e10vk
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, 2010
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
(Address of principal
executive offices)
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30339-2029
(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. þ
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, 2009, was $3,664,564.
See Part III for a definition of nonaffiliates. The number
of shares of Common Stock of the registrant outstanding as of
April 30, 2010, was 3,676,383.
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 2010 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 demand response solutions, sustainability
programs, and other building performance-enhancing products and
services to owners and operators of existing buildings, energy
services companies, and public and investor-owned utilities; and
(ii) engages in the asset management of its portfolio of
commercial income-producing properties and undeveloped land.
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 2006, the Company changed its name from Abrams
Industries, Inc. to Servidyne, Inc.
The Company operates through its two (2) wholly-owned
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 Operating
Segments to the consolidated financial statements.
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.
BPE
SEGMENT
The BPE Segment provides comprehensive energy efficiency and
demand response solutions, sustainability programs, and other
products and services that significantly enhance the operating
and financial performance of existing buildings. BPE offers
strategic programs and services that enable building owners and
operators to optimize the short-term and long-term financial
performance of their building portfolios by cutting energy
consumption and other operating costs, 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 Utility Solution is designed to be a cost effective and
reliable way for utilities and their customers to modify peak
usage of electricity by implementing demand response programs
that utilize smart grid technologies, in order to reduce
excess demand on the electric grid, lessen the need for
utilities to build expensive new energy generating plants, and
provide substantial ongoing cost savings for building owners and
operators. The Company launched this new product line, marketed
under the name Fifth Fuel
Managementtm,
during the current fiscal year, by expanding the Companys
Web-based
iTendant®
platform to create the real-time, energy optimization and demand
response system. Major elements include: comprehensive demand
response facility audits; technology-enabled real-time demand
response programs (automatic, semi-automatic and manual);
reliable two-way, fast and secure communication and tracking;
retro-commissioning of existing systems; customized site
training; and
step-by-step
processes for optimized demand response participation.
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The BPE Segment serves a broad range of markets in the United
States and internationally, including owners and operators of
corporate, commercial office, hospitality, gaming, retail, light
industrial, distribution, healthcare, government, multi-family,
military, education and institutional buildings and facilities;
energy service companies (ESCOs); and public and investor-owned
utility companies. Contracts 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 asset
management of the Companys portfolio of income-producing
retail and office properties and undeveloped land. The Company
uses third-party property managers and leasing agents for its
owned commercial properties and conducts its real estate
operations through its subsidiaries, Abrams Properties, Inc. and
AFC Real Estate, Inc., and their respective affiliates.
As of April 30, 2010, the Company owned two
(2) shopping centers in the Southeast that it acquired. The
shopping centers have been held as long-term investments, and
the Company has marketed the shopping centers for sale when
management has determined it to be appropriate. In fact, during
the first quarter of fiscal 2011, the Company successfully
closed on the sale of its owned shopping center in Jacksonville,
Florida, generating net cash proceeds of approximately
$2 million and a pre-tax gain on the sale of approximately
$120,000. See ITEM 2. PROPERTIES Owned
Shopping Centers. The Company is a lessee and sublessor of
one (1) retail center in the Midwest 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
addition, the Company owns one (1) office building, its
corporate headquarters facility, located in Atlanta, Georgia. In
January 2010, the Company transferred its interest in an owned
office building located in Newnan, Georgia, to the
propertys note holder, which resulted in a pre-tax gain of
approximately $1.2 million. See ITEM 2.
PROPERTIES Owned Office Building. The Company
also owns approximately 4.2 acres of undeveloped
commercially zoned land. See ITEM 2.
PROPERTIES Real Estate Held for Future Development,
Lease, or Sale.
EMPLOYEES
AND EMPLOYEE RELATIONS
At April 30, 2010, the Company employed 94 salaried
employees and 8 hourly employees. The Company believes that
its relations with its employees are good.
SEASONAL
NATURE OF BUSINESS
The businesses of the BPE Segment and the Real Estate Segment
generally are not seasonal. However, certain retail customers of
the BPE Segment may choose to delay the implementation of energy
savings projects during the peak winter holiday season.
COMPETITION
The industries in which the Company operates are highly
competitive. The BPE Segments competition is widespread
and ranges from multi-national companies to local and regional
firms. The Real Estate Segment also
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operates in a competitive environment, with numerous parties
competing for available properties, tenants, capital, and
investors.
BACKLOG
The following table indicates the backlog of contracts and
rental income under lease agreements, by segment:
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Increase
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April 30,
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(Decrease)
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2010
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2009
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Amount
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Percentage
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BPE(1)
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$
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15,369,000
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$
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9,885,000
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$
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5,484,000
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55
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Real Estate(2)
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2,726,000
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2,737,000
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(11,000
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(0
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Less: Intersegment eliminations(3)
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(595,000
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(547,000
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(48,000
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9
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Total Backlog
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$
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17,500,000
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$
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12,075,000
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$
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5,425,000
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45
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(1) |
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BPE backlog at April 30, 2010, increased by approximately
$5,484,000, or 55%, compared to the year-earlier period,
primarily due to: |
(a) an increase of approximately $5,078,000 in energy
savings (lighting and mechanical) projects;
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(b)
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approximately $790,000 in new backlog from the BPE
Segments new Fifth Fuel
Managementtm
service offering;
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(c)
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an increase of approximately $249,000 in lighting products from
the Companys lighting distribution business;
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partially offset by:
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(d)
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a decrease of approximately $176,000 in productivity software
products and services; and
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(e)
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a decrease of approximately $457,000 in energy management
consulting services, primarily due to the successful completion
of multi-year consulting services projects.
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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 $70,000 or 0.7%. |
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(2) |
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During the first quarter of fiscal 2011, the Company sold its
owned shopping center in Jacksonville, Florida (see Note 20
Subsequent Events to the consolidated financial
statements for more information). The Real Estate backlog
related to this property was $1,306,000 and $1,358,000 as of
April 30, 2010, and April 30, 2009, respectively.
These amounts are included in the total Real Estate backlog
figures shown above. |
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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 a
substantial majority of the backlog at April 30, 2010, will
be recognized prior to April 30, 2011. 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, 2010.
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.
4
EXECUTIVE
OFFICERS OF THE REGISTRANT
The Executive Officers of the Company as of July 1, 2010,
were as follows:
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Alan R.
Abrams
(55)
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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 served as President from 2000 until June 2010. He
served as Co-Chairman of the Board from 1998 to 2006.
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Rick A.
Paternostro
(40)
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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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M. Todd
Jarvis
(44)
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Officer
since 2004
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Mr. Jarvis was elected to serve as the Companys
President and Chief Operating Officer in June 2010. He has also
served as the BPE Segments President since 2006 and as its
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 an
executive officer of 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.
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Melinda
S. Garrett
(54)
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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
(50)
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Officer
since 1988
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Mr. Abrams has served as Executive Vice President since
April 2006. He served as Co-Chairman of the Board from 1998 to
2006, as Vice President-Business Development from 2000 to April
2006, and also served as a Director of the Company from 1992 to
April 2010.
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 risk factors, together with all other matters
described in this Annual Report on
Form 10-K,
should be considered in evaluating the Company. Any of these
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 continue to grow revenues from these offerings, its prospects
will be adversely affected.
The Companys strategic focus is on developing 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 the substantial majority of its future
capital resources and management attention to growing the BPE
Segment.
5
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 of the BPE Segment to add new products and services
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 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, the BPE Segment has
yet to achieve sustained profitability, although it did achieve
higher revenues and modest profitability in the fourth (4th)
quarter of the current fiscal year. Nevertheless, 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 to be
unsuccessful, its revenues, earnings, stock price, and the
Company as a whole could be adversely affected.
The Company may deplete its capital resources before the
BPE Segment achieves sufficient positive cash flow to fund the
Companys operations, and may not be able to secure
additional capital 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 believes that it has, or can obtain, sufficient
capital resources to operate its business in the ordinary course
until the BPE Segment begins to generate sufficient cash flow
from operations; 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 continue to operate its businesses.
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 June 2010, the Company sold its
shopping center located in Jacksonville, Florida, and generated
net cash proceeds of approximately $2 million from the
transaction.
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. During the fourth (4th) quarter of
the current fiscal year, the Company has received loans of
approximately $1,000,000 against certain life insurance
policies; however, there remains no material further borrowing
capacity under such policies as of April 30, 2010.
In the event that currently available cash and cash generated
from operations were not sufficient to meet future cash
requirements, and the Company was unable to sell real estate or
other 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 unsecured 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 years.
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 or other asset sales would be
available on terms acceptable to management, if at all, in which
event the Company could deplete its
6
capital resources before achieving sufficient cash flows to fund
operations, and might be obliged to explore strategic
alternatives for its business.
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 or from an investment in another line of
business.
The Company intends to continue to dedicate the substantial
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 to the BPE Segment a
substantial portion of its capital previously invested in the
Real Estate 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 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 the Company
had reinvested its capital resources in the Real Estate Segment
or in another 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 partially or totally lost,
which could have a material adverse effect on the Companys
financial position.
Prevailing capital 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 years, and
the U.S. economy has only recently emerged from recession.
The prevailing economic conditions 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 a weak economy 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 in fact
experienced delays during fiscal 2010 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, the Companys ability to generate
net earnings has been significantly dependent on achieving
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 ability to achieve net earnings in recent
years has been significantly dependent on achieving capital
gains from the sales of real estate income-producing properties.
Although some of the proceeds of these sales of income-producing
properties has been re-invested in new real estate properties, a
significant portion of the proceeds from these sales has been
invested in the BPE Segment, and a portion has also been
distributed to shareholders as dividends. As a result, the
Company has limited remaining real estate holdings, and
consequently, real estate capital gains cannot be depended upon
as a primary source for the Companys long-term
profitability.
In addition, as a result of real estate dispositions, another
source of historical earnings rental
income has been negatively impacted. Accordingly, in
order for the Company to maintain or improve its profitability
in the future, the BPE Segment will need to be expanded
sufficiently 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 was generated by the Real
Estate Segment in recent years, particularly in light of the BPE
Segments lack of a consistent track record of sustained
profitability.
7
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, and 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
retention and addition of qualified personnel. Some offerings of
the BPE Segment, such as energy engineering, energy-savings
project design and implementation, 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 competitors.
If the Company cannot find suitable candidates for
business acquisition or cannot 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 the 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 any newly-acquired company into existing operations on
a timely basis. 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 (SEC), 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 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.
8
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, its 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.
The Companys earnings in a future period could be
adversely affected by non-cash adjustments to goodwill and other
intangible assets, if a future test of these assets were to
indicate a material impairment.
As prescribed by U.S. generally accepted accounting
principles (GAAP), the Company undertakes an annual
review of goodwill and other intangible assets balances. This
test is performed during the third quarter of the fiscal year,
unless there has been a triggering event that warrants an
earlier interim testing for possible impairment. The
Companys recently completed annual test indicated that no
impairment existed as of January 31, 2010. However, future
impairment tests could yield different results, depending upon
such factors as the actual performance of the BPE Segment
against the assumptions used in the testing or changes in the
BPE Segments industry. Consequently, future tests may
result in an impairment of goodwill or other intangible assets,
in which event the Company would be required to record a
non-cash charge to earnings in its financial statements during
the period in which such impairment were determined to exist.
Any such change could have a material adverse effect on the
Companys results of operations. The Companys
goodwill and other intangible assets at April 30, 2010,
were approximately $9.2 million, or approximately 23% of
the Companys total assets, most of which was assigned to
the BPE Segment.
Risks
Related to the Companys BPE Segment
The markets for the BPE Segments products, services
and technology are very competitive, and are becoming more so;
if the BPE Segment cannot successfully compete in those markets,
the Companys business could be materially and adversely
affected.
The markets for the BPE Segments energy savings products,
services and technology are highly competitive and fragmented,
and are subject to rapidly changing technology, emerging
competing products and services, frequent performance
improvements and evolving industry standards. The BPE Segment
competes against not only smaller companies similar to itself,
but also against solutions offered by traditional and
competitive energy suppliers, public and investor-owned
utilities, and energy services companies. The Company expects
competition to increase in the future because of the growth
potential of the BPE Segments markets. Competition could
arise from both new businesses, as well as from the expansion by
established enterprises into the BPE Segments markets.
Increased competition may oblige the BPE Segment to reduce the
price of its energy savings products and services, and the
segment may experience reduced gross margins and slower
growth or even loss of market share.
Many of the BPE Segments existing competitors, as well as
many potential new competitors, have longer operating histories,
greater name recognition, larger customer bases and
significantly greater financial, technical, marketing,
manufacturing and other resources than the Company does. This
may enable these competitors to develop and implement new and
better technologies more quickly than the BPE Segment can, and
to adapt more rapidly to changes in customer requirements or
preferences. Greater resources may also enable them to promote
their products more effectively, or price them more
attractively, than the BPE Segment can. Established larger
enterprises may have existing customer, vendor and partner
relationships that may give them a competitive advantage
vis-à-vis the BPE Segment, and other competitors with
greater resources may be more attractive to potential new
customers, vendors, partners and employees than the BPE Segment
may be to them.
9
Consequently, there can be no assurance that the BPE Segment
will have the financial resources, technical expertise,
portfolio of products and services or marketing and support
capabilities to compete successfully in the future, which could
materially and adversely affect the Companys revenues and
profits.
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
help 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
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 or expect, 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
business and 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, and it may encounter pricing
pressure and implementation challenges, all of which could harm
the Companys 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. 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 purchasing
power of larger enterprise customers may result in lower profit
margins on BPE revenues.
A limited number of customers comprise a significant
portion of the revenues and backlog of the BPE Segment. The loss
of, or any significant decrease in, business from these
customers could have an adverse effect on the BPE Segments
results.
A significant portion of the BPE Segments revenues for the
year ended, and backlog as of, April 30, 2010, are derived
from a relatively limited number of customers. In fiscal 2010,
the BPE Segment generated approximately 28% of its total
revenues from its largest customer, and the top five
(5) customers accounted for approximately 53% of the
segments total revenues. At April 30, 2010,
approximately 55% of the segments backlog was due to one
(1) customer, and the top five (5) customers accounted
for approximately 83% of the total backlog.
This customer concentration increases the risk of fluctuations
in the BPE Segments revenues and operating results. If the
BPE Segment loses a significant customer, or if revenues or
orders from these significant customers decline, the
segments business, results of operations and financial
condition could be materially adversely affected. Additionally,
if one of these customers is lost, or if revenues or orders from
one or more of these customers decline, there can be no
assurance that the BPE Segment will be able to replace or
supplement the lost customer(s) with others that generate
comparable revenues or profits.
10
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 cost not caused by
a customer modification or other 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.
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 and
financial position.
The Company often utilizes unaffiliated third-party
subcontractors in order to perform some of its energy
engineering and consulting services, proprietary software and
other IT development projects, much of its energy savings
maintenance, installation and retrofit projects, and most of its
other construction related projects and services. As
a consequence, 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
available to subcontractors for construction defects, if any, is
increasingly expensive and may become unavailable, and the scope
of such protection may become greatly limited. If as a result of
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 and financial position.
The Company could be exposed to environmental liability
related to the disposal of hazardous materials.
A key offering of the Companys BPE Segment is the
replacement of existing lighting systems with newer, more energy
efficient lighting systems in various types of facilities. The
replacement of 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 the various
applicable environmental laws and 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 Company as a
whole could be harmed as well.
If the BPE Segments security measures for its
proprietary software solutions were breached, and as a result
unauthorized access to a customers data were obtained, 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
application service provider (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 a partial or total 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,
11
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, the BPE Segment could lose
sales and customers, and the Companys business and
financial potential could be harmed.
The BPE Segment is dependent on the assistance of its
customers to complete projects on a timely basis. If a customer
were unable or unwilling to offer assistance, it could affect
project timelines and reduce or slow the recognition of energy
savings project 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, the
Company must frequently access customer facilities, the
restriction of which could delay or prevent the completion of
projects.
The BPE Segments new Fifth Fuel
Managementtm
product line is largely untested. If the Company fails to
fully develop this product line, its prospects could be
adversely affected. Moreover, the development of Fifth Fuel
Managementtm
will require additional capital, which the Company may not
be able to obtain.
