##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT
 Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
 For the quarter ended October 31, 2010
 Commission file number 0-10146
 SERVIDYNE, INC.
  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
    þ o
  o o
  Large accelerated filer o
Accelerated Filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller Reporting Company þ  o þ




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TABLE OF CONTENTS  ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 4. CONTROLS AND PROCEDURESPART II. OTHER INFORMATIONITEM 1A. RISK FACTORSITEM 6. EXHIBITSSIGNATURESEX-10.1EX-31.1EX-31.2EX-32.1EX-32.2 SERVIDYNE, INC.
 October 31, 2010
    
    
    April 30, 2010ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    2,408,230
    
    
    $
    1,923,641Receivables (Note 5):Trade accounts and notes, net of allowance for doubtful accounts of
$85,397 and $58,989, respectively
    
    
    875,164
    
    
    
    973,442Contracts, 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
    
    
    
    3,337,177Costs and earnings in excess of billings
    
    
    1,253,030
    
    
    
    715,129Assets of discontinued operations (Note 10)
    
    
    68,684
    
    
    
    150,970Deferred income taxes
    
    
    359,878
    
    
    
    401,223Other current assets
    
    
    1,734,215
    
    
    
    1,265,326Total current assets
    
    
    9,831,930
    
    
    
    8,766,908INCOME-PRODUCING PROPERTIES, net
    
    
    7,992,605
    
    
    
    8,701,893PROPERTY AND EQUIPMENT, net
    
    
    607,759
    
    
    
    682,445ASSETS OF DISCONTINUED OPERATIONS (Note 10)
    
    
    
    
    
    
    8,881,447DEFERRED INCOME TAXES
    
    
    
    
    
    
    6,666OTHER ASSETS:Real estate held for future development or sale
    
    
    853,109
    
    
    
    853,109Intangible assets, net (Note 8)
    
    
    2,527,974
    
    
    
    2,684,057Goodwill (Note 8)
    
    
    6,354,002
    
    
    
    6,354,002Other assets (Note 9)
    
    
    2,807,072
    
    
    
    2,909,158Total assets
    
    $
    30,974,451
    
    
    $
    39,839,685LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Trade and subcontractors payables
    
    $
    3,135,961
    
    
    $
    2,465,112Accrued expenses
    
    
    1,469,691
    
    
    
    1,429,321Deferred revenue
    
    
    357,937
    
    
    
    507,383Billings in excess of costs and earnings
    
    
    89,402
    
    
    
    53,100Liabilities of discontinued operations (Note 10)
    
    
    21,390
    
    
    
    417,681Short-term debt and current maturities of long-term debt
    
    
    327,187
    
    
    
    322,436Total current liabilities
    
    
    5,401,568
    
    
    
    5,195,033DEFERRED INCOME TAXES
    
    
    222,803
    
    
    
    LIABILITIES OF DISCONTINUED OPERATIONS (Note 10)
    
    
    
    
    
    
    7,943,165OTHER LIABILITIES
    
    
    1,061,264
    
    
    
    1,039,633MORTGAGE NOTES PAYABLE, less current maturities
    
    
    7,951,286
    
    
    
    8,040,375OTHER LONG-TERM DEBT, less current maturities (Note 12)
    
    
    1,938,069
    
    
    
    1,832,000Total liabilities
    
    
    16,574,990
    
    
    
    24,050,206COMMITMENTS 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
    
    
    
    3,919,773Additional paid-in capital
    
    
    6,292,295
    
    
    
    6,206,521Retained earnings
    
    
    5,193,941
    
    
    
    6,669,330Treasury stock (common shares) of 243,391 and 243,390, respectively
    
    
    (1,006,148
    )
    
    
    (1,006,145
    )Total shareholders equity
    
    
    14,399,461
    
    
    
    15,789,479Total liabilities and shareholders equity
    
    $
    30,974,451
    
    
    $
    39,839,685
 See accompanying notes to condensed consolidated financial statements.
 1




