FORM 10-Q
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 January 31, 2009
Commission file number 0-10146
SERVIDYNE, INC.
(Exact name of registrant as specified in its charter)
|
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Georgia
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58-0522129 |
(State or other jurisdiction of
|
|
(I.R.S. Employer Identification No.) |
incorporation or organization) |
|
|
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 |
|
Accelerated Filer o |
|
Non-accelerated filer o
(Do not check if a smaller reporting company) |
|
Smaller Reporting Company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No þ
The number of shares of $1.00 par value Common Stock of the Registrant outstanding as
of February 28, 2009, was 3,691,569.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SERVIDYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
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|
|
|
|
|
|
|
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|
January 31, 2009 |
|
|
April 30, 2008 |
|
ASSETS |
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
5,730,561 |
|
|
$ |
8,382,947 |
|
Restricted cash |
|
|
|
|
|
|
3,470,700 |
|
Receivables (Note 5) |
|
|
3,528,902 |
|
|
|
3,735,930 |
|
Less: Allowance for doubtful accounts |
|
|
(110,845 |
) |
|
|
(127,007 |
) |
Costs and earnings in excess of billings |
|
|
386,506 |
|
|
|
275,754 |
|
Deferred income taxes |
|
|
521,036 |
|
|
|
750,488 |
|
Other current assets |
|
|
1,608,824 |
|
|
|
1,011,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
11,664,984 |
|
|
|
17,500,116 |
|
|
|
|
|
|
|
|
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|
INCOME-PRODUCING PROPERTIES, net |
|
|
21,519,183 |
|
|
|
21,773,409 |
|
PROPERTY AND EQUIPMENT, net |
|
|
845,978 |
|
|
|
811,900 |
|
OTHER ASSETS: |
|
|
|
|
|
|
|
|
Real estate held for future development or sale |
|
|
853,109 |
|
|
|
853,109 |
|
Intangible assets, net (Note 9) |
|
|
3,173,252 |
|
|
|
3,222,125 |
|
Goodwill (Note 9) |
|
|
6,354,003 |
|
|
|
5,458,717 |
|
Other assets |
|
|
2,697,137 |
|
|
|
2,696,174 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
47,107,646 |
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|
$ |
52,315,550 |
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|
|
|
|
|
|
|
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|
|
|
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|
LIABILITIES AND SHAREHOLDERS EQUITY |
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CURRENT LIABILITIES: |
|
|
|
|
|
|
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|
Trade and subcontractors payables |
|
$ |
869,247 |
|
|
$ |
550,360 |
|
Accrued expenses |
|
|
1,363,768 |
|
|
|
1,143,794 |
|
Deferred revenue |
|
|
640,089 |
|
|
|
848,197 |
|
Accrued incentive compensation |
|
|
|
|
|
|
494,000 |
|
Billings in excess of costs and earnings |
|
|
170,737 |
|
|
|
62,559 |
|
Current maturities of mortgage notes and other long-term debt |
|
|
556,461 |
|
|
|
631,736 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total current liabilities |
|
|
3,600,302 |
|
|
|
3,730,646 |
|
|
|
|
|
|
|
|
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|
DEFERRED INCOME TAXES |
|
|
3,465,955 |
|
|
|
5,271,441 |
|
OTHER LIABILITIES |
|
|
814,103 |
|
|
|
1,138,316 |
|
MORTGAGE NOTES PAYABLE, less current maturities |
|
|
18,324,190 |
|
|
|
18,603,769 |
|
OTHER LONG-TERM DEBT, less current maturities |
|
|
1,000,000 |
|
|
|
1,105,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
27,204,550 |
|
|
|
29,849,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
COMMITMENTS AND CONTINGENCIES (Note 13) |
|
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|
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SHAREHOLDERS EQUITY: |
|
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|
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|
Common stock, $1 par value; 10,000,000 shares authorized;
3,918,078 issued and 3,691,569 outstanding at January 31, 2009,
3,708,836 issued and 3,539,770 outstanding at April 30, 2008 |
|
|
3,918,078 |
|
|
|
3,708,836 |
|
Additional paid-in capital |
|
|
5,972,610 |
|
|
|
5,045,100 |
|
Retained earnings |
|
|
10,987,208 |
|
|
|
14,511,159 |
|
Treasury stock (common shares)
226,509 at January 31, 2009, and 169,066 at April 30, 2008 |
|
|
(974,800 |
) |
|
|
(798,717 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
19,903,096 |
|
|
|
22,466,378 |
|
|
|
|
|
|
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|
Total liabilities and shareholders equity |
|
$ |
47,107,646 |
|
|
$ |
52,315,550 |
|
|
|
|
|
|
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|
See accompanying notes to condensed consolidated financial statements.
1
SERVIDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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THIRD QUARTER ENDED |
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NINE MONTHS ENDED |
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JANUARY 31, |
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|
JANUARY 31, |
|
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2009 |
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2008 |
|
|
2009 |
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|
2008 |
|
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building Performance Efficiency (BPE) |
|
$ |
3,338,921 |
|
|
$ |
3,220,444 |
|
|
$ |
9,493,104 |
|
|
$ |
11,973,959 |
|
Real Estate |
|
|
818,893 |
|
|
|
895,264 |
|
|
|
2,407,713 |
|
|
|
4,335,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,157,814 |
|
|
|
4,115,708 |
|
|
|
11,900,817 |
|
|
|
16,309,405 |
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
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|
COST OF REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BPE |
|
|
2,098,300 |
|
|
|
2,158,725 |
|
|
|
6,018,788 |
|
|
|
8,104,705 |
|
Real Estate |
|
|
527,710 |
|
|
|
515,624 |
|
|
|
1,562,375 |
|
|
|
1,671,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,626,010 |
|
|
|
2,674,349 |
|
|
|
7,581,163 |
|
|
|
9,776,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: |
|
|
2,471,359 |
|
|
|
2,319,813 |
|
|
|
7,572,496 |
|
|
|
6,982,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
OTHER (INCOME) AND EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (Note 12) |
|
|
(280,510 |
) |
|
|
(9,899 |
) |
|
|
(317,454 |
) |
|
|
(77,045 |
) |
Interest income |
|
|
(8,560 |
) |
|
|
(83,289 |
) |
|
|
(111,618 |
) |
|
|
(195,046 |
) |
Interest expense |
|
|
318,083 |
|
|
|
345,516 |
|
|
|
980,847 |
|
|
|
1,032,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,013 |
|
|
|
252,328 |
|
|
|
551,775 |
|
|
|
760,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES |
|
|
(968,568 |
) |
|
|
(1,130,782 |
) |
|
|
(3,804,617 |
) |
|
|
(1,210,108 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX BENEFIT |
|
|
(477,206 |
) |
|
|
(423,501 |
) |
|
|
(1,560,132 |
) |
|
|
(505,719 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM CONTINUING OPERATIONS |
|
|
(491,362 |
) |
|
|
(707,281 |
) |
|
|
(2,244,485 |
) |
|
|
(704,389 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED OPERATIONS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from discontinued operations, adjusted for applicable
income tax expense (benefit) of $0, ($1,832), $0 and $11,219, respectively |
|
|
|
|
|
|
(2,988 |
) |
|
|
|
|
|
|
18,305 |
|
Gain on sale of income-producing real estate, adjusted for applicable
income tax expense of $0, $792,218, $0, and $1,521,172, respectively |
|
|
|
|
|
|
1,292,567 |
|
|
|
|
|
|
|
2,481,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS FROM DISCONTINUED OPERATIONS |
|
|
|
|
|
|
1,289,579 |
|
|
|
|
|
|
|
2,500,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) EARNINGS |
|
$ |
(491,362 |
) |
|
$ |
582,298 |
|
|
$ |
(2,244,485 |
) |
|
$ |
1,795,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) EARNINGS PER SHARE BASIC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations |
|
$ |
(0.13 |
) |
|
$ |
(0.19 |
) |
|
$ |
(0.60 |
) |
|
$ |
(0.19 |
) |
From discontinued operations |
|
|
|
|
|
|
0.35 |
|
|
|
|
|
|
|
0.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) EARNINGS PER SHARE BASIC |
|
$ |
(0.13 |
) |
|
$ |
0.16 |
|
|
$ |
(0.60 |
) |
|
$ |
0.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) EARNINGS PER SHARE DILUTED |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations |
|
$ |
(0.13 |
) |
|
$ |
(0.19 |
) |
|
$ |
(0.60 |
) |
|
$ |
(0.19 |
) |
From discontinued operations |
|
|
|
|
|
|
0.35 |
|
|
|
|
|
|
|
0.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) EARNINGS PER SHARE DILUTED |
|
$ |
(0.13 |
) |
|
$ |
0.16 |
|
|
$ |
(0.60 |
) |
|
$ |
0.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIVIDENDS PER SHARE |
|
$ |
0.038 |
|
|
$ |
0.034 |
|
|
$ |
0.114 |
|
|
$ |
0.103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING BASIC |
|
|
3,711,559 |
|
|
|
3,714,245 |
|
|
|
3,726,066 |
|
|
|
3,708,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING DILUTED |
|
|
3,711,559 |
|
|
|
3,714,245 |
|
|
|
3,726,066 |
|
|
|
3,708,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
2
SERVIDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
NINE MONTHS ENDED |
|
|
|
JANUARY 31, |
|
|
|
2009 |
|
|
2008 |
|
CONTINUING OPERATIONS: |
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net (loss) earnings |
|
$ |
(2,244,485 |
) |
|
$ |
1,795,830 |
|
Earnings from discontinued operations, net of tax |
|
|
|
|
|
|
(2,500,219 |
) |
Adjustments to reconcile net (loss) earnings to net
cash used in operating activities: |
|
|
|
|
|
|
|
|
Loss on sale of real estate |
|
|
|
|
|
|
89,179 |
|
Loss on disposal of assets |
|
|
11,654 |
|
|
|
14,330 |
|
Depreciation and amortization |
|
|
1,208,196 |
|
|
|
1,122,288 |
|
Amortization of mortgage discount |
|
|
(20,000 |
) |
|
|
(22,500 |
) |
Deferred tax benefit |
|
|
(1,560,132 |
) |
|
|
(505,719 |
) |
Stock compensation expense |
|
|
151,927 |
|
|
|
97,210 |
|
Adjustment to cash surrender value of life insurance |
|
|
(103,614 |
) |
|
|
(45,453 |
) |
Straight-line rent |
|
|
(57,344 |
) |
|
|
24,640 |
|
Provision for doubtful accounts, net |
|
|
(16,162 |
) |
|
|
100,812 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Receivables |
|
|
325,550 |
|
|
|
(1,301,180 |
) |
Costs and earnings in excess of billings |
|
|
(110,752 |
) |
|
|
(736,081 |
) |
Other current assets |
|
|
(263,603 |
) |
|
|
283,178 |
|
Trade and subcontractors payable |
|
|
(120,649 |
) |
|
|
205,069 |
|
Accrued expenses and deferred revenue |
|
|
(32,535 |
) |
|
|
181,324 |
|
Accrued incentive compensation |
|
|
(494,000 |
) |
|
|
(196,516 |
) |
Billings in excess of costs and earnings |
|
|
108,178 |
|
|
|
(113,110 |
) |
Other liabilities |
|
|
(14,224 |
) |
|
|
175,537 |
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(3,247,895 |
) |
|
|
(1,331,381 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchase of available-for-sale security |
|
|
|
|
|
|
(2,900,000 |
) |
Deposit of cash proceeds from sale of real estate held in escrow |
|
|
|
|
|
|
(3,436,200 |
) |
Release of restricted cash held in escrow |
|
|
3,470,700 |
|
|
|
|
|
Deposit of restricted cash |
|
|
(139,833 |
) |
|
|
|
|
Purchase of held to maturity investment |
|
|
(150,000 |
) |
|
|
|
|
Additions to income-producing properties |
|
|
(170,238 |
) |
|
|
(644,898 |
) |
Additions to property and equipment |
|
|
(147,631 |
) |
|
|
(164,426 |
) |
Additions to intangible assets |
|
|
(263,005 |
) |
|
|
(212,513 |
) |
Acquisition, net of cash acquired |
|
|
(902,657 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
1,697,336 |
|
|
|
(7,358,037 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Real estate loan proceeds |
|
|
|
|
|
|
3,200,000 |
|
Mortgage repayments |
|
|
(258,978 |
) |
|
|
(2,500,000 |
) |
Debt repayments |
|
|
(280,875 |
) |
|
|
(479,714 |
) |
Repurchase of common stock |
|
|
(135,507 |
) |
|
|
|
|
Deferred loan costs paid |
|
|
|
|
|
|
(57,346 |
) |
Exercise of stock options |
|
|
|
|
|
|
51,000 |
|
Cash dividends paid to shareholders |
|
|
(426,467 |
) |
|
|
(381,746 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(1,101,827 |
) |
|
|
(167,806 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED OPERATIONS: |
|
|
|
|
|
|
|
|
Operating activities |
|
|
|
|
|
|
319,230 |
|
Investing activities |
|
|
|
|
|
|
14,616,120 |
|
Financing activities |
|
|
|
|
|
|
(6,187,504 |
) |
|
|
|
|
|
|
|
Net cash provided by discontinued operations |
|
|
|
|
|
|
8,747,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(2,652,386 |
) |
|
|
(109,378 |
) |
Cash at beginning of period |
|
|
8,382,947 |
|
|
|
5,662,894 |
|
|
|
|
|
|
|
|
Cash at end of period |
|
$ |
5,730,561 |
|
|
$ |
5,553,516 |
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
3
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 |
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
4
SERVIDYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2009, 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 owners
and operators of buildings. The Companys Real Estate Segment engages in commercial real estate
investment and development.