The BPE Segments Fifth Fuel
Managementtm
product line is new, and its business viability is largely
untested. The Companys ability to develop Fifth Fuel
Managementtm
into a profitable product line will depend upon a variety of
factors, some of which are not entirely within its control,
including:
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The Companys ability to develop, acquire
and/or
license any additional technologies and processes necessary to
fully develop and implement the Fifth Fuel
Managementtm
system;
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|
The Companys ability to market and sell this new offering
to significant customers, such as public and investor-owned
utilities and building owners and operators; and
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The availability of adequate capital to fund the full
development, marketing and working capital requirements of Fifth
Fuel
Managementtm.
|
In the light of the relative newness of Fifth Fuel
Managementtm,
and the absence of a proven track record of profitability, the
Company cannot guarantee that this new product line will be
successful.
In addition, the Company anticipates that the development of the
Fifth Fuel
Managementtm
product line to meet expected demand will require additional
capital, which the Company may seek to raise through outside
sources or the sale of assets. There can be no assurance,
however, that the Company will be successful in raising adequate
additional capital on acceptable terms, or at all. Moreover,
depending on the form of such additional capital, the equity
interests of the Companys existing shareholders could be
diluted.
If the new Fifth Fuel
Managementtm
system ultimately were to be unsuccessful, the Companys
revenues, earnings, stock price, and the business as a whole
could be adversely affected.
The value to customers of the energy savings products and
services offered by the Companys BPE Segment is
substantially impacted by the prevailing conditions of energy
markets; if energy prices and utility costs were to decline,
sales and profits of the BPE Segments energy savings
products and service offerings might not grow, or could even
decline.
Many of the product and service offerings of the Companys
BPE Segment are energy efficiency savings products and services.
The financial value to customers that install energy efficiency
products and services is measured by energy and utility cost
savings to be realized over time. Accordingly, the return on the
customers investment for installing energy efficient
products and services and the time period necessary for
customers to recoup the initial
12
investment required for these products and services are directly
correlated with the prevailing market prices for energy. If the
price of energy and utility rates were to drop, customers
energy savings and returns on investment from energy efficiency
products and services would be less, and the time period over
which the investment could be recovered through energy and
utility costs savings would be extended. Consequently, if energy
prices were to decline, demand for the BPE Segments energy
efficiency products and services could decline as a result, as
potential customers would be dissuaded from an upfront
investment that may not produce as attractive of a return on
investment for some time.
A decline in energy prices could not only negatively affect the
level of sales of energy savings products and services, but
could also decrease the profitability of such products and
services, as the BPE Segment might be obliged to lower prices in
response to decrease demand.
Risks
Related to the Companys Real Estate Segment
The Companys ownership of commercial real estate involves
a number of risks, including but not limited to 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 acquiring, managing, leasing and profitably
disposing 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:
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Changes in the national, regional and local economic climate;
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Local conditions such as an oversupply of properties or a
reduction in demand for properties;
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The attractiveness of the properties to prospective tenants or
acquirers;
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Competition from other available properties;
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Material contractual defaults by tenants;
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Changes in market rental rates; and
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The need to periodically repair, renovate and re-lease space.
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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 were to determine that it 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 and its overall business.
Operating revenues in the Real Estate Segment are dependent upon
the Company entering into multi-year leases with tenants and
then collecting rental payments and expense reimbursements on a
timely basis from such tenants over their respective lease
terms. National, regional and local economic conditions might
adversely impact the Companys tenants and potential
tenants in the various marketplaces in which its properties are
located, and accordingly, could affect its tenants ability
to continue to pay rents and expense reimbursements and to
continue to operate in their leased spaces. Tenants sometimes
experience bankruptcies, and pursuant to the various bankruptcy
13
laws, leases may be rejected and thereby terminated prematurely.
When leases expire or are terminated, suitable replacement
tenants may or may not be available at acceptable terms and
conditions.
The Company faces considerable competition in the leasing
marketplace. Heightened competition resulting from adverse
market conditions may require the utilization of rent
concessions and tenant improvement allowances to a greater
extent than in the past, and the costs to fund such concessions
and allowances and other leasing costs could be significant. If
the Company were unwilling or unable to expend the amounts of
capital that might be necessary to retain existing tenants or to
compete for available new tenants with properties owned by the
Companys competitors that have greater capital resources,
or if the Companys competitors offer to lease space at
rental rates below current market rates or below the previous
contractual rental rates of the Companys existing leases,
the Company could lose potential tenants to fill vacant spaces
or could lose existing tenants upon expiration of their existing
leases. As a result, the Companys cash flows, results of
operations and financial condition could be adversely impacted.
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 parcel of
undeveloped land. Such condemnations could adversely affect the
future commercial viability of any such property.
Compliance with environmental laws could adversely affect
the Company.
Environmental issues that could arise at the Real Estate
Segments 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 on a timely basis when disposing of real estate
assets during weak markets.
14
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 and
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, guaranties or maturity terms.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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None.
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 are leased
to unaffiliated tenants and 30,611 square feet are
currently vacant and available 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
lease is currently scheduled to expire in May 2015.
As of April 30, 2010, 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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of Square
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Calendar
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Principal
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Leasable
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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
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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
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as of April 30,
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Location
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Acres
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Building(s)
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2010
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Company
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2010
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2010(1)
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2010(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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$
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569,387
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$
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302,999
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$
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3,984,223
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8102 Blanding Blvd. Jacksonville, FL(4)(5)
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18.8
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174,220
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98
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1999
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$
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1,769,034
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$
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610,238
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$
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6,877,513
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(1) |
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Includes principal and interest. |
(2) |
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The Companys liability for repayment is generally limited
by exculpatory provisions to its interests in the respective
mortgaged properties. |
(3) |
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Acquired by the Company in August 2006 and originally developed
by unrelated third parties in 1998. |
(4) |
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Acquired by the Company in 1999 and originally developed by
unrelated third parties in 1985. |
(5) |
|
In June 2010, the Company sold its owned shopping center located
in Jacksonville, Florida. See Note 20 Subsequent
Events to the consolidated financial statements for more
information. |
15
Anchor tenant lease terms for the owned shopping centers are
shown in the following table:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
|
|
|
|
|
|
|
Square
|
|
Expiration
|
|
Options
|
Anchor Tenant(1)
|
|
Location
|
|
Footage
|
|
Date
|
|
to Renew
|
|
Harbor Freight Tools(2)
|
|
Jacksonville, FL
|
|
|
15,700
|
|
|
|
2012
|
|
|
4 for 5 years each
|
Publix/Floor & Decor(2)(3)
|
|
Jacksonville, FL
|
|
|
85,560
|
|
|
|
2020
|
|
|
2 for 5 years each
|
Office Depot(2)
|
|
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) |
|
This is an anchor tenant at the Companys owned shopping
center in Jacksonville, Florida, which was sold in June 2010.
See Note 20 Subsequent Events to the
consolidated financial statements for more information. |
(3) |
|
Publix has subleased the premises to Floor and Decor Outlets,
but remains liable under the lease until the lease expires in
August 2010. |
With the exception of the Harbor Freight Tools and
Floor & Décor leases 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
pre-determined amounts. In fiscal 2010, the Company did not
recognize any contingent rental income from its owned shopping
centers.
Typically, the owned shopping center leases require tenants to
reimburse the Company for a portion of ad valorem taxes,
insurance and common area maintenance costs.
OWNED
OFFICE BUILDING
The Company, through its Real Estate Segment, owns one
(1) office building in metropolitan Atlanta, Georgia, its
corporate headquarters facility. During the third quarter of
fiscal 2010, the Real Estate Segment transferred its interest in
an owned office building located in Newnan, Georgia, to the
propertys note holder, which resulted in a pre-tax gain of
approximately $1.2 million. During the fourth quarter of
fiscal 2009, the anchor tenant of the Newnan office building
defaulted on its lease obligations, and consequently, the
Company recorded a pre-tax impairment loss of approximately
$2.2 million related to this office building. See
Note 4 Discontinued Operations to the
consolidated financial statements for more information.
The following chart provides pertinent information relating to
the owned office building:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
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
|
|
2010
|
|
Company
|
|
2010
|
|
2010(1)
|
|
2010(2)
|
|
1945 The Exchange Atlanta, GA(3)
|
|
|
3.12
|
|
|
|
65,880
|
|
|
|
54
|
|
|
|
1997
|
|
|
$
|
743,765
|
|
|
$
|
442,877
|
|
|
$
|
4,228,588
|
|
|
|
|
(1) |
|
Includes principal and interest. |
(2) |
|
The Companys liability for repayment is generally limited
by exculpatory provisions to its interest in the mortgaged
property. |
(3) |
|
The Companys corporate headquarters facility, of which the
Company leases and occupies approximately 25,928 square
feet. Rental income includes $567,762 in 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 building are
shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
|
|
Options
|
|
|
|
|
Square
|
|
Expiration
|
|
to
|
Anchor Tenant(1)
|
|
Location
|
|
Footage
|
|
Date
|
|
Renew
|
|
Servidyne, Inc.(2)
|
|
|
Atlanta, GA
|
|
|
|
25,928
|
|
|
|
2012
|
|
|
|
None
|
|
16
|
|
|
(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, the owned office building 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 (1) 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.
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
pre-determined amounts. In fiscal 2010, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Square
|
|
Calendar Year
|
|
Rental
|
|
Rent
|
|
|
|
|
Feet in
|
|
Placed in Service
|
|
Income
|
|
Expense
|
Location
|
|
Acres
|
|
Building
|
|
by Company
|
|
2010
|
|
2010
|
|
Davenport, IA
|
|
|
10.0
|
|
|
|
84,180
|
|
|
|
1977
|
|
|
$
|
255,308
|
|
|
$
|
105,203
|
|
REAL
ESTATE HELD FOR FUTURE DEVELOPMENT, LEASE OR SALE
The Company, through its Real Estate Segment, owns the following
commercially zoned land parcels, which are held for future
development, leasing, or sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar Year
|
|
|
|
|
|
|
Development
|
|
|
Location
|
|
Acres
|
|
Completed
|
|
Intended Use(1)
|
|
Mundy Mill Road
|
|
|
|
|
|
|
|
|
|
Commercial 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
either will 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 4, 6, 8 and 10 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.
17
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
MARKET
FOR REGISTRANTS COMMON EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Prices
|
|
|
|
|
|
|
Fiscal 2010
|
|
Fiscal 2009
|
|
Cash Dividends
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
Paid per Share
|
|
|
Trade
|
|
Trade
|
|
Trade
|
|
Trade
|
|
2010
|
|
2009
|
|
First Quarter
|
|
$
|
2.90
|
|
|
$
|
1.51
|
|
|
$
|
6.09
|
|
|
$
|
3.71
|
|
|
$
|
0.020
|
|
|
$
|
0.038
|
|
Second Quarter
|
|
|
2.93
|
|
|
|
1.75
|
|
|
|
5.13
|
|
|
|
2.58
|
|
|
|
0.010
|
|
|
|
0.038
|
|
Third Quarter
|
|
|
2.30
|
|
|
|
1.53
|
|
|
|
3.75
|
|
|
|
1.07
|
|
|
|
0.010
|
|
|
|
0.038
|
|
Fourth Quarter
|
|
|
7.24
|
|
|
|
1.60
|
|
|
|
2.45
|
|
|
|
1.50
|
|
|
|
0.010
|
|
|
|
0.020
|
|
The common stock of Servidyne, Inc. is traded on the NASDAQ
Global Market (Symbol: SERV). The approximate number of holders
of common stock was 810 (including shareholders of record and
shares held in street name) as of June 30, 2010.
The information required by this item with respect to the
Companys equity compensation plan will be included in the
Companys definitive proxy materials for its 2010 Annual
Meeting of Shareholders, to be filed with the SEC, under the
heading Equity Compensation Plan, and is hereby
incorporated herein by reference.
ISSUER
PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of Shares
|
|
Maximum Number of
|
|
|
|
|
|
|
Purchased as Part of
|
|
Shares that May Yet Be
|
|
|
Total Number of
|
|
Average Price
|
|
Publicly Announced Plans
|
|
Purchased under the
|
Period
|
|
Shares Purchased
|
|
Paid per Share
|
|
or Programs
|
|
Plans or Programs
|
|
As of April 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
September 1-30, 2009
|
|
|
2,189
|
|
|
|
2.05
|
|
|
|
2,189
|
|
|
|
97,811
|
|
December 1-31, 2009
|
|
|
12,500
|
|
|
|
1.74
|
|
|
|
12,500
|
|
|
|
85,311
|
|
January 1-31, 2010
|
|
|
2,292
|
|
|
|
1.77
|
|
|
|
2,292
|
|
|
|
83,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
16,981
|
|
|
|
|
|
|
|
16,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. In December 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. In February 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. In March
2010, 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 15, 2011. All
repurchases reported above were made pursuant to this repurchase
authority.
18
|
|
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,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net (Loss) Earnings(1)
|
|
$
|
(1,715,041
|
)
|
|
$
|
(4,587,450
|
)
|
|
$
|
1,335,562
|
|
|
$
|
966,626
|
|
|
$
|
525,766
|
|
Net Loss Continuing Operations
|
|
$
|
(2,373,234
|
)
|
|
$
|
(3,275,869
|
)
|
|
$
|
(1,161,729
|
)
|
|
$
|
(1,157,462
|
)
|
|
$
|
(424,508
|
)
|
Net Earnings (Loss) Discontinued Operations
|
|
$
|
658,193
|
|
|
$
|
(1,311,581
|
)
|
|
$
|
2,497,291
|
|
|
$
|
2,124,088
|
|
|
$
|
950,274
|
|
Net (Loss) Earnings Per Share(1)(3)
|
|
$
|
(.46
|
)
|
|
$
|
(1.23
|
)
|
|
$
|
.36
|
|
|
$
|
.26
|
|
|
$
|
.14
|
|
Net Loss Per Share Continuing Operations(3)
|
|
$
|
(.64
|
)
|
|
$
|
(.88
|
)
|
|
$
|
(.31
|
)
|
|
$
|
(.31
|
)
|
|
$
|
(.11
|
)
|
Net Earnings (Loss) Per Share Discontinued
Operations(3)
|
|
$
|
.18
|
|
|
$
|
(.35
|
)
|
|
$
|
.67
|
|
|
$
|
.57
|
|
|
$
|
.25
|
|
Consolidated Revenues Continuing Operations
|
|
$
|
20,899,101
|
|
|
$
|
15,983,881
|
|
|
$
|
18,918,106
|
|
|
$
|
16,957,175
|
|
|
$
|
15,868,293
|
|
Consolidated Revenues - Reclassified to Discontinued
Operations(2)
|
|
$
|
|
|
|
$
|
472,491
|
|
|
$
|
429,620
|
|
|
$
|
2,118,058
|
|
|
$
|
2,371,882
|
|
Weighted Average Shares Outstanding at Year-End(3)
|
|
|
3,685,834
|
|
|
|
3,716,700
|
|
|
|
3,711,659
|
|
|
|
3,707,217
|
|
|
|
3,708,797
|
|
Cash Dividends Paid Per Share(3)
|
|
$
|
0.05
|
|
|
$
|
.13
|
|
|
$
|
.14
|
|
|
$
|
.14
|
|
|
$
|
.14
|
|
Shareholders Equity
|
|
$
|
15,789,479
|
|
|
$
|
17,538,530
|
|
|
$
|
22,466,378
|
|
|
$
|
21,460,211
|
|
|
$
|
20,946,748
|
|
Shareholders Equity Per Share(3)
|
|
$
|
4.28
|
|
|
$
|
4.72
|
|
|
$
|
6.05
|
|
|
$
|
5.79
|
|
|
$
|
5.65
|
|
Working Capital(1)
|
|
$
|
3,571,875
|
|
|
$
|
7,030,872
|
|
|
$
|
13,769,470
|
|
|
$
|
5,713,582
|
|
|
$
|
8,352,086
|
|
Depreciation and Amortization - Continuing Operations(4)
|
|
$
|
1,377,176
|
|
|
$
|
1,453,882
|
|
|
$
|
1,409,305
|
|
|
$
|
1,301,948
|
|
|
$
|
929,851
|
|
Total Assets
|
|
$
|
39,833,019
|
|
|
$
|
43,644,656
|
|
|
$
|
52,315,550
|
|
|
$
|
57,393,421
|
|
|
$
|
52,410,256
|
|
Income-Producing Properties and Property and Equipment, net(5)
|
|
$
|
18,064,697
|
|
|
$
|
18,428,346
|
|
|
$
|
18,722,204
|
|
|
$
|
18,522,978
|
|
|
$
|
14,011,977
|
|
Income-Producing Properties and Property and Equipment,
net Reclassified to Discontinued Operations(2)
|
|
$
|
|
|
|
$
|
1,760,585
|
|
|
$
|
3,863,105
|
|
|
$
|
14,270,939
|
|
|
$
|
7,548,794
|
|
Long-Term Debt(6)(7)
|
|
$
|
16,555,501
|
|
|
$
|
16,092,252
|
|
|
$
|
16,539,203
|
|
|
$
|
19,086,723
|
|
|
$
|
13,416,512
|
|
Long-Term Debt Reclassified to Discontinued
Operations(2)
|
|
$
|
|
|
|
$
|
3,128,388
|
|
|
$
|
3,169,566
|
|
|
$
|
6,052,018
|
|
|
$
|
7,873,030
|
|
Total Liabilities
|
|
$
|
24,043,540
|
|
|
$
|
26,106,126
|
|
|
$
|
29,849,172
|
|
|
$
|
35,933,210
|
|
|
$
|
31,463,508
|
|
Variable Rate Debt(6)(8)
|
|
$
|
850,000
|
|
|
$
|
850,000
|
|
|
$
|
870,000
|
|
|
$
|
3,400,000
|
|
|
$
|
930,000
|
|
Return on Average Shareholders Equity(1)
|
|
|
(10.3
|
)%
|
|
|
(22.9
|
)%
|
|
|
6.1
|
%
|
|
|
4.6
|
%
|
|
|
2.5
|
%
|
|
|
|
(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. |
(3) |
|
Adjusted for stock dividends. |
(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. This does include the owned shopping center which
was sold subsequent to fiscal year end in June 2010. See
Note 20 Subsequent Events to the consolidated
financial statements for more information. |
(6) |
|
Does not include mortgage debt associated with discontinued
operations. |
(7) |
|
Includes the mortgage debt of approximately $6,878,000 on the
owned shopping center which was sold subsequent to fiscal year
end in June 2010. See Note 20 Subsequent Events
to the consolidated financial statements for more information. |
(8) |
|
Includes short-term and long-term debt. |
19
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
INTRODUCTION
The Company has two (2) operating segments: BPE and Real
Estate. The Company through the BPE Segment continues to add new
products and service offerings, which may come in part from
future business acquisitions.
