##### 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 January 31, 2011
 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
    
    Smaller Reporting Company þ(Do not check if a smaller reporting company)
  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-31.1EX-31.2EX-32.1EX-32.2    Table of Contents  SERVIDYNE, INC.
   January 31, 2011
    
    
    April 30, 2010ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    1,923,907
    
    
    $
    1,923,641Receivables (Note 5):Trade accounts and notes, net of allowance for doubtful accounts of
$69,492 and $58,989, respectively
    
    
    850,356
    
    
    
    953,075Contracts, net of allowance for doubtful accounts of $65,069 and
$22,530, respectively, including retained amounts of $599,802 and
$675,281, respectively
    
    
    2,859,836
    
    
    
    3,337,177Costs and earnings in excess of billings
    
    
    476,213
    
    
    
    715,129Assets of discontinued operations (Note 10)
    
    
    38,141
    
    
    
    188,827Deferred
income taxes (Note 16)
    
    
    342,539
    
    
    
    401,215Other current assets
    
    
    1,948,011
    
    
    
    1,247,844Total current assets
    
    
    8,439,003
    
    
    
    8,766,908PROPERTY AND EQUIPMENT, net (Note 2)
    
    
    4,583,197
    
    
    
    4,805,542ASSETS OF DISCONTINUED OPERATIONS (Note 10)
    
    
    
    
    
    
    13,767,227DEFERRED
INCOME TAXES (Note 16)
    
    
    
    
    
    
    1,718,954OTHER ASSETS:Real estate held for future development or sale
    
    
    853,109
    
    
    
    853,109Intangible assets, net (Note 8)
    
    
    2,197,012
    
    
    
    2,395,874Goodwill (Note 8)
    
    
    6,354,002
    
    
    
    6,354,002Other assets (Note 9)
    
    
    2,859,197
    
    
    
    2,890,357Total assets
    
    $
    25,285,520
    
    
    $
    41,551,973LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Trade and subcontractors payables
    
    $
    2,015,748
    
    
    $
    2,465,112Accrued expenses
    
    
    1,755,134
    
    
    
    1,378,538Deferred revenue
    
    
    440,742
    
    
    
    507,383Billings in excess of costs and earnings
    
    
    41,500
    
    
    
    53,100Liabilities of discontinued operations (Note 10)
    
    
    40,285
    
    
    
    520,308Short-term debt and current maturities of long-term debt (Note 13)
    
    
    330,479
    
    
    
    270,592Total current liabilities
    
    
    4,623,888
    
    
    
    5,195,033DEFERRED
INCOME TAXES (Note 16)
    
    
    600,663
    
    
    
    LIABILITIES OF DISCONTINUED OPERATIONS (Note 10)
    
    
    
    
    
    
    13,587,832OTHER LIABILITIES
    
    
    1,127,105
    
    
    
    1,039,633MORTGAGE NOTES PAYABLE, less current maturities (Note 12)
    
    
    4,011,188
    
    
    
    4,107,996OTHER LONG-TERM DEBT, less current maturities (Notes 13 and 14)
    
    
    1,735,378
    
    
    
    1,832,000Total liabilities
    
    
    12,098,222
    
    
    
    25,762,494COMMITMENTS AND CONTINGENCIES (Note 15)SHAREHOLDERS EQUITY:Common stock, $1 par value; 10,000,000 shares authorized;
3,919,173 issued and 3,675,782 outstanding at January 31, 2011;
3,919,773 issued and 3,676,383 outstanding at April 30, 2010
    
    
    3,919,173
    
    
    
    3,919,773Additional paid-in capital
    
    
    6,329,223
    
    
    
    6,206,521Retained earnings
    
    
    3,945,050
    
    
    
    6,669,330Treasury stock (common shares) of 243,391 and 243,390, respectively
    
    
    (1,006,148
    )
    
    
    (1,006,145
    )Total shareholders equity
    
    
    13,187,298
    
    
    
    15,789,479Total liabilities and shareholders equity
    
    $
    25,285,520
    
    
    $
    41,551,973
 See accompanying notes to condensed consolidated financial statements.
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##### Table of Contents



SERVIDYNE, INC.
   THIRD QUARTER ENDED
    
    
    NINE MONTHS ENDEDJANUARY 31,
    
    
    JANUARY 31,2011
    
    
    2010
    
    
    2011
    
    
    2010REVENUES:Building Performance Efficiency (BPE)
    
    $
    5,839,816
    
    
    $
    4,119,890
    
    
    $
    18,200,690
    
    
    $
    11,915,539Rental revenues
    
    
    101,907
    
    
    
    123,122
    
    
    
    316,581
    
    
    
    330,1745,941,723
    
    
    
    4,243,012
    
    
    
    18,517,271
    
    
    
    12,245,713COST OF REVENUES:BPE
    
    
    4,053,227
    
    
    
    2,651,957
    
    
    
    13,021,340
    
    
    
