SERVIDYNE, INC.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended July 31, 2008
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
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(I.R.S. Employer Identification No.) |
incorporation or organization) |
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1945 The Exchange, Suite 300, Atlanta, GA 30339-2029
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (770) 953-0304
Former name, former address, former fiscal year, if changed since last report: N/A
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, 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) |
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Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes o No þ
The number of shares of $1.00 par value Common Stock of the Registrant outstanding
as of August 31, 2008, was 3,730,606.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SERVIDYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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July 31, 2008 |
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April 30, 2008 |
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ASSETS |
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|
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CURRENT ASSETS: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
8,265,633 |
|
|
$ |
8,382,947 |
|
Restricted cash |
|
|
|
|
|
|
3,470,700 |
|
Receivables (Note 4) |
|
|
3,606,120 |
|
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|
3,735,930 |
|
Less: Allowance for doubtful accounts |
|
|
(37,805 |
) |
|
|
(127,007 |
) |
Costs and earnings in excess of billings |
|
|
168,188 |
|
|
|
275,754 |
|
Deferred income taxes |
|
|
535,050 |
|
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|
750,488 |
|
Other current assets |
|
|
1,532,313 |
|
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|
1,011,304 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Total current assets |
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14,069,499 |
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|
17,500,116 |
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|
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INCOME-PRODUCING PROPERTIES, net |
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21,759,951 |
|
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|
21,773,409 |
|
PROPERTY AND EQUIPMENT, net |
|
|
843,404 |
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|
811,900 |
|
OTHER ASSETS: |
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|
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Real estate held for future development or sale |
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|
853,109 |
|
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|
853,109 |
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Intangible assets, net (Note 8) |
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|
3,401,452 |
|
|
|
3,222,125 |
|
Goodwill (Note 8) |
|
|
6,371,319 |
|
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|
5,458,717 |
|
Other assets |
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|
2,858,521 |
|
|
|
2,696,174 |
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|
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Total assets |
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$ |
50,157,255 |
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$ |
52,315,550 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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CURRENT LIABILITIES: |
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Trade and subcontractors payables |
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$ |
718,735 |
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$ |
550,360 |
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Accrued expenses |
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|
1,002,358 |
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|
1,143,794 |
|
Deferred revenue |
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850,856 |
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|
848,197 |
|
Accrued incentive compensation |
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194,256 |
|
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|
494,000 |
|
Billings in excess of costs and earnings |
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42,592 |
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|
62,559 |
|
Current maturities of mortgage notes and other long-term debt |
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484,447 |
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631,736 |
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Total current liabilities |
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3,293,244 |
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3,730,646 |
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DEFERRED INCOME TAXES |
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4,517,802 |
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5,271,441 |
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OTHER LIABILITIES |
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1,103,436 |
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1,138,316 |
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MORTGAGE NOTES PAYABLE, less current maturities |
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18,528,510 |
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|
18,603,769 |
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OTHER LONG-TERM DEBT, less current maturities |
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1,097,500 |
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|
1,105,000 |
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|
|
|
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|
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Total liabilities |
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28,540,492 |
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29,849,172 |
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COMMITMENTS AND CONTINGENCIES (Note 11) |
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SHAREHOLDERS EQUITY: |
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Common stock, $1 par value; 5,000,000 shares authorized;
3,916,578 issued and 3,739,059 outstanding at July 31, 2008,
3,708,836 issued and 3,539,770 outstanding at April 30, 2008 |
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|
3,916,578 |
|
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3,708,836 |
|
Additional paid-in capital |
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|
5,871,024 |
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5,045,100 |
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Retained earnings |
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12,668,452 |
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14,511,159 |
|
Treasury stock (common shares)
177,519 at July 31, 2008, and 169,066 at April 30, 2008 |
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(839,291 |
) |
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(798,717 |
) |
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Total shareholders equity |
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21,616,763 |
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22,466,378 |
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Total liabilities and shareholders equity |
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$ |
50,157,255 |
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$ |
52,315,550 |
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See accompanying notes to consolidated financial statements.
1
SERVIDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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FIRST QUARTER ENDED |
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JULY 31, |
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2008 |
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2007 |
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REVENUES: |
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Building Performance Efficiency (BPE) |
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$ |
2,720,073 |
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$ |
4,766,392 |
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Real Estate |
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796,203 |
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2,522,391 |
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3,516,276 |
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7,288,783 |
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Interest |
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55,087 |
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|
19,480 |
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Other |
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21,400 |
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|
70,028 |
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|
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|
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3,592,763 |
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7,378,291 |
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COSTS AND EXPENSES: |
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BPE |
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1,752,784 |
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3,185,584 |
|
Real Estate |
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|
474,047 |
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650,524 |
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2,226,831 |
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3,836,108 |
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Selling, general and administrative |
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BPE Segment |
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1,408,980 |
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|
1,324,025 |
|
Real Estate Segment |
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|
168,907 |
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|
183,018 |
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Parent |
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827,769 |
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|
1,288,613 |
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|
|
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|
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|
2,405,656 |
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|
2,795,656 |