In RESULTS OF OPERATIONS below, changes in revenues,
costs of revenues, selling, general and administrative expenses,
and loss from continuing operations before income taxes from
period to period are analyzed on a segment basis. For other
information on a consolidated basis, please see
ITEM 6. SELECTED FINANCIAL DATA or the
Companys consolidated financial statements. The figures in
the following charts for all periods presented do not include
Real Estate Segment revenues, costs of revenues, selling,
general and administrative expenses, and loss from continuing
operations before income taxes associated with certain formerly
owned income-producing properties, which have been sold or
otherwise disposed; such amounts have been reclassified as
discontinued operations (see Critical Accounting
Policies Discontinued Operations later in this
discussion and analysis section).
OVERVIEW
BUILDING
PERFORMANCE EFFICIENCY SEGMENT
The BPE Segment entered fiscal year 2010 with a backlog of
approximately $10 million, which substantially contributed
to the
year-over-year
increase in BPE revenues of 38% compared to the prior year,
including a 100%
year-over-year
increase in Energy Savings Projects revenues. Although BPE
revenues outpaced new orders during the first six
(6) months of the current fiscal year, leading to a decline
in backlog during that period, new order activity began to
strengthen beginning in September 2009, and new order bookings
increased sequentially in both the third and fourth quarters.
The BPE Segment was awarded approximately $12.4 million in
new orders during the fourth quarter, including order bookings
from customers in both the private sector and the government
sector. As a result, the BPE Segment produced revenue growth of
52%, earnings before taxes of approximately $98,000, and
positive
EBITDA1
of approximately $307,000 (earnings before taxes plus interest
of approximately $18,000 plus depreciation and amortization of
approximately $191,000) in the fourth quarter. BPE backlog as of
April 30, 2010, was approximately $15.4 million, which
was 79% higher than the backlog at January 31, 2010, and
55% higher than the backlog at April 30, 2009. The
$15.4 million in backlog as of April 30, 2010,
represents the highest backlog achieved by the BPE Segment in
the Companys history.
The Company believes that the recent increase in BPE order
activity is a direct result of three (3) distinct factors:
the success of the Companys enhanced sales and marketing
efforts, which were initiated in fiscal 2009; an overall
improvement in the capital spending environment for many of the
BPE Segments customers; and the beginning of the
long-anticipated infusion of U.S. government expenditures
for energy efficiency upgrades of government facilities. The
Company believes that these factors will continue to be
favorable for the BPE Segment in fiscal year 2011. Management
currently expects that the BPE Segment will generate positive
EBITDA for the full fiscal year 2011, as revenues remain strong;
however, EBITDA on a quarterly basis is more sensitive to
fluctuations in the timing of revenues and may not be positive
in an individual quarter. Moreover, management believes that a
longer period of time will be required before the BPE Segment is
able to generate sufficient sustained cash flow to fully fund
the Companys operations.
The Company has enjoyed initial success in marketing the BPE
Segments new product line, Fifth Fuel
Managementtm.
As a result, the Company currently anticipates that new order
activity will be generated by this new offering over the next
several quarters. The BPE Segment has expanded its sales force
to offer this new technology-enabled demand response and energy
efficiency system to a network of utilities and independent
system
1 The
Company believes EBITDA is a useful non-GAAP measurement of the
BPE Segments performance, because it provides information
that can be used to further evaluate the operational
effectiveness of the business. One should not consider EBITDA an
alternative to, or a more meaningful indicator of the
segments operating performance than, earnings before taxes
as determined in accordance with GAAP.
20
operators in the U.S., as well as to owners and operators of
large commercial office buildings, retail stores, hotels, light
industrial facilities and institutional buildings. In February
2010, the Company received its initial multi-year orders for
this new offering, and Fifth Fuel
Managementtm
order bookings totaled approximately $800,000 in the fourth
quarter of fiscal 2010. The Company created Fifth Fuel
Managementtm
by expanding its Web-based
iTendant®
platform to become a real-time, energy optimization and demand
response system. The new system was successfully tested at
several large luxury hotels during the second quarter of fiscal
2010 in a pilot program for a major U.S. electric utility,
implementing the demand response participation by controlling
the hotels peak time energy usage. Demand response is
emerging as a critical tactic to help address the growing
imbalance in the supply and demand of generated electric power
in the United States. The Company designed Fifth Fuel
Managementtm
to be a cost effective and reliable way for utilities to
optimize their customers demand response participation and
to enable owners and operators of large, complex buildings to
maximize the value of their investments in energy efficiency. In
addition, the Company expects Fifth Fuel
Managementtm
will provide additional opportunities for sales of the BPE
Segments existing services and products, which can enable
the BPE Segment to leverage its established customer base of
building owners and operators to help utilities gain better
utilization of their existing energy generating facilities and
infrastructures. The Company believes the BPE Segment is now
much better positioned to participate in the growing utility
market sector, and as a result, anticipates that it will begin
generating additional recurring revenues over the next year
through new multi-year contracts with utilities. However, the
Companys ability to develop the new Fifth Fuel
Managementtm
offering to its full potential will require additional capital.
To support revenue growth over a longer time horizon, in
addition to the inherent potential of the utility market sector,
the Company anticipates continued strong BPE order growth from
the government sector and from customers in the private sector.
The Companys BPE Segment 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 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, school districts, and a
variety of other federal, state and municipal buildings and
facilities. The Company believes that future growth in
BPEs government business should be underpinned by two
(2) federal actions: in December 2008, the
U.S. Department of Energy (DOE) announced a
program to fund $80 billion of energy savings performance
contracts through sixteen (16) large ESCOs to improve the
energy efficiency of government buildings; and in February 2009,
President Obama signed the American Recovery and Reinvestment
Act of 2009, which is providing 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 to the government sector. As a result,
the Company believes that it is well positioned to perform a
significant amount of these funded projects.
While the potential market demand for the BPE Segments
offerings appears to be quite promising, there can be no
assurance that this will result in sustained revenue growth,
particularly if recent macro-economic conditions were to
continue, or worsen, for an extended period of time.
REAL
ESTATE SEGMENT
The Companys Real Estate Segment is in the business of
creating long-term value and has periodically realized gains
through the sale of its real estate assets. The Company has
historically generated substantial liquidity from such periodic
sales, and the proceeds from such sales often have then been
redeployed to the BPE Segment of the Company. In fact, during
the first quarter of fiscal 2011, the Company successfully
closed on the sale of its owned shopping center in Jacksonville,
Florida, generating net cash proceeds of approximately
$2 million and a pre-tax gain on the sale of approximately
$120,000. See Note 20 Subsequent Events to the
consolidated financial statements for more information. Also, in
January 2010, the Company transferred its interest in an owned
office building located in Newnan, Georgia, to the
propertys note holder, which resulted in a pre-tax gain of
approximately $1.2 million. See ITEM 2.
PROPERTIES Owned Office Building for more
information. As a cumulative result of the real estate assets
sales, the Companys real estate portfolio now consists of
only a few
21
properties, and given recent declines in commercial real estate
markets and asset valuations in the United States, the Company
may be unable to sell any of its remaining real estate assets at
acceptable prices, or at all, in the near future. Marketing
efforts to prospective tenants continue to be a primary focus of
the Real Estate Segment. 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, 2010, the
Companys income-producing properties were ninety-one
percent (91%) leased.
LIQUIDITY
Despite the recent successes and achievements described above,
the Companys full year loss from operations in fiscal year
2010 resulted in significant usage of the Companys cash,
continuing the trend of substantial cash usage to fund operating
losses in recent fiscal quarters, with the exception of the
second quarter of fiscal 2010, when the Company generated
approximately $27,000 in positive cash flow from operations.
Although as noted above, the BPE Segment generated positive
EBITDA and net earnings from operations in the fourth quarter of
fiscal 2010 and is expected to continue improved financial
performance in fiscal year 2011, a longer period of time will be
required before the BPE Segment is able to generate sufficient
sustained cash flow to fully fund the Companys operations.
The Company believes that it has, or can obtain, sufficient
capital resources to operate its business in the ordinary course
until the BPE Segment begins to generate sufficient sustained
cash flow to fund the Companys operations, which it may
seek to obtain using any of the methods described below in
Liquidity and Capital Resources; however, there can
be no assurance that the Company will be successful in the
efforts.
Historically earnings before taxes have been indicative of the
BPE Segments cash flow before taking into account the
timing of receivables and payables. Given the continuing
substantial revenue growth and earnings that the Company
currently expects the BPE Segment to achieve in the next few
fiscal quarters, the timing of when the segment will begin to
generate consistent positive cash flow from operations will be
dependent on the timing of collections of customer receivables
and payments to vendors and suppliers. In addition, there can be
no assurance that the expected substantial revenue growth,
positive EBITDA and net earnings from operations at the BPE
Segment will actually occur, 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 $20,899,101 in fiscal 2010
compared to $15,983,881 in fiscal 2009. This represents an
increase in revenues of 31%.
CHART
A
REVENUES FROM CONTINUING OPERATIONS
SUMMARY BY SEGMENT
(Dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
|
|
April 30,
|
|
Amount
|
|
Percentage
|
|
|
2010
|
|
2009
|
|
Change
|
|
Change
|
|
BPE(1)
|
|
$
|
18,172
|
|
|
$
|
13,192
|
|
|
$
|
4,980
|
|
|
|
38
|
|
Real Estate
|
|
|
2,727
|
|
|
|
2,792
|
|
|
|
(65
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,899
|
|
|
$
|
15,984
|
|
|
$
|
4,915
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
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
|
|
|
2010
|
|
2009
|
|
Change
|
|
Change
|
|
Energy Savings Projects
|
|
$
|
11,051
|
|
|
$
|
5,534
|
|
|
$
|
5,517
|
|
|
|
100
|
|
Lighting Products
|
|
|
1,933
|
|
|
|
1,665
|
|
|
|
268
|
|
|
|
16
|
|
Energy Management Services
|
|
|
1,801
|
|
|
|
2,319
|
|
|
|
(518
|
)
|
|
|
(22
|
)
|
Fifth Fuel Management Services
|
|
|
28
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
Productivity Software
|
|
|
3,359
|
|
|
|
3,674
|
|
|
|
(315
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,172
|
|
|
$
|
13,192
|
|
|
$
|
4,980
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BPE Segment revenues increased by approximately $4,980,000, or
38%, in fiscal 2010 compared to fiscal 2009, primarily due to: |
|
|
|
|
(a)
|
an increase in energy savings (lighting and mechanical) project
revenues of approximately $5,517,000, primarily due to the
substantial increase in revenues from customers in both the
private sector and the government sector, including revenues of
approximately $3,160,000 from several new energy savings project
customers, representing the initial phases of new energy savings
program initiatives for those customers; and
|
|
|
|
|
(b)
|
an increase in lighting product revenues of approximately
$268,000 due to improved business conditions;
|
partially offset by:
|
|
|
|
(c)
|
a decrease in energy management services of approximately
$518,000 due to the completion of multi-year consulting services
projects; and
|
|
|
|
|
(d)
|
a decrease in productivity software revenues of approximately
$315,000 due to fewer new implementations with existing
large-portfolio customers.
|
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) were 68% and 65% for fiscal years 2010 and
2009, 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.
23
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,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
BPE(1)
|
|
$
|
12,301
|
|
|
$
|
8,562
|
|
|
|
68
|
|
|
|
65
|
|
Real Estate
|
|
|
1,862
|
|
|
|
1,787
|
|
|
|
68
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,163
|
|
|
$
|
10,349
|
|
|
|
68
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES TO CHART B
|
|
|
(1) |
|
BPE Segment cost of revenues increased by approximately
$3,739,000, or 44%, in fiscal 2010 compared to fiscal 2009,
primarily due to the corresponding increase in revenues (see
Chart A). |
|
|
|
On a
percentage-of-revenues
basis, BPE Segment cost of revenues increased by approximately
3% in fiscal 2010 compared to fiscal 2009, primarily due to a
change in the mix of services and products. |
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, were 47% and 62% in fiscal
years 2010 and 2009, 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 (see 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.
