##### 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, 2008
 Commission file number 0-10146
 SERVIDYNE, INC.
 (Exact name of registrant as specified in its charter)
 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
 
 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  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 (T). CONTROLS AND PROCEDURESPART II. OTHER INFORMATIONITEM 1A. RISK FACTORSITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSITEM 6. EXHIBITSSIGNATURESEX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32.1 SECTION 906 CERTIFICATION OF CEOEX-32.2 SECTION 906 CERTIFICATION OF CFO    Table of Contents  
  
 ITEM 1. FINANCIAL STATEMENTS
 SERVIDYNE, INC.
 July 31, 2008
    
    
    April 30, 2008ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    8,265,633
    
    
    $
    8,382,947Restricted cash
    
    
    
    
    
    
    3,470,700Receivables (Note 4)
    
    
    3,606,120
    
    
    
    3,735,930Less: Allowance for doubtful accounts
    
    
    (37,805
    )
    
    
    (127,007
    )Costs and earnings in excess of billings
    
    
    168,188
    
    
    
    275,754Deferred income taxes
    
    
    535,050
    
    
    
    750,488Other current assets
    
    
    1,532,313
    
    
    
    1,011,304Total current assets
    
    
    14,069,499
    
    
    
    17,500,116INCOME-PRODUCING PROPERTIES, net
    
    
    21,759,951
    
    
    
    21,773,409PROPERTY AND EQUIPMENT, net
    
    
    843,404
    
    
    
    811,900OTHER ASSETS:Real estate held for future development or sale
    
    
    853,109
    
    
    
    853,109Intangible assets, net (Note 8)
    
    
    3,401,452
    
    
    
    3,222,125Goodwill (Note 8)
    
    
    6,371,319
    
    
    
    5,458,717Other assets
    
    
    2,858,521
    
    
    
    2,696,174Total assets
    
    $
    50,157,255
    
    
    $
    52,315,550LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Trade and subcontractors payables
    
    $
    718,735
    
    
    $
    550,360Accrued expenses
    
    
    1,002,358
    
    
    
    1,143,794Deferred revenue
    
    
    850,856
    
    
    
    848,197Accrued incentive compensation
    
    
    194,256
    
    
    
    494,000Billings in excess of costs and earnings
    
    
    42,592
    
    
    
    62,559Current maturities of mortgage notes and other long-term debt
    
    
    484,447
    
    
    
    631,736Total current liabilities
    
    
    3,293,244
    
    
    
    3,730,646DEFERRED INCOME TAXES
    
    
    4,517,802
    
    
    
    5,271,441OTHER LIABILITIES
    
    
    1,103,436
    
    
    
    1,138,316MORTGAGE NOTES PAYABLE, less current maturities
    
    
    18,528,510
    
    
    
    18,603,769OTHER LONG-TERM DEBT, less current maturities
    
    
    1,097,500
    
    
    
    1,105,000Total liabilities
    
    
    28,540,492
    
    
    
    29,849,172COMMITMENTS AND CONTINGENCIES (Note 11)SHAREHOLDERS EQUITY:Common stock, $1 par value; 5,000,000 shares authorized;
3,916,578 issued and 3,739,059 outstanding at July 31, 2008,
3,708,836 issued and 3,539,770 outstanding at April 30, 2008
    
    
    3,916,578
    
    
    
    3,708,836Additional paid-in capital
    
    
    5,871,024
    
    
    
    5,045,100Retained earnings
    
    
    12,668,452
    
    
    
    14,511,159Treasury stock (common shares)
177,519 at July 31, 2008, and 169,066 at April 30, 2008
    
    
    (839,291
    )
    
    
    (798,717
    )Total shareholders equity
    
    
    21,616,763
    
    
    
    22,466,378Total liabilities and shareholders equity
    
    $
    50,157,255
    
    
    $
    52,315,550
 See accompanying notes to consolidated financial statements.
 1




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##### Table of Contents



SERVIDYNE, INC.
 FIRST QUARTER ENDEDJULY 31,2008
    
    
    2007REVENUES:Building Performance Efficiency (BPE)
    
    $
    2,720,073
    
    
    $
    4,766,392Real Estate
    
    
    796,203
    
    
    
    2,522,3913,516,276
    
    
    
    7,288,783Interest
    
    
    55,087
    
    
    
    19,480Other
    
    
    21,400
    
    
    
    70,0283,592,763
    
    
    
    7,378,291COSTS AND EXPENSES:BPE
    
    
    1,752,784
    
    
    
    3,185,584Real Estate
    
    
    474,047
    
    
    
    650,5242,226,831
    
    
    
    3,836,108Selling, general and administrativeBPE Segment
    
    
    1,408,980
    
    
    
