##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT
 Pursuant to Section 13 or 15(d) ofthe
Securities Exchange Act of 1934
 For the quarter ended October 31, 2007
 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
  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 6. EXHIBITSSIGNATURESEX-31.(A) SECTION 302 CERTIFICATION OF THE CEOEX-31.(B) SECTION 302 CERTIFICATION OF THE CFOEX-32.(A) SECTION 906 CERTIFICATION OF THE CEOEX-32.(B) SECTION 906 CERTIFICATION OF THE CFO    Table of Contents  
  
 ITEM 1. FINANCIAL STATEMENTS
 SERVIDYNE, INC.
 (UNAUDITED)October 31, 2007
    
    
    April 30, 2007ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    4,331,738
    
    
    $
    5,662,894Receivables (Note 4)
    
    
    3,403,596
    
    
    
    2,229,813Less: Allowance for doubtful accounts
    
    
    (28,639
    )
    
    
    (14,713
    )Costs and earnings in excess of billings
    
    
    589,223
    
    
    
    265,540Deferred income taxes
    
    
    460,820
    
    
    
    443,030Other
    
    
    1,039,094
    
    
    
    1,623,535Total current assets
    
    
    9,795,832
    
    
    
    10,210,099RESTRICTED CASH (Note 9)
    
    
    6,534,893
    
    
    
    INCOME-PRODUCING PROPERTIES, net
    
    
    29,241,761
    
    
    
    29,090,789ASSETS OF DISCONTINUED OPERATIONS (Notes 5 and 9)
    
    
    
    
    
    
    2,898,275PROPERTY AND EQUIPMENT, net
    
    
    798,268
    
    
    
    838,886OTHER ASSETS:Real estate held for future development or sale
    
    
    1,124,850
    
    
    
    1,124,850Intangible assets, net (Note 8)
    
    
    3,669,794
    
    
    
    3,919,455Goodwill (Note 8)
    
    
    5,458,717
    
    
    
    5,458,717Other
    
    
    3,273,811
    
    
    
    3,852,350Total assets
    
    $
    59,897,926
    
    
    $
    57,393,421LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Trade accounts payable
    
    $
    796,550
    
    
    $
    635,308Accrued expenses
    
    
    2,493,309
    
    
    
    2,596,127Liabilities of discontinued operations (Note 5)
    
    
    
    
    
    
    32,559Billings in excess of costs and earnings
    
    
    246,623
    
    
    
    219,305Current maturities of mortgage notes and long-term debt payable
    
    
    1,168,809
    
    
    
    1,002,718Total current liabilities
    
    
    4,705,291
    
    
    
    4,486,017DEFERRED INCOME TAXES
    
    
    4,911,080
    
    
    
    4,233,498OTHER LIABILITIES
    
    
    1,396,576
    
    
    
    2,074,954LIABILITIES OF DISCONTINUED OPERATIONS (Note 5)
    
    
    
    
    
    
    375,776MORTGAGE NOTES PAYABLE, less current maturities (Note 10)
    
    
    25,244,061
    
    
    
    23,587,965OTHER LONG-TERM DEBT, less current maturities
    
    
    1,160,000
    
    
    
    1,175,000Total liabilities
    
    
    37,417,008
    
    
    
    35,933,210COMMITMENTS AND CONTINGENCIES (Note 11)SHAREHOLDERS EQUITY:Common stock, $1 par value; 5,000,000 shares authorized;
3,697,836 issued and 3,529,570 outstanding at October 31, 2007,
3,695,336 issued and 3,527,070 outstanding at April 30, 2007
    
    
    3,697,836
    
    
    
    3,695,336Additional paid-in capital
    
    
    4,934,121
    
    
    
    4,875,160Retained earnings
    
    
    14,644,025
    
    
    
    13,684,779Treasury stock (common shares)
168,266 at October 31, 2007, and 168,266 at April 30, 2007
    
    
    (795,064
    )
    
    
    (795,064
    )Total shareholders equity
    
    
    22,480,918
    
    
    
    21,460,211Total liabilities and shareholders equity
    
    $
    59,897,926
    
    
    $
    57,393,421
 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 31,2007
    
    
    2006
    
    
    2007
    
    
    2006REVENUES:Building Performance Expert (BPE)
    
    $
    3,987,123
    
    
    $
    3,238,652
    
    
    $
    8,753,515
    
    
    $
    5,854,067Real Estate
    
    
    1,273,959
    
    
    
    1,423,861
    
    
    
    4,181,346
    
    
    
    2,722,8765,261,082
    
    
    
    4,662,513
    
    
    
    12,934,861
    
    
    
    8,576,943Interest
    
    
    99,849
    
    
    
