##### 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 July 31, 2006
 Commission file number 0-10146
 SERVIDYNE,
INC.
 
 Georgia
    
    58-0522129(State or other jurisdiction of
    
    (I.R.S. Employer identification No.)incorporation or organization)
 1945 The Exchange, Suite 300, Atlanta, GA 30339-2029
  (770) 953-0304
 N/A
  þ o
  o o þ
  o þ




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 4. CONTROLS AND PROCEDURESPART II. OTHER INFORMATIONITEM 1A. RISK FACTORSITEM 6. EXHIBITSSIGNATURESEX-31.(A) SECTION 302 CERTIFICATION OF CEOEX-31.(B) SECTION 302 CERTIFICATION OF CFOEX-32.(A) SECTION 906 CERTIFICATION OF CEOEX-32.(B) SECTION 906 CERTIFICATION OF CFO    Table of Contents  
  
 ITEM 1. FINANCIAL STATEMENTS
 SERVIDYNE, INC.
 July 31, 2006
    
    
    April 30, 2006ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    7,650,003
    
    
    $
    7,329,805Restricted cash
    
    
    300,000
    
    
    
    718,594Receivables (Note 4)
    
    
    1,994,680
    
    
    
    2,420,368Less: Allowance for doubtful accounts
    
    
    (11,061
    )
    
    
    (11,061
    )Costs and earnings in excess of billings
    
    
    446,505
    
    
    
    286,824Deferred income taxes
    
    
    622,927
    
    
    
    622,927Note receivables
    
    
    371,690
    
    
    
    902,505Other
    
    
    1,225,365
    
    
    
    966,454Total current assets
    
    
    12,600,109
    
    
    
    13,236,416INCOME-PRODUCING PROPERTIES, net
    
    
    25,573,359
    
    
    
    20,724,917PROPERTY AND EQUIPMENT, net
    
    
    837,501
    
    
    
    843,204RESTRICTED CASH
    
    
    
    
    
    
    3,241,310OTHER ASSETS:Real estate held for future development or sale
    
    
    1,960,084
    
    
    
    1,925,427Intangible assets, net (Note 8)
    
    
    3,551,359
    
    
    
    3,109,376Goodwill (Note 8)
    
    
    5,458,717
    
    
    
    5,458,717Other
    
    
    3,782,251
    
    
    
    3,870,889$
    53,763,380
    
    
    $
    52,410,256LIABILITIES
AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Trade and subcontractors payables
    
    $
    936,801
    
    
    $
    705,647Accrued expenses
    
    
    2,216,655
    
    
    
    2,028,196Accrued incentive compensation
    
    
    192,499
    
    
    
    471,619Billings in excess of costs and earnings
    
    
    224,738
    
    
    
    211,676Current maturities of long-term debt
    
    
    1,110,378
    
    
    
    1,167,192Total current liabilities
    
    
    4,681,071
    
    
    
    4,584,330DEFERRED INCOME TAXES
    
    
    3,372,563
    
    
    
    3,710,599OTHER LIABILITIES
    
    
    1,794,855
    
    
    
    1,879,037MORTGAGE NOTES PAYABLE, less current maturities
    
    
    22,164,522
    
    
    
    19,806,542OTHER LONG-TERM DEBT, less current maturities
    
    
    1,475,500
    
    
    
    1,483,000Total liabilities
    
    
    33,488,511
    
    
    
    31,463,508COMMITMENTS
AND CONTINGENCIES (Note 10)SHAREHOLDERS EQUITY:Common
stock, $1 par value; 5,000,000 shares authorized;
3,695,336 issued and 3,532,070 outstanding at July 31, 2006, 
3,695,336 issued and 3,532,180 outstanding at April 30, 2006
    
    
    3,695,336
    
    
    
    3,695,336Additional paid-in capital
    
    
    4,805,486
    
    
    
    4,803,133Deferred stock compensation
    
    
    
    
    
    
    (4,420
    )Retained earnings
    
    
    12,548,919
    
    
    
    13,227,076Treasury stock, common shares;
163,266 at July 31, 2006, and 163,156 at April 30, 2006
    
    
    (774,872
    )
    
    
    (774,377
    )Total shareholders equity
    
    
    20,274,869
    
    
    
    20,946,748$
    53,763,380
    
    
    $
    52,410,256
 See accompanying notes to consolidated financial statements.
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##### Table of Contents



