SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT

Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

SERVIDYNE, INC.

(Exact name of registrant as specified in its charter)

Georgia		58-0522129
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1945 The Exchange, Suite 300, Atlanta, GA 30339-2029
(Address of principal executive offices) (Zip Code)

Registrant’s 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.

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.

 

 

SERVIDYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

		October 31, 2010				April 30, 2010
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	2,408,230			$	1,923,641
Receivables (Note 5):
Trade accounts and notes, net of allowance for doubtful accounts of $85,397 and $58,989, respectively			875,164				973,442
Contracts, net of allowance for doubtful accounts of $52,847 and $22,530, respectively, including retained amounts of $521,623 and $675,281, respectively			3,132,729				3,337,177
Costs and earnings in excess of billings			1,253,030				715,129
Assets of discontinued operations (Note 10)			68,684				150,970
Deferred income taxes			359,878				401,223
Other current assets			1,734,215				1,265,326
Total current assets			9,831,930				8,766,908
INCOME-PRODUCING PROPERTIES, net			7,992,605				8,701,893
PROPERTY AND EQUIPMENT, net			607,759				682,445
ASSETS OF DISCONTINUED OPERATIONS (Note 10)			—				8,881,447
DEFERRED INCOME TAXES			—				6,666
OTHER ASSETS:
Real estate held for future development or sale			853,109				853,109
Intangible assets, net (Note 8)			2,527,974				2,684,057
Goodwill (Note 8)			6,354,002				6,354,002
Other assets (Note 9)			2,807,072				2,909,158
Total assets		$	30,974,451			$	39,839,685
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Trade and subcontractors payables		$	3,135,961			$	2,465,112
Accrued expenses			1,469,691				1,429,321
Deferred revenue			357,937				507,383
Billings in excess of costs and earnings			89,402				53,100
Liabilities of discontinued operations (Note 10)			21,390				417,681
Short-term debt and current maturities of long-term debt			327,187				322,436
Total current liabilities			5,401,568				5,195,033
DEFERRED INCOME TAXES			222,803				—
LIABILITIES OF DISCONTINUED OPERATIONS (Note 10)			—				7,943,165
OTHER LIABILITIES			1,061,264				1,039,633
MORTGAGE NOTES PAYABLE, less current maturities			7,951,286				8,040,375
OTHER LONG-TERM DEBT, less current maturities (Note 12)			1,938,069				1,832,000
Total liabilities			16,574,990				24,050,206
COMMITMENTS AND CONTINGENCIES (Note 14)
SHAREHOLDERS’ EQUITY:
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			3,919,373				3,919,773
Additional paid-in capital			6,292,295				6,206,521
Retained earnings			5,193,941				6,669,330
Treasury stock (common shares) of 243,391 and 243,390, respectively			(1,006,148	)			(1,006,145	)
Total shareholders’ equity			14,399,461				15,789,479
Total liabilities and shareholders’ equity		$	30,974,451			$	39,839,685

See accompanying notes to condensed consolidated financial statements.

SERVIDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

		SECOND QUARTER ENDED								SIX MONTHS ENDED
		OCTOBER 31,								OCTOBER 31,
		2010				2009				2010				2009
REVENUES:
Building Performance Efficiency (“BPE”)		$	7,519,147			$	3,922,541			$	12,360,874			$	7,795,649
Real Estate			252,587				240,875				502,054				483,182
			7,771,734				4,163,416				12,862,928				8,278,831
COST OF REVENUES:
BPE			5,403,096				2,670,904				8,968,113				5,295,513
Real Estate			241,475				253,909				492,471				524,394
			5,644,571				2,924,813				9,460,584				5,819,907
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:			2,552,113				2,293,974				5,048,557				4,679,734
OTHER (INCOME) AND EXPENSES:
Other income			(72,457	)			(56,988	)			(45,825	)			(67,252	)
Interest income			(22	)			(2,326	)			(39	)			(7,610	)
Interest expense			175,273				163,551				347,241				327,361
Loss on impairment of income-producing property (Note 13)			589,559				—				589,559				—
			692,353				104,237				890,936				252,499
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES			(1,117,303	)			(1,159,608	)			(2,537,149	)			(2,473,309	)
INCOME TAX BENEFIT			(418,962	)			(418,583	)			(1,028,602	)			(951,904	)
LOSS FROM CONTINUING OPERATIONS			(698,341	)			(741,025	)			(1,508,547	)			(1,521,405	)
DISCONTINUED OPERATIONS (Note 10):
(Loss) earnings from discontinued operations, adjusted for applicable income tax (benefit) expense of ($1,913), $14,805, $3,924 and $58,989, respectively			(3,120	)			33,003				6,403				107,797
Gain on disposition of income-producing properties, adjusted for applicable income tax expense of $27,146, $0, $91,144 and $0, respectively			49,633				—				100,573				—
EARNINGS FROM DISCONTINUED OPERATIONS			46,513				33,003				106,976				107,797
NET LOSS		$	(651,828	)		$	(708,022	)		$	(1,401,571	)		$	(1,413,608	)
NET EARNINGS (LOSS) PER SHARE (Note 7):
From continuing operations — basic and diluted		$	(0.19	)		$	(0.19	)		$	(0.41	)		$	(0.41	)
From discontinued operations — basic and diluted			.01				—				.03				.03
NET LOSS PER SHARE — BASIC AND DILUTED		$	(0.18	)		$	(0.19	)		$	(0.38	)		$	(0.38	)
WEIGHTED AVERAGE SHARES OUTSTANDING — BASIC AND DILUTED			3,676,010				3,690,288				3,676,188				3,690,791