NOTE 2. UNAUDITED STATEMENTS
The accompanying unaudited condensed 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.
Restatement
of Previously Issued Condensed Consolidated Financial Statements
Subsequent
to the issuance of the October 31, 2008, condensed consolidated
financial statements, the Company determined that interest income and
certain components of other income were not presented in accordance with SEC
Regulation S-X, Article 5, Rule 5-03, Income
Statement. In periods prior to the quarter ended January 31, 2009, the Company included interest income and
certain components of other income in the determination of total revenues. Beginning in the quarter ended January 31,
2009, the Company revised its presentation of interest income and
certain components of other income to other (income)
and expenses in the condensed consolidated statement of operations. Prior period amounts have
been restated to conform to this new presentation. The Company does
not believe that these
restatements are material to the Companys condensed consolidated financial statements for the
quarter ended January 31, 2009, or for the consolidated financial statements for any prior
quarterly or annual periods.
Reclassification
of Previously Issued Condensed Consolidated Financial Statements
In periods prior to the quarter ended January 31, 2009, the Company included interest expense
together with cost of revenues and selling, general and administrative expenses in the
determination of total operating expenses. Beginning in the quarter ended January 31, 2009, the
Company reclassified interest expense to other (income) and expenses in the condensed
consolidated statement of operations. Prior period amounts have been reclassified to conform to this
new presentation.
NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS
In December 2007, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 141
5
(revised 2007), Business Combinations (SFAS 141(R)), which replaces SFAS No. 141, Business
Combinations. SFAS 141(R) retains the underlying concepts of SFAS 141 in that all business
combinations are still required to be accounted for at fair value under the acquisition method of
accounting, but SFAS 141(R) changed the method of applying the acquisition method in a number of
significant aspects. Acquisition costs will generally be expensed as incurred; non-controlling
interests will be valued at fair value at the acquisition date; in-process research and development
will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date;
restructuring costs associated with a business combination will generally be expensed subsequent to
the acquisition date; and changes in deferred tax asset valuation allowances and income tax
uncertainties after the acquisition date generally will affect income tax expense. SFAS 141(R) will
be effective on a prospective basis for all business combinations for which the acquisition date is
on or after the beginning of the first annual period subsequent to December 15, 2008, with the
exception of the accounting for valuation allowances on deferred taxes and acquired tax
contingencies. SFAS 141(R) amends SFAS 109 such that adjustments made to valuation allowances on
deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the
effective date of SFAS 141(R) would also apply the provisions of SFAS 141(R). Early adoption is not
permitted. The Company 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 generally
accepted accounting principles (GAAP), and expands disclosures about fair value measurements.
SFAS 157 applies where other accounting pronouncements require or permit fair value measurements;
it does not require any new fair value measurements under GAAP. The effects of adoption are
determined by the types of instruments carried at fair value in the Companys financial statements
at the time of adoption, as well as the method utilized to determine their fair values prior to
adoption. SFAS 157 was effective for financial assets and liabilities on May 1, 2008. SFAS 157
will be effective for non-financial assets and liabilities, including assets measured at fair value
due to impairments, on May 1, 2009. The Company has determined
that this statement did not have a
significant impact on the determination or reporting of the Companys financial results for the
fiscal year ended April 30, 2009, and will not have a
significant impact for the fiscal year ended April 30,
2010.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilitiesincluding an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 was
effective for the Company on May 1, 2008. This statement permits entities to choose to measure many
financial instruments and certain other items at fair value. This statement also establishes
presentation and disclosure requirements designed to facilitate comparisons between entities that
choose different measurement attributes for similar types of assets and liabilities. Unrealized
gains and losses on items for which the fair value option is elected will be reported in earnings.
The Company elected not to apply the fair value option to its existing financial assets and
liabilities on SFAS 159s effective date. Thus, this statement did not have an impact on the
determination or reporting of the Companys financial results.
In April 2008, the FASB issued FASB Staff Position No. 142-3, Determining the Useful Life of
Intangible Assets (FSP 142-3). FSP 142-3 was designed to improve the consistency between the
useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS 142), and the period of expected cash flows used to measure the fair value of the
asset under SFAS No. 141 (revised 2007), Business Combinations, and other guidance under GAAP.
FSP 142-3 will be effective for the
6
Company on May 1, 2009. Early adoption is prohibited. The Company is
currently evaluating the effects, if any, that FSP 142-3 may have on the Companys financial
statements.
NOTE 4. EQUITY-BASED COMPENSATION
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, stock appreciation rights, and restricted stock.
For the third quarter and the nine months ended January 31, 2009, total equity-based compensation
expenses were $53,992 and $151,927, respectively, and the related income tax benefits were $20,517 and
$57,925, respectively. Comparatively, for the third quarter and the nine months ended January 31,
2008, total equity-based compensation expenses were $35,749 and $97,210, respectively, and the
related income tax benefits were $13,585 and $36,940, respectively. All of these expenses are
included in selling, general and administrative expenses in the condensed consolidated statements
of operations.
Stock Options
A summary of stock options activity for the nine months ended January 31, 2009, 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 |
|
|
(11,550 |
) |
|
|
4.59 |
|
|
|
|
|
|
|
|
|
Outstanding at January 31, 2009 |
|
|
482,486 |
|
|
$ |
4.46 |
|
|
|
|
|
|
|
|
|
Vested at January 31, 2009 |
|
|
471,986 |
|
|
$ |
4.44 |
|
|
|
|
|
|
|
|
As of January 31, 2009, 471,986, or 98%, of the outstanding stock options were exercisable, but
none of the outstanding stock options were in the money.
A summary of information about all stock options outstanding as of January 31, 2009, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
Exercise |
|
Number of |
|
Remaining Contractual |
Price |
|
Outstanding Options |
|
Life (Years) |
$4.42 |
|
|
415,629 |
|
|
|
3.77 |
|
$4.59 |
|
|
55,440 |
|
|
|
6.15 |
|
$5.19 |
|
|
917 |
|
|
|
5.38 |
|
$5.24 |
|
|
10,500 |
|
|
|
4.37 |
|
The Company estimates the fair value of each stock option award on the date of grant using the
Black-
7
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 closing stock price. The fair value of the stock options
granted in the nine months ended January 31, 2009, was estimated on the respective grant dates
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 |
|
Compensation expenses related to the vesting of options for the third quarter and the nine months
ended January 31, 2009, were $8,039 and $15,195, respectively, and the related income tax benefits
were $3,055 and $5,968, respectively, related to the vesting of options. Comparatively, there were
no compensation expenses or related tax benefits related to the vesting of options in the third
quarter or the nine months ended January 31, 2008.
Stock Appreciation Rights (SARs)
A summary of SARs activity for the nine months ended January 31, 2009, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
SAR |
|
|
Exercise |
|
|
|
Units |
|
|
Price |
|
Outstanding at April 30, 2008 |
|
|
411,600 |
|
|
$ |
4.26 |
|
Granted |
|
|
184,000 |
|
|
|
4.57 |
|
Exercised |
|
|
|
|
|
|
|
|
Forfeited |
|
|
(5,250 |
) |
|
|
3.88 |
|
|
|
|
|
|
|
|
|
Outstanding at January 31, 2009 |
|
|
590,350 |
|
|
$ |
4.36 |
|
|
|
|
|
|
|
|
|
Vested at January 31, 2009 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
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 on the U.S. Treasury Bill having the same maturity 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 awards. The expected volatility of the SARs 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 of the SARs granted in the nine months ended January
31, 2009, was estimated on the respective grant dates using the following weighted average
assumptions in the Black-Scholes option-pricing model:
|
|
|
|
|
Expected life (years) |
|
|
5 |
|
Dividend yield |
|
|
2.59 |
% |
Expected stock price volatility |
|
|
37.25 |
% |
Risk-free interest rate |
|
|
3.45 |
% |
Fair value of SARs granted |
|
$ |
0.91 |
|
8
Compensation expenses related to the vesting of SARs for the third quarter and the nine months
ended January 31, 2009, were $40,537 and $123,778, respectively, and related income tax benefits
were $15,405 and $47,035, respectively, related to the vesting of SARs. Comparatively,
compensation expenses related to vesting of SARs for the third quarter and the nine months ended
January 31, 2008, were $32,397 and $89,053, respectively, and related income tax benefits were
$12,311 and $33,840, 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 January 31, 2009, there were
unrecognized compensation expenses totaling $13,328 related to grants of shares of restricted
stock, which the Company expects to be recognized over the ensuing year. For the quarters ended
January 31, 2009, and January 31, 2008, compensation expenses related to the vesting of shares of
restricted stock were $5,416 and $3,352, respectively, and the related income tax benefits were
$2,058 and $1,274, respectively.
