##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
 For the quarter ended October 31, 2006
 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
  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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSITEM 5. OTHER INFORMATIONITEM 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.
 (Unaudited)October 31, 2006
    
    
    April 30, 2006ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    5,763,668
    
    
    $
    7,329,805Restricted cash
    
    
    
    
    
    
    418,594Receivables (Note 4)
    
    
    3,210,432
    
    
    
    2,420,368Less: Allowance for doubtful accounts
    
    
    (26,611
    )
    
    
    (11,061
    )Costs and earnings in excess of billings
    
    
    61,264
    
    
    
    286,824Deferred income taxes
    
    
    622,927
    
    
    
    622,927Note receivables
    
    
    300,100
    
    
    
    902,505Other
    
    
    1,723,487
    
    
    
    966,454Total current assets
    
    
    11,655,267
    
    
    
    12,936,416INCOME-PRODUCING PROPERTIES, net
    
    
    25,470,033
    
    
    
    20,724,917PROPERTY AND EQUIPMENT, net
    
    
    810,780
    
    
    
    843,204RESTRICTED CASH
    
    
    1,946,121
    
    
    
    3,241,310OTHER ASSETS:Real estate held for future development or sale
    
    
    1,632,358
    
    
    
    1,925,427Intangible assets, net (Note 8)
    
    
    3,692,221
    
    
    
    3,109,376Goodwill (Note 8)
    
    
    5,458,717
    
    
    
    5,458,717Other
    
    
    4,313,265
    
    
    
    4,170,889Total assets
    
    $
    54,978,762
    
    
    $
    52,410,256LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Trade and subcontractors payables
    
    $
    446,523
    
    
    $
    705,647Accrued expenses
    
    
    1,911,903
    
    
    
    2,028,196Accrued incentive compensation
    
    
    442,500
    
    
    
    471,619Billings in excess of costs and earnings
    
    
    154,714
    
    
    
    211,676Current maturities of long-term debt
    
    
    1,133,422
    
    
    
    1,167,192Total current liabilities
    
    
    4,089,062
    
    
    
    4,584,330DEFERRED INCOME TAXES
    
    
    3,591,115
    
    
    
    3,710,599OTHER LIABILITIES
    
    
    1,917,631
    
    
    
    1,879,037MORTGAGE NOTES PAYABLE, less current maturities
    
    
    23,412,775
    
    
    
    19,806,542OTHER LONG-TERM DEBT, less current maturities
    
    
    1,468,000
    
    
    
    1,483,000Total liabilities
    
    
    34,478,583
    
    
    
    31,463,508COMMITMENTS AND CONTINGENCIES (Note 11)SHAREHOLDERS EQUITY:Common
stock, $1 par value; 5,000,000 shares authorized;3,695,336 issued
and 3,527,170 outstanding at October 31, 2006,3,695,336 issued and 3,532,180 outstanding at April 30, 2006
    
    
    3,695,336
    
    
    
    3,695,336Additional paid-in capital
    
    
    4,821,844
    
    
    
    4,803,133Deferred stock compensation
    
    
    
    
    
    
    (4,420
    )Retained earnings
    
    
    12,777,618
    
    
    
    13,227,076Treasury stock, common shares; 

168,166 at October 31, 2006, and 163,156 at April 30, 2006
    
    
    (794,619
    )
    
    
    (774,377
    )Total shareholders equity
    
    
    20,500,179
    
    
    
    20,946,748$
    54,978,762
    
    
    $
    52,410,256
 See accompanying notes to consolidated financial statements.
 1




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##### Table of Contents



SERVIDYNE, INC.
 SECOND QUARTER ENDED
    
    
    FIRST SIX MONTHS ENDEDOCTOBER 31,
    
    
    OCTOBER 31,2006
    
    
    2005
    
    
    2006
    
    
    2005REVENUES:Building performance experts
    
    $
    3,238,652
    
    
    $
    2,844,335
    
    
    $
    5,854,067
    
    
    $
    5,863,593Rental income
    
    
    1,649,989
    
    
    
    1,513,588
    
    
    
    3,175,132
    
    
    
    3,044,0224,888,641
    
    
    
    4,357,923
    
    
    
    9,029,199
    
    
    
    8,907,615Interest
    
    
    82,133
    
    
    
    51,898
    
    
    
    175,790
    
    
    
    98,091Other
    
    
    32,054
    
    
    
    240,960
    
    
    
    97,101
    
    
    
    253,8715,002,828
    
    
    
    4,650,781
    
    
    
    9,302,090
    
    
    
    9,259,577COSTS AND EXPENSES:Building performance experts
    
    
    2,113,354
    
    
    
    1,770,934
    
    
    
    3,829,384
    
    
    
    3,269,809Rental property operating expenses, excluding interest
    
    
    1,049,655
    
    
    
