e10vqza
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT
Amendment No. 1
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended October 31, 2010
Commission file number 0-10146
SERVIDYNE, INC.
(Exact name of registrant as specified in its charter)
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Georgia
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58-0522129 |
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(State or other jurisdiction of
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(I.R.S. Employer Identification No.) |
incorporation or organization) |
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1945 The Exchange, Suite 300, Atlanta, GA 30339-2029
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (770) 953-0304
Former name, former address, former fiscal year, if changed since last report: N/A
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted
on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).
Yes o No o
Indicate by check mark 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.
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Large accelerated filer o
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Accelerated Filer o
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Non-accelerated filer o
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Smaller Reporting Company þ |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No þ
The number of shares of $1.00 par value Common Stock of the Registrant outstanding as
of November 30, 2010, was 3,675,982.
TABLE OF CONTENTS
Explanatory Note
Servidyne,
Inc. is filing this Amendment No. 1 to the Companys
Quarterly Report on Form 10-Q/A for the quarter
ended October 31, 2010, originally filed with the Securities and Exchange Commission (the SEC) on
December 15, 2010 (the Original Quarterly Report),
to restate and recast the Condensed Consolidated Balance Sheets as of October
31, 2010, and April 30, 2010, the Condensed Consolidated Statements of Operations for the three and
six month periods ended October 31, 2010 and 2009, the Condensed Consolidated Statements of Cash
Flows for the six month periods ended October 31, 2010 and 2009, and certain footnote disclosures
thereto.
The need to restate the financial statements resulted from an error in the application of Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 740, Accounting for
Income Taxes, related to the recoverability of deferred tax assets, which was discovered in March
2011 in connection with the performance of the third quarter 2011 review. During the third quarter
of fiscal 2011, the Company moved from a consolidated net deferred tax liability position into a
consolidated net deferred tax asset position, which highlighted a potential recoverability issue
related to its deferred tax assets. Accordingly, the Company performed an analysis of
recoverability by weighing all positive evidence of recovery against all negative evidence of
recovery. Because the Company was in a three-year cumulative book loss position, it was determined
that the future earnings projections of the Company over the relatively long net operating loss
carryforward period did not represent objectively verifiable positive evidence of recovery, and
that the recent historical results were objectively verifiable negative evidence.
The Company determined that it had no exposure to non-recoverability at the federal jurisdiction
level due to adequate future taxable income offsetting federal net operating losses through the
form of deferred tax liabilities. The exposure to non-recoverability was determined to exist at
the state jurisdiction level. As a result of this analysis, the Company recorded a full valuation
allowance in the amount of $857,000 on its state deferred tax assets during the quarter ended
January 31, 2011, as filed in the Companys Form 10-Q for the period.
Upon further analysis during April 2011, the Company determined that it had actually entered into
the three-year cumulative book loss position in the fourth quarter of fiscal year 2009. As a
result, the Company should not have used future earnings projections to analyze recoverability
since the fourth quarter of fiscal 2009. The result of this error is that the Company understated
its deferred tax asset valuation allowance by approximately $799,000 and $600,000 as of October 31,
2010, and April 30, 2010, respectively. Additionally, the Company understated its net loss by
approximately $36,000 and $199,000 for the three and six month
periods ended October 31, 2010, respectively, and $96,000 and $167,000 for the three and six month periods ended October 31, 2009, respectively.
In addition, the financial statements have been recast as a result of two items which occurred
since the original filing: sales of income-producing properties and a change in segment reporting.
To reflect the sales of income-producing properties since the original filing, the assets,
liabilities and operating results of the disposed properties have been reclassified in the
financial statements as discontinued operations. In addition, the change in segment reporting
relates to the discontinuance of the Companys Real Estate Segment as a result of the sale of the
last income-producing property other than the corporate headquarters facility during the fiscal
quarter ended January 31, 2011. As a result, the book value of the corporate headquarters facility
has been reclassified from Income-Producing Properties, net to Property and Equipment, net on the balance sheets.
See Notes
6, 10, and 15 to the condensed consolidated financial statements for more
information regarding the recasting and restatement.
The following sections have been amended from the Original Quarterly Report as a result of the
recasting and restatement described above:
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Part I Item 1 Financial Statements |
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Part I Item 2 Managements Discussion and Analysis of Financial Condition and Results of
Operations |
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Part I Item 4 Controls and Procedures |
Pursuant to the rules of the SEC, Item 6 of Part II has also been amended to include the currently
dated certifications from the Companys Chief Executive Officer and Chief Financial Officer as
required by Sections 302 and 906. The certifications of the Companys Chief Executive Officer and
Chief Financial Officer are attached as Exhibits 31 and 32.
Except as set forth herein, the original filing of the quarterly report has not been amended. The
original filing should be read in conjunction with this Amendment No. 1. To the extent not
addressed herein or in the original filing, events occurring subsequent to the period ended October
31, 2010, have been or will be addressed in the Companys filings with the SEC for subsequent
periods.
1
SERVIDYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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October 31, 2010 |
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April 30, 2010 |
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(Restated) |
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(Restated) |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
2,408,230 |
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$ |
1,923,641 |
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Receivables (Note 5): |
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Trade accounts and notes, net of allowance for doubtful accounts of
$85,397 and $58,989, respectively |
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821,323 |
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953,075 |
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Contracts, net of allowance for doubtful accounts of $52,847 and
$22,530, respectively, including retained amounts of $521,623 and
$675,281, respectively (Note 12) |
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3,132,729 |
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3,337,177 |
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Costs and earnings in excess of billings (Note 12) |
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1,253,030 |
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715,129 |
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Assets of discontinued operations (Note 10) |
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166,206 |
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188,827
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Deferred income taxes (Note 15) |
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308,579 |
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360,097 |
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Other current assets |
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1,705,867 |
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1,247,844 |
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Total current assets |
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9,795,964 |
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8,725,790 |
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PROPERTY AND EQUIPMENT, net (Note 2) |
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4,657,460 |
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4,805,542 |
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ASSETS OF DISCONTINUED OPERATIONS (Note 10) |
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4,231,122 |
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13,767,227 |
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DEFERRED INCOME TAXES (Note 15) |
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543,608 |
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1,160,371 |
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OTHER ASSETS: |
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Real estate
held for future development or sale |
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853,109 |
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853,109 |
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Intangible assets, net (Note 8) |
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2,257,503 |
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2,395,874 |
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Goodwill (Note 8) |
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6,354,002 |
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6,354,002 |
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Other assets (Note 9) |
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2,789,325 |
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2,890,357 |
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Total assets |
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$ |
31,482,093 |
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$ |
40,952,272 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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CURRENT LIABILITIES: |
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Trade and subcontractors payables |
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$ |
3,135,961 |
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$ |
2,465,112 |
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Accrued expenses |
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1,398,274 |
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1,378,538 |
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Deferred revenue |
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357,937 |
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507,383 |
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Billings in excess of costs and earnings |
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89,402 |
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53,100 |
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Liabilities of discontinued operations (Note 10) |
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144,651 |
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520,308 |
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Short-term debt and current maturities of long-term debt |
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275,343 |
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270,592 |
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Total current liabilities |
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5,401,568 |
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5,195,033 |
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LIABILITIES OF DISCONTINUED OPERATIONS (Note 10) |
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5,436,826 |
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13,587,832 |
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OTHER LIABILITIES |
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1,061,264 |
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1,039,633 |
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MORTGAGE NOTES PAYABLE, less current maturities |
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4,044,083 |
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4,107,996 |
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OTHER LONG-TERM DEBT, less current maturities (Note 12) |
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1,938,069 |
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1,832,000 |
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Total liabilities |
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17,881,810 |
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25,762,494 |
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COMMITMENTS AND CONTINGENCIES (Note 14) |
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SHAREHOLDERS EQUITY: |
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Common stock, $1 par value; 10,000,000 shares authorized;
3,919,373 issued and 3,675,982 outstanding at October 31, 2010;
3,919,773 issued and 3,676,383 outstanding at April 30, 2010 |
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3,919,373 |
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3,919,773 |
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Additional paid-in capital |
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6,292,295 |
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6,206,521 |
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Retained earnings |
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4,394,763 |
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6,069,629 |
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Treasury stock (common shares) of 243,391 and 243,390, respectively |
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(1,006,148 |
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(1,006,145 |
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Total shareholders equity |
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13,600,283 |
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15,189,778 |
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Total liabilities and shareholders equity |
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$ |
31,482,093 |
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$ |
40,952,272 |
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See accompanying notes to condensed consolidated financial statements.
2
SERVIDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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SECOND QUARTER ENDED |
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SIX MONTHS ENDED |
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OCTOBER 31, |
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OCTOBER 31, |
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2010 |
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2009 |
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2010 |
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2009 |
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(Restated) |
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(Restated) |
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(Restated) |
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(Restated) |
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REVENUES: |
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Building Performance Efficiency (BPE) (Note 12) |
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$ |
7,519,147 |
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$ |
3,922,541 |
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$ |
12,360,874 |
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$ |
7,795,649 |
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Other |
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110,807 |
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106,017 |
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214,675 |
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207,052 |
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7,629,954 |
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4,028,558 |
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12,575,549 |
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8,002,701 |
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COST OF REVENUES: |
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BPE |
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5,403,096 |
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2,670,904 |
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8,968,113 |
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5,295,513 |
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Other |
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161,346 |
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167,771 |
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335,652 |
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352,275 |
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5,564,442
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2,838,675 |
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9,303,765 |
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5,647,788 |
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
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2,550,217 |
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2,292,123 |
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5,044,765 |
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4,676,032 |
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OTHER (INCOME) AND EXPENSES: |
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Other income |
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(67,366 |
) |
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(52,400 |
) |
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(44,375 |
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(65,302 |
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Interest income |
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(22 |
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(2,326 |
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(39 |
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(7,610 |
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Interest expense |
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111,800 |
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99,284 |
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220,790 |
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199,341 |
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44,412 |
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44,558 |
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176,376 |
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126,429 |
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LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES |
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(529,117 |
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(1,146,798 |
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(1,949,357 |
) |
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(2,447,548 |
) |
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INCOME TAX BENEFIT (Note 15) |
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(173,560 |
) |
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(330,107 |
) |
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(605,764 |
) |
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(775,093 |
) |
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LOSS FROM CONTINUING OPERATIONS |
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(355,557 |
) |
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(816,691 |
) |
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(1,343,593 |
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(1,672,455 |
) |
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DISCONTINUED OPERATIONS (Note 10): |
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(Loss) earnings from discontinued operations, adjusted for applicable income
tax (benefit) expense of ($210,821), $22,048, ($219,436) and $49,201 respectively |
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(382,397 |
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12,952 |
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(358,028 |
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91,825 |
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Gain on disposition of income-producing properties, adjusted for applicable
income tax expense of $27,146, $0, $91,144 and $0, respectively |
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49,633 |
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100,573 |
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(LOSS) EARNINGS FROM DISCONTINUED OPERATIONS |
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(332,764 |
) |
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12,952 |
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(257,455 |
) |
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|
91,825 |
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NET LOSS |
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$ |
(688,321 |
) |
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$ |
(803,739 |
) |
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$ |
(1,601,048 |
) |
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$ |
(1,580,630 |
) |
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NET (LOSS) EARNINGS PER SHARE (Note 7): |
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From continuing operations basic and diluted |
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$ |
(0.10 |
) |
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$ |
(0.22 |
) |
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$ |
(0.37 |
) |
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$ |
(0.45 |
) |
From discontinued operations basic and diluted |
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(.09 |
) |
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(.07 |
) |
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.02 |
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NET LOSS PER SHARE BASIC AND DILUTED |
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$ |
(0.19 |
) |
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$ |
(0.22 |
) |
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$ |
(0.44 |
) |
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$ |
(0.43 |
) |
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WEIGHTED AVERAGE SHARES OUTSTANDING BASIC AND DILUTED |
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3,676,010 |
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3,690,288 |
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3,676,188 |
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3,690,791 |
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See accompanying notes to condensed consolidated financial statements.
3
SERVIDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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SIX MONTHS ENDED |
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OCTOBER 31, |
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2010 |
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2009 |
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(Restated) |
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(Restated) |
|
Cash flows from operating activities: |
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Net loss |
|
$ |
(1,601,048 |
) |
|
$ |
(1,580,630 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Loss
(earnings) from discontinued operations, net of tax |
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257,455 |
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(91,825 |
) |
(Gain) loss on disposal of assets |
|
|
(1,385 |
) |
|
|
1,378 |
|
Depreciation and amortization |
|
|
509,652 |
|
|
|
481,692 |
|
Deferred tax benefit (Note 15) |
|
|
(598,368 |
) |
|
|
(801,172 |
) |
Stock compensation expense |
|
|
85,374 |
|
|
|
93,034 |
|
Adjustment to cash surrender value of life insurance |
|
|
(34,771 |
) |
|
|
(69,217 |
) |
Straight-line rent |
|
|
1,068 |
|
|
|
(6,933 |
) |
Provision for doubtful accounts, net |
|
|
56,725 |
|
|
|
(59,413 |
) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Receivables |
|
|
279,475 |
|
|
|
(498,452 |
) |
Costs and earnings in excess of billings |
|
|
(537,901 |
) |
|
|
374,801 |
|
Other current and long-term assets |
|
|
(402,794 |
) |
|
|
(204,038 |
) |
Trade and subcontractors payable |
|
|
670,849 |
|
|
|
(267,137 |
) |
Accrued expenses and deferred revenue |
|
|
(111,644 |
) |
|
|
249,506 |
|
Billings in excess of costs and earnings |
|
|
36,302 |
|
|
|
933,989 |
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(1,391,011 |
) |
|
|
(1,444,417 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Premiums paid on officers life insurance policies |
|
|
(5,464 |
) |
|
|
(27,464 |
) |
Purchase of money market account investment |
|
|
(500,000 |
) |
|
|
|
|
Proceeds from termination of split-dollar life insurance agreement |
|
|
194,601 |
|
|
|
|
|
Additions to property and equipment |
|
|
(38,510 |
) |
|
|
(189,162 |
) |
Additions to intangible assets |
|
|
(188,757 |
) |
|
|
(312,674 |
) |
Proceeds from sale of property and equipment |
|
|
5,454 |
|
|
|
2,000 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(532,676 |
) |
|
|
(527,300 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Mortgage repayments |
|
|
(59,162 |
) |
|
|
(54,764 |
) |
Debt repayments |
|
|
|
|
|
|
(100,000 |
) |
Repurchase of common stock |
|
|
|
|
|
|
(4,625 |
) |
Proceeds from other long-term debt |
|
|
500,000 |
|
|
|
|
|
Cash dividends paid to shareholders |
|
|
(73,818 |
) |
|
|
(111,683 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
367,020 |
|
|
|
(271,072 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED OPERATIONS: |
|
|
|
|
|
|
|
|
Operating activities |
|
|
100,906 |
|
|
|
400,092 |
|
Investing activities |
|
|
1,981,275 |
|
|
|
48,246 |
|
Financing activities |
|
|
(40,925 |
) |
|
|
(123,254 |
) |
|
|
|
|
|
|
|
Net cash provided by discontinued operations |
|
|
2,041,256 |
|
|
|
325,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
484,589 |
|
|
|
(1,917,705 |
) |
Cash at beginning of period |
|
|
1,923,641 |
|
|
|
4,821,126 |
|
|
|
|
|
|
|
|
Cash at end of period |
|
$ |
2,408,230 |
|
|
$ |
2,903,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Reduction in cash surrender value of life insurance policies |
|
$ |
412,000 |
|
|
$ |
|
|
Reduction in loans against interest in cash surrender value
of life insurance policies |
|
$ |
(412,000 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Change in fair market value of deferred executive compensation
plan assets and liabilities |
|
$ |
13,242 |
|
|
$ |
|
|
See accompanying notes to condensed consolidated financial statements.
4
SERVIDYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 comprehensive energy efficiency
and demand response solutions, sustainability programs, and other building performance-enhancing
products and services to owners and operators of existing buildings, energy services companies, and
public and investor-owned utilities.
During the fiscal quarter ended January 31, 2011, the Company sold its last owned income-producing
property, other than its corporate headquarters facility. As a result, the Companys Real Estate
Segment is no longer considered a reportable segment. Accordingly, the Company has removed all
references to the Real Estate Segment from this quarterly report, and will not report results of
the Real Estate Segment in future periodic reports. See Note 6 Segment Reporting for more
information.
NOTE 2. UNAUDITED STATEMENTS
The accompanying unaudited condensed consolidated financial statements have been prepared by the
Company in accordance with generally accepted accounting principles (GAAP) 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, which 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/A
for the year ended April 30, 2010. Results of operations for interim periods are not necessarily
indicative of annual results.
The Company has made reclassifications related to certain income-producing properties that have
been sold in accordance with the guidance now codified as Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC) 360-35, Property, Plant and Equipment (ASC
360-35). As a result of these sales, the Companys financial statements have been prepared with
the results of operations and cash flows of these disposed properties shown as discontinued
operations, and the related assets and liabilities presented in the prior periods are currently
reflected in discontinued operations on the balance sheets. In addition, balances previously
presented in Income-Producing Properties, net which do not relate to discontinued operations are
now presented in Property and Equipment, net in the balance sheets.
5
NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS
In September 2009, the FASB reached a consensus on two new pronouncements: Accounting Standards
Update (ASU) No. 2009-13, Revenue Recognition (Topic 605)Multiple-Deliverable Revenue
Arrangements, and ASU No. 2009-14, Software (Topic 985)Certain Revenue Arrangements That Include
Software Elements. ASU No. 2009-13 eliminates the requirement that all undelivered elements must
have either (i) vendor specific objective evidence (VSOE) or (ii) third-party evidence (TPE) of
stand-alone selling price before an entity can recognize the portion of the consideration that is
attributable to items that already have been delivered. In the absence of VSOE or TPE of the
stand-alone selling price for one or more delivered or undelivered elements in a multiple-element
arrangement, entities will be required to estimate the selling prices of those elements. Overall
arrangement consideration will be allocated to each element (both delivered and undelivered items)
based on their relative selling prices, regardless of whether those selling prices are evidenced by
VSOE or TPE or are based on the entitys estimated selling price. The residual method of allocating
arrangement consideration has been eliminated. ASU No. 2009-14 modifies the software revenue
recognition guidance to exclude from its scope tangible products that contain both software and
non-software components that function together to deliver a products essential functionality.