    7,947,470Rental cost
    
    
    173,175
    
    
    
    157,397
    
    
    
    508,827
    
    
    
    509,6724,226,402
    
    
    
    2,809,354
    
    
    
    13,530,167
    
    
    
    8,457,142SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
    
    
    2,230,905
    
    
    
    2,457,116
    
    
    
    7,275,670
    
    
    
    7,133,148OTHER (INCOME) AND EXPENSES:Other income
    
    
    (78,525
    )
    
    
    (5,637
    )
    
    
    (122,900
    )
    
    
    (70,939
    )Interest income
    
    
    (14
    )
    
    
    (20
    )
    
    
    (53
    )
    
    
    (7,630
    )Interest expense
    
    
    113,749
    
    
    
    99,383
    
    
    
    334,539
    
    
    
    298,72435,210
    
    
    
    93,726
    
    
    
    211,586
    
    
    
    220,155LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
    
    
    (550,794
    )
    
    
    (1,117,184
    )
    
    
    (2,500,152
    )
    
    
    (3,564,732
    )INCOME TAX
EXPENSE (BENEFIT) (Note 16)
    
    
    623,765
    
    
    
    (504,416
    )
    
    
    (181,477
    )
    
    
    (1,446,531
    )LOSS FROM CONTINUING OPERATIONS
    
    
    (1,174,559
    )
    
    
    (612,768
    )
    
    
    (2,318,675
    )
    
    
    (2,118,201
    )DISCONTINUED OPERATIONS (Note 10):(Loss) earnings from discontinued operations, adjusted for applicable income
tax (benefit) expense of ($2,227), $26,137, ($221,663) and $82,100, respectively
    
    
    (3,633
    )
    
    
    42,128
    
    
    
    (361,661
    )
    
    
    133,953(Loss) gain on disposition of income-producing properties, adjusted for applicable
income tax expense of $26,206, $498,017, $117,350 and $498,017, respectively
    
    
    (33,794
    )
    
    
    690,622
    
    
    
    66,779
    
    
    
    690,622(LOSS) EARNINGS FROM DISCONTINUED OPERATIONS
    
    
    (37,427
    )
    
    
    732,750
    
    
    
    (294,882
    )
    
    
    824,575NET (LOSS) EARNINGS
    
    $
    (1,211,986
    )
    
    $
    119,982
    
    
    $
    (2,613,557
    )
    
    $
    (1,293,626
    )NET EARNINGS (LOSS) PER SHARE (Note 7):From continuing operations  basic and diluted
    
    $
    (0.32
    )
    
    $
    (0.17
    )
    
    $
    (0.63
    )
    
    $
    (0.57
    )From discontinued operations  basic and diluted
    
    
    (0.01
    )
    
    
    0.20
    
    
    
    (0.08
    )
    
    
    0.22NET (LOSS) EARNINGS PER SHARE  BASIC AND DILUTED
    
    $
    (0.33
    )
    
    $
    0.03
    
    
    $
    (0.71
    )
    
    $
    (0.35
    )WEIGHTED AVERAGE SHARES OUTSTANDING  BASIC AND DILUTED
    
    
    3,675,784
    
    
    
    3,685,268
    
    
    
    3,676,054
    
    
    
    3,688,952
 See accompanying notes to condensed consolidated financial statements.
 2




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##### Table of Contents



SERVIDYNE, INC.
   NINE MONTHS ENDEDJANUARY 31,2011
    
    
    2010Cash flows from operating activities:Net loss
    
    $
    (2,613,557
    )
    
    $
    (1,293,626
    )Adjustments to reconcile net loss to net
cash used in operating activities:Loss (earnings) from discontinued operations, net of tax
    
    
    294,882
    
    
    
    (824,575
    )(Loss) gain on disposal of assets
    
    
    (1,385
    )
    
    
    1,378Depreciation and amortization
    
    
    732,916
    
    
    
    741,176Deferred tax benefit
    
    
    (195,328
    )
    
    
    (1,469,195
    )Stock compensation expense
    
    
    122,101
    
    
    
    137,711Adjustment to cash surrender value of life insurance
    
    
    (35,390
    )
    
    
    (75,122
    )Straight-line rent
    
    
    (2,416
    )
    
    
    (23,629
    )Provision for doubtful accounts, net
    
    
    53,042
    
    
    
    (56,849
    )Changes in assets and liabilities:Receivables
    
    
    527,018
    
    
    
    45,429Costs and earnings in excess of billings
    
    
    238,916
    
    
    
    (77,251
    )Other current and long-term assets
    
    
    (644,938
    )
    
    
    141,929Trade and subcontractors payable
    
    
    (449,364
    )
    
    
    287,584Accrued expenses and deferred revenue
    
    
    328,093
    
    
    
    (317,216
    )Billings in excess of costs and earnings
    
    
    (11,600
    )
    
    
    897,679Net cash used in operating activities
    
    
    (1,657,010
    )
    