    82,133
    
    
    
    112,733
    
    
    
    175,790Other
    
    
    15,327
    
    
    
    31,988
    
    
    
    84,944
    
    
    
    97,0365,376,258
    
    
    
    4,776,634
    
    
    
    13,132,538
    
    
    
    8,849,769COSTS AND EXPENSES:BPE
    
    
    2,760,396
    
    
    
    2,113,354
    
    
    
    5,945,980
    
    
    
    3,829,384Real Estate, excluding interest
    
    
    824,471
    
    
    
    1,020,124
    
    
    
    1,794,943
    
    
    
    1,921,8493,584,867
    
    
    
    3,133,478
    
    
    
    7,740,923
    
    
    
    5,751,233Selling, general and administrativeBPE
    
    
    1,336,182
    
    
    
    1,066,445
    
    
    
    2,660,207
    
    
    
    2,221,021Real Estate
    
    
    190,135
    
    
    
    239,861
    
    
    
    384,782
    
    
    
    446,565Parent
    
    
    340,535
    
    
    
    1,027,720
    
    
    
    1,617,520
    
    
    
    1,800,0371,866,852
    
    
    
    2,334,026
    
    
    
    4,662,509
    
    
    
    4,467,623Interest costs incurred
    
    
    470,116
    
    
    
    409,098
    
    
    
    918,180
    
    
    
    758,6515,921,835
    
    
    
    5,876,602
    
    
    
    13,321,612
    
    
    
    10,977,507GAIN ON SALE
OF REAL ESTATE, net of costs of sale of $0, $504,563, $0, and $504,563, respectively
    
    
    
    
    
    
    1,545,437
    
    
    
    
    
    
    
    1,545,437(LOSS) EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES
    
    
    (545,577
    )
    
    
    445,469
    
    
    
    (189,074
    )
    
    
    (582,301
    )INCOME TAX (BENEFIT) EXPENSE
    
    
    (200,705
    )
    
    
    169,522
    
    
    
    (123,922
    )
    
    
    (221,273
    )(LOSS) EARNINGS FROM CONTINUING OPERATIONS
    
    
    (344,872
    )
    
    
    275,947
    
    
    
    (65,152
    )
    
    
    (361,028
    )DISCONTINUED OPERATIONS:Earnings from discontinued operations, adjusted for applicable
income tax expense of $0, $49,036, $54,755 and $101,794,
respectively
    
    
    
    
    
    
    80,004
    
    
    
    89,337
    
    
    
    166,084Gain on sale of income producing real estate, adjusted for applicable
income tax expense of $0, $0, $728,954 and $0, respectively
    
    
    
    
    
    
    
    
    
    
    1,189,347
    
    
    
    EARNINGS FROM DISCONTINUED OPERATIONS
    
    
    
    
    
    
    80,004
    
    
    
    1,278,684
    
    
    
    166,084NET (LOSS) EARNINGS
    
    $
    (344,872
    )
    
    $
    355,951
    
    
    $
    1,213,532
    
    
    $
    (194,944
    )NET (LOSS) EARNINGS PER SHARE  BASIC AND DILUTEDFrom continuing operations
    
    $
    (0.10
    )
    
    $
    0.08
    
    
    $
    (0.02
    )
    
    $
    (0.10
    )From discontinued operations
    
    
    
    
    
    
    0.02
    
    
    
    0.36
    
    
    
    0.05NET (LOSS) EARNINGS PER SHARE  BASIC AND DILUTED
    
    $
    (0.10
    )
    
    $
    0.10
    
    
    $
    0.34
    
    
    $
    (0.05
    )DIVIDENDS PER SHARE
    
    $
    0.036
    
    
    $
    0.036
    
    
    $
    0.072
    
    
    $
    0.072WEIGHTED AVERAGE SHARES OUTSTANDING  BASIC AND DILUTED
    
    
    3,529,444
    
    
    
    3,531,600
    
    
    
    3,529,294
    
    
    
    3,531,850
 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,213,532
    
    
    
    
    
    
    
    1,213,532Common stock issued
    
    
    2,500
    
    
    
    2,500
    
    
    
    (2,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock compensation
expense
    
    
    
    
    
    
    
    
    
    
    61,461
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,461Cash dividends
declared -
$.072 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (254,286
    )
    
    
    
    
    
    
    (254,286
    )BALANCES at October 31, 2007
    
    
    3,697,836
    
    
    $
    3,697,836
    
    
    $
    4,934,121
    
    
    $
    
    
    
    $
    14,644,025
    
    
    $
    (795,064
    )
    
    $
    22,480,918
 See accompanying notes to consolidated financial statements.
 3