See accompanying notes to condensed consolidated financial statements.

SERVIDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

		SIX MONTHS ENDED
		OCTOBER 31,
		2010				2009
Cash flows from operating activities:
Net loss		$	(1,401,571	)		$	(1,413,608	)
Adjustments to reconcile net loss to net cash used in operating activities:
Earnings from discontinued operations, net of tax			(106,976	)			(107,797	)
Loss on impairment of income-producing property			589,559				—
(Loss) gain on disposal of assets			(1,385	)			1,378
Depreciation and amortization			586,257				553,045
Deferred tax benefit			(1,021,206	)			(977,983	)
Stock compensation expense			85,374				93,034
Adjustment to cash surrender value of life insurance			(34,771	)			(69,217	)
Straight-line rent			2,122				(8,917	)
Provision for doubtful accounts, net			56,725				(59,413	)
Changes in assets and liabilities:
Receivables			246,001				(513,873	)
Costs and earnings in excess of billings			(537,901	)			374,801
Other current and long-term assets			(413,660	)			(211,680	)
Trade and subcontractors payable			670,849				(267,870	)
Accrued expenses and deferred revenue			(91,010	)			271,255
Billings in excess of costs and earnings			36,302				933,988
Net cash used in operating activities			(1,335,291	)			(1,402,857	)
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 income-producing properties			(6,280	)			(128,925	)
Additions to property and equipment			(38,510	)			(60,028	)
Additions to intangible assets			(195,039	)			(314,192	)
Proceeds from sale of property and equipment			5,454				2,000
Net cash used in investing activities			(545,238	)			(528,609	)
Cash flows from financing activities:
Mortgage repayments			(84,338	)			(78,370	)
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			341,844				(294,678	)
DISCONTINUED OPERATIONS:
Operating activities			51,467				358,323
Investing activities			1,987,556				49,764
Financing activities			(15,749	)			(99,648	)
Net cash provided by discontinued operations			2,023,274				308,439
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.

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 Company’s Building Performance Efficiency (“BPE”) Segment provides comprehensive energy efficiency and demand response solutions, sustainability programs, and other building performance-enhancing products and services to owners and operators of existing buildings, energy services companies, and public and investor-owned utilities. The Company’s Real Estate Segment engages in the asset management of its commercial income-producing properties and undeveloped land.

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 Company’s Annual Report on Form 10-K 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 Company’s 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.

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 entity’s 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 product’s 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 Company’s 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 Company’s 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 Company’s 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.

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 volatility of the Company’s 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 (3^rd) year anniversary of the date of grant, thirty percent (30%) will vest on the fourth (4^th) year anniversary of the date of grant, and forty percent (40%) will vest on the fifth (5^th) 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 Company’s 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.”

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 Company’s 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.

The following table summarizes restricted stock activity for the six (6) months ended October 31, 2010:

						Weighted Average
		Number of				Fair Value
		Shares of				per Share
		Restricted 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. OPERATING SEGMENTS

The table below shows selected financial data on an operating segment basis, including intersegment revenues, costs and expenses. In this presentation, management fee expenses charged by the Parent Company are not included in the segments’ results.