CHART
C
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES FROM CONTINUING
OPERATIONS
SUMMARY BY SEGMENT
(Dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
Segment Revenues
|
|
|
Years Ended
|
|
for the Years Ended
|
|
|
April 30,
|
|
April 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
BPE(1)
|
|
$
|
5,830
|
|
|
$
|
5,718
|
|
|
|
32
|
|
|
|
43
|
|
Real Estate(2)
|
|
|
563
|
|
|
|
687
|
|
|
|
21
|
|
|
|
25
|
|
Parent Company(3)
|
|
|
3,405
|
|
|
|
3,493
|
|
|
|
16
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,798
|
|
|
$
|
9,898
|
|
|
|
47
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES TO CHART C
|
|
|
(1) |
|
BPE Segment SG&A expenses increased by approximately
$112,000, or 2%, in fiscal 2010 compared to fiscal 2009,
primarily due to approximately $236,000 of one-time, outside
consulting costs, partially offset by a decrease in general and
administrative costs and product and project development
expenses. |
24
|
|
|
|
|
On a
percentage-of-revenues
basis, BPE Segment SG&A expenses decreased by approximately
11% in fiscal 2010 compared to fiscal 2009, primarily due to the
increase in revenues (see Chart A) without a corresponding
proportional increase in expenses. |
|
(2) |
|
Real Estate Segment SG&A expenses decreased by
approximately $124,000, or 18%, in fiscal 2010 compared to
fiscal 2009, primarily due to a decrease in personnel-related
costs, consulting fees and legal fees. |
|
|
|
On a
percentage-of-revenue
basis, Real Estate Segment SG&A expenses decreased by
approximately 4% in fiscal 2010 compared to fiscal 2009,
primarily due to the decrease in expenses without a
corresponding proportional decrease in revenues (see Chart A). |
|
(3) |
|
Parent SG&A expenses decreased by approximately $88,000, or
3%, in fiscal 2010 compared to fiscal 2009, primarily due to a
decrease in legal fees of approximately $230,000 related to
costs incurred in the prior year to settle an insurance claim
and decreased SEC compliance costs, partially offset by an
increase in fair value of deferred executive compensation plan
liabilities of approximately $166,000. |
|
|
|
On a
percentage-of-revenues
basis, Parent SG&A expenses decreased by approximately 6%
in fiscal 2010 compared to fiscal 2009, due to the increase in
revenues (see Chart A) and the decrease in expenses. |
(LOSS)
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES
Consolidated loss from continuing operations before income taxes
was $3,839,447 in fiscal 2010 compared to $4,946,873 in fiscal
2009, a
year-over-year
improvement of $1,107,426, or 22%.
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
|
|
|
|
2010
|
|
|
2009
|
|
|
Amount
|
|
|
BPE(1)
|
|
$
|
64
|
|
|
$
|
(1,126
|
)
|
|
$
|
1,190
|
|
Real Estate(2)
|
|
|
(667
|
)
|
|
|
(627
|
)
|
|
|
(40
|
)
|
Parent Company(3)
|
|
|
(3,236
|
)
|
|
|
(3,194
|
)
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(3,839
|
)
|
|
$
|
(4,947
|
)
|
|
$
|
1,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES TO CHART D
|
|
|
(1) |
|
BPE Segment earnings before income taxes of approximately
$64,000 for fiscal 2010 represents earnings growth of
approximately $1,190,000 compared to the same period in fiscal
2009, primarily due to the increase in revenues of approximately
$4,980,000 (see Chart A), an increase in gross margin of
approximately $1,240,000, and an increase in other income of
approximately $68,000, partially offset by an increase in
SG&A expenses of approximately $112,000 (see Chart C). The
financial performance improvement of the BPE Segment is the
result of improving business conditions combined with the
containment of overhead costs. |
|
(2) |
|
Real Estate Segment loss before income taxes increased by
approximately $40,000, or 6%, compared to the same period in
fiscal 2009, primarily due to the decrease in revenues of
approximately $65,000 (see Chart A), a decrease in gross margin
of approximately $139,000, and a decrease in interest and other
income of approximately $55,000, partially offset by the
decrease in SG&A expenses of approximately $124,000 (see
Chart C) and a decrease in interest expense of
approximately $28,000. |
|
(3) |
|
Parent Company loss before income taxes increased by
approximately $42,000, or 1%, compared to the same period in
fiscal 2009, primarily due to one-time other income of
approximately $285,000 recognized last year |
25
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related to the settlement of an insurance claim, partially
offset by higher other income in the current year related to the
increase in fair value of deferred executive compensation plan
assets of approximately $166,000 and a current year decrease in
SG&A expense of approximately $88,000 (see Chart C). |
INCOME
TAX BENEFIT
The Companys effective rate for income taxes, based upon
estimated annual income tax rates, approximated 38.2% of loss
from continuing operations before income taxes in fiscal 2010
and 33.8% in fiscal 2009.
INTEREST
COSTS
Interest costs of $1,083,810 and $1,107,986 in fiscal years 2010
and 2009, respectively, were primarily related to mortgages on
the Companys income-producing properties. There was no
capitalized interest in any of the years presented.
ACQUISITIONS
Fiscal
2010
There were no acquisitions in fiscal 2010.
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 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.
DISCONTINUED
OPERATIONS
Fiscal
2010
On January 29, 2010, the Real Estate Segment disposed of
its interest in its owned office building in Newnan, Georgia. In
this transaction, the Real Estate Segment transferred its
approximately $2.0 million interest in the property and
related assets to the note holder, which satisfied in full the
Companys liability for the approximately $3.2 million
remaining balance on the propertys non-recourse mortgage
loan. Correspondingly, the Company recognized a pre-tax gain of
approximately $1.2 million in the third quarter of fiscal
2010 as a result of the elimination of the balance of the
indebtedness on the property.
The Companys federal and state tax liabilities on the
disposition was approximately $0.4 million. These tax
liabilities primarily resulted from the pre-tax gain of
approximately $1.2 million on the disposition, partially
offset by operating losses of the property during the current
fiscal year. These tax liabilities were offset by the
Companys net operating loss carry-forwards for tax
purposes. In accordance with GAAP, the disposition is recorded
in discontinued operations in the accompanying consolidated
statement of operations for the period ended April 30, 2010.
Fiscal
2009
There were no discontinued operations in fiscal 2009.
26
LIQUIDITY
AND CAPITAL RESOURCES
Between April 30, 2009, and April 30, 2010, the
Companys cash decreased by a total of $2,897,485, or 60%.
The Companys working capital decreased by approximately
$3,459,000, or 49%, between April 30, 2009, and
April 30, 2010, which was largely the result of current
year losses from continuing operations before depreciation,
amortization and income taxes, as well as discretionary capital
expenditures and scheduled regular debt service payments.
The following describes the changes in the Companys cash
from April 30, 2009, to April 30, 2010:
Operating activities used cash of approximately $2,139,000,
primarily as a result of:
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(a)
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losses in fiscal 2010 from continuing operations before
depreciation, amortization and income taxes of approximately
$2,462,000;
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(b)
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an increase in net accounts receivable of approximately
$1,341,000, primarily due to growth in BPE Segment activity, as
well as the timing of billing and receipt of payments; and
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(c)
|
an increase in cost and earnings in excess of billings of
approximately $306,000;
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partially offset by:
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(d)
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a net increase in trade accounts payable, accrued expenses, and
other liabilities of approximately $1,781,000, primarily due to
growth in BPE Segment activity, as well as the timing and
submission of payments; and
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(e)
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a decrease in other current assets of approximately $60,000.
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Investing activities used cash of approximately $922,000,
primarily as a result of:
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(a)
|
approximately $512,000 used for additions to intangible assets,
primarily related to enhancements to the BPE Segments
proprietary building productivity software solutions, and to
purchase accounting software;
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(b)
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approximately $228,000 used for additions to income-producing
properties related to building and tenant improvements; and
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(c)
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approximately $122,000 used for additions to property and
equipment, primarily related to vehicle and computer hardware
purchases.
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Financing activities provided cash of approximately $237,000,
primarily as a result of:
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(a)
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proceeds from long-term loans against the Companys
interest in the cash surrender value of certain life insurance
policies of approximately $982,000;
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partially offset by:
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(b)
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scheduled principal payments on real estate mortgage notes of
approximately $343,000;
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(c)
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payment of the regular quarterly cash dividends to shareholders
of approximately $185,000;
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(d)
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scheduled principal payments on other debt of $185,000; and
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(e)
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repurchases of shares of the Companys common stock of
approximately $31,000.
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While the Companys operations used approximately
$1,071,000 of cash during the first quarter of fiscal 2010, the
level of cash usage moderated in the second and third quarters,
as operations only used approximately $189,000 of cash during
those six (6) months. During the fourth quarter of fiscal
2010, operating activities used approximately $878,000 of cash,
primarily due to a decrease in advance billings on large energy
savings projects, as well as expenditures needed to service the
revenue growth of the BPE Segment. The increase in BPE Segment
orders during fiscal 2010 is expected to result in substantially
higher revenues in fiscal 2011, and management believes that the
BPE Segment will be able to generate positive cash flow from
operations during the year as a result. However, management
believes that a longer period of time will be required before
the BPE Segment is able to generate sufficient sustained cash
flow to fully fund the Companys operations. The Company
believes that it has sufficient
27
capital resources on hand to operate its business in the
ordinary course for the next twelve (12) months. The
Company also currently believes that it has, or can obtain,
sufficient capital resources to continue to operate its business
in the ordinary course until the BPE Segment begins to generate
sufficient cash flow to fund the Companys operations,
although there can be no assurance that this will be the case,
particularly if the macro-economic conditions experienced during
fiscal 2010 continue for an extended period of time, or worsen.
Achieving sufficient positive cash flow from the operations of
the BPE Segment to fund the Companys operations will
depend on the occurrence of a number of assumed factors,
including the timing and volume of additional revenues generated
by new material contracts, which historically have been
difficult to predict, and the timing of collections of customer
receivables and payments to vendors and suppliers. Consequently,
there can be no assurance that the Company will achieve
sufficient positive cash flow to fund the Companys
operations through BPE Segment operations in the near term, or
at all.
The Company historically has generated substantial liquidity
from the periodic sales of real estate assets, and the proceeds
from such sales often have then been redeployed to the BPE
Segment of the Company. Most recently, during the first quarter
of fiscal 2011, the Company successfully closed on the sale of
its owned shopping center in Jacksonville, Florida, generating
net cash proceeds of approximately $2 million and a pre-tax
gain on the sale of approximately $120,000. As a cumulative
result of the real estate assets sales over the last several
years, the Companys real estate portfolio now consists of
only a few properties, and given recent declines in commercial
real estate markets and asset valuations in the United States,
the Company may be unable to sell any of its remaining real
estate assets at acceptable prices, or at all, 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. As of April 30, 2010, the
Company has drawn $982,000 in loans against its interest in the
cash surrender value of certain life insurance policies;
however, there is currently minimal additional borrowing
capacity left under such policies.
In the event that currently available cash, cash generated from
operations, and cash generated from real estate sales were not
sufficient to meet future operating cash requirements, the
Company would need to sell additional real estate or other
assets at potentially otherwise unacceptable prices, 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 the available cash and cash flow, or any
combination of these options. In addition, the development of
the BPE Segments new Fifth Fuel
Managementtm
offering to its full potential will require the investment of
additional capital, which the Company may seek to raise through
outside sources or the sale of assets.
The Companys ability to secure debt or equity financing or
to sell real estate or other assets, whether for normal working
capital and capital expenditure purposes or to fully develop the
Fifth Fuel
Managementtm
offering, could be limited by economic and financial conditions
at any time, but likely would be severely limited by credit,
equity and real estate market conditions similar to those that
have existed in recent years. Management cannot provide
assurance that any reductions in planned expenditures or in
operations would be sufficient to cover potential shortfalls in
available cash, or that debt or equity financing or real estate
or other asset sales would be available on terms acceptable to
the Company, if at all, in which event the Company could deplete
its capital resources before achieving sufficient cash flow to
fund operations. Moreover, depending on the form of such
additional capital, the equity interests of the Companys
existing shareholders could be diluted.
The Company has no material commitments for capital
expenditures. However, the Company does expect that total
capital spending in fiscal year 2011 will approximate
$1,230,000, including BPE Segment expenditures of approximately
$560,000 for proprietary BPE software solutions and
approximately $240,000 for property and equipment, Real Estate
Segment expenditures of approximately $250,000, and Parent
Company expenditures of approximately $180,000. Other
significant uses of cash are anticipated to be regularly
scheduled principal repayments of the Real Estate Segments
mortgage loans and the regular cash requirements of corporate
headquarters. The Companys uses of cash are not expected
to change materially in the near future, with the exception of
Real Estate Segment capital expenditures, which may increase if
significant discretionary tenant improvements and lease
commission payments are used for tenant leasing. This
discretionary use of cash would be recovered during the terms of
such new leases by the additional rental income generated as a
result.
28
Mortgage
Notes
As of April 30, 2010, the Company had three
(3) mortgage notes on long-term real estate assets and two
(2) other long-term debt obligations. In June 2010, the
Company sold its owned shopping center located in Jacksonville,
Florida, and the purchaser assumed the mortgage note obligation
(see Note 20 Subsequent Events to the
consolidated financial statements for more information). None of
the mortgage notes contain any financial covenants, with the
exception of a provision in one (1) of the owned shopping
center mortgage loans that requires a Real Estate Segment
subsidiary to maintain a net worth of at least $4 million;
that subsidiarys net worth was approximately
$16.4 million as of April 30, 2010. None of the
Companys long-term debt obligations have any financial or
non-financial covenants.
Secured
Letter of Credit
In conjunction with terms of the mortgage on its 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,
2010, and April 30, 2009.
Repurchases
of Common Stock
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. In December 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. In February 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. In March
2010, 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 15, 2011. The
Company repurchased 48,890 shares of its common stock in
fiscal 2009 for a total cost of approximately $136,000, and the
Company repurchased 16,981 shares of its common stock in
fiscal 2010 for a total cost of approximately $31,000.
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 engages in contracts of short duration
with fixed prices, which typically would minimize any erosion of
its profit margin due to inflation. The BPE Segment also has
some contracts that are renewed on an annual basis. At the time
of renewal, contract fees may be increased by either the
year-over-year
increase in the consumer price index, as stated in the contract,
or upon 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.
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.
29
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
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 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. Revenues derived from
sales of proprietary building productivity software solutions
(other than ASP solutions) and sales of hardware products are
recognized when the respective software solutions and hardware
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. 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. 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. 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 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
30
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, the following:
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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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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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31
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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.
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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.
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 as required for software in a Web hosting
arrangement. Software development costs that are incurred in a
preliminary project stage are 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.
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Long-lived assets in the BPE Segment are grouped together for
purposes of impairment analysis, 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. 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, 2010. The annual analysis
resulted in a determination of no impairment in fiscal 2010. As
of April 30, 2010, the Company does not believe that any of
its goodwill or other intangible assets are impaired.
32
The valuation methodologies used to calculate the fair value of
the BPE Segment 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. GAAP states that both methodologies are
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, because 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 deliver
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 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 discount rates used in the scenarios
ranged from 19% for the lower growth scenario to 21% 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 equally (33% for the expected
case and 33% 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.
In the application of the market approach, the Company
considered valuation multiples derived from five (5) public
comparable 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. Both the market and income approaches provide
meaningful indications of the fair value of the BPE Segment. The
outcomes of the income approach and the market approach were
weighted 70% and 30%, respectively, with the resulting fair
value compared to the carrying value of the BPE Segment.
33
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, among others, 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 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, among others, 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 $8.1 million of taxable
income in future years to realize the federal NOL carryforwards
and an additional $23.3 million of taxable income in future
years to realize the state NOL carryforwards. These amounts of
taxable income would allow for the reversal of the
$3.9 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, 2028, tax-year.
The significant state NOL carryforwards will also expire between
the April 30, 2024, and April 30, 2028, tax years. The
Company has no material permanent book/tax differences.
The Company has no material uncertain tax position 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 gains and losses from the disposition of certain
income-producing real estate assets, and associated liabilities,
operating results, and cash flows are reflected as discontinued
operations in the consolidated 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.
34
Recent
Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board
(FASB) issued guidance now codified as FASB
Accounting Standards Codification (ASC) topic
105-10,
The FASB Accounting Standards Codification and the Hierarchy
of Generally Accepted Accounting Principles (ASC
105-10
or the Codification), which became effective for
interim and annual periods ending after September 15, 2009.
Other than resolving certain minor inconsistencies in current
U.S. GAAP, the Codification does not change GAAP, but
rather is intended to make it easier to find and research GAAP
applicable to particular transactions or specific accounting
issues. The Codification organizes previous accounting
pronouncements into approximately 90 accounting topics and is
now considered to be the single source of authoritative
U.S. GAAP. The Company adopted
ASC 105-10
in the second quarter of fiscal 2010. Adoption had no impact on
the determination or reporting of the Companys financial
results. All references to specific authoritative guidance have
been updated within this report to reflect the new Accounting
Standards Codification structure.
In May 2009, the FASB issued guidance now codified as FASB ASC
topic 855, Subsequent Events (ASC 855).
