##### 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, 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 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDITEM 6. EXHIBITSSIGNATURESEX-31.(A) SECTION 302 CERTIFICATION OF CEOEX-31.(B) SECTION 302 CERTIFICATION OF CFOEX-32.(A) SECTION 906 CERTIFICATION OF CEOEX-32.(B) SECTION 906 CERTIFICATION OF CFO    Table of Contents  
  
 ITEM 1. FINANCIAL STATEMENTS
 SERVIDYNE, INC.
 (Unaudited)January 31, 2007
    
    
    April 30, 2006ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    4,717,491
    
    
    $
    7,329,805Restricted cash
    
    
    
    
    
    
    418,594Receivables (Note 4)
    
    
    1,659,362
    
    
    
    2,420,368Less: Allowance for doubtful accounts
    
    
    (33,211
    )
    
    
    (11,061
    )Costs and earnings in excess of billings
    
    
    1,991,723
    
    
    
    286,824Deferred income taxes
    
    
    622,927
    
    
    
    622,927Note receivables
    
    
    228,471
    
    
    
    902,505Other
    
    
    1,315,863
    
    
    
    966,454Total current assets
    
    
    10,502,626
    
    
    
    12,936,416INCOME-PRODUCING PROPERTIES, net
    
    
    25,320,395
    
    
    
    20,724,917PROPERTY AND EQUIPMENT, net
    
    
    871,091
    
    
    
    843,204RESTRICTED CASH
    
    
    3,706,357
    
    
    
    3,241,310OTHER ASSETS:Real estate held for future development or sale
    
    
    1,632,358
    
    
    
    1,925,427Intangible assets, net (Note 8)
    
    
    3,684,090
    
    
    
    3,109,376Goodwill (Note 8)
    
    
    5,458,717
    
    
    
    5,458,717Other
    
    
    4,400,064
    
    
    
    4,170,889$
    55,575,698
    
    
    $
    52,410,256LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Trade and subcontractors payables
    
    $
    1,318,596
    
    
    $
    705,647Accrued expenses
    
    
    1,824,642
    
    
    
    2,028,196Accrued incentive compensation
    
    
    584,416
    
    
    
    471,619Billings in excess of costs and earnings
    
    
    68,078
    
    
    
    211,676Current maturities of long-term debt
    
    
    1,005,626
    
    
    
    1,167,192Total current liabilities
    
    
    4,801,358
    
    
    
    4,584,330DEFERRED INCOME TAXES
    
    
    4,328,120
    
    
    
    3,710,599OTHER LIABILITIES
    
    
    1,992,696
    
    
    
    1,879,037MORTGAGE NOTES PAYABLE, less current maturities
    
    
    21,673,462
    
    
    
    19,806,542OTHER LONG-TERM DEBT, less current maturities
    
    
    1,182,500
    
    
    
    1,483,000Total liabilities
    
    
    33,978,136
    
    
    
    31,463,508COMMITMENTS AND CONTINGENCIES (Note 11)SHAREHOLDERS EQUITY:Common stock, $1 par value; 5,000,000 shares authorized;
3,695,336 issued and 3,527,170 outstanding at January 31, 2007,
3,695,336 issued and 3,532,180 outstanding at April 30, 2006
    
    
    3,695,336
    
    
    
    3,695,336Additional paid-in capital
    
    
    4,843,994
    
    
    
    4,803,133Deferred stock compensation
    
    
    
    
    
    
    (4,420
    )Retained earnings
    
    
    13,852,851
    
    
    
    13,227,076Treasury stock, common shares;
168,166 at January 31, 2007, and 163,156 at April 30, 2006
    
    
    (794,619
    )
    
    
    (774,377
    )Total shareholders equity
    
    
    21,597,562
    
    
    
    20,946,748$
    55,575,698
    
    
    $
    52,410,256
 See accompanying notes to consolidated financial statements.
 1




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##### Table of Contents



SERVIDYNE, INC.
 THIRD QUARTER ENDED
    
    
    FIRST NINE MONTHS ENDEDJANUARY 31,
    
    
    JANUARY 31,2007
    
    
    2006
    
    
    2007
    
    
    2006REVENUES:Building performance experts
    
    $
    3,769,967
    
    
    $
    2,896,286
    
    
    $
    9,624,034
    
    
    $
    8,759,879Rental income
    
    
    1,567,835
    
    
    
    1,424,227
    
    
    
    4,511,354
    
    
    
    4,236,6365,337,802
    
    
    
    4,320,513
    
    
    
    14,135,388
    
    
    
    12,996,515Interest
    
    
    151,457
    
    
    
    42,953
    
    
    
    327,247
    
    
    
    141,044Other
    
    
    9,589
    
    
    
    64,958
    
    
    
    106,625
    
    
    
    318,8305,498,848
    
    
    
    4,428,424
    
    
    
    14,569,260
    
    
    
    13,456,389COSTS AND EXPENSES:Building performance experts
    
    
    2,636,382
    
    
    
    1,643,888
    
    
    
    6,465,766
    
    
    
    4,913,697Rental property operating expenses, excluding interest
    
    
    980,653
    
    
    
    1,003,005
    
    
    
    2,939,324
    
    
    
    2,943,5543,617,035
    
    
    
    2,646,893
    
    
    
    9,405,090
    
    
    
    7,857,251Selling, general and administrativeBuilding performance experts
    
    
    1,224,249
    
    
    