    999,801
    
    
    
    1,982,334
    
    
    
    1,963,6203,163,009
    
    
    
    2,770,735
    
    
    
    5,811,718
    
    
    
    5,233,429Selling, general and administrativeBuilding performance experts
    
    
    1,066,445
    
    
    
    1,072,355
    
    
    
    2,221,021
    
    
    
    2,173,223Real estate
    
    
    254,064
    
    
    
    185,512
    
    
    
    460,768
    
    
    
    449,092Parent
    
    
    1,027,720
    
    
    
    736,043
    
    
    
    1,800,037
    
    
    
    1,635,5952,348,229
    
    
    
    1,993,910
    
    
    
    4,481,826
    
    
    
    4,257,910Interest costs incurred
    
    
    462,519
    
    
    
    413,703
    
    
    
    868,407
    
    
    
    786,3675,973,757
    
    
    
    5,178,348
    
    
    
    11,161,951
    
    
    
    10,277,706GAIN ON SALE REAL ESTATE, net of costs of sale of
$504,563, $612,124, $504,563 and $612,124, respectively
    
    
    1,545,437
    
    
    
    542,130
    
    
    
    1,545,437
    
    
    
    542,130EARNINGS (LOSS) BEFORE INCOME TAXES FROM
CONTINUING OPERATIONS
    
    
    574,508
    
    
    
    14,563
    
    
    
    (314,424
    )
    
    
    (475,999
    )INCOME TAX EXPENSE (BENEFIT)
    
    
    218,557
    
    
    
    5,534
    
    
    
    (119,480
    )
    
    
    (180,879
    )EARNINGS (LOSS) FROM CONTINUING OPERATIONS
    
    
    355,951
    
    
    
    9,029
    
    
    
    (194,944
    )
    
    
    (295,120
    )DISCONTINUED OPERATIONS:Loss from discontinued operations, adjusted
for applicable income tax benefit of $0, $(19,577)
$0, and $(39,729), respectively
    
    
    
    
    
    
    (31,943
    )
    
    
    
    
    
    
    (64,820
    )NET EARNINGS (LOSS)
    
    $
    355,951
    
    
    $
    (22,914
    )
    
    $
    (194,944
    )
    
    $
    (359,940
    )NET EARNINGS (LOSS) PER SHARE  BASIC AND DILUTED:From continuing operations
    
    $
    .10
    
    
    $
    .00
    
    
    $
    (.06
    )
    
    $
    (.08
    )From discontinued operations
    
    
    
    
    
    
    (.01
    )
    
    
    
    
    
    
    (.02
    )NET EARNINGS (LOSS) PER SHARE  BASIC AND DILUTED
    
    $
    .10
    
    
    $
    (.01
    )
    
    $
    (.06
    )
    
    $
    (.10
    )DIVIDENDS PER SHARE
    
    $
    0.036
    
    
    $
    0.036
    
    
    $
    0.072
    
    
    $
    0.072WEIGHTED AVERAGE SHARES OUTSTANDING  BASIC AND DILUTED
    
    
    3,531,600
    
    
    
    3,531,180
    
    
    
    3,531,850
    
    
    
    3,530,811
 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, 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (194,944
    )
    
    
    
    
    
    
    (194,944
    )Common stock acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,747
    )
    
    
    (19,747
    )Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    18,711
    
    
    
    4,420
    
    
    
    
    
    
    
    (495
    )
    
    
    22,636Cash dividends declared -
$.072 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (254,514
    )
    
    
    
    
    
    
    (254,514
    )BALANCES at October 31, 2006
    
    
    3,695,336
    
    
    $
    3,695,336
    
    
    $
    4,821,844
    
    
    $
    
    
    
    $
    12,777,618
    
    
    $
    (794,619
    )
    
    $
    20,500,179
 See accompanying notes to consolidated financial statements.
 3




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##### Table of Contents



SERVIDYNE, INC.
 FIRST SIX MONTHS ENDEDOCTOBER 31,2006
    
    
    2005CONTINUING OPERATIONS:Cash flows from operating activities:Net loss
    
    $
    (194,944
    )
    
    $
    (359,940
    )Loss from discontinued operations, net of tax
    
    
    
    
    
    
    64,820Adjustments to reconcile net loss to net
cash used in operating activities:Gain on sale of real estate
    
    
    (1,545,437
    )
    
    
    (542,130
    )Depreciation and amortization
    
    
    827,638
    
    
    
    647,139Deferred tax benefit
    
    
    (119,480
    )
    
    
    (282,451
    )Provision for (recovery of) doubtful accounts, net
    
    
    39,050
    
    
    
    (50,041
    )Stock compensation expense
    
    
    22,636
    
    
    