These new pronouncements are effective for revenue arrangements entered into or materially modified
in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company is
currently evaluating the impact that the adoption of these pronouncements will have on the
determination or reporting of the Companys financial results.
In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic
820) Improving Disclosures about Fair Value Measurements. ASU 2010-06 requires some new
disclosures and clarifies some existing disclosure requirements about fair value measurement as set
forth in Codification Subtopic 820-10. ASU 2010-06 amends Codification Subtopic 820-10 to now
require (1) an entity to disclose separately the amounts of significant transfers in and out of
Level 1 and Level 2 fair value measurements and describe the reasons for the transfers; (2) in the
reconciliation for fair value measurements using significant Level 3 unobservable inputs, an entity
should present separately information about purchases, sales, issuances, and settlements; and (3)
an entity should provide disclosures about the valuation techniques and inputs used to measure fair
value for both recurring and nonrecurring fair value measurements. This new pronouncement was
effective for interim and annual reporting periods beginning after December 15, 2009. The Company
has determined that adoption did not have a significant impact on the determination or reporting of
the Companys financial results.
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. Most of these equity-based instruments
were granted under the terms of the Companys 2000 Stock Award Plan (the 2000 Award Plan). The
Company typically uses authorized, unissued shares to provide shares for these equity-based
instruments. As of May 1, 2010, no additional awards of equity-based incentive compensation
instruments can be granted
under the 2000 Award Plan, as the Plan has expired.
6
For the second quarter and the six (6) months ended October 31, 2010, total equity-based
compensation expenses were $40,307 and $85,374, respectively, and the related income tax benefits
were $15,317 and $32,443, respectively. Comparatively, for the second quarter and the six (6)
months ended October 31, 2009, total equity-based compensation expenses were $43,073 and $93,035,
respectively, and the related income tax benefits were $16,240 and $35,225, respectively. All of
these expenses are included in selling, general and administrative expenses in the condensed
consolidated statements of operations. At October 31, 2010, there were total unrecognized
equity-based compensation expenses of $254,259 that are expected to be recognized over a weighted
average period of approximately 1.7 years.
Stock Options
A summary of stock options activity for the six (6) months ended October 31, 2010, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Options to |
|
|
Average |
|
|
|
Purchase |
|
|
Exercise |
|
|
|
Shares |
|
|
Price |
|
Outstanding at April 30, 2010 |
|
|
482,486 |
|
|
$ |
4.46 |
|
Granted |
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
Expired |
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at October 31, 2010 |
|
|
482,486 |
|
|
$ |
4.46 |
|
|
|
|
|
|
|
|
Vested at October 31, 2010 |
|
|
482,486 |
|
|
$ |
4.46 |
|
|
|
|
|
|
|
|
Non-vested at October 31, 2010, that are expected to vest |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Stock options typically vest over a period of two (2) years. The maximum contractual term of
the stock options is ten (10) years. As of October 31, 2010, none of the outstanding stock
options, vested or non-vested, were in the money.
A summary of information about all stock options outstanding as of October 31, 2010, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
Exercise |
|
Number of |
|
|
Remaining Contractual |
|
Price |
|
Outstanding Options |
|
|
Term (Years) |
|
$4.42 |
|
|
415,629 |
|
|
|
2.03 |
|
$4.59 |
|
|
55,440 |
|
|
|
4.40 |
|
$5.19 |
|
|
917 |
|
|
|
3.63 |
|
$5.24 |
|
|
10,500 |
|
|
|
2.62 |
|
The Company estimates the fair value of each stock option award on the date of grant using the
Black-Scholes option-pricing model. The risk-free interest rate utilized in the Black-Scholes
calculation is the
interest rate of the U.S. Treasury Bill having the same maturity period as the expected life of the
stock option award. The expected life of the stock option granted is based on the estimated holding
period of the awarded stock option. The expected volatility of the stock option granted is based
on the historical
7
volatility of the Companys stock over the preceding five-year period using the
month-end closing stock price.
Compensation expenses related to the vesting of stock options for the second quarter and the six
(6) months ended October 31, 2010, were $0 and $242, respectively, and the related income tax
benefits were $0 and $92, respectively. Comparatively, related compensation expenses for the
second quarter and the six (6) months ended October 31, 2009, were $242 and $2,417, respectively,
and the related income tax benefits were $92 and $919, respectively.
Stock Appreciation Rights (SARs)
A summary of SARs activity for the six (6) months ended October 31, 2010, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Exercise |
|
|
|
SARs |
|
|
Price |
|
Outstanding at April 30, 2010 |
|
|
927,425 |
|
|
$ |
3.85 |
|
Granted |
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
Forfeited |
|
|
(52,500 |
) |
|
|
4.76 |
|
|
|
|
|
|
|
|
Outstanding at October 31, 2010 |
|
|
874,925 |
|
|
$ |
3.79 |
|
|
|
|
|
|
|
|
Vested at October 31, 2010 |
|
|
155,579 |
|
|
$ |
4.06 |
|
|
|
|
|
|
|
|
Non-vested at October 31, 2010, that are expected to vest |
|
|
521,687 |
|
|
$ |
3.80 |
|
|
|
|
|
|
|
|
All SARs have a five-year vesting period. Typically, thirty percent (30%) of the SARs will
vest on the third (3rd) year anniversary of the date of grant, thirty percent (30%) will
vest on the fourth (4th) year anniversary of the date of grant, and forty percent (40%)
will vest on the fifth (5th) year anniversary of the date of grant. All SARs have early
vesting provisions by which one hundred percent (100%) of the SARs would vest immediately (a) on
the date of a change in control of the Company; or (b) if the Companys stock price were to close
at or above a certain price for ten (10) consecutive trading days. For SARs granted prior to the
stock dividend that occurred in the first quarter of fiscal 2009, the triggering price for early
vesting is $19.05 per share. For SARs granted subsequent to the stock dividend that occurred in
the first quarter of fiscal 2009, the triggering price for early vesting for SARs issued under the
2000 Award Plan is $20.00 per share, and the triggering price for early vesting for SARs not issued
under the 2000 Award Plan is $19.05 per share. The maximum contractual term of all SARs is ten
(10) years. As of October 31, 2010, 181,500 of the non-vested outstanding SARs, with a weighted
average exercise price of $2.13, were in the money, whereas none of the vested outstanding SARs
were in the money.
8
A summary of information about all SARs outstanding as of October 31, 2010, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
Exercise |
|
Outstanding |
|
|
Vested |
|
|
Remaining Contractual |
|
Price |
|
SARs |
|
|
SARs |
|
|
Term (Years) |
|
$3.94 |
|
|
180,495 |
|
|
|
108,959 |
|
|
|
5.66 |
|
$3.79 |
|
|
109,830 |
|
|
|
33,390 |
|
|
|
6.10 |
|
$4.19 |
|
|
10,500 |
|
|
|
3,150 |
|
|
|
6.62 |
|
$6.19 |
|
|
33,600 |
|
|
|
10,080 |
|
|
|
6.92 |
|
$5.00 |
|
|
52,500 |
|
|
|
0 |
|
|
|
7.48 |
|
$4.76 |
|
|
84,000 |
|
|
|
0 |
|
|
|
7.62 |
|
$4.00 |
|
|
22,500 |
|
|
|
0 |
|
|
|
7.88 |
|
$2.30 |
|
|
30,000 |
|
|
|
0 |
|
|
|
8.61 |
|
$4.00 |
|
|
200,000 |
|
|
|
0 |
|
|
|
9.04 |
|
$2.12 |
|
|
20,000 |
|
|
|
0 |
|
|
|
9.11 |
|
$2.09 |
|
|
131,500 |
|
|
|
0 |
|
|
|
9.40 |
|
The Company estimates the fair value of each award of SARs on the date of grant using the
Black-Scholes option-pricing model. The risk-free interest rate utilized in the Black-Scholes
calculation is the interest rate of the U.S. Treasury Bill having the same maturity as the expected
life of the SARs award. The expected life of the SARs granted is based on the estimated holding
period of the award. 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.
Compensation expenses related to the vesting of SARs for the second quarter and the six (6) months
ended October 31, 2010, were $39,762 and $83,204, respectively, and the related income tax benefits
were $15,110 and $31,618, respectively. Comparatively, related compensation expenses for the
second quarter and the six (6) months ended October 31, 2009, were $41,215 and $85,719,
respectively, and the related income tax benefits were $15,534 and $32,444, respectively.
Shares of Restricted Stock
Prior to the expiration of the 2000 Award Plan, the Company periodically awarded shares of
restricted stock to employees, non-employee directors and certain outside service providers. The
awards were recorded at fair market value on the date of grant and typically vested over a period
of one (1) year. As of October 31, 2010, there were unrecognized compensation expenses totaling
$647 related to grants of shares of restricted stock, which the Company expects to be recognized
over the ensuing year.
Compensation expenses related to the vesting of shares of restricted stock for the second quarter
and the six (6) months ended October 31, 2010, were $545 and $1,928, respectively, and the related
income tax benefits were $207 and $733, respectively. Comparatively, the related compensation
expenses for the second quarter and the six (6) months ended October 31, 2009, were $1,616 and
$4,899, respectively, and the related income tax benefits were $614 and $1,862, respectively.
9
The following table summarizes restricted stock activity for the six (6) months ended October 31,
2010:
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Weighted Average |
|
|
|
Shares of |
|
|
Fair Value |
|
|
|
Restricted |
|
|
per Share |
|
|
|
Stock |
|
|
on Grant Date |
|
Non-vested restricted stock at April 30, 2010 |
|
|
3,150 |
|
|
$ |
2.99 |
|
Granted |
|
|
|
|
|
|
|
|
Forfeited |
|
|
(400 |
) |
|
|
2.11 |
|
Vested |
|
|
(1,050 |
) |
|
|
4.76 |
|
|
|
|
|
|
|
|
Non-vested restricted stock at October 31, 2010 |
|
|
1,700 |
|
|
$ |
2.11 |
|
|
|
|
|
|
|
|
NOTE 5. RECEIVABLES
All net contract and trade receivables are expected to be collected within one (1) year.
NOTE 6. SEGMENT REPORTING
In recent years the Company disposed of the vast majority of its real estate holdings, selling its
last owned income-producing property, other than its corporate headquarters facility, in December
2010 (see Note 10 Discontinued Operations for more information). As a result, during the third
quarter of fiscal 2011, following authoritative guidance in ASC 280, Segment Reporting, the
Company performed a reassessment of the applicable quantitative and qualitative thresholds for
segment reporting and determined that the BPE Segment is the Companys only reportable segment.
The Company identified this reportable segment based on internal management reporting and
management decision-making responsibilities.
The table below shows selected financial data on an operating segment basis, including intersegment
revenues, costs and expenses. Information previously reported as Real Estate and Parent is now
combined in Corporate.
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Second Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
Ended October 31, 2010 |
|
BPE |
|
|
Corporate (1) |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
Revenues from unaffiliated customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BPE Segment services and products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy savings projects |
|
$ |
5,803,363 |
|
|
|
|
|
|
|
|
|
|
$ |
5,803,363 |
|
Lighting products |
|
|
531,177 |
|
|
|
|
|
|
|
|
|
|
|
531,177 |
|
Energy management services |
|
|
426,496 |
|
|
|
|
|
|
|
|
|
|
|
426,496 |
|
Fifth fuel management services |
|
|
33,967 |
|
|
|
|
|
|
|
|
|
|
|
33,967 |
|
Productivity software |
|
|
724,144 |
|
|
|
|
|
|
|
|
|
|
|
724,144 |
|
|
|
|
Total revenues from unaffiliated customers |
|
$ |
7,519,147 |
|
|
$ |
110,807 |
|
|
$ |
|
|
|
$ |
7,629,954 |
|
Intersegment revenue |
|
|
|
|
|
|
4,507 |
|
|
|
(4,507 |
) |
|
|
|
|
|
|
|
Total revenues from continuing
operations |
|
$ |
7,519,147 |
|
|
$ |
115,314 |
|
|
$ |
(4,507 |
) |
|
$ |
7,629,954 |
|
|
|
|
Earnings (loss) from continuing
operations before income taxes |
|
$ |
383,153 |
|
|
$ |
(976,560 |
) |
|
$ |
64,290 |
|
|
$ |
(529,117 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months |
|
|
|
|
|
|
|
|
|
|
|
|
Ended October 31, 2010 |
|
BPE |
|
|
Corporate (1) |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
Revenues from unaffiliated customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BPE Segment services and products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy savings projects |
|
$ |
8,821,955 |
|
|
|
|
|
|
|
|
|
|
$ |
8,821,955 |
|
Lighting products |
|
|
1,215,912 |
|
|
|
|
|
|
|
|
|
|
|
1,215,912 |
|
Energy management services |
|
|
766,586 |
|
|
|
|
|
|
|
|
|
|
|
766,586 |
|
Fifth fuel management services |
|
|
91,026 |
|
|
|
|
|
|
|
|
|
|
|
91,026 |
|
Productivity software |
|
|
1,465,395 |
|
|
|
|
|
|
|
|
|
|
|
1,465,395 |
|
|
|
|
Total revenues from unaffiliated customers |
|
$ |
12,360,874 |
|
|
$ |
214,675 |
|
|
$ |
|
|
|
$ |
12,575,549 |
|
Intersegment revenue |
|
|
|
|
|
|
72,811 |
|
|
|
(72,811 |
) |
|
|
|
|
|
|
|
Total revenues from continuing
operations |
|
$ |
12,360,874 |
|
|
$ |
287,486 |
|
|
$ |
(72,811 |
) |
|
$ |
12,575,549 |
|
|
|
|
(Loss) earnings from continuing
operations before income taxes |
|
$ |
(218,223 |
) |
|
$ |
(1,794,778 |
) |
|
$ |
63,644 |
|
|
$ |
(1,949,357 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Second Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
Ended October 31, 2009 |
|
BPE |
|
|
Corporate (1) |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
Revenues from unaffiliated customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BPE Segment services and products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy savings projects |
|
$ |
2,048,382 |
|
|
|
|
|
|
|
|
|
|
$ |
2,048,382 |
|
Lighting products |
|
|
484,287 |
|
|
|
|
|
|
|
|
|
|
|
484,287 |
|
Energy management services |
|
|
457,714 |
|
|
|
|
|
|
|
|
|
|
|
457,714 |
|
Fifth fuel management services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Productivity software |
|
|
932,158 |
|
|
|
|
|
|
|
|
|
|
|
932,158 |
|
|
|
|
Total revenues from unaffiliated customers |
|
$ |
3,922,541 |
|
|
$ |
106,017 |
|
|
$ |
|
|
|
$ |
4,028,558 |
|
Intersegment revenue |
|
|
|
|
|
|
63,494 |
|
|
|
(63,494 |
) |
|
|
|
|
|
|
|
Total revenues from continuing
operations |
|
$ |
3,922,541 |
|
|
$ |
169,511 |
|
|
$ |
(63,494 |
) |
|
$ |
4,028,558 |
|
|
|
|
(Loss) earnings from continuing
operations before income taxes |
|
$ |
(352,474 |
) |
|
$ |
(800,308 |
) |
|
$ |
5,984 |
|
|
$ |
(1,146,798 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months |
|
|
|
|
|
|
|
|
|
|
|
|
Ended October 31, 2009 |
|
BPE |
|
|
Corporate (1) |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
Revenues from unaffiliated customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BPE Segment services and products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy savings projects |
|
$ |
4,061,226 |
|
|
|
|
|
|
|
|
|
|
$ |
4,061,226 |
|
Lighting products |
|
|
940,738 |
|
|
|
|
|
|
|
|
|
|
|
940,738 |
|
Energy management services |
|
|
1,021,514 |
|
|
|
|
|
|
|
|
|
|
|
1,021,514 |
|
Fifth fuel management services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Productivity software |
|
|
1,772,171 |
|
|
|
|
|
|
|
|
|
|
|
1,772,171 |
|
|
|
|
Total revenues from unaffiliated customers |
|
$ |
7,795,649 |
|
|
$ |
207,052 |
|
|
$ |
|
|
|
$ |
8,002,701 |
|
Intersegment revenue |
|
|
141,545 |
|
|
|
133,362 |
|
|
|
(274,907 |
) |
|
|
|
|
|
|
|
Total revenues from continuing
operations |
|
$ |
7,937,194 |
|
|
$ |
340,414 |
|
|
$ |
(274,907 |
) |
|
$ |
8,002,701 |
|
|
|
|
Loss from continuing
operations before income taxes |
|
$ |
(742,959 |
) |
|
$ |
(1,695,133 |
) |
|
$ |
(9,456 |
) |
|
$ |
(2,447,548 |
) |
|
|
|
11
|
|
|
(1) |
|
The Corporate net loss in each period was derived from corporate headquarters
activities, which consist primarily of the following: rental revenues from tenants in
the Companys corporate headquarters building and related rental and operating costs,
salaries and benefits of Corporate Headquarters executive officers and staff,
equity-based compensation expenses, depreciation and amortization expenses, and costs
related to the Companys status as a publicly-held company, which include, among other
items, legal fees, non-employee directors fees, consulting expenses, investor relations
expenses, corporate audit and tax fees, Nasdaq listing fees, and other Securities &
Exchange Commission (SEC) and Sarbanes-Oxley compliance and financial reporting costs.
All relevant costs related to the business operations of the Companys BPE Segment are
either paid directly by BPE or are allocated to BPE by the Corporate Headquarters. 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 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, restricted
stock and stock appreciation rights. The potential dilutive effect on the number of common shares
for the first six (6) months of fiscal 2011 and fiscal 2010 was 22,170 shares and 0 shares,
respectively. Because the Company had a loss from continuing operations for the quarter and the
six (6) months ended October 31, 2010, as well as for the quarter and the six (6) months ended
October 31, 2009, all stock equivalents were anti-dilutive during these periods and, therefore, are
excluded when determining the diluted weighted average number of shares outstanding.