    1,130,420
    
    
    
    3,445,270
    
    
    
    3,303,643Real estate
    
    
    188,821
    
    
    
    179,905
    
    
    
    635,387
    
    
    
    628,997Parent
    
    
    1,113,491
    
    
    
    759,749
    
    
    
    2,913,528
    
    
    
    2,395,3442,526,561
    
    
    
    2,070,074
    
    
    
    6,994,185
    
    
    
    6,327,984Interest costs incurred
    
    
    492,746
    
    
    
    365,077
    
    
    
    1,275,260
    
    
    
    1,055,2146,636,342
    
    
    
    5,082,044
    
    
    
    17,674,535
    
    
    
    15,240,449GAIN ON SALE REAL ESTATE, net of costs of sale of
$0, $85,707, $504,658, and $697,831, respectively
    
    
    
    
    
    
    184,026
    
    
    
    1,545,437
    
    
    
    726,156LOSS BEFORE INCOME TAXES FROM
CONTINUING OPERATIONS
    
    
    (1,137,494
    )
    
    
    (469,594
    )
    
    
    (1,559,838
    )
    
    
    (1,057,904
    )INCOME TAX BENEFIT
    
    
    (432,248
    )
    
    
    (178,446
    )
    
    
    (592,737
    )
    
    
    (402,003
    )LOSS FROM CONTINUING OPERATIONS
    
    
    (705,246
    )
    
    
    (291,148
    )
    
    
    (967,101
    )
    
    
    (655,901
    )DISCONTINUED OPERATIONS:Earnings (loss) from discontinued operations, adjusted
for applicable income tax expense (benefit) of $0, ($40,298),
$41,010, and ($37,348), respectively
    
    
    
    
    
    
    (65,750
    )
    
    
    66,910
    
    
    
    (60,937
    )Gain on sale of discontinued operations, adjusted
for applicable income tax expense of $1,169,254, $521,230,
$1,169,254, and $521,230, respectively
    
    
    1,907,730
    
    
    
    850,428
    
    
    
    1,907,730
    
    
    
    850,428EARNINGS FROM DISCONTINUED OPERATIONS
    
    
    1,907,730
    
    
    
    784,678
    
    
    
    1,974,640
    
    
    
    789,491NET EARNINGS
    
    $
    1,202,484
    
    
    $
    493,530
    
    
    $
    1,007,539
    
    
    $
    133,590NET EARNINGS (LOSS) PER SHARE  BASIC AND DILUTED:From continuing operations
    
    $
    (.20
    )
    
    $
    (.08
    )
    
    $
    (.27
    )
    
    $
    (.18
    )From discontinued operations
    
    
    .54
    
    
    
    .22
    
    
    
    .56
    
    
    
    .22NET EARNINGS PER SHARE  BASIC AND DILUTED
    
    $
    .34
    
    
    $
    .14
    
    
    $
    .29
    
    
    $
    .04DIVIDENDS PER SHARE
    
    $
    .036
    
    
    $
    .036
    
    
    $
    .108
    
    
    $
    .108WEIGHTED AVERAGE SHARES OUTSTANDING  BASIC AND DILUTED
    
    
    3,530,290
    
    
    
    3,531,409
    
    
    
    3,527,170
    
    
    
    3,531,003
 See accompanying notes to consolidated financial statements.
 2




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##### Table of Contents



SERVIDYNE, INC.
 Additional
    
    DeferredCommon Stock
    
    Paid-In
    
    Stock
    
    Retained
    
    TreasuryShares
    
    Amount
    
    Capital
    
    Compensation
    
    Earnings
    
    Stock
    
    TotalBALANCES at April 30, 2004
    
    
    3,327,628
    
    
    $
    3,327,628
    
    
    $
    2,963,874
    
    
    $
    (26,855
    )
    
    $
    14,412,663
    
    
    $
    (679,783
    )
    
    $
    19,997,527Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,800,358
    
    
    
    
    
    
    
    1,800,358Common stock issued
    
    
    29,973
    
    
    
    29,973
    
    
    
    104,108
    
    
    
    (39,175
    )
    
    
    
    
    
    
    
    
    
    
    94,906Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,868
    
    
    
    
    
    
    
    (5,159
    )
    
    
    46,709Cash
dividends declared -  $.29 per share (adjusted for
subsequent stock dividend)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,026,089
    )
    
    
    
    
    
    
    (1,026,089
    )BALANCES at April 30, 2005
    
    
    3,357,601
    
    
    
    3,357,601
    
    
    
    3,067,982
    
    
    
    (14,162
    )
    
    
    15,186,932
    
    
    
    (684,942
    )
    
    
    20,913,411Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    525,766
    
    
    
    
    
    
    
    525,766Common stock issued
    
    
    1,800
    
    
    
    1,800
    
    
    
    6,660
    
    
    
    (8,460
    )
    
    
    
    
    
    
    
    
    
    
    Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,202
    
    
    
    
    
    
    
    (1,871
    )
    
    
    16,331Stock option exercise
    
    
    732
    
    
    
    732
    
    
    
    2,196
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,928Cash
dividends declared -  $.14 per share (adjusted for
subsequent stock dividend)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (511,688
    )
    
    
    
    
    
    
    (511,688
    )Stock
dividend declared - 10% at market value
on date declared
    
    
    335,203
    
    
    