In the nine months ended January 31, 2009, and January 31, 2008, compensation expenses related to
the vesting of shares of restricted stock were $12,954 and $8,157, respectively, and the related
income tax benefits were $4,922 and $3,100, respectively.
The following table summarizes restricted stock activity for the nine months ended January 31,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Number of |
|
|
Fair Value |
|
|
|
Shares of |
|
|
per Share |
|
|
|
Restricted Stock |
|
|
on Grant Date |
|
Non-vested restricted stock at April 30, 2008 |
|
|
1,785 |
|
|
$ |
4.27 |
|
Granted |
|
|
5,800 |
|
|
|
4.72 |
|
Vested |
|
|
(1,785 |
) |
|
|
|
|
Forfeited |
|
|
(205 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested restricted stock at January 31, 2009 |
|
|
5,595 |
|
|
$ |
4.61 |
|
|
|
|
|
|
|
|
NOTE 5. RECEIVABLES
All net contract and trade receivables are expected to be collected within one (1) year.
NOTE 6. DISCONTINUED OPERATIONS
9
Sales of Income-Producing Properties
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. Effective as of fiscal
2003, the Company adopted SFAS 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144), which requires, among other things, that the operating results of certain
income-producing assets be included in discontinued operations in the statements of operations for
all periods presented. The Company classifies an asset as held for sale when the asset is under a
binding sales contract with minimal contingencies, and the buyer is materially at risk if the buyer
fails to complete the transaction. However, each potential transaction is evaluated based on its
separate facts and circumstances. Pursuant to this standard, as of January 31, 2009, 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 $2.1 million. On July 31, 2007, the Company
sold its leasehold interest in the land and its owned shopping center building located in Columbus,
Georgia, and its owned shopping center located in Orange Park, Florida, and recognized a 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
third quarter and the nine months ended January 31, 2009, and January 31, 2008, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended |
|
Nine Months Ended |
|
|
January 31, |
|
January 31, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
|
|
|
REAL ESTATE SEGMENT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenues |
|
$ |
|
|
|
$ |
195,980 |
|
|
$ |
|
|
|
$ |
1,172,304 |
|
Rental property operating expenses, including depreciation |
|
|
|
|
|
|
200,800 |
|
|
|
|
|
|
|
1,142,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) earnings from discontinued operations |
|
|
|
|
|
|
(4,820 |
) |
|
|
|
|
|
|
29,524 |
|
Income tax benefit (expense) |
|
|
|
|
|
|
1,832 |
|
|
|
|
|
|
|
(11,219 |
) |
|
|
|
|
|
Operating (loss) earnings from discontinued operations, net of tax |
|
|
|
|
|
|
(2,988 |
) |
|
|
|
|
|
|
18,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of income-producing properties |
|
|
|
|
|
|
2,084,785 |
|
|
|
|
|
|
|
4,003,086 |
|
Income tax expense |
|
|
|
|
|
|
(792,218 |
) |
|
|
|
|
|
|
(1,521,172 |
) |
|
|
|
|
|
Gain on sale of income-producing properties, net of tax |
|
|
|
|
|
|
1,292,567 |
|
|
|
|
|
|
|
2,481,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations, net of tax |
|
$ |
|
|
|
$ |
1,289,579 |
|
|
$ |
|
|
|
$ |
2,500,219 |
|
|
|
|
|
|
10
NOTE 7. OPERATING SEGMENTS
The table below shows selected
financial data on a segment basis before intersegment eliminations.
For financial data on a segment basis after intersegment eliminations, refer to Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations.
In this presentation, management fee expenses charged by
the Parent Company are not included in the Segments results.
The
Company has modified the table of operating segments financial data
to better represent how the chief operating decision maker
(CODM) reviews
the performance of each operating segment. Previously, the CODM included
discontinued operations from sales of income-producing properties and
income taxes in the review. As the real estate market deteriorated throughout this fiscal year, it became evident that it
would not be advantageous for the Company to sell any
income-producing properties in the near term, and therefore the
Company does not anticipate having any discontinued operations for
some period of time. As a result, the CODM has changed focus to
results from continuing operations. To better reflect this, (Loss)
earnings from continuing operations before income taxes has replaced
Net (loss) earnings by segment for all periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months |
|
|
|
|
|
|
|
|
|
|
Ended January 31, 2009 |
|
BPE |
|
Real Estate |
|
Parent (1) |
|
Eliminations |
|
Consolidated |
|
|
|
Revenues from unaffiliated customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BPE Segment services and products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy savings projects |
|
$ |
1,373,724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,373,724 |
|
Lighting products |
|
|
461,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
461,245 |
|
Energy management services |
|
|
520,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
520,761 |
|
Productivity software |
|
|
983,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
983,191 |
|
|
|
|
Total revenues from unaffiliated customers |
|
$ |
3,338,921 |
|
|
$ |
818,893 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,157,814 |
|
Intersegment revenue |
|
|
|
|
|
|
126,356 |
|
|
|
|
|
|
|
(126,356 |
) |
|
|
|
|
|
|
|
Total revenues from continuing
operations |
|
$ |
3,338,921 |
|
|
$ |
945,249 |
|
|
$ |
|
|
|
$ |
(126,356 |
) |
|
$ |
4,157,814 |
|
|
|
|
(Loss) earnings from continuing
operations before income taxes |
|
$ |
(481,401 |
) |
|
$ |
130,781 |
|
|
$ |
(615,926 |
) |
|
$ |
(2,022 |
) |
|
$ |
(968,568 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months |
|
|
|
|
|
|
|
|
|
|
Ended January 31, 2009 |
|
BPE |
|
Real Estate |
|
Parent (1) |
|
Eliminations |
|
Consolidated |
|
|
|
Revenues from unaffiliated customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BPE Segment services and products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy savings projects |
|
$ |
3,545,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,545,614 |
|
Lighting products |
|
|
1,378,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,378,075 |
|
Energy management services |
|
|
1,762,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,762,224 |
|
Productivity software |
|
|
2,807,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,807,191 |
|
|
|
|
Total revenues from unaffiliated customers |
|
$ |
9,493,104 |
|
|
$ |
2,407,713 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
11,900,817 |
|
Intersegment revenue |
|
|
|
|
|
|
409,388 |
|
|
|
|
|
|
|
(409,388 |
) |
|
|
|
|
|
|
|
Total revenues from continuing
operations |
|
$ |
9,493,104 |
|
|
$ |
2,817,101 |
|
|
$ |
|
|
|
$ |
(409,388 |
) |
|
$ |
11,900,817 |
|
|
|
|
(Loss) earnings from continuing
operations before income taxes |
|
$ |
(1,861,363 |
) |
|
$ |
541,501 |
|
|
$ |
(2,472,217 |
) |
|
$ |
(12,538 |
) |
|
$ |
(3,804,617 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Third Quarter |
|
|
|
|
|
|
|
|
|
|
Ended January 31, 2008 |
|
BPE |
|
Real Estate |
|
Parent (1) |
|
Eliminations |
|
Consolidated |
|
|
|
Revenues from unaffiliated customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BPE Segment services and products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy savings projects |
|
$ |
1,840,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,840,590 |
|
Lighting products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy management services |
|
|
494,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
494,350 |
|
Productivity software |
|
|
885,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
885,504 |
|
|
|
|
Total revenues from unaffiliated customers |
|
$ |
3,220,444 |
|
|
$ |
895,264 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,115,708 |
|
Intersegment revenue |
|
|
|
|
|
|
149,268 |
|
|
|
|
|
|
|
(149,268 |
) |
|
|
|
|
|
|
|
Total revenues from continuing
operations |
|
$ |
3,220,444 |
|
|
$ |
1,044,532 |
|
|
$ |
|
|
|
$ |
(149,268 |
) |
|
$ |
4,115,708 |
|
|
|
|
(Loss) earnings from continuing
operations before income taxes |
|
$ |
(465,021 |
) |
|
$ |
319,259 |
|
|
$ |
(601,944 |
) |
|
$ |
(6,026 |
) |
|
$ |
(1,130,782 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months |
|
|
|
|
|
|
|
|
|
|
Ended January 31, 2008 |
|
BPE |
|
Real Estate |
|
Parent (1) |
|
Eliminations |
|
Consolidated |
|
|
|
Revenues from unaffiliated customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BPE Segment services and products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy savings projects |
|
$ |
7,750,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,750,989 |
|
Lighting products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy management services |
|
|
1,725,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,725,249 |
|
Productivity software |
|
|
2,497,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,497,721 |
|
|
|
|
Total revenues from unaffiliated customers |
|
$ |
11,973,959 |
|
|
$ |
4,335,446 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
16,309,405 |
|
Intersegment revenue |
|
|
|
|
|
|
444,373 |
|
|
|
|
|
|
|
(444,373 |
) |
|
|
|
|
|
|
|
Total revenues from continuing
operations |
|
$ |
11,973,959 |
|
|
$ |
4,779,819 |
|
|
$ |
|
|
|
$ |
(444,373 |
) |
|
$ |
16,309,405 |
|
|
|
|
(Loss) earnings from continuing
operations before income taxes |
|
$ |
(774,725 |
) |
|
$ |
2,452,314 |
|
|
$ |
(2,858,546 |
) |
|
$ |
(29,151 |
) |
|
$ |
(1,210,108 |
) |
|
|
|
11
|
|
|
(1) |
|
The Parent Companys net 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 down to the segments by the Parent. The
allocation method is dependent on the nature of each expense item. Allocated expenses
include, among other items, accounting services, information technology services,
insurance costs, and audit and tax preparation fees. |
NOTE 8. 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, restricted
stock and stock appreciation rights. The dilutive effect on the number of common shares for the
first nine months of fiscal 2009 and fiscal 2008 was 474 shares and 232,591 shares, respectively.
Because the Company had a loss from continuing operations for the third quarter and the nine months
ended January 31, 2009, as well as for the third quarter and the nine months ended January 31,
2008, all stock equivalents were anti-dilutive during these periods, and therefore, are excluded
when determining the diluted weighted average number of shares outstanding.
