##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 QUARTERLY REPORT
 
 Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
 For the quarter ended January 31, 2008
 Commission file number 0-10146
 SERVIDYNE, INC.
  Georgia
    
    58-0522129(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer identification No.)
 1945 The Exchange, Suite 300, Atlanta, GA 30339-2029
  (770) 953-0304
 N/A
  þ o
  Large
accelerated
filer oAccelerated
filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company 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 5. OTHER INFORMATIONITEM 6. EXHIBITSSIGNATURESEX-31.(A) CERTIFICATION OF CHIEF EXECUTIVE OFFICEREX-31.(B) CERTIFICATION OF CHIEF FINANCIAL OFFICEREX-32.(A) CERTIFICATION OF CHIEF EXECUTIVE OFFICEREX-32.(B) CERTIFICATION OF CHIEF FINANCIAL OFFICER    Table of Contents  
  
 ITEM 1. FINANCIAL STATEMENTS
 SERVIDYNE, INC.
 (UNAUDITED)January 31, 2008
    
    
    April 30, 2007ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    5,553,516
    
    
    $
    5,662,894Available-for-sale security (Note 3)
    
    
    2,900,000
    
    
    
    Receivables (Note 4)
    
    
    3,528,054
    
    
    
    2,226,874Less: Allowance for doubtful accounts
    
    
    (115,525
    )
    
    
    (14,713
    )Costs and earnings in excess of billings
    
    
    1,001,621
    
    
    
    265,540Assets of discontinued operations (Notes 5 and 9)
    
    
    
    
    
    
    252,311Deferred income taxes
    
    
    656,537
    
    
    
    443,030Other
    
    
    1,090,985
    
    
    
    1,374,163Total current assets
    
    
    14,615,188
    
    
    
    10,210,099RESTRICTED CASH (Note 9)
    
    
    3,436,200
    
    
    
    INCOME-PRODUCING PROPERTIES, net
    
    
    21,828,541
    
    
    
    21,626,985ASSETS OF DISCONTINUED OPERATIONS (Notes 5 and 9)
    
    
    
    
    
    
    10,903,560PROPERTY AND EQUIPMENT, net
    
    
    853,240
    
    
    
    832,888OTHER ASSETS:Real estate held for future development or sale
    
    
    1,124,850
    
    
    
    1,124,850Intangible assets, net (Note 8)
    
    
    3,352,075
    
    
    
    3,720,596Goodwill (Note 8)
    
    
    5,458,717
    
    
    
    5,458,717Other
    
    
    2,811,538
    
    
    
    3,515,726Total assets
    
    $
    53,480,349
    
    
    $
    57,393,421LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Trade accounts payable
    
    $
    810,926
    
    
    $
    605,857Accrued expenses
    
    
    2,357,253
    
    
    
    2,372,445Liabilities of discontinued operations (Notes 5 and 9)
    
    
    
    
    
    
    388,620Billings in excess of costs and earnings
    
    
    106,195
    
    
    
    219,305Current maturities of mortgage notes and long-term debt payable
    
    
    617,560
    
    
    
    899,790Total current liabilities
    
    
    3,891,934
    
    
    
    4,486,017DEFERRED INCOME TAXES
    
    
    5,473,681
    
    
    
    4,233,498OTHER LIABILITIES
    
    
    1,284,615
    
    
    
    2,074,954LIABILITIES OF DISCONTINUED OPERATIONS (Notes 5 and 9)
    
    
    
    
    
    
    6,052,018MORTGAGE NOTES PAYABLE, less current maturities (Note 10)
    
    
    18,695,114
    
    
    
    17,911,723OTHER LONG-TERM DEBT, less current maturities
    
    
    1,112,500
    
    
    
    1,175,000Total liabilities
    
    
    30,457,844
    
    
    
    35,933,210COMMITMENTS AND CONTINGENCIES (Note 11)SHAREHOLDERS EQUITY:Common stock, $1 par value; 5,000,000 shares authorized;3,708,836 issued and 3,540,470
outstanding at January 31, 2008,3,695,336 issued and 3,527,070 outstanding at April 30,
2007
    
    
    3,708,836
    
    
    
    3,695,336Additional paid-in capital
    
    
    5,010,299
    
    
    
    4,875,160Retained earnings
    
    
    15,098,863
    
    
    
    13,684,779Treasury stock (common shares)168,366 at January 31, 2008, and 168,266 at April 30, 2007
    
    
    (795,493
    )
    
    
    (795,064
    )Total shareholders equity
    
    
    23,022,505
    
    
    
    21,460,211Total liabilities and shareholders equity
    
    $
    53,480,349
    
    
    $
    57,393,421
 See accompanying notes to consolidated financial statements.
 1




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##### Table of Contents



SERVIDYNE, INC.
 THIRD QUARTER ENDED
    
    
    FIRST NINEMONTHS ENDEDJANUARY 31,
    
    
    JANUARY 31,2008
    
    
    2007
    
    
    2008
    
    
    2007REVENUES:Building Performance Expert (BPE)
    
    $
    3,220,444
    
    
    $
    3,769,967
    
    
    $
    11,973,959
    
    
    $
    9,624,034Real Estate
    
    
    883,333
    
    
    
    1,067,120
    
    
    
    4,309,786
    
    
    
    3,014,7984,103,777
    
    
    
    4,837,087
    
    
    
