SERVIDYNE, INC.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended January 31, 2008
Commission file number 0-10146
SERVIDYNE, INC.
(Exact name of registrant as specified in its charter)
|
|
|
Georgia
|
|
58-0522129 |
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer identification No.) |
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.
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 29, 2008, was 3,539,970.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SERVIDYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
(UNAUDITED) |
|
|
|
|
|
|
January 31, 2008 |
|
|
April 30, 2007 |
|
ASSETS |
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
5,553,516 |
|
|
$ |
5,662,894 |
|
Available-for-sale security (Note 3) |
|
|
2,900,000 |
|
|
|
|
|
Receivables (Note 4) |
|
|
3,528,054 |
|
|
|
2,226,874 |
|
Less: Allowance for doubtful accounts |
|
|
(115,525 |
) |
|
|
(14,713 |
) |
Costs and earnings in excess of billings |
|
|
1,001,621 |
|
|
|
265,540 |
|
Assets of discontinued operations (Notes 5 and 9) |
|
|
|
|
|
|
252,311 |
|
Deferred income taxes |
|
|
656,537 |
|
|
|
443,030 |
|
Other |
|
|
1,090,985 |
|
|
|
1,374,163 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
14,615,188 |
|
|
|
10,210,099 |
|
|
RESTRICTED CASH (Note 9) |
|
|
3,436,200 |
|
|
|
|
|
INCOME-PRODUCING PROPERTIES, net |
|
|
21,828,541 |
|
|
|
21,626,985 |
|
ASSETS OF DISCONTINUED OPERATIONS (Notes 5 and 9) |
|
|
|
|
|
|
10,903,560 |
|
PROPERTY AND EQUIPMENT, net |
|
|
853,240 |
|
|
|
832,888 |
|
OTHER ASSETS: |
|
|
|
|
|
|
|
|
Real estate held for future development or sale |
|
|
1,124,850 |
|
|
|
1,124,850 |
|
Intangible assets, net (Note 8) |
|
|
3,352,075 |
|
|
|
3,720,596 |
|
Goodwill (Note 8) |
|
|
5,458,717 |
|
|
|
5,458,717 |
|
Other |
|
|
2,811,538 |
|
|
|
3,515,726 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
53,480,349 |
|
|
$ |
57,393,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
Trade accounts payable |
|
$ |
810,926 |
|
|
$ |
605,857 |
|
Accrued expenses |
|
|
2,357,253 |
|
|
|
2,372,445 |
|
Liabilities of discontinued operations (Notes 5 and 9) |
|
|
|
|
|
|
388,620 |
|
Billings in excess of costs and earnings |
|
|
106,195 |
|
|
|
219,305 |
|
Current maturities of mortgage notes and long-term debt payable |
|
|
617,560 |
|
|
|
899,790 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
3,891,934 |
|
|
|
4,486,017 |
|
|
DEFERRED INCOME TAXES |
|
|
5,473,681 |
|
|
|
4,233,498 |
|
OTHER LIABILITIES |
|
|
1,284,615 |
|
|
|
2,074,954 |
|
LIABILITIES OF DISCONTINUED OPERATIONS (Notes 5 and 9) |
|
|
|
|
|
|
6,052,018 |
|
MORTGAGE NOTES PAYABLE, less current maturities (Note 10) |
|
|
18,695,114 |
|
|
|
17,911,723 |
|
OTHER LONG-TERM DEBT, less current maturities |
|
|
1,112,500 |
|
|
|
1,175,000 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
30,457,844 |
|
|
|
35,933,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 11) |
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY: |
|
|
|
|
|
|
|
|
Common stock, $1 par value; 5,000,000 shares authorized; |
|
|
|
|
|
|
|
|
3,708,836 issued and 3,540,470
outstanding at January 31, 2008, |
|
|
|
|
|
|
|
|
3,695,336 issued and 3,527,070 outstanding at April 30,
2007 |
|
|
3,708,836 |
|
|
|
3,695,336 |
|
Additional paid-in capital |
|
|
5,010,299 |
|
|
|
4,875,160 |
|
Retained earnings |
|
|
15,098,863 |
|
|
|
13,684,779 |
|
Treasury stock (common shares) |
|
|
|
|
|
|
|
|
168,366 at January 31, 2008, and 168,266 at April 30, 2007 |
|
|
(795,493 |
) |
|
|
(795,064 |
) |
|
|
|
|
|
|
|
Total shareholders equity |
|
|
23,022,505 |
|
|
|
21,460,211 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
53,480,349 |
|
|
$ |
57,393,421 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
1
SERVIDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THIRD QUARTER ENDED |
|
|
FIRST NINE MONTHS ENDED |
|
|
|
JANUARY 31, |
|
|
JANUARY 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building Performance Expert (BPE) |
|
$ |
3,220,444 |
|
|
$ |
3,769,967 |
|
|
$ |
11,973,959 |
|
|
$ |
9,624,034 |
|
Real Estate |
|
|
883,333 |
|
|
|
1,067,120 |
|
|
|
4,309,786 |
|
|
|
3,014,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,103,777 |
|
|
|
4,837,087 |
|
|
|
16,283,745 |
|
|
|
12,638,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
83,289 |
|
|
|
76,125 |
|
|
|
195,046 |
|
|
|
236,945 |
|
Other |
|
|
21,830 |
|
|
|
8,214 |
|
|
|
102,705 |
|
|
|
93,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,208,896 |
|
|
|
4,921,426 |
|
|
|
16,581,496 |
|
|
|
12,969,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BPE |
|
|
2,158,725 |
|
|
|
2,636,382 |
|
|
|
8,104,705 |
|
|
|
6,465,766 |
|
Real Estate, excluding interest |
|
|
515,624 |
|
|
|
658,565 |
|
|
|
1,671,702 |
|
|
|
1,911,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,674,349 |
|
|
|
3,294,947 |
|
|
|
9,776,407 |
|
|
|
8,377,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BPE |
|
|
1,268,214 |
|
|
|
1,224,249 |
|
|
|
3,928,421 |
|
|
|
3,445,270 |
|
Real Estate |
|
|
213,896 |
|
|
|
188,822 |
|
|
|
598,678 |
|
|
|
635,387 |
|
Parent |
|
|
837,703 |
|
|
|
1,113,491 |
|
|
|
2,455,223 |
|
|
|
2,913,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,319,813 |
|
|
|
2,526,562 |
|
|
|
6,982,322 |
|
|
|
6,994,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest costs incurred |
|
|
345,516 |
|
|
|
297,979 |
|
|
|
1,032,875 |
|
|
|
820,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,339,678 |
|
|
|
6,119,488 |
|
|
|
17,791,604 |
|
|
|
16,192,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAIN ON SALE
OF REAL ESTATE, net of costs of sale of $0, $0, $0, and $504,563, respectively |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,545,437 |
|
LOSS FROM
CONTINUING OPERATIONS BEFORE INCOME TAXES |
|
|
(1,130,782 |
) |
|
|
(1,198,062 |
) |
|
|
(1,210,108 |
) |
|
|
(1,677,307 |
) |
INCOME TAX BENEFIT |
|
|
(423,501 |
) |
|
|
(455,263 |
) |
|
|
(505,719 |
) |
|
|
(637,375 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM CONTINUING OPERATIONS |
|
|
(707,281 |
) |
|
|
(742,799 |
) |
|
|
(704,389 |
) |
|
|
(1,039,932 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED OPERATIONS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from discontinued operations,
adjusted for applicable income tax (benefit) expense
of $(1,832), $23,017, $11,219 and $85,648,
respectively |
|
|
(2,988 |
) |
|
|
37,553 |
|
|
|
18,305 |
|
|
|
139,741 |
|
Gain on sale of income producing real estate,
adjusted for applicable income tax expense of
$792,218, $1,169,254, $1,521,172 and $1,169,254,
respectively |
|
|
1,292,567 |
|
|
|
1,907,730 |
|
|
|
2,481,914 |
|
|
|
1,907,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS FROM DISCONTINUED OPERATIONS |
|
|
1,289,579 |
|
|
|
1,945,283 |
|
|
|
2,500,219 |
|
|
|
2,047,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS |
|
$ |
582,298 |
|
|
$ |
1,202,484 |
|
|
$ |
1,795,830 |
|
|
$ |
1,007,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS (LOSS) PER SHARE BASIC AND DILUTED |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations |
|
$ |
(0.20 |
) |
|
$ |
(0.21 |
) |
|
$ |
(0.20 |
) |
|
$ |
(0.29 |
) |
From discontinued operations |
|
|
.36 |
|
|
|
0.55 |
|
|
|
0.71 |
|
|
|
0.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS PER SHARE BASIC AND DILUTED |
|
$ |
0.16 |
|
|
$ |
0.34 |
|
|
$ |
0.51 |
|
|
$ |
0.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIVIDENDS PER SHARE |
|
$ |
0.036 |
|
|
$ |
0.036 |
|
|
$ |
0.108 |
|
|
$ |
0.108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING BASIC AND DILUTED |
|
|
3,537,377 |
|
|
|
3,530,290 |
|
|
|
3,531,988 |
|
|
|
3,527,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
2
SERVIDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Paid-In |
|
|
Stock |
|
|
Retained |
|
|
Treasury |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Compensation |
|
|
Earnings |
|
|
Stock |
|
|
Total |
|
|