SERVIDYNE, INC.
 FIRST QUARTER ENDEDJULY 31,2006
    
    
    2005REVENUES:Building
performance experts
    
    $
    2,615,415
    
    
    $
    3,019,258Rental income
    
    
    1,525,143
    
    
    
    1,530,4344,140,558
    
    
    
    4,549,692Interest
    
    
    93,657
    
    
    
    46,193Other
    
    
    65,047
    
    
    
    12,9114,299,262
    
    
    
    4,608,796COSTS AND EXPENSES:Building
performance experts
    
    
    1,716,030
    
    
    
    1,498,875Rental property operating expenses, excluding interest
    
    
    932,679
    
    
    
    963,8192,648,709
    
    
    
    2,462,694Selling, general and administrativeBuilding
performance experts
    
    
    1,154,576
    
    
    
    1,100,868Real estate
    
    
    206,704
    
    
    
    263,580Parent
    
    
    772,317
    
    
    
    899,5522,133,597
    
    
    
    2,264,000Interest costs incurred
    
    
    405,888
    
    
    
    372,6645,188,194
    
    
    
    5,099,358LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES
    
    
    (888,932
    )
    
    
    (490,562
    )INCOME TAX BENEFIT
    
    
    (338,037
    )
    
    
    (186,413
    )LOSS FROM CONTINUING OPERATIONS
    
    
    (550,895
    )
    
    
    (304,149
    )DISCONTINUED OPERATIONS:Loss from discontinued operations, adjusted
for applicable income tax benefit of $0 and
$20,152, respectively
    
    
    
    
    
    
    (32,877
    )NET LOSS
    
    $
    (550,895
    )
    
    $
    (337,026
    )NET LOSS PER SHARE  BASIC AND DILUTED:From continuing operations
    
    $
    (0.16
    )
    
    $
    (0.09
    )From discontinued operations
    
    
    
    
    
    
    (.01
    )NET LOSS PER SHARE  BASIC AND DILUTED
    
    $
    (0.16
    )
    
    $
    (0.10
    )DIVIDENDS PER SHARE
    
    $
    0.036
    
    
    $
    0.180WEIGHTED AVERAGE SHARES OUTSTANDING  BASIC AND DILUTED
    
    
    3,532,100
    
    
    
    3,530,443
 See accompanying notes to consolidated financial statements.
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##### Table of Contents



SERVIDYNE, INC.
 Additional
    
    DeferredCommon Stock
    
    Paid-In
    
    Stock
    
    Retained
    
    TreasuryShares
    
    Amount
    
    Capital
    
    Compensation
    
    Earnings
    
    Stock
    
    TotalBALANCES
at
April 30, 2004
    
    
    3,327,628

    
    $
    3,327,628
    
    
   $
    2,963,874
    
    
    $
    (26,855
    )
    
    $
    14,412,663
    
    
    $
    (679,783
    )
    
    $
    19,997,527Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,800,358
    
    
    
    
    
    
    
    1,800,358Common stock issued
    
    
    29,973
    
    
    
    29,973
    
    
    
    104,108
    
    
    
    (39,175
    )
    
    
    
    
    
    
    
    
    
    
    94,906Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,868
    
    
    
    
    
    
    
    (5,159
    )
    
    
    46,709Cash dividends declared 
$.29 per share (adjusted for
subsequent stock dividend)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,026,089
    )
    
    
    
    
    
    
    (1,026,089
    )BALANCES at
April 30, 2005
    
    
    3,357,601
    
    
    
    3,357,601
    
    
    
    3,067,982
    
    
    
    (14,162
    )
    
    
    15,186,932
    
    
    
    (684,942
    )
    
    
    20,913,411Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    525,766
    
    
    
    
    
    
    
    525,766Common stock issued
    
    
    1,800
    
    
    
    1,800
    
    
    
    6,660
    
    
    
    (8,460
    )
    
    
    
    
    
    
    
    
    
    
    Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,202
    
    
    
    
    
    
    
    (1,871
    )
    
    
    16,331Stock option exercise
    
    
    732
    
    
    
    732
    
    
    
    2,196
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,928Cash dividends declared 
$.14 per share (adjusted for
subsequent stock dividend)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (511,688
    )
    
    
    
    
    
    
    (511,688
    )Stock dividend declared 
10% at market value
on date declared
    
    
    335,203
    
    
    
