for fiscal years beginning after November
15, 2007. SFAS No. 159 permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. SFAS No. 159 is expected to expand the use of fair value
measurement, which is consistent with the long-term measurement objectives
for
accounting for financial instruments. The Company is currently evaluating the
potential impact of SFAS No. 159 on its consolidated financial position and
results of operations.
On
January 1, 2007, the Company adopted EITF Issue No. 06-3, “How Taxes Collected
from Customers and Remitted to Governmental Authorities Should Be Presented
in
the Income Statement (That Is, Gross versus Net Presentation).” EITF 06-3
requires the disclosure of the Company’s accounting policy regarding its gross
or net presentation of externally imposed taxes on revenue-producing
transactions in the notes to the consolidated financial statements. The
Company’s accounting policy is a net presentation of externally imposed taxes on
revenue-producing transactions and there has been no impact on the financial
statements.
Note
13 - Customer Concentration
A
significant portion of the Company’s electrical construction revenue has
historically been derived from two or three utility customers each year. For
the
quarter ended March 31, 2007 and the quarter ended March 31, 2006, the two
largest customers accounted for 42% and 65%, respectively, of the Company’s
total revenue.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Overview
We
are a
leading provider of electrical construction services in the southeastern United
States and a developer of condominiums on the east coast of Florida. Through
our
subsidiary Southeast Power Corporation, we are engaged in the construction
and
maintenance of electric utility facilities for electric utilities and industrial
customers, and the installation of fiber optic cable for fiber optic cable
manufacturers, telecommunication companies and electric utilities. Southeast
Power is based in Titusville, Florida, and performs electrical contracting
services in the southeastern and mid-Atlantic regions of the United
States.
The
electrical construction business is highly competitive and fragmented. We
compete with other independent contractors, including larger regional and
national firms that may have financial, operational, technical and marketing
resources that exceed our own. We also face competition from existing and
prospective customers establishing or augmenting in-house service organizations
that employ personnel who perform some of the same types of service as those
provided by us. In addition, a significant portion of our electrical
construction revenue is derived from a small group of customers, with one or
two
different customers accounting for a substantial portion of our revenue in
any
given year. For example, in the year ended December 31, 2006, one of our
customers accounted for greater than 50% of our consolidated revenue. The loss
of, or decrease in current demand from, one or more of these customers would,
if
not replaced by other business, result in a decrease in revenues, margins and
profits which could be material. In the current quarter we were less successful
in the bidding and awards process, partly due to the number of jobs awarded
to
competitors at lower than normal profit margins.
We
are
also involved, through our subsidiary Bayswater Development Corporation and
its
wholly-owned real estate development subsidiaries, in the development of
residential condominium projects, on the east coast of Central Florida. Our
current project, Pineapple House, is a multi-phase project. The first phase
of
Pineapple House is comprised of an eight-story building containing thirty-three
luxury river-view condominium units. As of December 31, 2006, twenty-two units
were under contract for sale, backed by $1.5 million of non-refundable earnest
money deposits. Due to the current weakness in the Florida condominium market,
as further described below, there was a virtual cessation of sales of our
condominiums during 2006, which has continued through the quarter ended March
31, 2007, during which we have made no additional sales and one buyer provided
notification of their intention to default on their contract. We expect to
notify buyers in the second quarter that we intend to begin consummating the
sales of the units, and it is possible that additional buyers may advise us
they
intend to default on their contracts, upon receipt of that notice.
We
believe the slowdown in new unit sales is attributable to a national softening
in demand for new homes as well as an oversupply of homes available for sale
in
the Florida market. We believe the decline in demand for our new condominiums
is
related to concerns of prospective home buyers regarding the direction of home
prices, interest rates, property taxes and their inability to sell their current
homes. In addition to the traditional homebuyer, it appears that speculators
and
investors have significantly reduced their participation in the new home market.
Additionally, our market has been impacted by an overall increase in the supply
of homes available for sale, as speculators and investors attempt to sell the
homes they previously purchased or cancel contracts for homes under
construction. In addition, high cancellation rates reported by other builders
have added to the supply of homes in the marketplace.
If
the
current weakness in the Florida condominium market continues, or if the market
deteriorates further, this would have an adverse impact on the sales and pricing
of our condominium units, the settlement of existing contracts, the commencement
and development of new projects (including a delay in the commencement of the
second phase of the Pineapple House project) and on the results of our real
estate development operations. We cannot predict whether the Florida condominium
market will improve, or when any such improvement may take place.