    11,699Cash surrender value
    
    
    (62,627
    )
    
    
    (60,829
    )Straight-line rent
    
    
    (10,443
    )
    
    
    (3,405
    )Changes in assets and liabilities:Receivables
    
    
    (910,044
    )
    
    
    711,281Costs and earnings in excess of billings
    
    
    225,560
    
    
    
    46,422Note receivables
    
    
    602,405
    
    
    
    (623,031
    )Other current assets
    
    
    (757,033
    )
    
    
    (180,468
    )Other assets
    
    
    1,063
    
    
    
    (134,327
    )Trade and subcontractors payable
    
    
    (259,124
    )
    
    
    73,456Accrued expenses
    
    
    (152,310
    )
    
    
    (361,621
    )Accrued incentive compensation
    
    
    (29,119
    )
    
    
    (632,967
    )Billings in excess of costs and earnings
    
    
    (56,962
    )
    
    
    (335,264
    )Other liabilities
    
    
    (55,279
    )
    
    
    61,130Net cash used in operating activities
    
    
    (2,434,450
    )
    
    
    (1,950,527
    )Cash flows from investing activities:Release of restricted cash held in escrow
    
    
    418,594
    
    
    
    8,272,399Deposit of cash proceeds from sale of real estate held in escrow
    
    
    (1,946,121
    )
    
    
    Proceeds from sale of real estate
    
    
    1,867,052
    
    
    
    617,140Additions to income-producing properties, net
    
    
    (195,973
    )
    
    
    (355,897
    )Additions to property and equipment, net
    
    
    (63,705
    )
    
    
    (148,158
    )Additions to intangible assets, net
    
    
    (495,508
    )
    
    
    (474,143
    )Additions to real estate held for sale or future development
    
    
    (28,546
    )
    
    
    Acquisition of Stewartsboro, net of cash released from escrow
    
    
    (1,870,447
    )
    
    
    Net cash (used in ) provided by investing activities
    
    
    (2,314,654
    )
    
    
    7,911,341Cash flows from financing activities:Debt proceeds
    
    
    6,700,000
    
    
    
    Debt repayments
    
    
    (529,076
    )
    
    
    (515,827
    )Mortgage repayment
    
    
    (2,600,000
    )
    
    
    Repurchase of Common Stock
    
    
    (19,747
    )
    
    
    Deferred loan costs paid
    
    
    (113,696
    )
    
    
    Cash received on stock option exercise
    
    
    
    
    
    
    2,928Cash dividends
    
    
    (254,514
    )
    
    
    (257,423
    )Net cash provided by (used in) financing activities
    
    
    3,182,967
    
    
    
    (770,322
    )DISCONTINUED OPERATIONS:Operating activities
    
    
    
    
    
    
    68,616Investing activities
    
    
    
    
    
    
    Financing activities
    
    
    
    
    
    
    (27,102
    )Net cash provided by discontinued operations
    
    
    
    
    
    
    41,514Net (decrease) increase in cash and cash equivalents
    
    
    (1,566,137
    )
    
    
    5,232,006Cash and cash equivalents at beginning of period
    
    
    7,329,805
    
    
    
    1,402,645Cash and cash equivalents at end of period
    
    $
    5,763,668
    
    
    $
    6,634,651Supplemental disclosure of noncash financing activities:Issuance of common stock under Stock Award Plan
    
    $
    
    
    
    $
    4,455
 See accompanying notes to consolidated financial statements.
 4




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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 Accounting for Stock-Based Compensation  Transition and Disclosure
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Quarter Ended
    
    
    Six Months EndedOctober 31, 2005
    
    
    October 31, 2005Net loss, as reported
    
    $
    (22,914
    )
    
    $
    (359,940
    )Add: Stock-based compensation
    
    
    6,654
    
    
    
    16,057Deduct: Total stock-based compensation
expense as determined under fair value
based method for all awards, net of
related tax effects
    
    
    (28,013
    )
    
    
    (58,655
    )Add: Forfeitures, net of related tax effects
    
    
    7,073
    
    
    
    9,659Pro forma net loss
    
    $
    (37,200
    )
    
    $
    (392,879
    )Net loss per share:Basic and diluted  as reported
    
    $
    (0.01
    )
    
    $
    (0.10
    )Basic and diluted  pro forma
    
    $
    (0.01
    )
    
    $
    (0.11
    )
   Stock Options
  WeightedOptions to
    
    
    AveragePurchase
    
    
    ExerciseShares
    
    
    PriceOutstanding at April 30, 2006
    
    
    757,390
    
    
    $
    4.68Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (83,229
    )
    