BALANCES at April 30, 2005 |
|
|
3,357,601 |
|
|
$ |
3,357,601 |
|
|
$ |
3,067,982 |
|
|
$ |
(14,162 |
) |
|
$ |
15,186,932 |
|
|
$ |
(684,942 |
) |
|
$ |
20,913,411 |
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
525,766 |
|
|
|
|
|
|
|
525,766 |
|
Common stock issued |
|
|
1,800 |
|
|
|
1,800 |
|
|
|
6,660 |
|
|
|
(8,460 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,202 |
|
|
|
|
|
|
|
(1,871 |
) |
|
|
16,331 |
|
Stock option exercise |
|
|
732 |
|
|
|
732 |
|
|
|
2,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,928 |
|
Cash dividends declared $.144 per
share (adjusted for subsequent stock
dividend) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(511,688 |
) |
|
|
|
|
|
|
(511,688 |
) |
Stock dividend declared - 10% at market
value on date declared |
|
|
335,203 |
|
|
|
335,203 |
|
|
|
1,726,295 |
|
|
|
|
|
|
|
(1,973,934 |
) |
|
|
(87,564 |
) |
|
|
|
|
|
BALANCES at April 30, 2006 |
|
|
3,695,336 |
|
|
|
3,695,336 |
|
|
|
4,803,133 |
|
|
|
(4,420 |
) |
|
|
13,227,076 |
|
|
|
(774,377 |
) |
|
|
20,946,748 |
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
966,626 |
|
|
|
|
|
|
|
966,626 |
|
Common stock acquired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,747 |
) |
|
|
(19,747 |
) |
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
72,027 |
|
|
|
4,420 |
|
|
|
|
|
|
|
(940 |
) |
|
|
75,507 |
|
Cash dividends declared $.144 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(508,923 |
) |
|
|
|
|
|
|
(508,923 |
) |
|
BALANCES at April 30, 2007 |
|
|
3,695,336 |
|
|
|
3,695,336 |
|
|
|
4,875,160 |
|
|
|
|
|
|
|
13,684,779 |
|
|
|
(795,064 |
) |
|
|
21,460,211 |
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,795,830 |
|
|
|
|
|
|
|
1,795,830 |
|
Common stock issued |
|
|
2,500 |
|
|
|
2,500 |
|
|
|
(2,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
97,639 |
|
|
|
|
|
|
|
|
|
|
|
(429 |
) |
|
|
97,210 |
|
Stock option exercise |
|
|
11,000 |
|
|
|
11,000 |
|
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,000 |
|
Cash dividends declared $.108 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(381,746 |
) |
|
|
|
|
|
|
(381,746 |
) |
|
BALANCES at January 31, 2008 |
|
|
3,708,836 |
|
|
$ |
3,708,836 |
|
|
$ |
5,010,299 |
|
|
$ |
|
|
|
$ |
15,098,863 |
|
|
$ |
(795,493 |
) |
|
$ |
23,022,505 |
|
|
See accompanying notes to consolidated financial statements.
3
SERVIDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
FIRST NINE MONTHS ENDED |
|
|
|
JANUARY 31, |
|
|
|
2008 |
|
|
2007 |
|
CONTINUING OPERATIONS: |
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
1,795,830 |
|
|
$ |
1,007,539 |
|
Adjustments to reconcile net earnings to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax |
|
|
(2,500,219 |
) |
|
|
(2,047,471 |
) |
Loss (gain) on sale of real estate |
|
|
89,179 |
|
|
|
(1,545,437 |
) |
Loss on disposal of assets |
|
|
14,330 |
|
|
|
|
|
Depreciation and amortization |
|
|
1,099,788 |
|
|
|
929,972 |
|
Deferred tax benefit |
|
|
(505,719 |
) |
|
|
(637,375 |
) |
Provision for doubtful accounts, net |
|
|
100,812 |
|
|
|
45,650 |
|
Stock compensation expense |
|
|
97,210 |
|
|
|
44,786 |
|
Gain on cash surrender value |
|
|
(45,453 |
) |
|
|
(68,626 |
) |
Straight-line rent |
|
|
24,640 |
|
|
|
(42,584 |
) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Receivables |
|
|
(1,301,180 |
) |
|
|
641,026 |
|
Costs and earnings in excess of billings |
|
|
(736,081 |
) |
|
|
(1,704,899 |
) |
Note receivables |
|
|
|
|
|
|
674,034 |
|
Other current assets |
|
|
283,178 |
|
|
|
(349,409 |
) |
Other assets |
|
|
|
|
|
|
6,706 |
|
Trade accounts payable |
|
|
205,069 |
|
|
|
612,949 |
|
Accrued expenses |
|
|
(15,192 |
) |
|
|
(126,774 |
) |
Billings in excess of costs and earnings |
|
|
(113,110 |
) |
|
|
(143,598 |
) |
Other liabilities |
|
|
175,537 |
|
|
|
(34,512 |
) |
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(1,331,381 |
) |
|
|
(2,738,023 |
) |
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchase of available-for-sale security |
|
|
(2,900,000 |
) |
|
|
|
|
Release of restricted cash held in escrow |
|
|
|
|
|
|
418,594 |
|
Deposit of cash proceeds from sale of real estate held in escrow |
|
|
(3,436,200 |
) |
|
|
(3,706,357 |
) |
Proceeds from sale of real estate |
|
|
|
|
|
|
1,867,052 |
|
Additions to income-producing properties, net |
|
|
(644,898 |
) |
|
|
|
|
Additions to property and equipment, net |
|
|
(164,426 |
) |
|
|
(171,054 |
) |
Additions to intangible assets, net |
|
|
(212,513 |
) |
|
|
(658,066 |
) |
Additions to real estate held for sale or future development |
|
|
|
|
|
|
(28,546 |
) |
Acquisition, net of cash released from escrow |
|
|
|
|
|
|
(1,870,447 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(7,358,037 |
) |
|
|
(4,148,824 |
) |
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Mortgage proceeds |
|
|
3,200,000 |
|
|
|
6,700,000 |
|
Mortgage repayments |
|
|
(2,500,000 |
) |
|
|
(2,600,000 |
) |
Debt repayments |
|
|
(479,714 |
) |
|
|
(418,144 |
) |
Repurchase of common stock |
|
|
|
|
|
|
(19,747 |
) |
Deferred loan costs paid |
|
|
(57,346 |
) |
|
|
(113,696 |
) |
Exercise of stock options |
|
|
51,000 |
|
|
|
|
|
Cash dividends |
|
|
(381,746 |
) |
|
|
(381,764 |
) |
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(167,806 |
) |
|
|
3,166,649 |
|
|
|
|
|
|
|
|
|
DISCONTINUED OPERATIONS: |
|
|
|
|
|
|
|
|
Operating activities |
|
|
319,230 |
|
|
|
545,971 |
|
Investing activities |
|
|
14,616,120 |
|
|
|
2,818,373 |
|
Financing activities |
|
|
(6,187,504 |
) |
|
|
(2,256,460 |
) |
|
|
|
|
|
|
|
Net cash provided by discontinued operations |
|
|
8,747,846 |
|
|
|
1,107,884 |
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(109,378 |
) |
|
|
(2,612,314 |
) |
Cash and cash equivalents at beginning of period |
|
|
5,662,894 |
|
|
|
7,329,805 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
5,553,516 |
|
|
$ |
4,717,491 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
4
SERVIDYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2008, AND APRIL 30, 2007
(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 Company
(i) provides comprehensive energy, infrastructure and productivity management solutions and
services to building owners and operators; and (ii) 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, 2007. Results of operations for interim periods are not necessarily
indicative of annual results.
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES
Stock-based compensation
Effective May 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No.
48, Accounting for Uncertainties in Income Taxes, (FIN 48). FIN 48 prescribes a recognition
threshold and measurement attribute for recognizing tax return positions in the financial
statements as those which are more likely than not to be sustained upon examination by the taxing
authority. FIN 48 also provides guidance on derecognition, classification, interest and penalties,
accounting for income tax uncertainties in interim periods and the level of disclosures associated
with any recorded income tax uncertainties. The Company adopted FIN 48 on May 1, 2007, and the
adoption of FIN 48 did not have a material impact on the Companys financial position or results of
operations.
On May 1, 2006, the Company adopted Statement of Financial Accounting Standard (SFAS) 123(R),
Share-Based Payment (revised 2004). SFAS 123(R) requires that all equity awards to employees be
expensed by the Company over the requisite service period. The Company adopted this standard using
the modified prospective method. Under this method, the Company records compensation expense for
all awards it granted after the date it adopted the standard.
The Company has three outstanding types of equity-based incentive compensation instruments in
effect with its employees, non-employee directors, and selected outside consultants: stock options,
stock appreciation rights and restricted stock.