ASC 855 modifies the names of the two types of subsequent
events and, for public entities, modifies the definition of
subsequent events to refer to events or transactions that occur
after the balance sheet date but before the financial statements
are issued. Also, ASC 855 requires that entities disclose
the date through which subsequent events have been evaluated and
the basis for that date. ASC 855 was effective for all
interim and annual periods ending after June 15, 2009. The
Company adopted ASC 855 in the first quarter of fiscal 2010.
In February 2010, the FASB issued new guidance codified as FASB
Accounting Standards Update (ASU)
2010-09,
Subsequent Events (ASU
2010-09).
ASU 2010-09
updates FASB ASC 855. ASU
2010-09
removes the requirement to disclose the date through which an
entity has evaluated subsequent events. The Company adopted the
previously issued guidance included in ASC 855 in the first
quarter of fiscal 2010. The Company adopted
ASU 2010-09
in the third quarter of fiscal 2010. The Company has determined
that adoption did not have a significant impact on the
determination or reporting of the Companys financial
results.
In April 2009, the FASB issued new guidance now codified within
FASB ASC topic 825, Financial Instruments (ASC
825). Following this new guidance, ASC 825 requires
disclosure about the fair value of financial instruments for
publicly traded companies in interim reporting periods, as well
as in annual reporting periods. The Company adopted the new
provisions of ASC 825 in the first quarter of fiscal 2010.
See Note 10 Fair Value of Financial Instruments
to the consolidated financial statements for fair value
disclosure of the Companys financial instruments.
In April 2008, the FASB issued guidance now codified as FASB ASC
Subtopic
350-30,
Intangibles Goodwill and Other; General
Intangibles Other than Goodwill (ASC
350-30)
and ASC topic 275, Risks and Uncertainties (ASC
275). This new guidance was designed to improve the
consistency between the useful life of a recognized intangible
asset under ASC 350, Intangibles Goodwill
and Other, and the period of expected cash flows used to
measure the fair value of the asset under ASC 805,
Business Combinations, and other guidance under GAAP. The
Company adopted
ASC 350-30
and ASC 275 in the first quarter of fiscal 2010. The
Company has determined that adoption did not have a significant
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,
projects, forecasts, and words of
similar import, are forward-looking statements within the
meaning of the federal securities laws. Forward-looking
statements in this report include, without limitation: the
Companys expected continuing strengthening of orders and
achievement of positive EBITDA for its BPE Segment; trends in
the BPE Segments government business and private sector
business; the Companys expectations of generating
additional recurring revenues as a result of the BPE
Segments new Fifth Fuel
Managementtm
offering; and the expected timing of the recognition as revenue
of current backlog. 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.
35
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 revenues from existing backlog 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 the NASDAQ stock market; 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, 2010. 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, 2010, 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, 2010 and 2009, and the related consolidated
statements of operations, shareholders equity, and cash
flows for each of the two years in the period ended
April 30, 2010. Our audits also included the financial
statement schedule listed in the Index at Item 15. These
consolidated financial statements and the financial statement
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on the
consolidated 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, 2010 and
2009, and the results of their operations and their cash flows
for each of the two years in the period ended April 30,
2010, 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 28, 2010
38
SERVIDYNE,
INC.
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (Note 2)
|
|
$
|
1,923,641
|
|
|
$
|
4,821,126
|
|
Receivables:
|
|
|
|
|
|
|
|
|
Trade accounts and notes, net of allowance for doubtful accounts
of $94,039 and $121,463, respectively
|
|
|
1,045,477
|
|
|
|
1,277,508
|
|
Contracts, net of allowance for doubtful accounts of $22,530 and
$4,294, respectively, including retained amounts of $675,281 and
$219,385, respectively
|
|
|
3,337,177
|
|
|
|
1,764,327
|
|
Costs and earnings in excess of billings (Note 5)
|
|
|
715,129
|
|
|
|
408,950
|
|
Assets of discontinued operations (Note 4)
|
|
|
|
|
|
|
314,906
|
|
Deferred income taxes (Note 11)
|
|
|
451,875
|
|
|
|
529,708
|
|
Other current assets (Note 2)
|
|
|
1,293,609
|
|
|
|
1,485,599
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
8,766,908
|
|
|
|
10,602,124
|
|
INCOME-PRODUCING PROPERTIES, net (Note 6)
|
|
|
17,382,252
|
|
|
|
17,630,790
|
|
PROPERTY AND EQUIPMENT, net (Note 7)
|
|
|
682,445
|
|
|
|
797,556
|
|
ASSETS OF DISCONTINUED OPERATIONS (Note 4)
|
|
|
|
|
|
|
1,909,434
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
Real estate held for future development or sale
|
|
|
853,109
|
|
|
|
853,109
|
|
Intangible assets, net (Note 17)
|
|
|
2,810,417
|
|
|
|
2,832,286
|
|
Goodwill (Note 17)
|
|
|
6,354,002
|
|
|
|
6,354,002
|
|
Other assets (Note 2)
|
|
|
2,983,886
|
|
|
|
2,665,355
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
39,833,019
|
|
|
$
|
43,644,656
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Trade and subcontractors payables
|
|
$
|
2,483,996
|
|
|
$
|
851,633
|
|
Accrued expenses
|
|
|
1,633,731
|
|
|
|
1,388,229
|
|
Deferred revenue
|
|
|
507,383
|
|
|
|
601,347
|
|
Billings in excess of costs and earnings (Note 5)
|
|
|
53,100
|
|
|
|
28,215
|
|
Liabilities of discontinued operations (Note 4)
|
|
|
|
|
|
|
175,541
|
|
Short-term debt and current maturities of long-term debt
|
|
|
516,823
|
|
|
|
526,287
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
5,195,033
|
|
|
|
3,571,252
|
|
DEFERRED INCOME TAXES (Note 11)
|
|
|
1,253,373
|
|
|
|
2,246,919
|
|
LIABILITIES OF DISCONTINUED OPERATIONS (Note 4)
|
|
|
|
|
|
|
3,370,826
|
|
OTHER LIABILITIES
|
|
|
1,039,633
|
|
|
|
824,877
|
|
MORTGAGE NOTES PAYABLE, less current maturities
(Note 8)
|
|
|
14,723,501
|
|
|
|
15,092,252
|
|
OTHER LONG-TERM DEBT, less current maturities (Note 9)
|
|
|
1,832,000
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
24,043,540
|
|
|
|
26,106,126
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 18)
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
Common stock, $1 par value; 10,000,000 shares
authorized; 3,919,773 issued and 3,676,383 outstanding at
April 30, 2010; 3,917,778 issued and 3,691,369 outstanding
at April 30, 2009
|
|
|
3,919,773
|
|
|
|
3,917,778
|
|
Additional paid-in capital
|
|
|
6,206,521
|
|
|
|
6,026,101
|
|
Retained earnings
|
|
|
6,669,330
|
|
|
|
8,569,451
|
|
Treasury stock (common shares) of 243,390 and 226,409,
respectively
|
|
|
(1,006,145
|
)
|
|
|
(974,800
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
15,789,479
|
|
|
|
17,538,530
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
39,833,019
|
|
|
$
|
43,644,656
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
39
SERVIDYNE,
INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
Building Performance Efficiency (BPE)
|
|
$
|
18,171,536
|
|
|
$
|
13,192,310
|
|
Real Estate
|
|
|
2,727,565
|
|
|
|
2,791,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,899,101
|
|
|
|
15,983,881
|
|
|
|
|
|
|
|
|
|
|
COST OF REVENUES:
|
|
|
|
|
|
|
|
|
BPE
|
|
|
12,300,803
|
|
|
|
8,562,024
|
|
Real Estate
|
|
|
1,862,609
|
|
|
|
1,787,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,163,412
|
|
|
|
10,349,260
|
|
|
|
|
|
|
|
|
|
|
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
|
|
|
9,797,862
|
|
|
|
9,898,010
|
|
|
|
|
|
|
|
|
|
|
OTHER (INCOME) AND EXPENSES:
|
|
|
|
|
|
|
|
|
Other income (Note 2)
|
|
|
(294,029
|
)
|
|
|
(317,322
|
)
|
Interest income
|
|
|
(12,507
|
)
|
|
|
(107,180
|
)
|
Interest expense
|
|
|
1,083,810
|
|
|
|
1,107,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
777,274
|
|
|
|
683,484
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
|
|
|
(3,839,447
|
)
|
|
|
(4,946,873
|
)
|
INCOME TAX EXPENSE (BENEFIT) (Note 11):
|
|
|
|
|
|
|
|
|
Current
|
|
|
13,309
|
|
|
|
|
|
Deferred
|
|
|
(1,479,522
|
)
|
|
|
(1,671,004
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,466,213
|
)
|
|
|
(1,671,004
|
)
|
|
|
|
|
|
|
|
|
|
LOSS FROM CONTINUING OPERATIONS
|
|
|
(2,373,234
|
)
|
|
|
(3,275,869
|
)
|
|
|
|
|
|
|
|
|
|
DISCONTINUED OPERATIONS (Note 4):
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, adjusted for applicable
income tax benefit of $50,649 and $896,531, respectively
|
|
|
(82,638
|
)
|
|
|
(1,311,581
|
)
|
Gain on disposition of income-producing properties, adjusted for
applicable income tax expense of $447,808 and $0, respectively
|
|
|
740,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS
|
|
|
658,193
|
|
|
|
(1,311,581
|
)
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(1,715,041
|
)
|
|
$
|
(4,587,450
|
)
|
|
|
|
|
|
|
|
|
|
NET EARNINGS (LOSS) PER SHARE (Note 14):
|
|
|
|
|
|
|
|
|
From continuing operations basic and diluted
|
|
$
|
(0.64
|
)
|
|
$
|
(0.88
|
)
|
From discontinued operations basic and diluted
|
|
|
.18
|
|
|
|
(.35
|
)
|
|
|
|
|
|
|
|
|
|
NET LOSS PER SHARE BASIC AND DILUTED
|
|
$
|
(0.46
|
)
|
|
$
|
(1.23
|
)
|
|
|
|
|
|
|
|
|
|
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, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,715,041
|
)
|
|
|
|
|
|
|
(1,715,041
|
)
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
182,415
|
|
|
|
|
|
|
|
|
|
|
|
182,415
|
|
Common stock acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,345
|
)
|
|
|
(31,345
|
)
|
Common stock issued
|
|
|
1,995
|
|
|
|
1,995
|
|
|
|
(1,995
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared $0.047 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(185,080
|
)
|
|
|
|
|
|
|
(185,080
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES at April 30, 2010
|
|
|
3,919,773
|
|
|
$
|
3,919,773
|
|
|
$
|
6,206,521
|
|
|
$
|
6,669,330
|
|
|
$
|
(1,006,145
|
)
|
|
$
|
15,789,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
41
SERVIDYNE,
INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
2010
|
|
|
2009
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,715,041
|
)
|
|
$
|
(4,587,450
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
(Earnings) loss from discontinued operations, net of tax
|
|
|
(658,193
|
)
|
|
|
1,311,581
|
|
Loss on disposal of assets
|
|
|
1,378
|
|
|
|
9,683
|
|
Depreciation and amortization
|
|
|
1,377,176
|
|
|
|
1,453,882
|
|
Amortization of mortgage discount
|
|
|
|
|
|
|
(20,000
|
)
|
Deferred tax benefit
|
|
|
(1,505,595
|
)
|
|
|
(1,714,488
|
)
|
Stock compensation expense
|
|
|
182,415
|
|
|
|
205,118
|
|
Adjustment to cash surrender value of life insurance
|
|
|
(62,442
|
)
|
|
|
(66,633
|
)
|
Straight-line rent
|
|
|
22,606
|
|
|
|
(28,778
|
)
|
Provision for doubtful accounts, net
|
|
|
(9,188
|
)
|
|
|
4,878
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(1,331,631
|
)
|
|
|
667,583
|
|
Costs and earnings in excess of billings
|
|
|
(306,179
|
)
|
|
|
(133,196
|
)
|
Other current and long-term assets
|
|
|
59,684
|
|
|
|
(327,463
|
)
|
Trade and subcontractors payable
|
|
|
1,632,363
|
|
|
|
(137,777
|
)
|
Accrued expenses and deferred revenue
|
|
|
151,538
|
|
|
|
(24,873
|
)
|
Accrued incentive compensation
|
|
|
|
|
|
|
(494,000
|
)
|
Billings in excess of costs and earnings
|
|
|
24,885
|
|
|
|
(34,344
|
)
|
Other liabilities
|
|
|
(2,900
|
)
|
|
|
(14,674
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(2,139,124
|
)
|
|
|
(3,930,951
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquisition, net of cash acquired
|
|
|
|
|
|
|
(902,657
|
)
|
Premiums paid on officers life insurance policies
|
|
|
(61,464
|
)
|
|
|
(56,000
|
)
|
Release of restricted cash held in escrow
|
|
|
|
|
|
|
3,470,700
|
|
Purchase of held to maturity investments
|
|
|
|
|
|
|
(150,000
|
)
|
Additions to income-producing properties
|
|
|
(228,006
|
)
|
|
|
(189,831
|
)
|
Additions to property and equipment
|
|
|
(122,308
|
)
|
|
|
(166,166
|
)
|
Additions to intangible assets
|
|
|
(511,992
|
)
|
|
|
(358,160
|
)
|
Proceeds from sale of property and equipment
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(921,770
|
)
|
|
|
1,647,886
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Long-term loan proceeds
|
|
|
982,000
|
|
|
|
|
|
Mortgage repayments
|
|
|
(343,215
|
)
|
|
|
(321,091
|
)
|
Debt repayments
|
|
|
(185,000
|
)
|
|
|
(280,875
|
)
|
Repurchase of common stock
|
|
|
(31,345
|
)
|
|
|
(135,507
|
)
|
Cash dividends paid to shareholders
|
|
|
(185,080
|
)
|
|
|
(501,259
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
237,360
|
|
|
|
(1,238,732
|
)
|
|
|
|
|
|
|
|
|
|
DISCONTINUED OPERATIONS:
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
(13,319
|
)
|
|
|
100,555
|
|
Investing activities
|
|
|
(1,021
|
)
|
|
|
(109,538
|
)
|
Financing activities
|
|
|
(59,611
|
)
|
|
|
(31,041
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by discontinued operations
|
|
|
(73,951
|
)
|
|
|
(40,024
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(2,897,485
|
)
|
|
|
(3,561,821
|
)
|
Cash at beginning of period
|
|
|
4,821,126
|
|
|
|
8,382,947
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
1,923,641
|
|
|
$
|
4,821,126
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
Issuance of Common Stock under 2000 Stock Award Plan
|
|
$
|
4,434
|
|
|
$
|
24,792
|
|
Supplemental schedule of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the year for interest
|
|
$
|
1,094,304
|
|
|
$
|
1,303,887
|
|
Cash paid during the year for income taxes, net
|
|
$
|
|
|
|
$
|
|
|
See accompanying notes to consolidated financial statements.
42
Supplementary Disclosures of Noncash 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
|
|
|
|
|
|
|
On January 29, 2010, the Company transferred its interest
in an income-producing property and related assets to the note
holder, which satisfied in full the Companys liability for
the related mortgage note payable.
|
|
|
|
|
Elimination of mortgage note payable
|
|
$
|
(3,159,348
|
)
|
Disposition of income-producing property, net
|
|
|
1,727,165
|
|
Disposition of other related assets and liabilities, net
|
|
|
193,545
|
|
See accompanying notes to consolidated financial statements.
43
SERVIDYNE,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended April 30, 2010, and April 30,
2009
|
|
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. The Companys Building Performance
Efficiency (BPE) Segment provides comprehensive
energy efficiency and demand response solutions, sustainability
programs, and other building performance-enhancing products and
services to owners and operators of existing buildings, energy
services companies, and public and investor-owned utilities. The
Companys Real Estate Segment engages in the asset
management of its portfolio of commercial real estate
income-producing properties and undeveloped land.
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
|
|
(A)
|
Principles
of consolidation and basis of presentation
|
The consolidated financial statements include the accounts of
Servidyne, Inc., and its wholly-owned subsidiaries. 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 guidance now codified as FASB
ASC 360-35,
Property, Plant and Equipment (ASC
360-35).