    335,203
    
    
    
    1,726,295
    
    
    
    
    
    
    
    (1,973,934
    )
    
    
    (87,564
    )
    
    
    BALANCES at
April 30, 2006
    
    
    3,695,336
    
    
    
    3,695,336
    
    
    
    4,803,133
    
    
    
    (4,420
    )
    
    
    13,227,076
    
    
    
    (774,377
    )
    
    
    20,946,748Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (550,895
    )
    
    
    
    
    
    
    (550,895
    )Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    2,353
    
    
    
    4,420
    
    
    
    
    
    
    
    (495
    )
    
    
    6,278Cash dividends declared 
$.036 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (127,262
    )
    
    
    
    
    
    
    (127,262
    )BALANCES
at July 31, 2006
    
    
    3,695,336
    
    
    $
    3,695,336
    
    
    $
    4,805,486
    
    
    $
    
    
    
    $
    12,548,919
    
    
    $
    (774,872
    )
    
    $
    20,274,869
 See accompanying notes to consolidated financial statements.
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##### Table of Contents



SERVIDYNE, INC.
 FIRST QUARTER ENDEDJULY 31,2006
    
    
    2005CONTINUING OPERATIONS:Cash flows from operating activities:Net loss
    
    $
    (550,895
    )
    
    $
    (337,026
    )Loss from discontinued operations, net of tax
    
    
    
    
    
    
    32,877Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    376,374
    
    
    
    300,663Deferred tax benefit
    
    
    (338,037
    )
    
    
    (208,182
    )Recovery of doubtful accounts, net
    
    
    
    
    
    
    (53,041
    )Stock compensation expense
    
    
    6,278
    
    
    
    Changes in assets and liabilities:Receivables
    
    
    305,708
    
    
    
    670,148Costs and earnings in excess of billings
    
    
    (159,681
    )
    
    
    183,216Note receivables
    
    
    530,815
    
    
    
    (425,870
    )Other current assets
    
    
    (258,911
    )
    
    
    (217,602
    )Other assets
    
    
    
    
    
    
    (498,507
    )Trade and subcontractors payable
    
    
    231,154
    
    
    
    (295,993
    )Accrued expenses
    
    
    152,442
    
    
    
    231,765Accrued incentive compensation
    
    
    (279,120
    )
    
    
    (533,043
    )Billings in excess of costs and earnings
    
    
    13,062
    
    
    
    (306,867
    )Other liabilities
    
    
    4,457
    
    
    
    135,148Net cash provided by (used in) operating activities
    
    
    33,646
    
    
    
    (1,322,314
    )Cash flows from investing activities:Release of restricted cash held in escrow
    
    
    418,594
    
    
    
    3,489,647Additions to income-producing properties, net
    
    
    (98,352
    )
    
    
    (311,373
    )Additions to property and equipment, net
    
    
    (42,543
    )
    
    
    (99,820
    )Additions to intangible assets, net
    
    
    (219,755
    )
    
    
    (214,143
    )Additions to real estate held for sale or future development
    
    
    (34,657
    )
    
    
    Acquisition, net of cash released from escrow
    
    
    (1,870,447
    )
    
    
    Net cash
(used in ) provided by investing activities
    
    
    (1,847,160
    )
    
    
    2,864,311Cash flows from financing activities:Debt proceeds
    
    
    2,600,000
    
    
    
    Debt repayments
    
    
    (299,872
    )
    
    
    (298,689
    )Deferred loan costs paid
    
    
    (39,154
    )
    
    
    Cash dividends
    
    
    (127,262
    )
    
    
    (129,012
    )Net cash provided by (used in) financing activities
    
    
    2,133,712
    
    
    
    (427,701
    )DISCONTINUED OPERATIONS:Operating activities
    
    
    
    
    
    
    39,457Investing activities
    
    
    
    
    
    
    Financing activities
    
    
    
    
    
    
    (13,412
    )Net cash provided by discontinued operations
    
    
    
    
    
    
    26,045Net increase in cash and cash equivalents
    
    
    320,198
    
    
    
    1,140,341Cash and cash equivalents at beginning of period
    
    
    7,329,805
    
    
    
    1,402,645Cash and cash equivalents at end of period
    
    $
    7,650,003
    
    
    $
    2,542,986Supplemental disclosure of noncash financing activities:Issuance of common stock under Stock Award Plan
    