    16,283,745
    
    
    
    12,638,832Interest
    
    
    83,289
    
    
    
    76,125
    
    
    
    195,046
    
    
    
    236,945Other
    
    
    21,830
    
    
    
    8,214
    
    
    
    102,705
    
    
    
    93,5844,208,896
    
    
    
    4,921,426
    
    
    
    16,581,496
    
    
    
    12,969,361COSTS AND EXPENSES:BPE
    
    
    2,158,725
    
    
    
    2,636,382
    
    
    
    8,104,705
    
    
    
    6,465,766Real Estate, excluding interest
    
    
    515,624
    
    
    
    658,565
    
    
    
    1,671,702
    
    
    
    1,911,5722,674,349
    
    
    
    3,294,947
    
    
    
    9,776,407
    
    
    
    8,377,338Selling, general and administrativeBPE
    
    
    1,268,214
    
    
    
    1,224,249
    
    
    
    3,928,421
    
    
    
    3,445,270Real Estate
    
    
    213,896
    
    
    
    188,822
    
    
    
    598,678
    
    
    
    635,387Parent
    
    
    837,703
    
    
    
    1,113,491
    
    
    
    2,455,223
    
    
    
    2,913,5282,319,813
    
    
    
    2,526,562
    
    
    
    6,982,322
    
    
    
    6,994,185Interest costs incurred
    
    
    345,516
    
    
    
    297,979
    
    
    
    1,032,875
    
    
    
    820,5825,339,678
    
    
    
    6,119,488
    
    
    
    17,791,604
    
    
    
    16,192,105GAIN ON SALE
OF REAL ESTATE, net of costs of sale of $0, $0, $0, and $504,563, respectively
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,545,437LOSS FROM
CONTINUING OPERATIONS BEFORE INCOME TAXES
    
    
    (1,130,782
    )
    
    
    (1,198,062
    )
    
    
    (1,210,108
    )
    
    
    (1,677,307
    )INCOME TAX BENEFIT
    
    
    (423,501
    )
    
    
    (455,263
    )
    
    
    (505,719
    )
    
    
    (637,375
    )LOSS FROM CONTINUING OPERATIONS
    
    
    (707,281
    )
    
    
    (742,799
    )
    
    
    (704,389
    )
    
    
    (1,039,932
    )DISCONTINUED OPERATIONS:(Loss) earnings from discontinued operations,
adjusted for applicable income tax (benefit) expense
of $(1,832), $23,017, $11,219 and $85,648,
respectively
    
    
    (2,988
    )
    
    
    37,553
    
    
    
    18,305
    
    
    
    139,741Gain on sale of income producing real estate,
adjusted for applicable income tax expense of
$792,218, $1,169,254, $1,521,172 and $1,169,254,
respectively
    
    
    1,292,567
    
    
    
    1,907,730
    
    
    
    2,481,914
    
    
    
    1,907,730EARNINGS FROM DISCONTINUED OPERATIONS
    
    
    1,289,579
    
    
    
    1,945,283
    
    
    
    2,500,219
    
    
    
    2,047,471NET EARNINGS
    
    $
    582,298
    
    
    $
    1,202,484
    
    
    $
    1,795,830
    
    
    $
    1,007,539NET EARNINGS (LOSS) PER SHARE  BASIC AND DILUTEDFrom continuing operations
    
    $
    (0.20
    )
    
    $
    (0.21
    )
    
    $
    (0.20
    )
    
    $
    (0.29
    )From discontinued operations
    
    
    .36
    
    
    
    0.55
    
    
    
    0.71
    
    
    
    0.58NET EARNINGS PER SHARE  BASIC AND DILUTED
    
    $
    0.16
    
    
    $
    0.34
    
    
    $
    0.51
    
    
    $
    0.29DIVIDENDS PER SHARE
    
    $
    0.036
    
    
    $
    0.036
    
    
    $
    0.108
    
    
    $
    0.108WEIGHTED AVERAGE SHARES OUTSTANDING  BASIC AND DILUTED
    
    
    3,537,377
    
    
    
    3,530,290
    
    
    
    3,531,988
    
    
    
    3,527,170
 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  $.144 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  $.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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,795,830
    
    
    
    
    
    
    
    1,795,830Common stock issued
    
    
    2,500
    
    
    
    2,500
    
    
    
    (2,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    97,639
    
    
    
    
    
    
    
    
    
    
    
    (429
    )
    
    
    97,210Stock option exercise
    
    
    11,000
    
    
    
    11,000
    
    
    
    40,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,000Cash dividends declared  $.108 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (381,746
    )
    
    
    
    
    
    
    (381,746
    )BALANCES at January 31, 2008
    
    
    3,708,836
    
    
    $
    3,708,836
    
    
    $
    5,010,299
    
    
    $
    
    
    
    $
    15,098,863
    
    
    $
    (795,493
    )
    
    $
    23,022,505
 See accompanying notes to consolidated financial statements.
 3




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##### Table of Contents



SERVIDYNE, INC.
 FIRST NINE MONTHS ENDEDJANUARY 31,2008
    
    
    2007CONTINUING OPERATIONS:Cash flows from operating activities:Net earnings
    
    $
    1,795,830
    
    
    $
    1,007,539Adjustments to reconcile net earnings to net cash used in operating activities:Income from discontinued operations, net of tax
    
    
    (2,500,219
    )
    