12
NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
The gross carrying amounts and accumulated amortization for the Companys intangible assets as of
October 31, 2010, and April 30, 2010, are as follows:
|
|
|
|
|
|
|
|
|
|
|
October 31, 2010 |
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
|
Amount |
|
|
Amortization |
|
Intangible assets, subject to amortization: |
|
|
|
|
|
|
|
|
Proprietary BPE technology solutions |
|
$ |
4,261,926 |
|
|
$ |
3,095,503 |
|
Acquired computer software |
|
|
706,032 |
|
|
|
519,376 |
|
Real estate lease costs |
|
|
49,170 |
|
|
|
24,206 |
|
Customer relationships |
|
|
404,632 |
|
|
|
308,207 |
|
Deferred loan costs |
|
|
122,686 |
|
|
|
101,216 |
|
Non-compete agreements |
|
|
63,323 |
|
|
|
63,323 |
|
Tradename |
|
|
61,299 |
|
|
|
9,874 |
|
Other |
|
|
44,882 |
|
|
|
43,449 |
|
|
|
|
|
|
|
|
|
|
$ |
5,713,950 |
|
|
$ |
4,165,154 |
|
|
|
|
|
|
|
|
|
Intangible assets and goodwill, not subject to amortization: |
|
|
|
|
|
|
|
|
Trademark |
|
$ |
708,707 |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
6,354,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2010 |
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
|
Amount |
|
|
Amortization |
|
Intangible assets, subject to amortization: |
|
|
|
|
|
|
|
|
Proprietary BPE technology solutions |
|
$ |
4,096,802 |
|
|
$ |
2,827,071 |
|
Acquired computer software |
|
|
676,837 |
|
|
|
493,885 |
|
Real estate lease costs |
|
|
49,170 |
|
|
|
19,459 |
|
Customer relationships |
|
|
404,632 |
|
|
|
286,433 |
|
Deferred loan costs |
|
|
122,686 |
|
|
|
95,082 |
|
Non-compete agreements |
|
|
63,323 |
|
|
|
60,684 |
|
Tradename |
|
|
61,299 |
|
|
|
7,834 |
|
Other |
|
|
44,882 |
|
|
|
42,016 |
|
|
|
|
|
|
|
|
|
|
$ |
5,519,631 |
|
|
$ |
3,832,464 |
|
|
|
|
|
|
|
|
|
Intangible assets and goodwill, not subject to amortization: |
|
|
|
|
|
|
|
|
Trademark |
|
$ |
708,707 |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
6,354,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate amortization expense for all amortizable intangible assets: |
For the six months ended October 31, 2010 |
|
$ |
351,120 |
|
For the six months ended October 31, 2009 |
|
|
295,835 |
|
For the quarter ended October 31, 2010 |
|
|
177,059 |
|
For the quarter ended October 31, 2009 |
|
|
151,193 |
|
|
Estimated future amortization expenses for all amortized intangible assets for the fiscal years ended: |
Remainder of 2011 |
|
$ |
268,594 |
|
2012 |
|
|
496,115 |
|
2013 |
|
|
348,047 |
|
2014 |
|
|
247,264 |
|
2015 |
|
|
126,150 |
|
2016 |
|
|
33,680 |
|
Thereafter |
|
|
28,946 |
|
|
|
|
|
|
|
$ |
1,548,796 |
|
|
|
|
|
13
The Company performed the annual impairment analysis of goodwill and indefinite-lived
intangible assets in the fiscal quarter ended January 31, 2010. The annual analysis resulted in a
determination of no impairment. Management considers both positive and negative indicators of
impairment on an interim basis. The Company has concluded it was not necessary to perform an
interim test of impairment as of October 31, 2010. 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.
NOTE 9. OTHER ASSETS
Money Market Account Investment
On October 15, 2010, the Company purchased a money market account investment in the amount of
$500,000. This investment is classified as a non-current Other Asset, as it serves as security for
a performance bond as required by a significant long-term BPE energy savings project contract.
Termination of Split Dollar Life Insurance Agreement
Historically, the Company has been a party to split dollar life insurance agreements pursuant to
which, among other things, the Company has agreed to pay premiums on life insurance policies for
certain executives of the Company. The cash surrender values of these insurance policies are
recorded as long-term other assets in the Companys condensed consolidated balance sheet. As of
July 31, 2010, the Company was a party to three (3) split dollar agreements regarding policies
insuring the lives of current and former executive officers of the Company, and had long-term loans
of approximately $982,000 against its interest in the cash surrender value of these policies.
On October 21, 2010, the split dollar life insurance agreement (the Agreement) related to the
policy jointly insuring the lives of Edward M. Abrams (deceased), the Companys former Chairman of
the Board and Chief Executive Officer, and his widow, Ann U. Abrams (the parents of Alan R. Abrams,
the Companys Chairman of the Board and Chief Executive Officer, and J. Andrew Abrams, the
Companys Executive Vice President) was terminated prior to the death of the remaining insured.
Prior to the termination, the Company had a long-term loan of approximately $412,000 against its
interest in the cash surrender value of this policy, which loan amount approximately equaled the
cumulative policy premiums paid by the Company through the date the loan was originated, and
represented a substantial majority of the policys cash surrender value prior to the loan. Under
the terms of the Agreement, in the event of an early termination prior to the death of the insured,
the Company was entitled to receive the remaining cash surrender value of the policy, if any, on
the date of termination. However, in consideration of the consent to the early termination of the
Agreement by the trust that owns the policy, the Company agreed to reduce the net cash surrender
value otherwise payable to the Company by $42,000. As a result of the early termination of the
Agreement: (1) the long-term loan against the Companys interest in the cash surrender value of the
policy of approximately $412,000, and the related accrued interest of approximately $13,000, was
repaid in full; (2) the Company received approximately $195,000 in cash proceeds; (3) the Companys
ongoing obligation to pay premiums on the policy and its entitlement to any portion of the policys
death benefit were terminated; and (4) the Company reduced its long-term other assets by
approximately $662,000, representing the Companys interest in the cash surrender value of the
policy prior to termination.
14
NOTE 10. DISCONTINUED OPERATIONS
On December 15, 2010, the Company sold its owned shopping center in Smyrna, Tennessee, for a sales
price of approximately $4.3 million. The sale generated net cash proceeds of approximately
$250,000, after deducting approximately $125,000 for closing costs and prorations, and net of the
approximately $3.9 million mortgage note, which was assumed by the buyer. The Company recognized a
pre-tax loss on the sale of approximately $6,000. Prior to the sale, the Company recorded an
impairment loss of approximately $590,000 in the second quarter of fiscal 2011.
On June 9, 2010, the Company sold its owned shopping center in Jacksonville, Florida, for a sales
price of approximately $9.9 million. The sale generated net cash proceeds of approximately $2
million, after deducting approximately $0.5 million for funding of repair escrows and approximately
$0.6 million for closing costs and prorations, and net of the approximately $6.9 million mortgage
note, which was assumed by the buyer. The Company recognized a pre-tax gain on the sale of
approximately $190,000, including approximately $75,000 in additional pre-tax gain recognized in
the second and third quarters of fiscal 2011 as the result of the successful completion of
contractual conditions and other cost-basis adjustments.
On January 29, 2010, the Company transferred its approximately $2.0 million interest in an owned
office building in Newnan, Georgia, and related assets to the note holder, which satisfied in full
the Companys liability for the approximately $3.2 million remaining balance on the propertys
non-recourse mortgage loan. Correspondingly, the Company recognized a pre-tax gain of
approximately $1.2 million in the third quarter of fiscal 2010 as a result of the elimination of
the balance of the indebtedness on the property.
15
As a result of these real estate transactions, the Companys financial statements have been
prepared with the results of operations and cash flows of these three (3) disposed properties shown
as discontinued operations. All historical statements have been
recast in accordance with GAAP.
Summarized financial information for discontinued operations for the second quarter and the six (6)
months ended October 31, 2010, and October 31, 2009, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended |
|
|
Six Months Ended |
|
|
|
October 31, |
|
|
October 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
Rental revenues |
|
$ |
131,907 |
|
|
$ |
579,345 |
|
|
$ |
428,066 |
|
|
$ |
1,234,405 |
|
Rental property operating expenses, including depreciation |
|
|
135,566 |
|
|
|
544,345 |
|
|
|
415,971 |
|
|
|
1,093,379 |
|
Loss on impairment of income-producing property |
|
|
589,559 |
|
|
|
|
|
|
|
589,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) earnings from discontinued operations |
|
|
(593,218 |
) |
|
|
35,000 |
|
|
|
(577,464 |
) |
|
|
141,026 |
|
Income tax benefit (expense) |
|
|
210,821 |
|
|
|
(22,048 |
) |
|
|
219,436 |
|
|
|
(49,201 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) earnings from discontinued operations, net of tax |
|
|
(382,397 |
) |
|
|
12,952 |
|
|
|
(358,028 |
) |
|
|
91,825 |
|
|
|
|
|
|
Gain on disposition of income-producing properties |
|
|
76,779 |
|
|
|
|
|
|
|
191,717 |
|
|
|
|
|
Income tax expense |
|
|
(27,146 |
) |
|
|
|
|
|
|
(91,144 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on disposition of income-producing properties, net of tax |
|
|
49,633 |
|
|
|
|
|
|
|
100,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from discontinued operations, net of tax |
|
$ |
(332,764 |
) |
|
$ |
12,952 |
|
|
$ |
(257,455 |
) |
|
$ |
91,825 |
|
|
|
|
|
|
The
following tables reflect the effects of the adjustments on the
Companys condensed consolidated
financial statements when compared to the original filing of this Form 10-Q as a result of
recasting the discontinued operations and the discontinuance of the
former Real Estate Segment. The effects of the dispositions of the Companys owned office building in Newnan, Georgia, and its
owned shopping center in Jacksonville, Florida, are included in the As Originally Reported
amounts as of October 31, 2010, and April 30, 2010, and for the
three and six month periods ended October 31, 2010 and 2009. The recasted amounts in the following tables are carried
forward to Note 15 Restatement of Condensed Consolidated Financial Statements, which presents the
effects of the correction of the error associated with the valuation allowance on deferred income
taxes.
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2010 |
|
|
|
|
|
|
|
|
|
|
Reclassification |
|
|
|
|
|
|
|
|
|
|
|
|
Related to |
|
As Recast for |
|
|
|
|
|
|
|
|
|
|
Discontinuance |
|
Discontinued |
|
|
|
|
|
|
Adjustments for |
|
of Real Estate |
|
Operations and |
|
|
As Originally |
|
Discontinued |
|
Segment |
|
Segment Change |
|
|
Reported |
|
Operations |
|
Reporting |
|
(Note 15) |
Consolidated balance sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,408,230 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,408,230 |
|
Receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts and notes, net of allowance for doubtful accounts |
|
|
875,164 |
|
|
|
(53,841 |
) |
|
|
|
|
|
|
821,323 |
|
Contracts, net of allowance for doubtful accounts |
|
|
3,132,729 |
|
|
|
|
|
|
|
|
|
|
|
3,132,729 |
|
Costs and earnings in excess of billings |
|
|
1,253,030 |
|
|
|
|
|
|
|
|
|
|
|
1,253,030 |
|
Assets of discontinued operations |
|
|
68,684 |
|
|
|
97,522 |
|
|
|
|
|
|
|
166,206 |
|
Deferred income taxes |
|
|
359,878 |
|
|
|
(15,333 |
) |
|
|
|
|
|
|
344,545 |
|
Other current assets |
|
|
1,734,215 |
|
|
|
(28,348 |
) |
|
|
|
|
|
|
1,705,867 |
|
|
|
|
Total current assets |
|
|
9,831,930 |
|
|
|
|
|
|
|
|
|
|
|
9,831,930 |
|
INCOME-PRODUCING PROPERTIES, net |
|
|
7,992,605 |
|
|
|
(3,942,904 |
) |
|
|
(4,049,701 |
) |
|
|
|
|
PROPERTY AND EQUIPMENT, net |
|
|
607,759 |
|
|
|
|
|
|
|
4,049,701 |
|
|
|
4,657,460 |
|
ASSETS OF DISCONTINUED OPERATIONS |
|
|
|
|
|
|
4,231,122 |
|
|
|
|
|
|
|
4,231,122 |
|
DEFERRED INCOME TAXES |
|
|
|
|
|
|
1,306,820 |
|
|
|
|
|
|
|
1,306,820 |
|
OTHER ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
held for future development or sale |
|
|
853,109 |
|
|
|
|
|
|
|
|
|
|
|
853,109 |
|
Intangible assets, net |
|
|
2,527,974 |
|
|
|
(270,471 |
) |
|
|
|
|
|
|
2,257,503 |
|
Goodwill |
|
|
6,354,002 |
|
|
|
|
|
|
|
|
|
|
|
6,354,002 |
|
Other assets |
|
|
2,807,072 |
|
|
|
(17,747 |
) |
|
|
|
|
|
|
2,789,325 |
|
|
|
|
Total assets |
|
$ |
30,974,451 |
|
|
$ |
1,306,820 |
|
|
$ |
|
|
|
$ |
32,281,271 |
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and subcontractors payables |
|
$ |
3,135,961 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,135,961 |
|
Accrued expenses |
|
|
1,469,691 |
|
|
|
(71,417 |
) |
|
|
|
|
|
|
1,398,274 |
|
Deferred revenue |
|
|
357,937 |
|
|
|
|
|
|
|
|
|
|
|
357,937 |
|
Billings in excess of costs and earnings |
|
|
89,402 |
|
|
|
|
|
|
|
|
|
|
|
89,402 |
|
Liabilities of discontinued operations |
|
|
21,390 |
|
|
|
123,261 |
|
|
|
|
|
|
|
144,651 |
|
Short-term debt and current maturities of long-term debt |
|
|
327,187 |
|
|
|
(51,844 |
) |
|
|
|
|
|
|
275,343 |
|
|
|
|
Total current liabilities |
|
|
5,401,568 |
|
|
|
|
|
|
|
|
|
|
|
5,401,568 |
|
DEFERRED INCOME TAXES |
|
|
222,803 |
|
|
|
(222,803 |
) |
|
|
|
|
|
|
|
|
LIABILITIES OF DISCONTINUED OPERATIONS |
|
|
|
|
|
|
5,436,826 |
|
|
|
|
|
|
|
5,436,826 |
|
OTHER LIABILITIES |
|
|
1,061,264 |
|
|
|
|
|
|
|
|
|
|
|
1,061,264 |
|
MORTGAGE NOTES PAYABLE, less current maturities |
|
|
7,951,286 |
|
|
|
(3,907,203 |
) |
|
|
|
|
|
|
4,044,083 |
|
OTHER LONG-TERM DEBT, less current maturities |
|
|
1,938,069 |
|
|
|
|
|
|
|
|
|
|
|
1,938,069 |
|
|
|
|
Total liabilities |
|
|
16,574,990 |
|
|
|
1,306,820 |
|
|
|
|
|
|
|
17,881,810 |
|
COMMITMENTS
AND CONTINGENCIES SHAREHOLDERS EQUITY: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
3,919,373 |
|
|
|
|
|
|
|
|
|
|
|
3,919,373 |
|
Additional
paid-in capital |
|
|
6,292,295 |
|
|
|
|
|
|
|
|
|
|
|
6,292,295 |
|
Retained
earnings |
|
|
5,193,941 |
|
|
|
|
|
|
|
|
|
|
|
5,193,941 |
|
Treasury
stock (common shares) |
|
|
(1,006,148 |
) |
|
|
|
|
|
|
|
|
|
|
(1,006,148 |
) |
|
|
|
Total shareholders equity |
|
|
14,399,461 |
|
|
|
|
|
|
|
|
|
|
|
14,399,461 |
|
|
|
|
Total liabilities and
shareholders equity |
|
$ |
30,974,451 |
|
|
$ |
1,306,820 |
|
|
$ |
|
|
|
$ |
32,281,271 |
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2010 |
|
|
|
|
|
|
|
|
|
|
Reclassification |
|
|
|
|
|
|
|
|
|
|
|
|
Related to |
|
As Recast for |
|
|
|
|
|
|
|
|
|
|
Discontinuance |
|
Discontinued |
|
|
|
|
|
|
Adjustments for |
|
of Real Estate |
|
Operations and |
|
|
As Originally |
|
Discontinued |
|
Segment |
|
Segment Change |
|
|
Reported |
|
Operations |
|
Reporting |
|
(Note 15) |
Consolidated balance sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,923,641 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,923,641 |
|
Receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts and notes, net of allowance for doubtful accounts |