    $
    
    
    
    $
    4,455
 See accompanying notes to consolidated financial statements.
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##### Table of Contents



SERVIDYNE, INC.
 NOTE 1. ORGANIZATION AND BUSINESS
   NOTE 2. UNAUDITED STATEMENTS
  NOTE 3. SIGNIFICANT ACCOUNTING POLICIES
 Share-Based Payment (revised 2004)
 Accounting for
Stock Issued to Employees Accounting for Stock-Based
Compensation
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Accounting for Stock-Based Compensation  Transition and Disclosure
 First QuarterEnded July 31,2005Net loss, as reported
    
    $
    (337,026
    )Add: Stock-based compensation
    
    
    7,970Deduct: Total stock-based compensation
expense as determined under fair value
based method for all awards, net of
related tax effects
    
    
    (29,209
    )Add: Forfeitures, net of related tax effects
    
    
    2,586Pro forma net loss
    
    $
    (355,679
    )Net loss per share:Basic and diluted  as reported
    
    $
    (0.10
    )Basic and diluted  pro forma
    
    $
    (0.10
    )
  Stock Options
  WeightedOptions to
    
    
    AveragePurchase
    
    
    ExerciseShares
    
    
    PriceOutstanding at April 30, 2006
    
    
    757,390
    
    
    $
    4.68Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (83,229
    )
    
    
    4.59Outstanding at July 31, 2006
    
    
    674,161
    
    
    $
    4.69Vested at July 31, 2006
    
    
    674,161
    
    
    $
    4.69
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##### Table of Contents



Number of
    
    Weighted AverageExercise
    
    Outstanding and
    
    Remaining ContractualPrice
    
    Exercisable Options
    
    Life (Years)$4.64
    
    
    569,140
    
    
    
    5.64$4.77
    
    
    4,400
    
    
    
    8.89$4.82
    
    
    74,800
    
    
    
    8.65$5.45
    
    
    25,821
    
    
    
    7.88
 Stock Appreciation Rights
  Three MonthsEndedJuly 31, 2006Expected life (years)
    
    
    5Dividend yield
    
    
    2.99
    %Expected stock price volatility
    
    
    36.17
    %Risk free interest rate
    
    
    5.11
    %Fair value of SARs granted
    
    $
    4.14
 Shares of Restricted Stock
  7




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##### Table of Contents



Number of
    
    
    WeightedRestricted
    
    
    Weighted AverageShares of
    
    
    Grant DateStock
    
    
    Fair ValueNon-vested restricted stock at April 30, 2006
    
    
    1,670
    
    
    $
    4.68Granted
    
    
    
    
    
    
    Vested
    
    
    (660
    )
    
    
    4.95Forfeited
    
    
    (110
    )
    
    
    4.95Non-vested restricted stock at July 31, 2006
    
    
    900
    
    
    $
    4.45
 NOTE 4. RECEIVABLES
  NOTE 5. DISCONTINUED OPERATIONS
 Construction Segment
  Real Estate Sales of Income-Producing Properties
 Accounting
for the Impairment or Disposal of Long-Lived Assets
  8




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First Quarter EndedJuly 31,2006
    
    
    2005REVENUES:Construction
    
    $
    
    
    
    $
    40Rental properties
    
    
    
    
    
    
    163,709Total revenues
    
    
    
    
    
    
    163,749COSTS AND EXPENSES:Construction cost and expenses
    
    
    
    
    
    
    Rental property operating expenses,
including depreciation
    
    
    
    
    
    
    130,635Interest expense
    
    
    
    
    
    
    59,441Construction selling, general & administrative
    
    
    
    
    
    
    26,702Total costs and expenses
    
    
    
    
    
    
    216,778Loss from discontinued operations
    
    
    
    
    
    
    (53,029
    )Income tax benefit
    
    
    
    
    
    
    (20,152
    )Loss from discontinued operations, net of tax
    
    $
    
    
    
    $
    (32,877
    )
 NOTE 6. OPERATING SEGMENTS
  BuildingFor the Quarter Ended
    
    PerformanceJuly 31, 2006
    
    Experts
    
    
    Real Estate (1)
    
    
    Parent
    
    
    Eliminations
    
    
    ConsolidatedRevenues from unaffiliated
customers
    
    $
    2,615,415
    
    
    $
    1,525,143
    
    
    $
    
    
    