    
    (1,884,577
    )Cash flows from investing activities:Premiums paid on officers life insurance policies
    
    
    (5,464
    )
    
    
    Release of restricted cash held in escrow
    
    
    
    
    
    
    (27,464
    )Purchase of money market account investment
    
    
    (500,000
    )
    
    
    Proceeds from termination of split-dollar life insurance agreement
    
    
    194,601
    
    
    
    Additions to property and equipment
    
    
    (41,581
    )
    
    
    (208,355
    )Additions to intangible assets
    
    
    (274,197
    )
    
    
    (415,352
    )Proceeds from sale of property and equipment
    
    
    5,454
    
    
    
    2,000Net cash used in investing activities
    
    
    (621,187
    )
    
    
    (649,171
    )Cash flows from financing activities:Short-term loan proceeds
    
    
    
    
    
    
    100,000Mortgage repayments
    
    
    (89,612
    )
    
    
    (82,948
    )Debt repayments
    
    
    (150,000
    )
    
    
    (185,000
    )Repurchase of common stock
    
    
    
    
    
    
    (31,345
    )Proceeds from other long-term debt
    
    
    500,000
    
    
    
    Cash dividends paid to shareholders
    
    
    (110,722
    )
    
    
    (148,578
    )Net cash provided by (used in) financing activities
    
    
    149,666
    
    
    
    (347,871
    )DISCONTINUED OPERATIONS:Operating activities
    
    
    (30,642
    )
    
    
    615,579Investing activities
    
    
    2,208,932
    
    
    
    (24,835
    )Financing activities
    
    
    (49,493
    )
    
    
    (231,051
    )Net cash provided by discontinued operations
    
    
    2,128,797
    
    
    
    359,693Net increase (decrease) in cash and cash equivalents
    
    
    266
    
    
    
    (2,521,926
    )Cash at beginning of period
    
    
    1,923,641
    
    
    
    4,821,126Cash at end of period
    
    $
    1,923,907
    
    
    $
    2,299,200Supplemental 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
    
    $
    71,941
    
    
    $
    
 See accompanying notes to condensed consolidated financial statements.
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##### Table of Contents



SERVIDYNE, INC.
   NOTE 1. ORGANIZATION AND BUSINESS
   NOTE 2. UNAUDITED STATEMENTS
  Property, Plant and Equipment
 4




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##### Table of Contents



NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS
 Revenue Recognition (Topic 605)Multiple-Deliverable Revenue
Arrangements Software (Topic 985)Certain Revenue Arrangements That Include
Software Elements
 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 January 31, 2011
    
    
    482,486
    
    
    $
    4.46Vested at January 31, 2011
    
    
    482,486
    
    
    $
    4.46Non-vested at January 31, 2011, that are expected to vest
    
    
    
    
    
    $
    
   Weighted AverageExercise
    
    Number of
    
    Remaining ContractualPrice
    
    Outstanding Options
    
    Term (Years)$4.42
    
    
    415,629
    
    
    
    1.77$4.59
    
    
    55,440
    
    
    
    4.15$5.19
    
    
    917
    
    
    
    3.38$5.24
    
    
    10,500
    
    
    
    2.37
   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 January 31, 2011
    
    
    874,925
    
    
    $
    3.79Vested at January 31, 2011
    
    
    188,528
    
    
    $
    4.01Non-vested at January 31, 2011, that are expected to vest
    
    
    505,699
    
    
    $
    3.81
 rd th th
  Weighted AverageExercise
    
    Outstanding
    
    Vested
    
    Remaining ContractualPrice
    
    SARs
    
    SARs
    
    Term (Years)$3.94
    
    
    180,495
    
    
    
    108,959
    
    
    
    5.41$3.79
    
    
    109,830
    
    
    
    66,339
    
    
    
    5.85$4.19
    
    
    10,500
    
    
    
    3,150
    
    
    
    6.36$6.19
    
    
    33,600
    
    
    
    10,080
    
    
    
    6.66$5.00
    
    
    52,500
    
    
    
    0
    
    
    
    7.23$4.76
    
    
    84,000
    
    
    
    0
    
    
    
    7.37$4.00
    
    
    22,500
    
    
    
    0
    
    
    
    7.63$2.30
    
    
    30,000
    
    
    
    0
    
    
    
    8.36$4.00
    
    
    200,000
    
    
    
    0
    
    
    
    8.79$2.12
    
    
    20,000
    
    
    
    0
    
    
    
    8.85$2.09
    
    
    131,500
    
    
    
    0
    
    
    
    9.15
 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
    
    
    (600
    )
    
    
    2.11Vested
    
    
    (2,150
    )
    
    
    3.41Non-vested restricted stock at January 31, 2011
    
    
    400
    
    
    $
    2.09
 NOTE 5. RECEIVABLES
  8




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##### Table of Contents



NOTE 6. SEGMENT REPORTING
 Segment Reporting,
  9




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##### Table of Contents



For the Third QuarterEnded January 31, 2011
    
    BPE
    
    Corporate (1)
    