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Interest costs incurred |
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332,396 |
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338,787 |
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|
|
|
|
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|
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|
4,964,883 |
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|
6,970,551 |
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|
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|
(LOSS) EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES |
|
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(1,372,120 |
) |
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|
407,740 |
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INCOME TAX (BENEFIT) EXPENSE |
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(524,709 |
) |
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|
96,253 |
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|
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|
(LOSS) EARNINGS FROM CONTINUING OPERATIONS |
|
|
(847,411 |
) |
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|
311,487 |
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DISCONTINUED OPERATIONS: |
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Earnings from discontinued operations, adjusted for applicable
income tax expense of $0 and $35,285, respectively |
|
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57,570 |
|
Gain on sale of income producing real estate, adjusted for applicable
income tax expense of $0 and $728,954, respectively |
|
|
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|
1,189,347 |
|
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|
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|
EARNINGS FROM DISCONTINUED OPERATIONS |
|
|
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|
|
|
1,246,917 |
|
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|
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|
|
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|
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|
NET (LOSS) EARNINGS |
|
$ |
(847,411 |
) |
|
$ |
1,558,404 |
|
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|
|
|
|
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|
|
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|
|
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|
NET (LOSS) EARNINGS PER SHARE BASIC |
|
|
|
|
|
|
|
|
From continuing operations |
|
$ |
(0.23 |
) |
|
$ |
0.08 |
|
From discontinued operations |
|
|
|
|
|
|
0.34 |
|
|
|
|
|
|
|
|
NET (LOSS) EARNINGS PER SHARE BASIC |
|
$ |
(0.23 |
) |
|
$ |
0.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) EARNINGS PER SHARE DILUTED |
|
|
|
|
|
|
|
|
From continuing operations |
|
$ |
(0.23 |
) |
|
$ |
0.08 |
|
From discontinued operations |
|
|
|
|
|
|
0.32 |
|
|
|
|
|
|
|
|
NET (LOSS) EARNINGS PER SHARE DILUTED |
|
$ |
(0.23 |
) |
|
$ |
0.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING BASIC |
|
|
3,730,295 |
|
|
|
3,705,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING DILUTED |
|
|
3,730,295 |
|
|
|
3,873,697 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
2
SERVIDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(UNAUDITED)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
Deferred |
|
|
|
|
|
|
|
|
Common Stock |
|
Paid-In |
|
Stock |
|
Retained |
|
Treasury |
|
|
|
|
Shares |
|
Amount |
|
Capital |
|
Compensation |
|
Earnings |
|
Stock |
|
Total |
|
BALANCES at April 30, 2005 |
|
|
3,357,601 |
|
|
$ |
3,357,601 |
|
|
$ |
3,067,982 |
|
|
$ |
(14,162 |
) |
|
$ |
15,186,932 |
|
|
$ |
(684,942 |
) |
|
$ |
20,913,411 |
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
525,766 |
|
|
|
|
|
|
|
525,766 |
|
Common stock issued |
|
|
1,800 |
|
|
|
1,800 |
|
|
|
6,660 |
|
|
|
(8,460 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,202 |
|
|
|
|
|
|
|
(1,871 |
) |
|
|
16,331 |
|
Stock option exercise |
|
|
732 |
|
|
|
732 |
|
|
|
2,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,928 |
|
Cash dividends declared -
$0.14 per share (adjusted for
subsequent stock dividend) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(511,688 |
) |
|
|
|
|
|
|
(511,688 |
) |
Stock dividend declared -
10% at market value
on date declared |
|
|
335,203 |
|
|
|
335,203 |
|
|
|
1,726,295 |
|
|
|
|
|
|
|
(1,973,934 |
) |
|
|
(87,564 |
) |
|
|
|
|
|
BALANCES at April 30, 2006 |
|
|
3,695,336 |
|
|
$ |
3,695,336 |
|
|
$ |
4,803,133 |
|
|
$ |
(4,420 |
) |
|
$ |
13,227,076 |
|
|
$ |
(774,377 |
) |
|
$ |
20,946,748 |
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
966,626 |
|
|
|
|
|
|
|
966,626 |
|
Common stock acquired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,747 |
) |
|
|
(19,747 |
) |
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
72,027 |
|
|
|
4,420 |
|
|
|
|
|
|
|
(940 |
) |
|
|
75,507 |
|
Cash dividends declared -
$0.144 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(508,923 |
) |
|
|
|
|
|
|
(508,923 |
) |
|
BALANCES at April 30, 2007 |
|
|
3,695,336 |
|
|
$ |
3,695,336 |
|
|
$ |
4,875,160 |
|
|
$ |
|
|
|
$ |
13,684,779 |
|
|
$ |
(795,064 |
) |
|
$ |
21,460,211 |
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,335,562 |
|
|
|
|
|
|
|
1,335,562 |
|
Common stock issued |
|
|
2,500 |
|
|
|
2,500 |
|
|
|
(2,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
132,440 |
|
|
|
|
|
|
|
|
|
|
|
(3,653 |
) |
|
|
128,787 |
|
Stock option exercise |
|
|
11,000 |
|
|
|
11,000 |
|
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,000 |
|
Cash dividends declared -
$0.144 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(509,182 |
) |
|
|
|
|
|
|
(509,182 |
) |
|
BALANCES at April 30, 2008 |
|
|
3,708,836 |
|
|
$ |
3,708,836 |
|
|
$ |
5,045,100 |
|
|
$ |
|
|
|
$ |
14,511,159 |
|
|
$ |
(798,717 |
) |
|
$ |
22,466,378 |
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(847,411 |
) |
|
|
|
|
|
|
(847,411 |
) |
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
48,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,843 |
|
Common stock issued |
|
|
21,581 |
|
|
|
21,581 |
|
|
|
69,669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91,250 |
|
Cash dividends declared -
$0.04 per share (adjusted for subsequent stock dividend)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(142,297 |
) |
|
|
|
|
|
|
(142,297 |
) |
Stock dividend declared -
5% at market value
on date declared |
|
|
186,161 |
|
|
|
186,161 |
|
|
|
707,412 |
|
|
|
|
|
|
|
(852,999 |
) |
|
|
(40,574 |
) |
|
|
|
|
|
BALANCES at July 31, 2008 |
|
|
3,916,578 |
|
|
$ |
3,916,578 |
|
|
$ |
5,871,024 |
|
|
$ |
|
|
|
$ |
12,668,452 |
|
|
$ |
(839,291 |
) |
|
$ |
21,616,763 |
|
|
See accompanying notes to consolidated financial statements.
3
SERVIDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
FIRST QUARTER ENDED |
|
|
|
JULY 31, |
|
|
|
2008 |
|
|
2007 |
|
CONTINUING OPERATIONS: |
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net (loss) earnings |
|
$ |
(847,411 |
) |
|
$ |
1,558,404 |
|
Earnings from discontinued operations, net of tax |
|
|
|
|
|
|
(1,246,917 |
) |
Adjustments to reconcile net (loss) earnings to
net cash used in operating activities: |
|
|
|
|
|
|
|
|
Write off in conjunction with sale of asset |
|
|
|
|
|
|
83,194 |
|
Depreciation and amortization |
|
|
397,045 |
|
|
|
365,595 |
|
Mortgage discount |
|
|
(7,500 |
) |
|
|
|
|
Deferred tax (benefit) expense |
|
|
(538,198 |
) |
|
|
76,783 |
|
Stock compensation expense |
|
|
48,843 |
|
|
|
30,575 |
|
Adjustment to cash surrender value of life insurance |
|
|
(20,608 |
) |
|
|
(33,948 |
) |
Straight-line rent |
|
|
(19,576 |
) |
|
|
(236 |
) |
Provision for doubtful accounts |
|
|
(89,202 |
) |
|
|
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Receivables |
|
|
248,332 |
|
|
|
(1,319,411 |
) |
Costs and earnings in excess of billings |
|
|
107,566 |
|
|
|
(848,932 |
) |
Other current assets |
|
|
(326,925 |
) |
|
|
320,517 |
|
Trade and subcontractors payable |
|
|
(271,161 |
) |
|
|
231,755 |
|
Accrued expenses |
|
|
(183,178 |
) |
|
|
228,704 |
|
Accrued incentive compensation |
|
|
(299,744 |
) |
|
|
(6,916 |
) |
Billings in excess of costs and earnings |
|
|
(19,967 |
) |
|
|
132,612 |
|
Other liabilities |
|
|
(7,048 |
) |
|
|
412,820 |
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(1,828,732 |
) |
|
|
(15,401 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Deposit of cash proceeds from sale of real estate held in escrow |
|
|
|
|
|
|
(6,462,743 |
) |
Release of restricted cash held in escrow |
|
|
3,470,700 |
|
|
|
|
|
Purchase of held-to-maturity investment |
|
|
(150,000 |
) |
|
|
|
|
Additions to income-producing properties, net |
|
|
(129,176 |
) |
|
|
(132,201 |
) |
Additions to property and equipment, net |
|
|
(28,758 |
) |
|
|
(37,900 |
) |
Additions to intangible assets, net |
|
|
(94,838 |
) |
|
|
(62,772 |
) |
Acquisition, net of cash acquired |
|
|
(891,665 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
2,176,263 |
|
|
|
(6,695,616 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Real estate loan proceeds |
|
|
|
|
|
|
3,200,000 |
|
Mortgage repayments |
|
|
(81,673 |
) |
|
|
(2,562,641 |
) |
Debt repayments |
|
|
(240,875 |
) |
|
|
|
|
Deferred loan costs paid |
|
|
|
|
|
|
(57,346 |
) |
Cash dividends paid to shareholders |
|
|
(142,297 |
) |
|
|
(127,223 |
) |
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(464,845 |
) |
|
|
452,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED OPERATIONS: |
|
|
|
|
|
|
|
|
Operating activities |
|
|
|
|
|
|
230,985 |
|
Investing activities |
|
|
|
|
|
|
4,789,746 |
|
Financing activities |
|
|
|
|
|
|
(425,643 |
) |
|
|
|
|
|
|
|
Net cash provided by discontinued operations |
|
|
|
|
|
|
4,595,088 |
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(117,314 |
) |
|
|
(1,663,139 |
) |
Cash and cash equivalents at beginning of period |
|
|
8,382,947 |
|
|
|
5,662,894 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
8,265,633 |
|
|
$ |
3,999,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash financing activities: |
|
|
|
|
|
|
|
|
Issuance of common stock under Stock Award Plan |
|
$ |
19,992 |
|
|
$ |
9,889 |
|
See accompanying notes to consolidated financial statements.
4
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 $891,665 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 |
|
$ |
1,566,852 |
|
Total liabilities assumed |
|
|
(583,937 |
) |
|
|
|
|
Net assets acquired, net of cash |
|
$ |
982,915 |
|
|
|
|
|
|
Less value of shares issued for acquisition |
|
|
(91,250 |
) |
|
|
|
|
|
|
|
|
|
Total cash paid (including acquisition expenses) |
|
$ |
891,665 |
|
|
|
|
|
See accompanying notes to consolidated financial statements.