On June 5, 2008, the Company declared a stock dividend of five percent (5%) for all shareholders of
record on June 18, 2008; accordingly, on July 1, 2008, the Company distributed 177,708 newly issued
shares of stock to those shareholders. Earnings (loss) per share has been adjusted retroactively
to include the shares issued and outstanding pursuant to the stock dividend as outstanding for all
periods presented.
12
NOTE 9. GOODWILL AND OTHER INTANGIBLE ASSETS
The gross carrying amounts and accumulated amortization for all of the Companys intangible assets as
of January 31, 2009, and April 30, 2008, are as follows:
|
|
|
|
|
|
|
|
|
|
|
January 31, 2009 |
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
|
Amount |
|
|
Amortization |
|
Intangible assets, subject to amortization: |
|
|
|
|
|
|
|
|
|
Proprietary BPE software solutions |
|
$ |
3,609,411 |
|
|
$ |
2,202,764 |
|
Acquired computer software |
|
|
466,589 |
|
|
|
464,892 |
|
Real estate lease costs |
|
|
860,865 |
|
|
|
283,809 |
|
Customer relationships |
|
|
404,632 |
|
|
|
242,884 |
|
Deferred loan costs |
|
|
331,488 |
|
|
|
121,330 |
|
Non-compete agreements |
|
|
63,323 |
|
|
|
21,108 |
|
Tradename |
|
|
61,299 |
|
|
|
2,724 |
|
Other |
|
|
28,659 |
|
|
|
22,210 |
|
|
|
|
|
|
|
|
|
|
$ |
5,826,266 |
|
|
$ |
3,361,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets and goodwill, not subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademark |
|
$ |
708,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
6,354,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2008 |
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
|
Amount |
|
|
Amortization |
|
Intangible assets, subject to amortization: |
|
|
|
|
|
|
|
|
|
Proprietary BPE software solutions |
|
$ |
3,403,208 |
|
|
$ |
1,788,415 |
|
Acquired computer software |
|
|
462,555 |
|
|
|
453,038 |
|
Real estate lease costs |
|
|
823,091 |
|
|
|
208,966 |
|
Customer relationships |
|
|
218,000 |
|
|
|
188,933 |
|
Deferred loan costs |
|
|
331,488 |
|
|
|
94,170 |
|
Other |
|
|
28,660 |
|
|
|
20,062 |
|
|
|
|
|
|
|
|
|
|
$ |
5,267,002 |
|
|
$ |
2,753,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets and goodwill, not subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademark |
|
$ |
708,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
5,458,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate amortization expense for all amortizable intangible assets: |
For the nine months ended January 31, 2009 |
|
$ |
616,486 |
|
For the nine months ended January 31, 2008 |
|
$ |
560,838 |
|
For the quarter ended January 31, 2009 |
|
$ |
209,758 |
|
For the quarter ended January 31, 2008 |
|
$ |
186,364 |
|
13
Estimated amortization expense for all amortizable intangible assets recorded as of January 31,
2009, for the remainder of fiscal year 2009 and each of the next five (5) fiscal years and
thereafter is as follows:
|
|
|
|
|
Remainder of fiscal year 2009 |
|
$ |
199,989 |
|
2010 |
|
|
675,791 |
|
2011 |
|
|
536,636 |
|
2012 |
|
|
383,421 |
|
2013 |
|
|
261,315 |
|
2014 |
|
|
174,594 |
|
Thereafter |
|
|
232,799 |
|
|
|
|
|
|
|
$ |
2,464,545 |
|
|
|
|
|
The Company recently completed its annual testing of goodwill and indefinite-lived intangible
assets for impairment in the most recent quarter ended January 31, 2009, as required in accordance
with SFAS 142. The result of the valuation was that no impairment existed as of January 31, 2009.
All of the Companys goodwill and indefinite-lived intangible
assets are assigned to the BPE Segment, which has also been
determined to be the reporting unit.
The valuation methodologies used to calculate the fair value of BPE were the discounted cash flow
method of the income approach and the guideline company method of the
market approach.
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 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
prices and earnings, which is expressed as a fraction known as a multiple. The premise of this
method is that if the guideline public companies are sufficiently similar to each other, then their
multiples should be similar. The multiples for the guideline companies are analyzed, adjusted for
differences as compared to the subject company, and then applied to the applicable business
characteristics of the subject company to arrive at an indication of the fair value. The Company
believes that the inclusion of a market approach analysis in the fair value calculation is
beneficial as it provides an indication of value based on external, market-based measures.
In the application of the income approach, financial projections were developed for use in the
discounted cash flow calculations. Significant assumptions included revenue growth rates, margin
rates, SG&A costs, and working capital and capital expenditure requirements over a period of ten (10)
years. Revenue growth rate and margin rate assumptions were developed using historical Company
data, current backlog, specific customer commitments, status of outstanding customer proposals, and
future economic and market conditions expected. Consideration was then given to the 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.
14
In the income approach model, three 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 17% for the lower growth scenario to 19% for the higher growth scenario. For
the assessment of fair value of the BPE Segment based on the income approach, the results of the three
scenarios were weighted (60% for the expected case and 20% each for the other scenarios) to produce
the applicable fair value indication using the income approach.
The weightings reflect the Companys view of the relative likelihood of each scenario.
In the application of the market approach, the Company considered valuation multiples derived from
four 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.
The comparable companies selected for the market approach were similar
to the BPE Segment in terms of business description and markets
served; therefore, the
results of the income approach and market approach were equally weighted and compared to
the carrying value of the BPE Segment. This test of fair value indicated that no impairment existed at January
31, 2009.
NOTE 10. DISPOSITIONS
Fiscal 2009
There were no dispositions in the first nine months 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 an involuntary conversion under
Section 1033 of the Internal Revenue Code, which allows for tax deferral of the gain if the Company
acquires a qualified replacement property by no later than April 30, 2011. The Company currently
intends to use the net proceeds from this transaction to acquire a qualified replacement property.
There can be no assurance, however, that the Company will be able to successfully complete such
acquisition.
On December 13, 2007, the Company sold its owned office park located in Marietta, Georgia, for a
price of $10.3 million, resulting in a pre-tax gain on the sale of approximately $2.085 million.
After selling expenses and repayment of the mortgage loan and associated costs, the sale generated
cash proceeds of approximately $3.4 million. The Company intended to use the net proceeds from
this sale to acquire an income-producing property, which would have qualified the sale under
Internal Revenue Code Section 1031 for federal income tax deferral (1031 deferral), and therefore
placed the proceeds with a qualified third party intermediary in connection therewith. However,
the Company did not complete such acquisition, and therefore the proceeds were released from the
intermediary to the Company on June 11, 2008. Because the Company did not complete the 1031
deferral, a taxable gain was recognized in the quarter ended July 31, 2008, which resulted in the deferred tax liability related to the previously
deferred gain becoming a current tax liability.
15
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. Both notes were paid off as of July 31, 2008. In accordance with SFAS 144, the sale of
the leasehold interest in the shopping center in Jacksonville, Florida, is recorded in Real Estate revenues on the accompanying condensed 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 condensed consolidated statement of operations for the nine months
ended January 31, 2008.
NOTE 11. 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 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 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
approximately $584,000. The amounts and types of the consideration were determined through
negotiations among the parties.
Pursuant to the Agreement, AL&S LLC acquired substantially all of the assets of the Seller,
including cash, accounts receivable, inventory, personal property and equipment, proprietary
information, intellectual property, and the Sellers right, title, and interest to assigned
contracts. Only certain specified operating liabilities of the Seller were assumed, including
executory obligations under assigned contracts and certain current balance sheet operating
liabilities.
During the quarter ended January 31, 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.
16
|
|
|
|
|
|
|
|
|
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 the third quarter and nine months ended January 31, 2009, with comparative
prior year figures, if the acquisition had occurred prior to the beginning of the period. These
results do not purport to represent what the results of operations for the Company actually would
have been or to be indicative of the future results of operations of the Company (in thousands,
except for per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Nine Months Ended |
|
|
January 31, |
|
January 31, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
|
|
|
Revenues |
|
$ |
4,158 |
|
|
$ |
4,927 |
|
|
$ |
12,098 |
|
|
$ |
18,860 |
|
Net (loss) earnings |
|
$ |
(491 |
) |
|
$ |
482 |
|
|
$ |
(2,246 |
) |
|
$ |
1,728 |
|
Net (loss) earnings per share basic |
|
$ |
(0.13 |
) |
|
$ |
0.13 |
|
|
$ |
(0.60 |
) |
|
$ |
0.47 |
|
Net (loss) earnings per share diluted |
|
$ |
(0.13 |
) |
|
$ |
0.13 |
|
|
$ |
(0.60 |
) |
|
$ |
0.47 |
|
NOTE 12. OTHER INCOME
Other income for the third quarter and the nine months ended January 31, 2009, includes $285,000
related to a January 30, 2009, settlement of an insurance claim.
NOTE 13. 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
17
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.
NOTE 14. SUBSEQUENT EVENT
On February 27, 2009, the Company entered into a lease modification and assignment agreement with
the anchor tenant of the Companys office building located in Newnan, Georgia. The agreement
modified the lease termination date from March 2014 to February 2011 and reduced the rent,
resulting in a $179,000 decrease in the Real Estate backlog reported for January 31, 2009. The
agreement also assigned the lease to the company that acquired the tenant.
As part of the consideration under the agreement, the tenant paid the Company approximately
$163,000 in cash. As further consideration, the Company received promissory notes totaling
$100,000 in exchange for release of the personal guarantees of certain principals of the tenant. In
addition, future payments contingent upon the tenants income were pledged to the Company. The
Company also has the right to recover a portion of the tenants leased space to lease to other
tenants and has the option to terminate the lease early.
The promissory notes and contingent payments were pledged as collateral to the propertys mortgage
lender, and $117,000 of the cash payment was deposited into a restricted cash account with the
mortgage lender. The Company measured the carrying amount of this property against the future net
undiscounted cash flows expected to be generated by this property and determined that no impairment
exists.
18
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the condensed 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
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
following discussion has been updated to reflect the restatements and the
reclassifications discussed in Note 2 to the condensed consolidated financial statements.
The Companys fiscal year 2009 will end on April 30, 2009.
During
fiscal year 2009, the Company believes that the deterioration in the general economy has
resulted in delays in the receipt of orders particularly for the Companys Energy Savings Projects
which require capital expenditures from customers. However, the Companys offerings are designed
to reduce the costs of operating buildings with a focus on energy efficiency. Both cost reduction
opportunities and energy efficiency measures are financially and politically driven in todays
economic environment. Beginning in October 2008, order activity began to increase dramatically and
over the next four months from October 2008 to January 2009, the BPE Segment received orders in
excess of $8,700,000. This resulted in a backlog at January 31, 2009, of approximately $11.3
millionan increase of nearly 60% from the backlog at the beginning of the year at April 30, 2008.