For the third quarter and the first nine months ended January 31, 2008, the Companys net earnings
includes $35,749 and $97,210, respectively, of total equity-based compensation expense, and $13,585
and $36,940, respectively, of related income tax benefits. All of these expenses were included in
selling,
5
general
and administrative expenses in the condensed consolidated statements of operations.
For the third quarter and first nine months ended January 31, 2007, the Companys net earnings
includes $22,150 and $44,786, respectively, of total equity-based compensation expense, and $8,417
and $17,019, respectively, of related income tax benefits. All of these expenses were included in
selling, general and administrative expenses in the condensed consolidated statements of operations.
Stock Options
A summary of stock options activity for the first nine months ended January 31, 2008, is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Options to |
|
|
Average |
|
|
|
Purchase |
|
|
Exercise |
|
|
|
Shares |
|
|
Price |
|
Outstanding at April 30, 2007 |
|
|
567,181 |
|
|
$ |
4.66 |
|
Granted |
|
|
|
|
|
|
|
|
Exercised |
|
|
(11,000 |
) |
|
|
4.64 |
|
Forfeited / Expired |
|
|
(40,670 |
) |
|
|
4.65 |
|
|
|
|
|
|
|
|
Outstanding at January 31, 2008 |
|
|
515,511 |
|
|
$ |
4.66 |
|
|
|
|
|
|
|
|
Vested at January 31, 2008 |
|
|
515,511 |
|
|
$ |
4.66 |
|
|
|
|
|
|
|
|
As of January 31, 2008, 100% of the 515,511 stock options were in the money and exercisable.
A summary of information about all stock options outstanding as of January 31, 2008, is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Weighted Average |
|
|
Outstanding and |
|
Remaining Contractual |
Exercise Price |
|
Exercisable Options |
|
Life (Years) |
$4.64 |
|
|
450,838 |
|
|
|
4.89 |
|
$4.82 |
|
|
63,800 |
|
|
|
7.15 |
|
$5.45 |
|
|
873 |
|
|
|
6.38 |
|
Stock Appreciation Rights (SARs)
A summary of SARs activity for the first nine months ended January 31, 2008, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
SARs to |
|
|
Average |
|
|
|
Purchase |
|
|
Exercise |
|
|
|
Shares |
|
|
Price |
|
Outstanding at April 30, 2007 |
|
|
430,000 |
|
|
$ |
4.06 |
|
Granted |
|
|
62,000 |
|
|
|
5.80 |
|
Exercised |
|
|
|
|
|
|
|
|
Forfeited |
|
|
(70,000 |
) |
|
|
4.06 |
|
|
|
|
|
|
|
|
Outstanding at January 31, 2008 |
|
|
422,000 |
|
|
$ |
4.32 |
|
|
|
|
|
|
|
|
Vested at January 31, 2008 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
The Company estimates the fair value of each SARs grant on the date of grant using the
Black-Scholes option-pricing model. The risk free interest rate utilized in the Black-Scholes
calculation is the interest rate on the U.S. Treasury Bill having the same maturity as the expected
life of the Companys SARs awards.
6
The expected life of the SARs granted was determined by the estimated holding period of the
SARs award. The expected volatility is based on the historical volatility of the Companys stock
over the preceding five-year period using the month-end closing stock price.
The SARs granted in the first nine months of fiscal 2008 had the following weighted average
assumptions and fair value:
|
|
|
|
|
Expected life (years) |
|
|
5 |
|
Dividend yield |
|
|
3.04 |
% |
Expected stock price volatility |
|
|
37.58 |
% |
Risk free interest rate |
|
|
4.42 |
% |
Fair value per SAR granted |
|
$ |
1.13 |
|
The Companys net earnings for the third quarter and the first nine months ended January 31,
2008, includes $32,397 and $89,053, respectively, of equity-based compensation expenses, and income
tax benefits of $12,311 and $33,840, respectively, related to the vesting of SARs. All of these
expenses were included in selling, general and administrative expenses in the condensed
consolidated statements of operations for all periods.
The Companys net earnings for the third quarter and the first nine months ended January 31, 2007,
includes $21,149 and $42,316, respectively, of equity-based compensation expenses related to the
vesting of SARs. Related income tax benefits were $8,037 and $16,080 for the third quarter and the
first nine months ended January 31, 2007, respectively. All of these expenses were included in
selling, general and administrative expenses in the condensed consolidated statements of operations
for all periods.
Shares of Restricted Stock
Periodically, the Company has awarded shares of restricted stock to employees, directors and
selected outside consultants. These awards are recorded at the fair market value on the date of
grant and typically vest over a period of one year. As of January 31, 2008, there was a total of
$2,696 of unrecognized compensation expenses related to awards of shares of restricted stock, which
expenses will be recognized as the shares vest over the ensuing year.
For the third quarter and the first nine months ended January 31, 2008, equity-based compensation
expenses related to the vesting of shares of restricted stock were $3,352 and $8,157, respectively,
and the related income tax benefits were $1,274 and $3,100, respectively.
For the third quarter and the first nine months ended January 31, 2007, equity-based compensation
expenses related to the vesting of shares of restricted stock were
$1,001 and $2,470, respectively,
and the related income tax benefits were $380 and $939, respectively.
7
The following table summarizes restricted stock activity for the first nine months ended January
31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Number of |
|
|
Grant Date |
|
|
|
Shares of |
|
|
Fair Value |
|
|
|
Restricted Stock |
|
|
per Share |
|
Non-vested restricted stock at April 30, 2007 |
|
|
|
|
|
$ |
|
|
Granted |
|
|
2,500 |
|
|
|
4.48 |
|
Vested |
|
|
|
|
|
|
|
|
Forfeited |
|
|
(100 |
) |
|
|
4.29 |
|
|
|
|
|
|
|
|
Non-vested restricted stock at January 31, 2008 |
|
|
2,400 |
|
|
$ |
4.48 |
|
|
|
|
|
|
|
|
Available-for-sale security
On January 30, 2008, the Company purchased an investment in other debt securities for $2.9 million.
In accordance with SFAS 115, Accounting for Certain Investments in Debt and Equity Securities, the
Company has classified the investment as an available-for-sale security on the accompanying
condensed consolidated balance sheet as of January 31, 2008. The Company did not recognize any
gain or loss on the investment as the fair value of this investment was equal to the carrying
amount as of January 31, 2008. Subsequently, the Company sold the security and converted the
proceeds to cash and cash equivalents.
NOTE 4. RECEIVABLES
All net receivables are expected to be collected within one year.
NOTE 5. DISCONTINUED OPERATIONS
Sales of Income-Producing Properties
The Company is in the business of creating long-term value by periodically realizing gains through
the sale of existing real estate assets, and then redeploying its capital by reinvesting the
proceeds from such sales. Effective as of fiscal 2003, the Company adopted SFAS 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, which requires, among other things, that the
operating results of certain income-producing assets, sold subsequent to April 30, 2002, be
included in discontinued operations in the statements of operations for all periods presented. The
Company classifies an asset as held for sale when the asset is under a binding sales contract with
minimal contingencies, and the buyer is materially at risk if the buyer fails to complete the
transaction. However, each potential transaction is evaluated based on its separate facts and
circumstances. Pursuant to this standard, as of January 31, 2008, the Company had no
income-producing properties that were classified as held for sale.
On December 13, 2007, the Company sold its owned office park located in Marietta, Georgia, and
recognized a pre-tax gain on the sale of approximately $2.085 million. On July 31, 2007, the
Company sold its leasehold interest in the land and its owned shopping center building located in
Columbus, Georgia, and its owned shopping center located in Orange Park, Florida, and recognized a
pre-tax gain on the sales of approximately $1.9 million. On November 1, 2006, the Company sold its
leasehold interest in the land and its owned shopping center located in Morton, Illinois, and
recognized a pre-tax gain on the sale of approximately $3.48 million. In accordance with SFAS 144,
the Companys historical financial statements have been prepared with the results of operations and
cash flows of these sold properties shown as discontinued operations, with the exception of the
revenues, backlog, costs and expenses, and cash flows associated with the shopping center located
in Orange Park, Florida, for the period between May 1, 2006, and February 12, 2007, which have not
been restated as discontinued operations and are still included in continuing operations; the
Company acquired the fee interest in the
8
shopping center on February 12, 2007, and as a result, the
property was re-classified as an Owned Shopping Center rather than a Leaseback Shopping Center.