5
SERVIDYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2008, AND APRIL 30, 2008
(UNAUDITED)
NOTE 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 energy efficiency solutions,
sustainability programs, and other building performance enhancing products and services to
companies that own and operate buildings. The Companys Real Estate Segment engages in commercial
real estate investment and development.
NOTE 2. UNAUDITED STATEMENTS
The accompanying unaudited consolidated financial statements have been prepared by the Company in
accordance with accounting principles generally accepted in the United States of America, pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements have been condensed or omitted
pursuant to such rules and regulations, although management believes that the accompanying
disclosures are adequate to make the information presented not misleading. In the opinion of
management, the accompanying financial statements contain all adjustments, consisting of normal
recurring accruals that are necessary for a fair statement of the results for the interim periods
presented. These financial statements should be read in conjunction with the consolidated financial
statements and the notes thereto included in the Companys Annual Report on Form 10-K for the year
ended April 30, 2008. Results of operations for interim periods are not necessarily indicative of
annual results.
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES
Effective May 1, 2007, the Company adopted Financial Accounting Standards Board (FASB)
Interpretation No. 48, Accounting for Uncertainties in Income Taxes (FIN 48). FIN 48 prescribes
a recognition threshold and measurement attribute for recognizing tax return positions in the
financial statements as those which are more likely than not to be sustained upon examination by
the taxing authority. FIN 48 also provides guidance on derecognition, classification, interest and
penalties, accounting for income tax uncertainties in interim periods, and the level of disclosures
associated with any recorded income tax uncertainties.
In December 2007, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 141
(revised 2007), Business Combinations (SFAS 141(R)), which replaces SFAS No. 141, Business
Combinations. SFAS 141(R) retains the underlying concepts of SFAS 141 in that all business
combinations are still required to be accounted for at fair value under the acquisition method of
accounting, but SFAS 141(R) changed the method of applying the acquisition method in a number of
significant aspects. Acquisition costs will generally be expensed as incurred; non-controlling
interests will be valued at fair value at the acquisition date; in-process research and development
will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date;
restructuring costs associated with a business combination will generally be expensed subsequent to
the acquisition date; and changes in deferred tax asset valuation allowances and income tax
uncertainties after the acquisition date generally will affect income tax expense. SFAS 141(R) is
effective on a prospective basis for all business combinations for which the acquisition date is on
or after the beginning of the first annual period subsequent to December 15, 2008, with the
exception of the accounting for valuation allowances on
6
deferred taxes and acquired tax contingencies. SFAS 141(R) amends SFAS 109 such that adjustments
made to valuation allowances on deferred taxes and acquired tax contingencies associated with
acquisitions that closed prior to the effective date of SFAS 141(R) would also apply the provisions
of SFAS 141(R). Early adoption is not permitted. The Company is currently evaluating the effects,
if any, that SFAS 141(R) may have on the Companys financial statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157), which
defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and
expands disclosures about fair value measurements. SFAS 157 applies where other accounting
pronouncements require or permit fair value measurements; it does not require any new fair value
measurements under GAAP. SFAS 157 is effective for the Company on May 1, 2009. The effects of
adoption will be determined by the types of instruments carried at fair value in the Companys
financial statements at the time of adoption as well as the method utilized to determine their fair
values prior to adoption. The Company has determined that this statement will not have a
significant impact on the determination or reporting of the Companys financial results.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilitiesincluding an amendment of FASB Statement No. 115. SFAS 159 is effective for
the Company on May 1, 2009. This statement permits entities to choose to measure many financial
instruments and certain other items at fair value. This statement also establishes presentation and
disclosure requirements designed to facilitate comparisons between entities that choose different
measurement attributes for similar types of assets and liabilities. Unrealized gains and losses on
items for which the fair value option is elected would be reported in earnings. The Company has
determined that this statement will not have a significant impact on the determination or reporting
of the Companys financial results.
The Company has three outstanding types of equity-based incentive compensation instruments in
effect with employees, non-employee directors, and selected outside consultants: stock options,
stock appreciation rights, and restricted stock.
For the three months ended July 31, 2008, and July 31, 2007, the Companys net (loss) earnings
includes $48,843 and $30,575, respectively, of total equity-based compensation expenses, and
$18,559 and $11,619, respectively, of related income tax benefits. All of these expenses were
included in selling, general and administrative expenses in the consolidated statements of
operations.
Stock Options
A summary of stock options activity for the three months ended July 31, 2008, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Options to |
|
|
Average |
|
|
|
Purchase |
|
|
Exercise |
|
|
|
Shares |
|
|
Price |
|
Outstanding at April 30, 2008 |
|
|
483,536 |
|
|
$ |
4.45 |
|
Granted |
|
|
10,500 |
|
|
|
5.24 |
|
Exercised |
|
|
|
|
|
|
|
|
Forfeited / Expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 31, 2008 |
|
|
494,036 |
|
|
$ |
4.46 |
|
|
|
|
|
|
|
|
Vested at July 31, 2008 |
|
|
483,536 |
|
|
$ |
4.44 |
|
|
|
|
|
|
|
|
7
As of July 31, 2008, 483,536, or 98%, of the outstanding stock options were exercisable, and all of
the outstanding stock options were in the money.
A summary of information about all stock options outstanding as of July 31, 2008, is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Weighted Average |
Exercise |
|
Outstanding and |
|
Remaining Contractual |
Price |
|
Exercisable Options |
|
Life (Years) |
$4.42 |
|
|
415,629 |
|
|
|
4.28 |
|
$4.59 |
|
|
66,990 |
|
|
|
6.65 |
|
$5.19 |
|
|
917 |
|
|
|
5.88 |
|
$5.24 |
|
|
10,500 |
|
|
|
4.87 |
|
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 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 per share price. The fair value for each stock option grant
was estimated on the respective grant date using the Black-Scholes option-pricing model with the
following weighted average assumptions:
|
|
|
|
|
|
|
2009 |
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 |
|
$ |
1.10 |
|
The Companys net (loss) earnings for the three months ended July 31, 2008, and July 31, 2007,
includes $1,688 and $0, respectively, of equity-based compensation expenses, and income tax
benefits of $641 and $0, respectively, related to the vesting of options. All of these expenses
were included in selling, general and administrative expense in the consolidated statements of
operations for both periods.
Stock Appreciation Rights (SARs)
A summary of SARs activity for the three months ended July 31, 2008, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
SARs to |
|
|
Average |
|
|
|
Purchase |
|
|
Grant |
|
|
|
Shares |
|
|
Price |
|
Outstanding at April 30, 2008 |
|
|
411,600 |
|
|
$ |
4.26 |
|
Granted |
|
|
136,500 |
|
|
|
4.76 |
|
Exercised |
|
|
|
|
|
|
|
|
Forfeited |
|
|
(5,250 |
) |
|
|
3.88 |
|
|
|
|
|
|
|
|
Outstanding at July 31, 2008 |
|
|
542,850 |
|
|
$ |
4.39 |
|
|
|
|
|
|
|
|
Vested at July 31, 2008 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
8
The Company estimates the fair value of each SARs grant on the date of grant using the
Black-Scholes option-pricing model. The risk-free interest rate utilized in the Black-Scholes
calculation is the interest rate on the U.S. Treasury Bill having the same maturity as the expected
life of the Companys SARs awards. Expected life of the SARs granted was based on the estimated
holding period of the SARs award. Expected volatility is based on the historical volatility of the
Companys stock over the preceding five-year period using the month-end closing stock price.
The SARs granted in the first quarter of fiscal 2009 had the following weighted average assumptions
and fair value:
|
|
|
|
|
Expected life (years) |
|
|
5 |
|
Dividend yield |
|
|
2.55 |
% |
Expected stock price volatility |
|
|
37.11 |
% |
Risk-free interest rate |
|
|
3.73 |
% |
Fair value of SARs granted |
|
$ |
0.92 |
|
The Companys net (loss) earnings for the three months ended July 31, 2008, and July 31, 2007,
includes $44,420 and $28,176, respectively, of equity-based compensation expenses, and income tax
benefits of $16,879 and $10,707, respectively, related to the vesting of SARs. All of these
expenses were included in selling, general and administrative expense in the consolidated
statements of operations for both periods.