The Company will recognize revenue from a significant portion of
these new orders well into fiscal year 2010.
Given this strong growth, the Company expects the BPE Segment to be cash flow positive within the
next twelve months with revenues continuing to grow. To support revenue growth over a longer time
horizon, in addition to multi-year programs that have already begun with large customers in the
private sector as discussed above, the Company anticipates strong growth from its government
business. This business offers many of the same offerings, Energy Savings Projects and other
energy efficiency focused offerings, by acting as a subcontractor to large energy services company
(ESCO) partners to provide services to end-user government agency facilities. Through this
business, the BPE Segment provides services to a wide-range of government facilities, from U.S.
military bases to Federal and State prisons to large public educational facilities. The future
growth in the Companys government business should be underpinned by two recent U.S. Government
actions: in December 2008, the U.S. Department of Energy (DOE) announced a program to fund $80
billion worth of energy savings performance contracts to sixteen (16) large ESCOs to improve energy
efficiency in government buildings; and in February 2009, President Obama signed the American
Recovery and Reinvestment Act of 2009, which will provide approximately an additional $20 billion
for the performance of energy efficiency projects in government buildings. The Company has
existing business relationships with half of the sixteen ESCOs awarded contracts by the DOE and a
long history of providing these exact types of services for the government. The Company should be
well positioned to perform a significant amount of these projects.
While the recent increased order activity in the BPE Segment may indicate that the Companys
customers capital expenditure constraints are relaxing, there can be no assurance that such
increased order activity can be sustained, particularly if recent macro-economic conditions were to
continue, or worsen, for an extended period of time.
19
The Companys Real Estate Segment is in the business of creating long-term value by
periodically realizing gains through the sale of existing real estate assets, and then redeploying its capital
by reinvesting the proceeds from such sales in new real estate assets
or in other segments of the Company. The Company has historically generated substantial
liquidity from the periodic sale of its real estate assets held for investment. However, the
current real estate portfolio consists of a limited number of properties, and given recent declines
in commercial real estate values in the United States, the Company may elect to not sell or be
unable to sell any of its real estate assets in the near future.
Since December 2007, the period over which the U.S. economy has been
in recession, the Real Estate Segment has seen continued interest from
prospective tenants, and has signed new leases and/or lease extensions
with third parties at its two shopping centers and at its two office
buildings. Marketing efforts continue to
be a primary focus for the Real Estate Segment. The Company is
continuing to monitor the sales and operating performance of
the Real Estate Segments tenants, and is reducing Real Estate
Segment operating costs. As of January 31, 2009, the Companys
income-producing properties were 91% leased.
The decreased order activity that the BPE Segment encountered earlier in the fiscal year, beginning
in the Companys third fiscal quarter of 2008 and continuing into the second fiscal quarter of
2009, combined with the cash utilized in the Companys June 2008 acquisition of its lighting
distribution business, resulted in significant usage of the Companys cash during those quarters;
however, cash usage has significantly moderated during the most recent fiscal quarter ended January
31, 2009. The Company believes that it has sufficient capital resources to operate its business in
the ordinary course until the BPE Segment begins to generate cash flow from operations, which is
expected to occur within the next twelve months, although there can be no guarantee that this will
be the case, particularly if recent macro-economic conditions continue, or worsen, for an extended
period of time. See Liquidity and capital resources for more information.
Results of operations of the third quarter and first nine months of fiscal 2009, compared to
the third quarter and first nine months of fiscal 2008.
In the following charts, changes in revenues, cost of revenues, selling, general and administrative
expenses, and (loss) earnings from continuing operations before income taxes from period to period
are analyzed on a segment basis, net of intersegment eliminations. For net earnings and similar
profit information on a consolidated basis, please refer to the Companys condensed consolidated
financial statements. For net earnings presented by segment before intercompany eliminations,
refer to Note 7. Operating Segments in the Notes to the Condensed 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, cost of revenues, 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.
REVENUES
From Continuing Operations
For the third quarter of fiscal 2009, consolidated revenues from continuing operations, net of
inter-segment eliminations, were $4,157,814, compared to $4,115,708 for the third quarter of fiscal
2008, an increase of approximately 1%. For the first nine months of fiscal 2009, consolidated
revenues from continuing operations were $11,900,817, compared to
$16,309,405 for the first nine
months of fiscal 2008, a decrease of approximately 27%.
20
CHART A
REVENUES FROM CONTINUING OPERATIONS SUMMARY BY SEGMENT
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended |
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|
January 31, |
|
|
Amount |
|
|
Percentage |
|
|
January 31, |
|
|
Amount |
|
|
Percentage |
|
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
Change |
|
|
|
|
|
|
BPE (1) |
|
$ |
3,339 |
|
|
$ |
3,220 |
|
|
$ |
119 |
|
|
|
4 |
|
|
$ |
9,493 |
|
|
$ |
11,974 |
|
|
|
$(2,481 |
) |
|
|
(21 |
) |
Real Estate (2) |
|
|
819 |
|
|
|
895 |
|
|
|
(76 |
) |
|
|
(8 |
) |
|
|
2,408 |
|
|
|
4,335 |
|
|
|
(1,927 |
) |
|
|
(44 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,158 |
|
|
$ |
4,115 |
|
|
$ |
43 |
|
|
|
1 |
|
|
$ |
11,901 |
|
|
$ |
16,309 |
|
|
|
$(4,408 |
) |
|
|
(27 |
) |
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended |
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|
January 31, |
|
|
Amount |
|
|
Percentage |
|
|
January 31, |
|
|
Amount |
|
|
Percentage |
|
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
Change |
|
|
|
|
|
|
Energy Savings Projects |
|
$ |
1,374 |
|
|
$ |
1,840 |
|
|
$ |
(466 |
) |
|
|
(25 |
) |
|
$ |
3,546 |
|
|
$ |
7,751 |
|
|
$ |
(4,205 |
) |
|
|
(54 |
) |
Lighting Products |
|
|
461 |
|
|
|
|
|
|
|
461 |
|
|
|
|
|
|
$ |
1,378 |
|
|
$ |
|
|
|
|
1,378 |
|
|
|
|
|
Energy Management Services |
|
|
521 |
|
|
|
494 |
|
|
|
27 |
|
|
|
5 |
|
|
|
1,762 |
|
|
|
1,725 |
|
|
|
37 |
|
|
|
2 |
|
Productivity Software |
|
|
983 |
|
|
|
886 |
|
|
|
97 |
|
|
|
11 |
|
|
|
2,807 |
|
|
|
2,498 |
|
|
|
309 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,339 |
|
|
$ |
3,220 |
|
|
$ |
119 |
|
|
|
4 |
|
|
$ |
9,493 |
|
|
$ |
11,974 |
|
|
$ |
(2,481 |
) |
|
|
(21 |
) |
|
|
|
|
|
BPE Segment revenues increased by approximately $119,000, or 4%, in the third quarter of
fiscal 2009 compared to the same period in fiscal 2008, primarily due to:
|
(a) |
|
lighting product revenues of approximately $461,000 as a result of the
Companys acquisition during the first quarter of fiscal 2009 of its new lighting
distribution business; and |
|
|
(b) |
|
an increase in productivity software products and services revenues of
approximately $97,000; |
|
(c) |
|
energy savings (lighting and mechanical) project revenues that were
approximately $466,000 lower than in the year-earlier period, primarily due to
delays in the receipt of certain orders. However, the Company received these
previously delayed orders in the third fiscal quarter. This
contributed to a BPE backlog at January 31, 2009, which was 62% higher than backlog levels at
October 31, 2008. See further discussion on the BPE Segment backlog below. |
BPE Segment revenues decreased by approximately $2,481,000 , or 21%, in the first nine months
of fiscal 2009 compared to the same period in fiscal 2008, primarily due to:
21
|
(a) |
|
energy savings (lighting and mechanical) project revenues that were
approximately $4,205,000 lower than in the year-earlier period, primarily because
of: |
|
i. |
|
delays in the receipt of certain orders, as described above; |
|
ii. |
|
the absence of revenues of approximately $1 million that were generated by a one-time special project for a large retail customer in the year-earlier period; |
|
iii. |
|
revenues of approximately $1,152,000 from several new energy savings project customers, representing the initial phases of new energy savings program initiatives for those customers; |
|
|
|
The year-over-year decline in energy savings project revenues for the first nine months
was partially offset by: |
|
(b) |
|
lighting product revenues of approximately $1,378,000, as the result of
the Companys acquisition during the first quarter of fiscal 2009 of its lighting
distribution business; and |
|
(c) |
|
an increase in productivity software products and services revenues of
approximately $309,000. |
|
|
While management believes that the decrease in BPE Segment revenues in the first nine months
is due in part to the general deterioration of the overall economy and its effect on certain
of the Companys customers, revenues in the third quarter were higher than last year, and order activity continued to strengthen significantly in the third fiscal quarter. As
a result, management believes that the Company is well positioned to continue to grow BPE
Segment revenues. |
|
(2) |
|
Real Estate Segment revenues decreased by $76,000, or 8%, in the third quarter of fiscal
2009 compared to the same period in fiscal 2008, primarily as a result of a decrease in
rental income of approximately $146,000 due to the expiration of an anchor tenant lease in
January 2008 at the Companys owned headquarters building in Atlanta, Georgia, partially
offset by rental income of approximately $25,000 from new tenant leases at the same property,
as well as increased rental income and expense reimbursements at other properties. |
|
|
|
Real Estate Segment revenues decreased by $1,927,000, or 44%, in the first nine months of
fiscal 2009 compared to the same period in fiscal 2008, primarily due to: |
|
(a) |
|
the absence of revenues of approximately $1,553,000 generated in the
first quarter of fiscal 2008 by the sale of the Companys leasehold interest in its
shopping center in Jacksonville, Florida, and the absence of $75,000 in rental
revenues in the current year due to the sale of this property; and |
22
|
(b) |
|
a decrease in rental revenues of approximately $519,000 due to the
expiration of an anchor tenant lease in January 2008 at the Companys owned
headquarters building in Atlanta, Georgia; |
|
(c) |
|
approximately $66,000 in rental revenues as the result of an early lease
termination in the first quarter of fiscal 2009; |
|
|
(d) |
|
approximately $85,000 in rental revenues from new tenant leases at the
Companys owned headquarters building; and |
|
|
(e) |
|
approximately $35,000 in expense reimbursements from tenants due to
higher real estate taxes and property repair and maintenance expenses. |
The following table indicates the backlog of contracts and rental income, by segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
January 31, |
|
|
(Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percentage |
|
|
|
|
BPE (1) |
|
$ |
11,313,000 |
|
|
$ |
6,328,000 |
|
|
|
4,985,000 |
|
|
|
79 |
|
Real Estate (2) |
|
|
2,914,000 |
|
|
|
2,994,000 |
|
|
|
(80,000 |
) |
|
|
(3 |
) |
Less: Intersegment eliminations (3) |
|
|
(543,000 |
) |
|
|
(528,000 |
) |
|
|
(15,000 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
Total Backlog |
|
$ |
13,684,000 |
|
|
$ |
8,794,000 |
|
|
$ |
4,890,000 |
|
|
|
56 |
|
|
|
|
(1) |
|
BPE backlog at January 31, 2009, increased by approximately $4,985,000 compared to
the year-earlier period, primarily due to: |
|
(a) |
|
an increase of approximately $5,683,000 in energy savings (lighting and
mechanical) projects; and |
|
|
(b) |
|
an increase of approximately $237,000 in productivity software products
and services; |
|
(c) |
|
a decrease of approximately $935,000 in energy management consulting
services, primarily as a result of the successful completion of approximately
$850,000 of multi-year consulting services projects. |
The Company estimates that a substantial majority of the BPE backlog at January 31,
2009, will be recognized prior to January 31, 2010.