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##### Table of Contents



SERVIDYNE, INC.
 FIRST SIX MONTHS ENDEDOCTOBER 31,2007
    
    
    2006CONTINUING OPERATIONS:Cash flows from operating activities:Net earnings (loss)
    
    $
    1,213,532
    
    
    $
    (194,944
    )Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:Income from discontinued operations, net of tax
    
    
    (1,278,684
    )
    
    
    (166,084
    )Loss (gain) on sale of real estate
    
    
    83,194
    
    
    
    (1,545,437
    )Loss on disposal of assets
    
    
    11,630
    
    
    
    Depreciation and amortization
    
    
    961,478
    
    
    
    808,586Deferred tax benefit
    
    
    (123,922
    )
    
    
    (119,480
    )Provision for doubtful accounts, net
    
    
    13,926
    
    
    
    39,050Stock compensation expense
    
    
    61,481
    
    
    
    22,636Cash surrender value
    
    
    (39,533
    )
    
    
    (62,627
    )Straight-line rent
    
    
    29,133
    
    
    
    (10,443
    )Changes in assets and liabilities:Receivables
    
    
    (1,173,783
    )
    
    
    (910,044
    )Costs and earnings in excess of billings
    
    
    (323,683
    )
    
    
    225,560Note receivables
    
    
    500
    
    
    
    602,405Other current assets
    
    
    583,941
    
    
    
    (757,033
    )Other assets
    
    
    
    
    
    
    1,063Trade accounts payable
    
    
    161,242
    
    
    
    (411,434
    )Accrued expenses
    
    
    (102,820
    )
    
    
    (29,119
    )Billings in excess of costs and earnings
    
    
    27,318
    
    
    
    (56,962
    )Other liabilities
    
    
    312,019
    
    
    
    (55,279
    )Net cash provided by (used in) operating activities
    
    
    416,949
    
    
    
    (2,619,586
    )Cash flows from investing activities;Release of restricted cash held in escrow
    
    
    
    
    
    
    418,594Deposit of cash proceeds from sale of real estate held in escrow
    
    
    (6,464,276
    )
    
    
    (1,931,666
    )Deposit of interest on cash proceeds held in escrow
    
    
    (70,617
    )
    
    
    (14,455
    )Proceeds from sale of real estate
    
    
    
    
    
    
    1,867,052Additions to income-producing properties, net
    
    
    (635,186
    )
    
    
    (195,973
    )Additions to property and equipment, net
    
    
    (54,456
    )
    
    
    (63,705
    )Additions to intangible assets, net
    
    
    (119,040
    )
    
    
    (495,508
    )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
    
    
    (7,343,575
    )
    
    
    (2,314,654
    )Cash flows from financing activities:Mortgage proceeds
    
    
    9,850,000
    
    
    
    6,700,000Mortgage repayments
    
    
    (8,279,170
    )
    
    
    (2,600,000
    )Debt repayments
    
    
    (150,102
    )
    
    
    (240,917
    )Repurchase of common stock
    
    
    
    
    
    
    (19,747
    )Deferred loan costs paid
    
    
    (123,311
    )
    
    
    (113,696
    )Cash dividends
    
    
    (254,286
    )
    
    
    (254,514
    )Net cash provided by financing activities
    
    
    1,043,131
    
    
    
    3,471,126DISCONTINUED OPERATIONS:Operating activities
    
    
    151,106
    
    
    
    185,136Investing activities
    
    
    4,809,567
    
    
    
    Financing activities
    
    
    (408,334
    )
    
    
    (288,159
    )Net cash provided by (used in) discontinued operations
    
    
    4,552,339
    
    
    
    (103,023
    )Net decrease in cash and cash equivalents
    
    
    (1,331,156
    )
    
    
    (1,566,137
    )Cash and cash equivalents at beginning of period
    
    
    5,692,894
    
    
    
    7,329,805Cash and cash equivalents at end of period
    
    $
    4,331,738
    
    
    $
    5,763,668
 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)
   5




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##### Table of Contents



Stock Options
  WeightedOptions to
    
    
    AveragePurchase
    
    
    ExerciseShares
    
    
    PriceOutstanding at April 30, 2007
    
    
    567,181
    
    
    $
    4.66Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited / Expired
    
    
    (40,670
    )
    
    
    4.65Outstanding at October 31, 2007
    
    
    526,511
    
    
    $
    4.66Vested at October 31, 2007
    
    
    526,511
    
    
    $
    4.66
   Number of
    
    Weighted AverageExercise
    
    Outstanding and
    
    Remaining ContractualPrice
    
    Exercisable Options
    
    Life (Years)$4.64
    
    
    461,838
    
    
    
    5.14$4.82
    
    
    63,800
    
    
    
