Following several consecutive years of profitability and growth, fiscal 2009, your Company’s 84th year, was disappointing. Virtually all of Servidyne’s markets were adversely impacted by the global recession, although demand for our building performance efficiency products and services strengthened in the second half of the fiscal year. In fact, fourth quarter revenues at our core BPE Segment grew by 63% over last year, and year-end BPE backlog increased by 38%. Nevertheless, BPE revenues for the full year were 7% lower, mostly because of delays in project orders during the first half of the year. Our real estate business was hit hard by the economic downturn, after consistently producing positive cash flows and earnings for more than a decade. Because an anchor tenant defaulted on its lease obligations in the fourth quarter, we were forced to record a one-time, non-cash expense to write-down the book value of one of the Company’s four remaining owned income-producing properties. As a result, we experienced a consolidated net loss of approximately $4.6 million for the year, with approximately $1.34 million of the loss attributed to the real estate write-down.

In light of the unprecedented crisis in the real estate sector of the economy, we feel very fortunate that the Company had already completed the sale of the substantial majority of its properties and paid off all of the associated debt prior to the collapse of worldwide markets. Our now small portfolio is not immune to the contagion ravaging the industry, and we are actively managing and diligently monitoring our few remaining real estate assets. I am pleased to report that the occupancy levels and cash flows of our other income-producing properties remained stable throughout the year.  It also should be noted that loan provisions limit the Company’s liability for repayment of the four remaining mortgages to our ownership interest in each respective property.

In positive contrast, the recent wild swings in energy prices and the ongoing weakness in the economy have brought a renewed focus on the fact that the pursuit of energy efficiency and sustainability objectives is in the strategic interest of the United States. National energy policy is being revamped with sizeable new spending initiatives and legislation to compliment the electric utility industry, which faces the challenge to meet the increasing demand for power. Utilities are confronting mounting environmental and regulatory issues, coupled with their commercial customers’ needs to cut energy costs, leading many utilities to embrace energy efficiency as one of the cheapest and fastest ways to significantly increase their available generating capacity.

Over the last decade, we have re-invented our business around the fundamental idea of reducing the future impacts of higher utility costs and caps on greenhouse emissions through the sale of energy efficient products, programs and services for existing buildings. Despite the recent economic downturn, we continue to see increasing evidence that our offerings are useful to our customers in reducing their energy expenses and improving their sustainability, as suggested by the strong revenue and order growth and other new business activity during the second half of the fiscal year. As a result, we continue to believe that the potential for Servidyne is extremely positive.

As the economy recovers, we anticipate that demand for our existing products and services will grow significantly. We also are developing a new offering that can further differentiate Servidyne in the marketplace, by combining our energy efficiency expertise and existing proprietary software platforms in a new, highly scalable product application. We are seeking to capture what we believe will be an immediate market opportunity created by the coming digitization of the nation’s electrical infrastructure. Field testing is now underway, and we are quite encouraged by the market potential of this new product.

With dramatically shifting national priorities involving energy efficiency and sustainability, we believe that our new and existing building performance efficiency offerings will produce improved returns for our shareholders. In view of the difficulties and uncertainties facing our national economy at this time, we are striving to conserve our cash and other resources through responsible cost management programs, while taking full advantage of the favorable market conditions that exist in the energy efficiency sector.

Sincerely,

Alan R. Abrams
Chairman of the Board,
President and Chief Executive Officer