    
    (2,047,471
    )Loss (gain) on sale of real estate
    
    
    89,179
    
    
    
    (1,545,437
    )Loss on disposal of assets
    
    
    14,330
    
    
    
    Depreciation and amortization
    
    
    1,099,788
    
    
    
    929,972Deferred tax benefit
    
    
    (505,719
    )
    
    
    (637,375
    )Provision for doubtful accounts, net
    
    
    100,812
    
    
    
    45,650Stock compensation expense
    
    
    97,210
    
    
    
    44,786Gain on cash surrender value
    
    
    (45,453
    )
    
    
    (68,626
    )Straight-line rent
    
    
    24,640
    
    
    
    (42,584
    )Changes in assets and liabilities:Receivables
    
    
    (1,301,180
    )
    
    
    641,026Costs and earnings in excess of billings
    
    
    (736,081
    )
    
    
    (1,704,899
    )Note receivables
    
    
    
    
    
    
    674,034Other current assets
    
    
    283,178
    
    
    
    (349,409
    )Other assets
    
    
    
    
    
    
    6,706Trade accounts payable
    
    
    205,069
    
    
    
    612,949Accrued expenses
    
    
    (15,192
    )
    
    
    (126,774
    )Billings in excess of costs and earnings
    
    
    (113,110
    )
    
    
    (143,598
    )Other liabilities
    
    
    175,537
    
    
    
    (34,512
    )Net cash used in operating activities
    
    
    (1,331,381
    )
    
    
    (2,738,023
    )Cash flows from investing activities:Purchase of available-for-sale security
    
    
    (2,900,000
    )
    
    
    Release of restricted cash held in escrow
    
    
    
    
    
    
    418,594Deposit of cash proceeds from sale of real estate held in escrow
    
    
    (3,436,200
    )
    
    
    (3,706,357
    )Proceeds from sale of real estate
    
    
    
    
    
    
    1,867,052Additions to income-producing properties, net
    
    
    (644,898
    )
    
    
    Additions to property and equipment, net
    
    
    (164,426
    )
    
    
    (171,054
    )Additions to intangible assets, net
    
    
    (212,513
    )
    
    
    (658,066
    )Additions to real estate held for sale or future development
    
    
    
    
    
    
    (28,546
    )Acquisition, net of cash released from escrow
    
    
    
    
    
    
    (1,870,447
    )Net cash used in investing activities
    
    
    (7,358,037
    )
    
    
    (4,148,824
    )Cash flows from financing activities:Mortgage proceeds
    
    
    3,200,000
    
    
    
    6,700,000Mortgage repayments
    
    
    (2,500,000
    )
    
    
    (2,600,000
    )Debt repayments
    
    
    (479,714
    )
    
    
    (418,144
    )Repurchase of common stock
    
    
    
    
    
    
    (19,747
    )Deferred loan costs paid
    
    
    (57,346
    )
    
    
    (113,696
    )Exercise of stock options
    
    
    51,000
    
    
    
    Cash dividends
    
    
    (381,746
    )
    
    
    (381,764
    )Net cash (used in) provided by financing activities
    
    
    (167,806
    )
    
    
    3,166,649DISCONTINUED OPERATIONS:Operating activities
    
    
    319,230
    
    
    
    545,971Investing activities
    
    
    14,616,120
    
    
    
    2,818,373Financing activities
    
    
    (6,187,504
    )
    
    
    (2,256,460
    )Net cash provided by discontinued operations
    
    
    8,747,846
    
    
    
    1,107,884Net decrease in cash and cash equivalents
    
    
    (109,378
    )
    
    
    (2,612,314
    )Cash and cash equivalents at beginning of period
    
    
    5,662,894
    
    
    
    7,329,805Cash and cash equivalents at end of period
    
    $
    5,553,516
    
    
    $
    4,717,491
 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
 Stock-based compensation
  Share-Based Payment (revised 2004)
   5




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##### Table of Contents



Stock Options
  WeightedOptions to
    
    
    AveragePurchase
    
    
    ExerciseShares
    
    
    PriceOutstanding at April 30, 2007
    
    
    567,181
    
    
    $
    4.66Granted
    
    
    
    
    
    
    Exercised
    
    
    (11,000
    )
    
    
    4.64Forfeited / Expired
    
    
    (40,670
    )
    
    
    4.65Outstanding at January 31, 2008
    
    
    515,511
    
    
    $
    4.66Vested at January 31, 2008
    
    
    515,511
    
    
    $
    4.66
   Number of
    
    Weighted AverageOutstanding and
    
    Remaining ContractualExercise Price
    
    Exercisable Options
    
    Life (Years)$4.64
    
    
    450,838
    
    
    
    4.89$4.82
    
    
    63,800
    
    
    
    7.15$5.45
    
    
    873
    
    
    
    6.38
 Stock Appreciation Rights (SARs)
  WeightedSARs to
    
    
    AveragePurchase
    
    
    ExerciseShares
    
    
    PriceOutstanding at April 30, 2007
    
    
    430,000
    
    
    $
    4.06Granted
    
    
    62,000
    
    
    
    5.80Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (70,000
    )
    
    
    4.06Outstanding at January 31, 2008
    
    
    422,000
    
    
    $
    4.32Vested at January 31, 2008
    
    
    
    
    
    $
    
  6




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##### Table of Contents



Expected life (years)
    