Shares of Restricted Stock
Periodically, the Company has awarded shares of restricted stock to employees, directors and select
outside consultants. 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 July 31, 2008, there were unrecognized
compensation expenses totaling $17,547 related to shares of restricted stock, which the Company
expects to be recognized over the ensuing year. For the quarters ended July 31, 2008, and July 31,
2007, restricted stock equity-based compensation expenses related to the vesting of shares of
restricted stock were $2,735 and $2,399, respectively, and the related income tax benefits were
$1,039 and $912, respectively. The following table summarizes restricted stock activity for the
three months ended July 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Number of |
|
|
Grant Date |
|
|
|
Restricted |
|
|
Fair Value |
|
|
|
Shares of Stock |
|
|
per Share |
|
Non-vested restricted stock at April 30, 2008 |
|
|
1,785 |
|
|
$ |
4.27 |
|
Granted |
|
|
4,200 |
|
|
|
4.76 |
|
Vested |
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested restricted stock at July 31, 2008 |
|
|
5,985 |
|
|
$ |
4.61 |
|
|
|
|
|
|
|
|
NOTE 4. RECEIVABLES
All net contract and trade receivables are expected to be collected within one year.
9
NOTE 5. DISCONTINUED OPERATIONS
Sales of Income-Producing Properties
The Company is in the business of creating long-term value by periodically realizing gains through
the sale of existing real estate assets, and then redeploying its capital by reinvesting the
proceeds from such sales. Effective as of fiscal 2003, the Company adopted SFAS 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, which requires, among other things, that the
operating results of certain income-producing assets, sold subsequent to fiscal 2002, be included
in discontinued operations in the statements of operations for all periods presented. The Company
classifies an asset as held for sale when the asset is under a binding sales contract with minimal
contingencies, and the buyer is materially at risk if the buyer fails to complete the transaction.
However, each potential transaction is evaluated based on its separate facts and circumstances.
Pursuant to this standard, as of July 31, 2008, the Company had no income-producing properties that
were classified as held for sale.
On December 13, 2007, the Company sold its owned office park located in Marietta, Georgia, and
recognized a pre-tax gain on the sale of approximately $2.085 million. On July 31, 2007, the
Company sold its leasehold interest in the land and its owned shopping center building located in
Columbus, Georgia, and its owned shopping center located in Orange Park, Florida, and recognized a
pre-tax gain on the sales of approximately $1.9 million. As a result of these transactions, the
Companys financial statements have been prepared with the results of operations and cash flows of
these sold properties shown as discontinued operations. All historical statements have been
restated in accordance with SFAS 144. Summarized financial information for discontinued operations
for the three-month periods ended July 31, 2008, and July 31, 2007, is as follows:
|
|
|
|
|
|
|
|
|
|
|
First Quarter Ended |
|
|
July 31, |
|
|
2008 |
|
2007 |
|
|
|
REAL ESTATE SEGMENT |
|
|
|
|
|
|
|
|
Rental revenues |
|
$ |
|
|
|
$ |
551,583 |
|
Rental property operating expenses, including depreciation |
|
|
|
|
|
|
458,727 |
|
|
|
|
Operating earnings from Real Estate Segment discontinued operations |
|
|
|
|
|
|
92,856 |
|
|
|
|
|
|
|
|
|
|
Total operating earnings from discontinued operations |
|
|
|
|
|
|
92,856 |
|
Income tax expense |
|
|
|
|
|
|
(35,286 |
) |
|
|
|
Total operating earnings from discontinued operations, net of tax |
|
|
|
|
|
|
57,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sales of income-producing properties |
|
|
|
|
|
|
1,918,301 |
|
Income tax expense |
|
|
|
|
|
|
(728,954 |
) |
|
|
|
Gain on sales of income-producing properties, net of tax |
|
|
|
|
|
|
1,189,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations from Real Estate Segment, net of tax |
|
$ |
|
|
|
$ |
1,246,917 |
|
|
|
|
10
NOTE 6. OPERATING SEGMENTS
The table below shows selected financial data on a segment basis. Net earnings is defined as total
revenues less operating expenses, including depreciation, interest, and income taxes. In this
presentation, management fee expenses charged by the Parent Company are not included in the
Segments results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended |
|
|
|
|
|
Real Estate |
|
|
|
|
|
|
July 31, 2008 |
|
BPE |
|
(1) |
|
Parent |
|
Eliminations |
|
Consolidated |
|
|
|
Revenues from unaffiliated
customers |
|
$ |
2,720,073 |
|
|
$ |
796,203 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,516,276 |
|
Interest and other income |
|
|
7,477 |
|
|
|
300,133 |
|
|
|
8,316 |
|
|
|
(239,439 |
) |
|
|
76,487 |
|
Intersegment revenue |
|
|
|
|
|
|
142,577 |
|
|
|
|
|
|
|
(142,577 |
) |
|
|
|
|
|
|
|
Total revenues from
continuing operations |
|
$ |
2,727,550 |
|
|
$ |
1,238,913 |
|
|
$ |
8,316 |
|
|
$ |
(382,016 |
) |
|
$ |
3,592,763 |
|
|
|
|
Net (loss) earnings |
|
$ |
(459,609 |
) |
|
$ |
154,081 |
|
|
$ |
(661,424 |
) |
|
$ |
119,541 |
|
|
$ |
(847,411 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended |
|
|
|
|
|
Real Estate |
|
|
|
|
|
|
July 31, 2007 |
|
BPE |
|
(1) |
|
Parent |
|
Eliminations |
|
Consolidated |
|
|
|
Revenues from unaffiliated
customers |
|
$ |
4,766,392 |
|
|
$ |
2,522,391 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
7,288,783 |
|
Interest and other income |
|
|
55,094 |
|
|
|
299,253 |
|
|
|
12,770 |
|
|
|
(277,609 |
) |
|
|
89,508 |
|
Intersegment revenue |
|
|
|
|
|
|
147,541 |
|
|
|
|
|
|
|
(147,541 |
) |
|
|
|
|
|
|
|
Total revenues from
continuing operations |
|
$ |
4,821,486 |
|
|
$ |
2,969,185 |
|
|
$ |
12,770 |
|
|
$ |
(425,150 |
) |
|
$ |
7,378,291 |
|
|
|
|
Net earnings (loss) |
|
$ |
34,595 |
|
|
$ |
2,340,159 |
|
|
$ |
(810,326 |
) |
|
$ |
(6,024 |
) |
|
$ |
1,558,404 |
|
|
|
|
|
|
|
(1) |
|
The Company is in the business of creating long-term value by periodically
realizing gains through the sale of income-producing properties and real estate held for
future development or sale; therefore, in this presentation the Real Estate Segments net
earnings includes earnings from discontinued operations, pursuant to SFAS 144, that
resulted from the sales of certain income-producing properties, and earnings from
continuing operations that resulted from the gains on sale of certain other real estate
assets. |
11
NOTE 7. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net earnings (loss) by the weighted average
shares outstanding during the reporting period. Diluted earnings (loss) per share is computed
giving effect to dilutive stock equivalents resulting from outstanding stock options, stock
warrants and stock appreciation rights. The dilutive effect on the number of common shares for the
first three months of fiscal 2009 and fiscal 2008 was 203,278 shares and 168,096 shares,
respectively. Because the Company had a loss from continuing operations for the quarter ended July
31, 2008, all stock equivalents were anti-dilutive in the quarter, and therefore, are excluded when
determining the diluted weighted average number of shares outstanding.
On June 5, 2008, the Company declared a stock dividend of five percent (5%) for all shareholders of
record on June 18, 2008; accordingly, on July 1, 2008, the Company distributed 177,708 newly issued
shares of stock to those shareholders. Earnings (loss) per share have been adjusted retroactively
to include the shares issued and outstanding pursuant to the stock dividend as outstanding for all
periods presented.