The reader should keep this in mind when analyzing the annual results of operations, backlog and
cash flows of the Real Estate Segment. All historical statements have been restated in accordance
with SFAS 144. Summarized financial information for discontinued operations for the third quarter
and the first nine-month periods ended January 31, 2008, and January 31, 2007, respectively, is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended |
|
First Nine Months Ended |
|
|
January 31, |
|
January 31, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
REAL ESTATE SEGMENT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenues |
|
$ |
195,980 |
|
|
$ |
502,500 |
|
|
$ |
1,172,304 |
|
|
$ |
1,742,477 |
|
|
Rental property operating expenses,
including depreciation |
|
|
150,549 |
|
|
|
322,088 |
|
|
|
855,233 |
|
|
|
1,065,552 |
|
Interest expense and mortgage prepayment fees |
|
|
50,251 |
|
|
|
119,842 |
|
|
|
287,547 |
|
|
|
451,536 |
|
|
|
|
|
|
Operating (loss) earnings from
discontinued operations before income taxes |
|
|
(4,820 |
) |
|
|
60,570 |
|
|
|
29,524 |
|
|
|
225,389 |
|
|
Income tax (benefit) expense |
|
|
(1,832 |
) |
|
|
23,017 |
|
|
|
11,219 |
|
|
|
85,648 |
|
|
|
|
|
|
Operating (loss) earnings from
discontinued operations, net of tax |
|
|
(2,988 |
) |
|
|
37,553 |
|
|
|
18,305 |
|
|
|
139,741 |
|
|
|
|
|
|
|
Gain on sales of income-producing real estate |
|
|
2,084,785 |
|
|
|
3,076,984 |
|
|
|
4,003,086 |
|
|
|
3,076,984 |
|
Income tax expense |
|
|
792,218 |
|
|
|
1,169,254 |
|
|
|
1,521,172 |
|
|
|
1,169,254 |
|
|
|
|
|
|
Gain on sales of income-producing
real estate, net of tax |
|
|
1,292,567 |
|
|
|
1,907,730 |
|
|
|
2,481,914 |
|
|
|
1,907,730 |
|
|
|
|
|
|
|
Earnings from discontinued operations, net of tax |
|
$ |
1,289,579 |
|
|
$ |
1,945,283 |
|
|
$ |
2,500,219 |
|
|
$ |
2,047,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at |
|
|
January 31, 2008 |
|
April 30, 2007 |
Assets of Discontinued Operations |
|
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
|
|
|
$ |
2,939 |
|
Other current assets |
|
|
|
|
|
|
249,372 |
|
Income-producing properties |
|
|
|
|
|
|
10,334,044 |
|
Property and equipment |
|
|
|
|
|
|
5,998 |
|
Intangible assets |
|
|
|
|
|
|
219,822 |
|
Other assets |
|
|
|
|
|
|
343,696 |
|
|
|
|
|
|
$ |
|
|
|
$ |
11,155,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities of Discontinued Operations |
|
|
|
|
|
|
|
|
Trade and subcontractors payable |
|
$ |
|
|
|
$ |
29,451 |
|
Accrued expenses |
|
|
|
|
|
|
223,682 |
|
Current maturities of mortgage notes and long-term debt payable |
|
|
|
|
|
|
135,487 |
|
Mortgage notes payable |
|
|
|
|
|
|
6,052,018 |
|
|
|
|
|
|
$ |
|
|
|
$ |
6,440,638 |
|
|
|
|
NOTE 6. OPERATING SEGMENTS
The table below shows selected financial data on a segment basis. Net earnings is defined as total
revenues less operating expenses, including depreciation, interest and income taxes. In this
presentation, management fee expenses charged to the segments by the Parent Company are not
included in the segments results.
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Third Quarter Ended |
|
|
|
|
|
Real Estate |
|
|
|
|
|
|
January 31, 2008 |
|
BPE |
|
(1) |
|
Parent |
|
Eliminations |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from unaffiliated customers |
|
$ |
3,220,444 |
|
|
$ |
883,333 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,103,777 |
|
Interest and other income |
|
|
|
|
|
|
369,953 |
|
|
|
8,564 |
|
|
|
(273,398 |
) |
|
|
105,119 |
|
Intersegment revenues |
|
|
|
|
|
|
149,268 |
|
|
|
|
|
|
|
(149,268 |
) |
|
|
|
|
|
|
|
Total revenues from continuing operations |
|
$ |
3,220,444 |
|
|
$ |
1,402,554 |
|
|
$ |
8,564 |
|
|
$ |
(422,666 |
) |
|
$ |
4,208,896 |
|
|
|
|
Net earnings (loss) |
|
$ |
(289,882 |
) |
|
$ |
1,480,150 |
|
|
$ |
(601,944 |
) |
|
$ |
(6,026 |
) |
|
$ |
582,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Third Quarter Ended |
|
|
|
|
|
Real Estate |
|
|
|
|
|
|
January 31, 2007 |
|
BPE |
|
(1) |
|
Parent |
|
Eliminations |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from unaffiliated customers |
|
$ |
3,769,967 |
|
|
$ |
1,067,120 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,837,087 |
|
Interest and other income |
|
|
(1,022 |
) |
|
|
295,888 |
|
|
|
26,622 |
|
|
|
(237,149 |
) |
|
|
84,339 |
|
Intersegment revenues |
|
|
|
|
|
|
127,119 |
|
|
|
|
|
|
|
(127,119 |
) |
|
|
|
|
|
|
|
Total revenues from continuing operations |
|
$ |
3,768,945 |
|
|
$ |
1,490,127 |
|
|
$ |
26,622 |
|
|
$ |
(364,268 |
) |
|
$ |
4,921,426 |
|
|
|
|
Net earnings (loss) |
|
$ |
(227,509 |
) |
|
$ |
2,209,558 |
|
|
$ |
(783,061 |
) |
|
$ |
3,496 |
|
|
$ |
1,202,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the First Nine Months |
|
|
|
|
|
Real Estate |
|
|
|
|
|
|
Ended January 31, 2008 |
|
BPE |
|
(1) |
|
Parent |
|
Eliminations |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from unaffiliated customers |
|
$ |
11,973,959 |
|
|
$ |
4,309,786 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
16,283,745 |
|
Interest and other income |
|
|
55,094 |
|
|
|
1,062,776 |
|
|
|
36,612 |
|
|
|
(856,731 |
) |
|
|
297,751 |
|
Intersegment revenues |
|
|
|
|
|
|
444,373 |
|
|
|
|
|
|
|
(444,373 |
) |
|
|
|
|
|
|
|
Total revenues from continuing operations |
|
$ |
12,029,053 |
|
|
$ |
5,816,935 |
|
|
$ |
36,612 |
|
|
$ |
(1,301,104 |
) |
|
$ |
16,581,496 |
|
|
|
|
Net earnings (loss) |
|
$ |
(489,428 |
) |
|
$ |
4,020,655 |
|
|
$ |
(1,717,322 |
) |
|
$ |
(18,075 |
) |
|
$ |
1,795,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the First Nine Months |
|
|
|
|
|
Real Estate |
|
|
|
|
|
|
Ended January 31, 2007 |
|
BPE |
|
(1) |
|
Parent |
|
Eliminations |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from unaffiliated customers |
|
$ |
9,624,034 |
|
|
$ |
5,064,798 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
14,688,832 |
|
Interest and other income |
|
|
53,827 |
|
|
|
927,723 |
|
|
|
79,139 |
|
|
|
(730,160 |
) |
|
|
330,529 |
|
Intersegment revenues |
|
|
|
|
|
|
377,858 |
|
|
|
|
|
|
|
(377,858 |
) |
|
|
|
|
|
|
|
Total revenues from continuing operations |
|
$ |
9,677,861 |
|
|
$ |
6,370,379 |
|
|
$ |
79,139 |
|
|
$ |
(1,108,018 |
) |
|
$ |
15,019,361 |
|
|
|
|
Net earnings (loss) |
|
$ |
(646,419 |
) |
|
$ |
3,739,946 |
|
|
$ |
(2,096,478 |
) |
|
$ |
10,490 |
|
|
$ |
1,007,539 |
|
|
|
|
10
|
|
|
(1) |
|
The Company is in the business of creating long-term value by periodically realizing
gains through the sale of income-producing properties and the sale of real estate held for
future development or sale, and therefore, in this presentation the Real Estate Segments
net earnings includes earnings from discontinued operations, pursuant to SFAS 144, that
resulted from the gain on the sales of certain income-producing properties, and earnings
included in continuing operations that resulted from the gain on sale of other real estate
assets. |
The following is a reconciliation of the segment revenues shown in the table above to consolidated
revenues shown on the statements of operations for the third quarter and the first nine-month
periods ended January 31, 2008, and January 31, 2007, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended |
|
First Nine Months Ended |
|
|
January 31, |
|
January 31, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Consolidated segment revenues |
|
$ |
4,208,896 |
|
|
$ |
4,921,426 |
|
|
$ |
16,581,496 |
|
|
$ |
15,019,361 |
|
Revenues from sales of real estate held for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,050,000 |
) |
|
|
|
|
|
Total consolidated revenues |
|
$ |
4,208,896 |
|
|
$ |
4,921,426 |
|
|
$ |
16,581,496 |
|
|
$ |
12,969,361 |
|
|
|
|
|
|
NOTE 7. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net earnings (loss) by the weighted average
shares outstanding during the reporting period. Diluted earnings (loss) per share is computed
giving effect to dilutive stock equivalents resulting from outstanding stock options, stock
warrants and stock appreciation rights. Because the Company had a loss from continuing operations
for all periods presented, all stock equivalents were antidilutive during these periods, and
therefore, are excluded when determining the diluted weighted average number of shares outstanding.