    1,324,025Real Estate Segment
    
    
    168,907
    
    
    
    183,018Parent
    
    
    827,769
    
    
    
    1,288,6132,405,656
    
    
    
    2,795,656Interest costs incurred
    
    
    332,396
    
    
    
    338,7874,964,883
    
    
    
    6,970,551(LOSS) EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES
    
    
    (1,372,120
    )
    
    
    407,740INCOME TAX (BENEFIT) EXPENSE
    
    
    (524,709
    )
    
    
    96,253(LOSS) EARNINGS FROM CONTINUING OPERATIONS
    
    
    (847,411
    )
    
    
    311,487DISCONTINUED OPERATIONS:Earnings from discontinued operations, adjusted for applicable
income tax expense of $0 and $35,285, respectively
    
    
    
    
    
    
    57,570Gain on sale of income producing real estate, adjusted for applicable
income tax expense of $0 and $728,954, respectively
    
    
    
    
    
    
    1,189,347EARNINGS FROM DISCONTINUED OPERATIONS
    
    
    
    
    
    
    1,246,917NET (LOSS) EARNINGS
    
    $
    (847,411
    )
    
    $
    1,558,404NET (LOSS) EARNINGS PER SHARE  BASICFrom continuing operations
    
    $
    (0.23
    )
    
    $
    0.08From discontinued operations
    
    
    
    
    
    
    0.34NET (LOSS) EARNINGS PER SHARE  BASIC
    
    $
    (0.23
    )
    
    $
    0.42NET (LOSS) EARNINGS PER SHARE  DILUTEDFrom continuing operations
    
    $
    (0.23
    )
    
    $
    0.08From discontinued operations
    
    
    
    
    
    
    0.32NET (LOSS) EARNINGS PER SHARE  DILUTED
    
    $
    (0.23
    )
    
    $
    0.40WEIGHTED AVERAGE SHARES OUTSTANDING  BASIC
    
    
    3,730,295
    
    
    
    3,705,601WEIGHTED AVERAGE SHARES OUTSTANDING  DILUTED
    
    
    3,730,295
    
    
    
    3,873,697
 See accompanying notes to consolidated financial statements.
 2




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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, 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 -
$0.14 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 earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    966,626
    
    
    
    
    
    
    
    966,626Common stock acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,747
    )
    
    
    (19,747
    )Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    72,027
    
    
    
    4,420
    
    
    
    
    
    
    
    (940
    )
    
    
    75,507Cash dividends declared -
$0.144 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (508,923
    )
    
    
    
    
    
    
    (508,923
    )BALANCES at April 30, 2007
    
    
    3,695,336
    
    
    $
    3,695,336
    
    
    $
    4,875,160
    
    
    $
    
    
    
    $
    13,684,779
    
    
    $
    (795,064
    )
    
    $
    21,460,211Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,335,562
    
    
    
    
    
    
    
    1,335,562Common stock issued
    
    
    2,500
    
    
    
    2,500
    
    
    
    (2,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    132,440
    
    
    
    
    
    
    
    
    
    
    
    (3,653
    )
    
    
    128,787Stock option exercise
    
    
    11,000
    
    
    
    11,000
    
    
    
    40,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,000Cash dividends declared -
$0.144 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (509,182
    )
    
    
    
    
    
    
    (509,182
    )BALANCES at April 30, 2008
    
    
    3,708,836
    
    
    $
    3,708,836
    
    
    $
    5,045,100
    
    
    $
    
    
    
    $
    14,511,159
    
    
    $
    (798,717
    )
    
    $
    22,466,378Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (847,411
    )
    
    
    
    
    
    
    (847,411
    )Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    48,843
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,843Common stock issued
    
    
    21,581
    
    
    
    21,581
    
    
    
    69,669
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    91,250Cash dividends declared -
$0.04 per share (adjusted for subsequent stock dividend)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (142,297
    )
    
    
    
    
    
    
    (142,297
    )Stock dividend declared -
5% at market value
on date declared
    
    
    186,161
    
    
    
    186,161
    
    
    
    707,412
    
    
    
    
    
    
    
    (852,999
    )
    
    
    (40,574
    )
    
    
    BALANCES at July 31, 2008
    
    
    3,916,578
    
    
    $
    3,916,578
    
    
    $
    5,871,024
    
    
    $
    
    
    
    $
    12,668,452
    
    
    $
    (839,291
    )
    
    $
    21,616,763
 See accompanying notes to consolidated financial statements.
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##### Table of Contents



SERVIDYNE, INC.
 FIRST QUARTER ENDEDJULY 31,2008
    
    
    2007CONTINUING OPERATIONS:Cash flows from operating activities:Net (loss) earnings
    
