FORM 10-K
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, 2009
Commission file number 0-10146
SERVIDYNE, INC.
(Exact name of registrant as
specified in its charter)
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Georgia
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58-0522129
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
identification No.)
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1945 The Exchange, Suite 300, Atlanta, GA
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30339-2029
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(Address of principal executive
offices)
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(Zip Code)
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Registrants telephone number, including area code:
(770)
953-0304
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
ACT:
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Title of Each Class:
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Name of Each Exchange on Which Registered:
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Common Stock, $1.00 Par Value Per Share
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NASDAQ Global Market
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE
ACT:
(Title of Class)
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined by Rule 405 of the Securities
Act.
YES o NO þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Securities
Act.
YES o NO þ
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 has submitted
electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes o No o
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 Registrants 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. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company þ
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(Do not check if a smaller reporting company)
Indicate by checkmark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act).
YES o NO þ
The aggregate market value of Common Stock held by nonaffiliates
of the registrant as of October 31, 2008, was $6,789,212.
See Part III for a definition of nonaffiliates. The number
of shares of Common Stock of the registrant outstanding as of
April 30, 2009, was 3,691,369.
DOCUMENTS
INCORPORATED BY REFERENCE
The information called for by Part III (Items 10, 11,
12, 13, and 14) is incorporated herein by reference to the
registrants definitive proxy statement for the 2009 Annual
Meeting of Shareholders which is to be filed pursuant to
Regulation 14A.
TABLE OF CONTENTS
PART I
Servidyne, Inc. (i) provides comprehensive energy
efficiency and building performance-enhancing products and
services to owners and operators of existing buildings; and
(ii) engages in commercial real estate investment and
development.
As used herein, the term Company refers to
Servidyne, Inc. and its subsidiaries and predecessors, unless
the context indicates otherwise, and the term Parent
or Parent Company refers solely to Servidyne, Inc.
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. In fiscal 2007, the Company changed its name from
Abrams Industries, Inc. to Servidyne, Inc.
The Company operates through two segments: Building Performance
Efficiency (BPE) and Real Estate.
Further information on the businesses of the Companys
operating segments is discussed below. Financial information for
the segments is set forth in Note 15 to the consolidated
financial statements of the Company.
In June 2008, Atlantic Lighting & Supply Co., LLC
(ALS, LLC), a wholly-owned subsidiary of the
Company, acquired the business and assets of Atlantic
Lighting & Supply Co., Inc. ALS, LLC is a distributor
of cutting-edge energy efficient lighting products, and is now
part of the BPE Segment.
BUILDING
PERFORMANCE EFFICIENCY (BPE) SEGMENT
The BPE Segment provides comprehensive energy efficiency
solutions, sustainability programs, and other building
performance-enhancing products and services to owners and
operators of existing buildings. BPE offers strategic programs
and services that enable customers to optimize the short-term
and long-term financial performance of their building
portfolios, while reducing greenhouse gas emissions and
improving the comfort and satisfaction of their buildings
occupants. The Company conducts such operations under the names
Servidyne Systems, The Wheatstone Energy Group, and Atlantic
Lighting & Supply Co. BPEs offerings include the
following:
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The BPE Energy Solution is designed to help building owners and
operators substantially reduce energy consumption and cut
utility and operating costs of their existing facilities. Major
elements include: energy modeling; energy audits; building
retro-commissioning;
LEED®
and ENERGY
STAR®
certifications; comprehensive preventive maintenance of
energy-consuming equipment; turn-key design and implementation
of energy-saving lighting systems; and retrofits of mechanical
and electrical systems.
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The BPE Environmental Sustainability Solution is designed to
help building owners and operators identify and transform
wasteful and inefficient facilities into cost-effective, energy
efficient and environmentally sustainable facilities. Major
elements include: energy and sustainability audits; building
performance benchmarking and utility monitoring;
retro-commissioning of existing systems; efficiency improvements
of existing energy conversion and water consuming building
assets; and other efficiency improvements that extend the lives
of building infrastructures and equipment.
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The BPE Occupant Satisfaction Solution is designed to help
building owners and operators measurably improve the comfort
level and satisfaction of their tenants, guests and employees.
Major elements include: proprietary Web/wireless systems to
manage guest and tenant service requests; identification of
low-cost and no-cost operating efficiency improvements; lighting
quality upgrades; technical staff training; more consistent
control of building temperature and humidity conditions; and
improved reliability of building systems and controls.
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The BPE Segment focuses its marketing and sales activities on
owners and operators of corporate, commercial office,
hospitality, gaming, retail, light industrial, distribution,
healthcare, government, military, education and institutional
buildings and facilities; energy service companies (ESCOs); and
public and private utility companies. The primary geographic
focus for the business is the United States, although the
Company does business
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internationally as well. Contracts and services are primarily
obtained through negotiations with customers, but may also be
obtained through competitive bids on larger energy savings and
infrastructure upgrade projects and programs.
REAL
ESTATE SEGMENT
The Real Estate Segment 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, office buildings and
land in the Southeast and Midwest. The Company uses third-party
property managers and leasing agents for all of its owned retail
and office properties. The Company conducts its real estate
operations through its real estate subsidiaries, Abrams
Properties, Inc. and AFC Real Estate, Inc., and their respective
affiliates.
The Company currently owns two (2) shopping centers that it
acquired. The shopping centers are held as long-term investments
and may be marketed for sale at a time that the Company
determines to be appropriate. See ITEM 2.
PROPERTIES Owned Shopping Centers. In July
2007, the Company sold its shopping centers located in Columbus,
Georgia, and Orange Park, Florida, at a gain. The Company is a
lessee and sublessor of one retail center that was developed and
sold by the Company, leased back to the Company, and then
subleased to Kmart Corporation. See ITEM 2.
PROPERTIES Leaseback Shopping Center. In July
2007, the Company sold its leasehold interest in another such
retail center located in Jacksonville, Florida, at a gain. In
addition, the Company owns two (2) office buildings. See
ITEM 2. PROPERTIES Owned Office
Buildings. The Company also owns approximately
4.2 acres of undeveloped commercially zoned land. See
ITEM 2. PROPERTIES Real Estate Held for
Future Development, Lease, or Sale. In March 2008, the
Company transferred a portion of its undeveloped land
(approximately 1.8 acres) located in Oakwood, Georgia, to
the City of Oakwood in lieu of condemnation, which resulted in a
gain. For income tax purposes, this transaction is considered an
involuntary conversion under Section 1033 of the Internal
Revenue Code, which allows for tax deferral on the gain if the
Company acquires a qualified replacement property by
April 30, 2011. The Company currently intends to use the
net proceeds from this transaction to acquire a qualified
replacement property; however, there can be no assurance that
the Company will successfully complete such acquisition.
EMPLOYEES
AND EMPLOYEE RELATIONS
At April 30, 2009, the Company employed 89 salaried
employees and 10 hourly employees. The Company believes
that its relations with its employees are good.
SEASONAL
NATURE OF BUSINESS
The businesses of the BPE Segment and the Real Estate Segment
generally are not seasonal. However, certain retail customers of
the BPE Segment may choose to delay the implementation of energy
savings projects during the peak winter holiday season.
COMPETITION
The industries in which the Company operates are highly
competitive. The BPE Segments competition is widespread
and ranges from multi-national companies to local and regional
firms. The Real Estate Segment also operates in a competitive
environment, with numerous parties competing for available
properties, tenants, capital, and investors.
3
BACKLOG
The following table indicates the backlog of contracts and
rental income under lease agreements, by segment:
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Increase
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April 30,
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(Decrease)
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2009
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2008
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Amount
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Percentage
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BPE(1)
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$
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9,885,000
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$
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7,171,000
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$
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2,714,000
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38
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Real Estate(2)
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2,808,000
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3,071,000
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(263,000
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(9
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Less: Intersegment eliminations(3)
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(547,000
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(581,000
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34,000
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(6
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Total Backlog
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$
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12,146,000
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$
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9,661,000
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$
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2,485,000
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(1) |
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BPE backlog at April 30, 2009, increased by approximately
$2,714,000, or 38%, compared to the year-earlier period,
primarily due to: |
(a) an increase of approximately $4,065,000 in energy
savings (lighting and mechanical) projects;
partially offset by:
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(b)
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a decrease of approximately $127,000 in productivity software
products and services; and
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(c)
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a decrease of approximately $1,224,000 in energy management
consulting services, primarily as a result of the successful
completion of approximately $850,000 of multi-year consulting
services projects.
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The Company estimates that a substantial majority of the BPE
backlog at April 30, 2009, will be recognized as revenue
prior to April 30, 2010. |
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BPE backlog includes some contracts that can be cancelled by
customers with less than one years notice, and assumes
such cancellation provisions will not be invoked. The value of
such contracts included in the prior years backlog that
were subsequently cancelled was approximately $130,000 or 1.3%. |
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(2) |
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Real Estate backlog at April 30, 2009, decreased by
approximately $263,000, or 9%, compared to the year-earlier
period, primarily due to a decrease in future rental revenues at
the Companys owned office building located in Newnan,
Georgia, due to the anchor tenants default as described in
ITEM 2. PROPERTIES Owned Office
Buildings. |
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(3) |
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Represents rental revenues at the Companys owned
headquarters building to be paid to the Real Estate Segment by
the Parent Company and the BPE Segment. |
Other than as noted above, the Company estimates that the
backlog at April 30, 2009, will be recognized prior to
April 30, 2010. No assurance can be given as to future
backlog levels or whether the Company will actually realize
earnings from revenues that result from the backlog at
April 30, 2009.
REGULATION
The Company is subject to the authority of various federal,
state, and local regulatory agencies, including, among others,
the Occupational Safety and Health Administration and the
Environmental Protection Agency. The Company is also subject to
local zoning regulations and building codes. Management believes
that the Company is in substantial compliance with all
governmental regulations. Management believes that the
Companys compliance with federal, state, and local
provisions, which have been enacted or adopted for regulating
the discharge of materials into the environment, does not
adversely affect the capital expenditures, earnings, or
competitive position of the Company.
EXECUTIVE
OFFICERS OF THE REGISTRANT
The Executive Officers of the Company as of April 30, 2009,
were as follows:
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Alan R.
Abrams
(54)
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Officer
since 1988
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Chairman of the Board since 2006 and a Director of the Company
since 1992, Mr. Abrams has been Chief Executive Officer
since 1999 and President since 2000. He served as Co-Chairman of
the Board from 1998 to 2006.
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Rick A.
Paternostro
(39)
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Officer
since 2000
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Mr. Paternostro has served as Chief Financial Officer since
2007. He previously served as Vice President of Operations of
the BPE Segment from 2006 to 2008, as Vice President of
Financial Operations of the Company from 2004 to 2006, and as
Chief Financial Officer of a Company subsidiary from 2002 to
2004.
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Melinda
S. Garrett
(53)
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Officer
since 1990
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Ms. Garrett has served as Secretary since 2000 and Vice
President since 2004. She previously served as a Director of the
Company from 1999 to 2007, as Chief Financial Officer from 1997
to 2003, and also has served the Real Estate Segment as Chief
Executive Officer since 2003 and President since 2001.
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J. Andrew
Abrams
(49)
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Officer
since 1988
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A Director of the Company since 1992, Mr. Abrams has been
Executive Vice President since April 2006. He served as
Co-Chairman of the Board from 1998 to 2006 and as Vice
President-Business Development from 2000 to April 2006.
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M. Todd
Jarvis
(43)
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Officer
since 2004
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Mr. Jarvis has served the Companys BPE Segment as
President since 2006 and Chief Executive Officer since 2008. He
previously served as Vice President and Chief Operating Officer
of a Company subsidiary from 2003 to 2006. Prior to joining the
Company, he was employed by The Wheatstone Energy Group, Inc.,
which the Company acquired in 2003, serving as Co-Founder, Vice
President and Chief Operating Officer from 1992 to 2003.
Executive Officers of the Company are elected by the Board of
Directors of the Company or the board of a respective Company
subsidiary to serve at the pleasure of the respective board.
Alan R. Abrams and J. Andrew Abrams are brothers.
The following factors, together with all other matters described
in this Annual Report on
Form 10-K,
should be considered in evaluating the Company. Any of the
following potential risk factors, if actually realized, could
result in a materially negative impact on the Companys
business and financial results. In such an event, the trading
price of the Companys stock could be materially adversely
impacted.
Risks
Related to the Company
The Companys business depends on the success of its
building performance efficiency offerings. If the Company fails
to grow revenues from these offerings, its prospects will be
adversely affected.
In the past several years, the Company has undergone a
fundamental change in its primary focus by transitioning from
its former commercial construction business to its current
position as a provider of building performance-enhancing
services to building owners and operators, through the BPE
Segment. While the Real Estate Segment still contributes to the
Companys revenues and cash flows, it is not a primary
element of the Companys growth strategy. The Company
intends to dedicate most of its future capital resources and
management attention to growing the BPE Segment.
This BPE Segment differs in some substantial ways from the
Companys former commercial construction business and the
Real Estate Segment. For instance, several important product and
service offerings of the BPE Segment are information technology
(IT) oriented, which represents a significant
departure from the Companys legacy businesses.
The Companys ability to implement its growth strategy will
depend upon a variety of factors that are not entirely within
its control, including, but not limited to:
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the ability to add new products and services for the BPE Segment
on a timely basis, and the ability to keep its current products
and services competitive;
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the successful hiring, training and retention of qualified
personnel;
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the establishment of new relationships and the expansion of
existing relationships with customers and suppliers;
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the availability of adequate capital; and
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the ability to make profitable business acquisitions and the
ability to integrate such acquired businesses into existing
operations.
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To date, the BPE Segment has not contributed substantially to
the Companys net earnings in fact, it has yet
to achieve sustained profitability. In light of the absence of a
proven track record of sustained profitability, the Company
cannot guarantee that its growth strategy will be successful. If
the Companys growth strategy were unsuccessful, its
revenues, earnings, stock price, and the Company as a whole
could be adversely affected.
The Company may not be able to secure additional capital,
if needed, on favorable terms, or at all, which could materially
adversely affect the Companys ability to operate its
businesses and grow the BPE Segment.
The Company anticipates that currently available cash and cash
generated from operations will be sufficient to meet working
capital requirements and anticipated capital expenditures for
the foreseeable future; however, this will depend substantially
upon future operating performance (which may be affected by
prevailing economic conditions) and financial, business and
other factors, some of which are beyond the Companys
control. Failure to secure adequate resources for working
capital and capital expenditures could materially impair the
Companys ability to operate its businesses and grow the
BPE Segment.
The Company has historically generated substantial liquidity
from the sale of real estate assets. As a result, the current
real estate portfolio consists of a limited number of
properties. In addition, given the recent decline in commercial
real estate values in the United States, the Company may be
unable to sell any of its real estate assets at acceptable
prices in the near future.
In recent years, the Company has not utilized bank lines of
credit for operating purposes, and does not have any such line
of credit currently in place. The Company does, however, have
the current ability to receive loans of approximately $1,000,000
against certain life insurance policies, if needed.
In the event that currently available cash, cash generated from
operations, and loans from life insurance policies were not
sufficient to meet future cash requirements, and the Company was
unable to sell real estate assets at sufficient prices on a
timely basis, the Company would need to attempt to: refinance
existing debt; obtain new bank lines of credit; borrow against
un-collateralized real estate assets; raise funds through the
issuance of equity or debt securities; limit growth or curtail
operations to levels consistent with the constraints imposed by
the available cash and cash flow; or any combination of these
options. Moreover, the Companys ability to secure new debt
or equity financing could be limited by economic and financial
conditions at any time, but likely would be severely limited by
credit, financial and real estate market conditions similar to
those that have existed in recent fiscal quarters. Management
cannot provide assurance that any reductions in planned
expenditures or curtailment of operations would be sufficient to
cover shortfalls in available cash, or that debt or equity
financing or real estate asset sales would be available on terms
acceptable to management, if at all.
The Company has redeployed a substantial portion of its
capital previously invested in the Real Estate Segment to grow
the BPE Segment. The Company cannot guarantee that the return,
if any, on investing these resources in the BPE Segment will
exceed the return that might otherwise be achievable from the
Real Estate Segment.
The Company intends to continue to dedicate the majority of its
capital resources to growing the BPE Segment rather than the
Real Estate Segment. Over the past several years, the Company
has redeployed a substantial portion of its capital previously
invested in the Real Estate Segment to the BPE Segment primarily
through sales of income-producing properties.
As noted above, the BPE Segment does not have a proven track
record of sustained profitability, in contrast to the Real
Estate Segment, which historically has been profitable and has
been the primary source of the Companys net earnings and
cash flows in recent years. Accordingly, the Company cannot
guarantee that the return on its investment in the BPE Segment,
if any, will compare favorably to the results that might be
achievable otherwise if
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the Company had reinvested its capital resources entirely in the
Real Estate Segment (or in any other line of business). If the
Companys efforts to grow the BPE Segment do not prove to
be successful, the investment of this capital could be lost,
which could have a material adverse effect on the Companys
financial position.
Current market and economic conditions could impact demand
for the Companys services and products.
U.S. and international capital markets have experienced
severe volatility, disruptions and failures in recent months,
and the U.S. National Bureau of Economic Research has
determined the U.S. economy has been in recession since
December 2007. The recession could negatively affect the
businesses of the Companys customers and potential
customers, and disruptions and failures in the capital markets
could adversely affect their ability to raise capital, whether
for normal working capital or for capital expenditures.
Consequently, customers and potential customers who are
capital-constrained, whether due to the recession or
deteriorated market conditions, may delay or even cancel certain
operating expenses
and/or
capital expenditures, including expenditures for the BPE
Segments services and products. The Company experienced
delays during fiscal 2009 in certain anticipated orders for
energy savings (lighting and mechanical) projects, which
management believes was at least partly due to these factors.
In recent years, net earnings have been driven
significantly by capital gains from the sale of real estate
income-producing properties. Without such gains recurring in the
future, the Company might not be profitable.
The Companys net earnings in certain recent years have
been driven primarily by significant capital gains from sales of
income-producing real estate properties. Although some of the
proceeds of these sales have been re-invested in new real estate
properties, a significant portion of the proceeds from sales of
income-producing properties have been distributed to
shareholders as dividends. As a result, in recent years the
Companys real estate dispositions have exceeded its
acquisitions, and in light of the Companys focus on
growing the BPE Segment, the Company anticipates that this trend
is likely to continue. Consequently, real estate capital gains
cannot be depended upon as a primary source for the
Companys long-term profitability.
Because of these factors, the Companys net earnings in the
future likely will not result primarily from real estate
dispositions. In addition, to the extent that the proceeds from
real estate dispositions are not redeployed in acquiring new
income-producing real estate properties, another source of
earnings rental income could be
negatively impacted. Accordingly, in order for the Company to
maintain or improve its net earnings in the future, the BPE
Segment will need to be expanded to produce consistent net
earnings. There can be no guarantee, however, that the BPE
segment will be able to produce net earnings, if any, sufficient
to match the contribution to the Companys profitability
that has resulted from the Real Estate Segment in the past
several years, particularly in light of the BPE Segments
lack of a consistent track record of sustained profitability.
The Company is dependent upon key personnel and the loss
of any such key personnel could adversely impair the
Companys ability to conduct its business. In addition, the
implementation of the Companys growth strategy will
require the addition of suitable personnel.
One of the Companys objectives is to develop and maintain
a strong management team at all levels. At any given time, the
Company could lose the services of key executives or other key
employees. Currently, only one employee is subject to an
employment agreement or contract. The loss of services of any
key personnel could have an adverse impact upon the
Companys results of operations, financial condition, and
managements ability to execute its business strategy. If
the Company were to lose a member of its senior management team,
the Company might be required to incur significant costs in
identifying, hiring and retaining a replacement for the
departing executive.
In addition, the growth of the BPE Segment will require the
addition of qualified personnel. Some offerings of the BPE
Segment, such as energy engineering, sales and marketing, and
various IT-oriented products and services, may require personnel
with special skills who are in high demand in the employment
marketplace. The Company competes for such personnel with some
companies with much greater resources. Accordingly, the Company
may not be able to attract and hire such personnel or retain
them in the face of better offers from larger competitors.
7
If the Company cannot find suitable business acquisition
candidates or integrate completed business acquisitions
successfully, its prospects could be adversely affected.
In addition to organic growth, the Companys strategy
includes growth through business acquisitions. The
Companys BPE Segment, to which the Company is dedicating
most of its capital resources and attention, was established
through several business acquisitions in recent years. The
Company competes for acquisition opportunities with other
companies that have significantly greater financial resources.
Therefore, there is a risk that the Company may be unable to
complete an acquisition that it determines to be important to
the growth strategy, because another company may be able to pay
more for a potential acquisition candidate or may be able to use
its financial resources to acquire a potential acquisition
candidate before the Company could obtain any requisite
financing for such acquisition.
Even if the Company completes a desirable business acquisition
on favorable terms, the Company may not be able to successfully
integrate on a timely basis any newly-acquired company into
existing operations. Integration of a substantial business is a
challenging, time-consuming and costly process. It is possible
that the acquisition itself or the integration process could
result in the loss of the acquired companys management or
other key employees, the disruption of the acquired
companys business, or inconsistencies in standards,
controls, procedures and policies that could adversely affect
the acquired companys ability to maintain good
relationships with its suppliers, customers and employees.
In addition, successful integration of an acquired company
requires the dedication of significant management resources that
may temporarily detract attention from the Companys and
the acquired companys day-to-day business. If management
is not able to integrate the organization, operation and systems
of an acquired company in a timely and efficient manner, the
anticipated benefits of a completed acquisition may not be fully
realized.
The Company is subject to changing regulations regarding
corporate governance and required public disclosure that have
increased both the costs of compliance and the risks of
noncompliance. As a small public company, these costs of
compliance may affect the Company disproportionately as compared
with larger competitors.
As a public company, the Company is subject to rules and
regulations by various governing bodies, including the
Securities and Exchange Commission, NASDAQ, and the Public
Company Accounting Oversight Board, which are charged with the
protection of investors and the oversight of companies whose
securities are publicly traded. The Companys efforts to
comply with these new regulations, most notably the
Sarbanes-Oxley Act of 2002, or SOX, have resulted
and are expected to continue to result in increased general and
administrative expenses and a diversion of management time and
attention from earnings-generating activities to compliance
activities.
The Company has complied with the SOX requirements involving the
assessment of its internal controls over financial reporting,
which requirements went into effect for the Company for its
fiscal year ending April 30, 2008, and the remaining SOX
requirements are expected to be put into effect for the Company
in the fiscal year ending on April 30, 2010. The
Companys efforts to comply with the SOX requirements will
continue to require the commitment of significant financial and
management resources.
In addition, because these laws, regulations and standards are
subject to varying interpretations, their application in
practice may evolve over time as new guidance becomes available.
This evolution may result in continuing uncertainty regarding
compliance matters and additional costs necessitated by ongoing
revisions to the Companys disclosure and governance
practices. If the Company fails to satisfactorily address and
remain in compliance with all of these regulations and any
subsequent revisions or additions, the business may be adversely
impacted.
Moreover, many of the compliance costs of SOX and similar rules
and regulations are not in direct proportion to the size of a
particular company. As a small public company, these costs might
affect the Company disproportionately, particularly in
comparison to its larger public competitors. The Company may
also be at a disadvantage vis-à-vis public company
compliance costs compared with its privately held competitors
that are not subject to the same regulations.
8
Risks
Related to the Companys BPE Segment
Failure to adequately expand the BPE Segments sales
force may impede its growth.
The BPE Segment is dependent on its direct sales force to obtain
new customers, particularly large enterprise customers, and to
manage its customer base. The Company operates in a very
competitive marketplace for sales personnel with the advanced
sales skills, technical knowledge, industry experience, and
existing customer relationships that the Company needs. The BPE
Segments ability to achieve significant growth in revenues
from BPE services in the future will depend, in large part, on
the Companys success in recruiting, training, motivating
and retaining a sufficient number of such qualified sales
personnel. New personnel require significant training. The
Companys recent hires and planned new hires might not
prove to be as productive as the Company would like, and the
Company might be unable to hire a sufficient number of qualified
individuals in the future in the markets where the Company
conducts or desires to conduct its business. If the Company were
unable to hire, develop, and retain a sufficient number of
qualified and productive sales personnel, the revenues and
profitability of the BPE Segment could be adversely impacted,
and as a result, the Companys growth could be impeded,
which could have a material adverse effect on the Companys
financial position.
As more of the BPE Segments sales efforts are
targeted at larger enterprise customers, its sales cycle may
become longer and more expensive, it may encounter pricing
pressure and implementation challenges, and the Company may have
to delay revenue recognition with respect to certain sales to
these customers, all of which could harm the BPE Segments
business.
The BPE Segment is seeking to obtain additional larger
enterprise customers. As the Company targets more of these
customers, the Company anticipates potentially facing greater
sales and marketing costs, longer sales cycles, and less
predictability in closing some of its sales. In this market
segment, the customers decision to use the Companys
BPE products and services may be an enterprise-wide decision,
and if so, these types of sales would require the Company to
provide greater levels of education to prospective customers
regarding the use and benefits of its building
performance-enhancing products and services. In addition, larger
customers may demand more customization, enhanced integration
services, and additional product features and services. As a
result of these factors, BPE sales opportunities may require the
Company to devote greater sales support and professional
services resources to individual customers, driving up the costs
and the amount of time required to close sales, and diverting
selling and professional services resources to a smaller number
of larger transactions, while at the same time requiring the
Company to delay revenue recognition on some of these
transactions until the technical or implementation requirements
have been met. In addition, larger enterprise customers may seek
volume discounts and price concessions that could make these
transactions less profitable. Because of these factors, the risk
of not closing a sale with a larger enterprise customer may be
greater than with smaller customers, and the results of such
potential failure, due to higher costs and fewer overall ongoing
sales initiatives, also can be greater. Moreover, the bargaining
power of larger enterprise customers may result in lower profit
margins on BPE revenues.
A portion of the BPE Segments revenues are derived
from fixed price contracts, which could result in losses on
contracts.
A portion of the BPE Segments revenues and current backlog
is based on fixed price or fixed unit price contracts that
involve risks relating to the Companys potential
responsibility for the increased costs of performance under such
a contract. Generally, under fixed price or fixed unit price
contracts, any increase in the Companys unit cost not
caused by a modification or compensable change to the original
contract, whether due to inflation, inefficiency, faulty
estimates or other factors, is absorbed by the Company. There
are a number of other factors that could create differences in
contract performance, as compared to the original contract
price, including, among other things, differing facility
conditions, insufficient availability of skilled labor in a
particular geographic location, and insufficient availability of
materials.
9
The BPE Segment often utilizes subcontractors in
performing services or completing projects, whose potential
unavailability or unsatisfactory performance could have a
material adverse effect on the Companys business.
The Company often utilizes unaffiliated third-party
subcontractors in order to perform some of its energy
engineering and consulting services, much of its energy savings
maintenance, installation and retrofit projects, and most of its
other construction related projects and services. As
a consequence, in order to offer these services, the BPE Segment
depends on the continuing availability of, and satisfactory
performance by, such subcontractors. There may not be sufficient
availability of such subcontractors at the times needed or in
the markets in which the BPE Segment operates, or the quality of
work by such subcontractors may prove to be below acceptable
standards. In addition, the subcontractors may be unable to
qualify for payment and performance bonds to ensure their
performance or may be otherwise inadequately capitalized.