    
    5Dividend yield
    
    
    3.04
    %Expected stock price volatility
    
    
    37.58
    %Risk free interest rate
    
    
    4.42
    %Fair value per SAR granted
    
    $
    1.13
   Shares of Restricted Stock
   
 7




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##### Table of Contents



Weighted AverageNumber of
    
    
    Grant DateShares of
    
    
    Fair ValueRestricted Stock
    
    
    per ShareNon-vested restricted stock at April 30, 2007
    
    
    
    
    
    $
    Granted
    
    
    2,500
    
    
    
    4.48Vested
    
    
    
    
    
    
    Forfeited
    
    
    (100
    )
    
    
    4.29Non-vested restricted stock at January 31, 2008
    
    
    2,400
    
    
    $
    4.48
 Available-for-sale security
 Accounting for Certain Investments in Debt and Equity Securities
 NOTE 4. RECEIVABLES
  NOTE 5. DISCONTINUED OPERATIONS
 Sales of Income-Producing Properties
 Accounting
for the Impairment or Disposal of Long-Lived Assets
  8




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##### Table of Contents



Third Quarter Ended
    
    First Nine Months EndedJanuary 31,
    
    January 31,2008
    
    2007
    
    2008
    
    2007REAL ESTATE SEGMENTRental revenues
    
    $
    195,980
    
    
    $
    502,500
    
    
    $
    1,172,304
    
    
    $
    1,742,477Rental property operating expenses,
including depreciation
    
    
    150,549
    
    
    
    322,088
    
    
    
    855,233
    
    
    
    1,065,552Interest expense and mortgage prepayment fees
    
    
    50,251
    
    
    
    119,842
    
    
    
    287,547
    
    
    
    451,536Operating (loss) earnings from
discontinued operationsbefore income taxes
    
    
    (4,820
    )
    
    
    60,570
    
    
    
    29,524
    
    
    
    225,389Income tax (benefit) expense
    
    
    (1,832
    )
    
    
    23,017
    
    
    
    11,219
    
    
    
    85,648Operating (loss) earnings from
discontinued operations,net of tax
    
    
    (2,988
    )
    
    
    37,553
    
    
    
    18,305
    
    
    
    139,741Gain on sales of income-producing real estate
    
    
    2,084,785
    
    
    
    3,076,984
    
    
    
    4,003,086
    
    
    
    3,076,984Income tax expense
    
    
    792,218
    
    
    
    1,169,254
    
    
    
    1,521,172
    
    
    
    1,169,254Gain on sales of income-producing
real estate, net of tax
    
    
    1,292,567
    
    
    
    1,907,730
    
    
    
    2,481,914
    
    
    
    1,907,730Earnings from discontinued operations, net of tax
    
    $
    1,289,579
    
    
    $
    1,945,283
    
    
    $
    2,500,219
    
    
    $
    2,047,471
 Balances atJanuary 31, 2008
    
    April 30, 2007Assets of Discontinued OperationsAccounts receivable
    
    $
    
    
    
    $
    2,939Other current assets
    
    
    
    
    
    
    249,372Income-producing properties
    
    
    
    
    
    
    10,334,044Property and equipment
    
    
    
    
    
    
    5,998Intangible assets
    
    
    
    
    
    
    219,822Other assets
    
    
    
    
    
    
    343,696$
    
    
    
    $
    11,155,871Liabilities of Discontinued OperationsTrade and subcontractors payable
    
    $
    
    
    
    $
    29,451Accrued expenses
    
    
    
    
    
    
    223,682Current maturities of mortgage notes and long-term debt payable
    
    
    
    
    
    
    135,487Mortgage notes payable
    
    
    
    
    
    
    6,052,018$
    
    
    
    $
    6,440,638
 NOTE 6. OPERATING SEGMENTS
  9




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For the Third Quarter Ended
    
    
    
    
    
    Real EstateJanuary 31, 2008
    
    BPE
    
    (1)
    
    Parent
    
    Eliminations
    
    ConsolidatedRevenues from unaffiliated customers
    
    $
    3,220,444
    
    
    $
    883,333
    
    
    $
    
    
    
    $
    
    
    
    $
    4,103,777Interest and other income
    
    
    
    
    
    
    369,953
    
    
    
    8,564
    
    
    
    (273,398
    )
    
    
    105,119Intersegment revenues
    
    
    
    
    
    
    149,268
    
    
    
    
    
    
    
    (149,268
    )
    
    
    Total revenues from continuing operations
    
    $
    3,220,444
    
    
    $
    1,402,554
    
    
    $
    8,564
    
    
    $
    (422,666
    )
    
    $
    4,208,896Net earnings (loss)
    
    $
    (289,882
    )
    
    $
    1,480,150
    
    
    $
    (601,944
    )
    
    $
    (6,026
    )
    
    $
    582,298
 For the Third Quarter Ended
    
    
    
    
    
    Real EstateJanuary 31, 2007
    
    BPE
    
    (1)
    
    Parent
    
    Eliminations
    
    ConsolidatedRevenues from unaffiliated customers
    
    $
    3,769,967
    
    
    $
    1,067,120
    
    
    $
    
    
    
    $
    
    
    
    $
    4,837,087Interest and other income
    
    
    (1,022
    )
    
    
    295,888
    
    
    
    26,622
    
    
    
    (237,149
    )
    
    
    84,339Intersegment revenues
    
    
    