    $
    (847,411
    )
    
    $
    1,558,404Earnings from discontinued operations, net of tax
    
    
    
    
    
    
    (1,246,917
    )Adjustments to reconcile net (loss) earnings to
net cash used in operating activities:Write off in conjunction with sale of asset
    
    
    
    
    
    
    83,194Depreciation and amortization
    
    
    397,045
    
    
    
    365,595Mortgage discount
    
    
    (7,500
    )
    
    
    Deferred tax (benefit) expense
    
    
    (538,198
    )
    
    
    76,783Stock compensation expense
    
    
    48,843
    
    
    
    30,575Adjustment to cash surrender value of life insurance
    
    
    (20,608
    )
    
    
    (33,948
    )Straight-line rent
    
    
    (19,576
    )
    
    
    (236
    )Provision for doubtful accounts
    
    
    (89,202
    )
    
    
    Changes in assets and liabilities:Receivables
    
    
    248,332
    
    
    
    (1,319,411
    )Costs and earnings in excess of billings
    
    
    107,566
    
    
    
    (848,932
    )Other current assets
    
    
    (326,925
    )
    
    
    320,517Trade and subcontractors payable
    
    
    (271,161
    )
    
    
    231,755Accrued expenses
    
    
    (183,178
    )
    
    
    228,704Accrued incentive compensation
    
    
    (299,744
    )
    
    
    (6,916
    )Billings in excess of costs and earnings
    
    
    (19,967
    )
    
    
    132,612Other liabilities
    
    
    (7,048
    )
    
    
    412,820Net cash used in operating activities
    
    
    (1,828,732
    )
    
    
    (15,401
    )Cash flows from investing activities:Deposit of cash proceeds from sale of real estate held in escrow
    
    
    
    
    
    
    (6,462,743
    )Release of restricted cash held in escrow
    
    
    3,470,700
    
    
    
    Purchase of held-to-maturity investment
    
    
    (150,000
    )
    
    
    Additions to income-producing properties, net
    
    
    (129,176
    )
    
    
    (132,201
    )Additions to property and equipment, net
    
    
    (28,758
    )
    
    
    (37,900
    )Additions to intangible assets, net
    
    
    (94,838
    )
    
    
    (62,772
    )Acquisition, net of cash acquired
    
    
    (891,665
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    2,176,263
    
    
    
    (6,695,616
    )Cash flows from financing activities:Real estate loan proceeds
    
    
    
    
    
    
    3,200,000Mortgage repayments
    
    
    (81,673
    )
    
    
    (2,562,641
    )Debt repayments
    
    
    (240,875
    )
    
    
    Deferred loan costs paid
    
    
    
    
    
    
    (57,346
    )Cash dividends paid to shareholders
    
    
    (142,297
    )
    
    
    (127,223
    )Net cash (used in) provided by financing activities
    
    
    (464,845
    )
    
    
    452,790DISCONTINUED OPERATIONS:Operating activities
    
    
    
    
    
    
    230,985Investing activities
    
    
    
    
    
    
    4,789,746Financing activities
    
    
    
    
    
    
    (425,643
    )Net cash provided by discontinued operations
    
    
    
    
    
    
    4,595,088Net decrease in cash and cash equivalents
    
    
    (117,314
    )
    
    
    (1,663,139
    )Cash and cash equivalents at beginning of period
    
    
    8,382,947
    
    
    
    5,662,894Cash and cash equivalents at end of period
    
    $
    8,265,633
    
    
    $
    3,999,755Supplemental disclosure of noncash financing activities:Issuance of common stock under Stock Award Plan
    
    $
    19,992
    
    
    $
    9,889
 See accompanying notes to consolidated financial statements.
 4




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##### Table of Contents



Total assets acquired, net of cash
    
    $
    1,566,852Total liabilities assumed
    
    
    (583,937
    )Net assets acquired, net of cash
    
    $
    982,915Less value of shares issued for acquisition
    
    
    (91,250
    )Total cash paid (including acquisition expenses)
    
    $
    891,665
 See accompanying notes to consolidated financial statements.
 5




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##### Table of Contents



SERVIDYNE, INC.
 NOTE 1. ORGANIZATION AND BUSINESS
  NOTE 2. UNAUDITED STATEMENTS
  NOTE 3. SIGNIFICANT ACCOUNTING POLICIES
   6




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Stock Options
  WeightedOptions to
    
    
    AveragePurchase
    
    
    ExerciseShares
    
    
    PriceOutstanding at April 30, 2008
    
    
    483,536
    
    
    $
    4.45Granted
    
    
    10,500
    
    
    