    Eliminations
    
    ConsolidatedRevenues from unaffiliated customersBPE Segment services and products:Energy savings projects
    
    $
    4,193,371
    
    
    
    
    
    
    
    
    
    
    $
    4,193,371Lighting products
    
    
    533,125
    
    
    
    
    
    
    
    
    
    
    
    533,125Energy management services
    
    
    301,662
    
    
    
    
    
    
    
    
    
    
    
    301,662Fifth fuel management services
    
    
    34,369
    
    
    
    
    
    
    
    
    
    
    
    34,369Productivity software
    
    
    777,289
    
    
    
    
    
    
    
    
    
    
    
    777,289Total revenues from unaffiliated customers
    
    $
    5,839,816
    
    
    $
    101,907
    
    
    $
    
    
    
    $
    5,941,723Intercompany revenue
    
    
    
    
    
    
    64,548
    
    
    
    (64,548
    )
    
    
    Total revenues from continuing
operations
    
    $
    5,839,816
    
    
    $
    166,455
    
    
    $
    (64,548
    )
    
    $
    5,941,723Earnings (loss) from continuing
operations before income taxes
    
    $
    282,733
    
    
    $
    (833,612
    )
    
    $
    85
    
    
    $
    (550,794
    )For the Nine MonthsEnded January 31, 2011
    
    BPE
    
    Corporate (1)
    
    Eliminations
    
    ConsolidatedRevenues from unaffiliated customersBPE Segment services and products:Energy savings projects
    
    $
    13,015,326
    
    
    
    
    
    
    
    
    
    
    $
    13,015,326Lighting products
    
    
    1,749,037
    
    
    
    
    
    
    
    
    
    
    
    1,749,037Energy management services
    
    
    1,068,248
    
    
    
    
    
    
    
    
    
    
    
    1,068,248Fifth fuel management services
    
    
    125,395
    
    
    
    
    
    
    
    
    
    
    
    125,395Productivity software
    
    
    2,242,684
    
    
    
    
    
    
    
    
    
    
    
    2,242,684Total revenues from unaffiliated customers
    
    $
    18,200,690
    
    
    $
    316,581
    
    
    $
    
    
    
    $
    18,517,271Intercompany revenue
    
    
    
    
    
    
    203,330
    
    
    
    (203,330
    )
    
    
    Total revenues from continuing
operations
    
    $
    18,200,690
    
    
    $
    519,911
    
    
    $
    (203,330
    )
    
    $
    18,517,271Earnings (loss) from continuing
operations before income taxes
    
    $
    64,510
    
    
    $
    (2,628,391
    )
    
    $
    63,729
    
    
    $
    (2,500,152
    )For the Third QuarterEnded January 31, 2010
    
    BPE
    
    Corporate (1)
    
    Eliminations
    
    ConsolidatedRevenues from unaffiliated customersBPE Segment services and products:Energy savings projects
    
    $
    2,533,469
    
    
    
    
    
    
    
    
    
    
    $
    2,533,469Lighting products
    
    
    379,244
    
    
    
    
    
    
    
    
    
    
    
    379,244Energy management services
    
    
    417,386
    
    
    
    
    
    
    
    
    
    
    
    417,386Fifth fuel management services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Productivity software
    
    
    789,791
    
    
    
    
    
    
    
    
    
    
    
    789,791Total revenues from unaffiliated customers
    
    $
    4,119,890
    
    
    $
    123,122
    
    
    $
    
    
    
    $
    4,243,012Intercompany revenue
    
    
    
    
    
    
    60,211
    
    
    
    (60,211
    )
    
    
    Total revenues from continuing
operations
    
    $
    4,119,890
    
    
    $
    183,333
    
    
    $
    (60,211
    )
    
    $
    4,243,012(Loss) earnings from continuing
operations before income taxes
    
    $
    (353,718
    )
    
    $
    (773,413
    )
    
    $
    9,947
    
    
    $
    (1,117,184
    )For the Nine MonthsEnded January 31, 2010
    
    BPE
    
    Corporate (1)
    
    Eliminations
    
    ConsolidatedRevenues from unaffiliated customersBPE Segment services and products:Energy savings projects
    
    $
    6,594,695
    
    
    
    
    
    
    
    
    
    
    $
    6,594,695Lighting products
    
    
    1,319,982
    
    
    
    
    
    
    
    
    
    
    
    1,319,982Energy management services
    
    
    1,438,900
    
    
    
    
    
    
    
    
    
    
    
    1,438,900Fifth fuel management services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Productivity software
    
    
    2,561,962
    
    
    
    
    
    
    
    
    
    
    
    2,561,962Total revenues from unaffiliated customers
    
    $
    11,915,539
    
    
    $
    330,174
    
    
    $
    
    
    
    $
    12,245,713Intercompany revenue
    
    
    141,545
    
    
    
    193,573
    
    
    
    (335,118
    )
    