    7.40$5.45
    
    
    873
    
    
    
    6.63
 Stock Appreciation Rights (SARs)
  WeightedSARs to
    
    
    AveragePurchase
    
    
    ExerciseShares
    
    
    PriceOutstanding at April 30, 2007
    
    
    430,000
    
    
    $
    4.06Granted
    
    
    62,000
    
    
    
    5.80Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (25,000
    )
    
    
    4.06Outstanding at October 31, 2007
    
    
    467,000
    
    
    $
    4.29Vested at October 31, 2007
    
    
    
    
    
    $
    
  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
    Weighted AverageNumber of
    
    
    Grant DateRestricted
    
    
    Fair ValueShares of Stock
    
    
    per ShareNon-vested restricted stock at April 30, 2007
    
    
    
    
    
    $
    Granted
    
    
    2,500
    
    
    
    4.48Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Non-vested restricted stock at October 31, 2007
    
    
    2,500
    
    
    $
    4.48
 7




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##### Table of Contents



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



Second Quarter Ended
    
    
    First Six Months EndedOctober 31,
    
    
    October 31,2007
    
    
    2006
    
    
    2007
    
    
    2006REAL ESTATE SEGMENTRental revenues
    
    $
    
    
    
    $
    226,128
    
    
    $
    173,592
    
    
    $
    452,256Rental property operating expenses, including
depreciation
    
    
    
    
    
    
    (43,667
    )
    
    
    (23,025
    )
    
    
    (74,622
    )Interest
expense and mortgage prepayment fees
    
    
    
    
    
    
    (53,421
    )
    
    
    (6,475
    )
    
    
    (109,756
    )Operating earnings from discontinued operations
before income taxes
    
    
    
    
    
    
    129,040
    
    
    
    144,092
    
    
    
    267,878Income tax expense
    
    
    
    
    
    
    (49,036
    )
    
    
    (54,755
    )
    
    
    (101,794
    )Operating earnings from discontinued operations,
net of tax
    
    
    
    
    
    
    80,004
    
    
    
    89,337
    
    
    
    166,084Gain on sales of income-producing real estate
    
    
    
    
    
    
    
    
    
    
    1,918,301
    
    
    
    Income tax expense
    
    
    
    
    
    
    
    
    
    
    (728,954
    )
    
    
    Gain on sales of income-producing real estate,
net of tax
    
    
    
    
    
    
    
    
    
    
    1,189,347
    
    
    
    Earnings from discontinued operations, net of tax
    
    $
    
    
    
    $
    80,004
    
    
    $
    1,278,684
    
    
    $
    166,084
 Balances atOctober 31, 2007
    
    
    April 30, 2007Assets of Discontinued OperationsIncome-producing properties
    
    $
    
    
    
    $
    2,870,240Intangible assets
    
    
    
    
    
    
    28,035$
    
    
    
    $
    2,898,275Liabilities of Discontinued OperationsCurrent maturities of mortgage notes and long-term debt payable
    
    $
    
    
    
    $
    32,559Mortgage notes payable
    
    
    
    
    
    
    375,776$
    
    
    
    $
    408,335
 NOTE 6. OPERATING SEGMENTS
  9




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For the Second Quarter Ended
    
    
    
    
    
    Real EstateOctober
31, 2007
    
    BPE
    
    (1)
    
    Parent
    
    Eliminations
    
    ConsolidatedRevenues from unaffiliated
customers
    
    $
    3,987,123
    
    
    $
    1,273,959
    
    
    $
    
    
    
    $
    
    
    
    $
    5,261,082Interest and other income
    
    
    
    
    
    
    405,622
    
    
    
    15,278
    
    
    
    (305,724
    )
    
    
    115,176Intersegment revenues
    
    
    
    
    
    
    147,541
    
    
    
    
    
    
    
    (147,541
    )
    
    
    Total revenues from
continuing operations
    
    $
    3,987,123
    
    
    $
    1,827,122
    
    
    $
    15,278
    
    
    $
    (453,265
    )
    
    $
    5,376,258Net (loss) earnings
    
    $
    (234,141
    )
    
    $
    200,346
    
    
    $
    (398,052
    )
    
    $
    86,975
    
    
    $
    (344,872
    )
 For the Second Quarter Ended
    
    
    
    
    
    Real EstateOctober
31, 2006
    
    BPE
    
    (1)
    
    Parent

    Eliminations

    ConsolidatedRevenues from unaffiliated
customers
    
    $
    3,238,652
    
    
    $
    3,473,861
    
    
    $
    
    
    
    $
    
    
    
    $
    6,712,513Interest and other income
    
    
    7,772
    
    
    
    299,137
    
    
    