    5.24Exercised
    
    
    
    
    
    
    Forfeited / Expired
    
    
    
    
    
    
    Outstanding at July 31, 2008
    
    
    494,036
    
    
    $
    4.46Vested at July 31, 2008
    
    
    483,536
    
    
    $
    4.44
 7




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##### Table of Contents



Number of
    
    Weighted AverageExercise
    
    Outstanding and
    
    Remaining ContractualPrice
    
    Exercisable Options
    
    Life (Years)$4.42
    
    
    415,629
    
    
    
    4.28$4.59
    
    
    66,990
    
    
    
    6.65$5.19
    
    
    917
    
    
    
    5.88$5.24
    
    
    10,500
    
    
    
    4.87
  2009Expected life (years)
    
    
    5Dividend yield
    
    
    2.55
    %Expected stock price volatility
    
    
    37.11
    %Risk-free interest rate
    
    
    3.73
    %Fair value of options granted
    
    $
    1.10
  Stock Appreciation Rights (SARs)
  WeightedSARs to
    
    
    AveragePurchase
    
    
    GrantShares
    
    
    PriceOutstanding at April 30, 2008
    
    
    411,600
    
    
    $
    4.26Granted
    
    
    136,500
    
    
    
    4.76Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (5,250
    )
    
    
    3.88Outstanding at July 31, 2008
    
    
    542,850
    
    
    $
    4.39Vested at July 31, 2008
    
    
    
    
    
    $
    
 8




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##### Table of Contents



Expected life (years)
    
    
    5Dividend yield
    
    
    2.55
    %Expected stock price volatility
    
    
    37.11
    %Risk-free interest rate
    
    
    3.73
    %Fair value of SARs granted
    
    $
    0.92
  Shares of Restricted Stock
  Weighted AverageNumber of
    
    
    Grant DateRestricted
    
    
    Fair ValueShares of Stock
    
    
    per ShareNon-vested restricted stock at April 30, 2008
    
    
    1,785
    
    
    $
    4.27Granted
    
    
    4,200
    
    
    
    4.76Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Non-vested restricted stock at July 31, 2008
    
    
    5,985
    
    
    $
    4.61
 NOTE 4. RECEIVABLES
  9




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##### Table of Contents



NOTE 5. DISCONTINUED OPERATIONS
 Sales of Income-Producing Properties
 Accounting
for the Impairment or Disposal of Long-Lived Assets
  First Quarter EndedJuly 31,2008
    
    2007REAL ESTATE SEGMENTRental revenues
    
    $
    
    
    
    $
    551,583Rental property operating expenses, including depreciation
    
    
    
    
    
    
    458,727Operating earnings from Real Estate Segment discontinued operations
    
    
    
    
    
    
    92,856Total operating earnings from discontinued operations
    
    
    
    
    
    
    92,856Income tax expense
    
    
    
    
    
    
    (35,286
    )Total operating earnings from discontinued operations, net of tax
    
    
    
    
    
    
    57,570Gain on sales of income-producing properties
    
    
    
    
    
    
    1,918,301Income tax expense
    
    
    
    
    
    
    (728,954
    )Gain on sales of income-producing properties, net of tax
    
    
    
    
    
    
    1,189,347Earnings from discontinued operations from Real Estate Segment, net of tax
    
    $
    
    
    
    $
    1,246,917
 10




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##### Table of Contents



NOTE 6. OPERATING SEGMENTS
  For the Quarter Ended
    
    
    
    
    
    Real EstateJuly 31, 2008
    
    BPE
    
    (1)
    
    Parent
    
    Eliminations
    
    ConsolidatedRevenues from unaffiliated
customers
    
    $
    2,720,073
    
    
    $
    796,203
    
    
    $
    
    
    
    $
    
    
    
    $
    3,516,276Interest and other income
    
    
    7,477
    
    
    
    300,133
    
    
    
    8,316
    
    
    
    (239,439
    )
    
    
    76,487Intersegment revenue
    
    
    
    
    
    
    142,577
    
    
    
    
    
    
    
    (142,577
    )
    
    
    Total revenues from
continuing operations
    
    $
    2,727,550
    
    
    $
    1,238,913
    
    
    $
    8,316
    
    
    $
    (382,016
    )
    
    $
    3,592,763Net (loss) earnings
    
    $
    (459,609
    )
    
    $
    154,081
    
    
    $
    (661,424
    )
    
    $
    119,541
    
    
    $
    (847,411
    )
 For the Quarter Ended
    
    
    
    
    
    Real EstateJuly 31, 2007
    
    BPE
    
    (1)
    