    
    Total revenues from continuing
operations
    
    $
    12,057,084
    
    
    $
    523,747
    
    
    $
    (335,118
    )
    
    $
    12,245,713(Loss) earnings from continuing
operations before income taxes
    
    $
    (1,096,677
    )
    
    $
    (2,468,546
    )
    
    $
    491
    
    
    $
    (3,564,732
    )Total Assets by Segment
    
    BPE
    
    Corporate (1)
    
    Eliminations
    
    ConsolidatedAs of January 31, 2011
    
    $
    15,877,132
    
    
    $
    11,037,873
    
    
    $
    (1,629,485
    )
    
    $
    25,285,520As of April 30, 2010
    
    $
    15,396,815
    
    
    $
    26,944,905
    
    
    $
    (789,747
    )
    
    $
    41,551,973
 10




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##### Table of Contents



(1)
    
    The Corporate net loss in each period was derived from corporate
headquarters activities, which consist primarily of the following: rental revenues from
tenants in the Companys corporate headquarters building and related rental and operating
costs, salaries and benefits of Corporate Headquarters executive officers and staff,
equity-based compensation expenses, depreciation and amortization expenses, and costs
related to the 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.
All relevant costs related to the business operations of the Companys BPE Segment are
either paid directly by BPE or are allocated to BPE by the Corporate Headquarters. The
allocation method is dependent on the nature of each expense item. Allocated expenses
include, among other items, accounting services, information technology services,
insurance costs, and audit and tax preparation fees. NOTE 7. EARNINGS (LOSS) PER SHARE
  11




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NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
  January 31, 2011Gross Carrying
    
    
    AccumulatedIntangible assets, subject to amortization:
    
    Amount
    
    
    AmortizationBPE proprietary technology solutions
    
    $
    4,330,307
    
    
    $
    3,204,988Acquired computer software
    
    
    717,532
    
    
    
    533,753Real estate lease costs
    
    
    35,412
    
    
    
    12,819Customer relationships
    
    
    404,632
    
    
    
    317,540Deferred loan costs
    
    
    122,687
    
    
    
    104,284Non-compete agreements
    
    
    63,323
    
    
    
    63,323Tradename
    
    
    61,299
    
    
    
    10,896Other
    
    
    44,882
    
    
    
    44,166$
    5,780,074
    
    
    $
    4,291,769Intangible assets and goodwill, not subject to amortization:Trademark
    
    $
    708,707Goodwill
    
    $
    6,354,002
 April 30, 2010Gross Carrying
    
    
    AccumulatedIntangible assets, subject to amortization:
    
    Amount
    
    
    AmortizationBPE proprietary technology solutions
    
    $
    4,096,802
    
    
    $
    2,827,072Acquired computer software
    
    
    676,837
    
    
    
    493,885Real estate lease costs
    
    
    35,412
    
    
    
    5,701Customer relationships
    
    
    404,632
    
    
    
    286,433Deferred loan costs
    
    
    122,687
    
    
    
    95,082Non-compete agreements
    
    
    63,323
    
    
    
    60,684Tradename
    
    
    61,299
    
    
    
    7,834Other
    
    
    44,882
    
    
    
    42,016$
    5,505,874
    
    
    $
    3,818,707Intangible assets and goodwill, not subject to amortization:Trademark
    
    $
    708,707Goodwill
    
    $
    6,354,002
 Aggregate amortization expense for all amortizable intangible assets:For the nine months ended January 31, 2011
    
    $
    473,059For the nine months ended January 31, 2010
    
    
    448,392For the quarter ended January 31, 2011
    
    
    140,371For the quarter ended January 31, 2010
    
    
    171,450Estimated future amortization expenses for all amortized intangible assets for the fiscal years ended:Remainder of 2011
    
    $
    136,4182012
    
    
    512,0912013
    
    
    363,9802014
    
    
    263,5112015
    
    
    142,1132016
    
    
    41,243Thereafter
    
    
    28,949$
    1,488,305
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Goodwill
     13




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Other Indefinite-Lived Intangible Assets
  NOTE 9. OTHER ASSETS
 Money Market Account Investment
  Termination of Split Dollar Life Insurance Agreement
  14




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NOTE 10. DISCONTINUED OPERATIONS
    15




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Third Quarter Ended
    
    Nine Months EndedJanuary 31,
    
    January 31,2011
    
    2010
    
    2011
    
    2010Rental revenues
    
    $
    83,305
    
    
    $
    617,932
    
    
    $
    511,371
    
    
    $
    1,852,338Rental property operating expenses, including depreciation
    
    
    89,165
    
    
    
    549,667
    
    
    
    505,136
    
    
    
    1,636,285Loss on impairment of income-producing property
    
    
    
    
    
    
    
    
    
    
    589,559
    
    
    
    Operating (loss) income from discontinued operations
    
    
    (5,860
    )
    
    
    68,265
    
    
    
    (583,324
    )
    