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##### Table of Contents



SERVIDYNE, INC.
 SECOND QUARTER ENDED
    
    
    SIX MONTHS ENDEDOCTOBER 31,
    
    
    OCTOBER 31,2010
    
    
    2009
    
    
    2010
    
    
    2009REVENUES:Building Performance Efficiency (BPE)
    
    $
    7,519,147
    
    
    $
    3,922,541
    
    
    $
    12,360,874
    
    
    $
    7,795,649Real Estate
    
    
    252,587
    
    
    
    240,875
    
    
    
    502,054
    
    
    
    483,1827,771,734
    
    
    
    4,163,416
    
    
    
    12,862,928
    
    
    
    8,278,831COST OF REVENUES:BPE
    
    
    5,403,096
    
    
    
    2,670,904
    
    
    
    8,968,113
    
    
    
    5,295,513Real Estate
    
    
    241,475
    
    
    
    253,909
    
    
    
    492,471
    
    
    
    524,3945,644,571
    
    
    
    2,924,813
    
    
    
    9,460,584
    
    
    
    5,819,907SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
    
    
    2,552,113
    
    
    
    2,293,974
    
    
    
    5,048,557
    
    
    
    4,679,734OTHER (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
    
    
    
    327,361Loss on impairment of income-producing property (Note 13)
    
    
    589,559
    
    
    
    
    
    
    
    589,559
    
    
    
    692,353
    
    
    
    104,237
    
    
    
    890,936
    
    
    
    252,499LOSS 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
    
    
    
    107,797Gain 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
    
    
    
    107,797NET 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
    
    
    
    .03NET 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.
 2




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##### Table of Contents



SERVIDYNE, INC.
 SIX MONTHS ENDEDOCTOBER 31,2010
    
    
    2009Cash 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
    )
    
    
    1,378Depreciation and amortization
    
    
    586,257
    
    
    
    553,045Deferred tax benefit
    
    
    (1,021,206
    )
    
    
    (977,983
    )Stock compensation expense
    
    
    85,374
    
    
    
    93,034Adjustment 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
    )
    
    
    374,801Other current and long-term assets
    
    
    (413,660
    )
    
    
    (211,680
    )Trade and subcontractors payable
    
    
    670,849
    
    
    
    (267,870
    )Accrued expenses and deferred revenue
    
    
    (91,010
    )
    
    
    271,255Billings in excess of costs and earnings
    
    
    36,302
    
    
    
    933,988Net 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
    
    
    
    2,000Net 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
    
    
    
    358,323Investing activities
    
    
    1,987,556
    
    
    
    49,764Financing activities
    
    
    (15,749
    )
    
    
    (99,648
    )Net cash provided by discontinued operations
    
    
    2,023,274
    
    
    
    308,439Net increase (decrease) in cash and cash equivalents
    
    
    484,589
    
    
    
    (1,917,705
    )Cash at beginning of period
    
    
    1,923,641
    
    
    
    4,821,126Cash at end of period
    
    $
    2,408,230
    
    
    $
    2,903,421Supplemental 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.
 3




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##### Table of Contents



SERVIDYNE, INC.
 NOTE 1. ORGANIZATION AND BUSINESS
  NOTE 2. UNAUDITED STATEMENTS
  Property, Plant and Equipment
 NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS
 Revenue Recognition (Topic 605)Multiple-Deliverable Revenue
Arrangements Software (Topic 985)Certain Revenue Arrangements That
Include Software Elements
 4




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##### Table of Contents



Fair Value Measurements and Disclosures (Topic
820) Improving Disclosures about Fair Value Measurements
 NOTE 4. EQUITY-BASED COMPENSATION
   5




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##### Table of Contents



Stock Options
  WeightedOptions to
    
    
    AveragePurchase
    
    
    ExerciseShares
    
    
    PriceOutstanding at April 30, 2010
    
    
    482,486
    
    
    $
    4.46Granted
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Outstanding at October 31, 2010
    
    
    482,486
    
    
    $
    4.46Vested at October 31, 2010
    
    
    482,486
    
    
    $
    4.46Non-vested at October 31, 2010, that are expected to vest
    
    
    