    Parent
    
    Eliminations
    
    ConsolidatedRevenues from unaffiliated
customers
    
    $
    4,766,392
    
    
    $
    2,522,391
    
    
    $
    
    
    
    $
    
    
    
    $
    7,288,783Interest and other income
    
    
    55,094
    
    
    
    299,253
    
    
    
    12,770
    
    
    
    (277,609
    )
    
    
    89,508Intersegment revenue
    
    
    
    
    
    
    147,541
    
    
    
    
    
    
    
    (147,541
    )
    
    
    Total revenues from
continuing operations
    
    $
    4,821,486
    
    
    $
    2,969,185
    
    
    $
    12,770
    
    
    $
    (425,150
    )
    
    $
    7,378,291Net earnings (loss)
    
    $
    34,595
    
    
    $
    2,340,159
    
    
    $
    (810,326
    )
    
    $
    (6,024
    )
    
    $
    1,558,404
 
 (1)
    
    The Company is in the business of creating long-term value by periodically
realizing gains through the sale of income-producing properties and real estate held for
future development or sale; 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 earnings from
continuing operations that resulted from the gains on sale of certain other real estate
assets. 11




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NOTE 7. EARNINGS (LOSS) PER SHARE
    For the quarter ended July 31, 2008Per shareLoss
    
    Shares
    
    amountBasic EPS  loss per share from continuing operations
    
    $
    (847,411
    )
    
    
    3,730,295
    
    
    $
    (0.23
    )Basic EPS  loss per share from discontinued operations
    
    
    
    
    
    
    
    
    
    
    Effect of dilutive securities
    
    
    
    
    
    
    
    
    
    
    Diluted EPS  loss per share
    
    $
    (847,411
    )
    
    
    3,730,295
    
    
    $
    (0.23
    )
 For the quarter ended July 31, 2007Per shareEarnings
    
    Shares
    
    amountBasic EPS  earnings per share from continuing operations
    
    $
    311,487
    
    
    
    3,705,601
    
    
    $
    0.08Basic EPS  earnings per share from discontinued operations
    
    
    1,246,917
    
    
    
    3,705,601
    
    
    
    0.34Effect of dilutive securities:Options
    
    
    
    
    
    
    59,012Warrants
    
    
    
    
    
    
    6,416SARs
    
    
    
    
    
    
    102,668168,096
    
    
    
    (0.01
    )Diluted EPS  earnings per share
    
    $
    1,558,404
    
    
    
    3,873,697
    
    
    $
    0.41
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NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
  July
31, 2008Gross Carrying
    
    
    AccumulatedAmount
    
    
    AmortizationIntangible assets, subject to amortization:Proprietary BPE software solutions
    
    $
    3,444,383
    
    
    $
    1,908,145Acquired computer software
    
    
    462,555
    
    
    
    457,211Real estate lease costs
    
    
    850,544
    
    
    
    229,214Customer relationships
    
    
    404,632
    
    
    
    206,493Deferred loan costs
    
    
    331,488
    
    
    
    100,390Non-compete agreements
    
    
    35,015
    
    
    
    2,918Other
    
    
    28,660
    
    
    
    20,779$
    5,557,277
    
    
    $
    2,925,150Intangible assets and goodwill:Trademark/Tradename
    
    $
    770,006
    
    
    $
    681Goodwill
    
    $
    6,371,319
    
    
    $
    
 April 30, 2008Gross Carrying
    
    
    AccumulatedAmount
    
    
    AmortizationIntangible assets, subject to amortization:Proprietary BPE software solutions
    
    $
    3,403,208
    
    
    $
    1,788,415Acquired computer software
    
    
    462,555
    
    
    
    453,038Real estate lease costs
    
    
    823,091
    
    
    
    208,966Customer relationships
    
    
    218,000
    
    
    
    188,933Deferred loan costs
    
    
    331,488
    
    
    
    94,170Other
    
    
    28,660
    
    
    
    20,062$
    5,267,002
    
    
    $
    2,753,584Intangible assets and goodwill, not subject to amortization:Trademark/Tradename
    
    $
    708,707
    
    
    $
    Goodwill
    
    $
    5,458,717
    
    
    $
    Aggregate amortization expense for all amortized intangible assetsFor the three months ended July 31, 2008
    
    $
    198,458For the three months ended July 31, 2007
    
    $
    189,134
 13




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NOTE 9. DISPOSITIONS   Fiscal 2009
 Fiscal 2008
    NOTE 10. ACQUISITIONS
  14




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OperationsAcquired fromSeller
    