The following tables set forth the computations of basic and diluted net earnings (loss) per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended July 31, 2008 |
|
|
|
|
|
|
|
|
|
|
Per share |
|
|
Loss |
|
Shares |
|
amount |
|
Basic EPS loss per share from continuing operations |
|
$ |
(847,411 |
) |
|
|
3,730,295 |
|
|
$ |
(0.23 |
) |
Basic EPS loss per share from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS loss per share |
|
$ |
(847,411 |
) |
|
|
3,730,295 |
|
|
$ |
(0.23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended July 31, 2007 |
|
|
|
|
|
|
|
|
|
|
Per share |
|
|
Earnings |
|
Shares |
|
amount |
|
Basic EPS earnings per share from continuing operations |
|
$ |
311,487 |
|
|
|
3,705,601 |
|
|
$ |
0.08 |
|
Basic EPS earnings per share from discontinued operations |
|
|
1,246,917 |
|
|
|
3,705,601 |
|
|
|
0.34 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
|
|
|
|
59,012 |
|
|
|
|
|
Warrants |
|
|
|
|
|
|
6,416 |
|
|
|
|
|
SARs |
|
|
|
|
|
|
102,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168,096 |
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS earnings per share |
|
$ |
1,558,404 |
|
|
|
3,873,697 |
|
|
$ |
0.41 |
|
|
12
NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
The gross carrying amounts and accumulated amortization for all of the Companys intangible assets
as of July 31, 2008, are as follows:
|
|
|
|
|
|
|
|
|
|
|
July
31, 2008 |
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
|
Amount |
|
|
Amortization |
|
Intangible assets, subject to amortization: |
|
|
|
|
|
|
|
|
Proprietary BPE software solutions |
|
$ |
3,444,383 |
|
|
$ |
1,908,145 |
|
Acquired computer software |
|
|
462,555 |
|
|
|
457,211 |
|
Real estate lease costs |
|
|
850,544 |
|
|
|
229,214 |
|
Customer relationships |
|
|
404,632 |
|
|
|
206,493 |
|
Deferred loan costs |
|
|
331,488 |
|
|
|
100,390 |
|
Non-compete agreements |
|
|
35,015 |
|
|
|
2,918 |
|
Other |
|
|
28,660 |
|
|
|
20,779 |
|
|
|
|
|
|
|
|
|
|
$ |
5,557,277 |
|
|
$ |
2,925,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets and goodwill: |
|
|
|
|
|
|
|
|
Trademark/Tradename |
|
$ |
770,006 |
|
|
$ |
681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
6,371,319 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2008 |
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
|
Amount |
|
|
Amortization |
|
Intangible assets, subject to amortization: |
|
|
|
|
|
|
|
|
Proprietary BPE software solutions |
|
$ |
3,403,208 |
|
|
$ |
1,788,415 |
|
Acquired computer software |
|
|
462,555 |
|
|
|
453,038 |
|
Real estate lease costs |
|
|
823,091 |
|
|
|
208,966 |
|
Customer relationships |
|
|
218,000 |
|
|
|
188,933 |
|
Deferred loan costs |
|
|
331,488 |
|
|
|
94,170 |
|
Other |
|
|
28,660 |
|
|
|
20,062 |
|
|
|
|
|
|
|
|
|
|
$ |
5,267,002 |
|
|
$ |
2,753,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets and goodwill, not subject to amortization: |
|
|
|
|
|
|
|
|
Trademark/Tradename |
|
$ |
708,707 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
5,458,717 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Aggregate amortization expense for all amortized intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended July 31, 2008 |
|
$ |
198,458 |
|
|
|
|
|
For the three months ended July 31, 2007 |
|
$ |
189,134 |
|
|
|
|
|
13
NOTE 9. DISPOSITIONS
Fiscal 2009
There were no dispositions in the first quarter of fiscal 2009.
Fiscal 2008
On March 28, 2008, the City of Oakwood, Georgia, acquired in lieu of formal condemnation,
approximately 1.8 acres of the Companys undeveloped land located in Oakwood, Georgia, for a price
of $860,000, which resulted in a pre-tax gain on the transaction of approximately $581,000. For
income tax purposes, the Company treated this transaction as in involuntary conversion under
Section 1033 of the Internal Revenue Code, which allows for tax deferral of the gain if the Company
acquires a qualified replacement property by no later than April 30, 2011. The Company currently
intends to use the net proceeds from this transaction to acquire an income-producing property.
There can be no assurance, however, that the Company will be able to successfully complete such
acquisition.
On December 13, 2007, the Company sold its owned office park located in Marietta, Georgia, for a
price of $10.3 million resulting in a pre-tax gain on the sale of approximately $2.085 million.
After selling expenses and repayment of the mortgage loan and associated costs, the sale generated
cash proceeds of approximately $3.4 million. The Company intended to use the net proceeds from
this sale to acquire an income-producing property, which would have qualified the sale under
Internal Revenue Code Section 1031 for federal income tax deferral, and therefore placed the
proceeds with a qualified third party intermediary in connection therewith. However, the Company
did not complete such acquisition, and therefore the proceeds were released from the intermediary
to the Company on June 11, 2008. This sale is recorded in discontinued operations in the
accompanying consolidated statements of operations.
On July 31, 2007, the Company sold: (1) its leasehold interest in a shopping center in
Jacksonville, Florida; (2) its leasehold interest in the land and its owned shopping center
building located in Columbus, Georgia; and (3) its owned shopping center located in Orange Park,
Florida; for a total combined sales price of $6.8 million, resulting in a pre-tax gain of
approximately $3.8 million. After selling expenses, the sales generated net cash proceeds of
approximately $6.4 million. In addition, the Company purchased its minority partners interests in
the Columbus, Georgia, land and shopping center building by utilizing two notes payable totaling
$400,000. As of July 2008, both notes have been paid off. In accordance with SFAS 144, the sale
of the leasehold interest in the shopping center in Jacksonville, Florida, is recorded in rental
income on the accompanying consolidated statement of operations, and the sales of its leasehold
interest in the land and the owned shopping center building located in Columbus, Georgia, and the
owned shopping center located in Orange Park, Florida, are recorded in discontinued operations in
the accompanying consolidated statement of operations for the quarter ended July 31, 2007.
NOTE 10. ACQUISITIONS
On June 6, 2008, Atlantic Lighting & Supply Co., LLC (AL&S LLC), an indirect wholly-owned
subsidiary of the Company, acquired substantially all of the assets and assumed certain liabilities
of Atlantic Lighting & Supply Co., Inc. (the Seller) for a total consideration, including the
assumption of liabilities, of approximately $1.5 million (excluding acquisition costs). The Seller
was engaged in the business of providing energy efficient lighting products to commercial property
owners and managers, 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 lenders of the Seller, and the assumption of certain operating
liabilities of the Seller that totaled
14
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 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 current balance sheet operating liabilities.
The following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition.
|
|
|
|
|
|
|
|
|
Operations |
|
|
|
|
|
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 |
|
|
35,015 |
|
|
2 years |
Customer relationships |
|
|
186,632 |
|
|
5 years |
Goodwill |
|
|
912,601 |
|
|
Indefinite |
|
|
|
|
|
|
Total assets acquired |
|
$ |
1,576,760 |
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
(483,937 |
) |
|
|
Long-term liabilities |
|
|
(100,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired |
|
$ |
992,823 |
|
|
|
|
|
|
|
|
|
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 the three months ended July 31, 2008, 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 would have actually been or to be indicative of the future results of
operations of the Company (in thousands, except for per share amounts).
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
July 31, |
|
|
2008 |
|
2007 |
Revenues |
|
$ |
3,790 |
|
|
$ |
8,208 |
|
Net (loss)
earnings |
|
|
(847 |
) |
|
|
1,582 |
|
Net (loss)
earnings per share basic |
|
$ |
(0.23 |
) |
|
$ |
0.43 |
|
Net (loss)
earnings per share diluted |
|
$ |
(0.23 |
) |
|
$ |
0.41 |
|
15
NOTE 11. COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and other claims that arise 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. See Item 1A, Risk Factors, in the
Companys Annual Report on Form 10-K for the year ended April 30, 2008.