Critical
Accounting Estimates
This
discussion and analysis of our financial condition and results of operations
is
based upon our consolidated financial statements, which have been prepared
in
accordance with U.S. generally accepted accounting principles. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses,
and
related disclosure of contingent assets and liabilities. On an on-going basis,
we evaluate our estimates, including those related to fixed price electrical
construction contracts, real estate development projects, deferred income tax
assets and environmental remediation. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. Our management has
discussed the selection and development of its critical accounting policies,
estimates and related disclosure with the Audit Committee of the Board of
Directors.
Percentage
of Completion - Electrical Construction Segment
We
recognize revenue from fixed price contracts on a percentage-of-completion
basis, using primarily the cost-to-cost method based on the percentage of total
costs incurred to date in proportion to total estimated costs to complete the
contract. Total estimated costs, and thus contract income, are impacted by
several factors including, but not limited to, changes in productivity and
scheduling, and the cost of labor, subcontracts, materials and equipment.
Additionally, external factors such as weather, site conditions and scheduling
that differ from those assumed in the original bid (to the extent contract
remedies are unavailable), client needs, client delays in providing approvals,
the availability and skill level of workers in the geographic location of the
project, a change in the availability and proximity of materials and
governmental regulation, may also affect the progress and estimated cost of
a
project's completion and thus the timing of income and revenue
recognition.
The
accuracy of our revenue and profit recognition in a given period is almost
solely dependent on the accuracy of our estimates of the cost to complete each
project. Due to our experience and our detailed approach in determining our
cost
estimates for all of our significant projects, we believe our estimates to
be
highly reliable. However, our projects can be complex and in almost every case
the profit margin estimates for a project will either increase or decrease
to
some extent from the amount that was originally estimated at the time of bid.
Because we have a number of projects of varying levels of complexity and size
in
process at any given time these changes in estimates can offset each other
without materially impacting our overall profitability. If a current estimate
of
total costs indicates a loss on a contract, the projected loss is recognized
in
full when determined. Contract loss accruals recorded for the three month period
ended March 31, 2007 were $10,000, compared to $0 for the three month period
ended March 31, 2006. Revenue from change
orders, extra work, variations in the scope of work and claims is recognized
when realization is probable.
Percentage
of Completion - Real Estate Development Segment
All
revenue associated with real estate development projects that meet the criteria
specified by SFAS 66, “Accounting for Sales of Real Estate,” is recognized using
the percentage-of-completion method. Under this method, revenue is recognized
when (1) construction is beyond a preliminary stage, (2) a substantial
percentage (at least one-third) of the condominiums are under firm,
non-refundable contracts, except in the case of non-delivery of the unit or
interest, (3) sufficient units have already been sold to assure that the entire
property will not revert to rental property, consideration is given to the
requirements of state laws, the condominium contract and the terms of the
financing agreements, (4) collection of the sales price is reasonably assured,
(5) deposits equal or exceed 10% of the contract price and (6) sales proceeds
and costs can be reasonably estimated. The Company determines that construction
is beyond a preliminary stage when engineering and design work, execution of
construction contracts, site clearance and preparation, excavation and the
building foundation is complete. In November 2006, the FASB ratified EITF Issue
No. 06-8, “Applicability of a Buyer’s Continuing Investment under FASB Statement
No. 66 for Sales of Condominiums.” EITF Issue 06-8 provides guidance in
assessing the collectibility of the sales price, which is required in order
to
recognize profit under the percentage-of-completion method pursuant to SFAS
No.
66. See note 12 to the consolidated financial statements for additional
information.
We
believe that a material difference in total actual project costs versus total
estimated project costs is unlikely due to the nature of the fixed price
contracts we enter into with the general contractors on our real estate
projects.
If
a
current estimate of total project costs indicates a loss on a project, the
projected loss is recognized in full when determined. There were no contract
loss accruals recorded during the three month periods ended March 31, 2007
and
2006. The timing of revenue and expense recognition is contingent on
construction productivity. Factors possibly impeding construction productivity
include, but are not limited to, supply of labor, materials and equipment,
scheduling, weather, permitting and unforeseen events.
If
a
buyer were to default on the contract for sale, revenues and expenses recognized
in prior periods would be adjusted in the period of default.
Deferred
Tax Assets
We
account for income taxes in accordance with SFAS No. 109, “Accounting for Income
Taxes.” Under this method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to temporary differences between
the financial statement carrying amounts of existing assets and liabilities
and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date.