Insurance protection for construction defects, if any, available
to subcontractors is increasingly expensive and may become
unavailable, and the scope of such protection may become greatly
limited. If as a result of such subcontractor problems or
failures, the Company were unable to meet its contractual
obligations to its customers or were unable to successfully
recover sufficient indemnity from its subcontractors or their
bond or insurance carriers, the Company could suffer losses
which could decrease its profitability, damage its customer
relations, significantly harm its reputation, and otherwise have
a material adverse effect on its business.
The Company could be exposed to environmental liability
related to the disposal of hazardous materials.
A key offering of the Companys BPE Segment is replacing
older existing lighting systems with newer energy efficient
lighting systems in various types of facilities. The removal of
old lighting systems can often involve the removal, handling and
disposal of hazardous materials. As noted previously, various
federal, state and local laws govern the handling of hazardous
materials. Compliance with these regulations can be costly. If
the Company were to fail to comply, it could face liability from
government authorities or other third parties. Even in cases
where the Company subcontracts the disposal of such materials,
the Company could face potential liability. Not only could
judgments, fines or similar penalties for environmental
noncompliance negatively affect the Companys financial
position, the reputation of the BPE Segment and the
Companys other businesses could be harmed as well.
If the BPE Segments security measures for its
proprietary software solutions were breached, and as a result
unauthorized access is obtained to a customers data, the
offerings of the BPE Segment could be perceived as not being
sufficiently secure, customers might curtail or stop using the
BPE Segments products and services, and the BPE Segment
could incur significant losses and liabilities.
The BPE Segments proprietary software solutions involve
the storage of customers data and information, whether
locally on the customers own computers or on the
Companys computers in the case of the BPE Segments
ASP offerings and one of its older legacy products. These
products and services also involve the transmission of such data
and information in the case of the ASP and the older legacy
products. Security breaches could expose the Company to a risk
of loss of this data and information, potential litigation and
possible liability. If security measures were breached as a
result of third-party action, employee error, malfeasance or
otherwise, during transfer of data and information to data
centers or at any time, and, as a result, someone were to obtain
unauthorized access to any customers data and information,
the Companys reputation might be damaged, its business
might suffer, and it might incur significant losses and
liability. Because techniques used to obtain unauthorized access
or to sabotage computer systems change frequently and generally
are not recognized until after being launched against a target,
the BPE Segment might be unable to anticipate these techniques
or to implement adequate preventative measures on a timely
basis. If an actual or perceived breach of security were to
occur, the market perception of the effectiveness of the BPE
Segments security measures could be harmed, and the BPE
Segment could lose sales and customers.
The BPE Segment is dependent on the assistance of its
customers to complete projects on a timely basis. If a customer
is unable or unwilling to offer assistance, it could affect
project timelines and reduce or slow the recognition of energy
savings revenues.
Much of the work performed by the BPE Segment requires
significant interaction with its customers. Therefore, the
Company must have its customers full cooperation to
complete projects on a timely basis. In the early stages of a
project, the Company is at risk of customers not providing
accurate or timely data for project implementation. Also,
10
the Company must frequently access customer facilities, the
restriction of which could delay or prevent the completion of
projects.
Risks
Related to the Companys Real Estate Segment
The Companys ownership of commercial real estate involves
a number of risks, including general economic and market risks,
leasing risk, uninsured losses and condemnation costs, and
environmental issues, the effects of which could adversely
affect the Companys real estate business and its financial
position.
The market for purchasing and leasing of commercial real
estate is affected by general economic and market risks.
The Companys assets might not generate income sufficient
to pay expenses, service debt, and adequately maintain its real
estate properties. Several factors may adversely affect the
economic performance and value of these assets. These factors
include, among other things:
|
|
|
|
|
Changes in the national, regional and local economic climate;
|
|
|
|
Local conditions such as an oversupply of properties or a
reduction in demand for properties;
|
|
|
|
The attractiveness of the properties to prospective tenants;
|
|
|
|
Competition from other available properties;
|
|
|
|
Material contractual defaults by tenants;
|
|
|
|
Changes in market rental rates; and
|
|
|
|
The need to periodically repair, renovate and re-lease space.
|
The performance of the Real Estate Segment also depends on the
ability to collect rent and expense reimbursements from tenants,
and to pay for adequate maintenance, insurance and other
operating costs (including real estate taxes), which costs could
increase over time. Also, the expenses of owning and operating a
property are not necessarily reduced when circumstances such as
market factors, tenant defaults, and competition cause a
reduction in income from a property. If a property is mortgaged
and the Company is unable to generate sufficient rental income
to cover the mortgage payments, the lender could foreclose on
the mortgage and take the property, or the Company could deliver
the deed to the property to the lender in lieu of foreclosure.
In addition, capital market conditions, the availability and
cost of financing, insurance costs, changes in laws and
governmental regulations (including those governing usage,
zoning, environmental, and property taxes), other uncontrollable
operating costs, and financial distress or bankruptcies of
tenants could adversely affect the Companys financial
condition.
Operating revenues in the Real Estate Segment are dependent upon
entering into multi-year leases with tenants and then collecting
rents on a timely basis from such tenants. National, regional
and local economic conditions might adversely impact tenants and
potential tenants in the various marketplaces in which the
Companys properties are located, and accordingly, could
affect the tenants ability to continue to pay rents and to
continue to operate in their leased spaces. Tenants sometimes
experience bankruptcies, and pursuant to the various bankruptcy
laws, leases may be rejected and thereby terminated prematurely.
When leases expire or are terminated, replacement tenants may or
may not be available at acceptable terms and conditions. In
addition, the Companys cash flows and results of
operations could be adversely impacted if existing leases were
to expire or be terminated, and at such time, market rental
rates were lower than the previous contractual rental rates.
During the recent economic turmoil, the foregoing factors have
negatively affected the Company. In the fourth quarter of fiscal
2009, the Company experienced an anchor tenant default at the
Companys Newnan, Georgia, owned office building. See
ITEM 2. PROPERTIES Owned Office
Buildings and Note 7 to the consolidated financial
statements.
11
The Companys real estate properties could be subject
to uninsured losses and condemnation costs.
Accidents, floods and other losses at the Companys real
estate properties could materially adversely affect the
Companys operating results. Casualties may occur that
significantly damage an operating property, and insurance
proceeds, if any, may be materially less than the total loss
incurred by the Company. Property ownership also involves
potential liability to third parties for matters such as
personal injuries occurring on a property. The Company, however,
maintains casualty and liability insurance under policies that
management believes to be customary and appropriate. In addition
to uninsured losses, various government authorities may condemn
all or part of an income-producing property or undeveloped land.
Such condemnations could adversely affect the future commercial
viability of such property.
Compliance
with environmental laws could adversely affect the
Company.
Environmental issues that could arise at the Companys real
estate properties could have an adverse effect on the
Companys financial condition and results of operations.
Federal, state and local laws and regulations relating to the
protection of the environment may require a current or previous
owner or operator of real estate to investigate and clean up
hazardous or toxic substances or petroleum product releases at a
property. The property owner or operator might have to pay a
governmental entity or third party for property damage and for
investigation and
clean-up
costs incurred by such parties in connection with such
contamination. These laws often impose
clean-up
responsibility and liability without regard to whether the owner
or operator previously knew of or caused the presence of the
contaminants. Even if more than one party might have been
responsible for the contamination, each party covered by the
environmental laws might be held responsible for all of the
clean-up
costs incurred. In addition, third parties might sue the owner
or operator of a property for damages and costs resulting from
environmental contamination emanating from that property.
Although the Company currently is not aware of any environmental
liabilities at its properties that it believes would have a
material adverse effect on its business, assets, financial
condition or results of operations, unidentified environmental
liabilities could arise, which could have an adverse effect on
the Companys financial condition and results of operations.
Any failure to sell income-producing properties on a
timely basis could adversely affect the Companys results
of operations.
The Companys Real Estate Segment typically holds real
estate assets until such time as it believes to be optimal to
sell them. Normally, this will be during relatively strong real
estate markets. However, the Companys need to raise
additional capital or other factors beyond the Companys
control could make it necessary for the Company to attempt to
dispose of real estate properties during weak real estate
markets. During a period when the market values of the
Companys real estate assets were to fall significantly,
the Company could be required to sell real estate assets at a
time when it may be inopportune to do so, or the Companys
assets could become subject to valuation impairment. Further,
markets for real estate assets usually are not highly liquid,
which can make it particularly difficult to realize acceptable
selling prices when disposing of real estate assets during weak
markets.
The Company might not be able to refinance its
income-producing real estate properties on a timely basis or on
acceptable terms.
The Company may incur debt from time to time to finance
acquisitions, capital expenditures, or for other purposes. A
propertys current leasing status, physical condition, net
operating income, global, national, regional or local economic
conditions, financial and credit market conditions, the level of
liquidity available in real estate markets, the Companys
financial position, the terms and conditions or status of the
Companys other real estate or corporate loans, or other
prior financial commitments could impair the Companys
ability to refinance real estate properties at the times when
such refinancing might be necessary. Moreover, such refinancing
might not be available upon acceptable terms, including in
respect of loan principal amounts, interest rates, amortization
schedules, or maturity terms.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
12
The Company, through its Real Estate Segment, owns its corporate
headquarters building, which contains approximately
65,880 square feet of leasable office space. The building
is located in the North x Northwest Office Park, 1945 The
Exchange, in suburban Atlanta, Georgia. The Company and both
operating segments have their main offices located in this
building. In addition to the 25,928 square feet of offices
leased by the Company, another 9,341 square feet is leased
to unaffiliated tenants and 30,611 square feet is currently
vacant and for lease. In conjunction with the Companys
acquisition of Atlantic Lighting & Supply Co., Inc.,
in June 2008, the Company assumed a lease for 25,654 square
feet of office and warehouse space, which currently expires in
May 2010.
As of April 30, 2009, the Company owned or had an interest
in the following real properties:
OWNED
SHOPPING CENTERS
The Companys Real Estate Segment owns two
(2) shopping centers that it acquired. The following chart
provides relevant information relating to the owned shopping
centers:
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Percentage
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|
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|
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|
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|
|
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|
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of Square
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Calendar
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|
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Principal
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Leasable
|
|
|
Footage
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|
|
Year
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|
|
|
|
|
Debt
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|
|
Amount of Debt
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|
Square
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|
Leased as of
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Placed in
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|
|
Rental
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|
|
Service
|
|
|
Outstanding
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|
|
|
|
|
|
Feet in
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|
|
April 30,
|
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Service by
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|
Income
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|
Payments
|
|
|
as of April 30,
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Location
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|
Acres
|
|
|
Building(s)
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|
|
2009
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|
Company
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2009
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|
2009(1)
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2009(2)
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|
11459 Old Nashville Hwy. Smyrna, TN(3)
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8.0
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|
|
51,925
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|
|
|
100
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|
|
|
2006
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|
|
$
|
568,838
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|
|
$
|
303,014
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|
|
$
|
4,032,887
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|
8102 Blanding Blvd. Jacksonville, FL(4)
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18.8
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|
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174,220
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|
|
|
98
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|
|
|
1999
|
|
|
$
|
1,786,012
|
|
|
$
|
610,238
|
|
|
$
|
7,060,380
|
|
|
|
|
(1) |
|
Includes principal and interest. |
(2) |
|
The Companys liability for repayment is generally limited
by exculpatory provisions to its interests in the respective
mortgaged properties. |
(3) |
|
Acquired by the Company in August 2006 and originally developed
by unrelated third parties in 1998. |
(4) |
|
Acquired by the Company in 1999 and originally developed by
unrelated third parties in 1985. The lender has an option to
call the note for early repayment any time after July 1,
2011, upon thirteen months prior written notice. |
Anchor tenant lease terms for the owned shopping centers are
shown in the following table:
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Lease
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Square
|
|
|
Expiration
|
|
|
Options
|
Anchor Tenant(1)
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|
Location
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|
Footage
|
|
|
Date
|
|
|
to Renew
|
|
Harbor Freight Tools
|
|
Jacksonville, FL
|
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|
15,700
|
|
|
|
2012
|
|
|
4 for 5 years each
|
Publix(2)
|
|
Jacksonville, FL
|
|
|
85,560
|
|
|
|
2010
|
|
|
6 for 5 years each
|
Office Depot
|
|
Jacksonville, FL
|
|
|
22,692
|
|
|
|
2013
|
|
|
1 for 5 years
|
Food Lion
|
|
Smyrna, TN
|
|
|
33,000
|
|
|
|
2019
|
|
|
4 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
of five (5) years or more. |
(2) |
|
Publix has subleased the premises to Floor and Decor Outlets,
but remains liable under the lease until the lease expires. |
With the exception of the Harbor Freight Tools lease in
Jacksonville, Florida, the anchor tenant leases and some of the
small shop leases provide for contingent rentals if sales
generated by the respective tenant in its leased space exceed
specified predetermined amounts. In fiscal 2009, the Company did
not recognize any contingent rental income from owned shopping
centers.
Typically, tenants reimburse the Company for a portion of ad
valorem taxes, insurance and common area maintenance costs.
13
OWNED
OFFICE BUILDINGS
The Company, through its Real Estate Segment, owns two
(2) office properties in metropolitan Atlanta, Georgia: the
corporate headquarters building in Atlanta and an office
building in Newnan. During the fourth quarter of fiscal 2009,
the anchor tenant of the Companys Newnan office building
defaulted on its lease obligations. Due to the tenants
default, the current financial condition, and the fact that the
tenant has vacated the leased space, the Company does not
anticipate that such tenant will make any additional lease
payments. Consequently, the Company has not made payments on the
propertys mortgage loan beginning in May 2009 and has
offered to return the property to the lender. The lender has not
yet communicated to the Company how it plans to proceed.
Exculpatory provisions of the mortgage loan generally limit the
Companys liability for repayment to its interest in the
property. The Company recorded an impairment loss in the fourth
quarter of fiscal 2009 related to the office building. For more
information, see Note 7 to the consolidated financial
statements.
The following chart provides pertinent information relating to
the owned office buildings:
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Percentage
|
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Principal
|
|
|
|
|
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|
of Square
|
|
|
Calendar
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
|
|
|
|
Leasable
|
|
|
Footage
|
|
|
Year
|
|
|
|
|
|
Debt
|
|
|
Debt
|
|
|
|
|
|
|
Square
|
|
|
Leased as of
|
|
|
Placed in
|
|
|
Rental
|
|
|
Service
|
|
|
Outstanding
|
|
|
|
|
|
|
Feet in
|
|
|
April 30,
|
|
|
Service by
|
|
|
Income
|
|
|
Payments
|
|
|
as of April 30,
|
|
Location
|
|
Acres
|
|
|
Building(s)
|
|
|
2009
|
|
|
Company
|
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|
2009
|
|
|
2009(1)
|
|
|
2009(2)
|
|
|
246 Bullsboro Dr.
Newnan, GA(3)
|
|
|
1.35
|
|
|
|
21,000
|
|
|
|
28
|
|
|
|
2007
|
|
|
$
|
473,124
|
|
|
$
|
223,350
|
|
|
$
|
3,168,959
|
|
1945 The Exchange
Atlanta, GA(4)
|
|
|
3.12
|
|
|
|
65,880
|
|
|
|
54
|
|
|
|
1997
|
|
|
$
|
785,808
|
|
|
$
|
444,087
|
|
|
$
|
4,340,273
|
|
|
|
|
(1) |
|
Includes principal and interest. |
(2) |
|
The Companys liability for repayment is limited by
exculpatory provisions to its interests in the respective
mortgaged properties. |
(3) |
|
Acquired by the Company in March 2007, originally developed in
1983 by unrelated third parties, and completely renovated in
2006 by unrelated third parties. |
(4) |
|
Includes the Companys corporate headquarters building of
which the Company leases approximately 25,928 square feet.
Rental income includes $576,080 of intercompany rent at a
competitive market rate recognized by the Company and its
operating segments. The building was originally developed by
unrelated third parties in 1974, and was acquired and
re-developed by the Company in 1997. |
Anchor tenant lease terms for the owned office buildings are
shown in the following table:
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|
|
|
|
|
|
|
|
|
|
|
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|
Lease
|
|
|
Options
|
|
|
|
|
|
|
Square
|
|
|
Expiration
|
|
|
to
|
|
Anchor Tenant(1)
|
|
Location
|
|
|
Footage
|
|
|
Date
|
|
|
Renew
|
|
|
Servidyne, Inc.(2)
|
|
|
Atlanta, GA
|
|
|
|
25,928
|
|
|
|
2012
|
|
|
|
None
|
|
|
|
|
(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 of five (5) years or more. |
(2) |
|
The Company leases its corporate headquarters office space
from the Real Estate Segment. |
Typically, leases require tenants to reimburse the Company for a
portion of ad valorem taxes, insurance and operating expenses
above a base year.
LEASEBACK
SHOPPING CENTER
The Company, through its Real Estate Segment, has a leasehold
interest in one retail center that it developed, sold to an
unrelated third party, and then leased back from such unrelated
third party under a lease currently expiring in 2014. The center
is subleased by the Company entirely to Kmart Corporation
(Kmart). The Kmart sublease provides for contingent
rentals if sales exceed specified predetermined amounts, and the
sublease has eight (8) remaining five-year renewal options.
The Companys lease with the fee owner contains renewal
options coextensive with Kmarts renewal options on the
sublease.
14
Kmart, under its sublease, is responsible for insurance and ad
valorem taxes, but has the right to offset against contingent
rentals for any ad valorem taxes paid in excess of specified
amounts. In fiscal 2009, the Company did not recognize any
contingent rental income from the leaseback shopping center. The
Company is responsible for structural and roof maintenance of
the building. The Company is also responsible for underground
utilities, parking lots and driveways, except for routine upkeep
which is the responsibility of the subtenant. The Companys
lease contains exculpatory provisions, which limit the
Companys liability for payments to its interest in the
lease.
The following chart provides certain information relating to the
leaseback shopping center:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Feet in
|
|
|
Placed in Service
|
|
|
Income
|
|
|
Expense
|
|
Location
|
|
Acres
|
|
|
Building
|
|
|
by Company
|
|
|
2009
|
|
|
2009
|
|
|
Davenport, IA
|
|
|
10.0
|
|
|
|
84,180
|
|
|
|
1977
|
|
|
$
|
255,311
|
|
|
$
|
105,203
|
|
REAL
ESTATE HELD FOR FUTURE DEVELOPMENT, LEASE OR SALE
The Company, through its Real Estate Segment, owns the following
land parcels, which are held for future development, leasing, or
sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar Year
|
|
|
|
|
|
|
|
|
Development
|
|
|
|
Location
|
|
Acres
|
|
|
Completed
|
|
|
Intended Use(1)
|
|
Mundy Mill Road
|
|
|
|
|
|
|
|
|
|
Commerical development pads or up to
|
Oakwood, GA
|
|
|
3.474
|
|
|
|
1987
|
|
|
three outlots
|
North Cleveland Avenue
North Ft. Myers, FL
|
|
|
0.73
|
|
|
|
1993
|
|
|
One outlot
|
|
|
|
(1) |
|
Outlot as used herein refers to a small parcel of
land platted separately from a shopping center parcel. An outlot
is generally sold to, leased to, or developed as a fast-food
restaurant, a bank, a convenience store, a small retail center,
or other commercial uses. |
There is no debt encumbering these land parcels. The Company
will either develop the properties or will continue to hold them
for future sale or lease to others.
For further information on the Companys real estate
properties, see Notes 5, 7, 9 and 17 to the consolidated
financial statements, and SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
The Company is subject to various legal proceedings and claims
that may arise from time to time in the ordinary course of
business. While the occurrence or resolution of such matters
cannot be predicted with certainty, the Company believes that
the final outcome of any such matters would not have a material
adverse effect on the Companys financial position or
results of operations.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
None.
15
PART II
|
|
ITEM 5. |
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Prices
|
|
|
|
|
|
|
|
|
|
Fiscal 2009
|
|
|
Fiscal 2008(1)
|
|
|
Cash Dividends
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
Paid per Share
|
|
|
|
Trade
|
|
|
Trade
|
|
|
Trade
|
|
|
Trade
|
|
|
2009
|
|
|
2008(1)
|
|
|
First Quarter
|
|
$
|
6.09
|
|
|
$
|
3.71
|
|
|
$
|
6.28
|
|
|
$
|
3.95
|
|
|
$
|
0.038
|
|
|
$
|
0.034
|
|
Second Quarter
|
|
|
5.13
|
|
|
|
2.58
|
|
|
|
6.42
|
|
|
|
4.08
|
|
|
|
0.038
|
|
|
|
0.034
|
|
Third Quarter
|
|
|
3.75
|
|
|
|
1.07
|
|
|
|
6.19
|
|
|
|
5.44
|
|
|
|
0.038
|
|
|
|
0.034
|
|
Fourth Quarter
|
|
|
2.45
|
|
|
|
1.50
|
|
|
|
6.19
|
|
|
|
3.73
|
|
|
|
0.020
|
|
|
|
0.034
|
|
|
|
|
(1) |
|
Adjusted for stock dividend. |
The common stock of Servidyne, Inc. is traded on the NASDAQ
Global Market (Symbol: SERV). The approximate number of holders
of common stock was 650 (including shareholders of record and
shares held in street name) as of June 30, 2009.
The information required by this item with respect to its equity
compensation plan will be included in the Companys
definitive proxy materials for its 2009 Annual Meeting of
Shareholders, to be filed with the Securities and Exchange
Commission, under the heading Equity Compensation
Plan, and is hereby incorporated herein by reference.
16
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended April 30,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net (Loss) Earnings(1)
|
|
$
|
(4,587,450
|
)
|
|
$
|
1,335,562
|
|
|
$
|
966,626
|
|
|
$
|
525,766
|
|
|
$
|
1,897,054
|
|
Net Loss Continuing Operations
|
|
$
|
(4,587,450
|
)
|
|
$
|
(1,160,542
|
)
|
|
$
|
(1,148,405
|
)
|
|
$
|
(424,508
|
)
|
|
$
|
(1,439,570
|
)
|
Net Earnings Discontinued Operations
|
|
$
|
|
|
|
$
|
2,496,104
|
|
|
$
|
2,115,031
|
|
|
$
|
950,274
|
|
|
$
|
3,336,624
|
|
Net (Loss) Earnings Per Share(1)(3)
|
|
$
|
(1.23
|
)
|
|
$
|
.36
|
|
|
$
|
.26
|
|
|
$
|
.14
|
|
|
$
|
.51
|
|
Net Loss Per Share Continuing Operations(3)
|
|
$
|
(1.23
|
)
|
|
$
|
(.31
|
)
|
|
$
|
(.31
|
)
|
|
$
|
(.11
|
)
|
|
$
|
(.39
|
)
|
Net Earnings Per Share Discontinued Operations(3)
|
|
$
|
|
|
|
$
|
.67
|
|
|
$
|
.57
|
|
|
$
|
.26
|
|
|
$
|
.90
|
|
Consolidated Revenues Continuing Operations
|
|
$
|
16,456,372
|
|
|
$
|
19,347,726
|
|
|
$
|
17,009,005
|
|
|
$
|
15,868,293
|
|
|
$
|
19,659,516
|
|
Consolidated Revenues Reclassified to Discontinued
Operations(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,066,228
|
|
|
$
|
2,371,882
|
|
|
$
|
3,009,834
|
|
Weighted Average Shares Outstanding at Year-End(3)
|
|
|
3,716,700
|
|
|
|
3,711,659
|
|
|
|
3,707,217
|
|
|
|
3,708,797
|
|
|
|
3,703,749
|
|
Cash Dividends Paid Per Share(3)
|
|
$
|
.13
|
|
|
$
|
.14
|
|
|
$
|
.14
|
|
|
$
|
.14
|
|
|
$
|
.29
|
|
Shareholders Equity
|
|
$
|
17,538,530
|
|
|
$
|
22,466,378
|
|
|
$
|
21,460,211
|
|
|
$
|
20,946,748
|
|
|
$
|
20,913,411
|
|
Shareholders Equity Per Share(3)
|
|
$
|
4.72
|
|
|
$
|
6.05
|
|
|
$
|
5.79
|
|
|
$
|
5.65
|
|
|
$
|
5.93
|
|
Working Capital
|
|
$
|
7,030,872
|
|
|
$
|
13,769,470
|
|
|
$
|
5,713,582
|
|
|
$
|
8,352,086
|
|
|
$
|
9,792,866
|
|
Depreciation and Amortization Continuing
Operations(4)
|
|
$
|
1,624,795
|
|
|
$
|
1,506,618
|
|
|
$
|
1,317,905
|
|
|
$
|
929,851
|
|
|
$
|
1,011,234
|
|
Total Assets
|
|
$
|
43,644,656
|
|
|
$
|
52,315,550
|
|
|
$
|
57,393,421
|
|
|
$
|
52,410,256
|
|
|
$
|
48,592,810
|
|
Income-Producing Properties and Property and Equipment, net(5)
|
|
$
|
20,188,931
|
|
|
$
|
22,585,309
|
|
|
$
|
22,459,873
|
|
|
$
|
14,011,977
|
|
|
$
|
13,884,382
|
|
Income-Producing Properties and Property and Equipment,
net Reclassified to Discontinued Operations(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10,334,044
|
|
|
$
|
7,548,794
|
|
|
$
|
11,365,490
|
|
Long-Term Debt(6)
|
|
$
|
19,220,640
|
|
|
$
|
19,708,769
|
|
|
$
|
19,086,723
|
|
|
$
|
13,416,512
|
|
|
$
|
13,636,640
|
|
Long-Term Debt Reclassified to Discontinued
Operations(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,052,018
|
|
|
$
|
7,873,030
|
|
|
$
|
11,717,967
|
|
Total Liabilities
|
|
$
|
26,106,126
|
|
|
$
|
29,849,172
|
|
|
$
|
35,933,210
|
|
|
$
|
31,463,508
|
|
|
$
|
28,813,171
|
|
Variable Rate Debt(6)(7)
|
|
$
|
850,000
|
|
|
$
|
870,000
|
|
|
$
|
3,400,000
|
|
|
$
|
930,000
|
|
|
$
|
1,000,000
|
|
Return on Average Shareholders Equity(1)
|
|
|
(22.9
|
)%
|
|
|
6.1
|
%
|
|
|
4.6
|
%
|
|
|
2.5
|
%
|
|
|
9.3
|
%
|
|
|
|
(1) |
|
Includes continuing operations, discontinued operations, and
extraordinary items, if any. |
(2) |
|
Includes amounts previously reported as continuing operations in
prior period annual reports that have been reclassified to
discontinued operations in accordance with SFAS 144. |
(3) |
|
Adjusted for stock dividend. |
(4) |
|
Depreciation and amortization for certain sold income-producing
properties have been reclassified as discontinued operations
and, therefore, are not included in the periods presented. |
(5) |
|
Does not include property held for sale, real estate held for
future development or sale, or sold income-producing properties
that have been reclassified as assets of discontinued operations. |
(6) |
|
Does not include mortgage debt associated with discontinued
operations. |
(7) |
|
Includes short-term and long-term debt. |
17
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
|
INTRODUCTION
The Company has two operating segments: BPE and Real Estate. The
Company continues to add new products and service offerings for
the BPE Segment, which may come in part from future business
acquisitions.
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 basis.