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 $151,000, or 1.3%.
23
(2) |
|
Real Estate backlog at January 31, 2009, decreased by approximately $80,000
compared to the year-earlier period, primarily due to a decrease in future rental revenues at
the Companys owned office building located in Newnan, Georgia, partially offset by an
increase in the amount of leased office space at the Companys owned headquarters building in
Atlanta, Georgia. |
(3) |
|
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. |
COST OF REVENUES
From Continuing Operations
As a percentage of total segment revenues from continuing operations (see Chart A), the total
applicable costs of revenues (see Chart B) were 63% and 65% for the third quarters of fiscal 2009
and 2008, respectively, and 64% and 60% for the first nine months 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
COST OF REVENUES
FROM CONTINUING OPERATIONS SUMMARY BY SEGMENT
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Segment |
|
|
|
|
|
|
|
|
|
|
Percentage of Segment |
|
|
|
|
|
|
|
|
|
|
|
Revenues for the |
|
|
|
|
|
|
|
|
|
|
Revenues for the |
|
|
|
Third Quarter Ended |
|
|
Third Quarter Ended |
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
|
January 31, |
|
|
January 31, |
|
|
January 31, |
|
|
January 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
BPE (1) |
|
$ |
2,098 |
|
|
$ |
2,159 |
|
|
|
63 |
|
|
|
67 |
|
|
$ |
6,019 |
|
|
$ |
8,105 |
|
|
|
63 |
|
|
|
68 |
|
Real Estate (2) |
|
|
528 |
|
|
|
516 |
|
|
|
64 |
|
|
|
58 |
|
|
|
1,562 |
|
|
|
1,672 |
|
|
|
65 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,626 |
|
|
$ |
2,675 |
|
|
|
63 |
|
|
|
65 |
|
|
$ |
7,581 |
|
|
$ |
9,777 |
|
|
|
64 |
|
|
|
60 |
|
|
|
|
NOTES TO CHART B
(1) |
|
BPE Segment cost of revenues decreased by approximately $2,086,000, or 26%, in the first
nine months of fiscal 2009 compared to the same period in fiscal 2008, primarily due to the
corresponding decrease in revenues (See Chart A). |
|
|
On a percentage-of-revenues basis, BPE Segment cost of revenues decreased by 4% and 5%,
respectively, in the third quarter and first nine months of fiscal 2009 compared to the same
periods in fiscal 2008, primarily due to a change in the mix of services and products. |
24
(2) |
|
Real Estate Segment cost of revenues decreased by approximately $110,000, or 7%, for the
first nine months of fiscal 2009 compared to the same period in fiscal 2008, primarily due
to: |
|
(a) |
|
the absence of sales costs and leaseback expenses 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,
in July 2007; |
|
|
(b) |
|
a decrease in rental operating costs of approximately $89,000 primarily
due to lower tenant occupancy at the Companys owned headquarters building in
Atlanta, Georgia; |
|
(c) |
|
an increase in rental operating costs of approximately $88,000, primarily
as the result of higher real estate taxes and property maintenance and repair
expenses, a portion of which is reimbursable by the tenants, and higher legal fees; |
|
|
On a percentage-of-revenues basis, Real Estate Segment cost of revenues increased
approximately 7% and 26% in the third quarter and first nine months of fiscal 2009,
respectively. The percentage increase in the third quarter compared to the prior year period
was primarily due to higher legal fees relative to the lower revenues for the quarter, as
mentioned directly above. The percentage increase in the first nine months compared to the
prior year period was primarily due to the inclusion of 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 included in the prior
year were approximately $95,000. |
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
From Continuing Operations
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 60% and 57% for the third quarters of fiscal 2009 and 2008, respectively, and
64% and 43% for the first nine months of fiscal 2009 and 2008, 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.
25
CHART C
SELLING, GENERAL AND ADMINSTRATIVE EXPENSES
FROM CONTINUING OPERATIONS BY SEGMENT
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Segment |
|
|
|
|
|
|
|
|
|
|
Percentage of Segment |
|
|
|
|
|
|
|
|
|
|
|
Revenues for the |
|
|
|
|
|
|
|
|
|
|
Revenues for the |
|
|
|
Third Quarter Ended |
|
|
Third Quarter Ended |
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
|
January 31, |
|
|
January 31, |
|
|
January 31, |
|
|
January 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
BPE (1) |
|
$ |
1,418 |
|
|
$ |
1,268 |
|
|
|
42 |
|
|
|
39 |
|
|
$ |
4,440 |
|
|
$ |
3,928 |
|
|
|
47 |
|
|
|
33 |
|
Real Estate (2) |
|
|
168 |
|
|
|
214 |
|
|
|
21 |
|
|
|
24 |
|
|
|
502 |
|
|
|
599 |
|
|
|
21 |
|
|
|
14 |
|
Parent (3) |
|
|
885 |
|
|
|
838 |
|
|
|
21 |
|
|
|
20 |
|
|
|
2,630 |
|
|
|
2,455 |
|
|
|
22 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,471 |
|
|
$ |
2,320 |
|
|
|
59 |
|
|
|
56 |
|
|
$ |
7,572 |
|
|
$ |
6,982 |
|
|
|
64 |
|
|
|
43 |
|
|
|
|
NOTES TO CHART C
(1) |
|
BPE Segment SG&A expenses increased by approximately $150,000, or 12%, in the third quarter
of fiscal 2009 compared to the same period in fiscal 2008, primarily due to the operating
costs associated with the Companys new lighting distribution business, which was acquired
during the first quarter of fiscal 2009. |
|
|
|
BPE Segment SG&A expenses increased by approximately $512,000, or 13%, in the first nine
months of fiscal 2009 compared to the same period in fiscal 2008, primarily due to the
operating costs associated with the Companys new lighting distribution business, which was
acquired during the first quarter of fiscal 2009. |
|
|
|
On a percentage-of-revenues basis, BPE Segment SG&A expenses increased by 3% in the third
quarter of fiscal 2009 compared to the same period of fiscal 2008, primarily due to the
operating costs associated with the Companys new lighting distribution business, which was
acquired during the first quarter of fiscal 2009, partially offset by the increase in
revenues (See Chart A). |
|
|
|
On a percentage-of-revenues basis, BPE Segment SG&A expenses increased by 14% in the first
nine months of fiscal 2009 compared to the same period of fiscal 2008, primarily due to the
decrease in revenues without a corresponding decrease in expenses (See Chart A). |
|
(2) |
|
Real Estate Segment SG&A expenses decreased by approximately $46,000 and $97,000 in the
third quarter and the first nine months of fiscal 2009, respectively, compared to the same
periods in fiscal 2008, primarily due to a decrease in insurance, legal, personnel and
consulting expenses. |
|
|
|
On a percentage-of-revenues basis, Real Estate Segment SG&A expenses decreased by 3% in the
third quarter of fiscal 2009 compared to the same period in fiscal 2008, primarily due to the
lower expenses noted above. Conversely, Real Estate Segment SG&A expenses on a
percentage-of-revenues basis increased by 7% in the first nine months of fiscal 2009,
compared to the same period in fiscal 2008, primarily due to the inclusion of revenues of
$1,553,000 in the prior year period that were generated by the sale of the Companys
leasehold interest in a shopping center located in Jacksonville, Florida, in July 2007. |
26
(3) |
|
Parent SG&A expenses increased by approximately $175,000, or 7%, in the first nine months
of fiscal 2009 compared to the same period of fiscal 2008, primarily due to: |
|
(a) |
|
an increase in legal fees of approximately $199,000 that were incurred to
settle an insurance claim, as well as increased SEC compliance costs; |
|
(b) |
|
an increase in personnel-related expenses of approximately $186,000; and |
|
(c) |
|
an increase in accounting and other non-legal compliance costs of
approximately $99,000; |
|
(d) |
|
a decrease of approximately $358,000 in incentive compensation expenses,
as there were no incentive compensation expenses in the first nine months of fiscal
2009. |
|
|
On a percentage-of-revenues basis, Parent SG&A expenses increased by 7% in the first nine
months of fiscal 2009 compared to the same period of fiscal 2008, primarily due to the
decrease in revenues without a corresponding decrease in expenses (See Chart A). |
(LOSS) EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
Consolidated loss before income taxes from continuing operations was $984,861 in the third quarter
of fiscal year 2009, compared to $1,130,782 in the same period of fiscal year 2008, a reduction in
the loss of $145,921. For the nine months ended January 31, 2009, the consolidated loss before
income taxes from continuing operations was $3,820,910, compared to $1,210,108 in the same period
of fiscal year 2008, an increase in the loss of $2,610,802, primarily as a result of the absence in
fiscal year 2009 of revenue from sales of leasehold interests and a decrease in revenue from the
BPE Segment.