    $
    
    
    
    $
    4,140,558Interest and other income
    
    
    47,077
    
    
    
    345,221
    
    
    
    16,687
    
    
    
    (250,281
    )
    
    
    158,704Intersegment revenue
    
    
    
    
    
    
    124,143
    
    
    
    
    
    
    
    (124,143
    )
    
    
    Total revenues from
continuing operations
    
    $
    2,662,492
    
    
    $
    1,994,507
    
    
    $
    16,687
    
    
    $
    (374,424
    )
    
    $
    4,299,262Net earnings (loss)
    
    $
    (292,628
    )
    
    $
    325,965
    
    
    $
    (587,730
    )
    
    $
    3,498
    
    
    $
    (550,895
    )
 BuildingFor the Quarter Ended
    
    PerformanceJuly 31, 2005
    
    Experts
    
    
    Real Estate (1)
    
    
    Parent
    
    
    Eliminations
    
    
    ConsolidatedRevenues from unaffiliated
customers
    
    $
    3,019,258
    
    
    $
    1,530,434
    
    
    $
    
    
    
    $
    
    
    
    $
    4,549,692Interest and other income
    
    
    315
    
    
    
    154,141
    
    
    
    4,630
    
    
    
    (99,982
    )
    
    
    59,104Intersegment revenue
    
    
    
    
    
    
    127,188
    
    
    
    
    
    
    
    (127,188
    )
    
    
    Total revenues from
continuing operations
    
    $
    3,019,573
    
    
    $
    1,811,763
    
    
    $
    4,630
    
    
    $
    (227,170
    )
    
    $
    4,608,796Net earnings (loss)
    
    $
    161,396
    
    
    $
    132,597
    
    
    $
    (615,953
    )
    
    $
    1,464
    
    
    $
    (320,496
    )
 9




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##### Table of Contents



(1)
    
    The Company is in the business of creating long-term value by periodically realizing
gains through the sale of income-producing properties and the sale of real estate held for
future development or sale and, therefore, in this presentation the Real Estate Segments
net earnings includes earnings from discontinued operations, pursuant to SFAS 144, that
resulted from the sales of certain income-producing properties, and revenues and earnings
in continuing operations that resulted from the gain on sale of other real estate assets.  Quarter EndedJuly 31,2006
    
    2005Consolidated Segment net loss
    
    $
    (550,895
    )
    
    $
    (320,496
    )Discontinued Construction Segment net loss
    
    
    
    
    
    
    (16,530
    )Consolidated net loss
    
    $
    (550,895
    )
    
    $
    (337,026
    )
 NOTE 7. LOSS PER SHARE
  NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
  Gross Carrying
    
    
    AccumulatedAmount
    
    
    AmortizationAmortized intangible assets:Proprietary facility management
software applications
    
    $
    2,642,758
    
    
    $
    954,858Computer software
    
    
    437,210
    
    
    
    408,273Real estate lease costs
    
    
    1,523,384
    
    
    
    744,624Customer relationships
    
    
    218,000
    
    
    
    112,693Deferred loan costs
    
    
    790,701
    
    
    
    562,565Other
    
    
    55,608
    
    
    
    41,996$
    5,667,661
    
    
    $
    2,825,009Unamortized intangible assets:Trademark
    
    $
    708,707
    
    
    $
    Goodwill
    
    $
    5,458,717
    
    
    $
    
  
 For the three months ended July 31, 2006
    
    $
    157,948For the three months ended July 31, 2005
    
    
    114,602
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NOTE 9. ACQUISITIONS
  Purchase ofStewartsboro
    
    
    Estimated Useful LifeLand
    
    $
    1,300,140
    
    
    IndefiniteLand improvements
    
    
    240,684
    
    
    15 yearsBuilding
    
    
    3,385,911
    
    
    39 yearsIntangible assets
    
    
    341,020
    
    
    Over remaining life of leasesTotal assets acquired
    
    $
    5,267,755
  NOTE 10. COMMITMENTS AND CONTINGENCIES
  NOTE 11. SUBSEQUENT EVENTS
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
     Results of operations of the first quarter of fiscal 2007, compared to the first quarter of
fiscal 2006
    CHART A
 First Quarter Ended
    
    Amount
    
    PercentJuly 31,
    
    Increase
    
    Increase2006
    
    2005
    
    (Decrease)
    