If the Company had earnings from continuing operations in the periods presented, the dilutive
effect on the number of common shares for the third quarter of fiscal 2008 and fiscal 2007 would
have been 276,252 and 9,438 shares, respectively, and for the first nine months of fiscal 2008 and
fiscal 2007, the dilutive effect on the number of common shares would have been 232,591 and 837 shares, respectively.
11
NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
The gross carrying amounts and accumulated amortization for all of the Companys intangible assets
as of January 31, 2008, and as of April 30, 2007, are as follows:
|
|
|
|
|
|
|
|
|
|
|
January 31, 2008 |
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
|
Amount |
|
|
Amortization |
|
Intangible assets, subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary BPE software solutions |
|
$ |
3,350,259 |
|
|
$ |
1,651,482 |
|
Acquired computer software |
|
|
462,555 |
|
|
|
448,673 |
|
Real estate lease costs |
|
|
818,797 |
|
|
|
180,906 |
|
Customer relationships |
|
|
218,000 |
|
|
|
178,033 |
|
Deferred loan costs |
|
|
331,488 |
|
|
|
87,949 |
|
Other |
|
|
28,660 |
|
|
|
19,348 |
|
|
|
|
|
|
|
|
|
|
$ |
5,209,759 |
|
|
$ |
2,566,391 |
|
|
|
|
|
|
|
|
Intangible assets and goodwill, not subject to amortization: |
|
|
|
|
|
|
|
|
Trademark |
|
$ |
708,707 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
5,458,717 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2007 |
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
|
Amount |
|
|
Amortization |
|
Intangible assets, subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary BPE software solutions |
|
$ |
3,186,699 |
|
|
$ |
1,271,190 |
|
Acquired computer software |
|
|
453,525 |
|
|
|
431,551 |
|
Real estate lease costs |
|
|
1,356,974 |
|
|
|
585,259 |
|
Customer relationships |
|
|
218,000 |
|
|
|
145,393 |
|
Deferred loan costs |
|
|
400,062 |
|
|
|
181,439 |
|
Other |
|
|
28,660 |
|
|
|
17,199 |
|
|
|
|
|
|
|
|
|
|
$ |
5,643,920 |
|
|
$ |
2,632,031 |
|
|
|
|
|
|
|
|
Intangible assets and goodwill, not subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademark |
|
$ |
708,707 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
5,458,717 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate amortization expenses for all amortized intangible assets |
|
|
|
|
For the third quarter ended January 31, 2008 |
|
$ |
186,364 |
|
For the nine months ended January 31, 2008 |
|
|
560,838 |
|
For the third quarter ended January 31, 2007 |
|
|
199,358 |
|
For the nine months ended January 31, 2007 |
|
|
489,609 |
|
12
The Company performed the annual impairment analysis of goodwill and indefinite-lived
intangible assets for the Building Performance Expert Segment during the quarter as required by
SFAS 142. As part of the impairment test, the Company used an income approach under a discounted
cash flow model to determine its measure of fair value. Additionally, the Company performed a
sensitivity analysis assuming the discount rate was higher and the growth rate was lower than the
assumptions used in the initial analysis. The annual analysis resulted in a determination of no
impairment for fiscal 2008. As of January 31, 2008, the Company does not believe that any of its
goodwill or other intangible assets is impaired.
NOTE 9. DISPOSITIONS
On July 31, 2007, the Company sold: its leasehold interest in a shopping center located in
Jacksonville, Florida; 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; for a
total combined sales price of $6.797 million, resulting in a pre-tax gain on the sales of
approximately $3.776 million. After selling expenses, these sales generated net cash proceeds of
approximately $6.4 million. In addition, the Company purchased its minority partners interests in
the Columbus, Georgia, shopping center by utilizing two notes payable totaling approximately
$400,000. In December 2007, the Company paid off one of the notes of approximately $160,000 and
the other note is recorded on the accompanying condensed consolidated balance sheet as current
maturities of mortgage notes and long-term debt payable. In accordance with SFAS 144, the sale of
the Companys leasehold interest in the shopping center located in Jacksonville, Florida, is
included in rental income on the accompanying consolidated statements of operations. The sale of
the Companys leasehold interest in the land and its owned shopping center building located in
Columbus, Georgia, and the sale of the Companys owned shopping center located in Orange Park,
Florida, are recorded in discontinued operations in the accompanying consolidated statements of
operations. The Companys federal tax liability is approximately $1.5 million related to the
sales, which will be offset with the Companys net operating loss carry-forwards for tax purposes.
On December 13, 2007, the Company sold its owned office park located in Marietta, Georgia, for a
sales 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 (see Note 10 Mortgage Notes
Payable) and associated
costs, the sale generated cash proceeds of approximately
$3.4 million. The Company may use the net proceeds from this sale to acquire an income-producing property, which would
qualify the sale and proposed acquisition under Internal Revenue Code Section 1031 for federal
income tax deferral, and has placed the proceeds with a qualified third party intermediary in
connection therewith. There can be no assurance, however, that the Company will be able to
successfully complete such acquisition, in which event the proceeds would be released from the
intermediary to the Company, and the Companys federal tax liability would be approximately $1.8
million of which the majority would be offset by the Companys net operating loss
carry-forwards for tax purposes.
NOTE 10. MORTGAGE NOTES PAYABLE
On June 1, 2007, the Company replaced its interim bank loan of $2.5 million used in the acquisition
of its office building located in Newnan, Georgia, with a permanent mortgage in the amount of $3.2
million. The permanent mortgage bears interest at 5.96%, with interest-only payments required for
the first twelve months of the mortgage term, after which the mortgage will be amortized using a
30-year amortization schedule until it matures on June 8, 2017.
On August 1, 2007, the Company refinanced its former owned office park located in Marietta,
Georgia, with a new mortgage in the amount of $6.65 million. The new mortgage bore interest at the
London Interbank Offered Rate (LIBOR) +1.75%, with monthly principal and interest payments
required, and was
13
scheduled to be amortized using a 20-year amortization schedule until it matured
on July 1, 2010. However, this mortgage was paid off in full on December 13, 2007, in conjunction
with the sale of the office park. See Note 9 Dispositions.
NOTE 11. COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and other claims that arise in the ordinary course of
business. While the resolution of these matters cannot be predicted with certainty, the Company
believes that the final outcome of these matters will not have a material adverse effect on the
Companys financial position or results of operations. See Item 1A, Risk Factors, in the
Companys Annual Report on Form 10-K for the year ended April 30, 2007.
NOTE
12. SUBSEQUENT EVENT
On
February 1, 2008, the Company entered into a contract to sell
approximately 1.826 acres of the Companys land located in
Oakwood, Georgia. The contract specifies a closing date in fiscal
2008. The sale is subject to customary conditions, and there can be
no assurance that the contract will close.
14
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated financial statements,
including the notes to those statements, which are presented elsewhere in this report. The Company
also recommends that this discussion and analysis be read in conjunction with the management
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, 2007.
The Companys fiscal year 2008 will end on April 30, 2008.
In the following charts, changes in revenues, changes in costs and expenses, and changes in
selling, general and administrative expenses from period to period are analyzed on a segment basis.
For net earnings and similar profit information on a consolidated basis, please refer to the
Companys consolidated financial statements.
Pursuant to SFAS 144, the figures shown in the following charts for all periods presented do not
include Real Estate Segment revenues, costs and expenses, and selling, general and administrative
expenses generated by certain formerly owned income-producing properties that have been sold, as
such amounts have been reclassified to discontinued operations. See Critical Accounting Policies
Discontinued Operations later in this discussion and analysis section and Note 5 to the
consolidated financial statements.
Results of operations of the third quarter and the first nine months of fiscal 2008, compared
to the third quarter and the first nine months of fiscal 2007.
REVENUES From Continuing Operations
For the third quarter of fiscal 2008, consolidated revenues from continuing operations, net of
intersegment eliminations, were $4,103,777, compared to $4,837,087 for the third quarter of fiscal
2007, a decrease of approximately 15%. For the first nine months of fiscal 2008, consolidated
revenues from continuing operations were $16,283,745, compared to $12,638,832 for the first nine
months of fiscal 2007, an increase of approximately 29%.