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended |
|
|
Increase |
|
|
Nine Months Ended |
|
|
Increase |
|
|
|
January 31, |
|
|
(Decrease) |
|
|
January 31, |
|
|
(Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
|
|
|
|
BPE (1) |
|
$ |
(183 |
) |
|
$ |
(225 |
) |
|
$ |
42 |
|
|
$ |
(989 |
) |
|
$ |
(82 |
) |
|
$ |
(907 |
) |
Real Estate (2) |
|
|
(178 |
) |
|
|
(77 |
) |
|
|
(101 |
) |
|
|
(487 |
) |
|
|
1,291 |
|
|
|
(1,778 |
) |
Parent (3) |
|
|
(608 |
) |
|
|
(829 |
) |
|
|
221 |
|
|
|
(2,329 |
) |
|
|
(2,419 |
) |
|
|
90 |
|
|
|
|
|
|
Total |
|
$ |
(969 |
) |
|
$ |
(1,131 |
) |
|
$ |
162 |
|
|
$ |
(3,805 |
) |
|
$ |
(1,210 |
) |
|
$ |
(2,595 |
) |
|
|
|
|
|
NOTES TO CHART D
(1) |
|
BPE Segment loss before income taxes decreased by approximately $42,000 in the third
quarter of fiscal 2009 compared to the same period in fiscal 2008, primarily due to an
increase in revenue of approximately $119,000 (see Chart A), a decrease in cost of revenues
of approximately $61,000 (see Chart B), and an increase in SG&A expenses of approximately
$150,000 (see Chart C). |
|
|
|
BPE Segment loss before income taxes increased by approximately $907,000 in the first nine |
27
|
|
months of fiscal 2009 compared to the same period in fiscal 2008, primarily due to: |
|
(a) |
|
a decrease in revenues of approximately $2,481,000, primarily due to
delays in the receipt of orders for certain energy savings projects. Such orders
have been received and have contributed to BPE backlog at January 31, 2009, that is
62% higher than the backlog balance at October 31, 2008; |
|
(b) |
|
a corresponding decrease in cost of revenues of approximately $2,086,000;
and |
|
(c) |
|
an increase in SG&A expenses of approximately $512,000, primarily due to
the costs associated with the Companys new lighting distribution business which was
acquired during the first quarter of the fiscal year. |
(2) |
|
Real Estate Segments loss before income taxes of approximately $487,000 for the first nine
months of fiscal year 2009 represents an earnings decline of approximately $1,778,000 as
compared to the same period of fiscal year 2008, primarily due to: |
|
(a) |
|
a decrease in revenues of approximately $1,927,000, primarily due to the
absence of revenues of approximately $1,553,000, generated in the first quarter of
fiscal year 2008 by the sale of a leasehold interest and a decrease in revenues of
approximately $519,000 due to the expiration of an anchor tenant lease; and |
|
(b) |
|
the absence of $147,000 in costs related to the revenues from the sale of
the leasehold interest above. |
(3) |
|
Parent loss before income taxes decreased by approximately $221,000 in the third quarter
ended January 31, 2009, compared to the same period of 2008, primarily due to the settlement
of an insurance claim in the amount of $285,000, partially offset by an increase in legal
fees related to settling the claim and an increase in compliance costs. |
INCOME TAX BENEFIT
The Companys effective rate for income taxes, based upon estimated annual income tax rates,
approximated 41.0% of loss from continuing operations before income taxes for the first nine
months of fiscal year 2009 and 41.8% for the comparable period of fiscal year 2008.
LIQUIDITY AND CAPITAL RESOURCES
Between April 30, 2008, and January 31, 2009, working capital decreased by approximately
$5,705,000, or 41%. Between April 30, 2008, and January 31, 2009, cash and restricted cash
decreased by $6,123,086, or 52%. This includes $1,623,000 used for the acquisition and initial
capitalization of the Companys lighting distribution business, which was acquired on June 6, 2008. The Companys
operations used substantial amount of cash during the first two quarters of fiscal 2009, but the level of cash usage moderated in the third quarter.
The following describes the changes in
the Companys cash and restricted cash from April 30, 2008, to January 31, 2009:
Operating activities used cash of approximately $3,248,000, primarily as a result of:
|
(a) |
|
current year losses from continuing operations before depreciation,
amortization and income taxes of approximately $2,597,000; |
28
|
(b) |
|
cash payments of approximately $494,000 for incentive compensation
expenses accrued in the prior fiscal year but paid in the current fiscal year as a
result of the successful achievement of certain Company earnings and performance
goals; |
|
|
(c) |
|
an increase in other current assets of approximately $264,000, due
primarily to a $285,000 receivable from the settlement of an insurance claim; and |
|
|
(d) |
|
a net decrease in trade accounts payable, accrued expenses, and other
liabilities of approximately $167,000, due to the timing and submission of payments; |
|
(e) |
|
a decrease in net accounts receivable of $309,000, primarily as a result
of the timing of billing and receipt of payments. |
Investing activities used cash of approximately $1,774,000, net of cash provided
from the release of approximately $3,471,000 of restricted cash previously
held in escrow (see Note 10 to the condensed consolidated financial
statements), primarily as a result of:
|
(a) |
|
approximately $903,000 for the acquisition of the Companys lighting distribution
business in the first quarter; |
|
(b) |
|
approximately $263,000 for additions to intangible assets, primarily
related to the development of enhancements to BPEs proprietary building
productivity software solutions; |
|
(c) |
|
approximately $170,000 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 a scheduled
increase in restricted cash as required by a provision of a real estate loan
agreement; |
|
(e) |
|
approximately $148,000 for additions to property and equipment; and |
|
(f) |
|
approximately $140,000 received from a real estate tenant and temporarily
placed in escrow, related to the lease modification and assignment agreement
discussed above. |
Financing
activities used cash of approximately $1,102,000 primarily for:
|
(a) |
|
payment of the regular quarterly cash dividends to shareholders of
approximately $426,000; |
|
(b) |
|
scheduled principal payments on real estate mortgage notes of
approximately $259,000; |
|
(c) |
|
scheduled principal payments on other long-term debt of
approximately $281,000;
and |
|
(d) |
|
repurchases of the Companys common stock of approximately $136,000. |
During the third quarter of fiscal 2009, cash used in operating activities stabilized, only
consuming approximately $13,000. The Companys primary source of cash for future operations is
expected to be
29
current cash reserves and additional cash generated from BPE Segment operations and
real estate held for investment. 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, and given the recent decline in commercial real estate values in the
United States, the Company may elect not to sell or be unable to sell any of its real estate assets
in the near future. The Company in recent years has not utilized bank lines of credit for
operating purposes and does not currently have in place any such line of credit.
While the Companys operations used substantial amounts of cash during the first two quarters of
fiscal 2009, the level of cash usage moderated in the third quarter. This moderation, together
with the substantial increase in BPE Segment orders in the third quarter, which are expected to
contribute to revenues in the coming year, cause management to believe that the Company will be
able to generate positive cash flow from the BPE Segment operations within the next twelve months.
As a result, the Company believes that currently available cash and cash generated from operations
will be sufficient to meet working capital requirements and anticipated capital expenditures for
the foreseeable future. However, this will depend substantially upon future
operating performance (which may be affected by prevailing economic conditions) and financial,
business and other factors, some of which are beyond the Companys control.
The
Company has no material commitments for capital expenditures; however, the Company does expect that
capital spending in fiscal year 2010 will approximate $500,000, with
growth in the BPE Segment capital expenditures approximating
$350,000, and the remainder of capital to be spent for replacement of
computer hardware and Company vehicles. Capital expenditures beyond
fiscal year 2010 have not been determined at this time. Other
significant uses of cash are anticipated to be scheduled mortgage
repayments of the Companys debt obligations and cash
requirements
of corporate headquarters. The Companys uses of cash are not
expected to change materially in the near future, with the exception
of discretionary Real Estate capital expenditures, which may increase
if significant tenant improvements are required for new tenant lease
build-outs. This use would be offset during the lease terms by the
additional rental income.
In the event that currently available cash and cash generated from operations were not sufficient
to meet future cash requirements, the Company would need to sell real estate assets, seek external
debt financing or refinancing of existing debt, seek to raise funds through the issuance of equity
securities, or limit growth or curtail operations to levels consistent with the constraints imposed
by available cash and cash flow, or any combination of these options. The Companys ability to
secure debt or equity financing
30
or to sell real estate assets could be limited by economic and
financial conditions at any time, but likely would be severely limited by credit market conditions
similar to those that have existed in recent fiscal quarters. Management cannot provide assurance
that any reductions in planned expenditures or in operations would be sufficient to cover
shortfalls in available cash, or that debt or equity financing or real estate asset sales would be
available on terms acceptable to management, if at all.
The Company has four mortgage notes on long-term real estate assets and two other long-term debt
obligations. The long-term debt obligations have no financial or non-financial covenants. The
Companys mortgage notes do not contain any financial covenants, with the exception of a guarantee
on one of its real estate mortgage loans that requires a Company subsidiary to maintain a net worth
of at least $4 million. The subsidiarys net worth was approximately $17 million as of January 31, 2009.
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. Forward-looking statements in this report include, without limitation: the
Companys expected achievement of positive cash flow for its BPE Segment; trends in the BPE Segments government business; and expected timing of the recognition of revenue
of current backlog. 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 length and severity of the current economic recession and disruptions
in the capital markets; the ability and timing of the BPE Segment achieving increased sales, positive cash
flows, and profits; the health of the commercial real estate market; the Companys ability to attract, retain, and motivate key personnel; and the other factors identified under the caption
Risk Factors in the Companys Annual Report on Form
10-K for the year ended April 30, 2008, as updated from time to time in the Companys Quarterly Reports on Form 10-Q.
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 condensed
consolidated financial statements and related notes. In preparing these financial statements, the
Company has made its best estimates and used its best judgments regarding certain amounts included
in the financial statements, giving due consideration to materiality. The application of these
accounting policies involves the exercise of judgment and the use of assumptions regarding future
uncertainties, and as a result, actual results could differ from those estimates. Management
believes that the Companys most critical accounting policies include:
Revenue Recognition
Revenues derived from implementation, training, support, and base service license fees from
customers accessing the Companys proprietary building productivity software on an application
service provider (ASP) basis 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 period, which is typically no longer than twelve months, beginning on the
commencement date of each
31
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 project revenues are reported on the
percentage-of-completion method, using costs incurred to date in relation to estimated total costs
of the contracts to measure the stage of completion. Original contract prices are adjusted for
change orders in the amounts that are reasonably estimated and in accordance with SOP 81-1. The
nature of the change orders usually involves a change in the scope of the project, for example, a
change in the number or type of units being installed. The prices of the change orders are based on
the specific materials, labor, and other project costs affected. In accordance with SOP 81-1,
paragraph 61, contract revenue and costs are adjusted to reflect change orders when they are
approved by both the Company and its customer for both scope and price. For a change order that is
unpriced; that is, the work to be performed is defined, but the adjustment to the contract price is
to be negotiated later, the Company evaluates the particular circumstances of that specific
instance in determining whether to adjust the contract revenue and/or costs related to the change
order. For unpriced change orders, the Company will record revenue in excess of costs related to a
change order on a contract only when the Company deems that the adjustment to the contract price is
probable based on its historical experience with that customer in accordance with SOP 81-1,
paragraph 62. The cumulative effects of changes in estimated total contract costs and revenues
(change orders) are recorded in the period in which the facts requiring such revisions become
known, and are accounted for using the percentage-of-completion method. At the time it is
determined that a contract is expected to result in a loss, the entire estimated loss is recorded.
Energy efficient lighting product revenues are recognized when the products are shipped.
The Company leases space in its income-producing properties to tenants, and recognizes minimum base
rentals as revenue on a straight-line basis over the lease term. The lease term usually begins
when the tenant takes possession of, or controls the physical use of, the leased asset. Generally,
this occurs on the lease commencement date. In determining what constitutes 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
32
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.