For the Second Quarter
Ended October 31, 2010		BPE				Real Estate				Parent (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			$	252,587			$	—			$	—			$	7,771,734
Intersegment revenue			—				77,270				—				(77,270	)			—
Total revenues from continuing operations		$	7,519,147			$	329,857			$	—			$	(77,270	)		$	7,771,734
Earnings (loss) from continuing operations before income taxes		$	383,153			$	(547,595	)		$	(1,017,151	)		$	64,290			$	(1,117,303	)

For the Six Months
Ended October 31, 2010		BPE				Real Estate				Parent (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			$	502,054			$	—			$	—			$	12,862,928
Intersegment revenue			—				222,254				—				(222,254	)			—
Total revenues from continuing operations		$	12,360,874			$	724,308			$	—			$	(222,254	)		$	12,862,928
(Loss) earnings from continuing operations before income taxes		$	(218,223	)		$	(481,008	)		$	(1,901,562	)		$	63,644			$	(2,537,149	)

For the Second Quarter
Ended October 31, 2009		BPE				Real Estate				Parent (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			$	240,875			$	—			$	—			$	4,163,416
Intersegment revenue			—				136,043				—				(136,043	)			—
Total revenues from continuing operations		$	3,922,541			$	376,918			$	—			$	(136,043	)		$	4,163,416
(Loss) earnings from continuing operations before income taxes		$	(352,474	)		$	28,522			$	(841,640	)		$	5,984			$	(1,159,608	)

For the Six Months
Ended October 31, 2009		BPE				Real Estate				Parent (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			$	483,182			$	—			$	—			$	8,278,831
Intersegment revenue			141,545				272,085				—				(413,630	)			—
Total revenues from continuing operations		$	7,937,194			$	755,267			$	—			$	(413,630	)		$	8,278,831
(Loss) earnings from continuing operations before income taxes		$	(742,959	)		$	15,486			$	(1,736,380	)		$	(9,456	)		$	(2,473,309	)

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.

NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS

The gross carrying amounts and accumulated amortization for the Company’s intangible assets as of October 31, 2010, and April 30, 2010, are as follows:

		October 31, 2010
		Gross Carrying				Accumulated
Intangible assets, subject to amortization:		Amount				Amortization
Proprietary BPE software solutions		$	4,261,926			$	3,095,503
Acquired computer software			706,032				519,376
Real estate lease costs			390,038				140,968
Customer relationships			404,632				308,207
Deferred loan costs			202,109				134,274
Non-compete agreements			63,323				63,323
Tradename			61,299				9,874
Other			44,882				43,449
		$	6,134,241			$	4,314,974
Intangible assets and goodwill, not subject to amortization:
Trademark		$	708,707
Goodwill		$	6,354,002

		April 30, 2010
		Gross Carrying				Accumulated
Intangible assets, subject to amortization:		Amount				Amortization
Proprietary BPE software solutions		$	4,096,802			$	2,827,071
Acquired computer software			676,837				493,885
Real estate lease costs			389,317				121,762
Customer relationships			404,632				286,433
Deferred loan costs			202,109				124,166
Non-compete agreements			63,323				60,684
Tradename			61,299				7,834
Other			44,882				42,016
		$	5,939,201			$	3,963,851
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			167,768
For the quarter ended October 31, 2009			151,053

Estimated future amortization expenses for all amortized intangible assets for the fiscal years ended:
Remainder of 2011		$	287,097
2012			532,832
2013			386,351
2014			283,912
2015			161,834
2016			67,502
Thereafter			99,739
		$	1,819,267

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 Company’s 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 Company’s 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 Company’s former Chairman of the Board and Chief Executive Officer, and his widow, Ann U. Abrams (the parents of Alan R. Abrams, the Company’s Chairman of the Board and Chief Executive Officer, and J. Andrew Abrams, the Company’s 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 policy’s 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 Company’s 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 Company’s ongoing obligation to pay premiums on the policy and its entitlement to any portion of the policy’s death benefit were terminated; and (4) the Company reduced its long-term other assets by approximately $662,000, representing the Company’s interest in the cash surrender value of the policy prior to termination.