    
    
    
    127,119
    
    
    
    
    
    
    
    (127,119
    )
    
    
    Total revenues from continuing operations
    
    $
    3,768,945
    
    
    $
    1,490,127
    
    
    $
    26,622
    
    
    $
    (364,268
    )
    
    $
    4,921,426Net earnings (loss)
    
    $
    (227,509
    )
    
    $
    2,209,558
    
    
    $
    (783,061
    )
    
    $
    3,496
    
    
    $
    1,202,484
 For the First Nine Months
    
    
    
    
    
    Real EstateEnded January 31, 2008
    
    BPE
    
    (1)
    
    Parent
    
    Eliminations
    
    ConsolidatedRevenues from unaffiliated customers
    
    $
    11,973,959
    
    
    $
    4,309,786
    
    
    $
    
    
    
    $
    
    
    
    $
    16,283,745Interest and other income
    
    
    55,094
    
    
    
    1,062,776
    
    
    
    36,612
    
    
    
    (856,731
    )
    
    
    297,751Intersegment revenues
    
    
    
    
    
    
    444,373
    
    
    
    
    
    
    
    (444,373
    )
    
    
    Total revenues from continuing operations
    
    $
    12,029,053
    
    
    $
    5,816,935
    
    
    $
    36,612
    
    
    $
    (1,301,104
    )
    
    $
    16,581,496Net earnings (loss)
    
    $
    (489,428
    )
    
    $
    4,020,655
    
    
    $
    (1,717,322
    )
    
    $
    (18,075
    )
    
    $
    1,795,830
 For the First Nine Months
    
    
    
    
    
    Real EstateEnded January 31, 2007
    
    BPE
    
    (1)
    
    Parent
    
    Eliminations
    
    ConsolidatedRevenues from unaffiliated customers
    
    $
    9,624,034
    
    
    $
    5,064,798
    
    
    $
    
    
    
    $
    
    
    
    $
    14,688,832Interest and other income
    
    
    53,827
    
    
    
    927,723
    
    
    
    79,139
    
    
    
    (730,160
    )
    
    
    330,529Intersegment revenues
    
    
    
    
    
    
    377,858
    
    
    
    
    
    
    
    (377,858
    )
    
    
    Total revenues from continuing operations
    
    $
    9,677,861
    
    
    $
    6,370,379
    
    
    $
    79,139
    
    
    $
    (1,108,018
    )
    
    $
    15,019,361Net earnings (loss)
    
    $
    (646,419
    )
    
    $
    3,739,946
    
    
    $
    (2,096,478
    )
    
    $
    10,490
    
    
    $
    1,007,539
 10




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(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 gain on 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.  Third Quarter Ended
    
    First Nine Months EndedJanuary 31,
    
    January 31,2008
    
    2007
    
    2008
    
    2007Consolidated segment revenues
    
    $
    4,208,896
    
    
    $
    4,921,426
    
    
    $
    16,581,496
    
    
    $
    15,019,361Revenues from sales of real estate held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,050,000
    )Total consolidated revenues
    
    $
    4,208,896
    
    
    $
    4,921,426
    
    
    $
    16,581,496
    
    
    $
    12,969,361
 NOTE 7. EARNINGS (LOSS) PER SHARE
  11




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NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
  January 31, 2008Gross Carrying
    
    
    AccumulatedAmount
    
    
    AmortizationIntangible assets, subject to amortization:Proprietary BPE software solutions
    
    $
    3,350,259
    
    
    $
    1,651,482Acquired computer software
    
    
    462,555
    
    
    
    448,673Real estate lease costs
    
    
    818,797
    
    
    
    180,906Customer relationships
    
    
    218,000
    
    
    
    178,033Deferred loan costs
    
    
    331,488
    
    
    
    87,949Other
    
    
    28,660
    
    
    
    19,348$
    5,209,759
    
    
    $
    2,566,391Intangible assets and goodwill, not subject to amortization:Trademark
    
    $
    708,707
    
    
    $
    Goodwill
    
    $
    5,458,717
    
    
    $
    
 April 30, 2007Gross Carrying
    
    
    AccumulatedAmount
    
    
    AmortizationIntangible assets, subject to amortization:Proprietary BPE software solutions
    
    $
    3,186,699
    
    
    $
    1,271,190Acquired computer software
    
    
    453,525
    
    
    
    431,551Real estate lease costs
    
    
    1,356,974
    
    
    
    585,259Customer relationships
    
    
    218,000
    
    
    
    145,393Deferred loan costs
    
    
    400,062
    
    
    
    181,439Other
    
    
    28,660
    
    
    
    17,199$
    5,643,920
    
    
    $
    2,632,031Intangible assets and goodwill, not subject to amortization:Trademark
    
    $
    708,707
    
    
    $
    Goodwill
    
    $
    5,458,717
    
    
    $
    
 Aggregate amortization expenses for all amortized intangible assetsFor the third quarter ended January 31, 2008
    
    $
    186,364For the nine months ended January 31, 2008
    
    
    560,838For the third quarter ended January 31, 2007
    
    
    199,358For the nine months ended January 31, 2007
    
    
    489,609
 12




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NOTE 9. DISPOSITIONS
   NOTE 10. MORTGAGE NOTES PAYABLE
   13




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NOTE 11. COMMITMENTS AND CONTINGENCIES
  NOTE
12. SUBSEQUENT EVENT
  14