    
    4.59Outstanding at October 31, 2006
    
    
    674,161
    
    
    $
    4.69Vested at October 31, 2006
    
    
    674,161
    
    
    $
    4.69
  6




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##### Table of Contents



Number of
    
    Weighted AverageExercise
    
    Outstanding and
    
    Remaining ContractualPrice
    
    Exercisable Options
    
    Life (Years)$4.64
    
    
    569,140
    
    
    
    5.39$4.77
    
    
    4,400
    
    
    
    8.64$4.82
    
    
    74,800
    
    
    
    8.40$5.45
    
    
    25,821
    
    
    
    7.63
 Stock Appreciation Rights
  WeightedOptions to
    
    
    AveragePurchase
    
    
    ExerciseShares
    
    
    PriceOutstanding at April 30, 2006
    
    
    
    
    
    $
    Granted
    
    
    312,000
    
    
    
    4.14Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (9,000
    )
    
    
    4.14Outstanding at October 31, 2006
    
    
    303,000
    
    
    $
    4.14Vested at October 31, 2006
    
    
    
    
    
    $
    
  Expected life (years)
    
    
    5Dividend yield
    
    
    2.99
    %Expected stock price volatility
    
    
    36.17
    %Risk free interest rate
    
    
    5.11
    %Fair value of SARs granted
    
    $
    0.81
  7




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##### Table of Contents



Shares of Restricted Stock
  WeightedNumber of
    
    
    Weighted AverageRestricted
    
    
    Grant DateShares of Stock
    
    
    Fair ValueNon-vested restricted stock at April 30, 2006
    
    
    3,430
    
    
    $
    4.68Granted
    
    
    
    
    
    
    Vested
    
    
    (2,420
    )
    
    
    4.95Forfeited
    
    
    (110
    )
    
    
    4.95Non-vested restricted stock at October 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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Second Quarter Ended
    
    Six Months EndedOctober 31,
    
    October 31,2006
    
    2005
    
    2006
    
    2005REVENUES:Construction
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    40Rental properties
    
    
    
    
    
    
    191,683
    
    
    
    
    
    
    
    355,392Total revenues
    
    
    
    
    
    
    191,683
    
    
    
    
    
    
    
    355,432COSTS AND EXPENSES:Construction cost and expenses
    
    
    
    
    
    
    (25,964
    )
    
    
    
    
    
    
    (25,964
    )Rental property operating expenses,
including depreciation
    
    
    
    
    
    
    143,715
    
    
    
    
    
    
    
    274,350Interest expense
    
    
    
    
    
    
    59,162
    
    
    
    
    
    
    
    118,603Construction selling, general & administrative
    
    
    
    
    
    
    66,290
    
    
    
    
    
    
    
    92,992Total costs and expenses
    
    
    
    
    
    
    243,203
    
    
    
    
    
    
    
    459,981Loss from discontinued operations
    
    
    
    
    
    
    (51,520
    )
    
    
    
    
    
    
    (104,549
    )Income tax benefit
    
    
    
    
    
    
    (19,577
    )
    
    
    
    
    
    
    (39,729
    )Loss from discontinued operations, net of tax
    
    $
    
    
    
    $
    (31,943
    )
    
    $
    
    
    
    $
    (64,820
    )
 NOTE 6. OPERATING SEGMENTS
  9




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##### Table of Contents



BuildingFor the Quarter Ended
    
    Performance
    
    Real EstateOctober 31, 2006
    
    Experts
    
    (1)
    
    Parent
    
    Eliminations
    
    ConsolidatedRevenues from unaffiliated
customers
    
    $
    3,238,652
    
    
    $
    3,699,989
    
    
    $
    
    
    
    $
    
    
    
    $
    6,938,641Interest and other income
    
    
    7,772
    
    
    
    299,202
    
    
    
    35,830
    
    
    
    (228,617
    )
    
    
    114,187Intersegment revenue
    
    
    
    
    
    
    126,596
    
    
    
    
    
    
    
    (126,596
    )
    
    
    Total revenues from
continuing operations
    
    $
    3,246,424
    
    
    $
    4,125,787
    
    
    $
    35,830
    
    
    $
    (355,213
    )
    
    $
    7,052,828Net earnings (loss)
    
    $
    (126,282
    )
    
    $
    1,204,424
    
    
    $
    (725,687
    )
    
    $
    3,496
    
    
    $
    355,951
 BuildingFor the Quarter Ended
    
    Performance
    
    Real EstateOctober 31, 2005
    
    Experts
    
    (1)
    
    Parent
    
    Eliminations
    
    ConsolidatedRevenues from unaffiliated
customers
    
    $
    2,844,335
    
    
    $
    2,667,842
    
    
    $
    
    
    
    $
    
    
    
    $
    5,512,177Interest and other income
    
    
    10,948
    
    
    
    418,476
    
    
    
    9,010
    
    
    
    (145,576
    )
    
    
    292,858Intersegment revenue
    
    
    
    
    