    (Decrease)Building Performance Experts (1)
    
    $
    2,616
    
    
    $
    3,019
    
    
    $
    (403
    )
    
    
    (13
    )Real Estate (2)
    
    
    1,525
    
    
    
    1,530
    
    
    
    (5
    )
    
    
    (0
    )$
    4,141
    
    
    $
    4,549
    
    
    $
    (408
    )
    
    
    (9
    )
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NOTES TO CHART A
 
 (1)
    
    Building Performance Experts Segment revenues from continuing operations decreased $403,000
or 13% for the first quarter of fiscal 2007, compared to the same period in fiscal 2006,
primarily due to: (a)
    
    the recognition of approximately $589,000 in one-time revenues in the
first quarter of fiscal 2006 from a consulting services contract that was
substantially performed in prior periods and did not have any associated costs and
expenses in the period (See Chart B);
 offset by:
 (b)
    
    an increase in revenues related to energy engineering services of
approximately $158,000 in the first quarter of fiscal 2007.
 (2)
    
    Real estate revenues from continuing operations decreased $5,000 for the first quarter of
fiscal 2007, compared to the same period in fiscal 2006, primarily due to:
 (a)
    
    a decrease in leaseback income in fiscal 2007 of approximately $80,000
related to the sale in fiscal 2006 of the Companys former leaseback shopping center
located in Bayonet Point, Florida;
 offset by:
 (b)
    
    an increase in rental income in fiscal 2007 of approximately $75,000
related to (1) successful leasing activities; and (2) initial rental revenues as the
result of the purchase of a shopping center in Smyrna, Tennessee, in
July 2006.
  July 31,2006
    
    
    2005Building Performance Experts (a)
    
    $
    6,403,000
    
    
    $
    5,112,000Real Estate (b)
    
    
    6,371,000
    
    
    
    6,161,000Less: Intersegment eliminations (c)
    
    
    (552,000
    )
    
    
    (536,000
    )Total Backlog
    
    $
    12,222,000
    
    
    $
    10,737,000
 
 (a)
    
    The increase in backlog is primarily due to an increase in lighting upgrade projects,
energy engineering, and customers upgrading to the Companys new proprietary Web/wireless
facility management software offerings. Backlog includes some contracts that can be cancelled
with less than one years notice, and assumes cancellation provisions will not be invoked. The
cancellation rate for such contracts in the previous twelve months was approximately 5.7%
($365,000).(b)
    
    Included in Real Estate backlog at July 31, 2006, is approximately $464,000 related to a
shopping center located in Smyrna, Tennessee, acquired by the Company in July 2006, and an
increase in revenues of $56,000 related to successful leasing activities. This increase is
offset by approximately $310,000 in rental revenues related to the sale of the Companys
former leaseback shopping center located in Bayonet Point, Florida, in April 2006.(c)
    
    Represents rental income at the Companys headquarters building to be paid to the Real Estate
Segment by the Company and the other operating segment. 13




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CHART B
 Percent of SegmentRevenues forFirst Quarter Ended
    
    First Quarter EndedJuly 31,
    
    July 31,2006
    
    2005
    
    2006
    
    2005Building Performance Experts (1)
    
    $
    1,716
    
    
    $
    1,499
    
    
    
    66
    
    
    
    50Real Estate (2)
    
    
    933
    
    
    
    964
    
    
    
    61
    
    
    
    63$
    2,649
    
    
    $
    2,463
    
    
    
    64
    
    
    
    54
 NOTES TO CHART B
 
 (1)
    
    On a dollar basis, costs and expenses from continuing operations increased $217,000 or 14%
for the first quarter of fiscal 2007, compared to the same period of fiscal 2006,
primarily due to the increase in lighting revenues in the first quarter of fiscal 2007,
excluding the recognition last year of one-time revenues from a consulting services contract
of $589,000 discussed in Chart A. On a percentage basis, costs and expenses from continuing operations increased primarily due
to:
 (a)
    
    the recognition of one-time revenue from a consulting services contract in
the first quarter of fiscal 2006, that had no associated costs and expenses in that
period; and(b)
    
    changes in the mix of services and products.
 (2)
    