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
     Results of operations of the third quarter and the first nine months of fiscal 2008, compared
to the third quarter and the first nine months of fiscal 2007.
   CHART A
  Third Quarter Ended
    
    
    
    
    
    
    
    
    
    Nine Months EndedJanuary 31,
    
    Amount
    
    Percent
    
    January 31,
    
    Amount
    
    Percent2008
    
    2007
    
    Decrease
    
    Decrease
    
    2008
    
    2007
    
    Increase
    
    IncreaseBPE (1)
    
    $
    3,220
    
    
    $
    3,770
    
    
    $
    (550
    )
    
    
    (15
    )
    
    $
    11,974
    
    
    $
    9,624
    
    
    $
    2,350
    
    
    
    24Real Estate (2)
    
    
    883
    
    
    
    1,067
    
    
    
    (184
    )
    
    
    (17
    )
    
    
    4,310
    
    
    
    3,015
    
    
    
    1,295
    
    
    
    43$
    4,103
    
    
    $
    4,837
    
    
    $
    (734
    )
    
    
    (15
    )
    
    $
    16,284
    
    
    $
    12,639
    
    
    $
    3,645
    
    
    
    29
 NOTES TO CHART A
 (1)
    
    Building Performance Expert (BPE) Segment revenues decreased by approximately $550,000,
or 15%, for the third quarter of fiscal 2008, compared to the same period in fiscal 2007,
primarily due to:
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(a)
    
    a net decrease in revenues of approximately $847,000, in infrastructure
upgrades and energy savings projects revenues, largely as a result of unexpected
delays in scheduled project revenues from retail customers partially offset by an
increase in projects revenues from industrial and hospitality customers;this net decrease is partially offset by:(b)
    
    an increase of approximately $142,000 in energy management services
revenues; and(c)
    
    an increase of approximately $155,000 in building productivity products
and services revenues.
 BPE Segment revenues increased by approximately $2,350,000, or 24%, for the first nine
months of fiscal 2008, compared to the same period in fiscal 2007, primarily due to:
 (a)
    
    an increase in revenues of approximately $1,416,000, in infrastructure
upgrades and energy savings projects revenues;(b)
    
    an increase of approximately $561,000, in energy management services
revenues; and(c)
    
    an increase of approximately $373,000 in building productivity products
and services revenues.
 (2)
    
    Real Estate Segment revenues decreased by approximately $184,000, or 17%, for the third
quarter of fiscal 2008, compared to the same period in fiscal 2007, primarily due to:
 (a)
    
    a decrease in leaseback income of approximately $151,000 as a result of
the sale of the Companys leaseback shopping center located in Jacksonville,
Florida, which was sold in July 2007, and the sale of the Companys leaseback
shopping center located in Richfield, Minnesota, which was sold in March 2007; and(b)
    
    a decrease in leaseback income of approximately $66,000 as a result of
the sale of the Companys owned shopping center located in Orange Park, Florida,
which was sold in July 2007 (see Note 5 to the consolidated financial statements);partially offset by:(c)
    
    an increase in rental revenues of approximately $104,000 from the
Companys owned office building located in Newnan, Georgia, which was acquired in
March 2007.
 Real Estate Segment revenues increased by approximately $1,295,000, or 43%, for the first
nine months of fiscal 2008, compared to the same period of fiscal 2007, primarily due to:
 (a)
    
    one-time revenues of approximately $1,553,000 related to the sale of the
Companys leaseback shopping center located in Jacksonville, Florida, in July 2007;
and(b)
    
    an increase in rental revenues of approximately $412,000 from the
Companys owned shopping center located in Smyrna, Tennessee, which was acquired in
July 2006, and from the Companys owned office building located in Newnan, Georgia,
which was acquired in March 2007;partially offset by:(c)
    
    a decrease in leaseback income of approximately $378,000 as a result of
the sale of the Companys leaseback shopping center located in Jacksonville,
Florida, which was sold in July 2007, and the sale of the Companys leaseback
shopping center located in Richfield, Minnesota, which was sold in March 2007; and(d)
    
    a decrease in leaseback income of approximately $198,000 as a result of
the sale of the Companys owned shopping center located in Orange Park, Florida,
which was sold in July 2007 (see Note 5 to the consolidated financial statements).
 16




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IncreaseJanuary 31,
    
    (Decrease)2008
    
    2007
    
    Amount
    
    PercentBPE (1)
    
    $
    6,328,000
    
    
    $
    5,866,000
    
    
    $
    462,000
    
    
    
    8Real Estate (2)
    
    
    3,044,000
    
    
    
    4,203,000
    
    
    
    (1,159,000
    )
    
    
    (28
    )Less: Intersegment eliminations ( 3 )
    
    
    (578,000
    )
    
    
    (560,000
    )
    
    
    (18,000
    )
    
    
    3Total Backlog
    
    $
    8,794,000
    
    
    $
    9,509,000
    
    
    $
    (715,000
    )
    
    
    (8
    )
 
 (1)
    