NOTE 10. DISCONTINUED OPERATIONS

On June 9, 2010, the Real Estate Segment sold its owned shopping center in Jacksonville, Florida, for a sales price of approximately $9.9 million. As part of this transaction, the buyer assumed in full the mortgage note payable on the property of approximately $6.9 million. The Company recognized a pre-tax gain on the sale of approximately $192,000, including approximately $77,000 in additional pre-tax gain recognized in the second quarter of fiscal 2011 as the result of the successful completion of contractual conditions and other cost-basis adjustments.

On January 29, 2010, the Real Estate Segment 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 Company’s liability for the approximately $3.2 million remaining balance on the property’s non-recourse mortgage loan. Correspondingly, the Company recognized a pre-tax gain of approximately $1.2 million in the third quarter of fiscal 2010 as a result of the elimination of the balance of the indebtedness on the property.

As a result of these real estate transactions, the Company’s financial statements have been prepared with the results of operations and cash flows of these two (2) disposed properties shown as discontinued operations. All historical statements have been restated 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
REAL ESTATE SEGMENT
Rental revenues		$	(9,873	)		$	444,487			$	140,687			$	958,275
Rental property operating expenses, including depreciation			(4,840	)			396,679				130,360				791,489
Operating (loss) income from discontinued operations			(5,033	)			47,808				10,327				166,786
Income tax benefit (expense)			1,913				(14,805	)			(3,924	)			(58,989	)
Operating (loss) income from discontinued operations, net of tax			(3,120	)			33,003				6,403				107,797
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				—
Earnings from discontinued operations, net of tax		$	46,513			$	33,003			$	106,976			$	107,797

NOTE 11. FAIR VALUE MEASUREMENTS

Fair value of 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 Company’s 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 deferred executive compensation plan and deferred director 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 Company’s condensed consolidated balance sheet. This CD secures a letter of credit, which is required by the terms of the mortgage on the Company’s owned corporate headquarters building. Based on the rates currently available on certificates of deposit with similar terms, the CD’s 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 Company’s 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 investment’s 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 $8,281,144 and $8,399,116 as of October 31, 2010, and April 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 Company’s 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 Company’s 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 Company’s former Chairman of the Board and Chief Executive Officer, who is deceased, and his widow, as described above in Note 9 “Other Assets.”

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:

	•		approximately $3.95 million for assumption of the mortgage note; and
	•		approximately $125,000 for closing costs and prorations.

The Company recorded an impairment loss of approximately $590,000 in the Company’s 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 Company’s financial position or results of operations.

ITEM 2. MANAGEMENT’S 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 management’s discussion and analysis section and the consolidated financial statements included in the Company’s Annual Report on Form 10-K 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 Company’s fiscal year 2011 will end on April 30, 2011.

OVERVIEW

BUILDING PERFORMANCE EFFICIENCY SEGMENT

The BPE Segment entered fiscal year 2011 with significant momentum 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 Company’s 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 Company’s 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, BPE’s 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 Company’s enhanced sales and marketing efforts, which were initiated in fiscal 2009; an overall improvement in the capital spending environment for many of the BPE Segment’s 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 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 Company’s 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 companies (“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 Segment’s 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 Segment’s 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 Company’s 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 Segment’s offerings appears to be quite promising, there can be no assurance that this will result in sustained revenue growth, particularly if recent macro-economic conditions were to continue, or worsen, for an extended period of time.

REAL ESTATE SEGMENT

The Company’s Real Estate Segment has historically created long-term value through the periodic sale of its real estate assets. The Company has generated substantial liquidity from such sales in recent years, and the proceeds from such sales largely have been redeployed to fund the establishment and growth of the BPE Segment. In fact, in June 2010 the Company successfully closed on the sale of its owned shopping center in Jacksonville, Florida, generating net cash proceeds of $2 million and a pre-tax gain on the sale of $192,000 (see Note 10 “Discontinued Operations” to the condensed consolidated financial statements for more information). 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 (see Note 13 “Subsequent Events” to the condensed consolidated financial statements for more information). As a cumulative result of the real estate asset sales in recent years, the Company’s real estate assets now consist primarily of only the corporate headquarters building in metropolitan Atlanta, Georgia; a land parcel in North Ft. Myers, Florida; and a land parcel in Oakwood, Georgia, and 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 is continuing to monitor the operating performance of the Real Estate Segment’s tenants, and is continuing to reduce the Real Estate Segment’s operating costs.