    35,829
    
    
    
    (228,617
    )
    
    
    114,121Intersegment revenues
    
    
    
    
    
    
    126,596
    
    
    
    
    
    
    
    (126,596
    )
    
    
    Total revenues from
continuing operations
    
    $
    3,246,424
    
    
    $
    3,899,594
    
    
    $
    35,829
    
    
    $
    (355,213
    )
    
    $
    6,826,634Net (loss) earnings
    
    $
    (126,282
    )
    
    $
    1,375,424
    
    
    $
    (826,007
    )
    
    $
    (67,184
    )
    
    $
    355,951
 For the First Six Months Ended
    
    
    
    
    
    Real EstateOctober
31, 2007
    
    BPE
    
    (1)
    
    Parent
    
    Eliminations
    
    ConsolidatedRevenues from unaffiliated
customers
    
    $
    8,753,515
    
    
    $
    4,181,346
    
    
    $
    
    
    
    $
    
    
    
    $
    12,934,861Interest and other income
    
    
    55,094
    
    
    
    697,868
    
    
    
    28,048
    
    
    
    (583,333
    )
    
    
    197,677Intersegment revenues
    
    
    
    
    
    
    295,105
    
    
    
    
    
    
    
    (295,105
    )
    
    
    Total revenues from
continuing operations
    
    $
    8,808,609
    
    
    $
    5,174,319
    
    
    $
    28,048
    
    
    $
    (878,438
    )
    
    $
    13,132,538Net (loss) earnings
    
    $
    (199,546
    )
    
    $
    2,540,505
    
    
    $
    (1,208,378
    )
    
    $
    80,951
    
    
    $
    1,213,532
 For the First Six Months Ended
    
    
    
    
    
    Real EstateOctober
31, 2006
    
    BPE
    
    (1)
    
    Parent
    
    Eliminations
    
    ConsolidatedRevenues from unaffiliated
customers
    
    $
    5,854,067
    
    
    $
    4,772,876
    
    
    $
    
    
    
    $
    
    
    
    $
    10,626,943Interest and other income
    
    
    54,849
    
    
    
    644,358
    
    
    
    52,517
    
    
    
    (478,898
    )
    
    
    272,826Intersegment revenues
    
    
    
    
    
    
    250,739
    
    
    
    
    
    
    
    (250,739
    )
    
    
    Total revenues from
continuing operations
    
    $
    5,908,916
    
    
    $
    5,667,973
    
    
    $
    52,517
    
    
    $
    (729,637
    )
    
    $
    10,899,769Net (loss) earnings
    
    $
    (418,910
    )
    
    $
    1,644,389
    
    
    $
    (1,356,737
    )
    
    $
    (63,686
    )
    
    $
    (194,944
    )
 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 sale of certain income-producing properties, and earnings
included in continuing operations that resulted from the gain on sale of other real estate
assets.  Second Quarter Ended
    
    
    First Six Months EndedOctober 31,
    
    
    October 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Consolidated segment revenues
    
    $
    5,376,258
    
    
    $
    6,826,634
    
    
    $
    13,132,538
    
    
    $
    10,899,769Revenues from sales of real estate held for sale
    
    
    
    
    
    
    (2,050,000
    )
    
    
    
    
    
    
    (2,050,000
    )Total consolidated revenues
    
    $
    5,376,258
    
    
    $
    4,776,634
    
    
    $
    13,132,538
    
    
    $
    8,849,769
 NOTE 7. EARNINGS (LOSS) PER SHARE
  11




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NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
  October 31, 2007Gross Carrying
    
    
    AccumulatedIntangible assets, subject to amortization:
    
    Amount
    
    
    AmortizationProprietary BPE software solutions
    
    $
    3,266,363
    
    
    $
    1,520,901Acquired computer software
    
    
    462,555
    
    
    
    444,305Real estate lease costs
    
    
    1,378,831
    
    
    
    556,798Customer relationships
    
    
    218,000
    
    
    
    167,133Deferred loan costs
    
    
    421,948
    
    
    
    107,501Other
    
    
    28,660
    
    
    
    18,632$
    5,776,357
    
    
    $
    2,815,270Intangible assets and goodwill, not subject to amortization:Trademark
    
    $
    708,707
    
    
    $
    Goodwill
    
    $
    5,458,717
    
    
    $
    
 April 30, 2007Gross Carrying
    
    
    AccumulatedIntangible assets, subject to amortization:
    
    Amount
    
    
    AmortizationProprietary BPE software solutions
    
    $
    3,186,699
    
    
    $
    1,271,190Acquired computer software
    
    
    453,525
    
    
    
    431,551Real estate lease costs
    
    
    1,779,868
    
    
    