    
    134,705
    
    
    
    
    
    
    
    (134,705
    )
    
    
    Total revenues from
continuing operations
    
    $
    2,855,283
    
    
    $
    3,221,023
    
    
    $
    9,010
    
    
    $
    (280,281
    )
    
    $
    5,805,035Net earnings (loss)
    
    $
    (182,607
    )
    
    $
    661,738
    
    
    $
    (468,243
    )
    
    $
    (8,799
    )
    
    $
    2,089
 BuildingFor the Six Months Ended
    
    Performance
    
    Real EstateOctober 31, 2006
    
    Experts
    
    (1)
    
    Parent
    
    Eliminations
    
    ConsolidatedRevenues from unaffiliated
customers
    
    $
    5,854,067
    
    
    $
    5,225,132
    
    
    $
    
    
    
    $
    
    
    
    $
    11,079,199Interest and other income
    
    
    54,849
    
    
    
    644,423
    
    
    
    52,517
    
    
    
    (478,898
    )
    
    $
    272,891Intersegment revenue
    
    
    
    
    
    
    250,739
    
    
    
    
    
    
    
    (250,739
    )
    
    $
    Total revenues from
continuing operations
    
    $
    5,908,916
    
    
    $
    6,120,294
    
    
    $
    52,517
    
    
    $
    (729,637
    )
    
    $
    11,352,090Net earnings (loss)
    
    $
    (418,910
    )
    
    $
    1,530,389
    
    
    $
    (1,313,417
    )
    
    $
    6,994
    
    
    $
    (194,944
    )
 BuildingFor the Six Months Ended
    
    Performance
    
    Real EstateOctober 31, 2005
    
    Experts
    
    (1)
    
    Parent
    
    Eliminations
    
    ConsolidatedRevenues from unaffiliated
customers
    
    $
    5,863,593
    
    
    $
    4,198,276
    
    
    $
    
    
    
    $
    
    
    
    $
    10,061,869Interest and other income
    
    
    11,263
    
    
    
    572,617
    
    
    
    13,640
    
    
    
    (245,558
    )
    
    
    351,962Intersegment revenue
    
    
    
    
    
    
    261,893
    
    
    
    
    
    
    
    (261,893
    )
    
    
    Total revenues from
continuing operations
    
    $
    5,874,856
    
    
    $
    5,032,786
    
    
    $
    13,640
    
    
    $
    (507,451
    )
    
    $
    10,413,831Net earnings (loss)
    
    $
    (21,211
    )
    
    $
    794,335
    
    
    $
    (1,084,196
    )
    
    $
    (7,335
    )
    
    $
    (318,407
    )
 10




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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 earnings included in
continuing operations that resulted from the gain on sale of other real estate assets.  Quarter Ended
    
    Six Months EndedOctober 31,
    
    October 31,2006
    
    2005
    
    2006
    
    2005Consolidated Segment revenues
    
    $
    7,052,828
    
    
    $
    5,805,035
    
    
    $
    11,352,090
    
    
    $
    10,413,831Revenues on sales of real estate held for sale
    
    
    (2,050,000
    )
    
    
    (1,154,254
    )
    
    
    (2,050,000
    )
    
    
    (1,154,254
    )Total consolidated revenues
    
    $
    5,002,828
    
    
    $
    4,650,781
    
    
    $
    9,302,090
    
    
    $
    9,259,577
  Quarter Ended
    
    Six Months EndedOctober 31,
    
    October 31,2006
    
    2005
    
    2006
    
    2005Consolidated Segment net earnings (loss)
    
    $
    355,951
    
    
    $
    2,089
    
    
    $
    (194,944
    )
    
    $
    (318,407
    )Discontinued Construction Segment net loss
    
    
    
    
    
    
    (25,003
    )
    
    
    
    
    
    
    (41,533
    )Consolidated net earnings (loss)
    
    $
    355,951
    
    
    $
    (22,914
    )
    
    $
    (194,944
    )
    
    $
    (359,940
    )
 NOTE 7. EARNINGS (LOSS) PER SHARE
  11




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##### Table of Contents



NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
  Gross Carrying
    
    
    AccumulatedAmount
    
    
    AmortizationIntangible assets, subject to amortization:Proprietary building performance
expert software applications
    
    $
    2,890,294
    
    
    $
    1,060,303Acquired computer software
    
    
    451,428
    
    
    
    417,528Real estate lease costs
    
    
    1,537,380
    
    
    
    786,736Customer relationships
    
    
    218,000
    
    
    
    123,593Deferred loan costs
    
    
    831,370
    
    
    
    569,694Non-compete agreements
    
    
    23,948
    
    
    
    23,948Other
    
    
    28,660
    
    
    