For net earnings and similar profit information on a
consolidated basis, please see ITEM 6. SELECTED
FINANCIAL DATA or the Companys consolidated
financial statements. Pursuant to SFAS 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, the
figures in the following charts for all periods presented do not
include Real Estate Segment revenues, costs and expenses, and
selling, general and administrative expenses associated with
certain formerly owned income-producing properties, which have
been sold; such amounts have been reclassified as discontinued
operations (see Critical Accounting Policies
Discontinued Operations later in this discussion and
analysis section). In addition, the figures in the following
charts do not include the revenues, costs and expenses generated
by past sales of certain real estate formerly held for sale or
future development, although the gains on these sales are
included in the results from continuing operations, and are
discussed later in this discussion and analysis section.
The following discussion has been updated to reflect the
restatements and the reclassifications discussed in Note 2
to the consolidated financial statements.
RECENT
DEVELOPMENTS
During fiscal year 2009, the Company believes that the
deterioration in the general economy caused delays in the
receipt of certain BPE customer orders, particularly for the
Companys energy savings projects which typically require
capital expenditures by customers. However, BPEs product
and service offerings are designed to reduce the costs of
operating buildings with a focus on energy efficiency. Both cost
reduction opportunities and energy efficiency measures are
financially and politically driven in todays economic
environment. Beginning in October 2008, order activity began to
increase, and over the subsequent seven (7) months from
October 2008 to April 2009, the BPE Segment received customer
orders in excess of $11 million. This resulted in a backlog
at April 30, 2009, of approximately $10 million, an
increase of nearly 40% over the backlog at April 30, 2008.
Given this strong order growth, the Company expects the BPE
Segment to be cash flow positive within the next twelve
(12) months with BPE revenues continuing to grow. To
support revenue growth over a longer time horizon, in addition
to multi-year programs that have already begun with large
customers in the private sector, the Company also anticipates
strong growth from the government sector. The Company offers the
government sector many of the same offerings provided to private
sector customers, including energy savings projects and other
energy efficiency-focused products and services, usually by
acting as a subcontractor to large energy services company
(ESCO) partners to provide services to end-user
government agency facilities. Through this channel, the BPE
Segment provides services to a wide-range of government
facilities, including U.S. military bases, federal and
state prisons, and large public educational facilities and
school districts. The Company believes that future growth in
BPEs government business should be underpinned by two
(2) recent U.S. Government actions: in December 2008,
the U.S. Department of Energy (DOE) announced a
program to fund $80 billion of energy savings performance
contracts with sixteen (16) large ESCOs to improve energy
efficiency of government buildings; and in February 2009,
President Obama signed the American Recovery and Reinvestment
Act of 2009, which will provide an additional approximately
$75 billion for the performance of energy efficiency
projects in government buildings. The Company has existing
business relationships with half of these sixteen
(16) selected ESCOs and a long history of providing these
exact types of services for the government sector. The Company
believes that it should be well positioned to perform a
significant amount of these funded projects.
While the recent increased order activity in the BPE Segment may
indicate that the Companys customers capital
expenditure constraints are relaxing, there can be no assurance
that such increased order activity can be sustained,
particularly if recent macro-economic conditions were to
continue, or worsen, for an extended period of time; nor
18
can there be any assurance that the Companys existing
relationships with ESCOs and government entities will result in
it securing substantial contracts funded by recent
U.S. government programs.
The Companys Real Estate Segment is in the business of
creating long-term value by periodically realizing gains through
the sale of existing real estate assets, and then redeploying
its capital by reinvesting the proceeds from such sales in new
real estate assets or in other segments of the Company. The
Company has historically generated substantial liquidity from
such periodic sales of its real estate assets held for
investment. However, the current real estate portfolio consists
of a limited number of properties, and given recent declines in
commercial real estate values in the United States, the Company
may elect to not sell or be unable to sell any of its real
estate assets in the near future.
Since December 2007, the period during which the
U.S. economy has been in recession, the Real Estate Segment
has seen continued interest from prospective tenants, and has
signed new leases
and/or lease
extensions with third party tenants at its two (2) shopping
centers and at its two (2) office buildings. Marketing
efforts to prospective tenants continue to be a primary focus of
the Real Estate Segment. However, the Company did experience an
anchor tenant default at its Newnan, Georgia office building
during the fourth quarter of fiscal 2009, as described in
ITEM 2. PROPERTIES Owned Office
Buildings and Note 7 to the consolidated financial
statements. The Company is continuing to monitor the sales and
operating performance of the Real Estate Segments tenants,
and is continuing to reduce Real Estate Segment operating costs.
As of April 30, 2009, the Companys income-producing
properties were eighty-eight percent (88%) leased.
The decreased order activity that the BPE Segment encountered
earlier, beginning in the Companys third fiscal quarter of
2008 and continuing into the second fiscal quarter of 2009,
combined with the cash utilized in the Companys June 2008
acquisition of its new lighting distribution business, resulted
in significant usage of the Companys cash during that
period; however, cash usage moderated during the third and
fourth fiscal quarters of 2009. The Company believes that it has
sufficient capital resources to operate its business in the
ordinary course until the BPE Segment begins to generate cash
flow from operations, which is expected to occur within the next
twelve (12) months, although there can be no guarantee that
this will be the case, particularly if recent macro-economic
conditions continue, or worsen, for an extended period of time.
See Liquidity and Capital Resources later in this
discussion and analysis section for more information.
RESULTS
OF OPERATIONS
REVENUES
Consolidated revenues from continuing operations, net of
intersegment eliminations, were $16,456,372 in fiscal 2009
compared to $19,347,726 in fiscal 2008. This represents a
decrease in revenues of 15%.
CHART
A
REVENUES FROM CONTINUING OPERATIONS
SUMMARY BY SEGMENT
(Dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
BPE(1)
|
|
$
|
13,192
|
|
|
$
|
14,249
|
|
|
$
|
(1,057
|
)
|
|
|
(7
|
)
|
Real Estate(2)
|
|
|
3,264
|
|
|
|
5,098
|
|
|
|
(1,834
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,456
|
|
|
$
|
19,347
|
|
|
$
|
(2,891
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
NOTES TO CHART A
|
|
|
(1) |
|
The following table indicates the BPE Segment revenues by
service and product type: |
BPE
SEGMENT REVENUES SUMMARY BY SERVICE &
PRODUCT TYPE
(Dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
|
|
|
|
|
April 30
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
Energy Savings Projects
|
|
$
|
5,534
|
|
|
$
|
8,550
|
|
|
$
|
(3,016
|
)
|
|
|
(35
|
)
|
Lighting Products
|
|
|
1,665
|
|
|
|
|
|
|
|
1,665
|
|
|
|
|
|
Energy Management Services
|
|
|
2,319
|
|
|
|
2,355
|
|
|
|
(36
|
)
|
|
|
(2
|
)
|
Productivity Software
|
|
|
3,674
|
|
|
|
3,344
|
|
|
|
330
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,192
|
|
|
$
|
14,249
|
|
|
$
|
(1,057
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BPE Segment revenues decreased by approximately $1,057,000, or
7%, in fiscal 2009 compared to fiscal 2008, primarily due to: |
|
|
|
|
(a)
|
energy savings (lighting and mechanical) project revenues that
were approximately $3,016,000 lower than in the year-earlier
period, primarily because of:
|
|
|
|
|
i.
|
delays in the receipt of certain orders, as discussed above,
which were subsequently received; and
|
|
|
|
|
ii.
|
the absence of revenues of approximately $1 million that
were generated by a one-time special project for a large retail
customer in the year-earlier period;
|
partially offset by:
|
|
|
|
iii.
|
revenues of approximately $1,860,000 from several new energy
savings project customers, representing the initial phases of
new energy savings program initiatives for those customers.
|
The
year-over-year
decline in energy savings project revenues, as described above,
was partially offset by:
|
|
|
|
(b)
|
lighting product revenues of approximately $1,665,000, as the
result of the Companys acquisition during the first
quarter of fiscal 2009 of its lighting distribution
business; and
|
|
|
|
|
(c)
|
an increase in productivity software revenues of approximately
$330,000, primarily due to new customer implementations and
conversions from legacy software systems to the Companys
proprietary
web/wireless
system.
|
|
|
|
|
|
While management believes that the decrease in BPE Segment
revenues in fiscal 2009 compared to fiscal 2008 is due in part
to the general deterioration of the overall economy and its
effect on certain of the Companys customers, revenues in
the second half of fiscal 2009 were approximately 28% higher
than the comparable prior year period, and order activity was
strong in the second half of fiscal 2009. As a result,
management believes that the Company is well positioned to
continue to grow BPE Segment revenues. |
|
(2) |
|
In the current year, fiscal 2009, Real Estate revenues decreased
by approximately $1,834,000 or 36%, compared to the same period
in fiscal 2008, primarily due to: |
|
|
|
|
(a)
|
the absence in the current fiscal year of revenues of
approximately $1,553,000 generated last year by the sale of the
Companys leasehold interest in its shopping center in
Jacksonville, Florida; and
|
|
|
(b)
|
a net decrease in rental revenues of approximately $377,000 at
the Companys owned headquarters building in Atlanta,
Georgia, primarily because of the expiration of a third-party
anchor tenant lease in January 2008;
|
partially offset by:
|
|
|
|
(c)
|
approximately $66,000 in rental revenues as the result of an
early lease termination in the first quarter of fiscal
2009; and
|
|
|
|
|
(d)
|
approximately $90,000 from the receipt of promissory notes in
exchange for the termination of a lease guarantee in the fourth
quarter of fiscal 2009.
|
20
COST OF
REVENUES
As a percentage of total segment revenues from continuing
operations (see Chart A), the total applicable costs of revenues
(see Chart B) of $10,677,702 in fiscal 2009 and $11,765,302
in fiscal 2008, were 65% and 61%, respectively. In reviewing
Chart B, the reader should recognize that the volume of revenues
generally will affect the amounts and percentages presented.
The figures in Chart B are net of intersegment eliminations.
CHART
B
COST OF REVENUES FROM CONTINUING OPERATIONS
SUMMARY BY SEGMENT
(Dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
|
Segment Revenues
|
|
|
|
Years Ended
|
|
|
for the Years Ended
|
|
|
|
April 30,
|
|
|
April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
BPE(1)
|
|
$
|
8,562
|
|
|
$
|
9,540
|
|
|
|
65
|
|
|
|
67
|
|
Real Estate(2)
|
|
|
2,116
|
|
|
|
2,225
|
|
|
|
65
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,678
|
|
|
$
|
11,765
|
|
|
|
65
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES TO CHART B
|
|
|
(1) |
|
BPE Segment cost of revenues decreased by approximately
$978,000, or 10%, in fiscal 2009 compared to fiscal 2008,
primarily due to the corresponding decrease in revenues (see
Chart A). |
|
|
|
On a
percentage-of-revenues
basis, BPE Segment cost of revenues decreased by approximately
2% in fiscal 2009 compared to fiscal 2008, primarily due to a
change in the mix of services and products. |
|
(2) |
|
Real Estate Segment cost of revenues decreased by approximately
$109,000, or 5%, in fiscal 2009 compared to fiscal 2008,
primarily due to the absence of approximately $94,000 in sales
costs that were included in the prior year as a result of the
sale of the Companys leasehold interest in a shopping
center located in Jacksonville, Florida, in July 2007. |
|
|
|
On a
percentage-of-revenues
basis, Real Estate Segment cost of revenues increased by
approximately 21% in fiscal 2009 compared to fiscal 2008,
primarily due to the inclusion of revenues of approximately
$1,553,000 in the prior year that were generated by the sale of
the Companys leasehold interest in a shopping center
located in Jacksonville, Florida, in July 2007; the costs of the
sale included in the prior year were approximately $94,000. |
SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES
As a percentage of total segment revenues from continuing
operations (see Chart A), the total applicable selling, general
and administrative expenses (SG&A) (see Chart
C), net of intersegment eliminations, of $9,904,430 in fiscal
2009 and $9,137,012 in fiscal 2008, were 60% and 47%,
respectively. In reviewing Chart C, the reader should recognize
that the volume of revenues generally will affect the amounts
and percentages presented. The percentages in Chart C are based
upon expenses as they relate to segment revenues from continuing
operations (Chart A), with the exception that Parent and total
expenses relate to total consolidated revenues from continuing
operations.
The figures in Chart C are net of intersegment eliminations.
21
CHART
C
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES FROM CONTINUING
OPERATIONS
SUMMARY BY SEGMENT
(Dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
Years Ended
|
|
|
Segment Revenues
|
|
|
|
April 30,
|
|
|
for the Years Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
BPE(1)
|
|
$
|
5,718
|
|
|
$
|
5,068
|
|
|
|
43
|
|
|
|
36
|
|
Real Estate(2)
|
|
|
694
|
|
|
|
797
|
|
|
|
21
|
|
|
|
16
|
|
Parent(3)
|
|
|
3,493
|
|
|
|
3,272
|
|
|
|
21
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,905
|
|
|
$
|
9,137
|
|
|
|
60
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES TO CHART C
|
|
|
(1) |
|
BPE Segment SG&A expenses increased by approximately
$650,000, or 13%, in fiscal 2009 compared to fiscal 2008,
primarily due to: |
|
|
|
|
(a)
|
the additional operating costs of approximately $1,060,000
associated with the Companys new lighting distribution
business, which was acquired during the first quarter of fiscal
2009;
|
partially offset by:
|
|
|
|
(b)
|
a decrease in sales and marketing expenses of approximately
$204,000; and
|
|
|
|
|
(c)
|
a decrease of approximately $218,000 due to reduced personnel
costs, consulting costs, and other cost-savings measures.
|
|
|
|
|
|
On a
percentage-of-revenues
basis, BPE Segment SG&A expenses increased by approximately
7% in fiscal 2009 compared to fiscal 2008, primarily due to the
decrease in revenues without a corresponding proportional
decrease in expenses (see Chart A). |
|
(2) |
|
Real Estate Segment SG&A expenses decreased by
approximately $103,000, or 13%, in fiscal 2009 compared to
fiscal 2008, primarily due to decreases in insurance, legal, and
personnel costs. |
|
|
|
On a
percentage-of-revenue
basis, Real Estate Segment SG&A expenses increased by
approximately 5% in fiscal 2009 compared to fiscal 2008,
primarily due to the inclusion of revenues of approximately
$1,553,000 in the prior year that were generated by the sale of
the Companys leasehold interest in a shopping center
located in Jacksonville, Florida, in July 2007. |
|
(3) |
|
Parent SG&A expenses increased by approximately $221,000,
or 7%, in fiscal 2009 compared to fiscal 2008, primarily due to: |
|
|
|
|
(a)
|
an increase in legal fees of approximately $212,000 that were
incurred to settle an insurance claim, as well as increased SEC
compliance costs;
|
|
|
|
|
(b)
|
an increase in personnel-related expenses of approximately
$167,000;
|
|
|
|
|
(c)
|
an increase in accounting and other non-legal compliance costs
of approximately $149,000; and
|
|
|
|
|
(d)
|
an increase in stock compensation expense of approximately
$73,000;
|
partially offset by:
|
|
|
|
(e)
|
a decrease of approximately $494,000 in incentive compensation
expenses, as there were no incentive compensation expenses in
fiscal 2009.
|
On a
percentage-of-revenues
basis, Parent SG&A expenses increased by approximately 4%
in fiscal 2009 compared to fiscal 2008, primarily due to the
decrease in revenues without a corresponding decrease in
expenses (see Chart A).
22
(LOSS)
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES
Consolidated loss from continuing operations before income taxes
was $7,154,985 in fiscal 2009 compared to $1,959,925 in fiscal
2008, an increase of $5,195,060.
The figures in Chart D are net of intersegment eliminations.
CHART
D
(LOSS) EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES
SUMMARY BY SEGMENT
(Dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Increase
|
|
|
|
April 30,
|
|
|
(Decrease)
|
|
|
|
2009
|
|
|
2008
|
|
|
Amount
|
|
|
BPE(1)
|
|
$
|
(1,126
|
)
|
|
$
|
(402
|
)
|
|
$
|
(724
|
)
|
Real Estate(2)
|
|
$
|
(2,835
|
)
|
|
|
1,673
|
|
|
|
(4,508
|
)
|
Parent(3)
|
|
|
(3,194
|
)
|
|
|
(3,231
|
)
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(7,155
|
)
|
|
$
|
(1,960
|
)
|
|
$
|
(5,195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES TO CHART D
|
|
|
(1) |
|
BPE Segment loss before income taxes increased by approximately
$724,000 for fiscal 2009 compared to the same period in fiscal
2008, primarily due to: |
|
|
|
|
(a)
|
a decrease in revenues of approximately $1,057,000 (see Chart
A), primarily due to delays in the receipt of customer orders
for certain energy savings projects in the first half of fiscal
2009. Such orders have been received and have contributed to the
BPE backlog at April 30, 2009, that is 38% higher than the
BPE backlog balance at April 30, 2008;
|
|
|
|
|
(b)
|
a corresponding decrease in cost of revenues of approximately
$978,000; and
|
|
|
|
|
(c)
|
an increase in SG&A expenses of approximately $650,000,
primarily due to the additional costs associated with the
Companys new lighting distribution business which was
acquired during the first quarter of this fiscal year, offset by
reductions in sales and marketing and general and administrative
expenses.
|
|
|
|
(2) |
|
Real Estate Segment loss before income taxes of approximately
$2,835,000 for fiscal 2009 represents an earnings decline of
approximately $4,508,000 compared to the same period in fiscal
2008, primarily due to: |
|
|
|
|
(a)
|
a decrease in revenues of approximately $1,834,000 (see Chart
A), primarily due to the absence of revenues of approximately
$1,553,000 generated in the prior year by the sale of a
leasehold interest, as well as a net decrease in rental revenues
of approximately $377,000 from the Companys owned
headquarters building in Atlanta, Georgia, primarily due to the
expiration of a third party anchor tenant lease in January
2008; and
|
|
|
|
|
(b)
|
an impairment loss of approximately $2,159,000 on the
Companys owned office building located in Newnan, Georgia.
For further information, see ITEM 2:
PROPERTIES Owned Office Buildings and
Note 7 to the consolidated financial statements.
|
|
|
|
(3) |
|
Parent loss before income taxes decreased by approximately
$37,000 for fiscal 2009 compared to the same period in fiscal
2008, primarily due to: |
|
|
|
|
(a)
|
the settlement of an insurance claim in the amount of $285,000;
|
partially offset by:
|
|
|
|
(b)
|
an increase in SG&A expenses of approximately $221,000.
|
23
INCOME
TAX BENEFIT
The Companys effective rate for income taxes, based upon
estimated annual income tax rates, approximated 35.9% of loss
from continuing operations before income taxes in fiscal 2009
and 40.8% in fiscal 2008.
INTEREST
COSTS
Interest costs of $1,300,295 and $1,371,171 in fiscal years 2009
and 2008, respectively, are primarily related to mortgages on
the Companys income-producing properties. There was no
capitalized interest in any of the years presented.
ACQUISITIONS
Fiscal
2009
On June 6, 2008, Atlantic Lighting & Supply Co.,
LLC (AL&S LLC), an indirect wholly-owned
subsidiary of the Company, acquired the business and
substantially all of the assets and assumed certain operating
liabilities of Atlantic Lighting & Supply Co., Inc.
(the Seller) for a total consideration, including
the assumption of certain operating liabilities, of
approximately $1.5 million (excluding acquisition costs).
The Seller was engaged in the business of distributing energy
efficient lighting products to owners and operators of
commercial buildings, and the Company is continuing to conduct
this business. The acquisition was made pursuant to an asset
purchase agreement dated June 6, 2008, between the Company,
AL&S LLC, the Seller, and the shareholders of the Seller
(the Agreement). The consideration consisted of
17,381 newly-issued shares of the Companys common stock,
with a fair value of $91,250, the payment of approximately
$618,000 in cash to the Seller, the payment of approximately
$165,000 in cash to satisfy outstanding debt to two
(2) lenders of the Seller, and the assumption of certain
operating liabilities of the Seller that totaled approximately
$584,000. The amounts and types of the consideration were
determined through negotiations among the parties.
Fiscal
2008
There were no acquisitions in fiscal 2008.
GAINS ON
SALE OF REAL ESTATE HELD FOR SALE OR FUTURE
DEVELOPMENT
Fiscal
2009
There were no dispositions in fiscal 2009.
Fiscal
2008
On March 28, 2008, the City of Oakwood, Georgia, acquired
in lieu of formal condemnation approximately 1.8 acres of
the Companys undeveloped land located in Oakwood, Georgia,
for a price of $860,000, which resulted in a pre-tax gain on the
transaction of approximately $581,000. For income tax purposes,
the Company treated this transaction as an involuntary
conversion under Section 1033 of the Internal Revenue Code,
which allows for tax deferral of the gain if the Company
acquires a qualified replacement property by no later than
April 30, 2011. The Company currently intends to use the
net proceeds from this transaction to acquire a qualified
replacement property. There can be no assurance, however, that
the Company will complete such acquisition.
DISCONTINUED
OPERATIONS
Fiscal
2009
There were no discontinued operations in fiscal 2009.
Fiscal
2008
On July 31, 2007, the Company sold: (1) its leasehold
interest in a shopping center located in Jacksonville, Florida;
(2) its leasehold interest in the land and its owned
shopping center building located in Columbus, Georgia; and
24
(3) its owned shopping center located in Orange Park,
Florida; for a total combined sales price of $6.8 million,
resulting in a pre-tax gain of approximately $3.8 million.
After selling expenses, the sales generated net cash proceeds of
approximately $6.4 million. In addition, the Company
purchased its minority partners interests in the Columbus,
Georgia, land and owned shopping center building by utilizing
two (2) notes payable totaling $400,000. Both notes were
paid off as of July 31, 2008. The Companys federal
tax liability on the gains related to the sales was
approximately $1.5 million, which was offset by the
Companys net operating loss carry-forwards for tax
purposes. In accordance with SFAS 144, the sale of the
leasehold interest in the shopping center in located
Jacksonville, Florida, is recorded in Real Estate revenues on
the accompanying consolidated statement of operations, and the
sales of its leasehold interest in the land and the owned
shopping center building located in Columbus, Georgia, and the
owned shopping center located in Orange Park, Florida, are
recorded in discontinued operations in the accompanying
consolidated statement of operations for the fiscal year ended
April 30, 2008.
On December 13, 2007, the Company sold its owned office
park located in Marietta, Georgia, for a price of
$10.3 million, resulting in a pre-tax gain on the sale of
approximately $2.085 million. After selling expenses and
repayment of the mortgage loan and associated costs, the sale
generated cash proceeds of approximately $3.4 million. The
Company intended to use the net proceeds from this sale to
acquire an income-producing property, which would have qualified
the sale under Internal Revenue Code Section 1031 for
federal income tax deferral (1031 deferral), and
therefore placed the proceeds with a qualified third party
intermediary in connection therewith. However, the Company did
not complete such acquisition, and therefore the proceeds were
released from the intermediary to the Company on June 11,
2008. Because the Company did not complete the 1031 deferral, a
taxable gain of approximately $1.8 million was recognized
in the quarter ended July 31, 2008, which resulted in the
deferred tax liability related to the previously deferred gain
becoming a current tax liability. This federal tax liability
will be offset by the Companys net operating loss
carry-forwards for tax purposes.
LIQUIDITY
AND CAPITAL RESOURCES
Between April 30, 2008, and April 30, 2009, working
capital decreased by approximately $6,738,598, or approximately
49%. Between April 30, 2008, and April 30, 2009, cash
and restricted cash decreased by $7,032,521, or approximately
59%. This includes $1,623,000 used for the acquisition and
initial capitalization of the Companys lighting
distribution business, which was acquired on June 6, 2008.
The Companys operations used substantial amounts of cash
during the first two (2) quarters of fiscal 2009, but the
level of cash usage moderated in the third and fourth quarters
of fiscal 2009.
The following describes the changes in the Companys cash
and restricted cash from April 30, 2008, to April 30,
2009:
Operating activities used cash of approximately $3,886,000,
primarily as a result of:
|
|
|
|
(a)
|
losses in fiscal 2009 from continuing operations before
depreciation, amortization, income taxes and impairment loss on
income-producing property of approximately $3,371,000;
|
|
|
|
|
(b)
|
cash payments of approximately $494,000 for incentive
compensation expenses accrued in the prior fiscal year, but paid
in fiscal 2009 as a result of the successful achievement of
certain Company earnings and performance goals in the prior year;
|
|
|
|
|
(c)
|
an increase in other current assets of approximately $348,000,
due primarily to an increase in inventories and prepaid software
consulting expenses; and
|
|
|
|
|
(d)
|
a net decrease in trade accounts payable, accrued expenses, and
other liabilities of approximately $65,000, due to the timing
and submission of payments;
|
partially offset by:
|
|
|
|
(e)
|
a decrease in net accounts receivable of $595,000, primarily as
a result of the timing of billing and receipt of payments.
|
25
Investing activities used cash of approximately $1,910,000, net
of cash provided from the release of approximately $3,504,000 of
restricted cash previously held in escrow (see Note 17 to
the consolidated financial statements) primarily as a result of:
|
|
|
|
(a)
|
approximately $903,000 used for the acquisition of the
Companys lighting distribution business in the first
quarter of fiscal 2009;
|
|
|
|
|
(b)
|
approximately $358,000 used for additions to intangible assets,
primarily related to the development of enhancements to
BPEs proprietary building productivity software solutions;
|
|
|
|
|
(c)
|
approximately $193,000 used for additions to income-producing
properties, primarily related to tenant and building
improvements;
|
|
|
|
|
(d)
|
$150,000 used for the purchase of a
held-to-maturity
investment related to a scheduled increase in restricted cash as
required by a provision of a real estate mortgage loan agreement;
|
|
|
|
|
(e)
|
approximately $166,000 used for additions to property and
equipment; and
|
|
|
|
|
(f)
|
approximately $140,000 received from a real estate tenant and
temporarily placed in escrow, related to a lease modification
and assignment agreement.
|
Financing activities used cash of approximately $1,270,000
primarily for:
|
|
|
|
(a)
|
payment of the regular quarterly cash dividends to shareholders
of approximately $501,000;
|
|
|
|
|
(b)
|
scheduled principal payments on real estate mortgage notes of
approximately $352,000;
|
|
|
|
|
(c)
|
scheduled principal payments on other long-term debt of
approximately $281,000; and
|
|
|
|
|
(d)
|
repurchases of the Companys common stock of approximately
$136,000.
|
In June 2008, the Company acquired the operating business and
substantially all of the assets and assumed certain liabilities
of Atlantic Lighting and Supply Company, Inc., for a purchase
price of approximately $1.5 million. The consideration
consisted of 17,381 newly-issued shares of the Companys
common stock, with a fair value of $91,250, the payment of
approximately $618,000 in cash to the Seller, the payment of
approximately $165,000 in cash to satisfy outstanding debt to
two (2) lenders of the Seller, and the assumption of
certain operating liabilities of the Seller that totaled
approximately $584,000. The amounts and types of the
consideration were determined through negotiations among the
parties.
While the Companys operations used substantial amounts of
cash during the first two (2) quarters of fiscal 2009, the
level of cash usage moderated in the third and fourth quarters,
only consuming approximately $673,000 compared to approximately
$3,235,000 consumed in the first half of fiscal 2009. The
Companys primary source of cash for future operations is
expected to be its current cash reserves and additional cash
generated from BPE Segment operations and real estate held for
investment.