    
    Estimated LifeCurrent assets
    
    $
    322,514Property, furniture and equipment, net
    
    
    58,699
    
    
    Various (3-5)Trade name
    
    
    61,299
    
    
    15 yearsNon-compete agreements
    
    
    35,015
    
    
    2 yearsCustomer relationships
    
    
    186,632
    
    
    5 yearsGoodwill
    
    
    912,601
    
    
    IndefiniteTotal assets acquired
    
    $
    1,576,760Current liabilities
    
    
    (483,937
    )Long-term liabilities
    
    
    (100,000
    )Net assets acquired
    
    $
    992,823
   Three Months EndedJuly 31,2008
    
    2007Revenues
    
    $
    3,790
    
    
    $
    8,208Net (loss)
earnings
    
    
    (847
    )
    
    
    1,582Net (loss)
earnings per share  basic
    
    $
    (0.23
    )
    
    $
    0.43Net (loss)
earnings per share  diluted
    
    $
    (0.23
    )
    
    $
    0.41
 15




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NOTE 11. COMMITMENTS AND CONTINGENCIES
  16




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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 2009, compared to the first quarter of
fiscal 2008
 
  CHART A
 First Quarter EndedJuly 31,
    
    Amount
    
    Percentage2008
    
    2007
    
    Decrease
    
    DecreaseBPE (1)
    
    $
    2,720
    
    
    $
    4,766
    
    
    $
    (2,046
    )
    
    
    (43
    )Real Estate (2)
    
    
    796
    
    
    
    2,522
    
    
    
    (1,726
    )
    
    
    (68
    )$
    3,516
    
    
    $
    7,288
    
    
    $
    (3,772
    )
    
    
    (52
    )
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NOTES TO CHART A
 (1)
    
    BPE Segment revenues decreased by approximately $2,046,000, or 43%, in the first quarter of
fiscal 2009, compared to the same period in fiscal 2008, primarily
due to:
 (a)
    
    energy savings (lighting and mechanical) project revenues were
approximately $2,360,000 lower than in the year-earlier period (although 18% higher
than in the immediately preceding fourth quarter of fiscal 2008), primarily because
of:
 i.
    
    unexpected ongoing delays in scheduled projects for two
significant customers; however,
    
    the Company was able to commence work on several of these
energy savings projects for one of the customers in August 2008, with
contracted revenues totaling approximately $500,000, which amount is
included in backlog at July 31, 2008; and
    
    management expects to enter into a contract with the other
customer in the next several weeks for a multi-million dollar energy
savings project, based on the customers verbal commitment,
which the Company expects to commence work on soon thereafter; such
potential revenues are not included in backlog at July 31, 2008,
and are subject to specific authorization by the customer to proceed
and completion of contract documentation, and there can be no
assurance that the customer will actually authorize the Company to
proceed with this project in the expected term, or at all;andii.
    
    the absence of revenues of approximately $1 million that
were generated by a one-time special project for a large retail customer
during the year-earlier period;
 partially offset by:
 iii.
    
    revenues of approximately $180,000 from two new energy
savings project customers, representing the initial phases of new
energy savings program initiatives for those customers that
management believes offer the potential for several million dollars
in additional energy savings project revenues over the next four to
eight fiscal quarters. Such potential additional revenues are not
included in backlog at July 31, 2008, and are subject to
satisfactory completion of the initial projects, specific
authorization by the customers to proceed with the additional
projects, and completion of contract documentation; however, there can
be no assurance that any of these additional potential revenues will
actually be realized in the expected term, or at all.
 The year-over-year decline in energy savings project revenues was partially
offset by:
 (b)
    
    the initial lighting product revenues of approximately $257,000, as the
result of the Companys acquisition during the quarter of its lighting distribution
business; and(c)
    
    an increase in building productivity software products and services
revenues of approximately $194,000.
 Management believes that the decrease in energy savings project revenues is due in part
to the general deterioration of the overall economy, which may be causing certain of the
Companys customers to postpone capital expenditures.
 (2)
    
    Real Estate Segment revenues decreased by $1,726,000, or 68%, in the first quarter of
fiscal 2009, compared to the same period in fiscal 2008, primarily due to:
 (a)
    
    the absence of one-time revenues of approximately $1,553,000 generated in
the prior year period by the sale of the Companys leasehold interest in its
shopping center in Jacksonville, Florida, during the first quarter of fiscal 2008;
and(b)
    
    a decrease in rental income of approximately $165,000, primarily as the
result of the expiration of an anchor tenant lease in January 2008 at the Companys
headquarters building in Atlanta, Georgia;
 partially offset by:
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(c)
    
    an increase in revenues of approximately $47,000, primarily as the result
of an early lease termination payment in the first quarter of fiscal 2009.
  IncreaseJuly 31
    
    
    (Decrease)2008
    
    
    2007
    
    
    Amount
    
    
    PercentageBPE (1)
    