We
consider future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for a valuation allowance for deferred tax
assets. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which the deferred
tax
assets are expected to be recovered or settled. If we determine that we will
not
be able to realize all or part of our deferred tax assets, a valuation allowance
would be recorded to reduce its deferred tax assets to the amount that is more
likely than not to be realized. In the event we were to subsequently determine
that we would be able to realize our deferred tax assets in the future in excess
of our net recorded amount, an adjustment to the previously recorded valuation
allowance would increase income in the period such determination was
made.
As
of
March 31, 2007, our deferred tax assets were largely comprised of an AMT credit
carryforward. Based on historical experience and assumptions with respect to
forecasts of future taxable income and tax planning, among others, the Company
anticipates being able to generate sufficient taxable income to utilize the
AMT
credit carryforward which has no expiration date. Therefore, the Company has
not
recorded a valuation allowance against the deferred tax assets. The minimum
amount of future taxable income required to be generated to fully realize the
deferred tax assets is approximately $1.6 million.
Provision
for Remediation
In
September 2003, we were notified by the EPA that we are a PRP with respect
to
possible investigation and removal activities at a mine that we formerly owned
the “Site.” Refer to note 5 of the notes to the consolidated financial
statements for a discussion of this matter.
It
is
impossible at this stage to estimate the total costs of the remediation at
the
Site or our share of liability for those costs due to various factors, including
incomplete information regarding the Site and the other PRPs, uncertainty
regarding the extent of actual remediation costs and our equitable share of
liability for the contamination.
Beginning
in September 2003, in accordance with FIN No. 14, we had recognized a net
expense (within discontinued operations) for this matter. The provision was
decreased by $0 for both the quarter ended March 31, 2007 and
the quarter ended March 31, 2006. As of March 31, 2007 the cumulative net
expense was $31,493. This represents the current estimate of our share of
the costs associated with both an emergency removal action previously undertaken
by the EPA and actual remediation costs, the professional fees associated with
the EE/CA Report, the anticipated professional fees associated through the
completed remediation all reduced by both actual and estimated insurance
recoveries. Total actual costs to be incurred at the Site in future periods
may
vary from this estimate, given inherent uncertainties in evaluating
environmental costs. As of March 31, 2007, we have recorded a reserve balance
for future applicable costs of $166,411 (accrued as a current liability within
discontinued operations). The accrual will be reviewed periodically based upon
facts and circumstances available at the time, which could result in changes
to
its amount.
Results
of Operations
Three
Months Ended March 31, 2007 Compared to Three Months Ended March 31,
2006
Segment
Information
The
table
below is a reconciliation of our operating income attributable to each of our
segments for the three months ended March 31 as indicated:
|
|
2007
|
|
2006
|
|
Electrical
construction
|
|
|
|
|
|
Revenue
|
|
$
|
7,354,043
|
|
$
|
10,492,005
|
|
Operating
expenses
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
6,801,704
|
|
|
8,123,209
|
|
Depreciation
|
|
|
696,598
|
|
|
557,451
|
|
SG&A
|
|
|
48,177
|
|
|
33,965
|
|
Other
general income
|
|
|
(1,562
|
)
|
|
(15,758
|
)
|
Total
operating expenses
|
|
|
7,544,917
|
|
|
8,698,867
|
|
Operating
income (loss)
|
|
$
|
(190,874
|
)
|
$
|
1,793,138
|
|
|
|
|
|
|
|
|
|
Real
estate development
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,454,432
|
|
$
|
3,502,947
|
|
Operating
expenses
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
1,693,925
|
|
|
2,321,429
|
|
Depreciation
|
|
|
6,445
|
|
|
6,811
|
|
SG&A
|
|
|
195,933
|
|
|
280,522
|
|
Total
operating expenses
|
|
|
1,896,303
|
|
|
2,608,762
|
|
Operating
income
|
|
$
|
558,129
|
|
$
|
894,185
|
|
Continuing
Operations
Revenues
Total
revenues in the three months ended March 31, 2007 decreased by 29.9% to $9.8
million, compared to $14.0 million in the three months ended March 31, 2006
reflecting lower revenue in both our electrical construction and real estate
development activities.
Electrical
construction revenues decreased $3.1 million, or 29.9%, to $7.4 million for
the
three months ended March 31, 2007 from $10.5 million for the three months ended
March 31, 2006. The decrease in revenue for the three month period ending March
31, 2007 when compared to the same period in 2006 was primarily due to a
slowdown in demand for our electrical construction services and a reduction
in
the number of projects in process, resulting from the availability of fewer
profitable projects. In the current quarter we had fewer projects under
construction because we have recently been less successful in the bidding and
awards process, partly due to the number of jobs awarded to competitors at
prices that would not meet our target profit margins.