    
    216,053Income tax benefit (expense)
    
    
    2,227
    
    
    
    (26,137
    )
    
    
    221,663
    
    
    
    (82,100
    )Operating (loss) income from discontinued operations, net of tax
    
    
    (3,633
    )
    
    
    42,128
    
    
    
    (361,661
    )
    
    
    133,953(Loss) gain on disposition of income-producing properties
    
    
    (7,588
    )
    
    
    1,188,639
    
    
    
    184,129
    
    
    
    1,188,639Income tax expense
    
    
    (26,206
    )
    
    
    (498,017
    )
    
    
    (117,350
    )
    
    
    (498,017
    )(Loss) gain on disposition of income-producing properties, net of tax
    
    
    (33,794
    )
    
    
    690,622
    
    
    
    66,779
    
    
    
    690,622(Loss) earnings from discontinued operations, net of tax
    
    $
    (37,427
    )
    
    $
    732,750
    
    
    $
    (294,882
    )
    
    $
    824,575
 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.
   16




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Non-Recurring Measurements
  NOTE 12. MORTGAGE NOTE PAYABLE
  17




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NOTE 13. OTHER LONG-TERM DEBT
  
    
    The maturity date of the note, originally December 18, 2011, was amended such that
$150,000 is due on October 19, 2011, with the remaining principal balance of $700,000
maturing on January 19, 2016; and
    
    The interest rate was changed from the prime rate plus 1.5% to a fixed rate of 6% per
annum.
  NOTE 14. RELATED PARTY TRANSACTIONS
   NOTE 15. COMMITMENTS AND CONTINGENCIES
  NOTE 16.  INCOME TAXES
 Income Taxes
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
    OVERVIEW
  1
  
 1
    
    The Company believes earnings before interest, taxes,
depreciation and amortization (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. 19




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® ® ®
 20




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Discontinued Operations
   Liquidity
   21




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RESULTS OF OPERATIONS
     CHART A
 Third Quarter Ended
    
    
    
    
    
    
    
    
    
    Nine Months EndedJanuary 31,
    
    Amount
    
    Percentage
    
    January 31,
    
    Amount
    
    Percentage2011
    
    2010
    
    Change
    
    Change
    
    2011
    
    2010
    
    Change
    
    ChangeBPE (1)
    
    $
    5,840
    
    
    $
    4,120
    
    
    $
    1,720
    
    
    
    42
    
    
    $
    18,201
    
    
    $
    11,916
    
    
    $
    6,285
    
    
    
    53Rental revenues
    
    
    102
    
    
    
    123
    
    
    
    (21
    )
    
    
    (17
    )
    
    
    317
    
    
    
    330
    
    
    
    (13
    )
    
    
    (4
    )$
    5,942
    
    
    $
    4,243
    
    
    $
    1,699
    
    
    
    40
    
    
    $
    18,518
    
    
    $
    12,246
    
    
    $
    6,272
    
    
    
    51
 NOTES TO CHART A
 (1)
    
    The following table indicates the BPE Segment revenues by service and product
type:
 
 Third Quarter Ended
    
    
    
    
    
    
    
    
    
    Nine Months EndedJanuary 31,
    
    Amount
    
    Percentage
    
    January 31,
    
    Amount
    
    Percentage2011
    
    2010
    
    Change
    
    Change
    
    2011
    
    2010
    
    Change
    
    ChangeEnergy Savings Projects
    
    $
    4,194
    
    
    $
    2,534
    
    
    $
    1,660
    
    
    
    66
    
    
    $
    13,016
    
    
    $
    6,595
    
    
    $
    6,421
    
    
    
    97Lighting Products
    
    
    533
    
    
    
    379
    
    
    
    154
    
    
    
    41
    
    
    
    1,749
    
    
    
    1,320
    
    
    
    429
    
    
    
    33Energy Management Services
    
    
    301
    
    
    
    417
    
    
    
    (116
    )
    
    
    (28
    )
    
    
    1,068
    
    
    
    1,439
    
    
    
    (371
    )
    
    
    (26
    )Fifth Fuel Management Services
    
    
    34
    
    
    
    
    
    
    
    34
    
    
    
    
    
    
    
    125
    
    
    
    
    
    
    
    125
    
    
    
    Productivity Software
    
    
    778
    
    
    
    790
    
    
    
    (12
    )
    
    
    (2
    )
    
    
    2,243
    
    
    
    2,562
    
    
    
    (319
    )
    
    
    (12
    )$
    5,840
    
    
    $
    4,120
    
    
    $
    1,720
    
    
    
    42
    
    
    $
    18,201
    
    
    $
    11,916
    
    
    $
    6,285
    
    
    