|
|
973,442 |
|
|
|
(20,367 |
) |
|
|
|
|
|
|
953,075 |
|
Contracts, net of allowance for doubtful accounts |
|
|
3,337,177 |
|
|
|
|
|
|
|
|
|
|
|
3,337,177 |
|
Costs and earnings in excess of billings |
|
|
715,129 |
|
|
|
|
|
|
|
|
|
|
|
715,129 |
|
Assets of discontinued operations |
|
|
150,970 |
|
|
|
37,857 |
|
|
|
|
|
|
|
188,827 |
|
Deferred income taxes |
|
|
401,223 |
|
|
|
(8 |
) |
|
|
|
|
|
|
401,215 |
|
Other current assets |
|
|
1,265,326 |
|
|
|
(17,482 |
) |
|
|
|
|
|
|
1,247,844 |
|
|
|
|
Total current assets |
|
|
8,766,908 |
|
|
|
|
|
|
|
|
|
|
|
8,766,908 |
|
INCOME-PRODUCING PROPERTIES, net |
|
|
8,701,893 |
|
|
|
(4,578,796 |
) |
|
|
(4,123,097 |
) |
|
|
|
|
PROPERTY AND EQUIPMENT, net |
|
|
682,445 |
|
|
|
|
|
|
|
4,123,097 |
|
|
|
4,805,542 |
|
ASSETS OF DISCONTINUED OPERATIONS |
|
|
8,881,447 |
|
|
|
4,885,780 |
|
|
|
|
|
|
|
13,767,227 |
|
DEFERRED INCOME TAXES |
|
|
6,666 |
|
|
|
1,712,288 |
|
|
|
|
|
|
|
1,718,954 |
|
OTHER ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate held for future development or sale |
|
|
853,109 |
|
|
|
|
|
|
|
|
|
|
|
853,109 |
|
Intangible assets, net |
|
|
2,684,057 |
|
|
|
(288,183 |
) |
|
|
|
|
|
|
2,395,874 |
|
Goodwill |
|
|
6,354,002 |
|
|
|
|
|
|
|
|
|
|
|
6,354,002 |
|
Other assets |
|
|
2,909,158 |
|
|
|
(18,801 |
) |
|
|
|
|
|
|
2,890,357 |
|
|
|
|
Total assets |
|
$ |
39,839,685 |
|
|
$ |
1,718,288 |
|
|
$ |
|
|
|
$ |
41,551,973 |
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and subcontractors payables |
|
$ |
2,465,112 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,465,112 |
|
Accrued expenses |
|
|
1,429,321 |
|
|
|
(50,783 |
) |
|
|
|
|
|
|
1,378,538 |
|
Deferred revenue |
|
|
507,383 |
|
|
|
|
|
|
|
|
|
|
|
507,383 |
|
Billings in excess of costs and earnings |
|
|
53,100 |
|
|
|
|
|
|
|
|
|
|
|
53,100 |
|
Liabilities of discontinued operations |
|
|
417,681 |
|
|
|
102,627 |
|
|
|
|
|
|
|
520,308 |
|
Short-term debt and current maturities of long-term debt |
|
|
322,436 |
|
|
|
(51,844 |
) |
|
|
|
|
|
|
270,592 |
|
|
|
|
Total current liabilities |
|
|
5,195,033 |
|
|
|
|
|
|
|
|
|
|
|
5,195,033 |
|
LIABILITIES OF DISCONTINUED OPERATIONS |
|
|
7,943,165 |
|
|
|
5,644,667 |
|
|
|
|
|
|
|
13,587,832 |
|
OTHER LIABILITIES |
|
|
1,039,633 |
|
|
|
|
|
|
|
|
|
|
|
1,039,633 |
|
MORTGAGE NOTES PAYABLE, less current maturities |
|
|
8,040,375 |
|
|
|
(3,932,379 |
) |
|
|
|
|
|
|
4,107,996 |
|
OTHER LONG-TERM DEBT, less current maturities |
|
|
1,832,000 |
|
|
|
|
|
|
|
|
|
|
|
1,832,000 |
|
|
|
|
Total liabilities |
|
|
24,050,206 |
|
|
|
1,712,288 |
|
|
|
|
|
|
|
25,762,494 |
|
COMMITMENTS AND CONTINGENCIES SHAREHOLDERS EQUITY: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
3,919,773 |
|
|
|
|
|
|
|
|
|
|
|
3,919,773 |
|
Additional paid-in capital |
|
|
6,206,521 |
|
|
|
|
|
|
|
|
|
|
|
6,206,521 |
|
Retained earnings |
|
|
6,669,330 |
|
|
|
|
|
|
|
|
|
|
|
6,669,330 |
|
Treasury stock (common shares) |
|
|
(1,006,145 |
) |
|
|
|
|
|
|
|
|
|
|
1,006,145 |
|
|
|
|
Total shareholders equity |
|
|
15,789,479 |
|
|
|
|
|
|
|
|
|
|
|
15,789,479 |
|
|
|
|
Total liabilities
and shareholders equity |
|
$ |
39,839,685 |
|
|
$ |
1,712,288 |
|
|
$ |
|
|
|
$ |
41,551,973 |
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Second Quarter Ended October 31, 2010 |
|
|
|
|
|
|
|
|
|
|
As Recast for |
|
|
|
|
|
|
Adjustments for |
|
Discontinued |
|
|
As Originally |
|
Discontinued |
|
Operations |
|
|
Reported |
|
Operations |
|
(Note 15) |
Consolidated statement of operations |
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
Building Performance Efficiency (BPE) |
|
$ |
7,519,147 |
|
|
$ |
|
|
|
$ |
7,519,147 |
|
Other (formerly Real Estate) |
|
|
252,587 |
|
|
|
(141,780 |
) |
|
|
110,807 |
|
|
|
|
|
|
|
7,771,734 |
|
|
|
(141,780 |
) |
|
|
7,629,954 |
|
|
|
|
COST OF REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
BPE |
|
|
5,403,096 |
|
|
|
|
|
|
|
5,403,096 |
|
Other (formerly Real Estate) |
|
|
241,475 |
|
|
|
(80,129 |
) |
|
|
161,345 |
|
|
|
|
|
|
|
5,644,571 |
|
|
|
(80,129 |
) |
|
|
5,564,442 |
|
|
|
|
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
|
|
2,552,113 |
|
|
|
(1,896 |
) |
|
|
2,550,217 |
|
|
|
|
OTHER (INCOME) AND EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
(72,457 |
) |
|
|
(5,091 |
) |
|
|
(67,366 |
) |
Interest income |
|
|
(22 |
) |
|
|
|
|
|
|
(22 |
) |
Interest expense |
|
|
175,273 |
|
|
|
(63,473 |
) |
|
|
111,800 |
|
Loss on impairment of income-producing property |
|
|
589,559 |
|
|
|
(589,559 |
) |
|
|
|
|
|
|
|
|
|
|
692,353 |
|
|
|
(647,941 |
) |
|
|
44,412 |
|
|
|
|
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES |
|
|
(1,117,303 |
) |
|
|
588,186 |
|
|
|
(529,117 |
) |
INCOME TAX BENEFIT |
|
|
(418,962 |
) |
|
|
208,909 |
|
|
|
(210,053 |
) |
|
|
|
LOSS FROM CONTINUING OPERATIONS |
|
|
(698,341 |
) |
|
|
379,277 |
|
|
|
(319,064 |
) |
|
|
|
DISCONTINUED OPERATIONS: |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, adjusted for applicable income
tax benefit |
|
|
(3,120 |
) |
|
|
(379,277 |
) |
|
|
(382,397 |
) |
Gain on disposition of income-producing properties, adjusted for
applicable income tax expense |
|
|
49,633 |
|
|
|
|
|
|
|
49,633 |
|
|
|
|
EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS |
|
|
46,513 |
|
|
|
(379,277 |
) |
|
|
(332,764 |
) |
|
|
|
NET LOSS |
|
$ |
(651,828 |
) |
|
$ |
|
|
|
$ |
(651,828 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations basic and diluted |
|
$ |
(0.19 |
) |
|
$ |
0.10 |
|
|
$ |
(0.09 |
) |
From discontinuing operations basic and diluted |
|
|
0.01 |
|
|
|
(0.10 |
) |
|
|
(0.09 |
) |
|
|
|
NET LOSS PER SHARE BASIC AND DILUTED |
|
$ |
(0.18 |
) |
|
$ |
|
|
|
$ |
(0.18 |
) |
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended October 31, 2010 |
|
|
|
|
|
|
|
|
|
|
As Recast for |
|
|
|
|
|
|
Adjustments for |
|
Discontinued |
|
|
As Originally |
|
Discontinued |
|
Operations |
|
|
Reported |
|
Operations |
|
(Note 15) |
Consolidated statement of operations |
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
Building Performance Efficiency (BPE) |
|
$ |
12,360,874 |
|
|
$ |
|
|
|
$ |
12,360,874 |
|
Other (formerly Real Estate) |
|
|
502,054 |
|
|
|
(287,379 |
) |
|
|
214,675 |
|
|
|
|
|
|
|
12,862,928 |
|
|
|
(287,379 |
) |
|
|
12,575,549 |
|
|
|
|
COST OF REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
BPE |
|
|
8,968,113 |
|
|
|
|
|
|
|
8,968,113 |
|
Other (formerly Real Estate) |
|
|
492,471 |
|
|
|
(156,819 |
) |
|
|
335,652 |
|
|
|
|
|
|
|
9,460,584 |
|
|
|
(156,819 |
) |
|
|
9,303,765 |
|
|
|
|
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
|
|
5,048,557 |
|
|
|
(3,792 |
) |
|
|
5,044,765 |
|
|
|
|
OTHER (INCOME) AND EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
(45,825 |
) |
|
|
1,450 |
|
|
|
(44,375 |
) |
Interest income |
|
|
(39 |
) |
|
|
|
|
|
|
(39 |
) |
Interest expense |
|
|
347,241 |
|
|
|
(126,451 |
) |
|
|
220,790 |
|
Loss on impairment of income-producing property |
|
|
589,559 |
|
|
|
(589,559 |
) |
|
|
|
|
|
|
|
|
|
|
890,936 |
|
|
|
(714,560 |
) |
|
|
176,376 |
|
|
|
|
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES |
|
|
(2,537,149 |
) |
|
|
587,792 |
|
|
|
(1,949,357 |
) |
INCOME TAX BENEFIT |
|
|
(1,028,602 |
) |
|
|
223,361 |
|
|
|
(805,241 |
) |
|
|
|
LOSS FROM CONTINUING OPERATIONS |
|
|
(1,508,547 |
) |
|
|
364,431 |
|
|
|
(1,144,116 |
) |
|
|
|
DISCONTINUED OPERATIONS: |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) from discontinued operations, adjusted for applicable
income tax (expense) benefit |
|
|
6,403 |
|
|
|
(364,431 |
) |
|
|
(358,028 |
) |
Gain on disposition of income-producing properties, adjusted for
applicable income tax expense |
|
|
100,573 |
|
|
|
|
|
|
|
100,573 |
|
|
|
|
EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS |
|
|
106,976 |
|
|
|
(364,431 |
) |
|
|
(257,455 |
) |
|
|
|
NET LOSS |
|
$ |
(1,401,571 |
) |
|
$ |
|
|
|
$ |
(1,401,571 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations basic and diluted |
|
$ |
(0.41 |
) |
|
$ |
0.10 |
|
|
$ |
(0.31 |
) |
From discontinuing operations basic and diluted |
|
|
0.03 |
|
|
|
(0.10 |
) |
|
|
(0.07 |
) |
|
|
|
NET LOSS PER SHARE BASIC AND DILUTED |
|
$ |
(0.38 |
) |
|
$ |
|
|
|
$ |
(0.38 |
) |
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Second Quarter Ended October 31, 2009 |
|
|
|
|
|
|
|
|
|
|
As Recast for |
|
|
|
|
|
|
Adjustments for |
|
Discontinued |
|
|
As Originally |
|
Discontinued |
|
Operations |
|
|
Reported |
|
Operations |
|
(Note 15) |
Consolidated statement of operations |
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
BPE |
|
$ |
3,922,541 |
|
|
$ |
|
|
|
$ |
3,922,541 |
|
Other (formerly Real Estate) |
|
|
240,875 |
|
|
|
(134,858 |
) |
|
|
106,017 |
|
|
|
|
|
|
|
4,163,416 |
|
|
|
(134,858 |
) |
|
|
4,028,558 |
|
|
|
|
COST OF REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
BPE |
|
|
2,670,904 |
|
|
|
|
|
|
|
2,670,904 |
|
Other (formerly Real Estate) |
|
|
253,909 |
|
|
|
(86,138 |
) |
|
|
167,771 |
|
|
|
|
|
|
|
2,924,813 |
|
|
|
(86,138 |
) |
|
|
2,838,675 |
|
|
|
|
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
|
|
2,293,974 |
|
|
|
(1,851 |
) |
|
|
2,292,123 |
|
|
|
|
OTHER (INCOME) AND EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
(56,988 |
) |
|
|
4,588 |
|
|
|
(52,400 |
) |
Interest income |
|
|
(2,326 |
) |
|
|
|
|
|
|
(2,326 |
) |
Interest expense |
|
|
163,551 |
|
|
|
(64,267 |
) |
|
|
99,284 |
|
|
|
|
|
|
|
104,237 |
|
|
|
(59,679 |
) |
|
|
44,558 |
|
|
|
|
LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES |
|
|
(1,159,608 |
) |
|
|
12,810 |
|
|
|
(1,146,798 |
) |
INCOME TAX BENEFIT |
|
|
(418,583 |
) |
|
|
(7,241 |
) |
|
|
(425,824 |
) |
|
|
|
LOSS FROM CONTINUING OPERATIONS |
|
|
(741,025 |
) |
|
|
20,051 |
|
|
|
(720,974 |
) |
|
|
|
DISCONTINUED OPERATIONS: |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations, adjusted for applicable
income tax (expense) benefit |
|
|
33,003 |
|
|
|
(20,051 |
) |
|
|
12,952 |
|
|
|
|
EARNINGS FROM DISCONTINUED
OPERATIONS |
|
|
33,003 |
|
|
|
(20,051 |
) |
|
|
12,952 |
|
|
|
|
NET LOSS |
|
$ |
(708,022 |
) |
|
$ |
|
|
|
$ |
(708,022 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations basic and diluted |
|
$ |
(0.19 |
) |
|
$ |
|
|
|
$ |
(0.19 |
) |
From discontinuing operations basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER SHARE BASIC AND DILUTED |
|
$ |
(0.19 |
) |
|
$ |
|
|
|
$ |
(0.19 |
) |
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended October 31, 2009 |
|
|
|
|
|
|
|
|
|
|
As Recast for |
|
|
|
|
|
|
Adjustments for |
|
Discontinued |
|
|
As Originally |
|
Discontinued |
|
Operations |
|
|
Reported |
|
Operations |
|
(Note 15) |
Consolidated statement of operations |
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
BPE |
|
$ |
7,795,649 |
|
|
$ |
|
|
|
$ |
7,795,649 |
|
Other (formerly Real Estate) |
|
|
483,182 |
|
|
|
(276,130 |
) |
|
|
207,052 |
|
|
|
|
|
|
|
8,278,831 |
|
|
|
(276,130 |
) |
|
|
8,002,701 |
|
|
|
|
COST OF REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
BPE |
|
|
5,295,513 |
|
|
|
|
|
|
|
5,295,513 |
|
Other (formerly Real Estate) |
|
|
524,394 |
|
|
|
(172,119 |
) |
|
|
352,275 |
|
|
|
|
|
|
|
5,819,907 |
|
|
|
(172,119 |
) |
|
|
5,647,788 |
|
|
|
|
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
|
|
4,679,734 |
|
|
|
(3,702 |
) |
|
|
4,676,032 |
|
|
|
|
OTHER (INCOME) AND EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
(67,252 |
) |
|
|
1,950 |
|
|
|
(65,302 |
) |
Interest income |
|
|
(7,610 |
) |
|
|
|
|
|
|
(7,610 |
) |
Interest expense |
|
|
327,361 |
|
|
|
(128,020 |
) |
|
|
199,341 |
|
|
|
|
|
|
|
252,499 |
|
|
|
(126,070 |
) |
|
|
126,429 |
|
|
|
|
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES |
|
|
(2,473,309 |
) |
|
|
25,761 |
|
|
|
(2,447,548 |
) |
INCOME TAX BENEFIT |
|
|
(951,904 |
) |
|
|
9,789 |
|
|
|
(942,115 |
) |
|
|
|
LOSS FROM CONTINUING OPERATIONS |
|
|
(1,521,405 |
) |
|
|
15,972 |
|
|
|
(1,505,433 |
) |
|
|
|
DISCONTINUED OPERATIONS: |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations, adjusted for applicable
income tax expense |
|
|
107,797 |
|
|
|
(15,972 |
) |
|
|
91,825 |
|
|
|
|
EARNINGS FROM DISCONTINUED OPERATIONS |
|
|
107,797 |
|
|
|
(15,972 |
) |
|
|
91,825 |
|
|
|
|
NET LOSS |
|
$ |
(1,413,608 |
) |
|
$ |
|
|
|
$ |
(1,413,608 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations basic and diluted |
|
$ |
(0.41 |
) |
|
$ |
|
|
|
$ |
(0.41 |
) |
From discontinuing operations basic and diluted |
|
|
0.03 |
|
|
|
(0.01 |
) |
|
|
0.02 |
|
|
|
|
NET LOSS PER SHARE BASIC AND DILUTED |
|
$ |
(0.38 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.39 |
) |
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended October 31, 2010 |
|
|
|
|
|
|
|
|
|
|
Reclassification |
|
|
|
|
|
|
|
|
|
|
|
|
Related to |
|
As Recast for |
|
|
|
|
|
|
|
|
|
|
Discontinuance |
|
Discontinued |
|
|
|
|
|
|
Adjustments for |
|
of Real Estate |
|
Operations and |
|
|
As Originally |
|
Discontinued |
|
Segment |
|
Segment Change |
|
|
Reported |
|
Operations |
|
Reporting |
|
(Note 15) |
Consolidated statement of cash flows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(1,401,571 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
(1,401,571 |
) |
Adjustments to reconcile net loss to net
cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Earnings) loss from discontinued operations, net of tax |
|
|
(106,976 |
) |
|
|
364,431 |
|
|
|
|
|
|
|
257,455 |
|
Loss on impairment of income-producing property |
|
|
589,559 |
|
|
|
(589,559 |
) |
|
|
|
|
|
|
|
|
Gain on disposal of assets |
|
|
(1,385 |
) |
|
|
|
|
|
|
|
|
|
|
(1,385 |
) |
Depreciation and amortization |
|
|
586,257 |
|
|
|
(76,605 |
) |
|
|
|
|
|
|
509,652 |
|
Deferred tax benefit |
|
|
(1,021,206 |
) |
|
|
223,361 |
|
|
|
|
|
|
|
(797,845 |
) |
Stock compensation expense |
|
|
85,374 |
|
|
|
|
|
|
|
|
|
|
|
85,374 |
|
Adjustment to cash surrender value of life insurance |
|
|
(34,771 |
) |
|
|
|
|
|
|
|
|
|
|
(34,771 |
) |
Straight-line rent |
|
|
2,122 |
|
|
|
(1,054 |
) |
|
|
|
|
|
|
1,068 |
|
Provision for doubtful accounts, net |
|
|
56,725 |
|
|
|
|
|
|
|
|
|
|
|
56,725 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
|
246,001 |
|
|
|
33,474 |
|
|
|
|
|
|
|
279,475 |
|
Costs and earnings in excess of billings |
|
|
(537,901 |
) |
|
|
|
|
|
|
|
|
|
|
(537,901 |
) |
Other current and long-term assets |
|
|
(413,660 |
) |
|
|
10,866 |
|
|
|
|
|
|
|
(402,794 |
) |
Trade and subcontractors payable |
|
|
670,849 |
|
|
|
|
|
|
|
|
|
|
|
670,849 |
|
Accrued expenses and deferred revenue |
|
|
(91,010 |
) |
|
|
(20,634 |
) |
|
|
|
|
|
|
(111,644 |
) |
Billings in excess of costs and earnings |
|
|
36,302 |
|
|
|
|
|
|
|
|
|
|
|
36,302 |
|
|
|
|
Net cash used in operating activities |
|
|
(1,335,291 |
) |
|
|
(55,720 |
) |
|
|
|
|
|
|
(1,391,011 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums paid on officers life insurance policies |
|
|
(5,464 |
) |
|
|
|
|
|
|
|
|
|
|
(5,464 |
) |
Purchase of money market account investment |
|
|
(500,000 |
) |
|
|
|
|
|
|
|
|
|
|
(500,000 |
) |
Proceeds from termination of split-dollar life insurance agreement |
|
|
194,601 |
|
|
|
|
|
|
|
|
|
|
|
194,601 |
|
Additions to income-producing properties |
|
|
(6,280 |
) |
|