The
varying magnitude and duration of electrical construction projects may result
in
substantial fluctuation in the Company’s backlog from time to time. Backlog
represents the uncompleted portion of services to be performed under
project-specific contracts and the estimated value of future services that
we
expect to provide under our existing service agreements, including new
contractual agreements on which work has not begun. In many instances, our
customers are not contractually committed to specific volumes of services and
many of our contracts may be terminated with notice, therefore we do not
consider any portion of our backlog to be firm. However, our customers become
obligated once we provide the services they have requested. Our service
agreements are typically multi-year agreements, and we include in our backlog
the amount of services projected to be performed over the terms of the contracts
based on our historical relationships with these customers. Our estimates of
a
customer’s requirements during a particular future period may not be accurate at
any point in time. As of March 31, 2007, the electrical construction operation’s
backlog was approximately $7.4 million, which included approximately $6.3
million from fixed price contracts for which revenue is recognized using
percentage-of-completion and approximately $1.1 million from service agreement
contracts for which revenue is recognized as work is performed. Of our total
backlog, we expect approximately 100% to be completed within the current fiscal
year. This compares to a backlog of $21.7 million at March 31, 2006, of which
approximately $14.0 million represented backlog from fixed price contracts
and
approximately $7.7 million represented service agreement backlog.
Real
estate construction revenues decreased by 29.9% to $2.5 million for the three
months ended March 31, 2007 from $3.5 million for the like period in 2006.
The
decrease in revenues for the three months ended March 31, 2007, compared to
the
like period in 2006, was mainly due to the completion of the Oak Park project
in
the third quarter of 2006. In the quarter ended March 31, 2006, we had begun
the
Pineapple House project and recognized $2.3 million in revenue on Pineapple
House, as well as $1.2 million in revenue from Oak Park. During the quarter
ended March 31, 2007, the only project under construction is Pineapple House.
As
of
March 31, 2007, the real estate development operation’s backlog (outstanding
real estate contracts for sale, excluding partial revenue already recognized
on
such contracts under the percentage-of-completion method) aggregated $1.4
million, all of which is related to our Pineapple House project, which we expect
to complete and commence closing by the end of the second quarter 2007. Since
we
recognize revenue using the percentage-of-completion method of accounting for
real estate development projects, the Pineapple House backlog will be recognized
as revenue over the life of the project. We expect that 100% of this backlog
will be recognized as revenue during the remainder of 2007. There can be no
assurance that settlements of condominiums subject to contracts for sale will
occur or that construction will progress as expected.
Our
Pineapple House project began recognizing revenue during the first quarter
2006
and was approximately 90% complete as of March 31, 2007.
Operating
Results
Total
operating income (loss) decreased to $(472,000) for the three months ended
March
31, 2007, compared to $1.9 million for the like period in 2006. Electrical
construction operations had an operating loss of $191,000 during the three
months ended March 31, 2007, compared to an operating income of $1.8 million
during the three months ended March 31, 2006, a decrease of $2.0 million.
Operating margins on electrical construction operations decreased to (2.6)%
for
the three months ended March 31, 2007 from 17.1% for the three months ended
March 31, 2006. The decrease in operating margins for the three month period
ended March 31, 2007 was largely the result of reduced productivity on several
jobs due to clients’ transmission line clearance problems, delays in
procurements of client furnished materials, delays in our clients processing
permits on a timely basis and related transition costs and lost productivity
as
work crews were moved from one job to another.
Real
estate development operations had an operating income of $558,000 in the three
months ended March 31, 2007, compared to $894,000 in the three months ended
March 31, 2006, a decrease of $336,000. Operating margins decreased to 22.7%
for
the three months ended March 31, 2007 from 25.5% for the three months ended
March 31, 2006. Operating margins from real estate development operations vary
due to the type and number of units under construction at any given time. The
difference in operating margins for the three months ended March 31, 2007 is
due
to the construction design of Pineapple House, a mid-rise style requiring a
more
complex building foundation, versus Oak Park, a townhouse style. Since we
historically have had only one or two projects under construction at any given
time, operating margins can vary significantly depending upon the cost of the
underlying land, the type of construction, location of the project and general
market conditions. In addition, our projects are generally completed in
approximately one year, which also influences year-to-year operating margin
comparisons.
Costs
and Expenses
Total
costs and expenses, and the components thereof, decreased 15.2% to $10.3 million
in the three months ended March 31, 2007 from $12.1 million in the three months
ended March 31, 2006.
Electrical
construction cost of goods sold decreased to $6.8 million in the three months
ended March 31, 2007 from $8.1 million in the three months ended March 31,
2006,
a decrease of $1.3 million. The decrease in costs reflects the lower level
of
construction activities.