    335,203
    
    
    
    1,726,295
    
    
    
    
    
    
    
    (1,973,934
    )
    
    
    (87,564
    )
    
    
    BALANCES at April 30, 2006
    
    
    3,695,336
    
    
    
    3,695,336
    
    
    
    4,803,133
    
    
    
    (4,420
    )
    
    
    13,227,076
    
    
    
    (774,377
    )
    
    
    20,946,748Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,007,539
    
    
    
    
    
    
    
    1,007,539Common stock acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,747
    )
    
    
    (19,747
    )Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    40,861
    
    
    
    4,420
    
    
    
    
    
    
    
    (495
    )
    
    
    44,786Cash
dividends declared - $.108 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (381,764
    )
    
    
    
    
    
    
    (381,764
    )BALANCES at January 31, 2007
    
    
    3,695,336
    
    
    $
    3,695,336
    
    
    $
    4,843,994
    
    
    $
    
    
    
    $
    13,852,851
    
    
    $
    (794,619
    )
    
    $
    21,597,562
 See accompanying notes to consolidated financial statements.
 3




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##### Table of Contents



SERVIDYNE, INC.
 FIRST NINE MONTHS ENDEDJANUARY 31,2007
    
    
    2006CONTINUING OPERATIONS:Cash flows from operating activities:Net earnings
    
    $
    1,007,539
    
    
    $
    133,590Income from discontinued operations, net of tax
    
    
    (1,974,640
    )
    
    
    (789,491
    )Adjustments to reconcile net earnings to net
cash used in operating activities:Gain on sale of real estate
    
    
    (1,545,437
    )
    
    
    (726,156
    )Depreciation and amortization
    
    
    1,246,943
    
    
    
    1,009,301Deferred tax benefit
    
    
    (592,737
    )
    
    
    (134,236
    )Provision for (recovery of) doubtful accounts, net
    
    
    45,650
    
    
    
    (57,100
    )Stock compensation expense
    
    
    44,786
    
    
    
    Cash surrender value
    
    
    (68,626
    )
    
    
    (66,110
    )Straight-line rent adjustment
    
    
    (42,584
    )
    
    
    (34,484
    )Changes in assets and liabilities:Receivables
    
    
    641,026
    
    
    
    (31,909
    )Costs and earnings in excess of billings
    
    
    (1,704,899
    )
    
    
    60,169Note receivables
    
    
    674,034
    
    
    
    (510,497
    )Other current assets
    
    
    (349,409
    )
    
    
    87,427Other assets
    
    
    6,706
    
    
    
    (33,711
    )Trade and subcontractors payable
    
    
    612,949
    
    
    
    229,237Accrued expenses
    
    
    (239,571
    )
    
    
    (107,809
    )Accrued incentive compensation
    
    
    112,797
    
    
    
    (1,089,369
    )Billings in excess of costs and earnings
    
    
    (143,598
    )
    
    
    (137,717
    )Other liabilities
    
    
    (34,512
    )
    
    
    (67,136
    )Net cash used in operating activities
    
    
    (2,303,583
    )
    
    
    (2,266,001
    )Cash flows from investing activities:Release of restricted cash held in escrow
    
    
    418,594
    
    
    
    8,272,399Deposit of cash proceeds from sale of real estate held in escrow
    
    
    (3,706,357
    )
    
    
    Proceeds from sale of real estate
    
    
    1,867,052
    
    
    
    881,177Additions to income-producing properties, net
    
    
    (267,823
    )
    
    
    (640,715
    )Additions to property and equipment, net
    
    
    (171,054
    )
    
    
    (190,059
    )Additions to intangible assets, net
    
    
    (706,655
    )
    
    
    (649,754
    )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 ) provided by investing activities
    
    
    (4,465,236
    )
    
    
    7,673,048Cash flows from financing activities:Debt proceeds
    
    
    6,700,000
    
    
    
    Debt repayments
    
    
    (749,916
    )
    
    
    (771,174
    )Mortgage repayment
    
    
    (2,600,000
    )
    
    
    Repurchase of Common Stock
    
    
    (19,747
    )
    
    
    Deferred loan costs paid
    
    
    (113,696
    )
    
    
    Cash received on stock option exercise
    
    
    
    
    
    
    2,928Cash dividends
    
    
    (381,764
    )
    
    
    (384,560
    )Net cash provided by (used in) financing activities
    
    
    2,834,877
    
    
    
    (1,152,806
    )DISCONTINUED OPERATIONS:Operating activities
    
    
    111,531
    
    
    
    (445,701
    )Investing activities
    
    
    3,134,785
    
    
    
    2,048,866Financing activities
    
    
    (1,924,688
    )
    
    
    (3,011,321
    )Net cash provided by (used in) discontinued operations
    
    
    1,321,628
    
    
    
    (1,408,156
    )Net (decrease) increase in cash and cash equivalents
    
    
    (2,612,314
    )
    
    
    2,846,085Cash and cash equivalents at beginning of period
    
    
    7,329,805
    
    
    
    1,402,645Cash and cash equivalents at end of period
    
    $
    4,717,491
    
    
    $
    4,248,730
 See accompanying notes to consolidated financial statements.
 4




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##### Table of Contents



SERVIDYNE, INC.
 NOTE 1. ORGANIZATION AND BUSINESS
   NOTE 2. UNAUDITED STATEMENTS
  NOTE 3. SIGNIFICANT ACCOUNTING POLICIES
 Share-Based Payment (revised 2004)
 Accounting for
Stock Issued to Employees Accounting for Stock-Based
Compensation Accounting for Stock-Based Compensation  Transition and
Disclosure
 5