    On a dollar and percentage basis, cost and expenses from continuing operations decreased
$31,000 or 3% for the first quarter of fiscal 2007, compared to the same period of fiscal
2006, primarily due to:
 (a)
    
    the absence of lease costs of $81,000 as a result of the sale in April
2006 of one of the Companys former leaseback shopping centers located in Bayonet
Point, Florida;offset by:(b)
    
    an increase in operating expenses of approximately $33,000 primarily for
periodic repairs and maintenance at one of the Companys office properties.
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##### Table of Contents



CHART C
 Percent of SegmentRevenues forFirst Quarter Ended
    
    First Quarter EndedJuly 31,
    
    July 31,2006
    
    2005
    
    2006
    
    2005Building Performance Experts (1)
    
    $
    1,155
    
    
    $
    1,101
    
    
    
    44
    
    
    
    36Real Estate (2)
    
    
    207
    
    
    
    264
    
    
    
    14
    
    
    
    17Parent (3)
    
    
    772
    
    
    
    900
    
    
    
    19
    
    
    
    20$
    2,134
    
    
    $
    2,265
    
    
    
    52
    
    
    
    50
 NOTES TO CHART C
 
 (1)
    
    On a percentage basis, SG&A expenses from continuing operations increased primarily due to
the corresponding decrease in revenues.(2)
    
    On a dollar and percentage basis, SG&A expense from continuing operations in the first
quarter of fiscal 2007, decreased $57,000 or 22%, compared to the same period of fiscal 2006,
primarily due to a decrease in legal and professional fees.(3)
    
    On a dollar and percentage basis, SG&A expenses from continuing operations in the first
quarter of fiscal 2007, decreased $128,000 or 14%, compared to the same period of fiscal 2006,
primarily due to a decrease in personnel and personnel costs. Liquidity and capital resources
  (a)
    
    the repayment of note receivables of approximately $531,000, primarily
related to the sale of a former outparcel located in North Fort Myers, Florida;(b)
    
    an increase in trade and subcontractors payables and accrued expenses of
approximately $384,000, due to the timing and submission of payment;offset by:
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(c)
    
    cash payments of $279,000 related to the incentive compensation generated
by the successful achievement of Company-wide earnings and performance goals in
fiscal 2006; and(d)
    
    current-year losses from continuing operations.
  (a)
    
    the purchase of a shopping center located in Smyrna, Tennessee, for
approximately $5,270,000 to complete the Companys tax-free exchange under Internal
Revenue Code Section 1031. The acquisition used the proceeds of approximately
$3,241,000 from the sale of the Companys former medical office building, which
proceeds had been held in escrow by a qualified third party intermediary at April
30, 2006, and debt financing for the balance (see financing activities below);(b)
    
    additions to income-producing properties of $98,000 primarily related to
tenant and building improvements; and(c)
    
    additions to intangible assets of $220,000 primarily related to new
software development efforts for the Companys proprietary Web/wireless software.
 offset by:
 (d)
    
    the release of approximately $419,000 previously held in escrow for the
intended purpose of purchasing a replacement property as part of an Internal Revenue
Code Section 1031 federal tax deferred exchange for the Companys former leaseback
shopping center located in Bayonet Point, Florida, which was sold in April 2006, as
the Company did not use these funds to purchase a replacement property.
  (a)
    
    proceeds of $2,600,000 from an interim bank loan associated with the
purchase of a shopping center located in Smyrna, Tennessee;
 offset by:
 (b)
    
    scheduled principal payments of mortgage notes and other long-term debt
of approximately $300,000; and(c)
    
    payment of the regular quarterly cash dividend of approximately $127,000.
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Critical Accounting Policies
  Revenue Recognition
 Revenue Recognition
    17




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Income-Producing Properties and Property and Equipment
   Valuation of Goodwill and Other Intangible Assets
  18




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Income Taxes
  Discontinued Operations
 Accounting for the Impairment or Disposal of Long-Lived Assets,
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
    19




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ITEM 1A. RISK FACTORS
  
 ITEM 6. EXHIBITS
 31(a)
    Certification of Chief Executive Officer, pursuant to Rules 13a-14(a)/15d-14(a)31(b)
    Certification of Chief Financial Officer, pursuant to Rules 13a-14(a)/15d-14(a)32(a)
    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(b)
    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: September 14, 2006
    
    /s/ Alan R. AbramsAlan R. AbramsChief Executive OfficerDate: September 14, 2006
    
    /s/ Mark J. ThomasMark J. ThomasChief Financial Officer
 21