LIQUIDITY

The Company’s cash increased by 34% during the second quarter of fiscal 2011, as operating activities provided cash of $586,000 during the quarter. Despite this increase in cash and the recent successes and achievements of the BPE Segment described above, the Company’s loss from continuing operations in the first quarter of fiscal 2011 resulted in significant usage of the Company’s 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 Company’s 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 Company’s 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 Segment’s 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 intersegment revenues, costs and expenses. For other information on a consolidated basis, refer to the Company’s condensed consolidated financial statements. For net earnings presented by segment including intersegment revenues, costs and expenses, refer to Note 6 “Operating Segments” to the condensed consolidated financial statements.

REVENUES
From Continuing Operations

For the second quarter of fiscal 2011, consolidated revenues from continuing operations, prior to intersegment revenues, were $7,771,734 compared to $4,163,416 for the second quarter of fiscal 2010, an increase of approximately 87%. For the first six (6) months of fiscal 2011, consolidated revenues from continuing operations, prior to intersegment revenues, were $12,862,928, compared to $8,278,831 for the first six (6) months of fiscal 2010, an increase of approximately 55%.

CHART A
REVENUES FROM CONTINUING OPERATIONS — SUMMARY BY SEGMENT
(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
Real Estate			253				241				12			5					502				483				19				4
		$	7,772			$	4,164			$	3,608			87				$	12,863			$	8,279			$	4,584				55

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:

(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 Company’s new Fifth Fuel Management™ service offering;

partially offset by:

	(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 and rental income, by segment.

										Increase
		October 31,								(Decrease)
		2010				2009				Amount				Percentage
BPE (1)		$	16,299,000			$	7,027,000			$	9,272,000				132
Real Estate (2)			1,428,000				1,414,000				14,000				1
Less: Intersegment eliminations (3)			(546,000	)			(587,000	)			41,000				7
Total Backlog		$	17,181,000			$	7,854,000			$	9,327,000				119

(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 BPE’s 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) year’s notice, and assumes that such cancellation provisions will not be invoked. The value of such contracts included in the prior year’s backlog that were subsequently cancelled was approximately $168,000, or 2.4%.

(2)

In December 2010, during the third quarter of fiscal 2011, the Company sold its owned shopping center in Smyrna, Tennessee (see Note 13 “Subsequent Events” to the condensed consolidated financial statements for more information). The Real Estate backlog related to this property was $477,000 and $433,000 as of October 31, 2010, and October 31, 2009, respectively. These amounts are included in the total Real Estate backlog figures shown above.

(3)

Represents rental revenues at the Company’s owned headquarters building to be paid to the Real Estate Segment by the Parent Company and the BPE Segment.

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 intersegment costs, were 73% and 70% for the second quarters of fiscal 2011 and 2010, respectively, and were 74% and 70% 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 intersegment costs.

CHART B
COST OF REVENUES
FROM CONTINUING OPERATIONS — SUMMARY BY SEGMENT
(Dollars in Thousands)

										Percentage of Segment																Percentage of Segment
										Revenues for the																Revenues for the
		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
Real Estate			241				254				96				105				492				524				98				109
		$	5,644			$	2,925				73				70			$	9,460			$	5,820				74				70

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 intersegment expenses, were 33% and 55%, for the second quarters of fiscal 2011 and 2010, respectively, and were 39% and 57% 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 Parent Company and total expenses relate to total consolidated revenues from continuing operations.

The figures in Chart C are prior to intersegment expenses.

CHART C
SELLING, GENERAL AND ADMINSTRATIVE EXPENSES
FROM CONTINUING OPERATIONS — SUMMARY BY SEGMENT
(Dollars in Thousands)

										Percentage of Segment																Percentage of Segment
										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
Real Estate			130				131				51				55				265				288				53				60
Parent Company (2)			994				801				13				19				1,779				1,670				14				20
		$	2,552			$	2,294				33				55			$	5,049			$	4,680				39				57

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)		Parent Company SG&A expenses increased by approximately $193,000, or 24%, and by approximately $109,000, or 7%, 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, Parent Company SG&A expenses decreased by 6% 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 $1,117,303 in the second quarter of fiscal 2011, compared to $1,159,608 in the same period of fiscal 2010, a decrease of $42,305, or 4%. For the first six (6) months of fiscal 2011, the consolidated loss from continuing operations before income taxes was $2,537,149, compared to $2,473,309 in the same period of fiscal 2010, an increase of $63,840, or 3%.