In addition, the Company has made certain reclassifications in
the prior year to conform with the current year 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
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 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. Revenues derived from
sales of proprietary building productivity software solutions
(other than ASP solutions) and sales of hardware products are
recognized when the respective software solutions and hardware
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. 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. Contract
44
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. 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
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: (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.
|
|
(D)
|
Cash
and cash equivalents and short-term investments
|
Cash and cash equivalents include money market funds and other
highly liquid financial instruments. 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, 2010, and April 30, 2009, the Company had an
investment in a certificate of deposit, which is included in
long-term other assets, that secures a letter of credit on a
mortgage note payable that matures in August 2012.
45
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(E)
|
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.
|
|
(G)
|
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, the following:
|
|
|
|
|
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;
|
46
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
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.
|
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 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 at
April 30, 2009, 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. On January 29, 2010, the
Real Estate Segment transferred its approximately
$2.0 million interest in the property and related assets to
the note holder, which satisfied in full the Companys
liability for the approximately $3.2 million remaining
balance on the propertys non-recourse mortgage loan.
Correspondingly, the Company recognized a pre-tax gain of
approximately $1.2 million in the third quarter of fiscal
2010 as a result of the elimination of the balance of the
indebtedness on the property. See Note 4 Discontinued
Operations for further information.
The BPE Segment has long-lived assets that primarily consist 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 as required for software in a Web hosting
arrangement. Software development costs that are incurred in a
preliminary project stage are 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 analysis, 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.
47
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(H)
|
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 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. 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, 2010. The annual analysis
resulted in a determination of no impairment in fiscal 2010. As
of April 30, 2010, 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 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. GAAP states that both methodologies are
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, because 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 deliver
the revenue
48
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 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 discount rates used in the scenarios
ranged from 19% for the lower growth scenario to 21% 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 equally (33% for the expected
case and 33% 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.
In the application of the market approach, the Company
considered valuation multiples derived from five (5) public
comparable 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. Both the market and income approaches provide
meaningful indications of the fair value to the BPE Segment. The
outcomes of the income approach and the market approach were
weighted 70% and 30%, respectively, with the resulting fair
value compared to the carrying value of the BPE Segment.
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.
|
|
(J)
|
Derivative
instruments and hedging activities
|
Derivative 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,
2010, and April 30, 2009, the Company had no derivative
instruments or hedging activities.
49
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(K)
|
Discontinued
operations
|
The gains and losses from the disposition of certain
income-producing real estate assets, and associated liabilities,
operating results, and cash flows are reflected as discontinued
operations in the consolidated 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.
Other current assets consisted of the following as of
April 30, 2010, and April 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Inventory
|
|
$
|
537,624
|
|
|
$
|
654,443
|
|
Prepaid software consulting
|
|
|
|
|
|
|
132,731
|
|
Prepaid real estate taxes
|
|
|
48,928
|
|
|
|
65,685
|
|
Deferred costs
|
|
|
31,248
|
|
|
|
92,210
|
|
Prepaid insurance
|
|
|
75,751
|
|
|
|
119,849
|
|
Prepaid rent
|
|
|
35,783
|
|
|
|
48,905
|
|
Deposits
|
|
|
44,400
|
|
|
|
44,400
|
|
Prepaid consulting fees
|
|
|
25,000
|
|
|
|
25,000
|
|
Unbilled engineering revenue
|
|
|
170,520
|
|
|
|
112,690
|
|
Other receivables
|
|
|
117,660
|
|
|
|
11,798
|
|
Other
|
|
|
206,695
|
|
|
|
177,888
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,293,609
|
|
|
$
|
1,485,599
|
|
|
|
|
|
|
|
|
|
|
Other assets consisted of the following as of April 30,
2010, and April 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Cash surrender value of life insurance
|
|
$
|
1,447,224
|
|
|
$
|
1,323,318
|
|
Deferred executive compensation
|
|
|
947,023
|
|
|
|
733,378
|
|
Certificate of deposit
|
|
|
450,000
|
|
|
|
450,000
|
|
Straight-line rent
|
|
|
117,757
|
|
|
|
140,362
|
|
Notes receivable
|
|
|
9,000
|
|
|
|
9,250
|
|
Other
|
|
|
12,882
|
|
|
|
9,047
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,983,886
|
|
|
$
|
2,665,355
|
|
|
|
|
|
|
|
|
|
|
Other income for the year ended April 30, 2010, included
changes in the fair value of deferred executive compensation
plan assets of approximately $174,000. Other income for the year
ended April 30, 2009, included $285,000 related to a
January 30, 2009, settlement of an insurance claim.
|
|
(O)
|
Recent
accounting pronouncements
|
In June 2009, the FASB issued guidance now codified as FASB ASC
topic
105-10,
The FASB Accounting Standards Codification and the Hierarchy
of Generally Accepted Accounting Principles (ASC
105-10
or the Codification), which became effective for
interim and annual periods ending after September 15, 2009.
Other than
50
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
resolving certain minor inconsistencies in current
U.S. generally accepted accounting principles
(GAAP), the Codification does not change GAAP, but
rather is intended to make it easier to find and research GAAP
applicable to particular transactions or specific accounting
issues. The Codification organizes previous accounting
pronouncements into approximately 90 accounting topics and is
now considered to be the single source of authoritative
U.S. GAAP. The Company adopted
ASC 105-10
in the second quarter of fiscal 2010. Adoption had no impact on
the determination or reporting of the Companys financial
results. All references to specific authoritative guidance have
been updated within this report to reflect the new Accounting
Standards Codification structure.
In May 2009, the FASB issued guidance now codified as FASB ASC
topic 855, Subsequent Events (ASC 855).
ASC 855 modifies the names of the two types of subsequent
events and, for public entities, modifies the definition of
subsequent events to refer to events or transactions that occur
after the balance sheet date but before the financial statements
are issued. Also, ASC 855 requires that entities disclose
the date through which subsequent events have been evaluated and
the basis for that date. ASC 855 was effective for all
interim and annual periods ending after June 15, 2009. The
Company adopted ASC 855 in the first quarter of fiscal 2010.
In February 2010, the FASB issued new guidance codified as FASB
Accounting Standards Update (ASU)
2010-09,
Subsequent Events (ASU
2010-09).
ASU 2010-09
updates FASB ASC 855. ASU
2010-09
removes the requirement to disclose the date through which an
entity has evaluated subsequent events. The Company adopted the
previously issued guidance included in ASC 855 in the first
quarter of fiscal 2010. The Company adopted ASU
2010-09 in
the third quarter of fiscal 2010. The Company has determined
that adoption did not have a significant impact on the
determination or reporting of the Companys financial
results.
In April 2009, the FASB issued new guidance now codified within
FASB ASC topic 825, Financial Instruments (ASC
825). Following this new guidance, ASC 825 requires
disclosure about the fair value of financial instruments for
publicly traded companies in interim reporting periods, as well
as in annual reporting periods. The Company adopted the new
provisions of ASC 825 in the first quarter of fiscal 2010.
See Note 10 Fair Value of Financial Instruments
for fair value disclosure of the Companys financial
instruments.
In April 2008, the FASB issued guidance now codified as FASB ASC
Subtopic
350-30,
Intangibles Goodwill and Other; General
Intangibles Other than Goodwill (ASC
350-30)
and ASC topic 275, Risks and Uncertainties (ASC
275). This new guidance was designed to improve the
consistency between the useful life of a recognized intangible
asset under ASC 350, Intangibles Goodwill
and Other, and the period of expected cash flows used to
measure the fair value of the asset under ASC 805,
Business Combinations, and other guidance under GAAP. The
Company adopted
ASC 350-30
and ASC 275 in the first quarter of fiscal 2010. The
Company has determined that adoption did not have a significant
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. Most of these
equity-based instruments have been granted under the terms of
the Companys 2000 Stock Award Plan (the 2000 Award
Plan). The total number of shares that can be granted
under the 2000 Award Plan is 1,155,000 shares. The Company
typically uses authorized, unissued shares to provide shares for
these equity-based instruments.
For the years ended April 30, 2010, and April 30,
2009, the Companys net loss included $182,415 and
$205,118, respectively, of total equity-based compensation
expenses, and $69,319 and $78,265, respectively, of related
income tax benefits. All of these expenses are included in
selling, general and administrative expenses in the
51
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
consolidated statements of operations. At April 30, 2010,
there were total unrecognized equity-based compensation expenses
of $341,201 that are expected to be recognized over a weighted
average period of approximately 1.9 years.
Stock
options
A summary of stock options activity for the fiscal years ended
April 30 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Options to
|
|
|
Average
|
|
|
Options to
|
|
|
Average
|
|
|
|
Purchase
|
|
|
Exercise
|
|
|
Purchase
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Outstanding at beginning of year
|
|
|
482,486
|
|
|
$
|
4.46
|
|
|
|
483,536
|
|
|
$
|
4.45
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
10,500
|
|
|
|
5.24
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
(11,550
|
)
|
|
|
4.59
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
482,486
|
|
|
$
|
4.46
|
|
|
|
482,486
|
|
|
$
|
4.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested at end of year
|
|
|
471,986
|
|
|
$
|
4.44
|
|
|
|
471,986
|
|
|
$
|
4.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at end of year, that are expected to vest
|
|
|
10,500
|
|
|
$
|
5.24
|
|
|
|
10,500
|
|
|
$
|
5.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options typically vest over a period of two
(2) years. The maximum contractual term of the stock
options is ten (10) years. As of April 30, 2010, and
April 30, 2009, 98% of the outstanding stock options were
exercisable, but none were in the money.
A summary of information about all stock options outstanding as
of April 30, 2010, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
Number of
|
|
Remaining
|
|
|
Outstanding
|
|
Contractual
|
Exercise Price
|
|
Options
|
|
Term (Years)
|
|
$4.42
|
|
|
415,629
|
|
|
|
2.53
|
|
$4.59
|
|
|
55,440
|
|
|
|
4.90
|
|
$5.19
|
|
|
917
|
|
|
|
4.13
|
|
$5.24
|
|
|
10,500
|
|
|
|
3.12
|
|
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
|
|
52
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
There were no stock options granted in fiscal 2010.
Compensation expenses related to the vesting of options for
fiscal years 2010 and 2009 were $3,867 and $22,900,
respectively, and the related income tax benefits were $1,470
and $9,023, respectively.
Stock
appreciation rights
A summary of SARs activity for the fiscal years ended April 30
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
SARs
|
|
|
Price
|
|
|
SARs
|
|
|
Price
|
|
|
Outstanding at beginning of year
|
|
|
565,350
|
|
|
$
|
4.37
|
|
|
|
411,600
|
|
|
$
|
4.26
|
|
Granted
|
|
|
381,500
|
|
|
|
3.11
|
|
|
|
184,000
|
|
|
|
4.57
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(19,425
|
)
|
|
|
4.62
|
|
|
|
(30,250
|
)
|
|
|
3.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
927,425
|
|
|
$
|
3.85
|
|
|
|
565,350
|
|
|
$
|
4.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested at end of year
|
|
|
88,200
|
|
|
$
|
3.88
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at end of year, that are expected to vest
|
|
|
589,305
|
|
|
$
|
3.91
|
|
|
|
405,299
|
|
|
$
|
4.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All SARs have a five-year vesting period. Typically, thirty
percent (30%) of the SARs will vest on the third
(3rd)
year anniversary of the date of grant, thirty percent (30%) will
vest on the fourth (4th) year anniversary of the date of grant,
and forty percent (40%) will vest on the fifth (5th) year
anniversary of the date of grant. All SARs have early vesting
provisions by which one hundred percent (100%) of the SARs would
vest immediately (1) on the date of a change in control of
the Company; or (2) if the Companys stock price were
to close at or above a certain price for ten
(10) consecutive trading days. For SARs granted prior to
the stock dividend that occurred in the first quarter of fiscal
2009, the triggering price for early vesting is $19.05 per
share. For SARs granted subsequent to the stock dividend that
occurred in the first quarter of fiscal 2009, the triggering
price for early vesting for SARs issued under the 2000 Award
Plan is $20.00 per share, and the triggering price for early
vesting for SARs not issued under the 2000 Award Plan is $19.05
per share. The maximum contractual term of all SARs is ten
(10) years. As of April 30, 2010, none of the
outstanding SARs, vested or non-vested, were in the
money.
A summary of information about SARs outstanding as of
April 30, 2010, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Outstanding
|
|
Vested
|
|
Remaining Contractual
|
Exercise Price
|
|
SARs
|
|
SARs
|
|
Term (Years)
|
|
$3.94
|
|
|
180,495
|
|
|
|
54,810
|
|
|
|
6.16
|
|
$3.79
|
|
|
109,830
|
|
|
|
33,390
|
|
|
|
6.61
|
|
$4.19
|
|
|
10,500
|
|
|
|
0
|
|
|
|
7.12
|
|
$6.19
|
|
|
33,600
|
|
|
|
0
|
|
|
|
7.42
|
|
$5.00
|
|
|
52,500
|
|
|
|
0
|
|
|
|
7.99
|
|
$4.76
|
|
|
136,500
|
|
|
|
0
|
|
|
|
8.13
|
|
$4.00
|
|
|
22,500
|
|
|
|
0
|
|
|
|
8.39
|
|
$2.30
|
|
|
30,000
|
|
|
|
0
|
|
|
|
9.11
|
|
$4.00
|
|
|
200,000
|
|
|
|
0
|
|
|
|
9.55
|
|
$2.12
|
|
|
20,000
|
|
|
|
0
|
|
|
|
9.61
|
|
$2.09
|
|
|
131,500
|
|
|
|
0
|
|
|
|
9.90
|
|
53
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company estimates the fair value of each award of SARs 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 fair value of the SARs granted during the fiscal years ended
April 30 was estimated on the respective grant dates using the
following weighted average assumptions in the Black-Scholes
option-pricing model:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
Expected life (years)
|
|
|
5
|
|
|
|
5
|
|
Dividend yield
|
|
|
3.82
|
%
|
|
|
2.59
|
%
|
Expected stock price volatility
|
|
|
55.88
|
%
|
|
|
37.25
|
%
|
Risk-free interest rate
|
|
|
2.38
|
%
|
|
|
3.45
|
%
|
Fair value of SARs granted
|
|
$
|
0.40
|
|
|
$
|
0.91
|
|
Compensation expenses related to the vesting of SARs for fiscal
years 2010 and 2009 were $169,721 and $164,315, respectively,
and related income tax benefits were $64,495 and $62,439,
respectively.
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, 2010, there were
unrecognized compensation expenses totaling $3,838 related to
grants of shares of restricted stock, which the Company expects
to be recognized over the ensuing year.
Compensation expenses related to the vesting of shares of
restricted stock for fiscal years 2010 and 2009 were $8,827 and
$17,903, respectively, and related income tax benefits were
$3,354 and $6,803, respectively.
A summary of restricted stock activity for the fiscal years
ended April 30 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
Number of
|
|
|
Average
|
|
|
|
Shares of
|
|
|
Fair Value
|
|
|
Shares of
|
|
|
Fair Value
|
|
|
|
Restricted
|
|
|
per Share
|
|
|
Restricted
|
|
|
per Share
|
|
|
|
Stock
|
|
|
on Grant Date
|
|
|
Stock
|
|
|
on Grant Date
|
|
|
Non-vested restricted stock at beginning of year
|
|
|
5,295
|
|
|
$
|
4.77
|
|
|
|
1,785
|
|
|
$
|
4.27
|
|
Granted
|
|
|
2,600
|
|
|
|
2.11
|
|
|
|
5,800
|
|
|
|
4.72
|
|
Forfeited
|
|
|
(500
|
)
|
|
|
2.12
|
|
|
|
(505
|
)
|
|
|
4.21
|
|
Vested
|
|
|
(4,245
|
)
|
|
|
4.55
|
|
|
|
(1,785
|
)
|
|
|
4.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested restricted stock at end of year
|
|
|
3,150
|
|
|
$
|
2.99
|
|
|
|
5,295
|
|
|
$
|
4.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
|
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. The gains and losses from the
disposition of certain income-producing real estate assets, and
associated liabilities, operating results, and cash flows are
reflected as discontinued operations in the consolidated
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.