The moderation of cash usage, together with the substantial
increase in BPE Segment orders in the second half of fiscal 2009
that are expected to contribute to revenues in fiscal 2010,
cause management to believe that the Company will be able to
generate positive cash flow from BPE Segment operations within
the next twelve (12) months. As a result, the Company
believes that currently available cash and cash generated from
operations will be sufficient to meet working capital
requirements and anticipated capital expenditures for the
foreseeable future. However, this will depend substantially upon
future operating performance (which may be affected by
prevailing economic conditions) and financial, business and
other factors, some of which are beyond the Companys
control.
The Company has historically generated substantial liquidity
from the sale of real estate assets. As a result, the current
real estate portfolio consists of a limited number of
properties. Given the recent decline in commercial real estate
values in the United States, the Company may elect not to sell
or be unable to sell any of its real estate assets in the near
future. The Company in recent years has not utilized bank lines
of credit for operating purposes and does not currently have in
place any such line of credit. The Company does have the ability
to receive approximately $1,000,000 in loans against its
interest in the cash surrender value of certain life insurance
policies.
26
The Company has no material commitments for capital
expenditures; however, the Company does expect that capital
spending in fiscal year 2010 will approximate $500,000, with BPE
Segment capital expenditures approximating $350,000, and the
remainder of capital to be spent for replacement of computer
hardware and Company vehicles. Other significant uses of cash
are anticipated to be scheduled mortgage repayments of the
Companys debt obligations and cash requirements of
corporate headquarters. The Companys uses of cash are not
expected to change materially in the near future, with the
exception of discretionary Real Estate capital expenditures,
which may be necessary if significant tenant improvements are
required for new tenant lease build-outs. Such expenditures
would be recovered during the lease terms by the additional
rental income.
In the event that currently available cash and cash generated
from operations were not sufficient to meet future cash
requirements, the Company would need to receive loans against
life insurance policies, sell real estate assets, seek external
debt financing or refinancing of existing debt, seek to raise
funds through the issuance of equity securities, or limit growth
or curtail operations to levels consistent with the constraints
imposed by available cash and cash flow, or any combination of
these options. The Companys ability to secure debt or
equity financing or to sell real estate assets could be limited
by economic and financial conditions at any time, but likely
would be severely limited by credit and real estate market
conditions similar to those that have existed in recent fiscal
quarters. Management cannot provide assurance that any
reductions in planned expenditures or in operations would be
sufficient to cover potential future shortfalls in available
cash, or that debt or equity financing or real estate asset
sales would be available on terms acceptable to the Company, if
at all.
Mortgage
Notes
The Company has four (4) mortgage notes on long-term real
estate assets and two (2) other long-term debt obligations.
The long-term debt obligations have no financial or
non-financial covenants. The Companys mortgage notes do
not contain any financial covenants, with the exception of a
guarantee on one (1) of its real estate mortgage loans that
requires a Company subsidiary to maintain a net worth of at
least $4 million. The subsidiarys net worth was
approximately $17 million as of April 30, 2009.
Secured
Letter of Credit
In conjunction with terms of the mortgage on an owned office
building, the Company is required to provide for potential
future tenant improvement costs and lease commissions with
additional collateral, in the form of a letter of credit in the
amount of $300,000 from July 17, 2005, through
July 16, 2008, and $450,000 from July 17, 2008,
through August 1, 2012. The letter of credit is secured by
a certificate of deposit, which is recorded on the accompanying
balance sheet as a non-current other asset as of April 30,
2009, and April 30, 2008.
Repurchases
of Common Stock
In March 2007, the Companys Board of Directors authorized
the repurchase of up to 50,000 shares of the Companys
common stock during the twelve-month period ending on
March 8, 2008. In March 2008, the Companys Board of
Directors authorized the repurchase of up to 50,000 shares
of the Companys common stock during the twelve-month
period ending on March 5, 2009. On December 3, 2008,
the Board of Directors increased the authorization to repurchase
the Companys common stock to 100,000 shares during
the twelve-month period ending on March 5, 2009. On
February 26, 2009, the Board of Directors authorized the
repurchase of up to 100,000 shares of the Companys
common stock during the twelve-month period ending on
March 5, 2010. The Company repurchased 48,890 shares
of its common stock in fiscal 2009 for a total cost of
approximately $136,000. There were no shares repurchased by the
Company in fiscal 2008.
27
CONTRACTUAL
OBLIGATIONS
A summary of the Companys contractual obligations at
April 30, 2009, is as follows:
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Payment Due by Period
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Less than
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More than
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Contractual Obligations
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Total
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1 Year
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1 - 3 Years
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3 - 5 Years
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|
|
5 Years
|
|
|
Mortgage notes payable(1)
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$
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18,602,498
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|
$
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381,858
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|
|
$
|
849,421
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|
|
$
|
4,654,661
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$
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12,716,558
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Interest on mortgage notes payable(2)
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9,576,156
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1,202,059
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2,324,331
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1,685,238
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4,364,528
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28,178,654
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1,583,917
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3,173,752
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|
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6,339,899
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|
|
|
17,081,086
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Operating leases(3)
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376,977
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105,203
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210,406
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61,368
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|
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|
Other long-term debt
|
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1,185,000
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|
|
185,000
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|
1,000,000
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|
|
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|
|
Interest on other long-term debt(4)
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289,407
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120,769
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168,638
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1,474,407
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|
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305,769
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1,168,638
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Total
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$
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30,030,038
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$
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1,994,889
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$
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4,552,796
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|
$
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6,401,267
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$
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17,081,086
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(1) |
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Regularly scheduled principal amortization and final payments
due upon maturity. On one of the mortgage notes, the lender has
an option to call the note for early repayment any time after
July 1, 2011, upon thirteen (13) months prior written
notice. The balance of this mortgage note payable was
approximately $7,060,000 as of April 30, 2009. The
information presented here assumes the call option will not be
exercised. |
(2) |
|
In computing interest expense, the Company used the applicable
contractual rate. All of the mortgage notes payable are fixed
rate debt instruments. The Companys liability for
repayment of each of these mortgages is limited by exculpatory
provisions to its interest in the respective mortgaged
properties. |
(3) |
|
Future minimum rental payments on the leaseback shopping center.
The Companys liability for payment under this lease is
limited to its interest in the leaseback. |
(4) |
|
In computing interest expense related to variable rate debt, a
coupon rate of 4.75% (prime rate at April 30, 2009, plus
1.5%) was assumed for all periods, and for fixed rate debt, the
applicable contractual rate was used for all periods. |
EFFECTS
OF INFLATION ON REVENUES AND OPERATING PROFITS
The effects of inflation upon the Companys operating
results are varied. Inflation in recent years has been modest
and has had minimal effect on the Company.
The BPE Segment generally has contracts that are renewed on an
annual basis. At the time of renewal, contract fees may be
increased by either the consumer price index, as stated in the
contract, or by customer approval. As inflation affects the
Companys costs, primarily personnel, the Company could
seek a price increase for its contracts in order to protect its
profit margin. Also, the BPE Segment typically engages in
contracts of short duration with fixed prices, which typically
would minimize any erosion of its profit margin due to inflation.
In the Real Estate Segment, several of the shopping center
anchor tenant leases are long-term (original terms of 20 or more
years), with fixed rents, and some of these leases have
contingent rent provisions by which the Company may earn
additional rent as a result of increases in tenants store
sales in excess of specified predetermined targets. With respect
to the leaseback shopping center, however, the contingent rent
provisions permit the tenant to offset against contingent rents
any portion of the tenants share of ad valorem taxes that
is above a specified predetermined amount. If inflation were to
rise, the tenants store sales could increase, potentially
generating contingent rent, but ad valorem taxes could increase
as well, which, in turn, could reduce or eliminate any
contingent rents. Furthermore, the Company has certain repair
and maintenance obligations at its income-producing properties,
and the costs of repairs and maintenance generally increase with
inflation.
28
CRITICAL
ACCOUNTING POLICIES
A critical accounting policy is one that is both important to
the portrayal of the Companys financial position and
results of operations, and requires the Company to make
estimates and assumptions in certain circumstances that affect
amounts reported in the accompanying consolidated financial
statements and related notes. In preparing these financial
statements, the Company has made its best estimates and used its
best judgments regarding certain amounts included in the
financial statements, giving due consideration to materiality.
The application of these accounting policies involves the
exercise of judgment and the use of assumptions regarding future
uncertainties, and as a result, actual results could differ from
those estimates. Management believes that the Companys
most critical accounting policies include:
Revenue
Recognition
Revenues derived from implementation, training, support, and
base service license fees from customers accessing the
Companys proprietary building productivity software on an
application service provider (ASP) basis are recognized in
accordance with the provisions of SEC Staff Accounting
Bulletin 104, Revenue Recognition
(SAB 104). For these sources of revenues,
the Company recognizes revenue when all of the following
conditions are met: there is persuasive evidence of an
arrangement; service has been provided to the customer; the
collection of fees is probable; and the amount of fees to be
paid by the customer is fixed and determinable. The
Companys license arrangements do not include general
rights of return. Revenues are recognized ratably over the
contract period, which is typically no longer than twelve
(12) months, beginning on the commencement date of each
contract. Amounts that have been invoiced are recorded in
accounts receivable and in revenue or deferred revenue,
depending on the timing of when the revenue recognition criteria
have been met. Additionally, the Company defers such direct
costs and amortizes them over the same time period as the
revenue is recognized.
Energy management services are accounted for separately and are
recognized as the services are rendered in accordance with
SAB 104. Revenues derived from sales of proprietary
building productivity software solutions (other than ASP
solutions) and hardware products are recognized when the
software solutions and products are sold.
Energy savings project revenues are reported on the
percentage-of-completion
method, using costs incurred to date in relation to estimated
total costs of the contracts to measure the stage of completion.
Original contract prices are adjusted for change orders in the
amounts that are reasonably estimated and in accordance with
Statement of Position
81-1,
Accounting for Performance of Construction-Type and Certain
Production-Type Contracts
(SOP 81-1).
The nature of the change orders usually involves a change in the
scope of the project, for example, a change in the number or
type of units being installed. The price of change orders is
based on the specific materials, labor, and other project costs
affected. In accordance with
SOP 81-1,
paragraph 61, contract revenue and costs are adjusted to
reflect change orders when they are approved by both the Company
and its customer for both scope and price. For a change order
that is unpriced; that is, the scope of the work to be performed
is defined, but the adjustment to the contract price is to be
negotiated later, the Company evaluates the particular
circumstances of that specific instance in determining whether
to adjust the contract revenue
and/or costs
related to the change order. For unpriced change orders, the
Company will record revenue in excess of costs related to a
change order on a contract only when the Company deems that the
adjustment to the contract price is probable based on its
historical experience with that customer in accordance with
SOP 81-1,
paragraph 62. The cumulative effects of changes in
estimated total contract costs and revenues (change orders) are
recorded in the period in which the facts requiring such
revisions become known, and are accounted for using the
percentage-of-completion
method. At the time it is determined that a contract is expected
to result in a loss, the entire estimated loss is recorded.
Energy efficient lighting product revenues are recognized when
the products are shipped.
The Company leases space in its income-producing properties to
tenants, and recognizes minimum base rentals as revenue on a
straight-line basis over the lease terms. The lease term usually
begins when the tenant takes possession of, or controls the
physical use of, the leased asset. Generally, this occurs on the
lease commencement date. In determining what constitutes a
leased asset, the Company evaluates whether the Company or the
tenant is the owner of the improvements. If the Company is the
owner of the improvements, then the leased asset is the finished
space. In such instances, revenue recognition begins when the
tenant takes possession of the finished space, typically when
the improvements are substantially complete. If the Company
determines that the improvements belong to the
29
tenant, then the leased asset is the unimproved space, and any
improvement allowances funded by the Company pursuant to the
terms of the lease are treated as lease incentives that reduce
the revenue recognized over the term of the lease. In these
circumstances, the Company begins revenue recognition when the
tenant takes possession of the unimproved space. The Company
considers a number of different factors in order to determine
who owns the improvements. These factors include:
(1) whether the lease stipulates the terms and conditions
of how an improvement allowance may be spent; (2) whether
the tenant or the Company retains legal title to the
improvements; (3) the uniqueness of the improvements;
(4) the expected economic life of the improvements relative
to the length of the lease; and (5) who constructs or
directs the construction of the improvements. The determination
of who owns the improvements is subject to significant judgment.
In making the determination, the Company considers all of the
above factors; however, no one factor is determinative in
reaching a conclusion. Certain leases may also require tenants
to pay additional rental amounts as partial reimbursements for
their shares of property operating and common area expenses,
real estate taxes, and insurance costs, which additional rental
amounts are recognized only when earned. In addition, certain
retail leases require tenants to pay incremental rental amounts,
which are contingent upon their stores sales. These
percentage rents are recognized only if and when earned and are
not recognized on a straight-line basis.
Revenues from the sales of real estate assets are recognized
when all of the following has occurred: (1) the property is
transferred from the Company to the buyer; (2) the
buyers initial and continuing investment is adequate to
demonstrate a commitment to pay for the property; and
(3) the buyer has assumed all future ownership risks of the
property. Costs of sales related to sales of real estate assets
are based on the specific property sold. If a portion or unit of
a property is sold, a proportionate share of the total cost of
the property is charged to cost of sales.
Long-Lived
Assets: Income-Producing Properties, Capitalized Software, and
Property and Equipment
Income-producing properties are stated at historical cost or, if
the Company determines that impairment has occurred, at fair
market value, and are depreciated for financial reporting
purposes using the straight-line method over the respective
estimated useful lives of the assets. Significant additions that
extend asset lives are capitalized and are depreciated over
their respective estimated useful lives. Normal maintenance and
repair costs are expensed as incurred. Interest and other
carrying costs related to real estate assets under active
development are capitalized. Other costs of development and
construction of real estate assets are also capitalized.
Capitalization of interest and other carrying costs is
discontinued when a development project is substantially
completed or if active development ceases.
Property and equipment are recorded at historical cost and are
depreciated for financial reporting purposes using the
straight-line method over the estimated useful lives of the
respective assets.
The Companys most significant long-lived assets are
income-producing properties held in its Real Estate Segment. The
Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Such review takes
place on a quarterly basis. The types of events and
circumstances that might indicate impairment in the Real Estate
Segment include, but are not limited to, those items listed in
SFAS 144, paragraph 8, as well as other real estate
specific factors as follows:
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A significant decrease in the market price of a long-lived asset;
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|
A significant adverse change in the extent or manner in which a
long-lived asset is being used or in its physical condition;
|
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|
A significant adverse change in legal factors or in the business
climate that could affect the value of a long-lived asset,
including an adverse action or assessment by a regulator;
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|
An accumulation of costs significantly in excess of the amount
originally expected for the acquisition or construction of a
long-lived asset;
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|
A current-period operating or cash flow loss combined with a
history of operating or cash flow losses or a projection or
forecast that demonstrates continuing losses associated with the
use of a long-lived asset;
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|
A current expectation that, more likely than not, a long-lived
asset will be sold or otherwise disposed of significantly before
the end of its previously estimated useful life;
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30
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|
The Company has recently sold similar income-producing
properties at losses;
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|
The Company has received purchase offers at prices below
carrying value;
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|
Income-producing properties that have significant vacancy rates
or significant rollover exposure from one or more tenants;
|
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|
A major tenant experiencing financial difficulties that may
jeopardize the tenants ability to meet its lease
obligations;
|
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|
Depressed market conditions;
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|
Presence of a new competitive property constructed in the
assets market area; and
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|
Evidence of significant corrective measures required to cure
structural problems, physical obsolescence, or deterioration of
essential building components.
|
In accordance with paragraph 4 of SFAS 144, the
Company has determined that the lowest level of identifiable
cash flows for long-lived assets in its Real Estate Segment is
at each of the individual income-producing properties. Each of
these income producing properties operates independent of one
another and financial information for these properties is
recorded on an individual property basis. When there are
indicators of impairment, the recoverability of long-lived
assets is measured by a comparison of the carrying amount of the
asset against the future net undiscounted cash flows expected to
be generated by the asset. The Company estimates future
undiscounted cash flows of the Real Estate Segment using
assumptions regarding occupancy, counter-party creditworthiness,
costs of leasing including tenant improvements and leasing
commissions, rental rates and expenses of the property, as well
as the expected holding period and cash to be received from
disposition. The Company has considered all of these factors in
its undiscounted cash flows.
During the fourth quarter of fiscal 2009, the anchor tenant of
the Companys owned office building in Newnan, Georgia,
defaulted on its lease obligations and subsequently vacated the
leased space. Given this event, the Company revised the
estimated future undiscounted cash flows expected to be
generated by the property and determined that the carrying
amount of the related long-lived assets was not recoverable.
Accordingly, the Company performed a fair value analysis of the
property, determined that its fair market value was less than
its current book value, and therefore recorded an impairment
loss of approximately $2,007,000 in the fourth quarter of fiscal
2009. The estimated fair value of the Newnan office building was
approximately $1,761,000. This determination was based on a
number of factors, including a discounted cash flow analysis,
quoted prices for similar assets, and managements
judgment. For further information, see ITEM 2:
PROPERTIES Owned Office Buildings and
Note 7 to the consolidated financial statements.
The BPE Segment has long-lived assets that consist primarily of
capitalized software costs, classified as intangible assets, net
on the balance sheet, as well as a portion of the property and
equipment on the balance sheet. Software development costs are
accounted for in accordance with Emerging Issues Task Force
(EITF)
00-3 that
sets forth the accounting of software in a Web hosting
arrangement. As such, the Company follows the guidance set forth
in Statement of Position (SOP)
98-1,
Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use, in accounting for the development
of its on-demand application services.
SOP 98-1
requires that software development costs that are incurred in a
preliminary project stage should be expensed as incurred. Costs
that are incurred during the application development stage are
capitalized and reported at the lower of unamortized cost or net
realizable value. Capitalization ceases when the computer
software development project, including testing of the computer
software, is substantially complete and the software product is
ready for its intended use. Capitalized costs are amortized on a
straight-line basis over the estimated economic life of the
product.
Events or circumstances which would trigger an impairment
analysis of these long-lived assets include:
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A change in the estimated remaining useful life of the asset;
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|
A change in the manner in which the asset is used in the income
generating business of the Company; or
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A current-period operating or cash flow loss combined with a
history of operating or cash flow losses, or a projection or
forecast that demonstrates continuing losses associated with the
use of a long-lived asset.
|
31
Long-lived assets in the BPE Segment are grouped together for
purposes of impairment, as assets and liabilities of the BPE
Segment are not independent of one another. Annually at the end
of the fiscal third quarter, unless events or circumstances
occur in the interim as discussed above, the Company reviews its
BPE Segments long-lived assets for impairment. Future
undiscounted cash flows of the segment, as measured in its
goodwill impairment analysis, are used to determine whether
impairment of long-lived assets exists in the BPE segment.
Valuation
of Goodwill and Other Indefinite-Lived Intangible
Assets
Goodwill and intangible assets with indefinite lives are
reviewed for impairment annually at the end of the fiscal third
quarter, or whenever events or changes in circumstances indicate
that the carrying basis of an asset may not be recoverable, as
required in accordance with SFAS No. 142, Goodwill
and Other Intangible Assets (SFAS 142). All
of the Companys goodwill and indefinite-lived intangible
assets are assigned to the BPE Segment, which has also been
determined to be the reporting unit.
The Company performed the annual impairment analysis of goodwill
and indefinite-lived intangible assets for the BPE Segment in
the quarter ended January 31, 2009, as required by
SFAS 142. The annual analysis resulted in a determination
of no impairment in fiscal 2009. As of April 30, 2009, the
Company does not believe that any of its goodwill or other
intangible assets are impaired.
The valuation methodologies used to calculate the fair value of
the BPE Segment in fiscal 2009 were the discounted cash flow
method of the income approach and the guideline company method
of the market approach. The Company believes that these two
(2) methodologies are commonly used valuation
methodologies. SFAS 142 discusses both methodologies as
acceptable in determining the fair value of a reporting unit. In
assessing the fair value of the BPE Segment, the Company
believes a market participant would likely consider both the
cash flow generating ability of the reporting unit, as well as,
current market multiples of companies facing similar risks in
the marketplace.
With the income approach, the cash flows anticipated over
several periods, plus a terminal value at the end of that time
horizon, are discounted to their present value using an
appropriate rate of return. Projected cash flows are discounted
to present value using an estimated weighted average cost of
capital, reflecting returns to both equity and debt investors.
The Company believes that this is a relevant and beneficial
method to use in determining fair value because it explicitly
considers the future cash flow generating potential of the
reporting unit.
In the guideline company method of the market approach, the
value of a reporting unit is estimated by comparing the subject
to similar businesses or guideline companies whose
securities are actively traded in public markets. The comparison
is generally based on data regarding each of the companies
stock price and earnings, which is expressed as a fraction known
as a multiple. The premise of this method is that if
the guideline public companies are sufficiently similar to each
other, then their multiples should be similar. The multiples for
the guideline companies are analyzed, adjusted for differences
as compared to the subject company, and then applied to the
applicable business characteristics of the subject company to
arrive at an indication of the fair value. The Company believes
that the inclusion of a market approach analysis in the fair
value calculation is beneficial, as it provides an indication of
value based on external, market-based measures.
In the application of the income approach, financial projections
were developed for use in the discounted cash flow calculations.
Significant assumptions included revenue growth rates, margin
rates, SG&A costs, and working capital and capital
expenditure requirements over a period of ten (10) years.
Revenue growth rate and margin rate assumptions were developed
using historical Company data, current backlog, specific
customer commitments, status of outstanding customer proposals,
and future economic and market conditions expected.
Consideration was then given to the estimated SG&A costs,
working capital, and capital expenditures required to generate
the revenue and margin determined. The other significant
assumption used with the income approach was the assumed rate at
which to discount the cash flows. The rate was determined by
utilizing the weighted average cost of capital method.
In the application of the income approach model, three
(3) separate financial projection scenarios were prepared
using the above assumptions: the first used the expected revenue
growth rates, the second used higher revenue growth rates, and
the third used lower revenue growth rates. The revenue growth
rates ranged from 36.5% in fiscal year 2010 to 3% in the
terminal year. The discount rates used in the scenarios ranged
from 17% for the lower growth
32
scenario to 19% in the higher growth scenario. In each of the
three (3) discounted cash flow models, there was no
indication of goodwill impairment. For the assessment of fair
value of the BPE Segment based on the income approach, the
results of the three (3) scenarios were weighted (60% for
the expected case and 20% each for the other scenarios) to
produce the applicable fair value indication using the income
approach. The weightings reflect the Companys view of the
relative likelihood of each scenario. The revenue growth rates
for the three scenarios were developed using historical Company
data, current backlog, specific customer commitments, status of
outstanding customer proposals, and future economic and market
conditions expected. The Company noted that, all other variables
being held constant, an increase of approximately 11% in the
discount rate applied to each of the three scenarios used in the
income approach would indicate impairment. The Company also
noted that, reducing the revenue growth rate in the expected
case scenario of the income approach by more than 9.5%, while
holding gross margin rates and SG&A costs constant, would
indicate impairment. To simplify the analysis, the Company
excluded the weighting of the market approach result. If the
Company had included the market approach in the revenue growth
sensitivity analysis, the growth rate would have had to decline
by a substantially greater amount to indicate impairment.
In the application of the market approach, the Company
considered valuation multiples derived from four
(4) comparable public companies that were identified as
belonging to a group of industry peers. The applicable financial
multiples of the comparable companies were adjusted for
profitability and size and then applied to the BPE Segment. This
result also indicated that no impairment existed.
The comparable companies selected for the market approach were
similar to the BPE Segment in terms of business description and
markets served. As such, the Company believes a market
participant is likely to consider the market approach in
determining the fair value of the BPE Segment. In addition, the
Company believes a market participant will consider the cash
flow generating capacity of the BPE Segment using an income
approach. Management believes both the market and income
approaches provide meaningful indications of the fair value to
the BPE Segment; therefore, the results of the income approach
and the market approach were equally weighted and compared to
the carrying value of the BPE Segment.
The most significant change in valuation methodology used for
valuing goodwill in fiscal 2009 as compared to prior years was
the addition of the market approach. In prior years, the Company
used a single method to perform the test of goodwill, a
discounted cash flow method under the income approach. In the
current years test as discussed above, both the income
approach and market approach were used.
Income
Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and to tax loss
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to be applied to taxable income
in the years in which those temporary differences are expected
to be recovered or settled. The effect of a change in tax rates
on deferred tax assets and liabilities is recognized in income
in the period that includes the enactment date.
The Company periodically reviews its deferred tax assets
(DTA) to assess whether it is more likely than not
that a tax asset will not be realized. The realization of a DTA
ultimately depends on the existence of sufficient taxable
income. A valuation allowance is established against a DTA if
there is not sufficient evidence that it will be realized. The
Company weighs all available evidence in order to determine
whether it is more-likely-than-not that a DTA will be realized
in a future period. The Company considers general economic
conditions, market and industry conditions, as well as internal
Company specific conditions, trends, management plans, and other
data in making this determination.
Evidence considered is weighted according to the degree that it
can be objectively verified. Reversals of temporary differences
are weighted with more significance than projections of future
earnings of the Company.
Positive evidence considered includes the following: deferred
tax liabilities in excess of DTA, future reversals of temporary
differences, Company historical evidence of not having DTAs
expire prior to utilization, long carryforward period remaining
for net operating loss (NOL) carryforwards, lack of
cumulative taxable loss in recent
33
years, taxable income projections that conclude that NOL
carryforwards will be utilized prior to expiration, and evidence
of appreciated real estate holdings planned to be sold prior to
expiration of the NOL carryforward period.
Negative evidence considered includes the fact that the current
real estate market conditions and lack of readily available
credit could make it difficult for the Company to trigger gains
on sales of real estate.
The valuation allowance currently recorded against the DTA for
state NOL carryforwards was recorded for certain separate return
limitation years. These were years that the separate legal
entities generated tax losses prior to the filing of a
consolidated tax return. In order for these losses to be
utilized in the future, the legal entity which generated the
losses must generate the taxable income to offset it. The
allowance was recorded as management determined that it was not
more-likely-than-not that these losses would be utilized prior
to expiration.
The Company will have to generate $5.9 million of pre-tax
income in future years to realize the federal NOL carryforwards
and an additional $19.9 million of pre-tax book income in
future years to realize the state NOL carryforwards. This amount
of pre-tax book income would allow for the reversal of the
$3.1 million DTA related to NOL carryforwards. There is a
long carryforward period remaining for the NOL carryforwards.
The oldest federal NOL carryforwards will expire in the
April 30, 2024, tax-year and the most recent federal NOL
carryforwards will expire in the April 30, 2027, tax-year.
The significant state NOL carryforwards will also expire between
the April 30, 2024, and April 30, 2027, tax years. The
Company has no material permanent book/tax differences.
The Company has no material FIN 48 obligations. The
Companys policy is to record interest and penalties as a
component of income tax expense (benefit) in the consolidated
statement of operations.
Discontinued
Operations
The Company adopted SFAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, effective in
fiscal 2003, which requires, among other things, that the gains
and losses from the disposition of certain income-producing real
estate assets, and associated liabilities, operating results,
and cash flows be reflected as discontinued operations in the
financial statements for all periods presented. Although net
earnings are not affected, the Company has reclassified results
that were previously included in continuing operations as
discontinued operations for qualifying dispositions under
SFAS 144.