|
6,280 |
|
|
|
|
|
|
|
|
|
Additions to property and equipment |
|
|
(38,510 |
) |
|
|
|
|
|
|
|
|
|
|
(38,510 |
) |
Additions to intangible assets |
|
|
(195,039 |
) |
|
|
6,282 |
|
|
|
|
|
|
|
(188,757 |
) |
Proceeds from sale of property and equipment |
|
|
5,454 |
|
|
|
|
|
|
|
|
|
|
|
5,454 |
|
|
|
|
Net cash used in investing activities |
|
|
(545,238 |
) |
|
|
12,562 |
|
|
|
|
|
|
|
(532,676 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage repayments |
|
|
(84,338 |
) |
|
|
25,176 |
|
|
|
|
|
|
|
(59,162 |
) |
Proceeds from other long-term debt |
|
|
500,000 |
|
|
|
|
|
|
|
|
|
|
|
500,000 |
|
Cash dividends paid to shareholders |
|
|
(73,818 |
) |
|
|
|
|
|
|
|
|
|
|
(73,818 |
) |
|
|
|
Net cash provided by financing activities |
|
|
341,844 |
|
|
|
25,176 |
|
|
|
|
|
|
|
367,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED OPERATIONS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
|
51,467 |
|
|
|
49,439 |
|
|
|
|
|
|
|
100,906 |
|
Investing activities |
|
|
1,987,556 |
|
|
|
(6,281 |
) |
|
|
|
|
|
|
1,981,275 |
|
Financing activities |
|
|
(15,749 |
) |
|
|
(25,176 |
) |
|
|
|
|
|
|
(40,925 |
) |
|
|
|
Net cash provided by discontinued operations |
|
|
2,023,274 |
|
|
|
17,982 |
|
|
|
|
|
|
|
2,041,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
484,589 |
|
|
|
|
|
|
|
|
|
|
|
484,589 |
|
Cash at beginning of period |
|
|
1,923,641 |
|
|
|
|
|
|
|
|
|
|
|
1,923,641 |
|
|
|
|
Cash at end of period |
|
$ |
2,408,230 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,408,230 |
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended October 31, 2009 |
|
|
|
|
|
|
|
|
|
|
Reclassification |
|
|
|
|
|
|
|
|
|
|
|
|
Related to |
|
As Recast for |
|
|
|
|
|
|
|
|
|
|
Discontinuance |
|
Discontinued |
|
|
|
|
|
|
Adjustments for |
|
of Real Estate |
|
Operations and |
|
|
As Originally |
|
Discontinued |
|
Segment |
|
Segment Change |
|
|
Reported |
|
Operations |
|
Reporting |
|
(Note 15) |
Consolidated statement of cash flows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(1,413,608 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
(1,413,608 |
) |
Adjustments to reconcile net loss to net
cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations, net of tax |
|
|
(107,797 |
) |
|
|
(15,972 |
) |
|
|
|
|
|
|
(91,825 |
) |
Loss on disposal of assets |
|
|
1,378 |
|
|
|
|
|
|
|
|
|
|
|
1,378 |
|
Depreciation and amortization |
|
|
553,045 |
|
|
|
(71,353 |
) |
|
|
|
|
|
|
481,692 |
|
Deferred tax benefit |
|
|
(977,983 |
) |
|
|
9,789 |
|
|
|
|
|
|
|
(968,194 |
) |
Stock compensation expense |
|
|
93,034 |
|
|
|
|
|
|
|
|
|
|
|
93,034 |
|
Adjustment to cash surrender value of life insurance |
|
|
(69,217 |
) |
|
|
|
|
|
|
|
|
|
|
(69,217 |
) |
Straight-line rent |
|
|
(8,917 |
) |
|
|
1,984 |
|
|
|
|
|
|
|
(6,933 |
) |
Provision for doubtful accounts, net |
|
|
(59,413 |
) |
|
|
|
|
|
|
|
|
|
|
(59,413 |
) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
|
(513,873 |
) |
|
|
15,421 |
|
|
|
|
|
|
|
(498,452 |
) |
Costs and earnings in excess of billings |
|
|
374,801 |
|
|
|
|
|
|
|
|
|
|
|
374,801 |
|
Other current and long-term assets |
|
|
(211,680 |
) |
|
|
7,642 |
|
|
|
|
|
|
|
(204,038 |
) |
Trade and subcontractors payable |
|
|
(267,870 |
) |
|
|
733 |
|
|
|
|
|
|
|
(267,137 |
) |
Accrued expenses and deferred revenue |
|
|
271,255 |
|
|
|
(21,748 |
) |
|
|
|
|
|
|
249,507 |
|
Billings in excess of costs and earnings |
|
|
933,988 |
|
|
|
|
|
|
|
|
|
|
|
933,988 |
|
|
|
|
Net cash used in operating activities |
|
|
(1,402,857 |
) |
|
|
(41,560 |
) |
|
|
|
|
|
|
(1,444,417 |
) |
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums paid on officers life insurance policies |
|
|
(27,464 |
) |
|
|
|
|
|
|
|
|
|
|
(27,464 |
) |
Additions to income-producing properties |
|
|
(128,925 |
) |
|
|
(205 |
) |
|
|
129,130 |
|
|
|
|
|
Additions to property and equipment |
|
|
(60,028 |
) |
|
|
(4 |
) |
|
|
(129,130 |
) |
|
|
(189,162 |
) |
Additions to intangible assets |
|
|
(314,192 |
) |
|
|
1,518 |
|
|
|
|
|
|
|
(312,674 |
) |
Proceeds from sale of property and equipment |
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
|
Net cash used in investing activities |
|
|
(528,609 |
) |
|
|
1,309 |
|
|
|
|
|
|
|
(527,300 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage repayments |
|
|
(78,370 |
) |
|
|
23,606 |
|
|
|
|
|
|
|
(54,764 |
) |
Debt repayments |
|
|
(100,000 |
) |
|
|
|
|
|
|
|
|
|
|
(100,000 |
) |
Repurchase of common stock |
|
|
(4,625 |
) |
|
|
|
|
|
|
|
|
|
|
(4,625 |
) |
Cash dividends paid to shareholders |
|
|
(111,683 |
) |
|
|
|
|
|
|
|
|
|
|
(111,683 |
) |
|
|
|
Net cash used in financing activities |
|
|
(294,678 |
) |
|
|
23,606 |
|
|
|
|
|
|
|
(271,072 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED OPERATIONS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
|
358,323 |
|
|
|
41,769 |
|
|
|
|
|
|
|
400,092 |
|
Investing activities |
|
|
49,764 |
|
|
|
(1,518 |
) |
|
|
|
|
|
|
48,246 |
|
Financing activities |
|
|
(99,648 |
) |
|
|
(23,606 |
) |
|
|
|
|
|
|
(123,254 |
) |
|
|
|
Net cash provided by discontinued operations |
|
|
308,439 |
|
|
|
16,645 |
|
|
|
|
|
|
|
325,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(1,917,705 |
) |
|
|
|
|
|
|
|
|
|
|
(1,917,705 |
) |
Cash at beginning of period |
|
|
4,821,126 |
|
|
|
|
|
|
|
|
|
|
|
4,821,126 |
|
|
|
|
Cash at end of period |
|
$ |
2,903,421 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,903,421 |
|
|
|
|
24
NOTE 11. FAIR VALUE MEASUREMENTS
Fair value is estimated based on a hierarchy that maximizes the use of observable inputs and
minimizes the use of unobservable inputs. The fair value hierarchy prioritizes the inputs to
valuation techniques into three broad levels whereby the highest priority is given to Level 1
inputs, and the lowest priority is given to Level 3 inputs. The three broad categories are:
|
|
|
Level 1 Quoted prices in active markets for identical assets or liabilities. |
|
|
|
|
Level 2 Inputs other than quoted prices which are observable for an asset or
liability, either directly or indirectly. |
|
|
|
|
Level 3 Unobservable inputs for an asset or liability when little or no market data
is available. |
In determining fair values, the Company utilizes valuation techniques that maximize the use of
observable inputs and minimize the use of unobservable inputs. Considerable judgment is necessary
to interpret Level 2 and Level 3 inputs in determining fair value. Accordingly, there can be no
assurance that the fair values of financial instruments presented in this footnote are indicative
of amounts that may ultimately be realized upon sale or disposition of these financial instruments.
Financial instruments in the Companys condensed consolidated financial statements that are
measured and recorded at fair value on a recurring basis are (1) executive deferred compensation
plan and directors deferred compensation plan assets, which are included in Other Assets in the
condensed consolidated balance sheet; and (2) the corresponding liability owed to the plans
participants that is equal in value to the plans assets, which is included in Other Liabilities
in the condensed consolidated balance sheet. Given that the plans assets are invested in mutual
funds and money market funds for which quoted market prices are readily available, the quoted
prices are considered Level 1 inputs. Based on the quoted prices of the related investments, the
fair value of the executive deferred compensation plan and directors deferred compensation plan
assets and the corresponding liability were $972,664 and $947,023 as of October 31, 2010, and April
30, 2010, respectively.
In addition to the financial instruments listed above that are required to be carried at fair
value, the Company has determined that the carrying amounts of its cash and cash equivalents,
restricted cash, accounts receivable and accounts payable approximate fair value due to their
short-term maturities.
The Company had a certificate of deposit (CD) in the amount of $450,000 as of October 31, 2010,
which is included in Other Assets in the Companys condensed consolidated balance sheet. This CD
secures a letter of credit, which is required by the terms of the mortgage on the Companys owned
corporate headquarters building. Based on the rates currently available on certificates of deposit
with similar terms, the CDs carrying amount approximates its fair value as of October 31, 2010.
The Company had a money market account (MMA) investment in the amount of $500,000 as of October
31, 2010, which is included in Other Assets in the Companys condensed consolidated balance sheet
(see Note 9 Other Assets for more information). Based on the rates currently available on money
market accounts with similar terms, this MMA investments carrying amount approximates its fair
value as of October 31, 2010.
Based on the borrowing rates currently available for mortgage notes with similar terms and average
maturities, the carrying value of the mortgage notes payable is a reasonable estimate of fair
value. The fair value of mortgage notes payable was $4,278,816 and $4,368,245 as of October 31,
2010, and April
25
30, 2010, respectively. Based on the borrowing rates currently available for bank
loans with similar terms and average maturities, the carrying value of the other debt is considered
a reasonable estimate of fair value. The fair value of other debt was $2,074,941 and $1,950,109 as
of October 31, 2010, and April 30, 2010, respectively.
Non-Recurring Measurements
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.
During the second quarter ended October 31, 2010, the Company recorded a loss on impairment of
approximately $590,000 of the Companys owned shopping center in Smyrna, Tennessee, to present the
carrying amount of this long-lived asset at its fair value of approximately $4,220,000 as of
October 31, 2010. The fair value was determined based upon an executed sales contract, a Level 2
input, received in December 2010, which was indicative of the fair value as of October 31, 2010.
(See Note 13 Subsequent Events for more information.)
NOTE 12. RELATED PARTY TRANSACTIONS
On October 14, 2010, the Company borrowed an aggregate of $500,000 from related parties by issuing
a total of four (4) promissory notes to Samuel E. Allen, a Director of the Company; Herschel Kahn,
a Director of the Company; Alan R. Abrams, a Director, Chairman of the Board and Chief Executive
Officer of the Company; and J. Andrew Abrams, Executive Vice President of the Company,
respectively. The largest of the four (4) notes, amounting to $400,000, was issued to Mr. Allen.
Each of the notes bears interest at twelve percent (12%) per annum and matures on May 14, 2012,
subject to acceleration under certain specified circumstances. The notes are collectively secured
by a security deed on real property granted by a subsidiary of the Company. The notes are included
in Other Long-Term Debt in the Companys condensed consolidated balance sheet. The cash proceeds
from the borrowings were used to fund working capital and for other operating purposes.
On October 21, 2010, the Company terminated a split dollar life insurance agreement related to a
policy jointly insuring the lives of the Companys former Chairman of the Board and Chief Executive
Officer, who is deceased, and his widow, as described above in Note 9 Other Assets.
The Company recognized
approximately $2,235,000 and $3,775,000 in revenue for the second quarter and the six (6) months
ended October 31, 2010, respectively, from an affiliate of a
member of the Board of Directors associated with a contract for
energy savings projects. The
related accounts receivable and costs and earnings in excess of billings as of October 31, 2010,
were approximately $1,001,000 and $1,007,000, respectively.
NOTE 13. SUBSEQUENT EVENTS
On December 15, 2010, the Company sold its owned shopping center in Smyrna, Tennessee, for a sales
price of approximately $4.33 million. The sale generated net cash proceeds of approximately
$250,000, after deducting:
26
|
|
|
approximately $3.95 million for assumption of the mortgage note; and |
|
|
|
|
approximately $125,000 for closing costs and prorations. |
Given this event, the Company recorded an impairment loss of approximately $590,000 in the
Companys condensed consolidated statement of operations for the quarter ended October 31, 2010.
NOTE 14. COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and other claims that arise from time to time in the
ordinary course of business. While the resolution of these matters cannot be predicted with
certainty, the Company believes that the final outcome of any such matters would not have a
material adverse effect on the Companys financial position or results of operations.
NOTE 15. RESTATEMENT OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The need to restate the financial statements resulted from an error in the application of ASC 740,
Accounting for Income Taxes, related to the recoverability of deferred tax assets, which was
discovered in March 2011 in connection with the performance of the third quarter 2011 review.
During the third quarter of fiscal 2011, the Company moved from a consolidated net deferred tax
liability position into a consolidated net deferred tax asset position, which highlighted a
potential recoverability issue related to its deferred tax assets. Accordingly, the Company
performed an analysis of recoverability by weighing all positive evidence of recovery against all
negative evidence of recovery. Because the Company was in a three-year cumulative book loss
position, it was determined that the future earnings projections of the Company over the relatively
long net operating loss carryforward period did not represent objectively verifiable positive
evidence of recovery, and that the recent historical results were objectively verifiable negative
evidence.
The Company determined that it had no exposure to non-recoverability at the federal jurisdiction
level due to adequate future taxable income offsetting federal net operating losses through the
form of deferred tax liabilities. The exposure to non-recoverability was determined to exist at
the state jurisdiction level. As a result of this analysis, the Company recorded a full valuation
allowance in the amount of $857,000 on its state deferred tax assets during the quarter ended
January 31, 2011, as filed in the Companys Form 10-Q for the period.
Upon further analysis during April 2011, the Company determined that it had actually entered into
the three-year cumulative book loss position in the fourth quarter of fiscal year 2009. As a
result, the Company should not have used future earnings projections to analyze recoverability
since the fourth quarter of fiscal 2009. The result of this error is that the Company understated
its deferred tax asset valuation allowance by approximately $799,000 and $600,000 as of October 31,
2010, and April 30, 2010, respectively. Additionally, the Company understated its net loss by
approximately $36,000 and $199,000 for the three and six month
periods ended October 31, 2010, respectively, and
$96,000 and $167,000 for the three and six month periods ended October 31, 2009, respectively.