    15,764$
    5,981,080
    
    
    $
    2,997,566Intangible assets, not subject to amortization:Trademark
    
    $
    708,707
    
    
    $
    Goodwill
    
    $
    5,458,717
    
    
    $
    
 Aggregate amortization expense for all amortized intangible assetsFor the three months ended October 31, 2006
    
    $
    210,107For the six months ended October 31, 2006
    
    $
    367,380For the three months ended October 31, 2005
    
    $
    133,933For the six months ended October 31, 2005
    
    $
    247,904
 NOTE 9. ACQUISITIONS
  12




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##### Table of Contents



Purchase ofStewartsboro
    
    
    Estimated Useful LifeLand
    
    $
    1,300,140
    
    
    IndefiniteLand improvements
    
    
    240,684
    
    
    15 yearsBuilding
    
    
    3,385,911
    
    
    39 yearsIntangible assets
    
    
    341,020
    
    
    Over remaining lives of leasesTotal assets acquired
    
    $
    5,267,755
   NOTE 10. DISPOSITIONS
  NOTE 11. COMMITMENTS AND CONTINGENCIES
  NOTE 12. SUBSEQUENT EVENTS
   13




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##### Table of Contents



Quarter Ended
    
    Six Months EndedOctober 31,
    
    October 31,2006
    
    2005
    
    2006
    
    2005Rental income from continuing operations
    
    $
    115,807
    
    
    $
    115,807
    
    
    $
    231,613
    
    
    $
    231,613Net earnings
    
    $
    29,486
    
    
    $
    34,962
    
    
    $
    66,910
    
    
    $
    69,633
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
     Results of operations of the second quarter and first six months of fiscal 2007, compared to
the second quarter and first six months of fiscal 2006
    14




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##### Table of Contents



CHART A
 Second Quarter Ended
    
    Amount
    
    Percent
    
    Six Months Ended
    
    Amount
    
    PercentOctober 31,
    
    Increase
    
    Increase
    
    October 31,
    
    Increase
    
    Increase2006
    
    2005
    
    (Decrease)
    
    (Decrease)
    
    2006
    
    2005
    
    (Decrease)
    
    (Decrease)Building Performance Experts (1)
    
    $
    3,239
    
    
    $
    2,845
    
    
    $
    394
    
    
    
    14
    
    
    $
    5,854
    
    
    $
    5,864
    
    
    $
    (10
    )
    
    
    (0
    )Real Estate (2)
    
    
    1,650
    
    
    
    1,513
    
    
    
    137
    
    
    
    9
    
    
    
    3,175
    
    
    
    3,044
    
    
    
    131
    
    
    
    4$
    4,889
    
    
    $
    4,358
    
    
    $
    531
    
    
    
    12
    
    
    $
    9,029
    
    
    $
    8,908
    
    
    $
    121
    
    
    
    1
 NOTES TO CHART A
 
 (1)
    
    Building Performance Experts Segment revenues from continuing operations increased
$394,000 or 14% for the second quarter of fiscal 2007, compared to the same period in fiscal
2006, primarily due to: (a)
    
    an increase in revenues of approximately $250,000 related to lighting
projects; and(b)
    
    an increase of approximately $149,000 related to energy engineering
services.
  (a)
    
    the recognition of one-time revenues of approximately $589,000 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);
  (b)
    
    an increase in fiscal 2007 in revenues of approximately $268,000 related
to lighting projects; and(c)
    
    an increase in fiscal 2007 in revenues of approximately $307,000 related
to energy engineering services.
 (2)
    
    Real estate revenues from continuing operations increased $137,000 or 9% for the second
quarter of fiscal 2007, and $131,000 or 4% for the first six months of fiscal 2007, compared
to the same periods in fiscal 2006, primarily due to:
 (a)
    
    an increase in rental income related to (1) successful leasing activities
that led to higher rental revenues of $72,000 and $99,000 for the second quarter and
first six months of fiscal 2007, respectively; and (2) rental revenues of $138,000
and $167,000 for the second quarter and first six months of fiscal 2007,
respectively, as the result of the purchase of a shopping center in Smyrna,
Tennessee, in July 2006.
  (b)
    
    a decrease in leaseback income of approximately $78,000 and $157,000 for
the second quarter and first six months of fiscal 2007, respectively, resulting from
the sale in fiscal 2006 of the Companys former leaseback shopping center located in
Bayonet Point, Florida.
 15




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##### Table of Contents



October 31,2006
    
    
    2005Building Performance Experts (a)
    
    $
    6,038,000
    
    
    $
    5,290,000Real Estate (b)
    
    
    6,428,000
    
    
    
    5,910,000Less: Intersegment eliminations (c)
    
    
    (556,000
    )
    
    
    (540,000
    )Total Backlog
    
    $
    11,910,000
    
    
    $
    10,660,000
 
 (a)
    