Recent
Accounting Pronouncements
In March 2009, the FASB unanimously voted for the FASB
Accounting Standards Codification (the Codification)
to be effective for interim and annual periods ending after
September 15, 2009. Other than resolving certain minor
inconsistencies in current U.S. GAAP, the Codification is
not meant to change GAAP, but is intended to make it easier to
find and research GAAP applicable to particular transactions or
specific accounting issues. The Codification is a new structure
that organizes existing accounting pronouncements into
approximately 90 accounting topics. Once approved, the
Codification will be the single source of authoritative
U.S. GAAP. All guidance included in the Codification will
be considered authoritative at that time, even guidance that
comes from what is currently deemed to be a non-authoritative
section of a standard. Once the Codification becomes effective,
all
non-grandfathered,
non-SEC accounting literature not included in the Codification
will become non-authoritative. The Company plans to adopt the
Codification in the second quarter of fiscal 2010.
In May 2008, the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles
(SFAS 162). This statement identifies the
sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial
statements of nongovernmental entities that are presented in
conformity with generally accepted accounting principles
(GAAP) in the United States. SFAS 162 became
effective in the fourth quarter of fiscal 2009. The Company has
determined that the adoption of SFAS 162 did not result in
a change in any of the Companys current accounting
practices and, thus, did not have an impact on the determination
or reporting of the Companys financial results.
In May 2009, the FASB issued SFAS No. 165,
Subsequent Events (SFAS 165). This
statement does not materially change existing guidance. Rather,
SFAS 165 introduces the concept of financial statements
being available to be issued. It requires the disclosure of the
date through which an entity has evaluated subsequent events and
the basis for that date, that is, whether that date represents
the date the financial statements were issued or were available
to be
34
issued. This disclosure will alert users of financial statements
that an entity has not evaluated subsequent events after the
date stated in the financial statements and related footnotes
being presented. SFAS 165 will be effective for all interim
and annual periods ending after June 15, 2009. The Company
plans to adopt SFAS 165 in the first quarter of fiscal 2010.
In April 2009, the Financial Accounting Standards Board
(FASB) issued FASB Staff Position (FSP)
FAS 115-2
and
FAS 124-2,
Recognition and Presentation of Other-Than-Temporary
Impairments (FSP
FAS 115-2
and
FAS 124-2).
This FSP amends the other-than-temporary impairment guidance for
debt securities to make the guidance more operational and to
improve the presentation and disclosure of other-than-temporary
impairments in the financial statements. The most significant
change the FSP brings is a revision to the amount of
other-than-temporary loss of a debt security recorded in
earnings. FSP
FAS 115-2
and
FAS 124-2
is effective for interim and annual periods ending after
June 15, 2009. The Company does not expect that this FSP
will have a significant impact on the determination or reporting
of the Companys financial results for the fiscal year
ended April 30, 2010.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS 141(R)), which replaces
SFAS No. 141, Business Combinations.
SFAS 141(R) retains the underlying concepts of
SFAS 141 in that all business combinations are still
required to be accounted for at fair value under the acquisition
method of accounting, but SFAS 141(R) changed the method of
applying the acquisition method in a number of significant
aspects. Acquisition costs will generally be expensed as
incurred; non-controlling interests will be valued at fair value
at the acquisition date; in-process research and development
will be recorded at fair value as an indefinite-lived intangible
asset at the acquisition date; restructuring costs associated
with a business combination will generally be expensed
subsequent to the acquisition date; and changes in deferred tax
asset valuation allowances and income tax uncertainties after
the acquisition date generally will affect income tax expense.
SFAS 141(R) will be effective on a prospective basis for
all business combinations for which the acquisition date is on
or after the beginning of the first annual period subsequent to
December 15, 2008, with the exception of the accounting for
valuation allowances on deferred taxes and acquired tax
contingencies. SFAS 141(R) amends SFAS 109 such that
adjustments made to valuation allowances on deferred taxes and
acquired tax contingencies associated with acquisitions that
closed prior to the effective date of SFAS 141(R) would
also apply the provisions of SFAS 141(R). Early adoption is
not permitted. The Company has determined that this statement
will not have a significant impact on the Companys
financial statements for the fiscal year ended April 30,
2010.
In April 2008, the FASB issued
FSP 142-3,
Determining the Useful Life of Intangible Assets
(FSP 142-3).
FSP 142-3
was designed to improve the consistency between the useful life
of a recognized intangible asset under SFAS No. 142,
Goodwill and Other Intangible Assets
(SFAS 142), and the period of expected cash
flows used to measure the fair value of the asset under
SFAS No. 141 (revised 2007), Business
Combinations, and other guidance under GAAP.
FSP 142-3
will be effective for the Company on May 1, 2009. Early
adoption is prohibited. The Company does not expect that this
FSP will have a significant impact on the determination or
reporting of the Companys financial results for the fiscal
year ended April 30, 2010.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS 157),
which defines fair value, establishes a framework for measuring
fair value in accordance with generally accepted accounting
principles (GAAP), and expands disclosures about
fair value measurements. SFAS 157 applies where other
accounting pronouncements require or permit fair value
measurements; it does not require any new fair value
measurements under GAAP. The effects of adoption are determined
by the types of instruments carried at fair value in the
Companys financial statements at the time of adoption, as
well as the method utilized to determine their fair values prior
to adoption. SFAS 157 was effective for financial assets
and liabilities on May 1, 2008. SFAS 157 will be
effective for non-financial assets and liabilities, including
assets measured at fair value due to impairments, on May 1,
2009. The Company has determined that this statement did not
have a significant impact on the determination or reporting of
the Companys financial results for the fiscal year ended
April 30, 2009, and does not believe that it will have a
significant impact for the fiscal year ended April 30, 2010.
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 (SFAS 159). SFAS 159 was
effective for the Company on May 1, 2008. This statement
permits entities to choose to measure many financial instruments
and certain other items at fair value. This statement also
establishes presentation and disclosure requirements designed
35
to facilitate comparisons between entities that choose different
measurement attributes for similar types of assets and
liabilities. Unrealized gains and losses on items for which the
fair value option is elected will be reported in earnings. The
Company elected not to apply the fair value option to its
existing financial assets and liabilities on
SFAS 159s effective date. Thus, this statement did
not have an impact on the determination or reporting of the
Companys financial results.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained or incorporated by reference in
this Annual Report on
Form 10-K,
including without limitation, statements containing the words
believes, anticipates,
estimates, expects, plans,
and words of similar import, are forward-looking statements
within the meaning of the federal securities laws. Such forward-
looking statements involve known and unknown risks,
uncertainties, and other matters which may cause the actual past
results, performance, or achievements of the Company to be
materially different from any future results, performance, or
uncertainties expressed or implied by such forward-looking
statements.
The factors set forth in ITEM 1A. RISK FACTORS
could cause actual results to differ materially from those
predicted in the Companys forward-looking statements. In
addition, factors relating to general global, national,
regional, and local economic conditions, including international
political instability, national defense, homeland security,
natural disasters, terrorism, employment levels, wage and salary
levels, consumer confidence, availability of credit and
financial market conditions, taxation policies, the
Sarbanes-Oxley Act, SEC reporting requirements, fees paid to
vendors in order to remain in compliance with the Sarbanes-Oxley
Act and SEC requirements, interest rates, capital spending,
energy and other utility costs, and inflation could positively
or adversely impact the Company and its customers, suppliers,
and sources of capital. Any significant adverse impact from
these factors could result in material adverse effects on the
Companys results of operations and financial condition.
The Company is also at risk for many other matters beyond its
control, including, but not limited to: the potential loss of
significant customers; the Companys future ability to sell
or refinance its real estate; the possibility of not achieving
projected backlog revenues or not realizing earnings from such
revenues; the cost and availability of insurance; the ability of
the Company to attract and retain key personnel; weather
conditions; changes in laws and regulations, including changes
in GAAP and regulatory requirements of the SEC and NASDAQ;
overall vacancy rates in the markets where the Company leases
retail and office space; overall capital spending trends in the
economy; the timing and amount of earnings recognition related
to the possible sale of real estate properties held for sale;
delays in or cancellations of customers orders; inflation;
the level and volatility of energy and gasoline prices; the
level and volatility of interest rates; the failure of a
subcontractor to perform; the deterioration in the financial
stability of an anchor tenant, significant customer, or
subcontractor; and the possible impact, if any, on earnings due
to the ultimate disposition of legal proceedings in which the
Company may be involved.
36
MANAGEMENT
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Servidyne, Inc. and subsidiaries (the
Company) is responsible for establishing and
maintaining adequate internal control over financial reporting
as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Securities Exchange Act of 1934, as amended.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions or that the degree of
compliance with the policies or procedures may deteriorate.
Internal control over financial reporting cannot provide
absolute assurance of achieving financial reporting objectives
because of its inherent limitations. Internal control over
financial reporting is a process that involves human diligence
and compliance and is subject to lapses in judgment and
breakdowns resulting from human failures. Internal control over
financial reporting also can be circumvented by collusion or
improper management override. Because of such limitations, there
is a risk that material misstatements may not be prevented or
detected on a timely basis by internal control over financial
reporting. However, these inherent limitations are known
features of the financial reporting process. Therefore, it is
possible to design into the process safeguards to reduce, though
not eliminate, the risk.
The Companys management assessed the effectiveness of the
Companys internal control over financial reporting as of
April 30, 2009. In making this assessment, the
Companys management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework.
Based on its assessment, management believes that, as of
April 30, 2009, the Companys internal control over
financial reporting was effective based on those criteria.
37
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Servidyne, Inc.
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of
Servidyne, Inc. and subsidiaries (the Company) as of
April 30, 2009 and 2008, and the related consolidated
statements of operations, shareholders equity, and cash
flows for each of the two years in the period ended
April 30, 2009. Our audits also included the financial
statement schedule listed in the Index at Item 15. These
financial statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on the financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Servidyne, Inc. and subsidiaries as of April 30, 2009 and
2008, and the results of their operations and their cash flows
for each of the two years in the period ended April 30,
2009, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion,
such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
Atlanta, Georgia
July 24, 2009
38
SERVIDYNE,
INC.
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (Note 2)
|
|
$
|
4,821,126
|
|
|
$
|
8,382,947
|
|
Restricted cash (Note 4)
|
|
|
|
|
|
|
3,470,700
|
|
Receivables:
|
|
|
|
|
|
|
|
|
Trade accounts and notes, net of allowance for doubtful accounts
of $145,236 and $33,196, respectively
|
|
|
1,368,577
|
|
|
|
1,610,846
|
|
Contracts, net of allowance for doubtful accounts of $4,294 and
$93,811, respectively, including retained amounts of $219,385
and $91,357, respectively
|
|
|
1,764,327
|
|
|
|
1,998,077
|
|
Costs and earnings in excess of billings (Note 6)
|
|
|
408,950
|
|
|
|
275,754
|
|
Deferred income taxes (Note 11)
|
|
|
579,423
|
|
|
|
750,488
|
|
Other current assets (Note 2)
|
|
|
1,659,721
|
|
|
|
1,011,304
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
10,602,124
|
|
|
|
17,500,116
|
|
INCOME-PRODUCING PROPERTIES, net (Note 7)
|
|
|
19,391,375
|
|
|
|
21,773,409
|
|
PROPERTY AND EQUIPMENT, net (Note 8)
|
|
|
797,556
|
|
|
|
811,900
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
Real estate held for future development or sale
|
|
|
853,109
|
|
|
|
853,109
|
|
Intangible assets, net (Note 18)
|
|
|
2,910,596
|
|
|
|
3,222,125
|
|
Goodwill (Note 18)
|
|
|
6,354,002
|
|
|
|
5,458,717
|
|
Other assets (Note 2)
|
|
|
2,735,894
|
|
|
|
2,696,174
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
43,644,656
|
|
|
$
|
52,315,550
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Trade and subcontractors payables
|
|
$
|
851,633
|
|
|
$
|
550,360
|
|
Accrued expenses
|
|
|
1,416,145
|
|
|
|
1,143,794
|
|
Deferred revenue
|
|
|
708,401
|
|
|
|
848,197
|
|
Accrued incentive compensation
|
|
|
|
|
|
|
494,000
|
|
Billings in excess of costs and earnings (Note 6)
|
|
|
28,215
|
|
|
|
62,559
|
|
Current maturities of mortgage notes and other long-term debt
|
|
|
566,858
|
|
|
|
631,736
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,571,252
|
|
|
|
3,730,646
|
|
DEFERRED INCOME TAXES (Note 11)
|
|
|
2,489,357
|
|
|
|
5,271,441
|
|
OTHER LIABILITIES
|
|
|
824,877
|
|
|
|
1,138,316
|
|
MORTGAGE NOTES PAYABLE, less current maturities
(Note 9)
|
|
|
18,220,640
|
|
|
|
18,603,769
|
|
OTHER LONG-TERM DEBT, less current maturities (Note 10)
|
|
|
1,000,000
|
|
|
|
1,105,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
26,106,126
|
|
|
|
29,849,172
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 19)
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
Common stock, $1 par value; 10,000,000 shares
authorized;
|
|
|
|
|
|
|
|
|
3,917,778 issued and 3,691,369 outstanding at April 30,
2009;
|
|
|
|
|
|
|
|
|
3,708,836 issued and 3,539,770 outstanding at April 30, 2008
|
|
|
3,917,778
|
|
|
|
3,708,836
|
|
Additional paid-in capital
|
|
|
6,026,101
|
|
|
|
5,045,100
|
|
Retained earnings
|
|
|
8,569,451
|
|
|
|
14,511,159
|
|
Treasury stock (common shares) of 226,409 and 169,066,
respectively
|
|
|
(974,800
|
)
|
|
|
(798,717
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
17,538,530
|
|
|
|
22,466,378
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
43,644,656
|
|
|
$
|
52,315,550
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
39
SERVIDYNE,
INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
Building Performance Efficiency (BPE)
|
|
$
|
13,192,310
|
|
|
$
|
14,249,228
|
|
Real Estate
|
|
|
3,264,062
|
|
|
|
5,098,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,456,372
|
|
|
|
19,347,726
|
|
|
|
|
|
|
|
|
|
|
COST OF REVENUES:
|
|
|
|
|
|
|
|
|
BPE
|
|
|
8,562,024
|
|
|
|
9,539,949
|
|
Real Estate
|
|
|
2,115,678
|
|
|
|
2,225,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,677,702
|
|
|
|
11,765,302
|
|
|
|
|
|
|
|
|
|
|
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
|
|
|
9,904,430
|
|
|
|
9,137,012
|
|
|
|
|
|
|
|
|
|
|
OTHER (INCOME) AND EXPENSES:
|
|
|
|
|
|
|
|
|
Other income (Note 2)
|
|
|
(317,957
|
)
|
|
|
(91,027
|
)
|
Interest income
|
|
|
(111,786
|
)
|
|
|
(294,288
|
)
|
Interest expense
|
|
|
1,300,295
|
|
|
|
1,371,171
|
|
Loss on impairment of income-producing property (Note 7)
|
|
|
2,158,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,029,225
|
|
|
|
985,856
|
|
|
|
|
|
|
|
|
|
|
GAIN ON SALE OF REAL ESTATE (Note 17), net of costs of sale
of
|
|
|
|
|
|
|
|
|
$0 and $279,481, respectively
|
|
|
|
|
|
|
580,519
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
|
|
|
(7,154,985
|
)
|
|
|
(1,959,925
|
)
|
|
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE (BENEFIT) (Note 11):
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
15,907
|
|
Deferred
|
|
|
(2,567,535
|
)
|
|
|
(815,290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,567,535
|
)
|
|
|
(799,383
|
)
|
|
|
|
|
|
|
|
|
|
LOSS FROM CONTINUING OPERATIONS
|
|
|
(4,587,450
|
)
|
|
|
(1,160,542
|
)
|
|
|
|
|
|
|
|
|
|
DISCONTINUED OPERATIONS (Note 5):
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations, adjusted for applicable
income tax expense of $0 and $11,219, respectively
|
|
|
|
|
|
|
18,305
|
|
Gain on sale of real estate income-producing properties,
adjusted for applicable income tax expense of $0 and $1,518,651,
respectively
|
|
|
|
|
|
|
2,477,799
|
|
|
|
|
|
|
|
|
|
|
EARNINGS FROM DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
2,496,104
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) EARNINGS
|
|
$
|
(4,587,450
|
)
|
|
$
|
1,335,562
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) EARNINGS PER SHARE (Note 14):
|
|
|
|
|
|
|
|
|
From continuing operations basic and diluted
|
|
$
|
(1.23
|
)
|
|
$
|
(0.31
|
)
|
From discontinued operations basic and diluted
|
|
|
|
|
|
|
0.67
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) EARNINGS PER SHARE BASIC AND DILUTED
|
|
$
|
(1.23
|
)
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
40
SERVIDYNE,
INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Treasury
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Stock
|
|
|
Total
|
|
|
BALANCES at April 30, 2007
|
|
|
3,695,336
|
|
|
$
|
3,695,336
|
|
|
$
|
4,875,160
|
|
|
$
|
13,684,779
|
|
|
$
|
(795,064
|
)
|
|
$
|
21,460,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,335,562
|
|
|
|
|
|
|
|
1,335,562
|
|
Common stock issued
|
|
|
2,500
|
|
|
|
2,500
|
|
|
|
(2,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
132,440
|
|
|
|
|
|
|
|
(3,653
|
)
|
|
|
128,787
|
|
Stock option exercise
|
|
|
11,000
|
|
|
|
11,000
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
51,000
|
|
Cash dividends declared $0.137 per share (adjusted
for subsequent stock dividend)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(509,182
|
)
|
|
|
|
|
|
|
(509,182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES at April 30, 2008
|
|
|
3,708,836
|
|
|
$
|
3,708,836
|
|
|
$
|
5,045,100
|
|
|
$
|
14,511,159
|
|
|
$
|
(798,717
|
)
|
|
$
|
22,466,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,587,450
|
)
|
|
|
|
|
|
|
(4,587,450
|
)
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
205,118
|
|
|
|
|
|
|
|
|
|
|
|
205,118
|
|
Common stock acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(135,507
|
)
|
|
|
(135,507
|
)
|
Common stock issued
|
|
|
22,781
|
|
|
|
22,781
|
|
|
|
68,469
|
|
|
|
|
|
|
|
|
|
|
|
91,250
|
|
Cash dividends declared $0.134 per share
(adjusted for stock dividend)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(501,259
|
)
|
|
|
|
|
|
|
(501,259
|
)
|
Stock dividend declared 5% at market value on date
declared
|
|
|
186,161
|
|
|
|
186,161
|
|
|
|
707,414
|
|
|
|
(852,999
|
)
|
|
|
(40,576
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES at April 30, 2009
|
|
|
3,917,778
|
|
|
$
|
3,917,778
|
|
|
$
|
6,026,101
|
|
|
$
|
8,569,451
|
|
|
$
|
(974,800
|
)
|
|
$
|
17,538,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
41
SERVIDYNE,
INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
2009
|
|
|
2008
|
|
|
CONTINUING OPERATIONS:
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net (loss) earnings
|
|
$
|
(4,587,450
|
)
|
|
$
|
1,335,562
|
|
Earnings from discontinued operations, net of tax
|
|
|
|
|
|
|
(2,496,104
|
)
|
Adjustments to reconcile net (loss) earnings to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
Loss on impairment of income-producing property
|
|
|
2,158,673
|
|
|
|
|
|
Gain on sale of real estate
|
|
|
|
|
|
|
(580,519
|
)
|
Loss on disposal of assets
|
|
|
11,654
|
|
|
|
108,133
|
|
Depreciation and amortization
|
|
|
1,624,795
|
|
|
|
1,506,618
|
|
Amortization of mortgage discount
|
|
|
(20,000
|
)
|
|
|
(30,000
|
)
|
Deferred tax benefit
|
|
|
(2,611,019
|
)
|
|
|
(799,383
|
)
|
Stock compensation expense
|
|
|
205,118
|
|
|
|
128,787
|
|
Adjustment to cash surrender value of life insurance
|
|
|
(66,633
|
)
|
|
|
(67,068
|
)
|
Straight-line rent
|
|
|
(57,058
|
)
|
|
|
15,922
|
|
Provision for doubtful accounts, net
|
|
|
22,523
|
|
|
|
112,294
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
572,018
|
|
|
|
(1,509,056
|
)
|
Costs and earnings in excess of billings
|
|
|
(133,196
|
)
|
|
|
(10,214
|
)
|
Other current assets
|
|
|
(347,896
|
)
|
|
|
352,359
|
|
Other assets
|
|
|
(8,797
|
)
|
|
|
|
|
Trade and subcontractors payable
|
|
|
(138,263
|
)
|
|
|
(55,497
|
)
|
Accrued expenses and deferred revenue
|
|
|
88,154
|
|
|
|
203,962
|
|
Accrued incentive compensation
|
|
|
(494,000
|
)
|
|
|
(90,416
|
)
|
Billings in excess of costs and earnings
|
|
|
(34,344
|
)
|
|
|
(156,746
|
)
|
Other liabilities
|
|
|
(14,676
|
)
|
|
|
185,436
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(3,830,397
|
)
|
|
|
(1,845,930
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Deposit of cash proceeds from sale of real estate held in escrow
|
|
|
|
|
|
|
(3,470,700
|
)
|
Release of restricted cash held in escrow
|
|
|
3,504,096
|
|
|
|
|
|
Deposit of restricted cash
|
|
|
(139,833
|
)
|
|
|
|
|
Purchase of held to maturity investments
|
|
|
(150,000
|
)
|
|
|
|
|
Proceeds from sale of real estate
|
|
|
|
|
|
|
852,260
|
|
Additions to income-producing properties
|
|
|
(192,932
|
)
|
|
|
(732,833
|
)
|
Additions to property and equipment
|
|
|
(166,166
|
)
|
|
|
(181,779
|
)
|
Additions to intangible assets
|
|
|
(358,160
|
)
|
|
|
(269,758
|
)
|
Acquisition, net of cash acquired
|
|
|
(902,657
|
)
|
|
|
|
|
Premiums paid on officers life insurance policies
|
|
|
(56,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
1,538,348
|
|
|
|
(3,802,810
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Real estate loan proceeds
|
|
|
|
|
|
|
3,200,000
|
|
Mortgage repayments
|
|
|
(352,131
|
)
|
|
|
(2,500,000
|
)
|
Debt repayments
|
|
|
(280,875
|
)
|
|
|
(556,883
|
)
|
Repurchase of common stock
|
|
|
(135,507
|
)
|
|
|
|
|
Deferred loan costs paid
|
|
|
|
|
|
|
(57,346
|
)
|
Exercise of stock options
|
|
|
|
|
|
|
51,000
|
|
Cash dividends paid to shareholders
|
|
|
(501,259
|
)
|
|
|
(509,182
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(1,269,772
|
)
|
|
|
(372,411
|
)
|
|
|
|
|
|
|
|
|
|
DISCONTINUED OPERATIONS:
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
312,588
|
|
Investing activities
|
|
|
|
|
|
|
14,616,120
|
|
Financing activities
|
|
|
|
|
|
|
(6,187,504
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by discontinued operations
|
|
|
|
|
|
|
8,741,204
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(3,561,821
|
)
|
|
|
2,720,053
|
|
Cash at beginning of period
|
|
|
8,382,947
|
|
|
|
5,662,894
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
4,821,126
|
|
|
$
|
8,382,947
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash financing activities:
|
|
|
|
|
|
|
|
|
Issuance of Common Stock under 2000 Stock Award Plan
|
|
$
|
24,792
|
|
|
$
|
11,189
|
|
Supplemental schedule of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the year for interest
|
|
$
|
1,303,887
|
|
|
$
|
1,519,425
|
|
Cash paid during the year for income taxes, net
|
|
$
|
|
|
|
$
|
|
|
42
SERVIDYNE,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
Supplementary Disclosures of Non-cash Investing and Financing
Activities:
On June 6, 2008, the Company purchased substantially all of
the assets and certain liabilities of Atlantic
Lighting & Supply Co., Inc. for $902,657 in cash (net
of cash received and including acquisition costs) and
17,381 shares of Servidyne common stock. The related assets
and liabilities at the date of acquisition were as follows:
|
|
|
|
|
Total assets acquired, net of cash
|
|
$
|
1,577,844
|
|
Total liabilities assumed
|
|
|
(583,937
|
)
|
|
|
|
|
|
Net assets acquired, net of cash
|
|
|
993,907
|
|
Less value of shares issued for acquisition
|
|
|
(91,250
|
)
|
|
|
|
|
|
Total cash paid (including acquisition costs)
|
|
$
|
902,657
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
43
SERVIDYNE,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended April 30, 2009 and 2008
|
|
1.
|
ORGANIZATION
AND BUSINESS
|
Servidyne, Inc. (together with its subsidiaries, the
Company) was organized under Delaware law in 1960.
In 1984, the Company changed its state of incorporation from
Delaware to Georgia. In 2006, the Company changed its name to
Servidyne, Inc. from Abrams Industries, Inc. The Company
(i) provides comprehensive energy efficiency and building
performance-enhancing products and services to owners and
operators of existing buildings; and (ii) engages in
commercial real estate investment and development. The
Companys wholly-owned subsidiaries comprise the two (2)
operating segments and include: Servidyne Systems, LLC and
Atlantic Lighting & Supply Co., LLC (the BPE
Segment); and Abrams Properties, Inc. and subsidiaries,
and AFC Real Estate, Inc. and subsidiaries (the Real
Estate Segment). The Wheatstone Energy Group, LLC,
previously a separate, wholly-owned subsidiary, was legally
combined with Servidyne Systems, LLC, effective April 30,
2009.
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
|
|
(A)
|
Principles
of consolidation and basis of presentation
|
The consolidated financial statements include the accounts of
Servidyne, Inc., its wholly-owned subsidiaries, and its former
80% investment in Abrams-Columbus Limited Partnership. The
Abrams-Columbus Limited Partnership sold its leasehold interest
in the land and its owned shopping center in July 2007 (See
Footnote 17 Dispositions). All
significant intercompany balances and transactions have been
eliminated in consolidation.
The Company has made reclassifications related to certain
income-producing properties that have been sold in accordance
with the provisions of Statement of Financial Accounting
Standard (SFAS) 144, Accounting for the
Impairment or Disposal of Long-Lived Assets
(SFAS 144).
Restatement
of Previously Issued Consolidated Financial Statements
Subsequent to the issuance of the quarterly report on
Form 10-Q
for the period ended October 31, 2008, the Company
determined that interest income and certain components of other
income were not presented in accordance with the Securities and
Exchange Commission (SEC)
Regulation S-X,
Article 5,
Rule 5-03,
Income Statement. In annual periods prior to the
year ended April 30, 2009, the Company included interest
income and certain components of other income in the
determination of total revenues. Beginning in the year ended
April 30, 2009, the Company has revised its presentation of
interest income and certain components of other income to
other (income) and expenses in the consolidated
statement of operations. Prior period amounts in the
consolidated statement of operations, as well as in the notes to
the consolidated financial statements, where affected, have been
restated to conform to this new presentation. The Company does
not believe that these restatements are material to the
Companys consolidated financial statements for the year
ended April 30, 2009, or to the consolidated financial
statements of any prior periods.
Reclassification
of Previously Issued Consolidated Financial Statements
In annual periods prior to the year ended April 30, 2009,
and in quarterly periods prior to the quarter ended
January 31, 2009, the Company included interest expense
together with cost of revenues and selling, general and
administrative expenses in the determination of total operating
expenses. Beginning in the year ended April 30, 2009, the
Company reclassified interest expense to other (income)
and expenses in the consolidated statement of operations.