    818,054Customer relationships
    
    
    218,000
    
    
    
    145,393Deferred loan costs
    
    
    531,432
    
    
    
    304,049Other
    
    
    28,660
    
    
    
    17,199$
    6,198,184
    
    
    $
    2,987,436Intangible assets and goodwill, not subject to amortization:Trademark
    
    $
    708,707
    
    
    $
    Goodwill
    
    $
    5,458,717
    
    
    $
    
 Aggregate amortization expenses for all amortized intangible assetsFor the
second quarter ended October 31, 2007
    
    $
    207,459For the six months ended October 31, 2007
    
    
    414,472For the
second quarter ended October 31, 2006
    
    
    202,383For the six months ended October 31, 2006
    
    
    353,280
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NOTE 9. DISPOSITIONS
  NOTE 10. MORTGAGE NOTES PAYABLE
   NOTE 11. COMMITMENTS AND CONTINGENCIES
  NOTE 12. SUBSEQUENT EVENTS
  13




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
     Results of operations of the second quarter and the first six months of fiscal 2008, compared
to the second quarter and the first six months of fiscal 2007.
   14




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CHART A
 Second Quarter Ended
    
    Amount
    
    Percent
    
    Six Months Ended
    
    Amount
    
    PercentOctober 31,
    
    Increase
    
    Increase
    
    October 31,
    
    Increase
    
    Increase2007
    
    2006
    
    (Decrease)
    
    (Decrease)
    
    2007
    
    2006
    
    (Decrease)
    
    (Decrease)BPE (1)
    
    $
    3,987
    
    
    $
    3,239
    
    
    $
    748
    
    
    
    23
    
    
    $
    8,754
    
    
    $
    5,854
    
    
    $
    2,900
    
    
    
    50Real Estate (2)
    
    
    1,274
    
    
    
    1,424
    
    
    
    (150
    )
    
    
    (11
    )
    
    
    4,181
    
    
    
    2,723
    
    
    
    1,458
    
    
    
    54$
    5,261
    
    
    $
    4,663
    
    
    $
    598
    
    
    
    13
    
    
    $
    12,935
    
    
    $
    8,577
    
    
    $
    4,358
    
    
    
    51
 NOTES TO CHART A
 (1)
    
    Building Performance Expert (BPE) Segment revenues increased by approximately $748,000,
or 23%, for the second quarter of fiscal 2008, compared to the same period in fiscal 2007,
primarily due to:
 (a)
    
    an increase in revenues of approximately $456,000, in infrastructure
upgrades and energy savings projects;(b)
    
    an increase of approximately $97,000, in energy management services; and(c)
    
    an increase of approximately $98,000, in building productivity services.
 BPE Segment revenues increased by approximately $2,900,000, or 50%, for the first six months
of fiscal 2008, compared to the same period in fiscal 2007, primarily due to:
 (a)
    
    an increase in revenues of approximately $2,262,000, in infrastructure
upgrades and energy savings projects;(b)
    
    an increase of approximately $417,000, in energy management services; and(c)
    
    an increase of approximately $116,000, in building productivity services.
 (2)
    
    Real Estate Segment revenues decreased by approximately $150,000, or 11%, for the second
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 $106,000 from the
Companys owned office building located in Newnan, Georgia, which was acquired in
March 2007.
 Real Estate Segment revenues increased by approximately $1,458,000, or 54%, for the first six
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 $308,000 from the
Companys shopping center located in Smyrna, Tennessee, which was acquired in July
2006, and from the Companys office building located in Newnan, Georgia, which was
acquired in March 2007;
 partially offset by:
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(c)
    
    a decrease in leaseback income of approximately $227,000 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 $132,000 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).
  IncreaseOctober 31,
    
    
    (Decrease)2007
    
    
    2006
    
    
    Amount
    
    
    PercentBPE (1)
    
    $
    6,892,000
    
    
    $
    6,038,000
    
    
    $
    854,000
    
    
    
    14Real Estate (2)
    
    
    4,585,000
    
    
    
    5,526,000
    
    
    
    (941,000
    )
    
    
    (17
    )Less: Intersegment eliminations ( 3 )
    
    
    (574,000
    )
    
    
    (556,000
    )
    
    
    (18,000
    )
    
    
    3Total Backlog
    
    $
    10,903,000
    
    
    $
    11,008,000
    
    
    $
    (105,000
    )
    
    
    (1
    )
 
 (1)
    