    The increase in Building Performance Experts backlog is primarily due to an increase in
lighting upgrade projects, energy engineering contracts, and customers upgrading to the
Companys new proprietary Web/wireless building performance 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 4.1% ($218,121).(b)
    
    Real Estate backlog increased primarily due to approximately $464,000 of rental revenues
related to the shopping center located in Smyrna, Tennessee, acquired by the Company in July
2006, and an increase in net rental revenues of $234,000 related to successful leasing
activities at other properties. These increases are offset by a decrease of approximately
$180,000 in rental revenues resulting from the sale of the Companys former leaseback shopping
center located in Bayonet Point, Florida, in April 2006. Also, included in Real Estate
backlog as of October 31, 2006, is approximately $463,000 related to the Companys shopping
center located in Morton, Illinois, that was sold on November 1, 2006 (see Note 12 
Subsequent Events).(c)
    
    Represents rental income at the Companys headquarters building to be paid to the Real Estate
Segment by the Parent Company and its other operating segment. 
   16




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CHART B
 Percent of Segment
    
    
    
    
    
    
    
    
    
    Percent of SegmentRevenues for
    
    
    
    
    
    
    
    
    
    Revenues forSecond Quarter Ended
    
    Second Quarter Ended
    
    Six Months Ended
    
    Six Months EndedOctober 31,
    
    October 31,
    
    October 31,
    
    October 31,2006
    
    2005
    
    2006
    
    2005
    
    2006
    
    2005
    
    2006
    
    2005Building Performance Experts (1)
    
    $
    2,113
    
    
    $
    1,771
    
    
    
    65
    
    
    
    62
    
    
    $
    3,830
    
    
    $
    3,270
    
    
    
    65
    
    
    
    56Real Estate (2)
    
    
    1,050
    
    
    
    1,000
    
    
    
    64
    
    
    
    66
    
    
    
    1,982
    
    
    
    1,964
    
    
    
    62
    
    
    
    65$
    3,163
    
    
    $
    2,771
    
    
    
    65
    
    
    
    64
    
    
    $
    5,812
    
    
    $
    5,234
    
    
    
    64
    
    
    
    59
 NOTES TO CHART B
 
 1)
    
    On a dollar basis, Building Performance Experts costs and expenses from continuing operations
increased $342,000 or 19% for the second quarter of fiscal 2007, and $560,000 or 17% for the
first six months of fiscal 2007, compared to the same periods of fiscal 2006, primarily as a
result of the increase in revenues.Building Performance Experts costs and expenses as a
percentage of revenues from continuing
operations increased 3% for the second quarter of fiscal 2007, compared to the same period of
fiscal 2006, primarily due to the changes in the mix of services and products.Building Performance Experts costs and expenses as a
percentage of revenues from continuing operations
increased 9% for the first six months of fiscal 2007, compared to the same period of fiscal
2006, primarily due to: (a)
    
    the absence of associated costs of expenses for the one-time revenue from
a consulting services contract in the first quarter of fiscal 2006; and(b)
    
    changes in the mix of services and products.
 2)
    
    On a dollar basis, Real Estate costs and expenses from continuing operations
increased $50,000 or 5% for the second quarter of fiscal 2007, compared to the same period of
fiscal 2006, primarily due to:
 (a)
    
    an increase in rental operating costs and expenses of approximately
$115,000 related to the shopping center located in Smyrna, Tennessee, acquired in
July 2006;
offset by:(b)
    
    the absence of lease costs of approximately $73,000 as a result of the
sale in April 2006 of the Companys former leaseback shopping center located in
Bayonet Point, Florida.
  (a)
    
    an increase in rental operating costs and expenses of approximately
$130,000 related to a shopping center located in Smyrna, Tennessee, acquired in July
2006; and(b)
    
    an increase in operating expenses of approximately $39,000 primarily for
periodic repairs and maintenance at one of the Companys office properties;
offset by:
 17




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##### Table of Contents



(c)
    
    the absences of lease cost of approximately $145,000 as a result of the
sale in April 2006 of one of the Companys former leaseback shopping centers located
in Bayonet Point, Florida.
 