CHART A
REVENUES FROM CONTINUING OPERATIONS SUMMARY BY SEGMENT
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended |
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
January 31, |
|
Amount |
|
Percent |
|
January 31, |
|
Amount |
|
Percent |
|
|
2008 |
|
2007 |
|
Decrease |
|
Decrease |
|
2008 |
|
2007 |
|
Increase |
|
Increase |
BPE (1) |
|
$ |
3,220 |
|
|
$ |
3,770 |
|
|
$ |
(550 |
) |
|
|
(15 |
) |
|
$ |
11,974 |
|
|
$ |
9,624 |
|
|
$ |
2,350 |
|
|
|
24 |
|
Real Estate (2) |
|
|
883 |
|
|
|
1,067 |
|
|
|
(184 |
) |
|
|
(17 |
) |
|
|
4,310 |
|
|
|
3,015 |
|
|
|
1,295 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,103 |
|
|
$ |
4,837 |
|
|
$ |
(734 |
) |
|
|
(15 |
) |
|
$ |
16,284 |
|
|
$ |
12,639 |
|
|
$ |
3,645 |
|
|
|
29 |
|
|
|
|
NOTES TO CHART A
(1) |
|
Building Performance Expert (BPE) Segment revenues decreased by approximately $550,000,
or 15%, for the third quarter of fiscal 2008, compared to the same period in fiscal 2007,
primarily due to:
|
15
|
(a) |
|
a net decrease in revenues of approximately $847,000, in infrastructure
upgrades and energy savings projects revenues, largely as a result of unexpected
delays in scheduled project revenues from retail customers partially offset by an
increase in projects revenues from industrial and hospitality customers; |
|
|
this net decrease is partially offset by: |
|
|
(b) |
|
an increase of approximately $142,000 in energy management services
revenues; and |
|
|
(c) |
|
an increase of approximately $155,000 in building productivity products
and services revenues. |
|
|
BPE Segment revenues increased by approximately $2,350,000, or 24%, for the first nine
months of fiscal 2008, compared to the same period in fiscal 2007, primarily due to: |
|
(a) |
|
an increase in revenues of approximately $1,416,000, in infrastructure
upgrades and energy savings projects revenues; |
|
|
(b) |
|
an increase of approximately $561,000, in energy management services
revenues; and |
|
|
(c) |
|
an increase of approximately $373,000 in building productivity products
and services revenues. |
(2) |
|
Real Estate Segment revenues decreased by approximately $184,000, or 17%, for the third
quarter of fiscal 2008, compared to the same period in fiscal 2007, primarily due to: |
|
(a) |
|
a decrease in leaseback income of approximately $151,000 as a result of
the sale of the Companys leaseback shopping center located in Jacksonville,
Florida, which was sold in July 2007, and the sale of the Companys leaseback
shopping center located in Richfield, Minnesota, which was sold in March 2007; and |
|
|
(b) |
|
a decrease in leaseback income of approximately $66,000 as a result of
the sale of the Companys owned shopping center located in Orange Park, Florida,
which was sold in July 2007 (see Note 5 to the consolidated financial statements); |
|
|
partially offset by: |
|
|
(c) |
|
an increase in rental revenues of approximately $104,000 from the
Companys owned office building located in Newnan, Georgia, which was acquired in
March 2007. |
|
|
Real Estate Segment revenues increased by approximately $1,295,000, or 43%, for the first
nine months of fiscal 2008, compared to the same period of fiscal 2007, primarily due to: |
|
(a) |
|
one-time revenues of approximately $1,553,000 related to the sale of the
Companys leaseback shopping center located in Jacksonville, Florida, in July 2007;
and |
|
|
(b) |
|
an increase in rental revenues of approximately $412,000 from the
Companys owned shopping center located in Smyrna, Tennessee, which was acquired in
July 2006, and from the Companys owned office building located in Newnan, Georgia,
which was acquired in March 2007; |
|
|
partially offset by: |
|
|
(c) |
|
a decrease in leaseback income of approximately $378,000 as a result of
the sale of the Companys leaseback shopping center located in Jacksonville,
Florida, which was sold in July 2007, and the sale of the Companys leaseback
shopping center located in Richfield, Minnesota, which was sold in March 2007; and |
|
|
(d) |
|
a decrease in leaseback income of approximately $198,000 as a result of
the sale of the Companys owned shopping center located in Orange Park, Florida,
which was sold in July 2007 (see Note 5 to the consolidated financial statements). |
16
The following table indicates the backlog of contracts and rental income for the next twelve
months, by operating segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
January 31, |
|
(Decrease) |
|
|
2008 |
|
2007 |
|
Amount |
|
Percent |
BPE (1) |
|
$ |
6,328,000 |
|
|
$ |
5,866,000 |
|
|
$ |
462,000 |
|
|
|
8 |
|
Real Estate (2) |
|
|
3,044,000 |
|
|
|
4,203,000 |
|
|
|
(1,159,000 |
) |
|
|
(28 |
) |
Less: Intersegment eliminations ( 3 ) |
|
|
(578,000 |
) |
|
|
(560,000 |
) |
|
|
(18,000 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Backlog |
|
$ |
8,794,000 |
|
|
$ |
9,509,000 |
|
|
$ |
(715,000 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
BPE backlog increased by approximately $462,000 or 8%, primarily due to: |
|
(a) |
|
an increase of approximately $784,000 in energy management services;
and |
|
|
(b) |
|
an increase of approximately $263,000 in building productivity products and
services; |
|
|
partially offset by: |
|
|
(c) |
|
a decrease of approximately $585,000 in infrastructure upgrade and
energy savings projects that is primarily related to customer delays. |
|
|
The Company estimates that the BPE backlog at January 31, 2008, will be recognized prior to
January 31, 2009, with the exception of approximately $839,000 primarily from energy
management services from contracts that extend longer than one year. |
|
|
|
Backlog includes some contracts that can be cancelled with less than one years notice, and
assumes cancellation provisions will not be invoked. The amount of such cancelled contracts
included in the prior years Backlog was approximately $261,000, or 2.2%. |
|
(2) |
|
The decrease in Real Estate backlog of approximately $1,159,000, or 28%, was
primarily due to: |
|
(a) |
|
the inclusion in the fiscal 2007 backlog of rental revenues of
approximately $603,000 related to the Companys former leaseback shopping centers
located in Jacksonville, Florida, and Richfield, Minnesota, as both properties
were both subsequently sold; |
|
|
(b) |
|
the inclusion in fiscal 2007 backlog of rental revenues of
approximately $264,000 related to the Companys former leaseback interest in the
shopping center located in Orange Park, Florida, which revenues were not
reclassified to discontinued operations upon the sale of the shopping center (see Note 5 to the consolidated
financial statements); and |
|
|
(c) |
|
lower rental revenues of approximately $730,000 related to the
expiration in January 2008 of a third-party lease at the Companys headquarters
building in Atlanta, Georgia; |
|
|
partially offset by: |
|
|
(d) |
|
higher rental revenues of approximately $380,000 related to the
Companys office building located in Newnan, Georgia, which was acquired in March
2007; and |
|
|
(e) |
|
higher rental revenues of approximately $58,000 related to successful
leasing activities at other properties. |
(3) |
|
Represents rental income at the Companys headquarters building to be paid to the
Real Estate Segment over the next twelve months by the Parent Company and the BPE Segment. |
17
COSTS AND EXPENSES APPLICABLE TO REVENUES
From Continuing Operations
As a percentage of total segment revenues from continuing operations (see Chart A), the total
applicable costs and expenses (see Chart B) were 65% and 68% for the third quarters of fiscal 2008
and 2007, respectively, and 60% and 66% for the first nine months of fiscal 2008 and 2007,
respectively. In reviewing Chart B, the reader should recognize that the volume of revenues
generally will affect the amounts and percentages presented.
The figures in Chart B are net of intersegment eliminations.