Prior period amounts have been reclassified to conform to this
new presentation.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires the Company to make estimates and assumptions
that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities as of the date
of the financial statements, and the
44
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Revenues derived from implementation, training, support, and
base service license fees from customers accessing the
Companys proprietary building productivity software on an
application service provider (ASP) basis are recognized in
accordance with the provisions of SEC Staff Accounting
Bulletin 104, Revenue Recognition
(SAB 104). For these sources of revenues,
the Company recognizes revenue when all of the following
conditions are met: there is persuasive evidence of an
arrangement; service has been provided to the customer; the
collection of fees is probable; and the amount of fees to be
paid by the customer is fixed and determinable. The
Companys license arrangements do not include general
rights of return. Revenues are recognized ratably over the
contract period, which is typically no longer than twelve
months, beginning on the commencement date of each contract.
Amounts that have been invoiced are recorded in accounts
receivable and in revenue or deferred revenue, depending on the
timing of when the revenue recognition criteria have been met.
Additionally, the Company defers such direct costs and amortizes
them over the same time period as the revenue is recognized.
Energy management services are accounted for separately and are
recognized as the services are rendered in accordance with
SAB 104. Revenues derived from sales of proprietary
building productivity software solutions (other than ASP
solutions) and hardware products are recognized when products
are sold.
Energy savings project revenues are reported on the
percentage-of-completion method, using costs incurred to date in
relation to estimated total costs of the contracts to measure
the stage of completion. Original contract prices are adjusted
for change orders in the amounts that are reasonably estimated
and in accordance with Statement of Position
81-1,
Accounting for Performance of Construction-Type and Certain
Production-Type Contracts
(SOP 81-1).
The nature of the change orders usually involves a change in the
scope of the project, for example, a change in the number or
type of units being installed. The price of change orders is
based on the specific materials, labor, and other project costs
affected. In accordance with
SOP 81-1,
paragraph 61, contract revenue and costs are adjusted to
reflect change orders when they are approved by both the Company
and its customer for both scope and price. For a change order
that is unpriced; that is, the scope of the work to be performed
is defined, but the adjustment to the contract price is to be
negotiated later, the Company evaluates the particular
circumstances of that specific instance in determining whether
to adjust the contract revenue
and/or costs
related to the change order. For unpriced change orders, the
Company will record revenue in excess of costs related to a
change order on a contract only when the Company deems that the
adjustment to the contract price is probable based on its
historical experience with that customer in accordance with
SOP 81-1,
paragraph 62. The cumulative effects of changes in
estimated total contract costs and revenues (change orders) are
recorded in the period in which the facts requiring such
revisions become known, and are accounted for using the
percentage-of-completion method. At the time it is determined
that a contract is expected to result in a loss, the entire
estimated loss is recorded. Energy efficient lighting product
revenues are recognized when the products are shipped.
The Company leases space in its income-producing properties to
tenants, and recognizes minimum base rentals as revenue on a
straight-line basis over the lease term. The lease term usually
begins when the tenant takes possession of, or controls the
physical use of, the leased asset. Generally, this occurs on the
lease commencement date. In determining what constitutes a
leased asset, the Company evaluates whether the Company or the
tenant is the owner of the improvements. If the Company is the
owner of the improvements, then the leased asset is the finished
space. In such instances, revenue recognition begins when the
tenant takes possession of the finished space, typically when
the improvements are substantially complete. If the Company
determines that the improvements belong to the tenant, then the
leased asset is the unimproved space, and any improvement
allowances funded by the Company pursuant to the terms of the
lease are treated as lease incentives that reduce the revenue
recognized over the term of the lease. In these circumstances,
the Company begins revenue recognition when the tenant takes
possession of the unimproved space. The Company considers a
number of different factors in order to determine who owns the
45
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
improvements. These factors include (1) whether the lease
stipulates the terms and conditions of how an improvement
allowance may be spent; (2) whether the tenant or the
Company retains legal title to the improvements; (3) the
uniqueness of the improvements; (4) the expected economic
life of the improvements relative to the length of the lease;
and (5) who constructs or directs the construction of the
improvements. The determination of who owns the improvements is
subject to significant judgment. In making the determination,
the Company considers all of the above factors; however, no one
factor is determinative in reaching a conclusion. Certain leases
may also require tenants to pay additional rental amounts as
partial reimbursements for their share of property operating and
common area expenses, real estate taxes, and insurance costs,
which additional rental amounts are recognized only when earned.
In addition, certain retail leases require tenants to pay
incremental rental amounts, which are contingent upon their
stores sales. These percentage rents are recognized only
if and when earned and are not recognized on a straight-line
basis.
Revenues from the sales of real estate assets are recognized
when all of the following has occurred: (a) the property is
transferred from the Company to the buyer; (b) the
buyers initial and continuing investment is adequate to
demonstrate a commitment to pay for the property; and
(c) the buyer has assumed all future ownership risks of the
property. Costs of sales related to sales of real estate assets
are based on the specific property sold. If a portion or unit of
a property is sold, a proportionate share of the total cost of
the property is charged to cost of sales.
|
|
(D)
|
Cash
and cash equivalents and short-term investments
|
Cash and cash equivalents include money market funds and other
highly liquid financial instruments, but exclude restricted
cash. The Company considers all highly liquid financial
instruments with maturities of three (3) months or less to
be cash equivalents. The Company considers financial instruments
with maturities of three (3) months to one (1) year to
be short-term investments. The Company has classified all
short-term investments as held to maturity. As of
April 30, 2009, and April 30, 2008, the Company had an
investment in a certificate of deposit, which is included in
other long-term assets, that secures a letter of credit on a
mortgage note payable that matures in August 2012.
Restricted cash includes proceeds from sales of real estate
assets, which the Company elects to be deposited and held
temporarily in an escrow account at closing of the sale, in
order to fund potential acquisitions of income-producing
properties through a tax deferred Internal Revenue Code
Section 1031 exchange. If the Company does not complete
such an acquisition, the funds are released from escrow to the
Company and converted to cash and cash equivalents.
|
|
(F)
|
Real
estate held for future development or sale
|
Real estate held for future development or sale is carried at
the lower of historical cost or fair value less estimated costs
to sell.
Costs incurred to obtain loans have been deferred and are being
amortized over the terms of the respective loans.
|
|
(H)
|
Long-lived
assets: income-producing properties, capitalized software, and
property and equipment
|
Income-producing properties are stated at historical cost, and
are depreciated for financial reporting purposes using the
straight-line method over the respective estimated useful lives
of the assets. Significant additions that extend asset lives are
capitalized and are depreciated over their respective estimated
useful lives. Normal maintenance and repair costs are expensed
as incurred. Interest and other carrying costs related to real
estate assets under active development are capitalized. Other
costs of development and construction of real estate assets are
also capitalized.
46
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Capitalization of interest and other carrying costs is
discontinued when a project is substantially completed or if
active development ceases.
Property and equipment are recorded at historical cost, and are
depreciated for financial reporting purposes using the
straight-line method over the estimated useful lives of the
respective assets.
The Companys most significant long-lived assets are
income-producing properties held in its Real Estate Segment. The
Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Such review takes
place on a quarterly basis. The types of events and
circumstances that might indicate impairment in the Real Estate
Segment include, but are not limited to, those items listed in
SFAS 144, paragraph 8, as well as other real estate
specific factors as follows:
|
|
|
|
|
A significant decrease in the market price of a long-lived asset;
|
|
|
|
A significant adverse change in the extent or manner in which a
long-lived asset is being used or in its physical condition;
|
|
|
|
A significant adverse change in legal factors or in the business
climate that could affect the value of a long-lived asset,
including an adverse action or assessment by a regulator;
|
|
|
|
An accumulation of costs significantly in excess of the amount
originally expected for the acquisition or construction of a
long-lived asset;
|
|
|
|
A current-period operating or cash flow loss combined with a
history of operating or cash flow losses or a projection or
forecast that demonstrates continuing losses associated with the
use of a long-lived asset;
|
|
|
|
A current expectation that, more likely than not, a long-lived
asset will be sold or otherwise disposed of significantly before
the end of its previously estimated useful life;
|
|
|
|
The Company has recently sold similar income-producing
properties at losses;
|
|
|
|
The Company has received purchase offers at prices below
carrying value;
|
|
|
|
Income-producing properties that have significant vacancy rates
or significant rollover exposure from one or more tenants;
|
|
|
|
A major tenant experiencing financial difficulties that may
jeopardize the tenants ability to meet its lease
obligations;
|
|
|
|
Depressed market conditions;
|
|
|
|
Presence of a new competitive property constructed in the
assets market area; and
|
|
|
|
Evidence of significant corrective measures required to cure
structural problems, physical obsolescence, or deterioration of
essential building components.
|
In accordance with paragraph 4 of SFAS No. 144,
the Company has determined that the lowest level of identifiable
cash flows for long-lived assets in its Real Estate Segment is
at each of the individual income-producing properties. Each of
these income producing properties operates independent of one
another and financial information for these properties is
recorded on an individual property basis. When there are
indicators of impairment, the recoverability of long-lived
assets is measured by a comparison of the carrying amount of the
asset against the future net undiscounted cash flows expected to
be generated by the asset. The Company estimates future
undiscounted cash flows of the Real Estate Segment using
assumptions regarding occupancy, counter-party creditworthiness,
costs of leasing including tenant improvements and leasing
commissions, rental rates and expenses of the property, as well
as the expected holding period and cash to be received from
disposition. The Company has considered all of these factors in
its undiscounted cash flows.
47
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the fourth quarter of fiscal 2009, the anchor tenant of
the Companys owned office building in Newnan, Georgia,
defaulted on its lease obligations and subsequently vacated its
leased space. Given this event, the Company revised the
estimated future undiscounted cash flows expected to be
generated by the property and determined that the carrying
amount of the related long-lived assets was not recoverable.
Accordingly, the Company performed a fair value analysis of the
property, determined that its fair market value was less than
its current book value, and therefore recorded an impairment
loss of approximately $2,007,000 in the fourth quarter of fiscal
2009. The estimated fair value of the Newnan office building was
approximately $1,761,000. This determination was based on a
number of factors, including a discounted cash flow analysis,
quoted prices for similar assets, and managements
judgment. For further information, see Note 7 to the
consolidated financial statements.
The BPE Segment has long-lived assets that consist primarily of
capitalized software costs, classified as intangible assets, net
on the balance sheet, as well as a portion of the property and
equipment on the balance sheet. Software development costs are
accounted for in accordance with Emerging Issues Task Force
(EITF)
00-3 that
sets forth the accounting of software in a Web hosting
arrangement. As such, the Company follows the guidance set forth
in Statement of Position (SOP)
98-1,
Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use, in accounting for the development
of its on-demand application services.
SOP 98-1
requires that software development costs that are incurred in a
preliminary project stage should be expensed as incurred. Costs
that are incurred during the application development stage are
capitalized and reported at the lower of unamortized cost or net
realizable value. Capitalization ceases when the computer
software development project, including testing of the computer
software, is substantially complete and the software product is
ready for its intended use. Capitalized costs are amortized on a
straight-line basis over the estimated economic life of the
product.
Events or circumstances which would trigger an impairment
analysis of these long-lived assets include:
|
|
|
|
|
A change in the estimated remaining useful life of the asset;
|
|
|
|
A change in the manner in which the asset is used in the income
generating business of the Company; or
|
|
|
|
A current-period operating or cash flow loss combined with a
history of operating or cash flow losses, or a projection or
forecast that demonstrates continuing losses associated with the
use of a long-lived asset.
|
Long-lived assets in the BPE Segment are grouped together for
purposes of impairment, as assets and liabilities of the BPE
Segment are not independent of one another. On an annual basis
at January 31, unless events or circumstances occur in the
interim, as discussed above, the Company reviews its BPE
Segments long-lived assets for impairment. Future
undiscounted cash flows of the segment, as measured in its
goodwill impairment analysis, are used to determine whether
impairment of long-lived assets exists in the BPE Segment.
(I) Goodwill
and other intangible assets
Intangible assets primarily consist of trademarks, acquired
computer software, customer relationships, proprietary BPE
software solutions, real estate lease costs, and deferred loan
costs. The trademarks are not amortized as they have indefinite
lives. However, the acquired computer software, proprietary BPE
software solutions, customer relationships, real estate lease
costs, and deferred loan costs are amortized using the
straight-line method over the following estimated useful lives:
|
|
|
Acquired computer software
|
|
3 years
|
Proprietary BPE software solutions
|
|
5 years
|
Customer relationships
|
|
5 years
|
Lease costs
|
|
Over the term of the lease
|
Loan costs
|
|
Over the term of the loan
|
Goodwill and intangible assets with indefinite lives are
reviewed for impairment on an annual basis or whenever events or
changes in circumstances indicate that the carrying basis of an
asset may not be recoverable, as required in
48
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
accordance with SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS 142). All of the
Companys goodwill and indefinite-lived intangible assets
are assigned to the BPE Segment, which has also been determined
to be the reporting unit. The valuation methodologies used to
calculate the fair value of the BPE Segment in fiscal year 2009
were (1) the discounted cash flow method of the income
approach and (2) the guideline company method of the market
approach.
The Company performed the annual impairment analysis of goodwill
and indefinite-lived intangible assets for the BPE Segment in
the quarter ended January 31, 2009, as required by
SFAS 142. The annual analysis resulted in a determination
of no impairment in fiscal 2009. As of April 30, 2009, the
Company does not believe that any of its goodwill or other
intangible assets are impaired.
The valuation methodologies used to calculate the fair value of
the BPE Segment in fiscal 2009 were the discounted cash flow
method of the income approach and the guideline company method
of the market approach. The Company believes that these two
(2) methodologies are commonly used valuation
methodologies. SFAS 142 discusses both methodologies as
acceptable in determining the fair value of a reporting unit. In
assessing the fair value of the BPE Segment, the Company
believes a market participant would likely consider both the
cash flow generating ability of the reporting unit, as well as,
current market multiples of companies facing similar risks in
the marketplace.
With the income approach, the cash flows anticipated over
several periods, plus a terminal value at the end of that time
horizon, are discounted to their present value using an
appropriate rate of return. Projected cash flows are discounted
to present value using an estimated weighted average cost of
capital, reflecting returns to both equity and debt investors.
The Company believes that this is a relevant and beneficial
method to use in determining fair value because it explicitly
considers the future cash flow generating potential of the
reporting unit.
In the guideline company method of the market approach, the
value of a reporting unit is estimated by comparing the subject
to similar businesses or guideline companies whose
securities are actively traded in public markets. The comparison
is generally based on data regarding each of the companies
stock price and earnings, which is expressed as a fraction known
as a multiple. The premise of this method is that if
the guideline public companies are sufficiently similar to each
other, then their multiples should be similar. The multiples for
the guideline companies are analyzed, adjusted for differences
as compared to the subject company, and then applied to the
applicable business characteristics of the subject company to
arrive at an indication of the fair value. The Company believes
that the inclusion of a market approach analysis in the fair
value calculation is beneficial, as it provides an indication of
value based on external, market-based measures.
In the application of the income approach, financial projections
were developed for use in the discounted cash flow calculations.
Significant assumptions included revenue growth rates, margin
rates, SG&A costs, and working capital and capital
expenditure requirements over a period of ten (10) years.
Revenue growth rate and margin rate assumptions were developed
using historical Company data, current backlog, specific
customer commitments, status of outstanding customer proposals,
and future economic and market conditions expected.
Consideration was then given to the estimated SG&A costs,
working capital, and capital expenditures required to generate
the revenue and margin determined. The other significant
assumption used with the income approach was the assumed rate at
which to discount the cash flows. The rate was determined by
utilizing the weighted average cost of capital method.
In the application of the income approach model, three
(3) separate financial projection scenarios were prepared
using the above assumptions: the first used the expected revenue
growth rates, the second used higher revenue growth rates, and
the third used lower revenue growth rates. The revenue growth
rates ranged from 36.5% in fiscal year 2010 to 3% in the
terminal year. The discount rates used in the scenarios ranged
from 17% for the lower growth scenario to 19% in the higher
growth scenario. In each of the three (3) discounted cash
flow models, there was no indication of goodwill impairment. For
the assessment of fair value of the BPE Segment based on the
income approach, the results of the three (3) scenarios
were weighted (60% for the expected case and 20% each for the
other scenarios) to produce the applicable fair value indication
using the income approach. The weightings reflect the
49
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Companys view of the relative likelihood of each scenario.
The revenue growth rates for the three scenarios were developed
using historical Company data, current backlog, specific
customer commitments, status of outstanding customer proposals,
and future economic and market conditions expected. The Company
noted that, all other variables being held constant, an increase
of approximately 11% in the discount rate applied to each of the
three scenarios used in the income approach would indicate
impairment. The Company also noted that, reducing the revenue
growth rate in the expected case scenario of the income approach
by more than 9.5%, while holding gross margin rates and
SG&A costs constant, would indicate impairment. To simplify
the analysis, the Company excluded the weighting of the market
approach result. If the Company had included the market approach
in the revenue growth sensitivity analysis, the growth rate
would have had to decline by a substantially greater amount to
indicate impairment.
In the application of the market approach, the Company
considered valuation multiples derived from four
(4) comparable public companies that were identified as
belonging to a group of industry peers. The applicable financial
multiples of the comparable companies were adjusted for
profitability and size and then applied to the BPE Segment. This
result also indicated that no impairment existed.
The comparable companies selected for the market approach were
similar to the BPE Segment in terms of business description and
markets served. As such, the Company believes a market
participant is likely to consider the market approach in
determining the fair value of the BPE Segment. In addition, the
Company believes a market participant will consider the cash
flow generating capacity of the BPE Segment using an income
approach. Management believes both the market and income
approaches provide meaningful indications of the fair value to
the BPE Segment; therefore, the results of the income approach
and the market approach were equally weighted and compared to
the carrying value of the BPE Segment.
The most significant change in valuation methodology used for
valuing goodwill in fiscal 2009 as compared to prior years was
the addition of the market approach. In prior years, the Company
used a single method to perform the test of goodwill, a
discounted cash flow method under the income approach. In the
current years test as discussed above, both the income
approach and market approach were used.
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and to tax loss
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to be applied to taxable income
in the years in which those temporary differences are expected
to be recovered or settled. The effect of a change in tax rates
on deferred tax assets and liabilities is recognized in income
in the period that includes the enactment date.
The Company periodically reviews its deferred tax assets
(DTA) to assess whether it is more likely than not
that a tax asset will not be realized. The realization of a
deferred tax asset ultimately depends on the existence of
sufficient taxable income. A valuation allowance is established
against a deferred tax asset if there is not sufficient evidence
that it will be realized. The Company weighs all available
evidence in order to determine whether it is
more-likely-than-not that a deferred tax asset will be realized
in a future period. The Company considers general economic
conditions, market and industry conditions, as well as internal
Company specific conditions, trends, management plans, and other
data in making this determination.
Evidence considered is weighted according to the degree that it
can be objectively verified. Reversals of temporary differences
are weighted with more significance than projections of future
earnings of the Company.
|
|
(K)
|
Derivative
instruments and hedging activities
|
The Company accounts for derivative instruments and hedging
activities, if any, in accordance with SFAS 133,
Accounting for Derivative Instruments and Hedging
Activities, as amended. Under SFAS 133, derivative
50
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
instruments are recognized in the balance sheet at fair value,
and changes in the fair value of such instruments are recognized
currently in earnings, unless specific hedge accounting criteria
are met. In the years ended April 30, 2009, and
April 30, 2008, the Company had no derivative instruments
or hedging activities.
|
|
(L)
|
Discontinued
operations
|
The Company follows SFAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which requires,
among other things, that the gains and losses from the
disposition of certain income-producing real estate assets, and
associated liabilities, operating results, and cash flows, be
reflected as discontinued operations in the financial statements
for all periods presented. Although net earnings is not
affected, the Company has reclassified the results of sold
assets that were previously included in continuing operations as
discontinued operations for qualifying dispositions under
SFAS 144.
Other current assets consisted of the following as of
April 30, 2009, and April 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Inventory
|
|
$
|
654,443
|
|
|
$
|
359,181
|
|
Prepaid software consulting
|
|
|
132,731
|
|
|
|
|
|
Prepaid real estate taxes
|
|
|
89,213
|
|
|
|
156,562
|
|
Deferred costs
|
|
|
92,210
|
|
|
|
115,865
|
|
Prepaid insurance
|
|
|
119,849
|
|
|
|
79,708
|
|
Prepaid rent
|
|
|
48,905
|
|
|
|
52,139
|
|
Deposits
|
|
|
194,994
|
|
|
|
42,470
|
|
Prepaid consulting fees
|
|
|
25,000
|
|
|
|
25,000
|
|
Other
|
|
|
302,376
|
|
|
|
180,379
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,659,721
|
|
|
$
|
1,011,304
|
|
|
|
|
|
|
|
|
|
|
Other assets consisted of the following as of April 30,
2009, and April 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Cash surrender value of life insurance
|
|
$
|
1,323,318
|
|
|
$
|
1,200,684
|
|
Deferred executive compensation
|
|
|
733,378
|
|
|
|
1,032,145
|
|
Short-term investment
|
|
|
450,000
|
|
|
|
300,000
|
|
Straight-line rent
|
|
|
210,901
|
|
|
|
153,845
|
|
Notes receivable
|
|
|
9,250
|
|
|
|
9,500
|
|
Other
|
|
|
9,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,735,894
|
|
|
$
|
2,696,174
|
|
|
|
|
|
|
|
|
|
|
Other income primarily represents proceeds from insurance
recoveries or legal settlements. Other income for the year ended
April 30, 2009, included $285,000 related to a
January 30, 2009, settlement of an insurance claim.
51
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(P)
|
Recent
accounting pronouncements
|
In March 2009, the FASB unanimously voted for the FASB
Accounting Standards Codification (the Codification)
to be effective for interim and annual periods ending after
September 15, 2009. Other than resolving certain minor
inconsistencies in current U.S. GAAP, the Codification is
not meant to change GAAP, but is intended to make it easier to
find and research GAAP applicable to particular transactions or
specific accounting issues. The Codification is a new structure
that organizes existing accounting pronouncements into
approximately 90 accounting topics. Once approved, the
Codification will be the single source of authoritative
U.S. GAAP. All guidance included in the Codification will
be considered authoritative at that time, even guidance that
comes from what is currently deemed to be a non-authoritative
section of a standard. Once the Codification becomes effective,
all
non-grandfathered,
non-SEC accounting literature not included in the Codification
will become non-authoritative. The Company plans to adopt the
Codification in the second quarter of fiscal 2010.
In May 2008, the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles
(SFAS 162). This statement identifies the
sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial
statements of nongovernmental entities that are presented in
conformity with generally accepted accounting principles
(GAAP) in the United States. SFAS 162 became
effective in the fourth quarter of fiscal 2009. The Company has
determined that the adoption of SFAS 162 did not result in
a change in any of the Companys current accounting
practices and, thus, did not have an impact on the determination
or reporting of the Companys financial results.
In May 2009, the FASB issued SFAS No. 165,
Subsequent Events (SFAS 165). This
statement does not materially change existing guidance. Rather,
SFAS 165 introduces the concept of financial statements
being available to be issued. It requires the disclosure of the
date through which an entity has evaluated subsequent events and
the basis for that date, that is, whether that date represents
the date the financial statements were issued or were available
to be issued. This disclosure will alert users of financial
statements that an entity has not evaluated subsequent events
after the date stated in the financial statements and related
footnotes being presented. SFAS 165 will be effective for
all interim and annual periods ending after June 15, 2009.
The Company plans to adopt SFAS 165 in the first quarter of
fiscal 2010.
In April 2009, the Financial Accounting Standards Board
(FASB) issued FASB Staff Position (FSP)
FAS 115-2
and
FAS 124-2,
Recognition and Presentation of Other-Than-Temporary
Impairments (FSP
FAS 115-2
and
FAS 124-2).
This FSP amends the other-than-temporary impairment guidance for
debt securities to make the guidance more operational and to
improve the presentation and disclosure of other-than-temporary
impairments in the financial statements. The most significant
change the FSP brings is a revision to the amount of
other-than-temporary loss of a debt security recorded in
earnings. FSP
FAS 115-2
and
FAS 124-2
is effective for interim and annual periods ending after
June 15, 2009. The Company does not expect that this FSP
will have a significant impact on the determination or reporting
of the Companys financial results for the fiscal year
ended April 30, 2010.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS 141(R)), which replaces
SFAS No. 141, Business Combinations.
SFAS 141(R) retains the underlying concepts of
SFAS 141 in that all business combinations are still
required to be accounted for at fair value under the acquisition
method of accounting, but SFAS 141(R) changed the method of
applying the acquisition method in a number of significant
aspects. Acquisition costs will generally be expensed as
incurred; non-controlling interests will be valued at fair value
at the acquisition date; in-process research and development
will be recorded at fair value as an indefinite-lived intangible
asset at the acquisition date; restructuring costs associated
with a business combination will generally be expensed
subsequent to the acquisition date; and changes in deferred tax
asset valuation allowances and income tax uncertainties after
the acquisition date generally will affect income tax expense.
SFAS 141(R) will be effective on a prospective basis for
all business combinations for which the acquisition date is on
or after the beginning of the first annual period subsequent to
December 15, 2008, with the exception of the accounting for
valuation allowances on deferred taxes and acquired tax
contingencies. SFAS 141(R) amends SFAS 109 such that
adjustments made to valuation allowances on deferred taxes and
acquired tax contingencies associated with
52
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
acquisitions that closed prior to the effective date of
SFAS 141(R) would also apply the provisions of
SFAS 141(R). Early adoption is not permitted. The Company
has determined that this statement will not have a significant
impact on the Companys financial statements for the fiscal
year ended April 30, 2010.
In April 2008, the FASB issued
FSP 142-3,
Determining the Useful Life of Intangible Assets
(FSP 142-3).
FSP 142-3
was designed to improve the consistency between the useful life
of a recognized intangible asset under SFAS No. 142,
Goodwill and Other Intangible Assets
(SFAS 142), and the period of expected cash
flows used to measure the fair value of the asset under
SFAS No. 141 (revised 2007), Business
Combinations, and other guidance under GAAP.
FSP 142-3
will be effective for the Company on May 1, 2009. Early
adoption is prohibited. The Company does not expect that this
FSP will have a significant impact on the determination or
reporting of the Companys financial results for the fiscal
year ended April 30, 2010.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS 157),
which defines fair value, establishes a framework for measuring
fair value in accordance with GAAP, and expands disclosures
about fair value measurements. SFAS 157 applies where other
accounting pronouncements require or permit fair value
measurements; it does not require any new fair value
measurements under GAAP. The effects of adoption are determined
by the types of instruments carried at fair value in the
Companys financial statements at the time of adoption, as
well as the method utilized to determine their fair values prior
to adoption. SFAS 157 was effective for financial assets
and liabilities on May 1, 2008. SFAS 157 will be
effective for non-financial assets and liabilities, including
assets measured at fair value due to impairments, on May 1,
2009. The Company has determined that this statement did not
have a significant impact on the determination or reporting of
the Companys financial results for the fiscal year ended
April 30, 2009, and does not believe that it will have a
significant impact for the fiscal year ended April 30, 2010.