    
    
    $
    
   Weighted AverageExercise
    
    Number of
    
    Remaining ContractualPrice
    
    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
   6




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##### Table of Contents



Stock Appreciation Rights (SARs)
  WeightedAverageExerciseSARs
    
    
    PriceOutstanding at April 30, 2010
    
    
    927,425
    
    
    $
    3.85Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (52,500
    )
    
    
    4.76Outstanding at October 31, 2010
    
    
    874,925
    
    
    $
    3.79Vested at October 31, 2010
    
    
    155,579
    
    
    $
    4.06Non-vested at October 31, 2010, that are expected to vest
    
    
    521,687
    
    
    $
    3.80
 rd th th
  Weighted AverageExercise
    
    Outstanding
    
    Vested
    
    Remaining ContractualPrice
    
    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
  7




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##### Table of Contents



Shares of Restricted Stock
    Weighted AverageNumber of
    
    
    Fair ValueShares of
    
    
    per ShareRestricted Stock
    
    
    on Grant DateNon-vested restricted stock at April 30, 2010
    
    
    3,150
    
    
    $
    2.99Granted
    
    
    
    
    
    
    Forfeited
    
    
    (400
    )
    
    
    2.11Vested
    
    
    (1,050
    )
    
    
    4.76Non-vested restricted stock at October 31, 2010
    
    
    1,700
    
    
    $
    2.11
 NOTE 5. RECEIVABLES
  NOTE 6. OPERATING SEGMENTS
  8




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##### Table of Contents



For the Second QuarterEnded October 31, 2010
    
    BPE
    
    Real Estate
    
    Parent (1)
    
    Eliminations
    
    ConsolidatedRevenues from unaffiliated customersBPE Segment services and products:Energy savings projects
    
    $
    5,803,363
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,803,363Lighting products
    
    
    531,177
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    531,177Energy management services
    
    
    426,496
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    426,496Fifth fuel management services
    
    
    33,967
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,967Productivity software
    
    
    724,144
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    724,144Total revenues from unaffiliated customers
    
    $
    7,519,147
    
    
    $
    252,587
    
    
    $
    
    
    
    $
    
    
    
    $
    7,771,734Intersegment revenue
    
    
    
    
    
    
    77,270
    
    
    
    
    
    
    
    (77,270
    )
    
    
    Total revenues from continuing
operations
    
    $
    7,519,147
    
    
    $
    329,857
    
    
    $
    
    
    
    $
    (77,270
    )
    
    $
    7,771,734Earnings (loss) from continuing
operations before income taxes
    
    $
    383,153
    
    
    $
    (547,595
    )
    
    $
    (1,017,151
    )
    
    $
    64,290
    
    
    $
    (1,117,303
    )
 For the Six MonthsEnded October 31, 2010
    
    BPE
    
    Real Estate
    
    Parent (1)
    
    Eliminations
    
    ConsolidatedRevenues from unaffiliated customersBPE Segment services and products:Energy savings projects
    
    $
    8,821,955
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    8,821,955Lighting products
    
    
    1,215,912
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,215,912Energy management services
    
    
    766,586
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    766,586Fifth fuel management services
    
    
    91,026
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    91,026Productivity software
    
    
    1,465,395
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,465,395Total revenues from unaffiliated customers
    
    $
    12,360,874
    
    
    $
    502,054
    
    
    $
    
    
    
    $
    
    
    
    $
    12,862,928Intersegment 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 QuarterEnded October 31, 2009
    
    BPE
    
    Real Estate
    
    Parent (1)
    
    Eliminations
    
    ConsolidatedRevenues from unaffiliated customersBPE Segment services and products:Energy savings projects
    
    $
    2,048,382
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,048,382Lighting products
    
    
    484,287
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    484,287Energy management services
    
    
    457,714
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    457,714Fifth fuel management services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Productivity software
    
    
    932,158
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    932,158Total revenues from unaffiliated customers
    