Real
estate development cost of goods sold decreased to $1.7 million in the three
months ended March 31, 2007 from $2.3 million in the three months ended March
31, 2006. The decreased costs reflect the current stage of construction activity
related to our new Pineapple House development as well as the decrease due
to
only one project currently under construction compared to two in the prior
year
quarter.
The
following table sets forth the depreciation and amortization expense for each
respective segment for the three months ended March 31 as
indicated:
|
|
2007
|
|
2006
|
|
Electrical
construction
|
|
$
|
696,598
|
|
$
|
557,451
|
|
Real
estate development
|
|
|
6,445
|
|
|
6,811
|
|
Corporate
|
|
|
39,304
|
|
|
35,029
|
|
Total
|
|
$
|
742,347
|
|
$
|
599,291
|
|
The
depreciation and amortization expense was $742,000 in the three months ended
March 31, 2007, compared to $599,000 in the three months ended March 31, 2006,
an increase of 23.9%. The increase in depreciation expense is mainly due to
an
increase in capital expenditures in 2006 and the first quarter of 2007,
primarily within the electrical construction segment. We had $2.3 million in
capital expenditures within this segment during the quarter ended March 31,
2007, the majority of which was for equipment upgrades and fleet expansion.
The
following table sets forth selling, general and administrative (“SG&A”)
expenses for each respective segment for the three months ended March 31 as
indicated:
|
|
2007
|
|
2006
|
|
Electrical
construction
|
|
$
|
48,177
|
|
$
|
33,965
|
|
Real
estate development
|
|
|
195,933
|
|
|
280,522
|
|
Corporate
|
|
|
806,861
|
|
|
783,868
|
|
Total
|
|
$
|
1,050,971
|
|
$
|
1,098,355
|
|
In
the
three months ended March 31, 2007, total SG&A expenses remained level at
$1.1 million for both quarters ended March 31, 2007 and March 31, 2006.
Income
Taxes
The
following table presents our provision for income tax and effective income
tax
rate from continuing operations for the three months ended March 31 as
indicated:
|
|
2007
|
|
2006
|
|
|
|
$
|
(133,768
|
)
|
$
|
717,702
|
|
Effective
income tax rate (benefit)
|
|
|
(27.8
|
%)
|
|
38.5
|
%
|
Our
expected tax rate for the year ending December 31, 2007, which was calculated
based on the estimated annual operating results for the year, is
40.0%.
Liquidity
and Capital Resources
Working
Capital Analysis
Our
primary cash needs have been for working capital and capital expenditures.
Our
primary sources of cash have been cash flow from operations and borrowings
under
our lines of credit. As of March 31, 2007 we had cash and cash equivalents
of
$5.5 million and working capital of $15.5 million as compared to cash and cash
equivalents of $6.8 million and working capital of $16.3 million as of December
31, 2006. In addition, we have $9.0 million in unused revolving lines of credit
as of March 31, 2007. We anticipate that this cash on hand, our credit
facilities and our future cash flows from operating activities will provide
sufficient cash to enable us to meet our future operating needs and debt
requirements, as well as to ensure our ability to grow.
Cash
Flow Summary
Net
cash
flows for each of the three month periods ended March 31 were as
follows:
|
|
2007
|
|
2006
|
|
Net
cash used by operating activities
|
|
$
|
(5,579,337
|
)
|
$
|
(876,197
|
)
|
Net
cash used by investing activities
|
|
|
(1,532,723
|
)
|
|
(656,338
|
)
|
Net
cash provided by financing activities
|
|
|
5,804,346
|
|
|
59,386
|
|
Net
decrease in cash and cash equivalents
|
|
$
|
(1,307,714
|
)
|
$
|
(1,473,149
|
)
|
Operating
Activities
Cash
flows from operating activities are comprised of income from continuing
operations adjusted to reflect the timing of cash receipts and disbursements
therefrom.
Cash
used
in our operating activities totaled $5.6 million in the three months ended
March
31, 2007, compared to cash used of $876,000 from operating activities for the
same period in 2006. Our cash flows are influenced by the level of operations,
operating margins, the types of services we provide, as well as the stages
of
our projects in both the electrical construction and real estate segments.
Net
cash
used in the costs and estimated earnings in excess of billings on uncompleted
contracts account within the electrical construction segment for the three
months ended March 31, 2007 was $382,000 compared to $2.4 million for the same
period in 2006. The increase of $4.7 million in cash used was mainly
attributable to (i) the cash used by the change to the current period net loss
versus net income in the prior year quarter and (ii) cash used within the real
estate segment as we progress toward completion of the current
project.