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##### Table of Contents



Quarter Ended
    
    
    Nine Months EndedJanuary 31, 2006
    
    
    January 31, 2006Net earnings, as reported
    
    $
    493,530
    
    
    $
    133,590Add: Stock-based compensation
    
    
    4,913
    
    
    
    21,000Deduct: Total stock-based compensation
expense as determined under fair value
based method for all awards, net of
related tax effects
    
    
    (20,184
    )
    
    
    (78,869
    )Add: Forfeitures, net of related tax effects
    
    
    
    
    
    
    9,659Pro forma net earnings
    
    $
    478,259
    
    
    $
    85,380Net earnings per share:Basic and diluted  as reported
    
    $
    0.14
    
    
    $
    0.04Basic and diluted  pro forma
    
    $
    0.14
    
    
    $
    0.02
   Stock Options
  WeightedOptions to
    
    
    AveragePurchase
    
    
    ExerciseShares
    
    
    PriceOutstanding at April 30, 2006
    
    
    757,390
    
    
    $
    4.68Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (171,993
    )
    
    
    4.71Outstanding at January 31, 2007
    
    
    585,397
    
    
    $
    4.67Vested at January 31, 2007
    
    
    585,397
    
    
    $
    4.67
  6




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##### Table of Contents



Weighted AverageNumber of
    
    RemainingExercise
    
    Outstanding and
    
    ContractualPrice
    
    Exercisable Options
    
    Life (Years)$4.64
    
    
    508,008
    
    
    
    5.55$4.77
    
    
    4,400
    
    
    
    8.39$4.82
    
    
    63,800
    
    
    
    8.15$5.45
    
    
    9,189
    
    
    
    7.38
 Stock Appreciation Rights
  WeightedSARs to
    
    
    AveragePurchase
    
    
    ExerciseShares
    
    
    PriceOutstanding at April 30, 2006
    
    
    
    
    
    $
    Granted
    
    
    561,000
    
    
    
    4.07Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (96,000
    )
    
    
    4.13Outstanding at January 31, 2007
    
    
    465,000
    
    
    $
    4.06Vested at January 31, 2007
    
    
    
    
    
    $
    
  Expected life (years)
    
    
    5Dividend yield
    
    
    3.19
    %Expected stock price volatility
    
    
    36.17
    %Risk free interest rate
    
    
    4.81
    %Fair value of SARs granted
    
    $
    0.77
  7




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##### Table of Contents



Shares of Restricted Stock
  WeightedNumber of
    
    
    Weighted AverageRestricted
    
    
    Grant DateShares of Stock
    
    
    Fair ValueNon-vested restricted stock at April 30, 2006
    
    
    3,430
    
    
    $
    4.68Granted
    
    
    
    
    
    
    Vested
    
    
    (2,420
    )
    
    
    4.95Forfeited
    
    
    (110
    )
    
    
    4.95Non-vested restricted stock at January 31, 2007
    
    
    900
    
    
    $
    4.45
 NOTE 4. RECEIVABLES
  NOTE 5. DISCONTINUED OPERATIONS
 Construction Segment
  Real Estate Sales of Income-Producing Properties
 Accounting
for the Impairment or Disposal of Long-Lived Assets
  8




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##### Table of Contents



Third Quarter Ended
    
    Nine Months EndedJanuary 31,
    
    January 31,2007
    
    2006
    
    2007
    
    2006REVENUES:Construction
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Rental properties
    
    
    
    
    
    
    292,287
    
    
    
    231,613
    
    
    
    859,284Interest Income & Other
    
    
    
    
    
    
    (18,771
    )
    
    
    
    
    
    
    1,277Total revenues
    
    
    
    
    
    
    273,516
    
    
    
    231,613
    
    
    
    860,561COSTS AND EXPENSES:Construction cost and expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,964
    )Rental properties operating expenses,
including depreciation
    
    
    
    
    
    
    76,489
    
    
    
    23,599
    
    
    
    250,521Interest expense
    
    
    
    
    
    
    247,616
    
    
    
    85,893
    
    
    
    462,449Depreciation
    
    
    
    
    
    
    56,842
    
    
    
    
    
    
    
    170,525Selling, general & administrative
    
    
    
    
    
    
    (1,383
    )
    
    
    14,201
    
    
    
    101,315Total costs and expenses
    
    
    
    
    
    
    379,564
    
    
    
    123,693
    
    
    
    958,846Earnings (loss) from discontinued operations
    
    
    
    
    
    
    (106,048
    )
    
    
    107,920
    
    
    
    (98,285
    )Income tax expense (benefit)
    
    
    
    
    
    
    (40,298
    )
    
    
    41,010
    
    
    
    (37,348
    )Earnings (loss) from discontinued operations, net of tax
    
    
    
    
    
    
    (65,750
    )
    
    
    66,910
    
    
    
    (60,937
    )Gain on sale of real estate
    
    
    3,076,984
    
    
    
    1,371,658
    
    
    
    3,076,984
    
    
    
    1,371,658Income tax expense
    
    
    1,169,254
    
    
    
    521,230
    
    
    