    BPE backlog increased by approximately $854,000, or 14%, primarily due to:
 (a)
    
    an increase of approximately $1,457,000 in energy management services;
and(b)
    
    an increase of approximately $332,000 in building productivity services;
 partially offset by:
 (c)
    
    a decrease of approximately $954,000 in infrastructure upgrade and energy
savings projects.
 The Company estimates that the BPE backlog at October 31, 2007, will be recognized prior to
October 31, 2008, with the exception of approximately $867,000 in 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 for such cancelled contracts
included in the prior years Backlog was approximately $281,000, or 2.6%.(2)
    
    The decrease in Real Estate backlog of approximately $941,000, or 17%, was primarily
due to:
 (a)
    
    the inclusion in the fiscal 2007 backlog of rental revenues of
approximately $604,000 related to the Companys former leaseback shopping centers
located in Jacksonville, Florida, and Richfield, Minnesota, which 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 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 $608,000 related to the pending
expiration in January 2008 of a third-party lease at the Companys headquarters
building in Atlanta, Georgia;
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partially offset by:
 (d)
    
    higher rental revenues of approximately $375,000 related to the Companys
office building located in Newnan, Georgia, which was acquired in March 2007; and(e)
    
    higher rental revenues of approximately $142,000 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.
 
   CHART B
 Percent of Segment
    
    
    
    
    
    
    
    
    
    Percent of SegmentRevenues for the
    
    
    
    
    
    
    
    
    
    Revenues for theSecond Quarter Ended
    
    Second Quarter Ended
    
    Six Months Ended
    
    Six Months EndedOctober 31,
    
    October 31,
    
    October 31,
    
    October 31,2007
    
    2006
    
    2007
    
    2006
    
    2007
    
    2006
    
    2007
    
    2006BPE (1)
    
    $
    2,760
    
    
    $
    2,113
    
    
    
    69
    
    
    
    65
    
    
    $
    5,946
    
    
    $
    3,829
    
    
    
    68
    
    
    
    65Real Estate (2)
    
    
    825
    
    
    
    1,020
    
    
    
    65
    
    
    
    72
    
    
    
    1,795
    
    
    
    1,922
    
    
    
    43
    
    
    
    71$
    3,585
    
    
    $
    3,133
    
    
    
    68
    
    
    
    67
    
    
    $
    7,741
    
    
    $
    5,751
    
    
    
    60
    
    
    
    67
 NOTES TO CHART B
 1)
    
    On a dollar basis, BPE costs and expenses increased by approximately $647,000, or 31%, for
the second quarter of fiscal 2008, and approximately $2,117,000, or 55%, for the first six
months of fiscal
2008, compared to the same periods of fiscal 2007, primarily as a result of the corresponding
increase in revenues.BPE costs and expenses as a percentage of revenues increased by approximately 4% and 3% for the
second quarter and first six months of fiscal 2008, respectively, compared to the same periods
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 $195,000, or
19%, for the second quarter of fiscal 2008, compared to the same period of fiscal 2007,
primarily due to the absence of lease costs of approximately $201,000 as a result of the sale
of the Companys leaseback
 17




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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.
 On a dollar basis, Real Estate costs and expenses decreased by approximately $127,000, or 7%,
for the first six months of fiscal 2008, compared to the same period of fiscal 2007, primarily
due to:
 (a)
    
    the absence of lease costs of approximately $358,000 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)
    
    costs of approximately $95,000 from the sale of the Companys leaseback
shopping center located in Jacksonville, Florida; and(c)
    
    an increase in rental operating costs of approximately $140,000 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.
 As a percentage of revenues, Real Estate costs and expenses were lower for the second quarter of
fiscal 2008, compared to fiscal 2007, primarily due to the one-time revenues of approximately
$1,553,000 in the current year that resulted from the sale of the Companys leaseback shopping
center located in Jacksonville, Florida, in July 2007; the costs of the sale were approximately
$95,000.
 
  18




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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 31,2007
    
    2006
    
    2007
    
    2006
    
    2007
    
    2006
    
    2007
    
    2006BPE (1)
    
    $
    1,336
    
    
    $
    1,066
    
    
    
    34
    
    
    
    33
    
    
    $
    2,660
    
    
    $
    2,221
    
    
    
    30
    
    
    
    38Real Estate (2)
    
    
    190
    
    
    
    240
    
    
    
    15
    
    
    
    17
    
    
    
    385
    
    
    
    447
    
    
    
    9
    
    
    
    16Parent (3)
    
    
    341
    
    
    
    1,028
    
    
    
    6
    
    
    
    22
    
    
    
    1,618
    
    
    
    1,800
    
    
    
    13
    
    
    
    21$
    1,867
    
    
    $
    2,334
    
    
    
    35
    
    
    
    50
    
    
    $
    4,663
    
    
    $
    4,468
    
    
    
    36
    
    
    