    53
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BPE Segment revenues increased by approximately $1,720,000, or 42%, in the third
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 $1,660,000; and(b)
    
    an increase in lighting product revenues of
approximately $154,000;
  (c)
    
    a decrease in energy management service
revenues of approximately $116,000.
  (a)
    
    an increase in energy savings (lighting and
mechanical) project revenues of approximately $6,421,000;(b)
    
    an increase in lighting product revenues of
approximately $429,000; and(c)
    
    approximately $125,000 in revenues from the
Companys recently-introduced Fifth Fuel Management® service
offering;
  (d)
    
    a decrease in energy management service
revenues of approximately $371,000; and(e)
    
    a decrease in productivity software revenues of
approximately $319,000.
  IncreaseJanuary 31,
    
    
    (Decrease)2011
    
    
    2010
    
    
    Amount
    
    
    PercentageBPE (1)
    
    $
    16,374,000
    
    
    $
    8,602,000
    
    
    $
    7,772,000
    
    
    
    90Rental revenues
    
    
    416,000
    
    
    
    401,000
    
    
    
    15,000
    
    
    
    4Total Backlog
    
    $
    16,790,000
    
    
    $
    9,003,000
    
    
    $
    7,787,000
    
    
    
    86
 (1)
    
    BPE backlog at January 31, 2011, increased by approximately $7,772,000, or 90%, compared
to the year-earlier period, primarily due to: (a)
    
    an increase of approximately $6,838,000 in energy savings (lighting and
mechanical) projects;(b)
    
    approximately $859,000 in backlog from BPEs Fifth Fuel
Management® service offering; and(c)
    
    an increase of approximately $367,000 in energy management consulting
services.
  (d)
    
    a decrease of approximately $176,000 in lighting products; and(e)
    
    a decrease of approximately $116,000 in productivity software products
and services.
  23




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CHART B
 Percentage of
    
    
    
    
    
    
    
    
    
    Percentage ofRevenues for the
    
    
    
    
    
    
    
    
    
    Revenues for theThird Quarter Ended
    
    Third Quarter Ended
    
    Nine Months Ended
    
    Nine Months EndedJanuary 31,
    
    January 31,
    
    January 31,
    
    January 31,2011
    
    2010
    
    2011
    
    
    2010
    
    
    2011
    
    2010
    
    2011
    
    
    2010BPE (1)
    
    $
    4,053
    
    
    $
    2,652
    
    
    
    69
    
    
    
    64
    
    
    $
    13,021
    
    
    $
    7,947
    
    
    
    72
    
    
    
    67Cost of rental revenues
    
    
    173
    
    
    
    157
    
    
    
    170
    
    
    
    128
    
    
    
    509
    
    
    
    510
    
    
    
    161
    
    
    
    154$
    4,226
    
    
    $
    2,809
    
    
    
    71
    
    
    
    66
    
    
    $
    13,530
    
    
    $
    8,457
    
    
    
    73
    
    
    
    69
 NOTES TO CHART B
 (1)
    
    BPE Segment cost of revenues increased by approximately $1,401,000, or 53%, and by
approximately $5,074,000, or 64%, in the third quarter and the first nine (9) 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 5%
in both the third quarter and the first nine (9) months of
fiscal 2011 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.
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CHART C
 Percentage of
    
    
    
    
    
    
    
    
    
    Percentage ofRevenues for the
    
    
    
    
    
    
    
    
    
    Revenues for theThird Quarter Ended
    
    Third Quarter Ended
    
    Nine Months Ended
    
    Nine Months EndedJanuary 31,
    
    January 31,
    
    January 31,
    
    January 31,2011
    
    2010
    
    2011
    
    
    2010
    
    
    2011
    
    2010
    
    2011
    
    
    2010BPE (1)
    
    $
    1,210
    
    
    $
    1,530
    
    
    
    21
    
    
    
    37
    
    
    $
    4,215
    
    
    $
    4,252
    
    
    
    23
    
    
    
    36Corporate (2)
    
    
    1,021
    
    
    
    927
    
    
    
    17
    
    
    
    21
    
    
    
    3,061
    
    
    
    2,881
    
    
    
    16
    
    
    
    23$
    2,231
    
    
    $
    2,457
    
    
    
    38
    
    
    
    58
    
    
    $
    7,276
    
    
    $
    7,133
    
    
    
    39
    
    
    
    58
 NOTES TO CHART C
 (1)
    
    BPE Segment SG&A expenses decreased by approximately $320,000, or 21%, in the third quarter
of fiscal 2011 compared to the same period in fiscal 2010, primarily due to lower
personnel-related costs, project development expenses, and sales and marketing expenses.On a percentage-of-revenue basis, BPE Segment SG&A expenses decreased from 37% of revenues to
21% of revenues, and from 36% of revenues to 23% of revenues, in the third quarter and the
first nine (9) 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
increases in expenses.(2)
    
    Corporate SG&A expenses increased by approximately $94,000, or 10%, and by
approximately $180,000, or 6%, in the third quarter and the first nine (9) 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 lower personnel-related costs and reductions in audit and tax fees.
 25