27
The results of the above are summarized in the tables below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2010 |
|
|
As Recast for |
|
|
|
|
|
|
Discontinued |
|
|
|
|
|
|
Operations and |
|
|
|
|
|
|
Segment |
|
|
|
|
|
|
Change |
|
|
|
|
|
|
(Note 10) |
|
Adjustments |
|
As Restated |
Consolidated balance sheet accounts
impacted by restatement: |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes (current) |
|
$ |
344,545 |
|
|
$ |
(35,966 |
) |
|
$ |
308,579 |
|
Total current assets |
|
|
9,831,930 |
|
|
|
(35,966 |
) |
|
|
9,795,964 |
|
Deferred income taxes (non-current) |
|
|
1,306,820 |
|
|
|
(763,212 |
) |
|
|
543,608 |
|
Total assets |
|
|
32,281,271 |
|
|
|
(799,178 |
) |
|
|
31,482,093 |
|
Retained earnings |
|
|
5,193,941 |
|
|
|
(799,178 |
) |
|
|
4,394,763 |
|
Total shareholders equity |
|
|
14,399,461 |
|
|
|
(799,178 |
) |
|
|
13,600,283 |
|
Total liabilities and shareholders equity |
|
|
32,281,271 |
|
|
|
(799,178 |
) |
|
|
31,482,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2010 |
|
|
As Recast for |
|
|
|
|
|
|
Discontinued |
|
|
|
|
|
|
Operations and |
|
|
|
|
|
|
Segment |
|
|
|
|
|
|
Change |
|
|
|
|
|
|
(Note 10) |
|
Adjustments |
|
As Restated |
Consolidated balance sheet accounts
impacted by restatement: |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes (current) |
|
$ |
401,215 |
|
|
$ |
(41,118 |
) |
|
$ |
360,097 |
|
Total current assets |
|
|
8,766,908 |
|
|
|
(41,118 |
) |
|
|
8,725,790 |
|
Deferred income taxes (non-current) |
|
|
1,718,954 |
|
|
|
(558,583 |
) |
|
|
1,160,371 |
|
Total assets |
|
|
41,551,973 |
|
|
|
(599,701 |
) |
|
|
40,952,272 |
|
Retained earnings |
|
|
6,669,330 |
|
|
|
(599,701 |
) |
|
|
6,069,629 |
|
Total shareholders equity |
|
|
15,789,479 |
|
|
|
(599,701 |
) |
|
|
15,189,778 |
|
Total liabilities and shareholders equity |
|
|
41,551,973 |
|
|
|
(599,701 |
) |
|
|
40,952,272 |
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Second Quarter Ended October 31, 2010 |
|
|
As Recast for |
|
|
|
|
|
|
Discontinued |
|
|
|
|
|
|
Operations |
|
|
|
|
|
|
(Note 10) |
|
Adjustments |
|
As Restated |
Consolidated statement of operations accounts
impacted by restatement: |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
$ |
(210,053 |
) |
|
$ |
36,493 |
|
|
$ |
(173,560 |
) |
Loss from continuing operations |
|
|
(319,064 |
) |
|
|
(36,493 |
) |
|
|
(355,557 |
) |
Net loss |
|
|
(651,828 |
) |
|
|
(36,493 |
) |
|
|
(688,321 |
) |
Net loss per share from continuing operations |
|
$ |
(0.09 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.10 |
) |
Net loss per share from discontinued operations |
|
|
(0.09 |
) |
|
|
|
|
|
|
(0.09 |
) |
Net loss per share basic and diluted |
|
|
(0.18 |
) |
|
|
(0.01 |
) |
|
|
(0.19 |
) |
|
|
|
|
|
|
|
For the Six Months Ended October 31, 2010 |
|
|
As Recast for |
|
|
|
|
|
|
Discontinued |
|
|
|
|
|
|
Operations |
|
|
|
|
|
|
(Note 10) |
|
Adjustments |
|
As Restated |
Consolidated statement of operations accounts
impacted by restatement: |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
$ |
(805,241 |
) |
|
$ |
199,477 |
|
|
$ |
(605,764 |
) |
Loss from continuing operations |
|
|
(1,144,116 |
) |
|
|
(199,477 |
) |
|
|
(1,343,593 |
) |
Net loss |
|
|
(1,401,571 |
) |
|
|
(199,477 |
) |
|
|
(1,601,048 |
) |
Net loss per share from continuing operations |
|
$ |
(0.31 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.37 |
) |
Net loss per share from discontinued operations |
|
|
(0.07 |
) |
|
|
|
|
|
|
(0.07 |
) |
Net loss per share basic and diluted |
|
|
(0.38 |
) |
|
|
(0.06 |
) |
|
|
(0.44 |
) |
Consolidated statement of cash flows accounts
impacted by restatement: |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(1,401,571 |
) |
|
$ |
(199,477 |
) |
|
$ |
(1,601,048 |
) |
Deferred tax benefit |
|
|
(797,845 |
) |
|
|
199,477 |
|
|
|
(598,368 |
) |
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Second Quarter Ended October 31, 2009 |
|
|
As Recast for |
|
|
|
|
|
|
Discontinued |
|
|
|
|
|
|
Operations |
|
|
|
|
|
|
(Note 10) |
|
Adjustments |
|
As Restated |
Consolidated statement of operations accounts
impacted by restatement: |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
$ |
(425,824 |
) |
|
$ |
95,717 |
|
|
$ |
(330,107 |
) |
Loss from continuing operations |
|
|
(720,974 |
) |
|
|
(95,717 |
) |
|
|
(816,691 |
) |
Net loss |
|
|
(708,022 |
) |
|
|
(95,717 |
) |
|
|
(803,739 |
) |
Net loss per share from continuing operations |
|
$ |
(0.19 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.22 |
) |
Net earnings per share from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted |
|
|
(0.19 |
) |
|
|
(0.03 |
) |
|
|
(0.22 |
) |
|
|
|
|
|
|
|
For the Six Months Ended October 31, 2009 |
|
|
As Recast for |
|
|
|
|
|
|
Discontinued |
|
|
|
|
|
|
Operations |
|
|
|
|
|
|
(Note 10) |
|
Adjustments |
|
As Restated |
Consolidated statement of operations accounts
impacted by restatement: |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
$ |
(942,115 |
) |
|
$ |
167,022 |
|
|
$ |
(775,093 |
) |
Loss from continuing operations |
|
|
(1,505,433 |
) |
|
|
(167,022 |
) |
|
|
(1,672,455 |
) |
Net loss |
|
|
(1,413,608 |
) |
|
|
(167,022 |
) |
|
|
(1,580,630 |
) |
Net loss per share from continuing operations |
|
$ |
(0.41 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.45 |
) |
Net earnings per share from discontinued operations |
|
|
0.02 |
|
|
|
|
|
|
|
0.02 |
|
Net loss per share basic and diluted |
|
|
(0.39 |
) |
|
|
(0.04 |
) |
|
|
(0.43 |
) |
Consolidated statement of cash flows accounts
impacted by restatement: |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(1,413,608 |
) |
|
$ |
(167,022 |
) |
|
$ |
(1,580,630 |
) |
Deferred tax benefit |
|
|
(968,194 |
) |
|
|
167,022 |
|
|
|
(801,172 |
) |
Additionally, subsequent to the filing of the Form 10-Q for the quarter ended October 31,
2010, the Company has included a disclosure associated with a BPE contract with a related party.
See Note 12 Related Party Transactions for more information.
30
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/A for the year ended April 30, 2010.
The following discussion has been updated to reflect the reclassifications discussed in Note 2
Unaudited Statements to the condensed consolidated financial statements.
The
Companys financial condition as of October 31, 2010, and April
30, 2010, the results of operations for the three and six month periods
ended October 31, 2010 and 2009, and the cash flows for the six
month periods ended October 31, 2010 and 2009, have been recast and restated. All information and disclosures in
this managements discussion and analysis have been updated to reflect the effects of such
recasting and restatement. For a more detailed description of the recasting and restatement, see
Notes 6, 10, and 15 of the Notes to the accompanying condensed consolidated financial statements in
this Amendment No. 1 to the Companys Quarterly Report on Form 10-Q/A for the quarter ended October 31, 2010.
The Companys fiscal year 2011 will end on April 30, 2011.
OVERVIEW
The Company entered fiscal year 2011 with significant momentum at its BPE Segment as the result of
an order backlog of $15.4 million, which at that time represented the highest backlog achieved by
the BPE Segment in the Companys history. As a result, BPE generated $12.4 million in revenues in
the first six (6) months of fiscal 2011, including $7.5 million of revenues and $383,000 of pre-tax
earnings (including intersegment revenues, costs and expenses) in the second quarter. The second
quarter revenues were the highest revenues generated in a fiscal quarter by the BPE Segment in the
Companys history, and represented an increase of 92% compared to the same period in fiscal 2010,
including a 183% year-over-year increase in Energy Savings Projects revenues. The revenues in the
first six (6) months of fiscal 2011 represented an increase of 59% compared to the same period in
fiscal 2010, including a 117% year-over-year increase in Energy Savings Projects revenues.
Correspondingly, BPEs new order activity also strengthened materially in the second quarter, as
new customer orders exceeded BPE revenues by $2.1 million. As a result, the Company achieved a
record level of order backlog for the BPE Segment of $16.3 million as of October 31, 2010, which
was 21% higher than the backlog at July 31, 2010, and was 132% higher than the backlog at October
31, 2009. The new order activity in the second quarter included the award of a $5.8 million
design-build retro-commissioning project for the Georgia Department of Corrections under a contract
with the Georgia Environmental Finance Authority, which the Company commenced during the quarter
and expects to substantially complete by the end of calendar year 2011.
The Company believes that the substantial increase in BPE order activity and revenues over the last
year is a direct result of three (3) distinct factors: the success of the Companys enhanced sales
and marketing efforts, which were initiated in fiscal 2009; an overall improvement in the capital
spending environment for many of the BPE Segments customers; and the infusion of U.S. government
expenditures for energy efficiency upgrades of government facilities. The Company believes that
these factors will continue to be favorable for the BPE Segment during the remainder of fiscal year
2011 and beyond. The BPE Segment
31
generated positive EBITDA1 in the second quarter of $562,000 (pre-tax earnings,
including intersegment revenues, costs and expenses, of $383,000, plus interest, depreciation and
amortization of $179,000), and management currently expects that the BPE Segment will generate
positive EBITDA for the full current fiscal year, with revenues remaining strong; however, EBITDA
on a quarterly basis is more sensitive to fluctuations in the timing of revenues and may not be
positive in an individual quarter. Moreover, management believes that a longer period of time will
be required before the BPE Segment is able to generate sufficient sustained cash flow to fully fund
the Companys consolidated operations.
To support ongoing revenue growth, the Company anticipates continued strong BPE order growth
from customers in the government sector and the private sector. The BPE Segment offers the
government sector many of the same offerings it provides to its private sector customers, including
energy savings projects and other energy efficiency-focused products and services, through direct
government contracts and by acting as a subcontractor to large energy services company (ESCOs).
The BPE Segment has a long history of providing energy efficiency services to a wide range of
government facilities, including U.S. military bases, federal and state prisons, and large public
educational facilities, school districts, and a variety of other federal, state and municipal
buildings and facilities. The Company has business relationships with a number of government
entities and with several of the large ESCOs selected by the U.S. Department of Energy in December
2008 to perform federally-funded projects to improve the energy efficiency of government buildings.
The Company also expects to build on its recent successes in the private sector by continuing to
broaden its customer base of Fortune 500 companies and large asset and property managers that own
or manage numerous facilities across the country. As a result of many funded and proposed
government mandates to improve the efficiency of federal, state and local government facilities, as
well as a growing awareness in corporate America of the benefits of sustainability and energy
efficiency, the Company believes that it is well positioned for significant ongoing revenue growth
in both the government and private sectors.
The Company also anticipates that new order activity will be generated by the BPE Segments
recently introduced Fifth Fuel Management service offering over the next several quarters. BPE is
offering this technology-enabled demand response and energy efficiency system to a network of
utilities and independent system operators in the U.S., as well as to owners and operators of large
commercial office buildings, retail stores, hotels, light industrial facilities and institutional
buildings. Demand response is emerging as a critical tactic to help address the growing imbalance
in the supply and demand of generated electric power in the United States. In February 2010, the
Company received its initial multi-year orders for this new offering, and Fifth Fuel Management
order bookings totaled approximately $800,000 in fiscal 2010. The Company expects Fifth Fuel
Management will provide additional opportunities for sales of BPE Segments other energy
efficiency services and products as well, which can enable BPE to leverage its established customer
base of building owners and operators to help utilities gain better utilization of their existing
energy generating facilities and infrastructures. The Company believes the BPE Segment is now
better positioned to participate in the growing utility market sector; however, the Companys
ability to develop the new Fifth Fuel Management offering to its full potential will require the
investment of additional capital.
While the potential market demand for the BPE Segments offerings appears to be quite promising,
there can be no assurance that this will result in sustained revenue growth, particularly if recent
macro-economic conditions were to continue, or worsen, for an extended period of time.
|
|
|
1 |
|
The Company believes EBITDA is a useful non-GAAP
measurement of the BPE Segments performance, because it provides information
that can be used to further evaluate the operational effectiveness of the
business. One should not consider EBITDA an alternative to, or a more
meaningful indicator of the segments operating performance than, earnings
before taxes as determined in accordance with GAAP. |
32
Discontinued Operations
In recent years, the Company has generated substantial liquidity from sales of its real estate
assets, and the proceeds from such sales largely have been redeployed to fund the establishment and
growth of the BPE Segment. In June 2010, the Company successfully closed on the sale of its owned
shopping center in Jacksonville, Florida, generating net cash proceeds of approximately $2 million,
and in December 2010, successfully closed on the sale of its owned shopping center in Smyrna,
Tennessee, generating net cash proceeds of approximately $250,000. (See Note 10 Discontinued
Operations to the condensed consolidated financial statements for more information).
As a cumulative result of the real estate asset sales in recent years, the Companys real estate
assets now consist of only its corporate headquarters building in metropolitan Atlanta, Georgia; a
commercially-zoned land parcel in North Ft. Myers, Florida; and commercially-zoned land parcels in
Oakwood, Georgia. Further, as a result of the disposition in December 2010, the Companys Real
Estate Segment is no longer considered a reportable segment (see Note 6 Segment Reporting to the
condensed consolidated financial statements for more information).
Liquidity
The Companys cash increased by 34% during the second quarter of fiscal 2011, as operating
activities provided cash of $603,000 during the quarter. Despite this increase in cash and the
recent successes and achievements of the BPE Segment described above, the Companys loss from
continuing operations in the first quarter of fiscal 2011 resulted in significant usage of the
Companys cash, continuing the trend of substantial cash usage to fund operating losses in several
consecutive preceding fiscal quarters. Although the BPE Segment generated positive EBITDA and net
earnings from operations in the fourth quarter of fiscal 2010 and in the second quarter of fiscal
2011, and is expected to generate positive EBITDA and net earnings for the full fiscal year 2011, a
longer period of time will be required before the BPE Segment is able to generate sufficient
sustained cash flow to fully fund the Companys consolidated operations. The Company believes that
it has, or can obtain, sufficient capital resources to operate its business in the ordinary course
until the BPE Segment begins to generate sufficient sustained cash flow to fund the Companys
consolidated operations, which it may seek to obtain using any of the methods described below in
Liquidity and Capital Resources; however, there can be no assurance that the Company will be
successful in these efforts.
Historically, earnings before taxes have been indicative of the BPE Segments cash flows, before
taking into account the timing of receivables and payables. Despite the revenue growth, positive
EBITDA and earnings that the Company expects the BPE Segment to achieve for the full fiscal year
2011 and beyond, the timing of when BPE will generate consistent and sustainable cash flow from
operations will be dependent on a number of factors, including the timing of collections on
customer receivables and payments to vendors and suppliers. In addition, there can be no guarantee
that the expected revenue growth, positive EBITDA and earnings at the BPE Segment will actually
occur, particularly if recent macro-economic conditions continue, or worsen, for an extended period
of time. See Liquidity and Capital Resources later in this discussion and analysis section for
more information.
RESULTS OF OPERATIONS
In the following charts, changes in revenues, cost of revenues, selling, general and administrative
expenses, and loss from continuing operations before income taxes from period to period are
analyzed on a segment basis, prior to intercompany revenues, costs and expenses. For other
information on a consolidated basis, refer to the Companys condensed consolidated financial statements. For net
earnings presented by segment including intercompany revenues, costs and expenses, refer to Note 6
Segment Reporting to the condensed consolidated financial statements.
33
REVENUES
From Continuing Operations
For the second quarter of fiscal 2011, consolidated revenues from continuing operations, prior to
intercompany revenues, were $7,629,954 compared to $4,028,558 for the second quarter of fiscal
2010, an increase of approximately 89%. For the first six (6) months of fiscal 2011, consolidated
revenues from continuing operations, prior to intercompany revenues, were $12,575,549, compared to
$8,002,701 for the first six (6) months of fiscal 2010, an increase of approximately 57%.