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 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, 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 Companys most significant long-lived assets are income-producing properties held in its Real
Estate Segment. The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Such review takes place on a quarterly basis. The types of events and circumstances that might
indicate impairment in the Real Estate Segment include, but are not limited to, those items listed
in SFAS 144, paragraph 8, as well as other real estate specific factors as follows:
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A significant decrease in the market price of a long-lived
asset; |
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A significant adverse change in the extent or manner in which a long-lived asset
is being used or in its physical condition; |
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A significant adverse change in legal factors or in the business climate that
could affect the value of a long-lived asset, including an adverse action or
assessment by a regulator; |
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An accumulation of costs significantly in excess of the amount originally
expected for the acquisition or construction of a long-lived asset; |
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A current-period operating or cash flow loss combined with a history of operating
or cash flow losses or a projection or forecast that demonstrates continuing losses
associated with the use of a long-lived asset; |
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A current expectation that, more likely than not, a long-lived asset will be sold
or otherwise disposed of significantly before the end of its previously estimated
useful life; |
33
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The Company has recently sold similar income-producing
properties at losses; |
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The Company has received a purchase offers at a prices below
carrying value; |
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Income-producing properties which have significant vacancy rates or significant
rollover exposure by one or more tenants; |
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Major tenant experiencing financial difficulties which may jeopardize the
tenants ability to meet lease obligations; |
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Depressed market conditions; |
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Presence of a new competitive property constructed in the
Companys market area; and |
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Evidence of significant corrective measures required to cure structural problems,
physical obsolescence, or deterioration of essential building components. |
In accordance with paragraph 4 of SFAS No. 144, the Company has determined that the lowest level
of identifiable cash flows for long-lived assets in its Real Estate Segment is at each of the
individual income-producing properties. Each of these income producing properties operates
independent of one another and financial information for these properties is recorded on an
individual property basis. When there are indicators of impairment, the recoverability of
long-lived assets is measured by a comparison of the carrying amount of the asset against the
future net undiscounted cash flows expected to be generated by the asset. The Company estimates
future undiscounted cash flows of the Real Estate Segment using assumptions regarding occupancy,
counter-party creditworthiness costs of leasing including tenant improvements and leasing commissions, rental rates and expenses
for 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. To date, the Company has not failed Step 1 of its impairment tests under SFAS No. 144 and
has not had to move to the Step 2 fair value test.
The BPE
Segment has long-lived assets which 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. 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. |
34
Long-lived assets in the BPE Segment are grouped together for purposes of impairment, as assets and
liabilities of the BPE Segment are not independent of one another.
On an annual basis at January 31, unless events or circumstances occur in the interim as discussed above, the Company
reviews its BPE Segments long-lived assets for impairment. Future undiscounted cash flows of the
segment as measured in its goodwill impairment analysis are used to determine whether impairment of
long-lived assets exists in this segment.
Valuation of Goodwill and Other 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.
Although management believes goodwill and other indefinite-lived
intangible assets are appropriately stated in the
condensed consolidated financial statements, future changes in
strategy or market conditions could significantly impact these
judgements and result in an impairment charge.
The Company recently completed its annual testing of goodwill and indefinite-lived intangible
assets for impairment in the most recent quarter ended January 31, 2009, as required in accordance
with SFAS 142. The result of the valuation was that no impairment existed as of January 31, 2009.
All of the Companys goodwill is assigned to the BPE Segment,
which has also been determined to be the reporting unit.
The
valuation methodologies used to calculate the fair value of the BPE
Segment 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 methodologies are commonly used valuation methodologies. SFAS 142 discusses both methodologies
as acceptable in determining the fair value of a reporting unit. In
assessing the fair value of the BPE Segment, the company believes a market participant
would likely consider both the cash flow generating ability of the
reporting unit, as well as current market multiples of companies
facing similar risks in the marketplace.
With the
income approach, the cash flows anticipated over several periods, plus a terminal value at the end
of that time horizon, are discounted to their present value using an appropriate rate of return.
Projected cash flows are discounted to present value using an estimated weighted average cost of
capital, reflecting returns to both equity and debt investors. The Company believes that
this is a relevant and beneficial method to use in determining fair value because it explicitly
considers the future cash flow generating potential of the reporting unit.
In the
guideline company method of the market approach, the value of a reporting unit is estimated by
comparing the subject to similar businesses or guideline companies whose securities are actively
traded in public markets. The comparison is generally based on data
regarding each of the companies stock
prices and earnings, which is expressed as a fraction known as a
multiple. The premise of this
method is that if the guideline public Companies are sufficiently similar to each other, then their
multiples should be similar. The multiples for the guideline companies are analyzed, adjusted for
differences as compared to the subject company, and then applied to the applicable business
characteristics of the subject company to arrive at an indication of the fair value. The Company
believes that the inclusion of a market approach analysis in the fair value calculation is
beneficial as it provides an indication of value based on external, market-based measures.
In the application of the income approach, financial projections were developed for use in the
discounted cash flow calculations. Significant assumptions included revenue growth rates, margin
rates, SG&A costs, and working capital and capital expenditure requirements over a period of ten
years. Revenue growth rate and margin rate assumptions were developed using historical Company
data, current backlog,
35
specific customer commitments, status of outstanding customer proposals, and
future economic and market conditions expected. Consideration was then given to the 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 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 17% for the lower growth scenario to 19% in the higher growth scenario. In
each of the three 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
scenarios were weighted (60% for the expected case and 20% each for the other scenarios) to produce
the applicable fair value indication using the income approach. The weightings reflect the Companys view of the relative likelihood of each scenario.
In the application of the market approach, the Company considered valuation multiples derived from
four 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; therefore, the results of the income approach and market approach were
equally weighted and compared to the carrying value of the BPE Segment.
This test of fair value indicated that no impairment existed at January 31, 2009.
The most significant change in
the valuation methodology used for valuing goodwill in the year as compared to prior years was
the addition of the market approach.
In prior years, the Company used a single method to perform
the test of goodwill, a discounted cash flow method under the income approach. In the current years test as discussed above, both the income approach and market approach were used.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be
applied to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is
recognized in income in the period that includes the enactment date.
The Company periodically reviews its deferred tax assets (DTA) to assess whether it is more
likely than not that a tax asset will not be realized. The realization of a deferred tax asset
ultimately depends on the existence of sufficient taxable income. A valuation allowance is
established against a deferred tax asset if there is not sufficient evidence that it will be
realized. The Company weighs all available evidence in order to determine whether it is
more-likely-than-not that a deferred tax asset will be realized in a future period. The Company
considers general economic conditions, market and industry conditions, as well as internal Company
specific conditions, trends, management plans, and other data in making this determination.
Evidence considered is weighted according to the degree that it can be objectively verified.
Reversals of temporary differences are weighted with more significance than projections of future
earnings of the Company.
36
Positive evidence considered includes the following: deferred tax liabilities in excess of DTA, future reversals of
temporary differences, Company historical evidence of not having DTAs expire prior to utilization, long
carryforward period remaining for NOL carryforwards, lack of cumulative taxable loss in recent years,
taxable income projections conclude that NOL carryovers will be utilized prior to expiration, and evidence
of appreciated real estate holdings planned to be sold prior to expiration of NOL carryover period.
Negative
evidence considered includes the fact that the current real estate
market conditions and lack of readily
available credit could make it difficult for the Company to trigger gains on sales of real estate.
The valuation allowance currently recorded against the DTA for state net operating loss
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 will have to generate
$3.4 million of pre-tax income to realize the federal NOL carryover and an additional
$16.3 million of pre-tax book income to realize the state NOL carryovers. This amount
of pre-tax book income would allow the reversal of the $2.05 million
DTA related to NOL carryforwards. There is a long carryforward period
remaining for the net operating loss carryforwards. The oldest
federal NOL carryovers will expire in the April 30, 2024, tax
year, and the most recent federal NOL carryovers will expire in the
April 30, 2027, tax year. The significant state carryovers will
also expire between the April 30, 2024, and April 30, 2027,
tax years. The Company has no material book/tax differences.
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. 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.
37
PART II. OTHER INFORMATION
ITEM 1A. RISK FACTORS
In addition to the risk factor set forth below and 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.
Current market and economic conditions could impact demand for the Companys services and products.
U.S. and international capital markets have experienced severe volatility, disruptions and failures
in recent months, and the U.S. National Bureau of Economic Research has determined the U.S. economy
has been in recession since December 2007. The recession could negatively affect the businesses of
the Companys customers and potential customers, and disruptions and failures in the capital
markets could adversely affect their ability to raise capital, whether for normal working capital
or for capital expenditures. Consequently, customers and potential customers who are
capital-constrained, whether due to the recession or deteriorated market conditions, may delay or
even cancel certain operating expenses and/or capital expenditures, including expenditures for the
BPE Segments services and products. The Company recently has experienced delays in certain
anticipated orders for energy savings (lighting and mechanical) projects, which management believes
was at least partly due to these factors.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
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Total Number of Shares |
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Maximum Number of |
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Purchased as Part of |
|
Shares that May Yet Be |
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Total Number of |
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Average Price |
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Publicly Announced Plans |
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Purchased under the |
Period |
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Shares Purchased |
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Paid per Share |
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or Programs |
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Plans or Programs |
As of October 31, 2008 |
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32,705 |
|
November 1-30, 2008 |
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7,835 |
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2.50 |
|
|
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7,835 |
|
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24,870 |
|
December 1-31, 2008 |
|
|
15,741 |
|
|
|
2.27 |
|
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|
15,741 |
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59,129 |
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January 1-31, 2009 |
|
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8,019 |
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1.66 |
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8,019 |
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51,110 |
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Total |
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31,595 |
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2.17 |
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31,595 |
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In March 2008, the Companys Board of Directors authorized the repurchase of up to 50,000 shares of
the Companys common stock during the twelve-month period ending on March 5, 2009. On December 3,
2008, the Board of Directors increased the authorization to repurchase the Companys common stock
to 100,000 shares during the twelve-month period ending March 5, 2009. On February 26, 2009, the
Board of Directors authorized the repurchase of up to 100,000 shares of the Companys common stock
during the twelve-month period ending March 5, 2010. All repurchases reported above were made
pursuant to this repurchase authority.
38
ITEM 6. EXHIBITS
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31.1 |
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Certification of Chief Executive Officer, pursuant to Rules 13a-14(a)/15d-14(a) |
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31.2 |
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Certification of Chief Financial Officer, pursuant to Rules 13a-14(a)/15d-14(a) |
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32.1 |
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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 |
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32.2 |
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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
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39
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.
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SERVIDYNE, INC.
(Registrant)
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Date: March 17, 2009 |
/s/ Alan R. Abrams
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Alan R. Abrams |
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Chief Executive Officer |
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Date: March 17, 2009 |
/s/ Rick A. Paternostro
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Rick A. Paternostro |
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Chief Financial Officer |
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40