  CHART C
 Percent of Segment
    
    
    
    
    
    
    
    
    
    Percent of SegmentRevenues for
    
    
    
    
    
    
    
    
    
    Revenues forSecond Quarter Ended
    
    Second Quarter Ended
    
    Six Months Ended
    
    Six Months EndedOctober 31,
    
    October 31,
    
    October 31,
    
    October 31,2006
    
    2005
    
    2006
    
    2005
    
    2006
    
    2005
    
    2006
    
    2005Building Performance Experts (1)
    
    $
    1,066
    
    
    $
    1,072
    
    
    
    33
    
    
    
    38
    
    
    $
    2,221
    
    
    $
    2,173
    
    
    
    38
    
    
    
    37Real Estate (2)
    
    
    254
    
    
    
    186
    
    
    
    15
    
    
    
    12
    
    
    
    461
    
    
    
    449
    
    
    
    15
    
    
    
    15Parent (3)
    
    
    1,028
    
    
    
    736
    
    
    
    21
    
    
    
    17
    
    
    
    1,800
    
    
    
    1,636
    
    
    
    20
    
    
    
    18$
    2,348
    
    
    $
    1,994
    
    
    
    48
    
    
    
    46
    
    
    $
    4,482
    
    
    $
    4,258
    
    
    
    50
    
    
    
    48
 NOTES TO CHART C
 
 (1)
    
    Building Performance Experts SG&A expense as a percentage of revenues from continuing
operations decreased for the second quarter of fiscal 2007, compared to the same period of
fiscal 2006, primarily due to the related increase in revenues and SG&A expenses remaining
constant.On a dollar basis, Building Performance Experts SG&A expense from continuing operations for the
first six months of fiscal 2007, increased $48,000 or 2%, compared to the same period of fiscal
2006, primarily due to an increase in sales and marketing efforts.(2)
    
    On a dollar basis, Real Estate SG&A expense from continuing operations in the second quarter
of fiscal 2007, increased $68,000 or 37%, compared to the same period of fiscal 2006,
primarily due to an increase in consulting fees of approximately $20,000 and an increase in
legal and professional fees of approximately $41,000 related to transaction activity. 18




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##### Table of Contents



(3)
    
    On a dollar basis and as a percentage of revenues from
continuing operations, Parent SG&A expenses from continuing
operations, increased $292,000 or 40% and $164,000 or 10% in the
second quarter and
for the first six months of fiscal 2007, respectively, compared to the same periods of fiscal 2006,
primarily due to: (a)
    
    an increase in consulting fees of approximately $80,000 related to the
sales and marketing efforts for the Company for both the second quarter and first
six months of fiscal 2007; and(b)
    
    an increase in personnel related costs of approximately $216,000 and
$98,000 for the second quarter and first six months of fiscal 2007, respectively.
 Liquidity and capital resources
  (a)
    
    the deposit into escrow the prepayment of a loan cost of approximately
$407,000 related to the sale of the Companys shopping center located in Morton,
Illinois;(b)
    
    a net increase in accounts receivable and costs and earnings in excess of
billings of approximately $685,000 primarily due to the timing of billing and
receipt of payments;(c)
    
    a decrease in trade and subcontractors payables, accrued expenses,
billings in excess of costs and earnings, and other liabilities of approximately
$527,000 due to the timing and submission of payments;(d)
    
    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(e)
    
    current year losses from continuing operations.
  (a)
    
    the purchase of the 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 interim bank financing for the balance of $2.6 million (see financing
activities below);(b)
    
    additions to income-producing properties of $196,000 primarily related to
tenant and building improvements; and(c)
    
    additions to intangible assets of $496,000 primarily related to new
software development efforts for the Companys proprietary Web/wireless software.
  (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)
    
    the proceeds from the permanent loan of $4,100,000 on the Companys
shopping center located in Smyrna, Tennessee, which replaced the interim bank loan
of $2,600,000;
  (b)
    
    scheduled principal payments of mortgage notes and other long-term debt
of approximately $529,000; and(c)
    
    payment of two regular quarterly cash dividends to shareholders of
approximately $255,000.
 19




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Critical Accounting Policies
  Revenue Recognition
 Revenue Recognition
    20




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Income-Producing Properties and Property and Equipment
   Valuation of Goodwill and Other Intangible Assets
  21




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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
    22




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##### Table of Contents



ITEM 1A. RISK FACTORS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  DIRECTORS
    
    VOTES FOR
    
    VOTES WITHHELDAlan R. Abrams
    
    
    2,903,824
    
    
    
    269,448David L. Abrams
    
    
    2,120,289
    
    
    
    1,052,893J. Andrew Abrams
    
    
    2,903,384
    
    
    
    269,888Samuel E. Allen
    
    
    3,066,472
    
    
    
    106,800Gilbert L. Danielson
    
    
    3,066,362
    
    
    
    106,910Melinda S. Garrett
    
    
    2,907,471
    
    
    
    265,801Robert T. McWhinney, Jr.
    
    
    3,067,412
    
    
    
    105,860
 
 ITEM 5. OTHER INFORMATION
  
 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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##### Table of Contents



SERVIDYNE, INC.
     (Registrant)Date: December 15, 2006
    /s/ Alan R. AbramsAlan R. AbramsChief Executive OfficerDate: December 15, 2006
    /s/ Mark J. ThomasMark J. ThomasChief Financial Officer 24