CHART A
REVENUES FROM CONTINUING OPERATIONS
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended |
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
October 31, |
|
|
Amount |
|
|
Percentage |
|
|
October 31, |
|
|
Amount |
|
|
Percentage |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
Change |
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
Change |
|
|
|
|
|
|
BPE (1) |
|
$ |
7,519 |
|
|
$ |
3,923 |
|
|
$ |
3,596 |
|
|
|
92 |
|
|
$ |
12,361 |
|
|
$ |
7,796 |
|
|
$ |
4,565 |
|
|
|
59 |
|
Other |
|
|
111 |
|
|
|
106 |
|
|
|
5 |
|
|
|
5 |
|
|
|
215 |
|
|
|
207 |
|
|
|
8 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,630 |
|
|
$ |
4,029 |
|
|
$ |
3,601 |
|
|
|
89 |
|
|
$ |
12,576 |
|
|
$ |
8,003 |
|
|
$ |
4,573 |
|
|
|
57 |
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended |
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
October 31, |
|
|
Amount |
|
|
Percentage |
|
|
October 31, |
|
|
Amount |
|
|
Percentage |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
Change |
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
Change |
|
|
|
|
|
|
Energy Savings Projects |
|
$ |
5,803 |
|
|
$ |
2,048 |
|
|
$ |
3,755 |
|
|
|
183 |
|
|
$ |
8,822 |
|
|
$ |
4,061 |
|
|
$ |
4,761 |
|
|
|
117 |
|
Lighting Products |
|
|
531 |
|
|
|
485 |
|
|
|
46 |
|
|
|
9 |
|
|
|
1,216 |
|
|
|
941 |
|
|
|
275 |
|
|
|
29 |
|
Energy Management Services |
|
|
427 |
|
|
|
458 |
|
|
|
(31 |
) |
|
|
(7 |
) |
|
|
767 |
|
|
|
1,022 |
|
|
|
(255 |
) |
|
|
(25 |
) |
Fifth Fuel Management Services |
|
|
34 |
|
|
|
|
|
|
|
34 |
|
|
|
|
|
|
|
91 |
|
|
|
|
|
|
|
91 |
|
|
|
|
|
Productivity Software |
|
|
724 |
|
|
|
932 |
|
|
|
(208 |
) |
|
|
(22 |
) |
|
|
1,465 |
|
|
|
1,772 |
|
|
|
(307 |
) |
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,519 |
|
|
$ |
3,923 |
|
|
$ |
3,596 |
|
|
|
92 |
|
|
$ |
12,361 |
|
|
$ |
7,796 |
|
|
$ |
4,565 |
|
|
|
59 |
|
|
|
|
|
|
BPE Segment revenues increased by approximately $3,596,000, or 92%, in the second
quarter of fiscal 2011 compared to the same period in fiscal 2010, primarily due to:
|
(a) |
|
an increase in energy savings (lighting and mechanical) project revenues
of approximately $3,755,000; |
partially offset by:
34
|
(b) |
|
a decrease in productivity software revenues of approximately $208,000. |
|
BPE Segment revenues increased by approximately $4,565,000, or 59%, in the first six (6)
months of fiscal 2011 compared to the same period in fiscal 2010, primarily due to: |
|
(a) |
|
an increase in energy savings (lighting and mechanical) project revenues
of approximately $4,761,000; |
|
|
(b) |
|
an increase in lighting product revenues of approximately $275,000; and |
|
|
(c) |
|
approximately $91,000 in revenues from the Companys new Fifth Fuel
Management service offering; |
|
(d) |
|
a decrease in energy management service revenues of approximately
$255,000; and |
|
|
(e) |
|
a decrease in productivity software revenues of approximately $307,000. |
The following table indicates the backlog of contracts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
October 31, |
|
|
(Decrease) |
|
|
|
2010 |
|
|
2009 |
|
|
Amount |
|
|
Percentage |
|
|
|
|
BPE (1) |
|
$ |
16,299,000 |
|
|
$ |
7,027,000 |
|
|
$ |
9,272,000 |
|
|
|
132 |
|
Other (2) |
|
|
405,000 |
|
|
|
395,000 |
|
|
|
10,000 |
|
|
|
3 |
|
|
|
|
|
|
|
|
Total Backlog |
|
$ |
16,704,000 |
|
|
$ |
7,422,000 |
|
|
$ |
9,282,000 |
|
|
|
125 |
|
|
|
|
(1) |
|
BPE backlog at October 31, 2010, increased by approximately $9,272,000, or 132%,
compared to the year-earlier period, primarily due to: |
|
(a) |
|
an increase of approximately $8,262,000 in energy savings (lighting and
mechanical) projects; |
|
|
(b) |
|
approximately $622,000 in backlog from BPEs new Fifth Fuel Management
TM service offering; and |
|
|
(c) |
|
an increase of approximately $349,000 in energy management consulting
services. |
|
|
BPE backlog includes some contracts that can be cancelled by customers with less than one (1)
years notice, and assumes that such cancellation provisions will not be invoked. The value
of such contracts included in the prior years backlog that were subsequently cancelled was
approximately $168,000, or 2.4%. |
|
(2) |
|
Other backlog represents rental income under lease agreements at the Companys corporate
headquarters building and other leasehold interests. |
35
The Company estimates that a substantial majority of the backlog at October 31, 2010, will be
recognized prior to October 31, 2011. No assurance can be given as to future backlog levels or
whether the Company will actually realize earnings from revenues that result from the backlog at
October 31, 2010.
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), prior to intercompany
costs, were 73% and 70% for the
second quarters of fiscal 2011 and 2010, respectively, and were 74% and 71% for the first six (6)
months of fiscal 2011 and 2010, 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 prior to intercompany costs.
CHART B
COST OF REVENUES
FROM CONTINUING OPERATIONS
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
|
|
|
|
|
Revenues for the |
|
|
|
|
|
|
|
|
|
|
Revenues for the |
|
|
|
Second Quarter Ended |
|
|
Second Quarter Ended |
|
|
Six Months Ended |
|
|
Six Months Ended |
|
|
|
October 31, |
|
|
October 31, |
|
|
October 31, |
|
|
October 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
BPE (1) |
|
$ |
5,403 |
|
|
$ |
2,671 |
|
|
|
72 |
|
|
|
68 |
|
|
$ |
8,968 |
|
|
$ |
5,296 |
|
|
|
73 |
|
|
|
68 |
|
Other |
|
|
161 |
|
|
|
168 |
|
|
|
146 |
|
|
|
158 |
|
|
|
336 |
|
|
|
352 |
|
|
|
156 |
|
|
|
170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,564 |
|
|
$ |
2,839 |
|
|
|
73 |
|
|
|
70 |
|
|
$ |
9,304 |
|
|
$ |
5,648 |
|
|
|
74 |
|
|
|
71 |
|
|
|
|
|
|
NOTES TO CHART B
(1) |
|
BPE Segment cost of revenues increased by approximately $2,732,000, or 102%, and by
approximately $3,672,000, or 69%, in the second quarter and the first six (6) months of
fiscal 2011, respectively, compared to the same periods in fiscal 2010, primarily due to a
corresponding increase in revenues (See Chart A). |
|
|
|
On a percentage-of-revenues basis, BPE Segment cost of revenues increased by approximately 4%
and by approximately 5% in the second quarter and the first six (6) months of fiscal 2011,
respectively, compared to the same periods in fiscal 2010, primarily due to changes in the
mix of services and products and an increasingly competitive market pricing environment for energy
savings projects. |
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), prior to
intercompany expenses, were 33% and 57%, for the second quarters of fiscal 2011 and 2010,
respectively, and were 40% and 58% for the first six (6) months of fiscal 2011 and 2010,
respectively. In reviewing Chart C, the reader should recognize that the volume of revenues
generally will affect the amounts and percentages presented. The percentages in Chart C are based
upon expenses as they relate to segment revenues from continuing operations (see Chart A), with the
exception that Corporate and total expenses relate to total consolidated revenues from continuing
operations.
36
The figures in Chart C are prior to intercompany expenses.
CHART C
SELLING, GENERAL AND ADMINSTRATIVE EXPENSES
FROM CONTINUING OPERATIONS
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
|
|
|
|
|
Revenues for the |
|
|
|
|
|
|
|
|
|
|
Revenues for the |
|
|
|
Second Quarter Ended |
|
|
Second Quarter Ended |
|
|
Six Months Ended |
|
|
Six Months Ended |
|
|
|
October 31, |
|
|
October 31, |
|
|
October 31, |
|
|
October 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
BPE (1) |
|
$ |
1,428 |
|
|
$ |
1,362 |
|
|
|
19 |
|
|
|
35 |
|
|
$ |
3,005 |
|
|
$ |
2,722 |
|
|
|
24 |
|
|
|
35 |
|
Corporate (2) |
|
|
1,122 |
|
|
|
930 |
|
|
|
15 |
|
|
|
23 |
|
|
|
2,040 |
|
|
|
1,954 |
|
|
|
16 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,550 |
|
|
$ |
2,292 |
|
|
|
33 |
|
|
|
57 |
|
|
$ |
5,045 |
|
|
$ |
4,676 |
|
|
|
40 |
|
|
|
58 |
|
|
|
|
|
|
NOTES TO CHART C
(1) |
|
BPE Segment SG&A expenses increased by approximately $283,000, or 10%, in the first six (6)
months of fiscal 2011 compared to the same period in fiscal 2010, primarily due to higher
personnel-related costs, product development expenses, and sales and marketing expenses. |
|
|
|
On a percentage-of-revenue basis, BPE Segment SG&A expenses decreased by approximately 16%
and 11% in the second quarter and the first six (6) months of fiscal 2011, respectively,
compared to the same periods in fiscal 2010, primarily due to the increases in revenues (see
Chart A) without corresponding proportional increases in expenses. |
|
(2) |
|
Corporate SG&A expenses increased by approximately $192,000, or 21%, and by approximately
$86,000, or 4%, in the second quarter and the first six (6) months of fiscal 2011,
respectively, compared to the same periods in fiscal 2010, primarily due to increases in
consulting, legal, and non-employee directors fees and investor relations expenses, partially offset by reductions
in audit and tax fees. |
|
|
|
On a percentage-of-revenue basis, Corporate SG&A expenses decreased by 8% in both the second
quarter and first six (6) months of fiscal 2011, compared to the same respective periods in
fiscal 2010, primarily due to the increase in revenues (see Chart A) without corresponding
proportional increases in expenses. |
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
Consolidated
loss from continuing operations before income taxes was $529,117 in the second
quarter of fiscal 2011, compared to $1,146,798 in the same period of fiscal 2010, a decrease of
$617,681, or 54%. For the first six (6) months of fiscal 2011, the consolidated loss from continuing
operations before income taxes was $1,949,357, compared to $2,447,548 in the same period of fiscal
2010, a decrease of $498,191, or 20%.
37
The figures in Chart D are prior to intersegment revenues, costs and expenses.
CHART D
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended |
|
|
(Increase) |
|
|
Six Months Ended |
|
|
(Increase) |
|
|
|
October 31, |
|
|
Decrease |
|
|
October 31, |
|
|
Decrease |
|
|
|
2010 |
|
|
2009 |
|
|
Amount |
|
|
2010 |
|
|
2009 |
|
|
Amount |
|
|
|
|
|
|
BPE (1) |
|
$ |
697 |
|
|
$ |
(75 |
) |
|
$ |
772 |
|
|
$ |
383 |
|
|
$ |
(199 |
) |
|
$ |
582 |
|
Corporate (2) |
|
|
(1,226 |
) |
|
|
(1,072 |
) |
|
|
(154 |
) |
|
|
(2,332 |
) |
|
|
(2,249 |
) |
|
|
(83 |
) |
|
|
|
|
|
Total |
|
$ |
(529 |
) |
|
$ |
(1,147 |
) |
|
$ |
618 |
|
|
$ |
(1,949 |
) |
|
$ |
(2,448 |
) |
|
$ |
499 |
|
|
|
|
|
|
NOTES TO CHART D
(1) |
|
BPE Segment earnings before income taxes of approximately $697,000 in the second quarter of
fiscal 2011 represents growth in earnings of approximately $772,000 compared to the same
period in fiscal 2010, primarily due to an increase in revenues of approximately $3,596,000
(see Chart A) and an increase in gross margin of approximately $864,000, partially offset by
an increase in SG&A expenses of approximately $66,000 (see Chart C). |
|
|
|
BPE Segment earnings before income taxes of approximately $383,000 in the first six (6)
months of fiscal 2011 represents growth in earnings of approximately $582,000 compared to the
same period in fiscal 2010, primarily due to an increase in revenues of approximately
$4,565,000 (see Chart A) and an increase in gross margin of approximately $893,000, partially
offset by an increase in SG&A expenses of approximately $283,000 (see Chart C). |
|
(2) |
|
Corporate loss before income taxes increased by approximately
$154,000, or 14%, and by
approximately $83,000, or 4%, in the second quarter and the first six (6) months of fiscal
2011, respectively, compared to the same periods in fiscal 2010, primarily due to increases
in SG&A expenses of approximately $192,000 and $86,000 respectively (see Chart C). |
INCOME TAX BENEFIT
The Companys effective rate for income taxes, based upon estimated annual income tax rates,
approximated 31.1% of the loss from continuing operations before income taxes in the first six (6)
months of fiscal 2011 and 31.7% in the comparable period in fiscal
year 2010. The effective rates in both periods reflect the valuation
allowances recorded against the Companys state deferred tax
assets as described in Note 15 to the condensed consolidated
financial statements.
38
DISCONTINUED OPERATIONS
On December 15, 2010, the Company sold its owned shopping center in Smyrna, Tennessee, for a sales
price of approximately $4.3 million. The sale generated net cash proceeds of approximately
$250,000, after deducting approximately $125,000 for closing costs and prorations, and net of the
approximately
$3.9 million mortgage note, which was assumed by the buyer. The Company recognized a
pre-tax loss on the sale of approximately $6,000. Prior to the sale, the Company recorded an
impairment loss of approximately $590,000 in the condensed consolidated statement of operations in
the second quarter of fiscal 2011 (see Note 10 Discontinued Operations to the condensed
consolidated financial statements for more information). The Company recognized federal and state
tax benefits of approximately $198,000 on the disposition. These tax benefits primarily resulted
from the operating losses of the property during the current fiscal year, which included the
impairment loss of approximately $590,000 mentioned above.
On June 9, 2010, the Company sold its owned shopping center in Jacksonville, Florida, for a sales
price of approximately $9.9 million. The sale generated net cash proceeds of approximately $2
million, after deducting approximately $0.5 million for funding of repair escrows and approximately
$0.6 million for closing costs and prorations, and net of the approximately $6.9 million mortgage
note, which was assumed by the buyer. The Company recognized a pre-tax gain on the sale of
approximately $190,000, including approximately $75,000 in additional pre-tax gain recognized in
the second and third quarters of fiscal 2011 as the result of the successful completion of
contractual conditions and other cost-basis adjustments (see Note 10 Discontinued Operations to
the condensed consolidated financial statements for more information). The Companys federal and
state tax liabilities on the disposition were approximately $94,000. These tax liabilities
primarily resulted from the pre-tax gain on the disposition and the operating earnings of the
property during the current fiscal year. These tax liabilities were offset by the Companys net
operating loss carry-forwards for tax purposes.
On January 29, 2010, the Company disposed of its interest in its owned office building in Newnan,
Georgia. In this transaction, the Company transferred its approximately $2.0 million interest in
the property and related assets to the note holder, which satisfied in full the Companys liability
for the approximately $3.2 million remaining balance on the propertys non-recourse mortgage loan.
Correspondingly, the Company recognized a non-cash pre-tax gain of approximately $1.2 million in
the third quarter of fiscal 2010 as a result of the elimination of the balance of the indebtedness
on the property. The
Companys federal and state tax liabilities on the disposition were approximately $0.4 million.
These tax liabilities primarily resulted from the pre-tax gain on the disposition, partially offset by operating losses of the property during fiscal 2010. These
tax liabilities were offset by the Companys net operating loss carry-forwards for tax purposes.
In accordance with GAAP, the Companys financial statements have been prepared with the results of
operations and cash flows of these disposed properties shown as discontinued operations. All
historical statements have been recast in accordance with GAAP.
LIQUIDITY AND CAPITAL RESOURCES
Between April 30, 2010, and October 31, 2010, the Companys cash increased by a total of
approximately $484,589, or 25%. The Companys working capital increased by approximately $864,000,
or 24%, between April 30, 2010, and October 31, 2010.
The following describes the changes in the Companys cash from April 30, 2010, to October 31, 2010:
39
Operating activities used cash of approximately $1,391,000, primarily as a result of:
|
(a) |
|
current year losses from continuing operations before depreciation,
amortization, and income taxes of approximately $1,439,000; |
|
|
(b) |
|
an increase in costs and earnings in excess of billings of approximately
$538,000; and |
|
|
(c) |
|
an increase in other current and long-term assets of approximately
$403,000; |
|
(d) |
|
an increase in trade accounts payable, accrued expenses, and other
liabilities of approximately $559,000; and |
|
|
(e) |
|
a decrease in net accounts receivable of approximately $336,000. |
Investing activities used cash of approximately $533,000, primarily as a result of:
|
(a) |
|
$500,000 used for the purchase of a held-to-maturity investment; and |
|
|
(b) |
|
approximately $189,000 used for additions to intangible assets, primarily
related to enhancements to the BPE Segments proprietary building productivity
software solutions; |
|
(c) |
|
proceeds of approximately $195,000 from the termination of a split-dollar
life insurance agreement. |
Financing activities provided cash of approximately $367,000, primarily as a result of:
|
(a) |
|
proceeds from other long-term debt of $500,000; |
|
(b) |
|
scheduled principal payments on the mortgage note on the corporate
headquarters building of approximately $59,000; and |
|
|
(c) |
|
payment of the regular quarterly cash dividends to shareholders of
approximately $74,000. |
Discontinued operations provided cash of approximately $2,041,000, primarily as a result of the
sale of an income-producing property.
During the second quarter of fiscal 2011, operating activities provided approximately $603,000 of
cash, primarily due to the increase in accounts payable, partially offset by the operating loss in
the quarter, whereas during the first quarter of fiscal 2011, operating activities used
approximately $1,994,000 of cash, primarily due to the operating loss in the quarter and the
reduction in accounts payable, partially offset by a reduction in accounts receivable. The
significantly higher BPE Segment revenues in the second quarter, in combination with BPEs
increased order activity and higher backlog at October 31, 2010, as discussed above, are expected
to result in substantially higher full-year revenues in fiscal 2011. As a result, management
believes that the BPE Segment will be able to generate cash flow from operations for the year.
However, management believes that a longer period of time will be required before the BPE Segment
is able to generate sufficient sustained cash flow to fully fund the Companys consolidated
operations. Recent growth in BPEs business has strained the Companys capital resources.
However, the Company believes that it has sufficient capital resources on hand to operate its
business in the ordinary course for the next twelve (12) months. The Company also currently
believes that it has, or can obtain, sufficient capital resources to continue to operate its
business in the ordinary course until the BPE Segment begins to generate sufficient sustained cash
flow to fully fund the Companys consolidated operations, although there can be no guarantee that
this will be the case, particularly if the macro-economic conditions experienced in recent fiscal
years continue for an extended period of time, or worsen.
40
Achieving sufficient sustained cash flow from the operations of the BPE Segment to fully fund the
Companys consolidated operations will depend on the occurrence of a number of assumed factors,
including the timing, margins and volume of additional revenues generated by new material
contracts, which historically have been difficult to predict, and the timing of collections of
customer receivables and payments to vendors and suppliers. Consequently, there can be no assurance
that the Company will achieve sufficient sustained cash flow through BPE Segment operations to
fully fund the Companys consolidated operations in the near term, or at all.
The Company historically has generated substantial liquidity from the periodic sales of real estate
assets, and the proceeds from such sales largely have been redeployed to fund the establishment and
growth of the BPE Segment. In June 2010, the Company successfully closed on the sale of its owned
shopping center in Jacksonville, Florida, generating net cash proceeds of approximately $2 million.