    1,169,254
    
    
    
    521,230Gain on sale of real estate, net of tax
    
    
    1,907,730
    
    
    
    850,428
    
    
    
    1,907,730
    
    
    
    850,428Earnings from discontinued operations, net of tax
    
    $
    1,907,730
    
    
    $
    784,678
    
    
    $
    1,974,640
    
    
    $
    789,491
 NOTE 6. OPERATING SEGMENTS
  9




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##### Table of Contents



BuildingFor the Quarter Ended
    
    Performance
    
    Real EstateJanuary 31, 2007
    
    Experts
    
    (1)
    
    Parent
    
    Eliminations
    
    ConsolidatedRevenues from unaffiliated
customers
    
    $
    3,769,967
    
    
    $
    1,567,835
    
    
    $
    
    
    
    $
    
    
    
    $
    5,337,802Interest and other income (expense)
    
    
    (1,022
    )
    
    
    297,672
    
    
    
    26,622
    
    
    
    (162,226
    )
    
    
    161,046Intersegment revenue
    
    
    
    
    
    
    127,119
    
    
    
    
    
    
    
    (127,119
    )
    
    
    Total revenues from
continuing operations
    
    $
    3,768,945
    
    
    $
    1,992,626
    
    
    $
    26,622
    
    
    $
    (289,345
    )
    
    $
    5,498,848Net earnings (loss)
    
    $
    (227,509
    )
    
    $
    2,209,558
    
    
    $
    (783,061
    )
    
    $
    3,496
    
    
    $
    1,202,484
 BuildingFor the Quarter Ended
    
    Performance
    
    Real EstateJanuary 31, 2006
    
    Experts
    
    (1)
    
    Parent
    
    Eliminations
    
    ConsolidatedRevenues from unaffiliated
customers
    
    $
    2,896,286
    
    
    $
    1,693,960
    
    
    $
    
    
    
    $
    
    
    
    $
    4,590,246Interest and other income
    
    
    24,545
    
    
    
    254,810
    
    
    
    10,948
    
    
    
    (182,392
    )
    
    
    107,911Intersegment revenue
    
    
    
    
    
    
    134,613
    
    
    
    
    
    
    
    (134,613
    )
    
    
    Total revenues from
continuing operations
    
    $
    2,920,831
    
    
    $
    2,083,383
    
    
    $
    10,948
    
    
    $
    (317,005
    )
    
    $
    4,698,157Net earnings (loss)
    
    $
    (70,919
    )
    
    $
    1,106,749
    
    
    $
    (547,322
    )
    
    $
    3,497
    
    
    $
    492,005
 BuildingFor the Nine Months Ended
    
    Performance
    
    Real EstateJanuary 31, 2007
    
    Experts
    
    (1)
    
    Parent
    
    Eliminations
    
    ConsolidatedRevenues from unaffiliated
customers
    
    $
    9,624,034
    
    
    $
    6,561,354
    
    
    $
    
    
    
    $
    
    
    
    $
    16,185,388Interest and other income
    
    
    53,827
    
    
    
    942,030
    
    
    
    79,139
    
    
    
    (641,124
    )
    
    
    433,872Intersegment revenue
    
    
    
    
    
    
    377,858
    
    
    
    
    
    
    
    (377,858
    )
    
    
    Total revenues from
continuing operations
    
    $
    9,677,861
    
    
    $
    7,881,242
    
    
    $
    79,139
    
    
    $
    (1,018,982
    )
    
    $
    16,619,260Net earnings (loss)
    
    $
    (646,419
    )
    
    $
    3,739,946
    
    
    $
    (2,096,478
    )
    
    $
    10,490
    
    
    $
    1,007,539
 BuildingFor the Nine Months Ended
    
    Performance
    
    Real EstateJanuary 31, 2006
    
    Experts
    
    (1)
    
    Parent
    
    Eliminations
    
    ConsolidatedRevenues from unaffiliated
customers
    
    $
    8,759,879
    
    
    $
    5,660,623
    
    
    $
    
    
    
    $
    
    
    
    $
    14,420,502Interest and other income
    
    
    35,808
    
    
    
    827,428
    
    
    
    24,588
    
    
    
    (427,950
    )
    
    
    459,874Intersegment revenue
    
    
    
    
    
    
    396,506
    
    
    
    
    
    
    
    (396,506
    )
    
    
    Total revenues from
continuing operations
    
    $
    8,795,687
    
    
    $
    6,884,557
    
    
    $
    24,588
    
    
    $
    (824,456
    )
    
    $
    14,880,376Net earnings (loss)
    
    $
    (92,130
    )
    
    $
    1,901,083
    
    
    $
    (1,631,518
    )
    
    $
    (3,838
    )
    
    $
    173,597
 10




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##### Table of Contents



(1)
    
    The Company is in the business of creating long-term value by periodically realizing
gains through the sale of income-producing properties and the sale of real estate held for
future development or sale; therefore, in this presentation the Real Estate Segments net
earnings includes earnings from discontinued operations, pursuant to SFAS 144, that
resulted from the sales of certain income-producing properties, and earnings included in
continuing operations that resulted from the gain on sale of certain other real estate assets.  Quarter Ended
    
    Nine Months EndedJanuary 31,
    
    January 31,2007
    
    2006
    
    2007
    
    2006Consolidated Segment revenues
    
    $
    5,498,848
    
    
    $
    4,698,157
    
    
    $
    16,619,260
    
    
    $
    14,880,376Revenues on sales of real estate held for sale
    
    
    