CHART B
COSTS AND EXPENSES APPLICABLE TO REVENUES
FROM CONTINUING OPERATIONS BY SEGMENT
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Segment |
|
|
|
|
|
|
|
|
|
Percent 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, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
BPE (1) |
|
$ |
2,159 |
|
|
$ |
2,636 |
|
|
|
67 |
|
|
|
70 |
|
|
$ |
8,105 |
|
|
$ |
6,466 |
|
|
|
68 |
|
|
|
67 |
|
Real Estate (2) |
|
|
516 |
|
|
|
659 |
|
|
|
58 |
|
|
|
62 |
|
|
|
1,672 |
|
|
|
1,912 |
|
|
|
39 |
|
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,675 |
|
|
$ |
3,295 |
|
|
|
65 |
|
|
|
68 |
|
|
$ |
9,777 |
|
|
$ |
8,378 |
|
|
|
60 |
|
|
|
66 |
|
|
|
|
NOTES TO CHART B
1) |
|
On a dollar basis, BPE costs and expenses decreased by approximately $477,000, or 18%, for
the third quarter of fiscal 2008, and increased by approximately $1,639,000, or 25%, for the
first nine months of fiscal 2008, compared to the same periods of fiscal 2007, primarily as
the result of the corresponding decrease and increase in revenues, respectively (see Chart A),
and from changes in the mix of services and products. |
|
|
|
BPE costs and expenses as a percentage of revenues decreased by approximately 3% for the third
quarter of fiscal 2008, compared to the same period of fiscal 2007, primarily due to changes in
the mix of services and products. |
|
2) |
|
On a dollar basis, Real Estate costs and expenses decreased by approximately $143,000, or
22%, for the third quarter of fiscal 2008, compared to the same period of fiscal 2007,
primarily due to: |
|
a) |
|
the absence of lease costs of approximately $200,000 as a result of the sale of the
Companys leaseback shopping center located in Jacksonville, Florida, which was sold in
July 2007; the sale of the Companys leaseback shopping center located in Richfield,
Minnesota, which was sold in March 2007; and the sale of the Companys owned shopping
center located in Orange Park, Florida, which was sold in July 2007; |
|
b) |
|
an increase in rental operating costs of approximately $49,000 from the Companys
owned office building located in Newnan, Georgia, which was acquired in March 2007. |
On a dollar basis, Real Estate costs and expenses decreased by approximately $240,000, or 13%,
for the first nine months of fiscal 2008, compared to the same period of fiscal 2007, primarily
due to:
18
|
(a) |
|
the absence of lease costs of approximately $543,000 as a result of
the sale of the Companys leaseback shopping center located in Jacksonville,
Florida, which was sold in July 2007; the sale of the Companys leaseback shopping
center located in Richfield, Minnesota, which was sold in March 2007; and the sale
of the Companys owned shopping center located in Orange Park, Florida, which was
sold in July 2007; |
|
(b) |
|
an increase in rental operating costs of approximately $192,000 from
the Companys owned office building located in Newnan, Georgia, which was acquired
in March 2007, and from its owned shopping center located in Smyrna, Tennessee,
which was acquired in July 2006; and |
|
|
(c) |
|
one-time costs of approximately $94,000 from the sale of the
Companys leaseback shopping center located in Jacksonville, Florida, in July
2007. |
As a percentage of revenues, Real Estate costs and expenses were lower for the first nine
months of fiscal 2008, compared to fiscal 2007, primarily due to one-time revenues of
approximately $1,553,000 in the current year that resulted from the sale of the Companys
leaseback shopping center located in Jacksonville, Florida, in July 2007; the costs of the sale
were approximately $94,000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
From Continuing Operations
For the third quarters of fiscal 2008 and 2007, total selling, general and administrative expenses
(SG&A) from continuing operations, net of intersegment eliminations, were $2,319,813 and
$2,526,562, respectively. As a percentage of consolidated revenues from continuing operations,
these expenses were 57% and 52%, respectively. For the first nine months of fiscal 2008 and 2007,
total SG&A expenses from continuing operations, net of intersegment eliminations, were $6,982,322
and $6,994,185, respectively. As a percentage of consolidated revenues from continuing operations,
these expenses were 43% and 55%, respectively. In reviewing Chart C, the reader should recognize
that the volume of revenues generally will affect the amounts and percentages presented. The
percentages in Chart C are based upon expenses as they relate to segment revenues from continuing
operations (Chart A), except that Parent and total expenses relate to consolidated revenues from
continuing operations.
CHART C
SELLING, GENERAL AND ADMINSTRATIVE EXPENSES
FROM CONTINUING OPERATIONS BY SEGMENT
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Segment |
|
|
|
|
|
|
|
|
|
Percent of Segment |
|
|
|
|
|
|
|
|
|
|
Revenues for |
|
|
|
|
|
|
|
|
|
Revenues for |
|
|
Third Quarter Ended |
|
Third Quarter Ended |
|
Nine Months Ended |
|
Nine Months Ended |
|
|
January 31, |
|
January 31, |
|
January 31, |
|
January 31, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
BPE (1) |
|
$ |
1,268 |
|
|
$ |
1,224 |
|
|
|
39 |
|
|
|
32 |
|
|
$ |
3,928 |
|
|
$ |
3,445 |
|
|
|
33 |
|
|
|
36 |
|
Real Estate (2) |
|
|
214 |
|
|
|
189 |
|
|
|
24 |
|
|
|
18 |
|
|
|
599 |
|
|
|
635 |
|
|
|
14 |
|
|
|
21 |
|
Parent (3) |
|
|
838 |
|
|
|
1,113 |
|
|
|
20 |
|
|
|
23 |
|
|
|
2,455 |
|
|
|
2,914 |
|
|
|
15 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,320 |
|
|
$ |
2,526 |
|
|
|
57 |
|
|
|
52 |
|
|
$ |
6,982 |
|
|
$ |
6,994 |
|
|
|
43 |
|
|
|
55 |
|
|
|
|
19
NOTES TO CHART C
(1) |
|
BPE SG&A expenses as a percentage of revenues for the third quarter of fiscal 2008, compared
to the same period of fiscal 2007, were affected by the lower volume of revenues presented in
Chart A primarily the result of unexpected customer delays. |
|
|
|
BPE SG&A expenses as a percentage of revenues decreased by 3% for the first nine months of
fiscal 2008, compared to the same period of fiscal 2007, primarily because the increase in
revenues did not cause a proportional increase in SG&A expenses. |
|
|
|
On a dollar basis, BPE SG&A expenses for the first nine months of fiscal 2008 increased by
approximately $483,000, or 14%, compared to the same period of fiscal 2007, primarily due to
higher sales and marketing expenses. |
|
(2) |
|
On a dollar basis, Real Estate SG&A expenses in the third quarter of fiscal 2008 increased by
approximately $25,000, or 13%, compared to the same period of fiscal 2007, primarily due to an
increase in costs related to the potential sale of a portion of the Companys land located in
Oakwood, Georgia. |
|
|
|
On a dollar basis, Real Estate SG&A expenses in the first nine months of fiscal 2008 decreased
by $36,000, or 6%, compared to the same period of fiscal 2007, primarily for legal and other
professional fees related to transaction activity. |
|
(3) |
|
On a dollar basis and as a percentage of revenues, Parent SG&A expenses decreased by
approximately $275,000, or 25%, in the third quarter of fiscal 2008, compared to the same
period of fiscal 2007, primarily due to: |
|
(a) |
|
a decrease in incentive compensation accruals of approximately
$219,000, pursuant to the Companys cash incentive compensation plan; and |
|
|
(b) |
|
a decrease in consulting fees of approximately $83,000. |
|
|
On a dollar basis and as a percentage of revenues, Parent SG&A expenses decreased by
approximately $459,000, or 16%, in the first nine months of fiscal 2008, compared to the same
period of fiscal 2007, primarily due to: |
|
(a) |
|
a decrease in incentive compensation accruals of approximately
$239,000, pursuant to the Companys cash incentive compensation plan; and |
|
|
(b) |
|
a decrease in consulting fees of approximately $259,000. |
Gain on sale of asset
On August 29, 2006, the Company sold its former manufacturing and warehouse facility located in
downtown Atlanta, Georgia, for a sale price of $2,050,000, resulting in a pre-tax gain on the sale
of approximately $1,545,000. After selling expenses, the sale generated cash proceeds of
approximately $1,867,000. This sale is recorded in continuing operations on the accompanying
consolidated statements of operations as gain on sale of real estate, net of the costs of sale.
20
Liquidity and capital resources
Between April 30, 2007, and January 31, 2008, working capital increased by approximately
$4,999,000.
Operating
activities used cash of approximately $1,331,000, primarily due to:
|
(a) |
|
a net increase in BPE Segment accounts receivable and costs and
earnings in excess of billings of approximately $2,037,000, primarily due to the
higher level of revenues, the timing of billings, and the receipt of payments; |
|
|
partially offset by: |
|
|
(b) |
|
a decrease in other current assets of approximately $283,000,
primarily related to the payment of the cash surrender value of a life insurance
policy of a former executive officer of the Company; and |
|
|
(c) |
|
a net increase in BPE trade accounts payable, accrued expenses, other
liabilities and billings in excess of costs and earnings of approximately
$252,000, due to the timing and submission of payments. |
Investing activities used cash of approximately $7,358,000, primarily due to:
|
(a) |
|
the deposit with a qualified intermediary of cash proceeds of
approximately $3,436,000 from the sale described in Note 9 to the consolidated
financial statements in order to qualify the sale for potential federal income tax
deferral under Internal Revenue Code Section 1031; |
|
|
(b) |
|
the purchase of an available-for-sale security of approximately
$2,900,000, which was subsequently sold and converted to cash and cash
equivalents; |
|
|
(c) |
|
additions to income-producing properties of approximately $645,000,
primarily related to tenant and building improvements; |
|
|
(d) |
|
additions to intangible assets of approximately $213,000, primarily
related to development of enhancements to BPEs proprietary building productivity
software solutions; and |
|
|
(e) |
|
additions to property and equipment of approximately $164,000. |
Financing activities used cash of approximately $168,000, primarily due to:
|
(a) |
|
scheduled principal payments on mortgage notes and other long-term
mortgages of approximately $480,000; |
|
|
(b) |
|
costs of approximately $57,000 related to the refinancing of
long-term mortgages in the Real Estate Segment; and |
|
|
(c) |
|
payments of regular quarterly cash dividends to shareholders of
approximately $382,000; |
|
|
offset by: |
|
|
(d) |
|
net proceeds of approximately $700,000 from the permanent mortgage
loan of $3,200,000 on the Companys office building located in Newnan, Georgia,
which replaced the interim loan of $2,500,000; and |
|
|
(e) |
|
proceeds of $51,000 from the exercise of stock options. |
21
Discontinued operations provided cash of approximately $8,748,000, primarily from the sales of the
Companys leasehold interest in the land and its owned shopping center building located in
Columbus, Georgia; the sale of the Companys owned shopping center located in Orange Park, Florida;
and the sale of the Companys owned office park located in Marietta, Georgia (see Note 9
Dispositions).