Days
of Sales Outstanding Analysis
We
evaluate fluctuations in our accounts receivable and costs and estimated
earnings in excess of billings on uncompleted contracts for the electrical
construction segment by comparing days of sales outstanding (“DSO”). We
calculate DSO as of the end of any period by utilizing the preceding three
months of revenues to determine sales per day. We then divide accounts
receivable and accrued billings, net of allowance for doubtful accounts at
the
end of the period by sales per day to calculate DSO for accounts receivable.
To
calculate DSO for costs and estimated earnings in excess of billings, we divide
costs and estimated earnings in excess of billings on uncompleted contracts
by
sales per day.
For
the
quarters ended March 31, 2007 and 2006, our DSO for accounts receivable were
67
and 52, respectively, and our DSO for costs and estimated earnings in excess
of
billings on uncompleted contracts were 34 and 31, respectively. The main reason
for the increase in the DSO for accounts receivable for the quarter ended March
31, 2007 is that we executed a number of larger and longer transmission line
construction projects during 2006. These projects require a longer time to
close
out and bill the retainage due to required project material reconciliations
and
delays associated with contacting individual property owners potentially
affected by our construction projects upon their completion. As of April 30,
2007 we have received approximately 70% of our March 31, 2007 outstanding trade
accounts receivable balance. In addition as of April 30, 2007, we have invoiced
our customers for approximately 67% of the balance in costs and estimated
earnings in excess of billings as of March 31, 2007.
Investing
Activities
Net
cash
used in investing activities during the three months ended March 31, 2007 was
$1.5 million compared to $656,000 for the same period in 2006. These purchases
are mainly attributable to our electrical construction segment for the upgrading
and replacement of equipment.
Our
capital budget for 2007 is expected to total approximately $5.0 million, the
majority of which is for investment in equipment upgrades and fleet expansion
in
the electrical construction segment. These purchases will be funded through
our
working capital, leases and lines of credit.
Financing
Activities
Cash
provided by financing activities during the three months ended March 31, 2007
was $5.8 million compared to $59,000 during the same period in 2006. The
increase in cash provided by financing activities is mainly due to the
borrowings made within the real estate segment of $4.0 million used for the
development of Pineapple House and borrowing under our equipment line of credit
of $2.1 million used for capital expenditures by the electrical construction
segment. These borrowings were partially offset by loan repayments of $217,000
on the Equipment Loan. See note 6 of the notes to consolidated financial
statements for more information regarding these borrowings. In addition, the
Company repaid capital lease obligations of $77,000 during the three month
period ended March 31, 2007. There were no capital lease obligation repayments
during the three month period ended March 31, 2006.
The
Company has paid no cash dividends on its Common Stock since 1933, and it is
not
expected that the Company will pay any cash dividends on its Common Stock in
the
immediate future.
Forecast
The
Company anticipates its cash on hand, cash flows from operations and credit
facilities will provide sufficient cash to enable the Company to meet its
working capital needs, debt service requirements and planned capital
expenditures for at least the next twelve months. However, the Company’s
revenues, results of operations and cash flows as well as its ability to seek
additional financing may be negatively impacted by factors including, but not
limited to, a decline in demand for electrical construction services and/or
condominiums in the markets served and general economic conditions, heightened
competition, availability of construction materials, increased interest rates
and adverse weather conditions.
Contractual
Obligations
The
following table summarizes the Company's future aggregate contractual
obligations at March 31, 2007:
|
|
Payments
Due By Period
|
|
|
|
(in
thousands)
|
|
|
|
Total
|
|
Less
Than 1 Year
|
|
1
-
2 Years
|
|
3
-
5 Years
|
|
More
Than 5 Years
|
|
Operating
leases
|
|
$
|
752
|
|
$
|
142
|
|
$
|
261
|
|
$
|
349
|
|
$
|
-
|
|
Capital
leases, including interest(1)
|
|
|
1,303
|
|
|
403
|
|
|
713
|
|
|
187
|
|
|
|
|
Purchase
obligations and other(2)
|
|
|
2,901
|
|
|
2,048
|
|
|
813
|
|
|
40
|
|
|
-
|
|
Long-term
debt - principal(3)
|
|
|
3,500
|
|
|
683
|
|
|
2,049
|
|
|
768
|
|
|
-
|
|
Long-term
debt - interest(4)
|
|
|
754
|
|
|
175
|
|
|
398
|
|
|
154
|
|
|
27
|
|
Total
|
|
$
|
9,210
|
|
$
|
3,451
|
|
$
|
4,234
|
|
$
|
1,498
|
|
$
|
27
|
|
|
(1)
|
Capital
leases include agreements with Branch Banking and Trust Company as
discussed in note 6 of the notes to the consolidated financial
statements.
|
|
(2)
|
Purchase
obligations include only agreements to purchase goods or services
that are
enforceable and legally binding and that specify all significant
terms.