    $
    6,536,000
    
    
    $
    7,640,000
    
    
    $
    (1,104,000
    )
    
    
    (14
    )Real Estate (2)
    
    
    3,183,000
    
    
    
    3,438,000
    
    
    
    (255,000
    )
    
    
    (7
    )Less: Intersegment eliminations (3)
    
    
    (585,000
    )
    
    
    (568,000
    )
    
    
    (17,000
    )
    
    
    3Total Backlog
    
    $
    9,134,000
    
    
    $
    10,510,000
    
    
    $
    (1,376,000
    )
    
    
    (13
    )
 
 (1)
    
    BPE backlog at July 31, 2008, decreased by approximately $1,104,000 compared to the prior
period, primarily due to:
 (a)
    
    a decrease of approximately $660,000, or 8%, in energy savings project
orders, primarily as a result of unexpected customer delays of
scheduled projects discussed above, and,
management believes, the general economic factors also discussed
above; and(b)
    
    a decrease of approximately $403,000, or 4%, in energy management
consulting services, as a result of the successful completion of approximately
$900,000 of multi-year consulting services projects, partially offset by $497,000
in new consulting services contracts.
 The Company estimates that the BPE backlog at July 31, 2008, will be recognized prior to July
31, 2009, with the exception of approximately $344,000 in energy management consulting
services from multi-year contracts with terms that extend longer than one year.BPE backlog includes some contracts that can be cancelled by customers with less than one
years notice, and assumes such cancellation provisions will not be invoked. The amount of
such cancelled contracts included in the prior years backlog was approximately $202,000, or
3.1%.
  (a)
    
    approximately $364,000 as the result of the expiration of an anchor
tenant lease in January 2008 at the Companys headquarters building in
Atlanta, Georgia;
 partially offset by:
 (b)
    
    a net increase in backlog of approximately $157,000 due to successful
leasing activities at the Companys headquarters building in Atlanta, Georgia.
 (3)
    
    Represents rental income at the Companys headquarters building to be paid to the Real
Estate Segment by the Parent Company and the BPE Segment.
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CHART B
 Percentage of SegmentRevenues forFirst Quarter Ended
    
    First Quarter EndedJuly 31,
    
    July 31,2008
    
    2007
    
    2008
    
    2007BPE (1)
    
    $
    1,753
    
    
    $
    3,186
    
    
    
    64
    
    
    
    67Real Estate (2)
    
    
    474
    
    
    
    651
    
    
    
    60
    
    
    
    26$
    2,227
    
    
    $
    3,837
    
    
    
    63
    
    
    
    53
 NOTES TO CHART B
 (1)
    
    On a dollar basis, BPE Segment costs and expenses decreased by approximately $1,433,000, or
45%, for the first quarter of fiscal 2009, compared to the same period in fiscal 2008,
primarily due to:
 (a)
    
    the corresponding decrease in revenues (See Chart A);
 partially offset by:
 (b)
    
    an increase in costs of approximately $148,000 as a result of the
Companys acquisition of its lighting distribution business during the quarter.
 On a percentage basis, BPE Segment costs and expenses decreased by 3% in the first quarter of
fiscal 2009, compared to the same period of fiscal 2008, primarily due to a change in the mix
of services and products.
 (2)
    
    On a dollar basis, Real Estate Segment costs and expenses decreased by approximately
$177,000, or 27%, in the first quarter of fiscal 2009, compared to the same period of fiscal
2008, primarily due to:
 (a)
    
    the absence of one-time leaseback and sales costs of approximately
$147,000 that were included in the prior year, as a result of the sale of the Companys leasehold interest in a shopping
center located in Jacksonville, Florida, during the first quarter of fiscal 2008;
and
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(b)
    
    a decrease in rental operating costs of approximately $31,000 due
to the lower tenant and repair expenses.
 Real Estate Segment costs and expenses as a percentage of revenues were higher for the
first quarter of fiscal 2009, compared to the same period in fiscal 2008, primarily due to
one-time revenues of $1,553,000 in the prior year that were generated by the sale of the
Companys leasehold interest in a shopping center located in Jacksonville, Florida, in July
2007; the costs of the sale were approximately $95,000.
    CHART C
 Percentage of SegmentRevenues forFirst Quarter Ended
    
    First Quarter EndedJuly 31,
    
    July 31,2008
    
    2007
    
    2008
    
    2007BPE (1)
    
    $
    1,409
    
    
    $
    1,324
    
    
    
    52
    
    
    
    28Real Estate (2)
    
    
    169
    
    
    
    183
    
    
    
    21
    
    
    
    7Parent (3)
    
    
    828
    
    
    