The figures in Chart D are prior to intersegment revenues, costs and expenses.

CHART D
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
SUMMARY BY SEGMENT
(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
Real Estate (2)			(857	)			(285	)			(572	)			(1,141	)			(608	)			(533	)
Parent Company (3)			(957	)			(800	)			(157	)			(1,779	)			(1,666	)			(113	)
Total		$	(1,117	)		$	(1,160	)		$	43			$	(2,537	)		$	(2,473	)		$	(64	)

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)		Real Estate Segment loss before income taxes increased by approximately $572,000, or 201%, and by approximately $533,000, or 88%, 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 one-time non-cash impairment charge of approximately $590,000 related to the sale of the Company’s owned shopping center located in Smyrna, Tennessee, in December 2010. For more information, see Note 13 “Subsequent Events” to the condensed consolidated financial statements.
(3)		Parent Company loss before income taxes increased by approximately $157,000, or 20%, and by approximately $113,000, or 7%, 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 $193,000 and $109,000, respectively (see Chart C).

INCOME TAX BENEFIT

The Company’s effective rate for income taxes, based upon estimated annual income tax rates, approximated 40.5% of the loss from continuing operations before income taxes in the first six (6) months of fiscal 2011 and 38.5% in the comparable period in fiscal year 2010.

DISCONTINUED OPERATIONS

On June 9, 2010, the Real Estate Segment sold its owned shopping center in Jacksonville, Florida, for a sales price of approximately $9.9 million. As part of this transaction, the buyer assumed in full the mortgage note payable on the property of approximately $6.9 million. The Company recognized a pre-tax gain on the sale of approximately $192,000 (see Note 10 “Discontinued Operations” to the condensed consolidated financial statements for more information). The Company’s federal and state tax liabilities on the disposition were approximately $95,000. 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 Company’s net operating loss carry-forwards for tax purposes.

On January 29, 2010, the Real Estate Segment disposed of its interest in its owned office building in Newnan, Georgia. In this transaction, the Real Estate Segment transferred its approximately $2.0 million interest in the property and related assets to the note holder, which satisfied in full the Company’s liability for the approximately $3.2 million remaining balance on the property’s 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 Company’s federal and state tax liabilities on the disposition were approximately $0.6 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 Company’s net operating loss carry-forwards for tax purposes.

In accordance with GAAP, the Company’s 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 restated in accordance with GAAP.

LIQUIDITY AND CAPITAL RESOURCES

Between April 30, 2010, and October 31, 2010, the Company’s cash increased by a total of approximately $485,000, or 25%. The Company’s working capital increased by approximately $858,000, or 24%, between April 30, 2010, and October 31, 2010.

The following describes the changes in the Company’s cash from April 30, 2010, to October 31, 2010:

Operating activities used cash of approximately $1,335,000, primarily as a result of:

(a)

current year losses from continuing operations before depreciation, amortization, income taxes and loss on impairment of an income-producing property of approximately $1,361,000;

	(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 $414,000;
	partially offset by:
	(d)		an increase in trade accounts payable, accrued expenses, and other liabilities of approximately $580,000; and
	(e)		a decrease in net accounts receivable of approximately $303,000.

Investing activities used cash of approximately $545,000, primarily as a result of:

	(a)		$500,000 used for the purchase of a held-to-maturity investment; and
	(b)		approximately $195,000 used for additions to intangible assets, primarily related to enhancements to the BPE Segment’s proprietary building productivity software solutions;
	partially offset by:
	(c)		proceeds of approximately $195,000 from the termination of a split-dollar life insurance agreement.

Financing activities provided cash of approximately $342,000, primarily as a result of:

	(a)		proceeds from other long-term debt of $500,000;
	partially offset by:
	(b)		scheduled principal payments on real estate mortgage notes of approximately $84,000; and
	(c)		payment of the regular quarterly cash dividends to shareholders of approximately $74,000.

Discontinued operations provided cash of approximately $2,023,000, primarily as a result of the sale of an income-producing property.

During the second quarter of fiscal 2011, operating activities provided approximately $586,000 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 $1,921,000 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 BPE’s 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 Company’s consolidated operations. Recent growth in BPE’s business has strained the Company’s 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 Company’s 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.