These amounts represent the employment contract of the CEO and other
purchase obligations.
|
|
(3)
|
Excludes
$12.3 million of debt which matures within the next 12
months.
|
|
(4)
|
Includes
approximately $29,000 per year of interest on loans against the cash
surrender value of life insurance policies, included in other long
term
assets and approximately $563,000 of interest on equipment loans
for the
electrical construction segment (see note
6).
|
Forward-Looking
Statements
We
make “forward-looking statements” within the “safe harbor” provision of the
Private Securities Litigation Reform Act of 1995 throughout this document.
You
can identify these statements by forward-looking words such as “may,” “will,”
“expect,” “anticipate,” “believe,” “estimate,” “plan,” and “continue” or similar
words. We have based these statements on our current expectations about future
events. Although we believe that our expectations reflected in or suggested
by
our forward-looking statements are reasonable, we cannot assure you that these
expectations will be achieved. Our actual results may differ materially from
what we currently expect. Factors that may affect the results of our electrical
construction operations include, among others: the level of construction
activities by public utilities; the timing and duration of construction projects
for which we are engaged; adverse weather; our ability to estimate accurately
with respect to fixed price construction contracts; heightened competition
in
the electrical construction field, including intensification of price
competition; and the availability of skilled construction labor. Factors that
may affect the results of our real estate development operations include, among
others: interest rates; ability to obtain necessary permits from regulatory
agencies; adverse legislation or regulations; ability to acquire land; the
Company’s ability to maintain or increase historical revenues and profit
margins; the Company’s ability to collect contracts receivable and close homes
in backlog, particularly related to buyers purchasing homes as investments;
availability of labor and materials and material increases in labor and material
costs; ability to obtain additional construction financing; increases in
interest rates and availability of mortgage financing; increases in construction
and homeowner insurance and the availability of insurance; the level of consumer
confidence; the negative impact of claims for contract rescission or
cancellation by unit purchasers due to various factors including the increase
in
the cost of condominium insurance; adverse weather; natural disasters; changes
in generally accepted accounting principles; the continued weakness in the
Florida condominium market and general economic conditions, both nationally
and
in our region. Other important factors which could cause our actual results
to
differ materially from the forward-looking statements in this document include,
but are not limited to, those discussed in this “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” as well as those
discussed elsewhere in this report and as set forth from time to time in our
other public filings and public statements. In addition to the other information
included in this report and our other public filings and releases, a discussion
of factors affecting our business is included in our Annual Report on Form
10-K
for the year ended December 31, 2006 under “Item 1A. Risk Factors” and should be
considered while evaluating our business, financial condition, results of
operations and prospects.
You
should read this report completely and with the understanding that our actual
future results may be materially different from what we expect. We may not
update these forward-looking statements, even in the event that our situation
changes in the future. All forward-looking statements attributable to us are
expressly qualified by these cautionary statements.
Item
3. Quantitative and Qualitative Disclosures about Market Risk.
The
Company and its subsidiaries are exposed to certain market risks from
transactions that are entered into during the normal course of business. The
Company’s primary market risk exposure is related to interest rate risk. At
March 31, 2007, we performed sensitivity analyses to assess the potential effect
of this risk and concluded that a hypothetical change in the interest rates
of
100 basis points (i.e., 1%) would not materially affect our financial position,
results of operations or cash flows.
Item
4T. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the reports that we file or submit
under
the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the rules and
forms
of the SEC, and that such information is accumulated and communicated to our
management timely. An evaluation was performed under the supervision and with
the participation of our management, including John H. Sottile, our Chief
Executive Officer and Stephen R. Wherry, our Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of March
31, 2007. Based upon that evaluation, our management, including our Chief
Executive Officer and our Chief Financial Officer, concluded that our disclosure
controls and procedures were effective as of March 31, 2007.
Changes
in Internal Controls over Financial Reporting
No
changes in our internal controls over financial reporting occurred during the
first quarter of 2007 that have materially affected, or are reasonably likely
to
materially affect, our internal controls over financial reporting.