    
    
    
    (269,733
    )
    
    
    (2,050,000
    )
    
    
    (1,423,987
    )Total consolidated revenues
    
    $
    5,498,848
    
    
    $
    4,428,424
    
    
    $
    14,569,260
    
    
    $
    13,456,389
  Quarter Ended
    
    Nine Months EndedJanuary 31,
    
    January 31,2007
    
    2006
    
    2007
    
    2006Consolidated Segment net earnings
    
    $
    1,202,484
    
    
    $
    492,005
    
    
    $
    1,007,539
    
    
    $
    173,597Discontinued Construction Segment net earnings (loss)
    
    
    
    
    
    
    1,525
    
    
    
    
    
    
    
    (40,007
    )Consolidated net earnings
    
    $
    1,202,484
    
    
    $
    493,530
    
    
    $
    1,007,539
    
    
    $
    133,590
 NOTE 7. EARNINGS PER SHARE
  11




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NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
  Gross Carrying
    
    
    AccumulatedAmount
    
    
    AmortizationIntangible assets, subject to amortization:Proprietary building performance expert software applications
    
    $
    3,084,696
    
    
    $
    1,165,744Acquired computer software
    
    
    451,428
    
    
    
    425,674Real estate lease costs
    
    
    1,553,405
    
    
    
    830,256Customer relationships
    
    
    218,000
    
    
    
    134,493Deferred loan costs
    
    
    490,630
    
    
    
    278,787Non-compete agreements
    
    
    23,948
    
    
    
    23,948Other
    
    
    28,660
    
    
    
    16,482$
    5,850,767
    
    
    $
    2,875,384Intangible assets, not subject to amortization:Trademark
    
    $
    708,707
    
    
    $
    Goodwill
    
    $
    5,458,717
    
    
    $
    
 Aggregate amortization expense for all amortized intangible assetsFor the three months ended January 31, 2007
    
    $
    217,746For the three months ended January 31, 2006
    
    
    143,259For the nine months ended January 31, 2007
    
    
    543,246For the nine months ended January 31, 2006
    
    
    389,406
  NOTE 9. ACQUISITIONS
  12




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




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
     14




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Results of operations of the third quarter and first nine months of fiscal 2007, compared to
the third quarter and first nine months of fiscal 2006
    CHART A
 Third Quarter Ended
    
    
    
    
    
    
    
    
    
    
    Nine Months EndedJanuary 31,
    
    
    Amount
    
    
    Percent
    
    
    January 31,
    
    
    Amount
    
    
    Percent2007
    
    
    2006
    
    
    Increase
    
    
    Increase
    
    
    2007
    
    
    2006
    
    
    Increase
    
    
    IncreaseBuilding Performance Experts (1)
    
    $
    3,770
    
    
    $
    2,896
    
    
    $
    874
    
    
    
    30
    
    
    $
    9,624
    
    
    $
    8,760
    
    
    $
    864
    
    
    
    10Real Estate (2)
    
    
    1,568
    
    
    
    1,424
    
    
    
    144
    
    
    
    10
    
    
    
    4,511
    
    
    
    4,237
    
    
    
    274
    
    
    
    6$
    5,338
    
    
    $
    4,320
    
    
    $
    1,018
    
    
    
    24
    
    
    $
    14,135
    
    
    $
    12,997
    
    
    $
    1,138
    
    
    
    9
 NOTES TO CHART A
 (1)
    
    Building Performance Experts Segment revenues from continuing operations increased
$874,000, or 30%, for the third quarter of fiscal 2007, compared to the same period in fiscal
2006, primarily due to:
 (a)
    
    an increase in revenues of approximately $764,000 related to lighting
projects; and(b)
    
    an increase of approximately $47,000 related to energy engineering
services.
  (a)
    
    an increase in fiscal 2007 in revenues of approximately $1,097,000
related to lighting projects;(b)
    
    an increase in fiscal 2007 in revenues of approximately $355,000 related
to energy engineering services;
  (c)
    
    the absence of one-time revenues in the current year unlike the prior period, when of approximately
$656,000 which were recognized in last years first quarter of fiscal 2006 from a
consulting services
contract that was substantially performed in prior periods and did not have any
associated costs and expenses incurred in the period (see Chart B)
 (2)
    
    Real estate revenues from continuing operations increased $144,000 or 10% for the third
quarter of fiscal 2007, and $274,000 or 6% for the first nine months of fiscal 2007, compared
to the same periods in fiscal 2006, primarily due to:
 15




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##### Table of Contents



(a)
    
    an increase in rental income related to (1) successful leasing activities
that led to higher rental revenues of $60,000 and $180,000 for the third quarter and
first nine months of fiscal 2007, respectively; and (2) rental revenues of $162,000
and $329,000 for the third quarter and first nine months of fiscal 2007,
respectively, as the result of the acquisition of a shopping center in Smyrna,
Tennessee, in July 2006.
  (b)
    
    a decrease in leaseback income of approximately $78,000 and $235,000 for
the third quarter and first nine months of fiscal 2007, respectively, resulting from
the sale in fiscal 2006 of the Companys former leaseback shopping center located in
Bayonet Point, Florida.
  January 31,2007
    
    
    2006Building Performance Experts (a)
    