    1,289
    
    
    
    24
    
    
    
    18$
    2,406
    
    
    $
    2,796
    
    
    
    68
    
    
    
    38
 NOTES TO CHART C
 (1)
    
    BPE SG&A expenses as a percentage of revenues from continuing operations increased in the
first quarter of fiscal 2009, compared to the same
period of fiscal 2008, primarily due to the decrease in revenues (See
Chart A).On a dollar basis, BPE SG&A expenses increased by approximately $85,000, or 6%, in the first
quarter of fiscal 2009, compared to the same period in fiscal 2008, primarily due to the
Companys acquisition of its lighting distribution business during the quarter;
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##### Table of Contents



(2)
    
    On a percentage basis, Real Estate SG&A expenses increased by approximately 14% in the first
quarter of fiscal 2009, compared to the same period in fiscal 2008, primarily due to the
inclusion of one-time revenues of $1,553,000 in the prior year that were generated by the sale
of the Companys leasehold interest in a shopping center located in Jacksonville, Florida, in
July 2007.
 (3)
    
    On a dollar basis, Parent SG&A expenses decreased by approximately $461,000, or 36%, for the
first quarter of fiscal 2009, compared to the same period of fiscal 2008, primarily due to:
 (a)
    
    a decrease of approximately $581,000 in incentive compensation
expenses, pursuant to the terms of the Companys cash incentive compensation plan;partially offset by:(b)
    
    an increase in legal fees of approximately $38,000 as a result of
ongoing efforts to perfect an insurance claim and increased financial reporting
compliance costs; and(c)
    
    an increase in general insurance expenses of approximately $34,000.
 Liquidity and capital resources
   (a)
    
    current year losses from continuing operations of approximately
$847,000;(b)
    
    an increase in other current assets of approximately $327,000,
primarily due to:
 (1)
    
    an increase in prepaid corporate insurance expense of
approximately $40,000;(2)
    
    an increase in Real Estate prepaid insurance expense
and property taxes of approximately $104,000;(3)
    
    an increase in prepaid expenses related to software
implementation in progress of approximately $60,000; and(4)
    
    an increase in inventory post-acquisition in the BPE lighting
distribution business of approximately $139,000;
 (c)
    
    cash payments of approximately $299,000 for incentive compensation
expensed in the prior fiscal year because of the successful achievement of certain
company earnings and performance goals in fiscal year 2008; and(d)
    
    a net decrease in BPE trade accounts payable, accrued expenses, other
liabilities, and billings in excess of costs and earnings of approximately
$481,000, due to the timing and submission of payments;
 partially offset by:
 (e)
    
    a decrease in BPE accounts receivable (net of changes in the
provision for doubtful accounts) and costs and earnings in excess of billings of
approximately $267,000, primarily as a result of the timing of billing and receipt
of payments.
  (a)
    
    the release to the Company of approximately $3,471,000 in cash
previously held in escrow, after the Company elected not to purchase a replacement
property to complete a proposed Internal Revenue Code Section 1031 federal tax
deferred exchange for the Companys owned office park located in Marietta,
Georgia, which was sold by the Company in fiscal 2008;
 partially offset by:
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(b)
    
    approximately $892,000 for the acquisition of the Companys indirect
wholly-owned lighting distribution business;(c)
    
    approximately $129,000 for additions to income-producing properties,
primarily related to tenant and building improvements;(d)
    
    $150,000 for the purchase of a held-to-maturity investment related to
the scheduled increase in restricted cash as the result of a provision in a Real
Estate loan agreement;(e)
    
    approximately $95,000 for additions to intangible assets, primarily
related to the development of enhancements to BPEs proprietary building
productivity software solutions; and(f)
    
    approximately $29,000 for additions to property and equipment.
  (a)
    
    payment of a note at maturity of approximately $241,000;(b)
    
    payment of the regular quarterly cash dividend to shareholders of
approximately $142,000; and(c)
    
    scheduled principal payments on mortgage notes and other long-term
debt of approximately $82,000.
  Cautionary statement regarding forward-looking statements
  Critical Accounting Policies
  23




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Revenue Recognition
 Revenue Recognition
    24




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Income-Producing Properties and Property and Equipment
   Valuation of Goodwill and Other Intangible Assets
  Income Taxes
  Discontinued Operations
 Accounting for the Impairment or Disposal of Long-Lived Assets
 25




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4 (T). CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
  26




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ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Unregistered Sales of Equity Securities
   27




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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: September 15, 2008
    
    /s/ Alan R. Abrams

Alan R. AbramsChief Executive OfficerDate: September 15, 2008
    
    /s/ Rick A. PaternostroRick A. PaternostroChief Financial Officer
 29