    $
    3,922,541
    
    
    $
    240,875
    
    
    $
    
    
    
    $
    
    
    
    $
    4,163,416Intersegment 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 MonthsEnded October 31, 2009
    
    BPE
    
    Real Estate
    
    Parent (1)
    
    Eliminations
    
    ConsolidatedRevenues from unaffiliated customersBPE Segment services and products:Energy savings projects
    
    $
    4,061,226
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,061,226Lighting products
    
    
    940,738
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    940,738Energy management services
    
    
    1,021,514
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,021,514Fifth fuel management services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Productivity software
    
    
    1,772,171
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,772,171Total revenues from unaffiliated customers
    
    $
    7,795,649
    
    
    $
    483,182
    
    
    $
    
    
    
    $
    
    
    
    $
    8,278,831Intersegment 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
    )
 9




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##### Table of Contents



(1)
    
    The Parent Companys net loss in each period was derived from corporate headquarters
activities, which consist primarily of the following: salaries and benefits of Parent
Company executive officers and staff, equity-based compensation expenses, corporate rent,
depreciation and amortization expenses, and costs related to the Companys 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. The corporate headquarters
activities do not earn revenue. All relevant costs related to the business operations of
the Companys operating segments are either paid directly by the respective operating
segments or are allocated to the segments by the Parent Company. 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
  10




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NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
  October 31, 2010Gross Carrying
    
    
    AccumulatedIntangible assets, subject to amortization:
    
    Amount
    
    
    AmortizationProprietary BPE software solutions
    
    $
    4,261,926
    
    
    $
    3,095,503Acquired computer software
    
    
    706,032
    
    
    
    519,376Real estate lease costs
    
    
    390,038
    
    
    
    140,968Customer relationships
    
    
    404,632
    
    
    
    308,207Deferred loan costs
    
    
    202,109
    
    
    
    134,274Non-compete agreements
    
    
    63,323
    
    
    
    63,323Tradename
    
    
    61,299
    
    
    
    9,874Other
    
    
    44,882
    
    
    
    43,449$
    6,134,241
    
    
    $
    4,314,974Intangible assets and goodwill, not subject to amortization:Trademark
    
    $
    708,707Goodwill
    
    $
    6,354,002
 April 30, 2010Gross Carrying
    
    
    AccumulatedIntangible assets, subject to amortization:
    
    Amount
    
    
    AmortizationProprietary BPE software solutions
    
    $
    4,096,802
    
    
    $
    2,827,071Acquired computer software
    
    
    676,837
    
    
    
    493,885Real estate lease costs
    
    
    389,317
    
    
    
    121,762Customer relationships
    
    
    404,632
    
    
    
    286,433Deferred loan costs
    
    
    202,109
    
    
    
    124,166Non-compete agreements
    
    
    63,323
    
    
    
    60,684Tradename
    
    
    61,299
    
    
    
    7,834Other
    
    
    44,882
    
    
    
    42,016$
    5,939,201
    
    
    $
    3,963,851Intangible assets and goodwill, not subject to amortization:Trademark
    
    $
    708,707Goodwill
    
    $
    6,354,002
 Aggregate amortization expense for all amortizable intangible assets:For the six months ended October 31, 2010
    
    $
    351,120For the six months ended October 31, 2009
    
    
    295,835For the quarter ended October 31, 2010
    
    
    167,768For 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
    
    $
    287,0972012
    
    
    532,8322013
    
    
    386,3512014
    
    
    283,9122015
    
    
    161,8342016
    
    
    67,502Thereafter
    
    
    99,739$
    1,819,267
 11




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NOTE 9. OTHER ASSETS
 Money Market Account Investment
  Termination of Split Dollar Life Insurance Agreement
   12




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NOTE 10. DISCONTINUED OPERATIONS
    Second Quarter Ended
    
    
    Six Months EndedOctober 31,
    
    
    October 31,2010
    
    
    2009
    
    
    2010
    
    
    2009REAL ESTATE SEGMENTRental revenues
    
    $
    (9,873
    )
    