16
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the consolidated financial statements,
including the notes to those statements, which are presented elsewhere in this report. The Company
also recommends that this discussion and analysis be read in conjunction with the managements
discussion and analysis section and the consolidated financial statements included in the Companys
Annual Report on Form 10-K for the year ended April 30, 2008.
The Companys fiscal year 2009 will end on April 30, 2009.
In the following charts, changes in revenues, costs and expenses, and selling, general and
administrative expenses from period to period are analyzed on a segment basis. For net earnings
and similar profit information on a consolidated basis, please refer to the Companys consolidated
financial statements.
Pursuant to SFAS 144, the figures shown in the following charts for all periods presented do not
include Real Estate Segment revenues, costs and expenses, and selling, general and administrative
expenses generated by certain formerly owned income-producing properties that have been sold; such
amounts have been reclassified to discontinued operations. See Critical Accounting Policies
Discontinued Operations later in this discussion and analysis section.
Results of operations of the first quarter of fiscal 2009, compared to the first quarter of
fiscal 2008
REVENUES
From Continuing Operations
For the first quarter of fiscal 2009, consolidated revenues from continuing operations, net of
intersegment eliminations, were $3,516,276, compared to $7,288,783 for the first quarter of fiscal
2008. This represents a decrease of approximately 52%.
CHART A
REVENUES FROM CONTINUING OPERATIONS SUMMARY BY SEGMENT
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Ended |
|
|
|
|
|
|
July 31, |
|
Amount |
|
Percentage |
|
|
2008 |
|
2007 |
|
Decrease |
|
Decrease |
|
|
|
BPE (1) |
|
$ |
2,720 |
|
|
$ |
4,766 |
|
|
$ |
(2,046 |
) |
|
|
(43 |
) |
Real Estate (2) |
|
|
796 |
|
|
|
2,522 |
|
|
|
(1,726 |
) |
|
|
(68 |
) |
|
|
|
|
|
$ |
3,516 |
|
|
$ |
7,288 |
|
|
$ |
(3,772 |
) |
|
|
(52 |
) |
|
|
|
17
NOTES TO CHART A
(1) |
|
BPE Segment revenues decreased by approximately $2,046,000, or 43%, in the first quarter of
fiscal 2009, compared to the same period in fiscal 2008, primarily
due to: |
|
(a) |
|
energy savings (lighting and mechanical) project revenues were
approximately $2,360,000 lower than in the year-earlier period (although 18% higher
than in the immediately preceding fourth quarter of fiscal 2008), primarily because
of: |
|
i. |
|
unexpected ongoing delays in scheduled projects for two
significant customers; however, |
|
|
|
|
|
|
the Company was able to commence work on several of these
energy savings projects for one of the customers in August 2008, with
contracted revenues totaling approximately $500,000, which amount is
included in backlog at July 31, 2008; and |
|
|
|
|
|
|
management expects to enter into a contract with the other
customer in the next several weeks for a multi-million dollar energy
savings project, based on the customers verbal commitment,
which the Company expects to commence work on soon thereafter; such
potential revenues are not included in backlog at July 31, 2008,
and are subject to specific authorization by the customer to proceed
and completion of contract documentation, and there can be no
assurance that the customer will actually authorize the Company to
proceed with this project in the expected term, or at all; |
|
|
and |
|
|
ii. |
|
the absence of revenues of approximately $1 million that
were generated by a one-time special project for a large retail customer
during the year-earlier period; |
|
iii. |
|
revenues of approximately $180,000 from two new energy
savings project customers, representing the initial phases of new
energy savings program initiatives for those customers that
management believes offer the potential for several million dollars
in additional energy savings project revenues over the next four to
eight fiscal quarters. Such potential additional revenues are not
included in backlog at July 31, 2008, and are subject to
satisfactory completion of the initial projects, specific
authorization by the customers to proceed with the additional
projects, and completion of contract documentation; however, there can
be no assurance that any of these additional potential revenues will
actually be realized in the expected term, or at all. |
|
|
|
The year-over-year decline in energy savings project revenues was partially
offset by: |
|
(b) |
|
the initial lighting product revenues of approximately $257,000, as the
result of the Companys acquisition during the quarter of its lighting distribution
business; and |
|
|
(c) |
|
an increase in building productivity software products and services
revenues of approximately $194,000. |
|
|
|
Management believes that the decrease in energy savings project revenues is due in part
to the general deterioration of the overall economy, which may be causing certain of the
Companys customers to postpone capital expenditures. |
(2) |
|
Real Estate Segment revenues decreased by $1,726,000, or 68%, in the first quarter of
fiscal 2009, compared to the same period in fiscal 2008, primarily due to: |
|
(a) |
|
the absence of one-time revenues of approximately $1,553,000 generated in
the prior year period by the sale of the Companys leasehold interest in its
shopping center in Jacksonville, Florida, during the first quarter of fiscal 2008;
and |
|
|
(b) |
|
a decrease in rental income of approximately $165,000, primarily as the
result of the expiration of an anchor tenant lease in January 2008 at the Companys
headquarters building in Atlanta, Georgia; |
18
|
(c) |
|
an increase in revenues of approximately $47,000, primarily as the result
of an early lease termination payment in the first quarter of fiscal 2009. |
The following table indicates the backlog of contracts and rental income, by segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
July 31 |
|
|
(Decrease) |
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
Amount |
|
|
Percentage |
|
|
|
|
BPE (1) |
|
$ |
6,536,000 |
|
|
$ |
7,640,000 |
|
|
$ |
(1,104,000 |
) |
|
|
(14 |
) |
Real Estate (2) |
|
|
3,183,000 |
|
|
|
3,438,000 |
|
|
|
(255,000 |
) |
|
|
(7 |
) |
Less: Intersegment eliminations (3) |
|
|
(585,000 |
) |
|
|
(568,000 |
) |
|
|
(17,000 |
) |
|
|
3 |
|
|
|
|
Total Backlog |
|
$ |
9,134,000 |
|
|
$ |
10,510,000 |
|
|
$ |
(1,376,000 |
) |
|
|
(13 |
) |
|
|
|
(1) |
|
BPE backlog at July 31, 2008, decreased by approximately $1,104,000 compared to the prior
period, primarily due to: |
|
(a) |
|
a decrease of approximately $660,000, or 8%, in energy savings project
orders, primarily as a result of unexpected customer delays of
scheduled projects discussed above, and,
management believes, the general economic factors also discussed
above; and |
|
|
(b) |
|
a decrease of approximately $403,000, or 4%, in energy management
consulting services, as a result of the successful completion of approximately
$900,000 of multi-year consulting services projects, partially offset by $497,000
in new consulting services contracts. |
|
|
The Company estimates that the BPE backlog at July 31, 2008, will be recognized prior to July
31, 2009, with the exception of approximately $344,000 in energy management consulting
services from multi-year contracts with terms that extend longer than one year. |
|
|
|
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 amount of
such cancelled contracts included in the prior years backlog was approximately $202,000, or
3.1%. |
(2) The decrease in Real Estate backlog of $255,000 primarily consisted of:
|
(a) |
|
approximately $364,000 as the result of the expiration of an anchor
tenant lease in January 2008 at the Companys headquarters building in
Atlanta, Georgia; |
|
(b) |
|
a net increase in backlog of approximately $157,000 due to successful
leasing activities at the Companys headquarters building in Atlanta, Georgia. |
(3) |
|
Represents rental income at the Companys headquarters building to be paid to the Real
Estate Segment by the Parent Company and the BPE Segment. |
19
COSTS AND EXPENSES APPLICABLE TO REVENUES
From Continuing Operations
As a percentage of total segment revenues from continuing operations (See Chart A), the total
applicable costs and expenses (See Chart B) were 63% and 53%, for the first quarters of fiscal 2009
and 2008, respectively. In reviewing Chart B, the reader should recognize that the volume of
revenues generally will affect the amounts and percentages presented.