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 (SFAS 159). SFAS 159 was
effective for the Company on May 1, 2008. This statement
permits entities to choose to measure many financial instruments
and certain other items at fair value. This statement also
establishes presentation and disclosure requirements designed to
facilitate comparisons between entities that choose different
measurement attributes for similar types of assets and
liabilities. Unrealized gains and losses on items for which the
fair value option is elected will be reported in earnings. The
Company elected not to apply the fair value option to its
existing financial assets and liabilities on
SFAS 159s effective date. Thus, this statement did
not have an impact on the determination or reporting of the
Companys financial results.
On June 5, 2008, the Company declared a stock dividend of
five percent (5%) to all shareholders of record on June 18,
2008. Accordingly, on July 1, 2008, the Company issued
177,708 shares of stock pursuant to the stock dividend. All
stock options and stock appreciation rights (SARs)
have been adjusted retroactively to increase the number of stock
options and SARs outstanding to account for the stock dividend
for all periods presented.
The Company has three (3) outstanding types of equity-based
incentive compensation instruments in effect with employees,
non-employee directors and certain outside service providers:
stock options, SARs, and restricted stock. The Company typically
uses authorized, unissued shares to provide shares for these
equity-based instruments.
For the years ended April 30, 2009, and April 30,
2008, the Companys net earnings included $205,118 and
$128,787, respectively, of total equity-based compensation
expenses, and $78,265 and $49,102, respectively, of related
income tax benefits. All of these expenses are included in
selling, general and administrative expenses in the consolidated
statements of operations. At April 30, 2009, there were
total unrecognized equity-based compensation expenses of
$281,352 that are expected to be recognized over a weighted
average period of approximately 1.9 years.
53
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
options
A summary of stock options activity for the fiscal years ended
April 30 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Options to
|
|
|
Average
|
|
|
Options to
|
|
|
Average
|
|
|
|
Purchase
|
|
|
Exercise
|
|
|
Purchase
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Outstanding at beginning of year
|
|
|
483,536
|
|
|
$
|
4.45
|
|
|
|
595,540
|
|
|
$
|
4.44
|
|
Granted
|
|
|
10,500
|
|
|
|
5.24
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(11,550
|
)
|
|
|
4.59
|
|
|
|
(62,370
|
)
|
|
|
4.43
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
(38,084
|
)
|
|
|
4.42
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
(11,550
|
)
|
|
|
4.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
482,486
|
|
|
$
|
4.46
|
|
|
|
483,536
|
|
|
$
|
4.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested at end of year
|
|
|
471,986
|
|
|
$
|
4.44
|
|
|
|
483,536
|
|
|
$
|
4.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options typically vest over a period of two
(2) years. As of April 30, 2009, 98% of the
outstanding stock options were exercisable, but none were
in the money. As of April 30, 2008, 483,536, or
100%, of the outstanding stock options were exercisable and
in the money.
A summary of information about all stock options outstanding as
of April 30, 2009, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Remaining
|
|
|
|
Outstanding
|
|
|
Contractual
|
|
Exercise Price
|
|
Options
|
|
|
Life (Years)
|
|
|
$4.42
|
|
|
415,629
|
|
|
|
3.53
|
|
$4.59
|
|
|
55,440
|
|
|
|
5.90
|
|
$5.19
|
|
|
917
|
|
|
|
5.13
|
|
$5.24
|
|
|
10,500
|
|
|
|
4.12
|
|
The Company estimates the fair value of each stock option award
on the date of grant using the Black-Scholes option-pricing
model. The risk free interest rate utilized in the Black-Scholes
calculation is the interest rate of the U.S. Treasury Bill
having the same maturity period as the expected life of the
stock option awards. The expected life of the stock options
granted is based on the estimated holding period of the
respective awarded stock options. The expected volatility of the
stock options granted is based on the historical volatility of
the Companys stock over the preceding five-year period
using the month-end closing stock price. The fair value for the
stock options granted in fiscal 2009 was estimated on the
respective grant date using the following weighted average
assumptions in the Black-Scholes option-pricing model:
|
|
|
|
|
Expected life (years)
|
|
|
5
|
|
Dividend yield
|
|
|
2.55
|
%
|
Expected stock price volatility
|
|
|
37.11
|
%
|
Risk-free interest rate
|
|
|
3.73
|
%
|
Fair value of options granted
|
|
$
|
1.16
|
|
There were no stock options granted in fiscal 2008.
Compensation expenses related to the vesting of options for
fiscal year 2009 were $22,900, and the related income tax
benefits were $9,023. Comparatively, there were no compensation
expenses or related tax benefits related to the vesting of
options in fiscal year 2008.
54
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
appreciation rights
A summary of SARs activity for the fiscal years ended April 30
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
SARs
|
|
|
Price
|
|
|
SARs
|
|
|
Price
|
|
|
Outstanding at beginning of year
|
|
|
411,600
|
|
|
$
|
4.26
|
|
|
|
451,500
|
|
|
$
|
3.86
|
|
Granted
|
|
|
184,000
|
|
|
|
4.57
|
|
|
|
117,600
|
|
|
|
5.29
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(30,250
|
)
|
|
|
3.98
|
|
|
|
(157,500
|
)
|
|
|
3.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
565,350
|
|
|
$
|
4.37
|
|
|
|
411,600
|
|
|
$
|
4.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested at end of year
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All SARs awarded as of April 30, 2009, have a five-year
vesting period, in which thirty percent (30%) of the SARs will
vest on the third year anniversary of the date of grant, thirty
percent (30%) will vest on the fourth year anniversary of the
date of grant, and forty percent (40%) will vest on the fifth
year anniversary of the date of grant, with an early vesting
provision by which one hundred percent (100%) of the SARs would
vest immediately on the date of a change in control of the
Company or if the Companys stock price closes at or above
a certain price for ten (10) consecutive trading days. For
the 542,850 SARs outstanding at April 30, 2009, which were
granted prior to the stock dividend, the triggering price is
$19.05 per share. For the 22,500 SARs outstanding at
April 30, 2009, which were granted subsequent to the stock
dividend, the triggering price is $20.00 per share.
A summary of information about SARs outstanding as of
April 30, 2009, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Contractual
|
|
Exercise Price
|
|
SARs
|
|
|
SARs
|
|
|
Life (Years)
|
|
|
$3.94
|
|
|
182,700
|
|
|
|
0
|
|
|
|
7.16
|
|
$3.79
|
|
|
111,300
|
|
|
|
0
|
|
|
|
7.61
|
|
$4.09
|
|
|
10,500
|
|
|
|
0
|
|
|
|
8.02
|
|
$4.19
|
|
|
10,500
|
|
|
|
0
|
|
|
|
8.12
|
|
$6.19
|
|
|
38,850
|
|
|
|
0
|
|
|
|
8.42
|
|
$5.00
|
|
|
52,500
|
|
|
|
0
|
|
|
|
8.99
|
|
$4.76
|
|
|
136,500
|
|
|
|
0
|
|
|
|
9.13
|
|
$4.00
|
|
|
22,500
|
|
|
|
0
|
|
|
|
9.39
|
|
The Company estimates the fair value of each SARs grant on the
date of grant using the Black-Scholes option-pricing model. The
risk free interest rate utilized in the Black-Scholes
calculation is the interest rate of the U.S. Treasury Bill
having the same maturity period as the expected life of the
Companys SARs awards. The expected life of the SARs
granted is based on the estimated holding period of the
respective SARs awards. The expected volatility is based on the
historical volatility of the Companys stock over the
preceding five-year period using the month-end closing stock
price. The SARs granted had the following weighted average
assumptions and fair values:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Expected life (years)
|
|
|
5
|
|
|
|
7.23
|
|
Dividend yield
|
|
|
2.59
|
%
|
|
|
2.75
|
%
|
Expected stock price volatility
|
|
|
37.25
|
%
|
|
|
38.14
|
%
|
Risk-free interest rate
|
|
|
3.45
|
%
|
|
|
4.13
|
%
|
Fair value of SARs granted
|
|
$
|
0.91
|
|
|
$
|
1.16
|
|
55
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Compensation expenses related to the vesting of SARs for fiscal
years 2009 and 2008 were $164,315 and $121,434, respectively,
and related income tax benefits were $62,439 and $46,145,
respectively. The compensation expenses were included in
selling, general and administrative expenses in the consolidated
statements of operations.
Shares
of restricted stock
Periodically, the Company has awarded shares of restricted stock
to employees, non-employee directors and certain outside service
providers. The awards are recorded at fair market value on the
date of grant and typically vest over a period of one
(1) year. As of April 30, 2009, there were
unrecognized compensation expenses totaling $7,179 related to
grants of shares of restricted stock, which the Company expects
to be recognized over the ensuing year. For fiscal years 2009
and 2008, compensation expenses related to the vesting of shares
of restricted stock were $17,903 and $7,353, respectively, and
the related income tax benefits were $6,803 and $2,794,
respectively.
The following table summarizes restricted stock activity for the
fiscal years ended April 30:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Non-vested restricted stock at beginning of year
|
|
|
1,785
|
|
|
|
|
|
Granted
|
|
|
5,800
|
|
|
|
2,625
|
|
Forfeited
|
|
|
(505
|
)
|
|
|
(840
|
)
|
Vested
|
|
|
(1,785
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested restricted stock at end of year
|
|
|
5,295
|
|
|
|
1,785
|
|
|
|
|
|
|
|
|
|
|
The weighted average per share fair values of the restricted
stock awards granted in fiscal years 2009 and 2008 were $4.72
and $4.27, respectively.
Restricted cash is cash proceeds from sales of real estate
assets, which the Company elected to be deposited temporarily
into an escrow account at closing of the sale in order to fund
potential acquisitions of income-producing properties through a
tax deferred Internal Revenue Code Section 1031 exchange.
If the Company does not complete such an acquisition, then the
funds are released from escrow to the Company and converted to
cash and cash equivalents. All of the restricted cash as of
April 30, 2008, was released from escrow to the Company on
June 11, 2008, and converted to cash and cash equivalents.
|
|
5.
|
DISCONTINUED
OPERATIONS
|
The Company is in the business of creating long-term value by
periodically realizing gains through the sale of real estate
assets, and then redeploying its capital by reinvesting the
proceeds from such sales in new real estate assets or other
segments of the Company. SFAS 144 requires, among other
things, that the operating results of certain income-producing
assets be included in discontinued operations in the statements
of operations for all periods presented. The Company classifies
an asset as held for sale when the asset is under a binding
sales contract with minimal contingencies, and the buyer is
materially at risk if the buyer fails to complete the
transaction. However, each potential transaction is evaluated
based on its separate facts and circumstances. Pursuant to this
standard, as of April 30, 2009, and April 30, 2008,
the Company had no income-producing assets that were classified
as held for sale.
Interest expense specifically related to mortgage debt on
income-producing properties that have been sold is allocated to
the results of discontinued operations in accordance with
EITF 87-24,
Allocation of Interest to Discontinued Operations. The
Company has elected not to allocate to discontinued operations
other consolidated interest that is not directly attributable to
the sold properties or related to other operations of the
Company.
56
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Real
estate sales of income-producing properties
On December 13, 2007, the Company sold its owned office
park located in Marietta, Georgia, and recognized a pre-tax gain
on the sale of approximately $2.1 million. On July 31,
2007, the Company sold its leasehold interest in the land and
its owned shopping center building located in Columbus, Georgia,
and its owned shopping center located in Orange Park, Florida,
and recognized a total pre-tax gain on the sales of
approximately $1.9 million. As a result of these
transactions, the Companys financial statements have been
prepared with the results of operations and cash flows of these
sold properties shown as discontinued operations.
All historical statements have been restated in accordance with
SFAS 144. Summarized financial information for discontinued
operations for the fiscal years ended April 30 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
REAL ESTATE SEGMENT
|
|
|
|
|
|
|
|
|
Rental revenues
|
|
$
|
|
|
|
$
|
1,129,510
|
|
Rental property operating expenses, including depreciation
|
|
|
|
|
|
|
812,439
|
|
Interest expenses and loan prepayment fees
|
|
|
|
|
|
|
287,547
|
|
|
|
|
|
|
|
|
|
|
Total operating earnings from discontinued operations
|
|
|
|
|
|
|
29,524
|
|
Income tax expense
|
|
|
|
|
|
|
11,219
|
|
|
|
|
|
|
|
|
|
|
Total operating earnings from discontinued operations, net of tax
|
|
|
|
|
|
|
18,305
|
|
Gain on sale of income-producing properties
|
|
|
|
|
|
|
3,996,450
|
|
Income tax expense
|
|
|
|
|
|
|
1,518,651
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of income-producing properties, net of tax
|
|
|
|
|
|
|
2,477,799
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations, net of tax
|
|
$
|
|
|
|
$
|
2,496,104
|
|
|
|
|
|
|
|
|
|
|
There were no assets or liabilities related to discontinued
operations remaining in the Companys consolidated balance
sheet as of April 30, 2009, or April 30, 2008.
Assets and liabilities that are related to contracts in
progress, including contracts receivable, are included in
current assets and current liabilities, respectively, as they
will be liquidated in the normal course of contract completion,
which is expected to occur within one year. Amounts billed and
costs and earnings recognized on contracts in progress at April
30 were:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Costs and earnings in excess of billings:
|
|
|
|
|
|
|
|
|
Accumulated costs and earnings
|
|
$
|
2,129,684
|
|
|
$
|
976,783
|
|
Amounts billed
|
|
|
1,720,734
|
|
|
|
701,029
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
408,950
|
|
|
$
|
275,754
|
|
|
|
|
|
|
|
|
|
|
Billings in excess of costs and earnings:
|
|
|
|
|
|
|
|
|
Amounts billed
|
|
$
|
2,574,827
|
|
|
$
|
4,508,831
|
|
Accumulated costs and earnings
|
|
|
2,546,612
|
|
|
|
4,446,272
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,215
|
|
|
$
|
62,559
|
|
|
|
|
|
|
|
|
|
|
57
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
7.
|
INCOME-PRODUCING
PROPERTIES
|
Income-producing properties and their estimated useful lives at
April 30 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
Useful Lives
|
|
2009
|
|
|
2008
|
|
|
Land
|
|
N/A
|
|
$
|
6,198,061
|
|
|
$
|
6,574,218
|
|
Buildings and improvements
|
|
7-39 years
|
|
|
17,116,710
|
|
|
|
18,559,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,314,771
|
|
|
$
|
25,133,382
|
|
Less accumulated depreciation
|
|
|
|
|
3,923,396
|
|
|
|
3,359,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,391,375
|
|
|
$
|
21,773,409
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense from continuing operations for the years
ended April 30, 2009, and April 30, 2008, was $563,423
and $562,720, respectively. These amounts are included in Real
Estate cost of revenues on the accompanying consolidated
statements of operations.
During the fourth quarter of fiscal 2009, the anchor tenant of
the Companys owned office building in
Newnan, Georgia, defaulted on its lease obligations and
subsequently vacated its leased space, which lowered the
buildings occupancy rate to 28%. Given this event, the
Company determined that the propertys fair market value
was less than its current book value, and therefore recorded an
impairment loss of approximately $2,007,000 in the fourth
quarter of fiscal 2009. Additionally, given this event, the
Company also recorded an impairment loss of approximately
$151,000 in the fourth quarter of fiscal 2009 to write off the
remaining net book value of the anchor tenants capitalized
lease cost, which was initially recorded as an intangible asset
when the Company acquired the Newnan office building in fiscal
2007.
|
|
8.
|
PROPERTY
AND EQUIPMENT
|
The major components of property and equipment and their
estimated useful lives at April 30 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
Useful Lives
|
|
2009
|
|
|
2008
|
|
|
Buildings and improvements
|
|
3-39 years
|
|
$
|
496,276
|
|
|
$
|
496,276
|
|
Equipment
|
|
3-10 years
|
|
|
1,661,297
|
|
|
|
1,407,235
|
|
Vehicles
|
|
3-5 years
|
|
|
296,783
|
|
|
|
308,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,454,356
|
|
|
$
|
2,212,319
|
|
Less accumulated depreciation
|
|
|
|
|
1,656,800
|
|
|
|
1,400,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
797,556
|
|
|
$
|
811,900
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense from continuing operations for the years
ended April 30, 2009, and April 30, 2008, was $257,924
and $195,865, respectively. These amounts are included in
selling, general, and administrative expenses on the
accompanying statements of operations.
|
|
9.
|
MORTGAGE
NOTES PAYABLE AND LEASES
|
As of April 30, 2009, the Company owned two
(2) shopping centers and two (2) office buildings. All
of these owned properties were pledged as collateral on
respective mortgage notes payable. Exculpatory provisions of the
mortgage notes payable limit the Companys liability for
repayment to its interest in each respective owned property.
The owned shopping centers are leased to tenants for terms
expiring on various dates during fiscal years 2009 to 2020,
while the office properties are leased to tenants for terms
expiring on various dates during fiscal years 2010 to 2014. The
Company also leases one (1) shopping center under a
leaseback arrangement expiring in fiscal year 2013.
58
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys lease on that property contains exculpatory
provisions that limit the Companys liability for payment
to its interest in the lease. The leaseback shopping center is
subleased to the Kmart Corporation. The term of the
Companys lease either is the same as, or may be extended
to correspond to, the term of the sublease.
All leases are operating leases. The owned shopping center
leases typically require that the tenants make fixed rental
payments over a period of three (3) to twenty
(20) years, may grant the tenant renewal options, and may
provide for contingent rentals if the tenants annual sales
volume in the leased space exceeds a predetermined amount. The
leases on the office properties typically require tenants to
make fixed rental payments over a period of three (3) to
seven (7) years. In most cases, the shopping center leases
and office leases provide that the tenants bear a portion of the
costs of insurance, repairs, maintenance and taxes.
Base rental revenues recognized from owned shopping centers and
owned office properties in 2009 and 2008 were approximately
$2,430,000 and $2,717,000, respectively. Base rental revenues
recognized from the leaseback shopping centers in 2009 and 2008
were approximately $255,000 and $330,000, respectively. No
contingent rental revenues were recognized on any of the
shopping centers in 2009 or 2008.
Approximate future minimum annual rental revenues from all
income-producing properties are projected as follows:
|
|
|
|
|
|
|
|
|
Year Ending April 30,
|
|
Owned
|
|
|
Leaseback
|
|
|
2010
|
|
$
|
2,314,000
|
|
|
$
|
255,000
|
|
2011
|
|
|
1,777,000
|
|
|
|
255,000
|
|
2012
|
|
|
1,405,000
|
|
|
|
255,000
|
|
2013
|
|
|
863,000
|
|
|
|
149,000
|
|
2014
|
|
|
429,000
|
|
|
|
|
|
Thereafter
|
|
|
1,727,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,515,000
|
|
|
$
|
914,000
|
|
|
|
|
|
|
|
|
|
|
The expected future minimum principal and interest payments on
mortgage notes payable for the owned income-producing
properties, and the approximate future minimum rentals expected
to be paid on the leaseback center, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned Income-Producing
|
|
|
Leaseback
|
|
|
|
Properties Mortgage Payments
|
|
|
Center Rental
|
|
Year Ending April 30,
|
|
Principal(1)(2)
|
|
|
Interest
|
|
|
Payments
|
|
|
2010
|
|
$
|
381,858
|
|
|
$
|
1,202,059
|
|
|
$
|
105,203
|
|
2011
|
|
|
411,036
|
|
|
|
1,175,840
|
|
|
|
105,203
|
|
2012
|
|
|
438,385
|
|
|
|
1,148,491
|
|
|
|
105,203
|
|
2013
|
|
|
4,305,762
|
|
|
|
891,405
|
|
|
|
61,368
|
|
2014
|
|
|
348,899
|
|
|
|
793,833
|
|
|
|
|
|
Thereafter
|
|
|
12,716,558
|
|
|
|
4,364,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,602,498
|
|
|
$
|
9,576,156
|
|
|
$
|
376,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On one of the mortgage notes, the lender has an option to call
the note for early repayment any time after July 1, 2011,
upon thirteen (13) months prior written notice. The
balance of this mortgage note payable was approximately
$7,060,000 as of April 30, 2009. The information presented
here assumes the call option will not be exercised. |
(2) |
|
During the fourth quarter of fiscal 2009, the anchor tenant of
the Companys Newnan office building defaulted on its lease
obligations. Due to the tenants default, the current
financial condition, and the fact that the tenant has vacated
the leased space, the Company does not anticipate that such
tenant will make any additional lease payments. Consequently,
the Company has not made payments on the propertys
mortgage loan beginning in |
59
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
May 2009 and has offered to return the property to the
lender. The lender has not yet communicated to the Company how
it plans to proceed. Exculpatory provisions of the mortgage loan
generally limit the Companys liability for repayment to
its interest in the property. This schedule was prepared based
on the fact that the Newnan mortgage loan was not in default as
of April 30, 2009. The principal amounts shown above
include the following amounts for the Newnan mortgage loan:
$41,602 in 2010; $44,150 in 2011; $46,854 in 2012; $49,724 in
2013; $52,770 in 2014; and $2,933,859 thereafter. The interest
amounts shown above include the following amounts for the Newnan
mortgage loan: $187,639 in 2010; $185,091 in 2011; $182,387 in
2012; $179,516 in 2013; $176,471 in 2014; and $536,538
thereafter. |
The mortgage notes payable are due at various dates between
August 1, 2012, and July 1, 2029, and bear interest at
rates ranging from 5.96% to 7.75%. At April 30, 2009, the
weighted average interest rate for all outstanding debt was
6.44% including other long-term debt and credit facilities (see
Note 10 Other Long-Term Debt).
The Companys mortgage notes do not contain any financial
covenants, with the exception of a guarantee on one (1) of
its real estate mortgage loans that requires a Company
subsidiary to maintain a net worth of at least $4 million.
The subsidiarys net worth was approximately
$16 million as of April 30, 2009.
Based on the borrowing rates currently available to the Company
for mortgage notes with similar terms and average maturities,
the fair value of mortgage notes payable is $17,130,767 as of
April 30, 2009.
Secured
letter of credit
In conjunction with terms of the mortgage on an owned office
building, the Company is required to provide for potential
future tenant improvement costs and lease commissions with
additional collateral, in the form of a letter of credit in the
amount of $300,000 from July 17, 2005, through
July 16, 2008; and $450,000 from July 17, 2008,
through August 1, 2012. The letter of credit is secured by
a certificate of deposit, which is recorded on the accompanying
balance sheet as a non-current other asset as of April 30,
2009, and 2008.
Other long-term debt at April 30 was as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Note payable, net of discount ($150,000 at April 30, 2009),
bearing interest at the prime rate plus 1.5% (4.75% at
April 30, 2009); interest only payments due monthly;
matures December 18, 2011; secured by all general assets of
The Wheatstone Energy Group.
|
|
$
|
850,000
|
|
|
$
|
870,000
|
|
Note payable bearing interest at 6.8%; interest due annually on
December 31, beginning December 31, 2004, and
principal payments due annually in installments as defined in
the agreement commencing on December 19, 2008; matures on
December 19, 2010.
|
|
|
235,000
|
|
|
|
275,000
|
|
Note payable bearing interest at 8.25%; interest due monthly on
the first day of the month commencing on September 1, 2007,
and principal payments due in full at maturity on July 31,
2008.
|
|
|
|
|
|
|
240,875
|
|
Note payable bearing interest at 8.0%; interest due quarterly on
a calendar year commencing on September 30, 2008, and
principal payments due in full at maturity on June 6,
2009.
|
|
|
100,000
|
|
|
|
|
|
Total other long-term debt.
|
|
|
1,185,000
|
|
|
|
1,385,875
|
|
Less current maturities.
|
|
|
185,000
|
|
|
|
280,875
|
|
|
|
|
|
|
|
|
|
|
Total other long-term debt, less current maturities.
|
|
$
|
1,000,000
|
|
|
$
|
1,105,000
|
|
|
|
|
|
|
|
|
|
|
60
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The future minimum principal payments due on other long-term
debt are as follows:
|
|
|
|
|
Fiscal Year Ending April 30,
|
|
|
|
|
2010
|
|
$
|
185,000
|
|
2011
|
|
|
150,000
|
|
2012
|
|
|
850,000
|
|
2013
|
|
|
|
|
2014
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,185,000
|
|
|
|
|
|
|
The other long-term debt obligations have no financial or
non-financial covenants.
Based on the borrowing rates currently available to the Company
for bank loans with similar terms and average maturities, the
fair value of other long-term debt is $1,123,744 as of
April 30, 2009.
The expenses (benefit) for income taxes from continuing
operations consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Deferred
|
|
|
Total
|
|
|
Year ended April 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
(2,432,808
|
)
|
|
$
|
(2,432,808
|
)
|
State and local
|
|
|
|
|
|
|
(134,727
|
)
|
|
|
(134,727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
(2,567,535
|
)
|
|
$
|
(2,567,535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended April 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
15,907
|
|
|
$
|
(657,936
|
)
|
|
$
|
(642,029
|
)
|
State and local
|
|
|
|
|
|
|
(157,354
|
)
|
|
|
(157,354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,907
|
|
|
$
|
(815,290
|
)
|
|
$
|
(799,383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax benefits from continuing operations recognized
in the consolidated statements of operations differs from the
amounts computed by applying the federal income tax rate of 34%
to pretax loss, as a result of the following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Computed expected benefit
|
|
$
|
(2,432,695
|
)
|
|
$
|
(666,375
|
)
|
State and local income taxes
|
|
|
(6,253
|
)
|
|
|
(78,397
|
)
|
Permanent items
|
|
|
(6,638
|
)
|
|
|
(13,371
|
)
|
State net operating loss adjustment
|
|
|
(127,775
|
)
|
|
|
(35,540
|
)
|
Federal net operating loss adjustment
|
|
|
(28,203
|
)
|
|
|
|
|
Other
|
|
|
34,029
|
|
|
|
(5,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,567,535
|
)
|
|
$
|
(799,383
|
)
|
|
|
|
|
|
|
|
|
|
61
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The tax effects of the temporary differences that give rise to
significant portions of the deferred income tax assets and
deferred income tax liabilities, at April 30, are presented
below:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Items not currently deductible for tax purposes:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards, federal and state(1)
|
|
$
|
3,088,067
|
|
|
$
|
2,285,566
|
|
Valuation allowance
|
|
|
(236,098
|
)
|
|
|
(236,098
|
)
|
Income producing properties and property and equipment,
principally because of differences in depreciation and
capitalized interest
|
|
|
53,981
|
|
|
|
53,981
|
|
Gain/loss on disposal of assets
|
|
|
819,170
|
|
|
|
|
|
Capitalized costs
|
|
|
41,822
|
|
|
|
45,624
|
|
Bad debt reserves
|
|
|
56,821
|
|
|
|
74,322
|
|
Deferred compensation plan expenses
|
|
|
281,754
|
|
|
|
392,287
|
|
Compensated absences
|
|
|
46,048
|
|
|
|
34,820
|
|
Other accrued expenses
|
|
|
394,951
|
|
|
|
629,271
|
|
Other
|
|
|
285,501
|
|
|
|
126,861
|
|
|
|
|
|
|
|
|
|
|
Gross deferred income tax assets
|
|
|
4,832,017
|
|
|
|
3,406,634
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Income producing properties and property and equipment,
principally because of differences in depreciation and
capitalized interest
|
|
|
1,368,778
|
|
|
|
1,322,436
|
|
Gain on real estate sales structured as tax-deferred like-kind
exchanges
|
|
|
5,261,572
|
|
|
|
6,521,598
|
|
Other
|
|
|
111,601
|
|
|
|
83,553
|
|
|
|
|
|
|
|
|
|
|
Gross deferred income tax liability
|
|
|
6,741,951
|
|
|
|
7,927,587
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax liability
|
|
$
|
1,909,934
|
|
|
$
|
4,520,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The federal NOL carryforwards expire in various years after
fiscal 2024. The majority of the state NOL carryforwards expire
between the fiscal years 2024 and 2027. |
The valuation allowance against deferred tax assets at
April 30, 2009, and April 30, 2008, was $236,098 in
both years. The valuation allowance reduces tax deferred tax
assets to an amount that represents managements best
estimate of the amount of such deferred tax assets that most
likely will be realized.