    $
    444,487
    
    
    $
    140,687
    
    
    $
    958,275Rental property operating expenses, including depreciation
    
    
    (4,840
    )
    
    
    396,679
    
    
    
    130,360
    
    
    
    791,489Operating (loss) income from discontinued operations
    
    
    (5,033
    )
    
    
    47,808
    
    
    
    10,327
    
    
    
    166,786Income 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
    
    
    
    107,797Gain 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
  
    
    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.
 13




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Non-Recurring Measurements
  14




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NOTE 12. RELATED PARTY TRANSACTIONS
   NOTE 13. SUBSEQUENT EVENTS
  
    
    approximately $3.95 million for assumption of the mortgage note; and
    
    approximately $125,000 for closing costs and prorations.
  NOTE 14. COMMITMENTS AND CONTINGENCIES
  15




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    OVERVIEW
   1
 
 1
    
    The Company believes EBITDA is a useful non-GAAP measurement of the BPE Segments
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 segments operating performance than, earnings before
taxes as determined in accordance with GAAP. 16




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17




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RESULTS OF OPERATIONS
  18




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CHART A
 Second Quarter Ended
    
    
    
    
    
    
    
    
    
    Six Months EndedOctober 31,
    
    Amount
    
    Percentage
    
    
    October 31,
    
    Amount
    
    Percentage2010
    
    2009
    
    Change
    
    Change
    
    
    2010
    
    2009
    
    Change
    
    ChangeBPE (1)
    
    $
    7,519
    
    
    $
    3,923
    
    
    $
    3,596
    
    

    92

    
    
    $
    12,361
    
    
    $
    7,796
    
    
    $
    4,565
    
    
    
    59Real 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
  
 Second Quarter Ended
    
    
    
    
    
    
    
    
    
    Six Months EndedOctober 31,
    
    Amount
    
    Percentage
    
    
    October 31,
    
    Amount
    
    Percentage2010
    
    2009
    
    Change
    
    Change
    
    
    2010
    
    2009
    
    Change
    
    ChangeEnergy Savings Projects
    
    $
    5,803
    
    
    $
    2,048
    
    
    $
    3,755
    
    

    183

    
    
    $
    8,822
    
    
    $
    4,061
    
    
    $
    4,761
    
    
    
    117Lighting Products
    
    
    531
    
    
    
    485
    
    
    
    46
    
    

    9

    
    
    
    1,216
    
    
    
    941
    
    
    
    275
    
    
    
        29Energy 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.
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##### Table of Contents



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.
  IncreaseOctober 31,
    
    (Decrease)2010
    
    2009
    
    Amount
    
    PercentageBPE (1)
    
    $
    16,299,000
    
    
    $
    7,027,000
    
    
    $
    9,272,000
    
    
    
        132Real Estate (2)
    
    
    1,428,000
    
    
    
    1,414,000
    
    
    
    14,000
    
    
    
        1Less: Intersegment eliminations (3)
    
    
    (546,000
    )
    
    
    (587,000
    )
    
    
    41,000
    
    
    
        7Total 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.
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##### Table of Contents



(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.
  
   CHART B
 Percentage of Segment
    
    
    
    
    
    
    
    
    
    Percentage of SegmentRevenues for the
    
    
    
    
    
    
    
    
    
    Revenues for theSecond Quarter Ended
    
    Second Quarter Ended
    
    Six Months Ended
    
    Six Months EndedOctober 31,
    
    October 31,
    
    October 31,
    
    October 31,2010
    
    2009
    
    2010
    
    2009
    
    2010
    
    2009
    
    2010
    
    2009BPE (1)
    
    $
    5,403
    
    
    $
    2,671
    
    
    
    72
    
    
    
    68
    
    
    $
    8,968
    
    
    $
    5,296
    
    
    
    73
    
    
    
    68Real 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.
 21




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CHART C
 Percentage of Segment
    
    
    
    
    
    
    
    
    
    Percentage of SegmentRevenues for the
    
    
    
    
    
    
    