    $
    5,866,000
    
    
    $
    5,260,000Real Estate (b)
    
    
    6,027,000
    
    
    
    5,401,000Less: Intersegment eliminations ( c )
    
    
    (560,000
    )
    
    
    (544,000
    )Total Backlog
    
    $
    11,333,000
    
    
    $
    10,117,000
  (a)
    
    The increase in Building Performance Experts backlog is primarily due to an increase of
approximately $347,000 in energy engineering contracts and approximately $864,000 of revenues
from customers upgrading to the Companys new proprietary Web/wireless building performance
software offerings offset by lower revenues from lighting upgrade projects of approximately
$605,000. Backlog includes some contracts that can be cancelled with less than one years
notice, and assumes cancellation provisions will not be invoked. The cancellation rate for
such contracts in the previous twelve months was approximately 8.4% ($452,697). Backlog also
includes an awarded lighting job of $1 million in which a signed contract has not been
received from a previous customer.
 (b)
    
    Real Estate backlog increased primarily as the result of approximately $469,000 of rental
revenues related to the shopping center located in Smyrna, Tennessee, acquired by the Company
in July 2006, and an increase in net rental revenues of $260,000 related to successful leasing
activities at other properties. These increases are offset by a decrease of approximately
$103,000 in rental revenues resulting from the sale of the Companys former leaseback shopping
center located in Bayonet Point, Florida, in April 2006. Also, included in Real Estate backlog as of January 31, 2007,
is approximately $300,000 related to the Companys interest in a shopping center located in Richfield, Minnesota,
that was sold on March 12, 2007. In addition, the Company acquired an office building located in Newnan, Georgia,
on March 12, 2007, that will add approximately $378,000 in backlog that is not included as of January 31, 2007. (See Note 12  Subsequent Events).
 (c)
    
    Represents rental income at the Companys headquarters building to be paid to the Real Estate
Segment by the Parent Company and the Companys other operating segment.
 
  16




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CHART B
 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 31,2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Building Performance Experts (1)
    
    $
    2,636
    
    
    $
    1,644
    
    
    
    70
    
    
    
    57
    
    
    $
    6,466
    
    
    $
    4,914
    
    
    
    67
    
    
    
    56Real Estate (2)
    
    
    981
    
    
    
    1,003
    
    
    
    63
    
    
    
    70
    
    
    
    2,939
    
    
    
    2,943
    
    
    
    65
    
    
    
    69$
    3,617
    
    
    $
    2,647
    
    
    
    68
    
    
    
    61
    
    
    $
    9,405
    
    
    $
    7,857
    
    
    
    67
    
    
    
    60
 NOTES TO CHART B
 1)
    
    On a dollar basis, Building Performance Experts costs and expenses from continuing operations
increased $992,000, or 60%, for the third quarter of fiscal 2007, and $1,552,000 or 32% for the
first nine months of fiscal 2007, compared to the same periods of fiscal 2006, primarily as a
result of the increase in revenues.Building Performance Experts costs and expenses as a percentage of revenue from continuing
operations increased for the third quarter of fiscal 2007, compared to the same period of fiscal
2006, primarily due to the changes in the mix of services and products.Building Performance Experts costs and expenses as a percentage of revenue from continuing
operations increased for the first nine months of fiscal 2007, compared to the same period in
fiscal 2006, primarily due to:
 (a)
    
    the absence of any associated costs and expenses for the one-time revenue
from a consulting services contract in the first quarter of fiscal 2006; and(b)
    
    changes in the mix of services and products.
 2)
    
    On a dollar basis, Real Estate costs and expenses from continuing operations decreased
$22,000, or 2%, for the third quarter of fiscal 2007, compared to the same period of fiscal
2006, primarily due to:
 (a)
    
    the absence of lease costs of approximately $74,000 in the current year
as a result of the sale in April 2006 of the Companys former leaseback shopping
center located in Bayonet Point, Florida;(b)
    
    the absence of common area and maintenance expenses of approximately
$54,000 in the current year primarily related to periodic repairs and maintenance
performed in fiscal 2006 at one of the Companys shopping centers; and(c)
    
    the scheduled reduction of lease costs of approximately $26,000 pursuant to a lease agreement provision at one of the Companys current leaseback
shopping centers located in Davenport, Iowa;
  17




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##### Table of Contents



(d)
    
    an increase in rental operating costs and expenses of approximately
$140,000 related to the shopping center located in Smyrna, Tennessee, acquired in
July 2006.
  (a)
    
    the absence of lease costs of approximately $219,000 in the current year
as a result of the sale in April 2006 of the Companys former leaseback shopping
center located in Bayonet Point, Florida; and(b)
    
    the scheduled reduction of lease costs of approximately $72,000 pursuant to a lease agreement provision at the Companys leaseback shopping
center located in Davenport, Iowa;
  (c)
    
    an increase in rental operating costs and expenses of approximately
$240,000 related to the shopping center located in Smyrna, Tennessee, acquired in
July 2006; and(d)
    
    an increase in operating expenses of approximately $38,000 primarily for
marketing and leasing expenses at two of the Companys income-producing properties.
 