The figures in Chart B are net of intersegment eliminations.
CHART B
COSTS AND EXPENSES APPLICABLE TO REVENUES
FROM CONTINUING OPERATIONS SUMMARY BY SEGMENT
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Segment |
|
|
|
|
|
|
|
|
|
|
Revenues for |
|
|
First Quarter Ended |
|
First Quarter Ended |
|
|
July 31, |
|
July 31, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
|
BPE (1) |
|
$ |
1,753 |
|
|
$ |
3,186 |
|
|
|
64 |
|
|
|
67 |
|
Real Estate (2) |
|
|
474 |
|
|
|
651 |
|
|
|
60 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,227 |
|
|
$ |
3,837 |
|
|
|
63 |
|
|
|
53 |
|
|
|
|
NOTES TO CHART B
(1) |
|
On a dollar basis, BPE Segment costs and expenses decreased by approximately $1,433,000, or
45%, for the first quarter of fiscal 2009, compared to the same period in fiscal 2008,
primarily due to: |
|
(a) |
|
the corresponding decrease in revenues (See Chart A); |
|
(b) |
|
an increase in costs of approximately $148,000 as a result of the
Companys acquisition of its lighting distribution business during the quarter. |
|
|
On a percentage basis, BPE Segment costs and expenses decreased by 3% in the first quarter of
fiscal 2009, compared to the same period of fiscal 2008, primarily due to a change in the mix
of services and products. |
(2) |
|
On a dollar basis, Real Estate Segment costs and expenses decreased by approximately
$177,000, or 27%, in the first quarter of fiscal 2009, compared to the same period of fiscal
2008, primarily due to: |
|
(a) |
|
the absence of one-time leaseback and sales costs of approximately
$147,000 that were included in the prior year, as a result of the sale of the Companys leasehold interest in a shopping
center located in Jacksonville, Florida, during the first quarter of fiscal 2008;
and |
20
|
(b) |
|
a decrease in rental operating costs of approximately $31,000 due
to the lower tenant and repair expenses. |
|
|
|
Real Estate Segment costs and expenses as a percentage of revenues were higher for the
first quarter of fiscal 2009, compared to the same period in fiscal 2008, primarily due to
one-time revenues of $1,553,000 in the prior year that were generated by the sale of the
Companys leasehold interest in a shopping center located in Jacksonville, Florida, in July
2007; the costs of the sale were approximately $95,000. |
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
From Continuing Operations
In the first quarters of fiscal 2009 and 2008, total selling, general and administrative expenses
(SG&A) from continuing operations, net of intersegment eliminations, were $2,405,656 and
$2,795,657, respectively. As a percentage of consolidated revenues from continuing operations,
these expenses were 68% and 38%, respectively. In reviewing Chart C, the reader should recognize
that the volume of revenues generally will affect the amounts and percentages presented. The
percentages in Chart C are based upon expenses as they relate to segment revenues from continuing
operations (Chart A), except that Parent and total expenses relate to consolidated revenues from
continuing operations.
CHART C
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
FROM CONTINUING OPERATIONS SUMMARY BY SEGMENT
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Segment |
|
|
|
|
|
|
|
|
|
|
Revenues for |
|
|
First Quarter Ended |
|
First Quarter Ended |
|
|
July 31, |
|
July 31, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
|
BPE (1) |
|
$ |
1,409 |
|
|
$ |
1,324 |
|
|
|
52 |
|
|
|
28 |
|
Real Estate (2) |
|
|
169 |
|
|
|
183 |
|
|
|
21 |
|
|
|
7 |
|
Parent (3) |
|
|
828 |
|
|
|
1,289 |
|
|
|
24 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,406 |
|
|
$ |
2,796 |
|
|
|
68 |
|
|
|
38 |
|
|
|
|
NOTES TO CHART C
(1) |
|
BPE SG&A expenses as a percentage of revenues from continuing operations increased in the
first quarter of fiscal 2009, compared to the same
period of fiscal 2008, primarily due to the decrease in revenues (See
Chart A). |
|
|
|
On a dollar basis, BPE SG&A expenses increased by approximately $85,000, or 6%, in the first
quarter of fiscal 2009, compared to the same period in fiscal 2008, primarily due to the
Companys acquisition of its lighting distribution business during the quarter; |
21
(2) |
|
On a percentage basis, Real Estate SG&A expenses increased by approximately 14% in the first
quarter of fiscal 2009, compared to the same period in fiscal 2008, primarily due to the
inclusion of one-time revenues of $1,553,000 in the prior year that were generated by the sale
of the Companys leasehold interest in a shopping center located in Jacksonville, Florida, in
July 2007. |
(3) |
|
On a dollar basis, Parent SG&A expenses decreased by approximately $461,000, or 36%, for the
first quarter of fiscal 2009, compared to the same period of fiscal 2008, primarily due to: |
|
(a) |
|
a decrease of approximately $581,000 in incentive compensation
expenses, pursuant to the terms of the Companys cash incentive compensation plan; |
|
|
partially offset by: |
|
|
(b) |
|
an increase in legal fees of approximately $38,000 as a result of
ongoing efforts to perfect an insurance claim and increased financial reporting
compliance costs; and |
|
|
(c) |
|
an increase in general insurance expenses of approximately $34,000. |
Liquidity and capital resources
Between April 30, 2008, and July 31, 2008, working capital decreased by approximately $2,994,000.
Operating activities used cash of approximately $1,829,000, primarily as a result of:
|
(a) |
|
current year losses from continuing operations of approximately
$847,000; |
|
|
(b) |
|
an increase in other current assets of approximately $327,000,
primarily due to: |
|
(1) |
|
an increase in prepaid corporate insurance expense of
approximately $40,000; |
|
|
(2) |
|
an increase in Real Estate prepaid insurance expense
and property taxes of approximately $104,000; |
|
|
(3) |
|
an increase in prepaid expenses related to software
implementation in progress of approximately $60,000; and |
|
|
(4) |
|
an increase in inventory post-acquisition in the BPE lighting
distribution business of approximately $139,000; |
|
(c) |
|
cash payments of approximately $299,000 for incentive compensation
expensed in the prior fiscal year because of the successful achievement of certain
company earnings and performance goals in fiscal year 2008; and |
|
|
(d) |
|
a net decrease in BPE trade accounts payable, accrued expenses, other
liabilities, and billings in excess of costs and earnings of approximately
$481,000, due to the timing and submission of payments; |
|
(e) |
|
a decrease in BPE accounts receivable (net of changes in the
provision for doubtful accounts) and costs and earnings in excess of billings of
approximately $267,000, primarily as a result of the timing of billing and receipt
of payments. |
Investing activities provided cash of approximately $2,176,000, primarily due to:
|
(a) |
|
the release to the Company of approximately $3,471,000 in cash
previously held in escrow, after the Company elected not to purchase a replacement
property to complete a proposed Internal Revenue Code Section 1031 federal tax
deferred exchange for the Companys owned office park located in Marietta,
Georgia, which was sold by the Company in fiscal 2008; |
22
|
(b) |
|
approximately $892,000 for the acquisition of the Companys indirect
wholly-owned lighting distribution business; |
|
|
(c) |
|
approximately $129,000 for additions to income-producing properties,
primarily related to tenant and building improvements; |
|
|
(d) |
|
$150,000 for the purchase of a held-to-maturity investment related to
the scheduled increase in restricted cash as the result of a provision in a Real
Estate loan agreement; |
|
|
(e) |
|
approximately $95,000 for additions to intangible assets, primarily
related to the development of enhancements to BPEs proprietary building
productivity software solutions; and |
|
|
(f) |
|
approximately $29,000 for additions to property and equipment. |
Financing activities used cash of approximately $465,000 primarily for:
|
(a) |
|
payment of a note at maturity of approximately $241,000; |
|
|
(b) |
|
payment of the regular quarterly cash dividend to shareholders of
approximately $142,000; and |
|
|
(c) |
|
scheduled principal payments on mortgage notes and other long-term
debt of approximately $82,000. |
The Company anticipates that its existing cash balances, equity, potential proceeds from sales of
real estate, potential cash flows provided by financing or
refinancing of debt obligations, and cash flows generated from operations will, for the foreseeable
future, provide adequate liquidity and financial flexibility to meet the Companys needs to fund
working capital, capital expenditures, debt service, and investment activities.