54
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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, 2010, and
April 30, 2009, 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 or otherwise
disposed is allocated to the results of 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.
During the fourth quarter of fiscal 2009, the anchor tenant of
the Real Estate Segments owned office building in Newnan,
Georgia, defaulted on its lease obligations, and subsequently
vacated its leased space during the first quarter of fiscal
2010. Accordingly, management did not anticipate that this
tenant would make any additional lease payments. Given this
event, management determined that the buildings fair
market value was less than its book value at that time, and
therefore the Real Estate Segment recorded an impairment loss of
approximately $2,007,000 in the fourth quarter of fiscal 2009.
Additionally, given this event, the segment 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 owned office building
was acquired by the segment in fiscal 2007.
On January 29, 2010, the Real Estate Segment transferred
its approximately $2.0 million interest in the property and
related assets to the note holder, which satisfied in full the
Companys liability for the approximately $3.2 million
remaining balance on the propertys non-recourse mortgage
loan. Correspondingly, the Company recognized a pre-tax gain of
approximately $1.2 million in the third quarter of fiscal
2010 as a result of the elimination of the balance of the
indebtedness on the property. As a result of this transaction,
the Companys financial statements have been prepared with
the results of operations and cash flows of this disposed
property shown as discontinued operations. All historical
statements have been restated in accordance with GAAP.
Summarized financial information for discontinued operations for
the fiscal years ended April 30 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
REAL ESTATE SEGMENT
|
|
|
|
|
|
|
|
|
Rental revenues
|
|
$
|
50,572
|
|
|
$
|
247,572
|
|
Rental property operating expenses, including depreciation
|
|
|
183,859
|
|
|
|
297,011
|
|
Loss on impairment of income-producing property
|
|
|
|
|
|
|
2,158,673
|
|
|
|
|
|
|
|
|
|
|
Operating loss from discontinued operations
|
|
|
(133,287
|
)
|
|
|
(2,208,112
|
)
|
Income tax benefit
|
|
|
50,649
|
|
|
|
896,531
|
|
|
|
|
|
|
|
|
|
|
Operating loss from discontinued operations, net of tax
|
|
|
(82,638
|
)
|
|
|
(1,311,581
|
)
|
|
|
|
|
|
|
|
|
|
Gain on disposition of income-producing properties
|
|
|
1,188,639
|
|
|
|
|
|
Income tax expense
|
|
|
(447,808
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on disposition of income-producing properties, net of tax
|
|
|
740,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued operations, net of tax
|
|
$
|
658,193
|
|
|
$
|
(1,311,581
|
)
|
|
|
|
|
|
|
|
|
|
55
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
Balances at
|
|
|
|
April 30,
|
|
|
April 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Assets of discontinued operations
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
|
|
|
$
|
91,069
|
|
Deferred income taxes
|
|
|
|
|
|
|
49,715
|
|
Other current assets
|
|
|
|
|
|
|
174,122
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
|
|
|
|
314,906
|
|
Income-producing properties
|
|
|
|
|
|
|
1,760,585
|
|
Intangible assets
|
|
|
|
|
|
|
78,310
|
|
Other assets
|
|
|
|
|
|
|
70,539
|
|
|
|
|
|
|
|
|
|
|
Total non-current
|
|
|
|
|
|
|
1,909,434
|
|
|
|
|
|
|
|
|
|
|
Total assets of discontinued operations
|
|
$
|
|
|
|
$
|
2,224,340
|
|
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operations
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
|
|
|
$
|
27,916
|
|
Deferred Revenue
|
|
|
|
|
|
|
107,054
|
|
Current maturities of mortgage notes and long-term debt payable
|
|
|
|
|
|
|
40,571
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
|
|
|
|
175,541
|
|
Deferred income taxes
|
|
|
|
|
|
|
242,438
|
|
Mortgage notes payable
|
|
|
|
|
|
|
3,128,388
|
|
|
|
|
|
|
|
|
|
|
Total non-current
|
|
|
|
|
|
|
3,370,826
|
|
|
|
|
|
|
|
|
|
|
Total liabilities of discontinued operations
|
|
$
|
|
|
|
$
|
3,546,367
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Costs and earnings in excess of billings:
|
|
|
|
|
|
|
|
|
Accumulated costs and earnings
|
|
$
|
4,030,255
|
|
|
$
|
2,129,684
|
|
Amounts billed
|
|
|
3,315,126
|
|
|
|
1,720,734
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
715,129
|
|
|
$
|
408,950
|
|
|
|
|
|
|
|
|
|
|
Billings in excess of costs and earnings:
|
|
|
|
|
|
|
|
|
Amounts billed
|
|
$
|
5,149,164
|
|
|
$
|
2,574,827
|
|
Accumulated costs and earnings
|
|
|
5,096,064
|
|
|
|
2,546,612
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
53,100
|
|
|
$
|
28,215
|
|
|
|
|
|
|
|
|
|
|
56
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
INCOME-PRODUCING
PROPERTIES
|
Income-producing properties and their estimated useful lives at
April 30 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
Useful Lives
|
|
2010(1)
|
|
|
2009(1)
|
|
|
Land
|
|
N/A
|
|
$
|
5,868,144
|
|
|
$
|
5,868,144
|
|
Buildings and improvements
|
|
7-39 years
|
|
|
15,702,497
|
|
|
|
15,474,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,570,641
|
|
|
$
|
21,342,635
|
|
Less accumulated depreciation
|
|
|
|
|
4,188,389
|
|
|
|
3,711,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,382,252
|
|
|
$
|
17,630,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Does not include the previously owned office building in Newnan,
Georgia. See Note 4 Discontinued Operations for
more information. |
Depreciation expense from continuing operations for the years
ended April 30, 2010, and April 30, 2009, was $476,544
and $465,141, respectively. These amounts are included in Real
Estate cost of revenues on the accompanying consolidated
statements of operations.
|
|
7.
|
PROPERTY
AND EQUIPMENT
|
The major components of property and equipment and their
estimated useful lives at April 30 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
Useful Lives
|
|
2010
|
|
|
2009
|
|
|
Buildings and improvements
|
|
3-39 years
|
|
$
|
499,839
|
|
|
$
|
496,276
|
|
Equipment
|
|
3-10 years
|
|
|
1,296,278
|
|
|
|
1,661,297
|
|
Vehicles
|
|
3-5 years
|
|
|
344,562
|
|
|
|
296,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,140,679
|
|
|
$
|
2,454,356
|
|
Less accumulated depreciation
|
|
|
|
|
1,458,234
|
|
|
|
1,656,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
682,445
|
|
|
$
|
797,556
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense from continuing operations for the years
ended April 30, 2010, and April 30, 2009, was $234,041
and $257,924, respectively. These amounts are included in
selling, general, and administrative expenses on the
accompanying consolidated statements of operations.
|
|
8.
|
MORTGAGE
NOTES PAYABLE AND LEASES
|
As of April 30, 2010, the Company owned two
(2) shopping centers and one (1) office building. 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. In
June 2010, the Company sold its owned shopping center located in
Jacksonville, Florida, and the purchaser assumed the mortgage
note obligation. See Note 20 Subsequent Events
to the consolidated financial statements for more information.
As of April 30, 2010, the owned shopping centers were both
leased to tenants for terms expiring on various dates during
fiscal years 2011 to 2020, while the office property was leased
to tenants for terms expiring on various dates during fiscal
years 2013 to 2014. The Company also leases one
(1) shopping center under a leaseback arrangement expiring
in fiscal year 2013. 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
57
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 property typically require tenants to make
fixed rental payments over a period of three (3) to seven
(7) years. In most cases, the owned shopping center leases
and owned office leases provide that the tenants bear a portion
of the costs of insurance, repairs, maintenance and taxes.
Base rental revenues recognized from the two (2) owned
shopping centers and the owned office property in fiscal years
2010 and 2009 were approximately $2,044,000 and $2,048,000,
respectively. Base rental revenues recognized from the leaseback
shopping center were approximately $255,000 in both fiscal years
2010 and 2009. No contingent rental revenues were recognized on
any of the owned shopping centers in fiscal years 2010 or 2009.
Inclusive of the owned shopping center in Jacksonville, Florida,
which was sold subsequent to the current fiscal year-end, the
approximate future minimum annual rental revenues from all
income-producing properties at April 30, 2010, were
projected as follows:
|
|
|
|
|
|
|
|
|
Year Ending April 30,
|
|
Owned(1)
|
|
|
Leaseback
|
|
|
2011
|
|
$
|
2,471,000
|
|
|
$
|
255,000
|
|
2012
|
|
|
2,336,000
|
|
|
|
255,000
|
|
2013
|
|
|
1,644,000
|
|
|
|
149,000
|
|
2014
|
|
|
1,143,000
|
|
|
|
|
|
2015
|
|
|
942,000
|
|
|
|
|
|
Thereafter
|
|
|
3,764,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,300,000
|
|
|
$
|
659,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Approximately $7,152,000 of these future rental revenues are
associated with the owned shopping center in Jacksonville,
Florida, which was sold in June 2010. See Note 20
Subsequent Events for more information. |
Inclusive of the owned shopping center in Jacksonville, Florida,
which was sold subsequent to the current fiscal year-end, the
expected future minimum principal and interest payments on
mortgage notes payable for the owned income-producing properties
at April 30, 2010, and the approximate future minimum
rentals expected to be paid on the leaseback center, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned Income-Producing
|
|
|
Leaseback
|
|
|
|
Properties Mortgage Payments
|
|
|
Center Rental
|
|
Year Ending April 30,
|
|
Principal(1)
|
|
|
Interest(1)
|
|
|
Payments
|
|
|
2011
|
|
$
|
366,823
|
|
|
$
|
990,749
|
|
|
$
|
105,203
|
|
2012
|
|
|
391,531
|
|
|
|
966,105
|
|
|
|
105,203
|
|
2013
|
|
|
4,256,038
|
|
|
|
711,889
|
|
|
|
61,368
|
|
2014
|
|
|
296,128
|
|
|
|
617,363
|
|
|
|
|
|
2015
|
|
|
314,932
|
|
|
|
598,560
|
|
|
|
|
|
Thereafter
|
|
|
9,464,872
|
|
|
|
3,229,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,090,324
|
|
|
$
|
7,114,096
|
|
|
$
|
271,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The principal and interest presented above includes amounts
associated with the owned shopping center in Jacksonville,
Florida, which was sold in June 2010. Principal due and payable
in fiscal year 2011 was approximately $194,000 and in total was
approximately $6,878,000. The related interest due and payable
in |
58
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
fiscal year 2011 was approximately $416,000 and in total was
approximately $4,831,000. See Note 20 Subsequent
Events for more information. |
As of April 30, 2010, the mortgage notes payable, inclusive
of the mortgage note payable paid off in association with the
sale of the Jacksonville, Florida, property in June 2010, were
due at various dates between August 1, 2012, and
July 1, 2029, and bore interest at rates ranging from
6.125% to 7.75%. At April 30, 2010, the weighted average
interest rate for all outstanding debt was 6.44%, including
other long-term debt and credit facilities (see Note 9
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
$16.4 million as of April 30, 2010.
Secured
letter of credit
In conjunction with terms of the mortgage on the 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
consolidated balance sheet as a non-current other asset as of
April 30, 2010, and 2009.
Other long-term debt at April 30 was as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Note payable bearing interest at 4.5%; principal and interest
payments due in full at maturity; no maturity date; secured by
related life insurance policy
|
|
$
|
370,000
|
|
|
$
|
|
|
Note payable bearing interest at 4.5%; principal and interest
payments due in full at maturity; no maturity date; secured by
related life insurance policy
|
|
|
200,000
|
|
|
|
|
|
Note payable bearing interest at 6.0%; principal and interest
payments due in full at maturity in December 2011
|
|
|
412,000
|
|
|
|
|
|
Note payable, net of discount ($150,000 at April 30, 2010),
bearing interest at the prime rate plus 1.5% (4.75% at
April 30, 2010); interest only payments due monthly;
matures December 18, 2011; secured by all general assets of
The Wheatstone Energy Group
|
|
|
850,000
|
|
|
|
850,000
|
|
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
|
|
|
150,000
|
|
|
|
235,000
|
|
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
|
|
|
1,982,000
|
|
|
|
1,185,000
|
|
Less current maturities
|
|
|
150,000
|
|
|
|
185,000
|
|
|
|
|
|
|
|
|
|
|
Total other long-term debt, less current maturities
|
|
$
|
1,832,000
|
|
|
$
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
59
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,
|
|
|
|
|
2011
|
|
$
|
150,000
|
|
2012
|
|
|
1,262,000
|
|
2013
|
|
|
|
|
2014
|
|
|
|
|
2015
|
|
|
|
|
Thereafter
|
|
|
570,000
|
|
|
|
|
|
|
Total
|
|
$
|
1,982,000
|
|
|
|
|
|
|
The other long-term debt obligations have no financial or
non-financial covenants.
|
|
10.
|
FAIR
VALUE OF FINANCIAL INSTRUMENTS
|
Fair value of financial instruments is estimated based on a
hierarchy that maximizes the use of observable inputs and
minimizes the use of unobservable inputs. The fair value
hierarchy prioritizes the inputs to valuation techniques into
three broad levels whereby the highest priority is given to
Level 1 inputs, and the lowest priority is given to
Level 3 inputs. The three broad categories are:
|
|
|
|
|
Level 1 Quoted prices in active markets
for identical assets or liabilities.
|
|
|
|
Level 2 Inputs other than quoted prices
which are observable for an asset or liability, either directly
or indirectly, for substantially the full term of the financial
instrument.
|
|
|
|
Level 3 Unobservable inputs for an asset
or liability when little or no market data is available.
|
In determining fair values, the Company utilizes valuation
techniques which maximize the use of observable inputs and
minimize the use of unobservable inputs. Considerable judgment
is necessary to interpret Level 2 and Level 3 inputs
in determining fair value. Accordingly, there can be no
assurance that the fair values of financial instruments
presented in this footnote are indicative of amounts that may
ultimately be realized upon sale or disposition of these
financial instruments.
Financial instruments in the Companys consolidated
financial statements that are measured and recorded at fair
value on a recurring basis are (1) deferred executive
compensation plan assets, which are included in Other
Assets in the consolidated balance sheet; and (2) the
corresponding liability owed to the plan participants that is
equal in value to the plan assets, which is included in
Other Liabilities in the consolidated balance sheet.
Given that the plan assets are invested in mutual funds and
money market funds for which quoted market prices are readily
available, the quoted prices are considered Level 1 inputs.
Based on the quoted prices of the related investments, the fair
value of the deferred executive compensation plan assets, and
the corresponding liability, was $947,023 and $733,378 as of
April 30, 2010, and April 30, 2009, respectively.
In addition to the financial instruments listed above which are
required to be carried at fair value, the Company has determined
that the carrying amounts of its cash and cash equivalents,
restricted cash, accounts receivable and accounts payable
approximate fair value due to their short-term maturities.
The Company has a certificate of deposit (CD) in the
amount of $450,000 as of April 30, 2010, which is included
within Other assets in the Companys
consolidated balance sheet. This CD secures a letter of credit,
which is required by the terms of the mortgage on the
Companys owned corporate headquarters building. Based on
the rates currently available on certificates of deposit with
similar terms, the CDs carrying amount approximates its
fair value as of April 30, 2010. See Note 8
Mortgage Notes Payable and Leases for more
information.
60
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Based on the borrowing rates currently available for mortgage
notes with similar terms and average maturities, the carrying
value of the mortgage notes payable is a reasonable estimate of
fair value. The fair value of mortgage notes payable was
$15,045,171 and $17,130,767 as of April 30, 2010, and
April 30, 2009, respectively. Based on the borrowing rates
currently available for bank loans with similar terms and
average maturities, the carrying value of the other debt is
considered a reasonable estimate of fair value. The fair value
of other debt was $1,950,109 and $1,123,744 as of April 30,
2010, and April 30, 2009, respectively.