Based
on
current regulations, Section 404 of the Sarbanes-Oxley Act will require our
management to provide an assessment of the effectiveness of our internal control
over financial reporting as of December 31, 2007, and our independent registered
public accounting firm will be required to audit the effectiveness of internal
control over financial reporting as of December 31, 2008. We are in the process
of performing the necessary system and process documentation in preparation
for
the evaluation and testing required for management to make this assessment
and
for our independent registered public accounting firm to provide their
attestation report. We have not completed this process or our assessment, and
this process will require significant amounts of management time and resources.
In the course of evaluation and testing, we may identify deficiencies that
will
need to be addressed and remedied.
Limitations
of the Effectiveness of Controls
A
control
system, no matter how well conceived and operated, can provide only reasonable
assurance, not absolute assurance that the objectives of the control system
are
met. Because of inherent limitations in all control systems, no evaluation
of
controls can provide absolute assurance that all control issues, if any, within
a company have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty and that breakdowns can occur
because of simple error or mistake. Additionally, controls can be circumvented
by the individual acts of some persons, by collusion of two or more people
or by
management override of the controls. The design of any system of controls is
also based in part upon certain assumptions about the likelihood of future
events, and there can be no assurance that the design will succeed in achieving
its stated goals under all potential future conditions; over time, controls
may
become inadequate because of changes in conditions, or the degree of compliance
with policies and procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due to error
or
fraud may occur and not be detected. Accordingly, our disclosure controls and
procedures are designed to provide reasonable, not absolute, assurance that
the
objectives of our disclosure control system are met and, as set forth above,
our
CEO and CFO have concluded, based on their evaluation, that our disclosure
controls and procedures were effective as of March 31, 2007 to provide
reasonable assurance that the objectives of the disclosure control system were
met.
PART
II. OTHER INFORMATION
Item
1. Legal Proceedings
Environmental
For
information in response to this Item, see the discussion regarding the special
notice letter the Company received from the EPA regarding the Anderson-Calhoun
mine/mill site in note 5 of notes to the consolidated financial statements
in
this Form 10-Q.
Item
1A. Risk Factors
There
have been no material changes from the risk factors previously disclosed in
our
Annual Report on Form 10-K for the year ended December 31, 2006.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
The
following table sets forth information on a monthly basis regarding our
purchases of our Common Stock during the first quarter of 2007:
Issuer
Purchases of Equity Securities
|
|
|
|
Period
|
|
Total
Number of Shares Purchased
|
|
Average
Price Paid per Share
|
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans
or
Programs(1)
|
|
Maximum
Number of Shares that May Yet Be Purchased Under the Plans or
Programs
|
|
01/1/07-01/31/07
|
|
|
-
|
|
$
|
-
|
|
|
-
|
|
|
1,154,940
|
|
02/1/07-02/28/07
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,154,940
|
|
03/1/07-03/31/07
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,154,940
|
|
Total
|
|
|
-
|
|
$
|
-
|
|
|
-
|
|
|
1,154,940
|
|
|
(1)
|
Since
September 17, 2002, we have had a stock repurchase plan which, as
last
amended by the Board of Directors on May 25, 2006, permits the purchase
of
up to 3,500,000 shares until September 30, 2007. We may repurchase
our
shares either in the open market or through private transactions.
The
volume of the shares to be repurchased is contingent upon market
conditions and other factors. As of March 31, 2007, the total number
of
shares repurchased under the Repurchase Plan was 2,345,060 at a cost
of
$1,289,467 (average cost of $0.55 per share) and the remaining number
of
shares available to be repurchased under the Repurchase Plan is 1,154,940.
|
Item
6. Exhibits
*31-1
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 15 U.S.C.
Section 7241
|
|
|
*31-2
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 15 U.S.C.
Section 7241
|
|
|
*32-1
|
**Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350
|
|
|
*32-2
|
**Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350
|
*
Filed
herewith.
**
These
exhibits are intended to be furnished in accordance with Regulation S-K Item
601(b)(32)(ii) and shall not be deemed to be filed for purposes of Section
18 of
the Securities Act of 1934 or incorporated by reference into any filing under
the Securities Act of 1933, except as shall be expressly set forth by specific
reference.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
THE
GOLDFIELD
CORPORATION |
|
|
|
Dated: May 15, 2007 |
By: |
/s/
JOHN
H. SOTTILE |
|
John
H. Sottile
|
|
Chairman
of the Board, President and Chief Executive Officer (Principal
Executive Officer)
|
|
|
|
|
|
/s/
STEPHEN
R. WHERRY
|
|
|
|
Senior
Vice President, Chief Financial Officer, Treasurer and Assistant
Secretary (Principal Financial and Accounting
Officer)
|