    
    
    Revenues for theSecond Quarter Ended
    
    Second Quarter Ended
    
    Six Months Ended
    
    Six Months EndedOctober 31,
    
    October 31,
    
    October 31,
    
    October 31,2010
    
    2009
    
    2010
    
    2009
    
    2010
    
    2009
    
    2010
    
    2009BPE (1)
    
    $
    1,428
    
    
    $
    1,362
    
    
    
    19
    
    
    
    35
    
    
    $
    3,005
    
    
    $
    2,722
    
    
    
    24
    
    
    
    35Real Estate
    
    
    130
    
    
    
    131
    
    
    
    51
    
    
    
    55
    
    
    
    265
    
    
    
    288
    
    
    
    53
    
    
    
    60Parent 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.
 22




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CHART D
 Second Quarter Ended
    
    
    (Increase)
    
    
    Six Months Ended
    
    
    (Increase)October 31,
    
    
    Decrease
    
    
    October 31,
    
    
    Decrease2010
    
    
    2009
    
    
    Amount
    
    
    2010
    
    
    2009
    
    
    AmountBPE (1)
    
    $
    697
    
    
    $
    (75
    )
    
    $
    772
    
    
    $
    383
    
    
    $
    (199
    )
    
    $
    582Real 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).
 23




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LIQUIDITY AND CAPITAL RESOURCES
    (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;
 24




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(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.
  (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.
  (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.
   25




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Sales of Promissory Notes to Related Parties Termination of Split Dollar Life Insurance
Agreement
   26




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Sales of Promissory Notes to Related Parties
  Termination of Split Dollar Life Insurance Agreement
   27




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Capital Expenditures
  Significant Uses of Cash
  Mortgage Notes and Other Long-Term Debt
   CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
  28




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CRITICAL ACCOUNTING POLICIES
  Revenue Recognition
   29




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Long-Lived Assets: Income-Producing Properties, Capitalized Software, and Property and
Equipment
    
    
    A significant decrease in the market price of a long-lived asset;
    
    A significant adverse change in the extent or manner in which a long-lived asset
is being used or in its physical condition;
    
    A significant adverse change in legal factors or in the business climate
that could affect the value of a long-lived asset, including an adverse action or
assessment by a regulator;
    
    An accumulation of costs significantly in excess of the amount originally
expected for the acquisition or construction of a long-lived asset;
    
    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;
    
    A current expectation that, more likely than not, a long-lived asset will be sold
or otherwise disposed of significantly before the end of its previously estimated
useful life;
    
    The Company has recently sold similar income-producing properties at losses;
    
    The Company has received purchase offers at prices below carrying value;
    
    Income-producing properties that have significant vacancy rates or significant
rollover exposure from one or more tenants;
    
    A major tenant experiencing financial difficulties that may jeopardize the
tenants ability to meet its lease obligations;
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
    
    Depressed market conditions;
    
    Presence of a new competitive property constructed in the assets market area;
and
    
    Evidence of significant corrective measures required to cure structural problems,
physical obsolescence, or deterioration of essential building components.
    
    
    A change in the estimated remaining useful life of the asset;
    
    A change in the manner in which the asset is used in the income generating
business of the
Company; or
    
    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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Valuation of Goodwill and Other Indefinite-Lived Intangible Assets
   Income Taxes
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ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
  
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ITEM 1A. RISK FACTORS
  
 ITEM 6. EXHIBITS
 10.1
    
    Form of Related Party Promissory Note31.1
    
    Certification of Chief Executive Officer, pursuant to Rules 13a-14(a)/15d-14(a)31.2
    
    Certification of Chief Financial Officer, pursuant to Rules 13a-14(a)/15d-14(a)32.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes Oxley Act 200232.2
    
    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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SERVIDYNE, INC.
     (Registrant)Date:  December 15, 2010
    /s/ Alan R. AbramsAlan R. AbramsChief Executive OfficerDate:  December 15, 2010
    /s/ Rick A. PaternostroRick A. PaternostroChief Financial Officer 36