    52
 NOTES TO CHART C
 (1)
    
    BPE SG&A expenses as a percentage of revenues decreased by 8% for the first six 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 second quarter of fiscal 2008 increased by
approximately $270,000, or 25%, compared to the same period of fiscal 2007, primarily due to
higher sales and marketing expenses.On a dollar basis, BPE SG&A expenses for the first six months of fiscal 2008 increased by
approximately $439,000, or 20%, 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 second quarter of fiscal 2008 decreased
by approximately $50,000, or 21%, compared to the same period of fiscal 2007, primarily due
to:
 (a)
    
    a decrease in legal and professional fees of approximately $30,000
related to transaction activity; and(b)
    
    a decrease in personnel costs of approximately $23,000.
 On a dollar basis, Real Estate SG&A expenses in the first six months of fiscal 2008 decreased by
$62,000, or 14%, compared to the same period of fiscal 2007, primarily due to:
 (a)
    
    a decrease in legal and professional fees of approximately $31,000
related to transaction activity; and(b)
    
    a decrease of approximately $16,000 related to real estate
held for sale or future development.
 (3)
    
    On a dollar basis and as a percentage of revenues, Parent SG&A expenses decreased by
approximately $687,000, or 67%, in the second quarter of fiscal 2008, compared to the same
period of fiscal 2007, primarily due to:
 (a)
    
    a decrease in incentive compensation accruals of approximately $593,000,
pursuant to
the Companys cash incentive compensation plan; and(b)
    
    a decrease in consulting fees of approximately $109,000.
 On a dollar basis and as a percentage of revenues, Parent SG&A expenses
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decreased approximately $182,000, or 10%, in the first six months of fiscal 2008,
compared to the same period of fiscal 2007, primarily due to a decrease in consulting fees of
approximately $176,000.
 Gain on sale of asset
  Liquidity and capital resources
   (a)
    
    earnings from continuing operations, net of all non-cash items, of
approximately $932,000.(b)
    
    a decrease in other current assets of approximately $584,000, primarily
related to the payment of the cash surrender value of a life insurance policy of a
former executive officer of the Company in fiscal 2007;(c)
    
    an increase in other liabilities of approximately $312,000, primarily
related to notes payable to the minority interest owners of the leasehold interest
in the land and the owned shopping center building located in Columbus, Georgia,
which were sold in the first quarter of fiscal 2008; and(d)
    
    a net increase in BPE trade accounts payable, accrued expenses, and
billings in excess of costs and earnings of approximately $86,000, due to the timing
and submission of payments;
 partially offset by:
 (e)
    
    a net increase in BPE Segment accounts receivable and costs and earnings
in excess of billings of approximately $1,497,000, primarily due to the higher level
of revenues, the timing of billings and the receipt of payments.
  (a)
    
    the deposit with a qualified intermediary of cash proceeds of
approximately $6,463,000 from the sales described in Note 9 to the consolidated
financial statements in order to qualify the sales for potential federal income tax
deferral under internal Revenue Code Section 1031;(b)
    
    additions to income-producing properties of approximately $635,000,
primarily related to tenant and building improvements;(c)
    
    additions to intangible assets of approximately $119,000, primarily
related to the development of BPEs proprietary building productivity software
solutions; and(d)
    
    additions to property and equipment of approximately $54,000, primarily
related to the purchase of computer equipment.
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(a)
    
    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(b)
    
    net proceeds of approximately $871,000 from the new mortgage loan of
approximately $6,650,000 on the Companys owned office park located in Marietta,
Georgia, which replaced the original mortgage loan of approximately $5,779,000. The
new mortgage was paid off in full on December 13, 2007, in conjunction with the sale
of the Companys owned office park (See Note 12 Subsequent Events);
 offset by:
 (c)
    
    scheduled principal payments on mortgage notes and other long-term
mortgages of approximately $150,000;(d)
    
    costs of approximately $123,000 related to the refinancing of long term
mortgages in the Real Estate Segment; and(e)
    
    payments of regular quarterly cash dividends to shareholders of
approximately $254,000.
   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,
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
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ITEM 1A. RISK FACTORS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  DIRECTORS
    
    VOTES FOR
    
    VOTES WITHHELDAlan R. Abrams
    
    2,246,932
    
    55,120J. Andrew Abrams
    
    2,245,646
    
    56,406Samuel E. Allen
    
    2,246,486
    
    55,566Gilbert L. Danielson
    
    2,246,386
    
    55,666Robert T. McWhinney, Jr.
    
    2,247,772
    
    54,280
 
 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: December 17, 2007
    /s/ Alan R. AbramsAlan R. AbramsChief Executive Officer Date: December 17, 2007
    /s/ Rick A. PaternostroRick A. PaternostroChief Financial Officer 25