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On a percentage-of-revenue basis, Corporate  SG&A expenses decreased from 21% of
revenues to 17% of revenues, and from 23% of revenues to 16% of revenues, in the third
quarter and the first nine (9) 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.
    CHART D
 Third Quarter Ended
    
    
    Increase
    
    
    Nine Months Ended
    
    
    IncreaseJanuary 31,
    
    
    (Decrease)
    
    January 31,
    
    
    (Decrease)2011
    
    
    2010
    
    
    Amount
    
    
    2011
    
    
    2010
    
    
    AmountBPE (1)
    
    $
    581
    
    
    $
    (76
    )
    
    $
    657
    
    
    $
    964
    
    
    $
    (275
    )
    
    $
    1,239Corporate (2)
    
    
    (1,132
    )
    
    
    (1,041
    )
    
    
    (91
    )
    
    
    (3,464
    )
    
    
    (3,290
    )
    
    
    (174
    )Total
    
    $
    (551
    )
    
    $
    (1,117
    )
    
    $
    566
    
    
    $
    (2,500
    )
    
    $
    (3,565
    )
    
    $
    1,065
 NOTES TO CHART D
 (1)
    
    BPE Segment earnings before income taxes of approximately $581,000 in the third quarter of
fiscal 2011 represents growth in earnings of approximately $657,000 compared to the same
period in fiscal 2010, primarily due to an increase in revenues of approximately $1,720,000
(see Chart A), an increase in gross margin of approximately $319,000, and a decrease in SG&A
expenses of approximately $320,000 (see Chart C).BPE Segment earnings before income taxes of approximately $964,000 in the first nine (9)
months of fiscal 2011 represents growth in earnings of approximately $1,239,000 compared to
the same period in fiscal 2010, primarily due to an increase in revenues of approximately
$6,285,000 (see Chart A), an increase in gross margin of approximately $1,211,000, and a
decrease in SG&A expenses of approximately $37,000 (see Chart C).(2)
    
    Corporate loss before income taxes increased by approximately $91,000, or 9%, and
by approximately $174,000, or 5%, in the third quarter and the first nine (9) months of
fiscal 2011, respectively, compared to the same periods in fiscal 2010, primarily due to
increases in SG&A expenses of approximately $94,000 and $180,000, respectively (see Chart C).
 26




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27




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LIQUIDITY AND CAPITAL RESOURCES
    (a)
    
    current year losses from continuing operations before depreciation,
amortization, and income taxes of approximately $1,767,000;(b)
    
    a decrease in trade accounts payable, accrued expenses, and other
liabilities of approximately $121,000; and(c)
    
    an increase in other current and long-term assets of approximately
$645,000;
  (d)
    
    a decrease in net accounts receivable of approximately $580,000; and(e)
    
    a decrease in costs and earnings in excess of billings of approximately
$239,000.
  (a)
    
    $500,000 used for the purchase of a held-to-maturity investment;(b)
    
    approximately $274,000 used for additions to intangible assets, primarily
related to enhancements to the BPE Segments proprietary technology solutions; and(c)
    
    approximately $42,000 used for additions to property and equipment,
primarily related to the purchase of computer hardware;
  (d)
    
    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;
  (b)
    
    scheduled principal payments on other debt of approximately $150,000;
 (c)
    
    scheduled principal payments on the mortgage note on the corporate
headquarters building of approximately $90,000; and(d)
    
    payment of the regular quarterly cash dividends to shareholders of
approximately $111,000.
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Sales of
Promissory Notes to Related Parties
 29




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##### Table of Contents



®
 ®
 Sales of Promissory Notes to Related Parties
  Termination of Split Dollar Life Insurance Agreement
  30




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Capital Expenditures
  Significant Uses of Cash
  Mortgage Notes and Other Long-Term Debt
  31




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##### Table of Contents




    
    The maturity date of the note, originally December 18, 2011, was amended such that
$150,000 is due on October 19, 2011, with the remaining principal balance of $700,000
maturing on January 19, 2016; and
    
    The interest rate was changed from the prime rate plus 1.5% to a fixed rate of 6% per
annum.
   CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 ®
 CRITICAL ACCOUNTING POLICIES
  32




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Revenue Recognition
     Long-Lived Assets: Property & Equipment and Capitalized Software
  33




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
    
    A significant decrease in the market price 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;
    
    The Company has received purchase offers at prices below carrying value;
    
    A real estate asset that has a significant vacancy rate 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; and
    
    Depressed market conditions.
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##### Table of Contents




    
    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.
  Valuation of Goodwill and Other Indefinite-Lived Intangible Assets
   Goodwill
   35




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Other Indefinite-Lived Intangible Assets
  36




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Income Taxes
        37




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ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
  38




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ITEM 1A. RISK FACTORS
  
 ITEM 6. EXHIBITS
 31.1
    
    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: March 17, 2011
    /s/ Alan R. AbramsAlan R. AbramsChief Executive OfficerDate: March 17, 2011
    /s/ Rick A. PaternostroRick A. PaternostroChief Financial Officer 40