Cautionary statement regarding forward-looking statements
Certain statements contained or incorporated by reference in this Quarterly Report on Form 10-Q,
including without limitation, statements containing the words believes, anticipates,
estimates, expects, plans, and words of similar import, are forward-looking statements within
the meaning of the federal securities laws. Such forward-looking statements involve known and
unknown risks, uncertainties and other matters which may cause the actual 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. Factors affecting
forward-looking statements include, without limitation, the factors identified under the caption
Risk Factors in the Companys Annual Report on Form 10-K for the year ended April 30, 2008.
Critical Accounting Policies
A critical accounting policy is one which 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 the amounts reported in the accompanying
consolidated financial statements and related notes. In preparing these financial statements, the
Company has made its best estimates and used its best judgments regarding certain amounts included
in the financial statements, giving due consideration to materiality. The application of these
accounting policies involves the exercise of judgment and the use of assumptions regarding future
uncertainties, and as a result, actual results could differ from those estimates. Management
believes that the Companys most critical accounting policies include:
23
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 follow the provisions of Securities and Exchange Commission Staff
Accounting Bulletin (SAB) 104, Revenue Recognition
(SAB 104). For these sources of revenues, the Company
recognizes revenue when all of the following conditions are met: there is persuasive evidence of
an arrangement; service has been provided to the customer; the collection of fees is probable; and
the amount of fees to be paid by the customer is fixed and determinable. The Companys license
arrangements do not include general rights of return. Revenues are recognized ratably over the
contract terms beginning on the commencement date of each contract. Amounts
that have been invoiced are recorded in accounts receivable and in revenue or deferred revenue,
depending on the timing of when the revenue recognition criteria have been met. Additionally, the
Company defers such direct costs and amortizes them over the same time period as the revenue is
recognized.
Energy management services are accounted for separately, and are recognized as the services are
rendered in accordance with SAB 104. Sales of proprietary building productivity software solutions
(other than ASP solutions) and hardware products are recognized when products are sold.
Energy savings and infrastructure upgrade 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 based on the Companys historical
experience. 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 the 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 under 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 evaluate 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, which additional rental amounts are
recognized only when earned. In addition, certain leases require retail tenants to pay incremental
rental amounts, which are contingent upon their store sales. These percentage rents are recognized
only if and when earned and are not recognized on a straight-line basis.
24
Revenues from the sales of real estate assets are recognized when all of the following has
occurred: (a) the property is transferred from the Company to the buyer; (b) the buyers initial
and continuing investment is adequate to demonstrate a commitment to pay for the property; and (c)
the buyer has assumed all future ownership risks of the property. Costs of sales related to 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 development or acquisition is charged to cost of
sales.
Income-Producing Properties and Property and Equipment
Income-producing properties are stated at historical cost, and are depreciated for financial
reporting purposes using the straight-line method over the 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 project is
substantially completed or if active development ceases. 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.
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.
Valuation of Goodwill and Other Intangible Assets
Goodwill and intangible assets with indefinite lives are reviewed for impairment on an annual
basis, or whenever events or changes in circumstances indicate that the carrying basis of an asset
may not be recoverable. The recoverability of assets to be held and used is measured by a
comparison of the carrying basis of the asset to the estimated future net discounted cash flows
expected to be generated by the asset. If an asset is determined to be impaired, the impairment to
be recognized is determined by the amount by which the carrying amount of
the asset exceeds the assets estimated future net discounted cash flows. Assets to be disposed of
are reported at the lower of their carrying basis or estimated fair value less estimated costs to
sell.
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. 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.
Discontinued Operations
The Company adopted SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets
(SFAS 144), effective in fiscal 2003, which requires, among other things, that the gains and losses from the
disposition of certain income-producing real estate assets, and associated liabilities, operating
results, and cash flows be reflected as discontinued operations in the financial statements for all
periods presented. Although net earnings are not affected, the Company has reclassified results
that were previously included in continuing operations as discontinued operations for qualifying
dispositions under SFAS 144.
25
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Companys market risk since April 30, 2008. Refer to
the Companys Annual Report on Form 10-K for the fiscal year ended April 30, 2008, for detailed
disclosures about quantitative and qualitative disclosures about market risk.
ITEM 4 (T). CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Management has evaluated the Companys disclosure controls and procedures as defined by Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the
period covered by this report. This evaluation was carried out with the participation of the
Companys Chief Executive Officer and Chief Financial Officer. No system of controls, no matter
how well designed and operated, can provide absolute assurance that the
objectives of the system of controls are met, and no evaluation of controls can provide absolute
assurance that the system of controls has operated effectively in all cases. The Companys
disclosure controls and procedures, however, are designed to provide reasonable assurance that the
objectives of disclosure controls and procedures are met.
Based on managements evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Companys disclosure controls and procedures were effective, as of the end of the period
covered by this report, to provide reasonable assurance that the objectives of disclosure controls
and procedures were met.
Changes in Internal Control Over Financial Reporting
There was no change in the Companys internal control over financial reporting that occurred during
the period covered by this quarterly report on Form 10-Q that materially affected, or is reasonably
likely to materially affect, the Companys internal control over financial reporting.
26
PART II. OTHER INFORMATION
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, the reader should carefully consider
the factors discussed in Part I, Item 1A. Risk Factors in the Companys Annual Report on
Form 10-K for the fiscal year ended April 30, 2008, which could materially affect the business,
financial condition or future operating results of the Company. Additional risks and uncertainties
not currently known to the Company or that the Company currently deems to be immaterial also
could materially affect the Companys business, financial condition and/or operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities
As part of the consideration for the acquisition by an indirect, wholly-owned subsidiary of the
Company of substantially all the assets of Atlantic Lighting & Supply Co., Inc. (the Seller),
described in Note 10 to the Consolidated Financial Statements, the Company issued 17,381
newly-issued shares of the Companys common stock to the Seller on June 6, 2008. Per the formula
set forth in the agreement related to the acquisition, the shares were valued at approximately
$5.75 per share. The shares were issued pursuant to the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended (the Securities Act), and/or the rules and
regulations promulgated thereunder.
In connection with the acquisition of substantially all of the assets of the Seller, the Companys
subsidiary employed Sellers President, John Robertson Edwards, to continue as President of the
acquired business. As part of the terms of Mr. Edwards employment, on June 6, 2008, Mr. Edwards
was granted 2,000 shares of restricted common stock and 50,000 stock appreciation rights (SARs).
These SARs are exercisable for shares of the Companys common stock, have an exercise price of
$5.25 per share, and cliff vest in five years, subject to accelerated vesting in the event of the
satisfaction of a certain stock price performance condition. The SARs were not issued in a sale
to Mr. Edwards within the meaning of the Securities Act, but such issuance would have been exempt
from registration in any event pursuant to Section 4(2) of such Act and/or the rules and
regulations promulgated thereunder.
27
ITEM 6. EXHIBITS
|
|
|
31.1
|
|
Certification of Chief Executive Officer, pursuant to Rules 13a-14(a)/15d-14(a) |
|
|
|
31.2
|
|
Certification of Chief Financial Officer, pursuant to Rules 13a-14(a)/15d-14(a) |
|
|
|
32.1
|
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes Oxley Act 2002 |
|
|
|
32.2
|
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes Oxley Act 2002 |
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
SERVIDYNE, INC.
(Registrant)
|
|
|
|
|
|
|
|
Date: September 15, 2008
|
|
/s/ Alan R. Abrams
Alan R. Abrams
|
|
|
|
|
Chief Executive Officer |
|
|
|
|
|
|
|
Date: September 15, 2008
|
|
/s/ Rick A. Paternostro |
|
|
|
|
|
|
|
|
|
Rick A. Paternostro |
|
|
|
|
Chief Financial Officer |
|
|
29