The valuation allowance currently recorded against the DTA for
state NOL carryforwards was recorded for certain separate return
limitation years. These were years that the separate legal
entities generated tax losses prior to the filing of a
consolidated tax return. In order for these losses to be
utilized in the future, the legal entity which generated the
losses must generate the taxable income to offset it. The
allowance was recorded as management asserted that it was not
more-likely-than-not that these losses would be utilized prior
to expiration.
The Company has no material FIN 48 obligations. The
Companys policy is to record interest and penalties as a
component of income tax expense (benefit) in the consolidated
statement of operations.
The Company and its subsidiaries income tax returns are
subject to examination by federal and state tax jurisdictions
for fiscal years 2006 through 2008.
62
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has a 401(k) plan (the Plan) which
covers the majority of its employees. Pursuant to the provisions
of the Plan, eligible employees may make salary deferral (before
tax) contributions of up to one hundred percent (100%) of their
total compensation per plan year, not to exceed a specified
maximum annual contribution as determined by the Internal
Revenue Service. The Plan also includes provisions that
authorize the Company to make additional discretionary
contributions. Such contributions, if made, are allocated among
all eligible employees as determined under the Plan. The trustee
under the Plan invests the assets of each participants
account, as directed by the participant. The Plan assets
currently do not include any stock of the Company. Funded
discretionary employer contributions to the Plan for fiscal
years 2009 and 2008 were approximately $62,000 and $63,000,
respectively. The net assets in the Plan, which is administered
by an independent trustee, were approximately $4,050,000 and
$5,094,000 at April 30, 2009, and April 30, 2008,
respectively. In conjunction with the acquisition of the assets
of Servidyne Systems, Inc. in fiscal 2002, the Company assumed a
401(k) plan (the Servidyne Systems Plan), which
covered a significant number of the employees. Under the
provisions of the Servidyne Systems Plan, participants could
contribute up to one hundred percent (100%) of their
compensation per plan year, not to exceed a specified maximum
annual contribution as determined by the Internal Revenue
Service. The Servidyne Systems Plan was frozen as of
January 1, 2003, and no additional employee or employer
contributions were funded after that date.
In fiscal 2001, the Companys shareholders approved the
2000 Stock Award Plan (the 2000 Award Plan). The
2000 Award Plan permits the grant of incentive and non-qualified
stock options, non-restricted, restricted and performance stock
awards, and stock appreciation rights to directors, employees,
independent contractors, advisors, consultants and other outside
service providers to the Company, as determined by the
Compensation Committee of the Board of Directors. The term and
vesting requirements of each award are determined by the
Compensation Committee, but in no event may the term of any
award exceed ten (10) years. Incentive Stock Options
granted under the 2000 Award Plan provide for the purchase of
the Companys common stock at not less than fair market
value on the date the stock option is granted. The total number
of shares that can be granted under the 2000 Award Plan is
1,155,000 shares (share amount adjusted for stock dividend).
The Company issued 52,500 SARs (adjusted for stock dividend)
outside of the 2000 Stock Award Plan, with an exercise price of
$4.76 (adjusted for stock dividend) and an exercise period of
ten (10) years, to one (1) employee in June 2008. The
SARs awarded have a five-year vesting period, in which thirty
percent (30%) of the SARs will vest on the third year
anniversary of the date of grant, thirty percent (30%) will vest
on the fourth year anniversary of the date of grant, and forty
percent (40%) will vest on the fifth year anniversary of the
date of grant, with an early vesting provision by which one
hundred percent (100%) of SARs would vest immediately if the
Companys stock price closes at or above $19.05 per share
(adjusted for stock dividend) for ten (10) consecutive
trading days or on the date of a change in control of the
Company.
The Company issued 57,750 stock warrants (adjusted for stock
dividend) outside the 2000 Stock Award Plan with an exercise
price of $4.42 (adjusted for stock dividend), to unrelated third
parties in December 2003, of which none had been exercised as of
April 30, 2009.
In March 2007, the Companys Board of Directors authorized
the repurchase of up to 50,000 shares of the Companys
common stock during the twelve-month period ending on
March 8, 2008. In March 2008, the Companys Board of
Directors authorized the repurchase of up to 50,000 shares
of the Companys common stock during the twelve-month
period ending on March 5, 2009. On December 3, 2008,
the Board of Directors increased the authorization to repurchase
the Companys common stock to 100,000 shares during
the twelve-month period ending March 5, 2009. On
February 26, 2009, the Board of Directors authorized the
repurchase of up to 100,000 shares of the Companys
common stock during the twelve-month period ending March 5,
2010. The Company repurchased 48,890 shares in fiscal 2009.
There were no shares repurchased by the Company during
fiscal 2008.
63
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
14.
|
NET
EARNINGS (LOSS) PER SHARE
|
Earnings per share are calculated in accordance with
SFAS 128, Earnings Per Share, which requires dual
presentation of basic and diluted earnings per share on the face
of the statement of operations for all entities with complex
capital structures. Basic and diluted weighted average share
differences, if any, result solely from dilutive common stock
options, restricted stock, SARs and stock warrants. Basic
earnings (loss) per share are computed by dividing net earnings
(loss) by the weighted average shares outstanding during the
reporting period. Potential dilutive common shares are
calculated in accordance with the treasury stock method, which
assumes that the proceeds from the exercise of all stock
options, restricted stock, SARs and stock warrants would be used
to repurchase common shares at the current market value. The
number of shares remaining after the exercise proceeds were
exhausted represents the potentially dilutive effect of the
stock options, restricted stock, SARs and stock warrants. The
dilutive effect on the number of common shares was 54,832 in
2009 and 221,771 in 2008. Because the Company had losses from
continuing operations for all periods presented, all stock
equivalents were anti-dilutive during these periods, and
therefore, are excluded when determining the diluted weighted
average number of shares outstanding.
On June 5, 2008, the Company declared a stock dividend of
five percent (5%) for all shareholders of record on
June 18, 2008. Accordingly, on July 1, 2008, the
Company distributed 177,708 newly issued shares of stock to
those stockholders. Earnings (loss) per share have been adjusted
retroactively to include the shares issued and outstanding
pursuant to the stock dividend as outstanding for all periods
presented.
The following tables set forth the computations of basic and
diluted net earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended April 30, 2009
|
|
|
|
Earnings
|
|
|
|
|
|
Per Share
|
|
|
|
(Loss)
|
|
|
Shares
|
|
|
Amount
|
|
|
Basic EPS loss per share from continuing operations
|
|
$
|
(4,587,450
|
)
|
|
|
3,716,700
|
|
|
$
|
(1.23
|
)
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS earnings per share
|
|
$
|
(4,587,450
|
)
|
|
|
3,716,700
|
|
|
$
|
(1.23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended April 30, 2008
|
|
|
|
Earnings
|
|
|
|
|
|
Per Share
|
|
|
|
(Loss)
|
|
|
Shares
|
|
|
Amount
|
|
|
Basic EPS loss per share from continuing operations
|
|
$
|
(1,160,542
|
)
|
|
|
3,711,659
|
|
|
$
|
(0.31
|
)
|
Basic EPS earnings per share from discontinued
operations
|
|
|
2,496,104
|
|
|
|
3,711,659
|
|
|
|
0.67
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS earnings per share
|
|
$
|
1,335,562
|
|
|
|
3,711,659
|
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company had two (2) operating segments at
April 30, 2009: BPE and Real Estate. The BPE Segment
assists its customer base of multi-site owners and operators of
corporate, commercial office, hospitality, gaming, retail,
education, light industrial, government, institutional, and
health care buildings, as well as energy services companies and
public and private utilities, in improving facility operating
performance, reducing energy consumption, and lowering ownership
and operating costs, while improving the level of service and
comfort for building occupants, through its: (1) energy
efficiency engineering and analytical consulting services,
including energy surveys and audits, facility studies,
retrocommissioning services, utility monitoring services,
building qualification for ENERGY
STAR®
and
LEED®
certifications, HVAC retrofit design, and energy simulations and
modeling; (2) facility management software programs,
including its iTendant platform using Web and wireless
64
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
technologies; and (3) energy saving lighting programs and
energy related services and infrastructure upgrade projects that
reduce energy consumption and operating costs. The primary
geographic focus for the BPE Segment is the continental United
States, although it transacts business internationally as well.
The Real Estate Segment is involved in the investment, sale,
development, and re-development of shopping centers and office
properties in the Southeast and Midwest.
The operating segments are managed separately and maintain
separate personnel, due to the differing services offered by
each segment, except for accounting, human resources,
information technology, and some clerical shared services.
Management evaluates and monitors the performance of the
respective segments based primarily on the consistency with the
Companys long-term strategic objectives. The significant
accounting policies utilized by the operating segments are the
same as those summarized in Note 2.
Total revenues by operating segment include both revenues from
unaffiliated customers, as reported in the Companys
consolidated statements of operations, and intersegment
revenues, which are generally at prices negotiated between
segments.
The Company derived revenues from direct transactions with
customers aggregating more than ten percent (10%) of
consolidated revenues from continuing operations as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Customer 1
|
|
|
N/A
|
|
|
|
10
|
%
|
Customer 2
|
|
|
13
|
%
|
|
|
17
|
%
|
Revenues derived from Customer 1 were generated entirely by the
Real Estate Segment, and revenues derived from Customer 2 were
generated entirely by the BPE Segment.
The table below shows selected financial data on a segment basis
before intersegment eliminations. In this presentation,
management fee expenses charged by the Parent Company are not
included in the segments results.
Beginning with the quarterly report on
Form 10-Q
for the period ended January 31, 2009, the Company modified
the format of the table of operating segments financial data
from prior periods to better represent how the chief operating
decision maker (CODM) reviews the performance of
each operating segment. Previously, the CODM included
discontinued operations from sales of income-producing
properties and income taxes in the review. As the real estate
market has deteriorated throughout this fiscal year, it became
evident that it may not be advantageous for the Company to sell
any income-producing properties for some period of time, and
therefore, the Company does not anticipate having any
discontinued operations until such time that an income-producing
property is under a binding sales contract with minimal
contingencies. As a result, the CODM has changed focus to
results from continuing operations. To better reflect this,
(Loss) earnings from continuing operations before income
taxes has replaced Net (loss) earnings by
segment for all periods presented. Selling, general and
administrative costs, and interest costs, which are deducted in
the computation of the (loss) earnings from continuing
operations before income taxes of each segment, represent the
actual costs incurred by that segment.
Segment assets are those that are used in the operation of each
segment, including receivables due from the other segment and
assets from discontinued operations. The Parent Companys
assets are primarily of its investments in subsidiaries, cash
and cash equivalents, the cash surrender value of life
insurance, receivables, and assets related to deferred
compensation plans.
65
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
BPE
|
|
|
Real Estate
|
|
|
Parent(1)
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues from unaffiliated customers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BPE Segment services and products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy savings projects
|
|
$
|
5,533,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,533,925
|
|
Lighting products
|
|
|
1,664,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,664,855
|
|
Energy management services
|
|
|
2,319,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,319,433
|
|
Productivity software
|
|
|
3,674,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,674,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues from unaffiliated customers
|
|
$
|
13,192,310
|
|
|
$
|
3,264,062
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
16,456,372
|
|
Intersegment revenue
|
|
|
20,362
|
|
|
|
576,080
|
|
|
|
|
|
|
|
(596,442
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues from continuing operations
|
|
$
|
13,212,672
|
|
|
$
|
3,840,142
|
|
|
$
|
|
|
|
$
|
(596,442
|
)
|
|
$
|
16,456,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations before income taxes
|
|
$
|
(2,310,134
|
)
|
|
$
|
(1,476,125
|
)
|
|
$
|
(3,354,164
|
)
|
|
$
|
(14,562
|
)
|
|
$
|
(7,154,985
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
$
|
14,118,447
|
|
|
$
|
49,557,201
|
|
|
$
|
28,471,595
|
|
|
$
|
(48,502,587
|
)
|
|
$
|
43,644,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
6,354,002
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,354,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expenses
|
|
$
|
93,717
|
|
|
$
|
1,233,584
|
|
|
$
|
873,284
|
|
|
$
|
(900,290
|
)
|
|
$
|
1,300,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
822,459
|
|
|
$
|
730,630
|
|
|
$
|
71,705
|
|
|
$
|
|
|
|
$
|
1,624,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
55,306
|
|
|
$
|
192,932
|
|
|
$
|
110,860
|
|
|
$
|
|
|
|
$
|
359,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
BPE
|
|
|
Real Estate
|
|
|
Parent(1)
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues from unaffiliated customers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BPE Segment services and products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy savings projects
|
|
$
|
8,550,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,550,237
|
|
Lighting products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy management services
|
|
|
2,354,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,354,859
|
|
Productivity software
|
|
|
3,344,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,344,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues from unaffiliated customers
|
|
$
|
14,249,228
|
|
|
$
|
5,098,498
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
19,347,726
|
|
Intersegment revenue
|
|
|
|
|
|
|
589,465
|
|
|
|
|
|
|
|
(589,465
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues from continuing operations
|
|
$
|
14,249,228
|
|
|
$
|
5,687,963
|
|
|
$
|
|
|
|
$
|
(589,465
|
)
|
|
$
|
19,347,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations before income taxes
|
|
$
|
(1,352,130
|
)
|
|
$
|
3,164,601
|
|
|
$
|
(3,733,527
|
)
|
|
$
|
(38,869
|
)
|
|
$
|
(1,959,925
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
$
|
15,731,963
|
|
|
$
|
52,215,621
|
|
|
$
|
29,220,492
|
|
|
$
|
(44,852,526
|
)
|
|
$
|
52,315,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
5,458,717
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,458,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expenses
|
|
$
|
131,349
|
|
|
$
|
1,272,587
|
|
|
$
|
1,054,243
|
|
|
$
|
(1,087,008
|
)
|
|
$
|
1,371,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
716,303
|
|
|
$
|
732,843
|
|
|
$
|
57,472
|
|
|
$
|
|
|
|
$
|
1,506,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
114,777
|
|
|
$
|
732,833
|
|
|
$
|
67,002
|
|
|
$
|
|
|
|
$
|
914,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(1) |
|
The Parent Companys loss in each period is derived from
corporate headquarters activities and consists primarily of the
following: Parent Company executive officers compensation
and costs related to the Companys status as a
publicly-held company, which include, among other items, legal
fees, compliance costs, non-employee directors fees, and
other reporting costs. The corporate headquarters activities do
not earn revenue. All relevant costs related to the business
operations of the Companys operating segments are either
paid directly by the operating segments or are allocated to the
segments by the Parent. The allocation method is dependent on
the nature of each expense item. Allocated expenses include,
among other items, accounting services, information technology
services, insurance costs, and audit and tax preparation fees. |
Fiscal
2009
On June 6, 2008, Atlantic Lighting & Supply Co.,
LLC (AL&S LLC), an indirect wholly-owned
subsidiary of the Company, acquired the business and
substantially all of the assets and assumed certain operating
liabilities of Atlantic Lighting & Supply Co., Inc.
(the Seller) for a total consideration, including
the assumption of certain operating liabilities, of
approximately $1.5 million (excluding acquisition costs).
The Seller was engaged in the business of distributing energy
efficient lighting products to building owners and operators,
and the Company is continuing to conduct this business. The
acquisition was made pursuant to an asset purchase agreement
dated June 6, 2008, between the Company, AL&S LLC, the
Seller, and the shareholders of the Seller (the
Agreement). The consideration consisted of 17,381
newly-issued shares of the Companys common stock, with a
fair value of $91,250, the payment of approximately $618,000 in
cash to the Seller, the payment of approximately $165,000 in
cash to satisfy outstanding debt to two (2) lenders of the
Seller, and the assumption of certain operating liabilities of
the Seller that totaled approximately $584,000. The amounts and
types of the consideration were determined through negotiations
among the parties.
Pursuant to the Agreement, AL&S LLC acquired substantially
all of the assets of the Seller, including cash, accounts
receivable, inventory, personal property and equipment,
proprietary information, intellectual property, and the
Sellers right, title, and interest to assigned contracts.
Only certain specified operating liabilities of the Seller were
assumed, including executory obligations under assigned
contracts and certain current balance sheet operating
liabilities.
During fiscal 2009, the Company finalized its allocation of the
purchase price. The following table summarizes the estimated
fair values of the assets acquired and liabilities assumed at
the date of acquisition.
|
|
|
|
|
|
|
|
|
Assets and
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Acquired
|
|
|
|
|
|
from Seller
|
|
|
Estimated Life
|
|
Current assets
|
|
$
|
322,514
|
|
|
|
Property, furniture and equipment, net
|
|
|
58,699
|
|
|
Various (3-5)
|
Trade name
|
|
|
61,299
|
|
|
15 years
|
Non-compete agreements
|
|
|
63,323
|
|
|
2 years
|
Customer relationships
|
|
|
186,632
|
|
|
5 years
|
Goodwill
|
|
|
895,285
|
|
|
Indefinite
|
|
|
|
|
|
|
|
Total assets acquired
|
|
$
|
1,587,752
|
|
|
|
Current liabilities
|
|
|
(483,937
|
)
|
|
|
Long term liabilities
|
|
|
(100,000
|
)
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
1,003,815
|
|
|
|
|
|
|
|
|
|
|
67
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The goodwill amount is not subject to amortization. The amounts
assigned to all intangible assets are deductible for tax
purposes over a period of fifteen (15) years. The goodwill
amount has been assigned to the BPE Segment.
The following table summarizes what the results of operations of
the Company would have been on a pro forma basis for fiscal year
2009, with comparative prior year figures, if the acquisition
had occurred prior to the beginning of the period. These results
do not purport to represent what the results of operations for
the Company actually would have been or to be indicative of the
future results of operations of the Company (in thousands,
except for per share amounts).
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2009
|
|
|
2008
|
|
|
Revenues
|
|
$
|
16,654
|
|
|
$
|
22,591
|
|
Net (loss) earnings
|
|
$
|
(4,589
|
)
|
|
$
|
1,256
|
|
Net (loss) earnings per share basic
|
|
$
|
(1.23
|
)
|
|
$
|
0.34
|
|
Net (loss) earnings per share diluted
|
|
$
|
(1.23
|
)
|
|
$
|
0.34
|
|
Fiscal
2008
There were no acquisitions in fiscal year 2008.
Fiscal
2009
There were no dispositions in fiscal year 2009.
Fiscal
2008
On March 28, 2008, the City of Oakwood, Georgia, acquired
in lieu of formal condemnation approximately 1.8 acres of
the Companys undeveloped land located in Oakwood, Georgia,
for a price of $860,000, which resulted in a pre-tax gain on the
transaction of approximately $581,000. For income tax purposes,
the Company treated this transaction as an involuntary
conversion under Section 1033 of the Internal Revenue Code,
which allows for tax deferral of the gain if the Company
acquires a qualified replacement property by no later than
April 30, 2011. The Company currently intends to use the
net proceeds from this transaction to acquire a qualified
replacement property. There can be no assurance, however, that
the Company will be able to successfully complete such
acquisition. This sale is recorded in gain on sale of real
estate in the accompanying consolidated statements of operations.
On December 13, 2007, the Company sold its owned office
park located in Marietta, Georgia, for a price of
$10.3 million, resulting in a pre-tax gain on the sale of
approximately $2.085 million. After selling expenses and
repayment of the mortgage loan and associated costs, the sale
generated cash proceeds of approximately $3.4 million. The
Company intended to use the net proceeds from this sale to
acquire an income-producing property, which would have qualified
the sale under Internal Revenue Code Section 1031 for
federal income tax deferral (1031 deferral), and
therefore placed the proceeds with a qualified third party
intermediary in connection therewith. However, the Company did
not complete such acquisition, and therefore the proceeds were
released from the intermediary to the Company on June 11,
2008. Because the Company did not complete the 1031 deferral, a
taxable gain was recognized in the first quarter of fiscal 2008,
which resulted in the deferred tax liability related to the
previously deferred gain becoming a current tax liability. This
sale is recorded in discontinued operations in the accompanying
consolidated statements of operations.
On July 31, 2007, the Company sold: (1) its leasehold
interest in a shopping center in Jacksonville, Florida;
(2) its leasehold interest in the land and its owned
shopping center building located in Columbus, Georgia; and
(3) its owned shopping center located in Orange Park,
Florida; for a total combined sales price of $6.8 million,
resulting in a total pre-tax gain of approximately
$3.8 million. After selling expenses, the sales generated
total net cash proceeds
68
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of approximately $6.4 million. In addition, the Company
purchased its minority partners interests in the Columbus,
Georgia, land and shopping center building by utilizing two
(2) notes payable totaling $400,000. Both notes were paid
off as of July 31, 2008. In accordance with SFAS 144,
the sale of the leasehold interest in the shopping center in
Jacksonville, Florida, is recorded in Real Estate revenues on
the accompanying consolidated statements of operations, and the
sales of its leasehold interest in the land and the owned
shopping center building located in Columbus, Georgia, and the
owned shopping center located in Orange Park, Florida, are
recorded in discontinued operations in the accompanying
consolidated statements of operations.
|
|
18.
|
GOODWILL
AND OTHER INTANGIBLE ASSETS
|
The gross carrying amounts and accumulated amortization for all
of the Companys intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
April 30, 2009
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Intangible assets, subject to amortization:
|
|
|
|
|
|
|
|
|
Proprietary BPE software solutions
|
|
$
|
3,689,695
|
|
|
$
|
2,340,980
|
|
Acquired computer software
|
|
|
466,589
|
|
|
|
458,883
|
|
Real estate lease costs
|
|
|
699,852
|
|
|
|
308,010
|
|
Customer relationships
|
|
|
404,632
|
|
|
|
252,216
|
|
Deferred loan costs
|
|
|
331,488
|
|
|
|
128,826
|
|
Non-compete agreements
|
|
|
63,323
|
|
|
|
29,023
|
|
Tradename
|
|
|
61,299
|
|
|
|
3,746
|
|
Other
|
|
|
45,844
|
|
|
|
39,149
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,762,722
|
|
|
$
|
3,560,833
|
|
|
|
|
|
|
|
|
|
|
Intangible assets and goodwill, not subject to
amortization:
|
|
|
|
|
|
|
|
|
Trademark
|
|
$
|
708,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
6,354,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2008
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Intangible assets, subject to amortization:
|
|
|
|
|
|
|
|
|
Proprietary BPE software solutions
|
|
$
|
3,403,208
|
|
|
$
|
1,788,415
|
|
Acquired computer software
|
|
|
462,555
|
|
|
|
453,038
|
|
Real estate lease costs
|
|
|
823,091
|
|
|
|
208,966
|
|
Customer relationships
|
|
|
218,000
|
|
|
|
188,933
|
|
Deferred loan costs
|
|
|
331,488
|
|
|
|
94,170
|
|
Other
|
|
|
28,660
|
|
|
|
20,062
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,267,002
|
|
|
$
|
2,753,584
|
|
|
|
|
|
|
|
|
|
|
Intangible assets and goodwill, not subject to
amortization:
|
|
|
|
|
|
|
|
|
Trademark
|
|
$
|
708,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
5,458,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate amortization expense for all amortizable intangible
assets:
|
|
|
|
|
|
|
|
|
For the year ended April 30, 2009
|
|
|
|
|
|
$
|
813,464
|
|
For the year ended April 30, 2008
|
|
|
|
|
|
|
748,033
|
|
69
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
Estimated future amortization expenses for all amortized
intangible assets for the years ended:
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
660,440
|
|
2011
|
|
|
|
|
|
|
520,783
|
|
2012
|
|
|
|
|
|
|
373,484
|
|
2013
|
|
|
|
|
|
|
250,844
|
|
2014
|
|
|
|
|
|
|
163,511
|
|
Thereafter
|
|
|
|
|
|
|
232,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,201,889
|
|
|
|
|
|
|
|
|
|
|
The BPE Segment capitalized $266,229 and $216,509 for the
development of proprietary BPE software applications in fiscal
2009 and 2008, respectively.
|
|
19.
|
COMMITMENTS
AND CONTINGENCIES
|
The Company is subject to legal proceedings and other claims
that arise from time to time in the ordinary course of business.
While the resolution of these matters cannot be predicted with
certainty, the Company believes that the final outcome of any
such matters would not have a material adverse effect on the
Companys financial position or results of operations.
|
|
20.
|
QUARTERLY
FINANCIAL INFORMATION (UNAUDITED)
|
Pursuant to SFAS 144, as further discussed in Note 2,
operating results for the owned office park located in Marietta,
Georgia, sold during fiscal 2008, was included in discontinued
operations in the accompanying consolidated statements of
operations for all periods presented. To conform with this
presentation, the quarterly financial information presented
below reflects the reclassification of the operating results of
the office park to discontinued operations for the first and
second quarters of fiscal 2008, which differ from the
presentation of revenues included in the Companys
previously issued financial statements included in its quarterly
reports on
Form 10-Q
filed in fiscal 2008.
In addition, on June 5, 2008, the Company awarded a stock
dividend of five percent (5%) to all shareholders of record on
June 18, 2008. Accordingly, on July 1, 2008, the
Company issued 177,708 shares of stock pursuant to the
stock dividend. The quarterly information presented below
reflects the earnings (loss) per share adjusted retroactively to
present the shares issued, including the shares pursuant to the
stock dividend, as outstanding for all periods presented in
accordance with SFAS 128, Earnings per Share, which
differs from the presentation of earnings per share included in
the Companys previously issued financial statements
included in its quarterly reports on
Form 10-Q
filed in fiscal 2008.
70
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Quarterly financial information for the fiscal years ended
April 30, 2009, and April 30, 2008 (dollars in
thousands, except per share amounts), as revised to reflect the
changes discussed above, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended April 30, 2009
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
BPE revenues
|
|
$
|
2,720
|
|
|
$
|
3,434
|
|
|
$
|
3,339
|
|
|
$
|
3,699
|
|
Real Estate revenues
|
|
|
804
|
|
|
|
784
|
|
|
|
819
|
|
|
|
857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues from continuing operations(2)
|
|
|
3,524
|
|
|
|
4,218
|
|
|
|
4,158
|
|
|
|
4,556
|
|
Total revenues reclassified to discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit from continuing operations
|
|
|
1,297
|
|
|
|
1,490
|
|
|
|
1,532
|
|
|
|
1,459
|
|
Gross profit reclassified to discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(847
|
)
|
|
|
(906
|
)
|
|
|
(491
|
)
|
|
|
(2,343
|
)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic
|
|
|
(0.23
|
)
|
|
|
(0.24
|
)
|
|
|
(0.13
|
)
|
|
|
(0.63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share diluted
|
|
|
(0.23
|
)
|
|
|
(0.24
|
)
|
|
|
(0.13
|
)
|
|
|
(0.63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended April 30, 2008
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
BPE revenues
|
|
$
|
4,766
|
|
|
$
|
3,987
|
|
|
$
|
3,221
|
|