  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 31,2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Building Performance Experts (1)
    
    $
    1,224
    
    
    $
    1,130
    
    
    
    32
    
    
    
    39
    
    
    $
    3,445
    
    
    $
    3,304
    
    
    
    36
    
    
    
    38Real Estate (2)
    
    
    189
    
    
    
    180
    
    
    
    12
    
    
    
    13
    
    
    
    635
    
    
    
    629
    
    
    
    14
    
    
    
    15Parent (3)
    
    
    1,113
    
    
    
    760
    
    
    
    22
    
    
    
    18
    
    
    
    2,914
    
    
    
    2,395
    
    
    
    21
    
    
    
    18$
    2,526
    
    
    $
    2,070
    
    
    
    47
    
    
    
    48
    
    
    $
    6,994
    
    
    $
    6,328
    
    
    
    49
    
    
    
    49
 18




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##### Table of Contents



NOTES TO CHART C
 (1)
    
    Building Performance Experts SG&A expenses as a percentage of revenues from continuing
operations decreased for the third quarter of fiscal 2007, compared to the same period of
fiscal 2006, primarily because the increase in revenues that did not cause a proportional
increase in SG&A expenses.On a dollar basis, Building Performance Experts SG&A expenses from continuing operations for the
third quarter and first nine months of fiscal 2007, increased $94,000 or 8% and $141,000 or 4%,  respectively,
compared to the same periods of fiscal 2006, primarily due to an increase in sales and marketing
efforts.
 (2)
    
    On a dollar basis, Real Estate SG&A expenses from continuing operations in the third quarter
of fiscal 2007 increased $9,000 or 5%, compared to the same period of fiscal 2006, primarily
due to an increase in professional fees of approximately $29,000 offset by a decrease of
approximately $19,000 related to operating expenses for the Companys real estate held for
future development or sale.On a dollar basis, Real Estate SG&A expenses from continuing operations for the first nine
months of fiscal 2007 increased $6,000 or 1%, compared to the same period of fiscal 2006,
primarily due to an increase in professional fees of $50,000 offset by a decrease of
approximately $40,000 related to operating expenses for the Companys real estate held for
future development.
 (3)
    
    On a dollar basis and as a percentage of revenue from continuing operations, Parent SG&A
expenses in the third quarter of fiscal 2007 increased $353,000 or 46% and for the first nine
months of fiscal 2007 increased $519,000 or 22%, compared to the same periods of fiscal 2006,
primarily due to:
 (a)
    
    an increase in consulting fees of approximately $67,000 and $109,000
primarily related to the sales and marketing efforts for the Company in the third
quarter and first nine months of fiscal 2007, respectively; and(b)
    
    an increase in compensation related costs of approximately $302,000 and
$381,000 for the third quarter and first nine months of fiscal 2007, respectively.
 Liquidity and capital resources
  (a)
    
    a net increase in accounts receivable, notes receivable, costs and
earnings in excess of billings and other current assets of approximately $739,000,
primarily due to the timing of billing and receipt of payments;(b)
    
    cash payments of $484,000 related to the incentive compensation
generated by the successful achievement of Company-wide earnings and performance
goals in fiscal 2006; and(c)
    
    current year losses from continuing operations;
  (d)
    
    a net increase in trade and subcontractors payables, accrued expenses,
billings in excess of costs, and other liabilities of approximately $195,000,
primarily due to the timing and submission of payments
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(a)
    
    the purchase of the shopping center located in Smyrna, Tennessee, for
approximately $5,270,000, completing the Companys tax deferred exchange under
Internal Revenue Code Section 1031. The acquisition used the proceeds of
approximately $3,241,000 from the sale of the Companys former medical office
building, which proceeds had been held in escrow by a qualified third party
intermediary at April 30, 2006, and interim bank financing for the balance of $2.6
million (see financing activities below);(b)
    
    the deposit with a qualified intermediary of cash proceeds of
approximately $1,720,000 from the sale of the Companys owned shopping center in
Morton, Illinois, in order to qualify the sale for federal income tax deferral under
Internal Revenue Code Section 1031;(c)
    
    additions to income-producing properties of $268,000, primarily related
to tenant and building improvements; and(d)
    
    additions to intangible assets of $707,000, primarily related to new
software development efforts for the Companys proprietary Web/wireless building
performance experts software applications;
  (e)
    
    the release of approximately $419,000 previously held in escrow for the
intended purpose of purchasing a replacement property as part of an Internal Revenue
Code Section 1031 federal tax deferred exchange for the Companys former leaseback
shopping center located in Bayonet Point, Florida, which was sold in April 2006, as
the Company did not use these funds to purchase a replacement property.
  (a)
    
    net proceeds of $1,500,000 from the permanent loan of $4,100,000 on the
Companys shopping center located in Smyrna, Tennessee, which replaced the interim
bank loan of $2,600,000;
  (b)
    
    scheduled principal payments on mortgage notes and other long-term debt
of approximately $750,000; and(c)
    
    payment of three regular quarterly cash dividends to shareholders totaling
approximately $382,000.
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Critical Accounting Policies
  Revenue Recognition
 Revenue Recognition
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Income-Producing
Properties and Property and Equipment
  Valuation of Goodwill and Other Intangible Assets
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Income Taxes
  Discontinued Operations
 Accounting for the Impairment or Disposal of Long-Lived Assets,
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
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ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 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 19, 2007
    
    /s/ Alan R. AbramsAlan R. AbramsChief Executive OfficerDate: March 19, 2007
    
    /s/ Mark J. ThomasMark J. ThomasChief Financial Officer
 25