In March 2008, the Companys Board of Directors authorized the repurchase of up to 50,000 shares of
the Companys Common Stock in the twelve-month period beginning March 8, 2008, and ending on March
7, 2009. Any such purchases, if made, could be made in the open market at prevailing prices or in
privately negotiated transactions. The Company has not repurchased any shares in the period from
May 1, 2007, and January 31, 2008.
The Company anticipates that its existing cash balances, equity, potential proceeds from sales of
real estate, potential cash flows provided by financing or refinancing of debt obligations,
potential cash flows from the exercise of stock options, and cash flows generated from operations
will, for the foreseeable future, provide adequate liquidity and financial flexibility to meet the
Companys needs to fund working capital, capital expenditures, debt service, and investment
activities.
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 amounts reported in the accompanying
consolidated financial statements and related notes. In preparing these financial statements, the
Company has made its best estimates and used its best judgments regarding certain amounts included
in the financial statements, giving due consideration to materiality. The application of these
accounting policies involves the exercise of judgment and the use of assumptions regarding future
uncertainties, and as a result, actual results could differ from those estimates. Management
believes that the Companys most critical accounting policies include:
Revenue Recognition
Revenues derived from implementation, training, support and base service license fees from
customers accessing the Companys proprietary building productivity software solutions on an
application service provider (ASP) basis follow the provisions of Securities and Exchange
Commission Staff Accounting Bulletin (SAB) 104, Revenue Recognition and Emerging Issues Task
Force, or EITF, Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. For these
sources of revenues, the Company recognizes revenue when all of the following conditions are met:
there is persuasive evidence of an arrangement; service has been provided to the customer; the
collection of fees is probable; and the amount of fees to be paid by the customer is fixed and
determinable. The Companys license arrangements do not include general rights of return.
Revenues are recognized ratably over the contract terms beginning on the commencement date of each
contract. Amounts that have been invoiced are recorded in accounts receivable and in revenue or
deferred revenue, depending on the timing of when the revenue recognition criteria have been met.
Additionally, the Company defers such direct costs and amortizes them over the same time period as
the revenue is recognized.
Energy management and consulting services are accounted for separately and are recognized as the
services are rendered in accordance with SAB 104. Productivity products are recognized when sold.
Energy savings and infrastructure upgrade projects revenues are reported on the
percentage-of-completion method, using costs incurred to date in relation to the estimated total
costs of the contracts to measure the stage of completion. Original contract prices are adjusted
for change orders in the amounts
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that are reasonably estimated based on the Companys historical
experience. The cumulative effects of changes in estimated total contract costs and revenues
(change orders) are recorded in the period in which the facts requiring such revisions become
known, and are accounted for using the percentage-of-completion method. At the time it is
determined that a contract is expected to result in a loss, the entire estimated loss is recorded.
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 determine whether the Company or
the tenant owns the improvements. These factors include: (1) whether the lease stipulates the
terms and conditions of how an improvement allowance may be spent; (2) whether the tenant or the
Company retains legal title to the improvements; (3) the uniqueness of the improvements; (4) the
expected economic life of the improvements relative to the length of the lease; and (5) who
constructs or directs the construction of the improvements. The determination of who owns the
improvements is subject to significant judgment. In making the determination, the Company
considers all of the above factors; however, no one factor is determinative in reaching a
conclusion. Certain leases may also require tenants to pay additional rental amounts as partial
reimbursements for their share of property operating and common area expenses, real estate taxes,
and insurance, which are recognized 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.
Revenue from the sale of real estate assets is recognized when all of the following has occurred:
(a) the property is transferred from the Company to the buyer; (b) the buyers initial and
continuing investment is adequate to demonstrate a commitment to pay for the property; and (c) the
buyer has assumed all future ownership risks of the property. Costs of sales related to real estate
assets are based on the specific property sold. If a portion or unit of a property is sold, a
proportionate share of the total cost of the development or acquisition is charged to cost of
sales.
Income-Producing Properties and Property and Equipment
Income-producing properties are stated at historical cost and are depreciated for financial
reporting purposes using the straight-line method over the estimated useful lives of the assets.
Significant additions that extend asset lives are capitalized and are depreciated over their
respective estimated useful lives. Normal maintenance and repair costs are expensed as incurred.
Interest and other carrying costs related to real estate assets under active development are capitalized. Other
costs of development and construction of real estate assets are also capitalized. Capitalization of
interest and other carrying costs is discontinued when a project is substantially completed or if
active development ceases. The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable.
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Property and equipment are recorded at historical cost and are depreciated for financial
reporting purposes using the straight-line method over the estimated useful lives of the respective
assets.
Valuation of Goodwill and Other Intangible Assets
Goodwill and intangible assets with indefinite lives are reviewed for impairment on an annual basis
or whenever events or changes in circumstances indicate that the carrying basis of an asset may not
be recoverable. The recoverability of assets to be held and used is measured by a comparison of the
carrying basis of the asset to the future net discounted cash flows expected to be generated by the
asset. If an asset is determined to be impaired, the impairment to be recognized is determined by
the amount by which the carrying amount of the asset exceeds the assets estimated fair value.
Assets to be disposed of are reported at the lower of their carrying basis or their estimated fair
value less the estimated costs to sell. The most significant assumptions in the impairment
analysis are estimated future revenue growth, estimated future profit margins and discount rate.
The Company estimates future revenue growth by utilizing several factors, which include revenue
currently in backlog, commitments from long standing customers, targeted revenue from qualified
prospects, and revenues expected to be generated from new sales or marketing initiatives. The
discount rate is determined by an average cost of the Companys equity and debt. The Company
performed the annual impairment analysis of goodwill and indefinite-lived intangible assets for the
Building Performance Expert Segment during the quarter as required by SFAS 142. As part of the
impairment test, the Company used an income approach under a discounted cash flow model to
determine its measure of fair value. Additionally, the Company performed a sensitivity analysis
assuming the discount rate was higher and the growth rate was lower than the assumptions used in
the initial analysis. The annual analysis resulted in a determination of no impairment for fiscal
2008. As of January 31, 2008, the Company does not believe that any of its goodwill or other
intangible assets is impaired.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be
applied to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is
recognized in income in the period that includes the enactment date.
Discontinued Operations
The Company adopted SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
effective in fiscal 2003, which requires, among other things, that the gains and losses from the
disposition of certain income-producing real estate assets and associated liabilities, operating
results, and cash flows be reflected as discontinued operations in the financial statements for all
periods presented. Although net earnings are not affected, the Company has reclassified results
that were previously included in continuing operations as discontinued operations for qualifying
dispositions under SFAS 144.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Companys market risk since April 30, 2007. Refer to
the Companys Annual Report on Form 10-K for the fiscal year ended April 30, 2007, for detailed
disclosures about quantitative and qualitative disclosures about market risk.
ITEM 4. 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 a reasonable assurance that the objectives of the disclosure
controls and procedures are met.
Based on managements evaluation, the Chief Executive Officer and the 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 the
disclosure controls and procedures were met.
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.
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PART II. OTHER INFORMATION
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, the reader should carefully consider
the factors discussed in Part I, Item 1A. Risk Factors in the Companys Annual Report on Form
10-K for the fiscal year ended April 30, 2007, which could materially affect the business,
financial condition or future operating results of the Company. Additional risks and uncertainties
not currently known to the Company, or that the Company currently deems to be immaterial, also
could materially affect the Companys business, financial condition, and/or operating results.
ITEM 5. OTHER INFORMATION
On December 13, 2007, the Company sold its owned office park located in Marietta, Georgia, for a
sales 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 (see Note 10 Mortgage Notes
Payable) and associated costs, the sale generated cash proceeds of approximately $3.4 million (See
Notes 5 and 9 to the condensed consolidated financial statements). The Company currently intends
to use the net proceeds from this sale to acquire an additional income-producing property, which
would qualify the sale and proposed acquisition under Internal Revenue Code Section 1031 for
federal income tax deferral, and has placed the proceeds with a qualified third party intermediary
in connection therewith. There can be no assurance, however, that the Company will be able to
successfully complete such acquisition, in which event the net proceeds would be released from the
intermediary to the Company, and the Companys federal tax liability from the gain on sale would be
approximately $1.8 million of which approximately $1.6 million would be offset by the Companys net
operating loss carry-forwards for tax purposes.
The purchaser of the Companys owned office park is unaffiliated with the Company, and the
transaction was negotiated at arms-length. In negotiating the sales price, the Company considered,
among other factors: the office parks historical and anticipated cash flows; the tenant in the
office park and their respective remaining lease terms; the condition and location of the office
park; and current overall market conditions for the real estate industry.
ITEM 6. EXHIBITS
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31(a) |
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Certification of Chief Executive Officer, pursuant to Rules 13a-14(a)/15d-14(a) |
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31(b) |
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Certification of Chief Financial Officer, pursuant to Rules 13a-14(a)/15d-14(a) |
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32(a) |
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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(b) |
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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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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, 2008 |
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/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, 2008 |
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/s/ Rick A. Paternostro
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Rick A. Paternostro |
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Chief Financial Officer |
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