The expense (benefit) for income taxes from continuing
operations consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Deferred
|
|
|
Total
|
|
|
Year ended April 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
(1,323,377
|
)
|
|
$
|
(1,323,377
|
)
|
State and local
|
|
|
13,309
|
|
|
|
(156,145
|
)
|
|
|
(142,836
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,309
|
|
|
$
|
(1,479,522
|
)
|
|
$
|
(1,466,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended April 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
(1,625,901
|
)
|
|
$
|
(1,625,901
|
)
|
State and local
|
|
|
|
|
|
|
(45,103
|
)
|
|
|
(45,103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
(1,671,004
|
)
|
|
$
|
(1,671,004
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Computed expected benefit
|
|
$
|
(1,305,412
|
)
|
|
$
|
(1,681,937
|
)
|
State and local income taxes
|
|
|
(156,751
|
)
|
|
|
83,371
|
|
Permanent items
|
|
|
(8,847
|
)
|
|
|
(6,638
|
)
|
State net operating loss adjustment
|
|
|
14,846
|
|
|
|
(127,775
|
)
|
Other
|
|
|
(10,049
|
)
|
|
|
61,975
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,466,213
|
)
|
|
$
|
(1,671,004
|
)
|
|
|
|
|
|
|
|
|
|
61
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The tax effects of the temporary differences that gave rise to
the significant portions of the deferred income tax assets and
deferred income tax liabilities at April 30 are presented below:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Items not currently deductible for tax purposes:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards, federal and state(1)
|
|
$
|
3,898,970
|
|
|
$
|
3,144,227
|
|
Valuation allowance
|
|
|
(150,512
|
)
|
|
|
(236,098
|
)
|
Income-producing properties and property and equipment,
principally because of differences in capitalized interest
|
|
|
54,118
|
|
|
|
53,981
|
|
Capitalized costs
|
|
|
38,116
|
|
|
|
41,822
|
|
Bad debt reserves
|
|
|
43,357
|
|
|
|
47,788
|
|
Deferred compensation plan expenses
|
|
|
369,423
|
|
|
|
281,754
|
|
Equity-based compensation expenses
|
|
|
223,107
|
|
|
|
152,283
|
|
Compensated absences
|
|
|
52,354
|
|
|
|
46,048
|
|
Other accrued expenses
|
|
|
318,266
|
|
|
|
394,951
|
|
Other
|
|
|
91,632
|
|
|
|
35,249
|
|
|
|
|
|
|
|
|
|
|
Gross deferred income tax assets
|
|
|
4,938,831
|
|
|
|
3,962,005
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Income-producing properties and property and equipment,
principally because of differences in depreciation and
capitalized interest
|
|
|
609,851
|
|
|
|
721,761
|
|
Intangible assets, principally because of differences in
amortization
|
|
|
842,539
|
|
|
|
714,407
|
|
Gain on real estate sales structured as tax-deferred like-kind
exchanges
|
|
|
4,229,515
|
|
|
|
4,158,252
|
|
Other
|
|
|
58,424
|
|
|
|
84,796
|
|
|
|
|
|
|
|
|
|
|
Gross deferred income tax liability
|
|
|
5,740,329
|
|
|
|
5,679,216
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax liability
|
|
$
|
801,498
|
|
|
$
|
1,717,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The federal NOL carryforwards and all significant state NOL
carryforwards expire between the fiscal years 2024 and 2030. |
The valuation allowance against deferred tax assets at
April 30, 2010, and April 30, 2009, was $150,512 and
$236,098, respectively. 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 2007 through 2009.
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 2010 and 2009 were approximately $61,000 and $62,000,
respectively. The net assets in the Plan, which is administered
by an independent trustee and which are not included in the
Companys consolidated financial statements, were
approximately $5,619,000 and $4,050,000 at April 30, 2010,
and April 30, 2009, 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. As of
April 30, 2010, there can be no additional grants of awards
under the 2000 Award Plan, as the ten-year term of the plan
has ended. Prior to that date, the total number of shares that
could have been granted under the 2000 Award Plan was
1,155,000 shares (share amount adjusted for stock
dividends).
The Company issued 52,500 SARs (adjusted for stock dividend)
outside of the 2000 Stock Award Plan, with an exercise price of
$5.00 (adjusted for stock dividends) and an exercise period of
ten (10) years, to one (1) employee in April 2008. Further,
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 dividends) 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 dividends) for ten (10) consecutive
trading days or on the date of a change in control of the
Company.
The Company issued 200,000 SARs outside of the 2000 Stock Award
Plan, with an exercise price of $4.00 and an exercise period of
ten (10) years, to two (2) outside service providers
in November 2009. These SARs may not be exercised by the
grantees prior to shareholder approval of the grants or a
determination by the Company that such shareholder approval is
not required. Further, the Company issued 20,000 SARs outside of
the 2000 Stock Award Plan, with an exercise price of $2.12 and
an exercise period of ten (10) years, to one employee in
December 2009. 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
63
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
provision by which one hundred percent (100%) of SARs would vest
immediately if the Companys stock price closes at or above
$19.05 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
dividends) outside the 2000 Stock Award Plan with an exercise
price of $4.42 (adjusted for stock dividends), to unrelated
third parties in December 2003, of which none had been exercised
as of April 30, 2010.
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. In December 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. In February 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. In March
2010, 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 15, 2011. The
Company repurchased 16,981 and 48,890 shares in fiscal
years 2010 and 2009, respectively.
|
|
14.
|
NET
(LOSS) EARNINGS PER SHARE
|
Earnings per share are calculated in accordance with GAAP, 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
10,337 in 2010 and 54,832 in 2009. 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.
The following tables set forth the computations of basic and
diluted net earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended April 30, 2010
|
|
|
|
Earnings
|
|
|
|
|
|
Per Share
|
|
|
|
(Loss)
|
|
|
Shares
|
|
|
Amount
|
|
|
Basic EPS loss per share from continuing operations
|
|
$
|
(2,373,234
|
)
|
|
|
3,685,834
|
|
|
$
|
(0.64
|
)
|
Basic EPS earnings per share from discontinued
operations
|
|
|
658,193
|
|
|
|
3,685,834
|
|
|
|
0.18
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS loss per share
|
|
$
|
(1,715,041
|
)
|
|
|
3,685,834
|
|
|
$
|
(0.46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended April 30, 2009
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
|
|
Loss
|
|
|
Shares
|
|
|
Amount
|
|
|
Basic EPS loss per share from continuing operations
|
|
$
|
(3,275,869
|
)
|
|
|
3,716,700
|
|
|
$
|
(0.88
|
)
|
Basic EPS loss per share from discontinued operations
|
|
|
(1,311,581
|
)
|
|
|
3,716,700
|
|
|
|
(0.35
|
)
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS loss per share
|
|
$
|
(4,587,450
|
)
|
|
|
3,716,700
|
|
|
$
|
(1.23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company had two (2) operating segments at
April 30, 2010: 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 investor-owned 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,
retro-commissioning 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
technologies; (3) energy saving lighting programs and
energy related services and infrastructure upgrade projects that
reduce energy consumption and operating costs; and
(4) comprehensive technology-enabled real-time demand
response programs (automatic, semi-automatic and manual) and
services through the Companys new Fifth Fuel
Managementtm
platform, including two-way, fast and secure communication and
tracking; retro-commissioning of existing systems; customized
site training; and
step-by-step
processes for optimized demand response participation. 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 asset
management of its portfolio of properties.
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 Summary of
Significant Accounting Policies.
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:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Customer 1
|
|
|
24
|
%
|
|
|
13
|
%
|
Revenues derived from Customer 1 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.
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 primarily consist 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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
|
|
April 30, 2010
|
|
BPE
|
|
|
Real Estate
|
|
|
Company(1)
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues from unaffiliated customers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BPE Segment services and products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy savings projects
|
|
$
|
11,051,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,051,059
|
|
Lighting products
|
|
|
1,932,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,932,521
|
|
Energy management services
|
|
|
1,801,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,801,271
|
|
Fifth fuel management services
|
|
|
28,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,000
|
|
Productivity software
|
|
|
3,358,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,358,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues from unaffiliated customers
|
|
$
|
18,171,536
|
|
|
$
|
2,727,565
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
20,899,101
|
|
Intersegment revenue
|
|
|
223,799
|
|
|
|
544,167
|
|
|
|
|
|
|
|
(767,966
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues from continuing operations
|
|
$
|
18,395,335
|
|
|
$
|
3,271,732
|
|
|
$
|
|
|
|
$
|
(767,966
|
)
|
|
$
|
20,899,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations before income taxes
|
|
$
|
(998,225
|
)
|
|
$
|
591,210
|
|
|
$
|
(3,407,886
|
)
|
|
$
|
(24,546
|
)
|
|
$
|
(3,839,447
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
$
|
14,715,108
|
|
|
$
|
47,139,581
|
|
|
$
|
26,911,435
|
|
|
$
|
(48,933,105
|
)
|
|
$
|
39,833,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
6,354,002
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,354,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expenses
|
|
$
|
82,044
|
|
|
$
|
1,012,776
|
|
|
$
|
835,596
|
|
|
$
|
(846,606
|
)
|
|
$
|
1,083,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
702,424
|
|
|
$
|
564,388
|
|
|
$
|
110,364
|
|
|
$
|
|
|
|
$
|
1,377,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures(2)
|
|
$
|
93,270
|
|
|
$
|
228,006
|
|
|
$
|
29,038
|
|
|
$
|
|
|
|
$
|
350,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
|
|
April 30, 2009
|
|
BPE
|
|
|
Real Estate
|
|
|
Company(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
|
|
Fifth fuel management services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Productivity software
|
|
|
3,674,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,674,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues from unaffiliated customers
|
|
$
|
13,192,310
|
|
|
$
|
2,791,571
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
15,983,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenue
|
|
|
20,362
|
|
|
|
576,080
|
|
|
|
|
|
|
|
(596,442
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues from continuing operations
|
|
$
|
13,212,672
|
|
|
$
|
3,367,651
|
|
|
$
|
|
|
|
$
|
(596,442
|
)
|
|
$
|
15,983,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations before income taxes
|
|
$
|
(2,310,134
|
)
|
|
$
|
731,987
|
|
|
$
|
(3,354,164
|
)
|
|
$
|
(14,562
|
)
|
|
$
|
(4,946,873
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
1,041,275
|
|
|
$
|
873,284
|
|
|
$
|
(900,290
|
)
|
|
$
|
1,107,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
822,459
|
|
|
$
|
559,718
|
|
|
$
|
71,705
|
|
|
$
|
|
|
|
$
|
1,453,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures(2)
|
|
$
|
55,306
|
|
|
$
|
189,831
|
|
|
$
|
110,860
|
|
|
$
|
|
|
|
$
|
355,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Company. 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. |
|
(2) |
|
Includes property and equipment expenditures only. |
Fiscal
2010
There were no acquisitions in fiscal year 2010.
Fiscal
2009
In June 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.
67
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
|
|
|
|
|
|
|
|
|
|
|
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, 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 Ended
|
|
|
April 30, 2009
|
|
Revenues
|
|
$
|
16,182
|
|
Loss from continuing operations
|
|
$
|
(3,277
|
)
|
Loss from discontinued operations
|
|
$
|
(1,312
|
)
|
Net loss
|
|
$
|
(4,589
|
)
|
Loss per share from continuing operations basic and
diluted
|
|
$
|
(0.88
|
)
|
Loss per share from discontinued operations basic
and diluted
|
|
$
|
(0.35
|
)
|
Net loss per share basic and diluted
|
|
$
|
(1.23
|
)
|
68
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
17.
|
GOODWILL
AND OTHER INTANGIBLE ASSETS
|
The gross carrying amounts and accumulated amortization for all
of the Companys intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
April 30, 2010
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Intangible assets, subject to amortization:
|
|
|
|
|
|
|
|
|
Proprietary BPE software solutions
|
|
$
|
4,096,802
|
|
|
$
|
2,827,071
|
|
Acquired computer software
|
|
|
676,837
|
|
|
|
493,885
|
|
Real estate lease costs
|
|
|
609,105
|
|
|
|
255,701
|
|
Customer relationships
|
|
|
404,632
|
|
|
|
286,433
|
|
Deferred loan costs
|
|
|
254,949
|
|
|
|
136,495
|
|
Non-compete agreements
|
|
|
63,323
|
|
|
|
60,684
|
|
Tradename
|
|
|
61,299
|
|
|
|
7,834
|
|
Other
|
|
|
44,882
|
|
|
|
42,016
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,211,829
|
|
|
$
|
4,110,119
|
|
|
|
|
|
|
|
|
|
|
Intangible assets and goodwill, not subject to
amortization:
|
|
|
|
|
|
|
|
|
Trademark
|
|
$
|
708,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
6,354,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
565,597
|
|
|
|
190,189
|
|
Customer relationships
|
|
|
404,632
|
|
|
|
252,216
|
|
Deferred loan costs
|
|
|
254,949
|
|
|
|
114,163
|
|
Non-compete agreements
|
|
|
63,323
|
|
|
|
29,023
|
|
Tradename
|
|
|
61,299
|
|
|
|
3,746
|
|
Other
|
|
|
45,844
|
|
|
|
39,149
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,551,928
|
|
|
$
|
3,428,349
|
|
|
|
|
|
|
|
|
|
|
Intangible assets and goodwill, not subject to
amortization:
|
|
|
|
|
|
|
|
|
Trademark
|
|
$
|
708,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
6,354,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate amortization expense for all amortizable intangible
assets:
|
|
|
|
|
For the year ended April 30, 2010
|
|
$
|
666,591
|
|
For the year ended April 30, 2009
|
|
|
740,835
|
|
69
SERVIDYNE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Estimated future amortization expenses for all amortized
intangible assets for the fiscal years ended:
|
|
|
|
|
2011
|
|
$
|
654,299
|
|
2012
|
|
|
514,917
|
|
2013
|
|
|
358,967
|
|
2014
|
|
|
259,186
|
|
2015
|
|
|
138,888
|
|
Thereafter
|
|
|
175,453
|
|
|
|
|
|
|
|
|
$
|
2,101,710
|
|
|
|
|
|
|
The BPE Segment capitalized $406,143 and $266,229 for the
development of proprietary BPE software applications in fiscal
years 2010 and 2009, respectively.
|
|
18.
|
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.
|
|
19.
|
QUARTERLY
FINANCIAL INFORMATION (UNAUDITED)
|
As further discussed in Note 4 Discontinued
Operations, operating results for the owned office
building in Newnan, Georgia, disposed in the third quarter of
fiscal 2010, is 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 this property to
discontinued operations for the first and second quarters of
fiscal 2010 and all quarters of fiscal 2009, which differ from
the presentation of the Companys previously issued
condensed consolidated financial statements included in its
quarterly reports on
Form 10-Q
filed in the first two (2) quarters of fiscal 2010 and all
of its quarterly reports on
Form 10-Q
and its annual report on
Form 10-K
in fiscal 2009, which were issued prior to the disposition of
the property.
Quarterly financial information for the fiscal years ended
April 30, 2010, and April 30, 2009 (dollars in
thousands, except per share amounts), as revised to reflect the
changes discussed above, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended April 30, 2010
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
BPE revenues
|
|
$
|
3,873
|
|
|
$
|
3,923
|
|
|
$
|
4,120
|
|
|
$
|
6,255
|
|
Real Estate revenues
|
|
|
694
|
|
|
|
669
|
|
|
|
718
|
|
|
|
647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues from continuing operations
|
|
|
4,567
|
|
|
|
4,592
|
|
|
|
4,838
|
|
|
|
6,902
|
|
Total revenues reclassified to discontinued operations
|
|
|
62
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit from continuing operations
|
|
|
1,469
|
|
|
|
1,464
|
|
|
|
1,727
|
|
|
|
2,075
|
|
Gross profit (loss) reclassified to discontinued
operations
|
|
|
39
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings
|
|
|
(706
|
)
|
|
|
(708
|
)
|
|
|
120
|
|
|
|
(421
|
)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings per share basic
|
|
|
(0.19
|
)
|
|
|
(0.19
|
)
|
|
|
0.03
|
|
|
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|