    BPE backlog increased by approximately $462,000 or 8%, primarily due to:
 (a)
    
    an increase of approximately $784,000 in energy management services;
and(b)
    
    an increase of approximately $263,000 in building productivity products and
services;partially offset by:(c)
    
    a decrease of approximately $585,000 in infrastructure upgrade and
energy savings projects that is primarily related to customer delays.
 The Company estimates that the BPE backlog at January 31, 2008, will be recognized prior to
January 31, 2009, with the exception of approximately $839,000 primarily from energy
management services from contracts that extend longer than one year.Backlog includes some contracts that can be cancelled with less than one years notice, and
assumes cancellation provisions will not be invoked. The amount of such cancelled contracts
included in the prior years Backlog was approximately $261,000, or 2.2%.(2)
    
    The decrease in Real Estate backlog of approximately $1,159,000, or 28%, was
primarily due to:
 (a)
    
    the inclusion in the fiscal 2007 backlog of rental revenues of
approximately $603,000 related to the Companys former leaseback shopping centers
located in Jacksonville, Florida, and Richfield, Minnesota, as both properties
were both subsequently sold;(b)
    
    the inclusion in fiscal 2007 backlog of rental revenues of
approximately $264,000 related to the Companys former leaseback interest in the
shopping center located in Orange Park, Florida, which revenues were not
reclassified to discontinued operations upon the sale of the shopping center (see Note 5 to the consolidated
financial statements); and(c)
    
    lower rental revenues of approximately $730,000 related to the
expiration in January 2008 of a third-party lease at the Companys headquarters
building in Atlanta, Georgia;partially offset by:(d)
    
    higher rental revenues of approximately $380,000 related to the
Companys office building located in Newnan, Georgia, which was acquired in March
2007; and(e)
    
    higher rental revenues of approximately $58,000 related to successful
leasing activities at other properties.
 (3)
    
    Represents rental income at the Companys headquarters building to be paid to the
Real Estate Segment over the next twelve months by the Parent Company and the BPE Segment.
 17




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CHART B
  Percent of Segment
    
    
    
    
    
    
    
    
    
    Percent of SegmentRevenues for the
    
    
    
    
    
    
    
    
    
    Revenues for theThird Quarter Ended
    
    Third Quarter Ended
    
    Nine Months Ended
    
    Nine Months EndedJanuary 31,
    
    January 31,
    
    January 31,
    
    January 31,2008
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007BPE (1)
    
    $
    2,159
    
    
    $
    2,636
    
    
    
    67
    
    
    
    70
    
    
    $
    8,105
    
    
    $
    6,466
    
    
    
    68
    
    
    
    67Real Estate (2)
    
    
    516
    
    
    
    659
    
    
    
    58
    
    
    
    62
    
    
    
    1,672
    
    
    
    1,912
    
    
    
    39
    
    
    
    63$
    2,675
    
    
    $
    3,295
    
    
    
    65
    
    
    
    68
    
    
    $
    9,777
    
    
    $
    8,378
    
    
    
    60
    
    
    
    66
 NOTES TO CHART B
 1)
    
    On a dollar basis, BPE costs and expenses decreased by approximately $477,000, or 18%, for
the third quarter of fiscal 2008, and increased by approximately $1,639,000, or 25%, for the
first nine months of fiscal 2008, compared to the same periods of fiscal 2007, primarily as
the result of the corresponding decrease and increase in revenues, respectively (see Chart A),
and from changes in the mix of services and products.BPE costs and expenses as a percentage of revenues decreased by approximately 3% for the third
quarter of fiscal 2008, compared to the same period of fiscal 2007, primarily due to changes in
the mix of services and products.2)
    
    On a dollar basis, Real Estate costs and expenses decreased by approximately $143,000, or
22%, for the third quarter of fiscal 2008, compared to the same period of fiscal 2007,
primarily due to:
 a)
    
    the absence of lease costs of approximately $200,000 as a result of the sale of the
Companys leaseback shopping center located in Jacksonville, Florida, which was sold in
July 2007; the sale of the Companys leaseback shopping center located in Richfield,
Minnesota, which was sold in March 2007; and the sale of the Companys owned shopping
center located in Orange Park, Florida, which was sold in July 2007;
 partially offset by:
 b)
    
    an increase in rental operating costs of approximately $49,000 from the Companys
owned office building located in Newnan, Georgia, which was acquired in March 2007.
  18




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(a)
    
    the absence of lease costs of approximately $543,000 as a result of
the sale of the Companys leaseback shopping center located in Jacksonville,
Florida, which was sold in July 2007; the sale of the Companys leaseback shopping
center located in Richfield, Minnesota, which was sold in March 2007; and the sale
of the Companys owned shopping center located in Orange Park, Florida, which was
sold in July 2007;
 partially offset by:
 (b)
    
    an increase in rental operating costs of approximately $192,000 from
the Companys owned office building located in Newnan, Georgia, which was acquired
in March 2007, and from its owned shopping center located in Smyrna, Tennessee,
which was acquired in July 2006; and(c)
    
    one-time costs of approximately $94,000 from the sale of the
Companys leaseback shopping center located in Jacksonville, Florida, in July
2007.
  