Most recently, in December 2010 the Company successfully closed on the sale of its owned shopping
center in Smyrna, Tennessee, generating net cash proceeds of approximately $250,000. As a
cumulative result of real estate asset sales in recent years, the Companys real estate assets now
consist of only the corporate headquarters building in metropolitan Atlanta, Georgia; a
commercially-zoned land parcel in North Ft. Myers, Florida; and commercially-zoned land parcels in
Oakwood, Georgia. Given the declines in commercial real estate markets and asset valuations in the
United States in recent years, the Company may be unable to sell any of its remaining real estate
assets at acceptable prices, or at all, in the near future.
The Company in recent years has not utilized bank lines of credit for operating purposes and does
not currently have in place any such line of credit. In the current
fiscal quarter,
the Company borrowed $500,000 from related parties through the issuance of promissory notes (see the Sales of
Promissory Notes to Related Parties section below for more
information). Additionally, as of October 31, 2010, the Company
has drawn $570,000 in loans against its interest in the
cash surrender value of certain life insurance policies. In the
current fiscal quarter, the Company repaid a loan of approximately $412,000, which had been drawn against the cash
surrender value of another of these life insurance policies (see the Termination of Split Dollar
Life Insurance Agreement section below for more information). There is currently minimal
additional borrowing capacity left under such policies.
In the event that currently available cash, cash generated from operations, and cash generated from
real estate sales were not sufficient to meet future operating cash requirements, the Company would
need to sell additional real estate or other assets at potentially otherwise unacceptable prices,
seek external debt financing or refinancing of existing debt, seek to raise funds through the
issuance of equity securities, or limit growth or curtail operations to levels consistent with the
constraints imposed by the available cash and cash flow, or any combination of these options.
Depending on the form of such additional capital, the equity interests of the Companys existing
shareholders could be diluted as a result. In addition, the development of the BPE Segments Fifth
Fuel
Management® service offering to its full potential will require the investment of
additional capital, which the Company may seek to raise through outside sources or the sale of
assets.
41
The Companys ability to secure debt or equity financing or to sell real estate or other assets,
whether for normal working capital and capital expenditure purposes or for development of the Fifth
Fuel Management® service offering, could be limited by economic and financial conditions
at any time, but likely would be severely limited by credit, equity and real estate market
conditions similar to those that have existed in recent years. Management cannot provide assurance
that any reductions in planned expenditures or curtailment of operations would be sufficient to
cover potential shortfalls in available cash, or that debt or equity financing or real estate or
other asset sales would be available on terms acceptable to management, if at all, in which event
the Company could deplete its capital resources before achieving sufficient sustained cash flow to
fully fund consolidated operations, and as a result might be obliged to explore strategic
alternatives for its business.
Sales of Promissory Notes to Related Parties
On October 14, 2010, the Company borrowed an aggregate of $500,000 from related parties by issuing
a total of four (4) promissory notes to Samuel E. Allen, a Director of the Company; Herschel Kahn,
a Director of the Company; Alan R. Abrams, a Director, Chairman of the Board and Chief Executive
Officer of the Company; and J. Andrew Abrams, Executive Vice President of the Company,
respectively. The largest of the four (4) notes, amounting to $400,000, was issued to Mr. Allen.
Each of the notes bears interest at twelve percent (12%) per annum and matures on May 14, 2012,
subject to acceleration under certain specified circumstances. The notes are collectively secured
by a security deed on real property granted by a subsidiary of the Company. The notes are included
in Other Long-Term Debt in the Companys condensed consolidated balance sheet. The cash proceeds
from the borrowings were used to fund working capital and for other operating purposes.
Termination of Split Dollar Life Insurance Agreement
Historically, the Company has been a party to split dollar life insurance agreements pursuant to
which, among other things, the Company has agreed to pay premiums on life insurance policies for
certain executives of the Company. The cash surrender values of these insurance policies are
recorded as long-term other assets in the Companys condensed consolidated balance sheet. As of
July 31, 2010, the Company was a party to three (3) split dollar agreements regarding policies insuring the lives of
current and former executive officers of the Company, and had long-term loans of approximately
$982,000 against its interest in the cash surrender value of these policies.
On October 21, 2010, the split dollar life insurance agreement (the Agreement) related to the
policy jointly insuring the lives of Edward M. Abrams (deceased), the Companys former Chairman of
the Board and Chief Executive Officer, and his widow, Ann U. Abrams (the parents of Alan R. Abrams,
the Companys Chairman of the Board and Chief Executive Officer, and J. Andrew Abrams, the
Companys Executive Vice President) was terminated prior to the death of the remaining insured.
Prior to the termination, the Company had a long-term loan of approximately $412,000 against its
interest in the cash surrender value of this policy, which loan amount approximately equaled the
cumulative policy premiums paid by the Company through the date the loan was originated, and
represented a substantial majority of the policys cash surrender value prior to the loan. Under
the terms of the Agreement, in the event of an early termination prior to the death of the insured,
the Company was entitled to receive the remaining cash surrender value of the policy, if any, on
the date of termination. However, in consideration of the consent to the early termination of the
Agreement by the trust that owns the policy, the Company agreed to reduce the net cash surrender
value otherwise payable to the Company by $42,000. As a result of the early termination of the
Agreement: (1) the long-term loan against the Companys interest in the cash surrender value of the
policy of approximately $412,000, and the related accrued interest of approximately $13,000, was
repaid in full; (2) the Company received approximately $195,000 in cash proceeds; (3) the Companys
ongoing obligation to pay premiums on the policy and its entitlement to any portion of the policys
death benefit were terminated; and (4) the Company reduced its long-term other assets by
approximately $662,000, representing the Companys interest in the cash surrender value of the
policy prior to termination.
42
Capital Expenditures
The Company has no material commitments for capital expenditures. However, the Company does expect
that total capital spending in fiscal year 2011 will approximate $540,000, including BPE Segment
expenditures of approximately $300,000 for proprietary BPE technology solutions and approximately
$190,000 for property and equipment, and Corporate expenditures of approximately $40,000. Of these
forecasted amounts, approximately $200,000, or 41%, of the BPE Segment expenditures were already
expended during the first six (6) months of the fiscal year. No significant amounts of the
forecasted Corporate expenditures were expended during the first six (6) months of the fiscal year.
Significant Uses of Cash
Significant uses of cash in the future are anticipated to be regular scheduled principal payments
of the corporate headquarters building mortgage note and other long-term debt, capital expenditures
for property and equipment, capital expenditures for enhancing BPEs proprietary technology
solutions, funding collateral for performance bonds when required by energy savings projects
contracts, and the regular cash operating requirements of corporate headquarters. The Companys
uses of cash are not expected to change materially in the near future.
Mortgage Notes and Other Long-Term Debt
The Company currently has one (1) mortgage note on long-term real estate assets in the approximate
amount of $4.2 million and two (2) other long-term debt obligations in the approximate aggregate
amount of $1.0 million. The mortgage loan contains a provision that requires a corporate
subsidiary to maintain a net worth of at least $2 million. The subsidiary referred to in this mortgage loan provision had a
net worth of approximately $16.4 million as of October 31, 2010. None of the Companys other
long-term debt obligations have any financial or non-financial covenants. The mortgage note
matures on August 1, 2012.
The cash principal payment obligations during the next twelve (12) months related to the Companys
long-term debt are expected to be approximately $275,000.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this Quarterly Report on Form 10-Q/A,
including without limitation, statements containing the words believes, anticipates,
estimates, expects, plans, projects, forecasts, and words of similar import, are
forward-looking statements within the meaning of the federal securities laws. Forward-looking
statements in this report include, without limitation: the Companys expected continuing
strengthening of orders and achievement of positive EBITDA for its BPE Segment; trends in the BPE
Segments government business and private sector business; the Companys expectations of generating
additional recurring revenues as a result of the BPE Segments new Fifth Fuel Management offering;
the expected timing of the recognition as revenue of current backlog; and the Companys
expectations concerning the adequacy of its capital resources for future operations. Such
forward-looking statements involve known and unknown risks, uncertainties, and other matters which
may cause the actual past results, performance, or achievements of the Company to be materially
different from any future results, performance, or uncertainties expressed or implied by such
forward-looking statements. Factors affecting forward-looking statements include, without
limitation, the length and severity of the current ongoing uncertain macro-economic conditions 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; the Companys ability to secure
additional capital; and the other factors identified under the caption Risk Factors in the
Companys Annual Report on Form 10-K/A for the year ended April 30, 2010, 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 are recognized when all of the following conditions are met: there is
persuasive evidence of an arrangement; service has been provided to the customer; the collection of
fees is probable; and the amount of fees to be paid by the customer is fixed and determinable. The
Companys license arrangements do not include general rights of return. Revenues are recognized
ratably over the contract period, which is typically no longer than twelve (12) months, beginning
on the commencement date of each contract. Amounts that have been invoiced are recorded in
accounts receivable and in revenue or deferred revenue, depending on the timing of when the revenue
recognition criteria have been met. Additionally, the Company defers such direct costs and
amortizes them over the same time period as the revenue is recognized.
Energy management services are accounted for separately and are recognized as the services are
rendered. Revenues derived from sales of proprietary building productivity software solutions
(other than ASP solutions) and hardware products are recognized when the software solutions and
products are sold.
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Energy savings project revenues are reported on the percentage-of-completion method, using costs
incurred to date in relation to estimated total costs of the contracts to measure the stage of
completion. Original contract prices are adjusted for change orders in the amounts that are
reasonably estimated. The nature of the change orders usually involves a change in the scope of
the project, for example, a change in the number or type of units being installed. The price of
change orders is based on the specific materials, labor, and other project costs affected.
Contract revenue and costs are adjusted to reflect change orders when they are approved by both the
Company and its customer for both scope and price. For a change order that is unpriced; that is,
the scope of the work to be performed is defined, but the adjustment to the contract price is to be
negotiated later, the Company evaluates the particular circumstances of that specific instance in
determining whether to adjust the contract revenue and/or costs related to the change order. For
unpriced change orders, the Company will record revenue in excess of costs related to a change
order on a contract only when the Company deems that the adjustment to the contract price is
probable based on its historical experience with that customer. The cumulative effects of changes
in estimated total contract costs and revenues (change orders) are recorded in the period in which
the facts requiring such revisions become known, and are accounted for using the
percentage-of-completion method. At the time it is determined that a contract is expected to result
in a loss, the entire estimated loss is recorded. Energy efficient lighting product revenues are
recognized when the products are shipped.
Long-Lived Assets: Property & Equipment and Capitalized Software
The Companys corporate headquarters building and related assets are stated at historical cost or,
if the Company determines that impairment has occurred, at fair market value, and are depreciated
for financial reporting purposes using the straight-line method over the respective estimated
useful lives. 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.
Other property and equipment are recorded at historical cost and are depreciated for financial
reporting purposes using the straight-line method over the estimated useful lives of the respective
assets.
The Companys most significant tangible long-lived assets are the corporate headquarters building
and related assets. 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. The
Company examines long-lived assets for such indications of impairment on a quarterly basis. The
types of events and circumstances that might indicate impairment include, but are not limited to,
the following:
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A significant decrease in the market price of a long-lived asset; |
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A 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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The Company has received purchase offers at prices below carrying value; |
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A real estate asset that has a significant vacancy rate or significant rollover
exposure from one or more tenants; |
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A major tenant experiencing financial difficulties that may jeopardize the
tenants ability to meet its lease obligations; and |
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Depressed market conditions. |
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 using
assumptions regarding occupancy, counter-party creditworthiness, costs of leasing including tenant
improvements and leasing commissions, rental rates and expenses of the property, as well as the
expected holding period and cash to be received from disposition. The Company has considered all
of these factors in its undiscounted cash flows.
The BPE Segment has long-lived assets that consist primarily of capitalized software costs,
classified as intangible assets, net on the balance sheet, as well as a portion of the property and
equipment on the balance sheet. Software development costs are accounted as required for software
in a Web hosting arrangement. Software development costs that are incurred in a preliminary
project stage are expensed as incurred. Costs that are incurred during the application development
stage are capitalized and reported at the lower of unamortized cost or net realizable value.
Capitalization ceases when the computer software development project, including testing of the
computer software, is substantially complete and the software product is ready for its intended
use. Capitalized costs are amortized on a straight-line basis over the estimated economic life of
the product.
Events or circumstances which would trigger an impairment analysis of these long-lived assets
include:
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A change in the estimated remaining useful life of the asset; |
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A change in the manner in which the asset is used in the income generating
business of the Company; or |
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A current-period operating or cash flow loss combined with a history of operating
or cash flow losses, or a projection or forecast that demonstrates continuing losses
associated with the use of a long-lived asset. |
Long-lived assets in the BPE Segment are grouped together for purposes of impairment analysis, as
assets and liabilities of the BPE Segment are not independent of one another. Annually at the end
of the fiscal third quarter, unless events or circumstances occur in the interim as discussed
above, the Company reviews its BPE Segments long-lived assets for impairment. Future undiscounted
cash flows of the segment, as measured in its goodwill impairment analysis, are used to determine
whether impairment of long-lived assets exists in the BPE Segment.
46
Valuation of Goodwill and Other Indefinite-Lived Intangible Assets
Goodwill and intangible assets with indefinite lives are reviewed for impairment annually at the
end of the fiscal third quarter, or whenever events or changes in circumstances indicate that the
carrying basis of an asset may not be recoverable. All of the Companys goodwill and
indefinite-lived intangible assets are assigned to the BPE Segment, which has also been determined
to be the reporting unit.
The Company performed the annual impairment analysis of goodwill and indefinite-lived intangible
assets for the BPE Segment in the quarter ended January 31, 2010. The annual analysis resulted in
a determination of no impairment. Management considers both positive and negative indicators of
impairment on an interim basis. The Company has concluded it was not necessary to perform an
interim test of goodwill impairment as of October 31, 2010.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax
bases, and to tax loss carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to be applied to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect of a change in tax rates on
deferred tax assets and liabilities is recognized in income in the period that includes the
enactment date.
The Company periodically reviews its deferred tax assets (DTA) to assess whether it is more
likely than not that a tax asset will not be realized. The realization of a DTA ultimately depends
on the existence of sufficient taxable income. A valuation allowance is established against a DTA
if there is not sufficient evidence that it will be realized. The Company weighs all available
evidence in order to determine whether it is more-likely-than-not that a DTA will be realized in a
future period. The Company considers general economic conditions, market and industry conditions,
as well as internal Company specific conditions, trends, management plans, and other data in making
this determination.
Evidence considered is weighted according to the degree that it can be objectively verified.
Reversals of temporary differences are weighted with more significance than projections of future
earnings of the Company.
Positive
evidence considered includes, among others, the following: deferred
tax liabilities in excess of DTA, future reversals of temporary
differences, Company historical evidence of not having DTAs expire prior to utilization, and long
carryforward period remaining for net operating loss (NOL) carryforwards.
Negative evidence considered includes, among others, lack of cumulative taxable income in recent
years, and the fact that the current real estate market conditions and lack of readily available
credit could make it difficult for the Company to trigger gains on sales of real estate.
The valuation allowance currently recorded against the DTA for state NOL carryforwards was recorded
because of a lack of sufficient positive evidence to support its realization due to the recent
dispositions of real estate assets and recurring losses.
The Company will have to generate $6.4 million of taxable income in future years to realize the
federal NOL carryforwards and an additional $26.0 million of taxable income in future years to
realize the state NOL carryforwards. These amounts of taxable income would allow for the reversal
of the $3.2 million DTA related to NOL
carryforwards. There is a long carryforward period
remaining for the NOL carryforwards. The oldest federal NOL carryforwards will expire in the April
30, 2024, tax-year, and the most recent federal NOL carryforwards will expire in the April 30,
2031, tax-year. The significant state NOL carryforwards will also expire between the April 30,
2024, and April 30, 2031, tax years. The Company has no material permanent book/tax differences.
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The Company has no material uncertain tax position obligations. The Companys policy is to record
interest and penalties as a component of income tax expense (benefit) in the consolidated statement
of operations.
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 initially 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. However, as a result of the identification of the issue that caused the restatement described
in Note 15 to the condensed consolidated financial statements and managements determination that
there is a material weakness in the Companys internal control over financial reporting in the area
of accounting for income taxes, as described below, the Chief Executive Officer and Chief Financial
Officer have subsequently concluded that the Companys disclosure controls and procedures were not
effective as of October 31, 2010.
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/A that materially affected, or is
reasonably likely to materially affect, the Companys internal
control over financial reporting. However, management is currently in the process of implementing changes to the Companys internal
control over financial reporting to remediate the material weakness related to the Companys
accounting for income taxes described below, which resulted in the restatement described in Note
15 to the condensed consolidated financial statements.
A material weakness in internal control over financial reporting is a deficiency, or a combination
of deficiencies, such that there is a reasonable possibility that a material misstatement of a
companys financial statement will not be prevented or detected on a timely basis by the companys
internal controls. The restatement of the Companys financial statements resulted from an error in
the timing of recording a valuation allowance for its state deferred tax assets in accordance with
ASC 740, Accounting for Income Taxes, related to the recoverability of the deferred tax assets, as
more fully described in Note 15 to the condensed consolidated financial statements included in
this Amendment 1. Management believes that this error constitutes a material weakness in the
design of the Companys internal control over financial reporting in the area of accounting for
income taxes and has begun to take the following steps to remediate the deficiency:
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develop and implement additional procedures to increase the level of
review, evaluation and validation of the Companys valuation of deferred
tax assets; and |
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increase the level of knowledge among Company employees in the area
of accounting for income taxes. |
In doing both of the above, the Company expects that it will be in a position to place less
reliance on third-party tax professionals.
The management of the Company is committed to a strong internal control environment, and believes
that, when fully implemented, these remediation actions will represent significant improvements.
The remediation actions are not expected to result in material costs to the Company. Management
anticipates completing this remediation effort before the 2011 Annual Report is filed in July
2011.
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PART II. OTHER INFORMATION
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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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this Amendment No. 1 to its quarterly 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: June 2, 2011 |
/s/ Alan R. Abrams
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Alan R. Abrams |
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Chief Executive Officer |
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Date: June 2, 2011 |
/s/ Rick A. Paternostro
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Rick A. Paternostro |
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Chief Financial Officer
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