  CHART C
 
 Percent of Segment
    
    
    
    
    
    
    
    
    
    Percent of SegmentRevenues for
    
    
    
    
    
    
    
    
    
    Revenues forThird Quarter Ended
    
    Third Quarter Ended
    
    Nine Months Ended
    
    Nine Months EndedJanuary 31,
    
    January 31,
    
    January 31,
    
    January 31,2008
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007BPE (1)
    
    $
    1,268
    
    
    $
    1,224
    
    
    
    39
    
    
    
    32
    
    
    $
    3,928
    
    
    $
    3,445
    
    
    
    33
    
    
    
    36Real Estate (2)
    
    
    214
    
    
    
    189
    
    
    
    24
    
    
    
    18
    
    
    
    599
    
    
    
    635
    
    
    
    14
    
    
    
    21Parent (3)
    
    
    838
    
    
    
    1,113
    
    
    
    20
    
    
    
    23
    
    
    
    2,455
    
    
    
    2,914
    
    
    
    15
    
    
    
    23$
    2,320
    
    
    $
    2,526
    
    
    
    57
    
    
    
    52
    
    
    $
    6,982
    
    
    $
    6,994
    
    
    
    43
    
    
    
    55
 19




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NOTES TO CHART C
 (1)
    
    BPE SG&A expenses as a percentage of revenues for the third quarter of fiscal 2008, compared
to the same period of fiscal 2007, were affected by the lower volume of revenues presented in
Chart A primarily the result of unexpected customer delays.BPE SG&A expenses as a percentage of revenues decreased by 3% for the first nine months of
fiscal 2008, compared to the same period of fiscal 2007, primarily because the increase in
revenues did not cause a proportional increase in SG&A expenses.On a dollar basis, BPE SG&A expenses for the first nine months of fiscal 2008 increased by
approximately $483,000, or 14%, compared to the same period of fiscal 2007, primarily due to
higher sales and marketing expenses.(2)
    
    On a dollar basis, Real Estate SG&A expenses in the third quarter of fiscal 2008 increased by
approximately $25,000, or 13%, compared to the same period of fiscal 2007, primarily due to an
increase in costs related to the potential sale of a portion of the Companys land located in
Oakwood, Georgia.On a dollar basis, Real Estate SG&A expenses in the first nine months of fiscal 2008 decreased
by $36,000, or 6%, compared to the same period of fiscal 2007, primarily for legal and other
professional fees related to transaction activity.(3)
    
    On a dollar basis and as a percentage of revenues, Parent SG&A expenses decreased by
approximately $275,000, or 25%, in the third quarter of fiscal 2008, compared to the same
period of fiscal 2007, primarily due to:
 (a)
    
    a decrease in incentive compensation accruals of approximately
$219,000, pursuant to the Companys cash incentive compensation plan; and(b)
    
    a decrease in consulting fees of approximately $83,000.
 On a dollar basis and as a percentage of revenues, Parent SG&A expenses decreased by
approximately $459,000, or 16%, in the first nine months of fiscal 2008, compared to the same
period of fiscal 2007, primarily due to:
 (a)
    
    a decrease in incentive compensation accruals of approximately
$239,000, pursuant to the Companys cash incentive compensation plan; and(b)
    
    a decrease in consulting fees of approximately $259,000.
 Gain on sale of asset
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Liquidity and capital resources
   (a)
    
    a net increase in BPE Segment accounts receivable and costs and
earnings in excess of billings of approximately $2,037,000, primarily due to the
higher level of revenues, the timing of billings, and the receipt of payments;partially offset by:(b)
    
    a decrease in other current assets of approximately $283,000,
primarily related to the payment of the cash surrender value of a life insurance
policy of a former executive officer of the Company; and(c)
    
    a net increase in BPE trade accounts payable, accrued expenses, other
liabilities and billings in excess of costs and earnings of approximately
$252,000, due to the timing and submission of payments.
  (a)
    
    the deposit with a qualified intermediary of cash proceeds of
approximately $3,436,000 from the sale described in Note 9 to the consolidated
financial statements in order to qualify the sale for potential federal income tax
deferral under Internal Revenue Code Section 1031;(b)
    
    the purchase of an available-for-sale security of approximately
$2,900,000, which was subsequently sold and converted to cash and cash
equivalents;(c)
    
    additions to income-producing properties of approximately $645,000,
primarily related to tenant and building improvements;(d)
    
    additions to intangible assets of approximately $213,000, primarily
related to development of enhancements to BPEs proprietary building productivity
software solutions; and(e)
    
    additions to property and equipment of approximately $164,000.
  (a)
    
    scheduled principal payments on mortgage notes and other long-term
mortgages of approximately $480,000;(b)
    
    costs of approximately $57,000 related to the refinancing of
long-term mortgages in the Real Estate Segment; and(c)
    
    payments of regular quarterly cash dividends to shareholders of
approximately $382,000;offset by:(d)
    
    net proceeds of approximately $700,000 from the permanent mortgage
loan of $3,200,000 on the Companys office building located in Newnan, Georgia,
which replaced the interim loan of $2,500,000; and(e)
    
    proceeds of $51,000 from the exercise of stock options.
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Critical Accounting Policies
  Revenue Recognition
 Revenue Recognition Revenue Arrangements with Multiple Deliverables.
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Income-Producing Properties and Property and Equipment
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Valuation of Goodwill and Other Intangible Assets
  Income Taxes
  Discontinued Operations
 Accounting for the Impairment or Disposal of Long-Lived Assets,
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
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ITEM 1A. RISK FACTORS
  
 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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SERVIDYNE, INC.
     (Registrant)Date: March 17, 2008
    
    /s/ Alan R. AbramsAlan R. AbramsChief Executive OfficerDate: March 17, 2008
    
    /s/ Rick A. PaternostroRick A. PaternostroChief Financial Officer 27