SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT

Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

SERVIDYNE, INC.

(Exact name of registrant as specified in its charter)

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
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (770) 953-0304

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of each class:		Name of each exchange on which registered:
Common Stock, $1.00 Par Value Per Share		Nasdaq Global Market

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

(Title of Class)

None

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.

YES o     NO þ

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Act.

YES o     NO þ

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES þ     NO o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o		Accelerated Filer o		Non-Accelerated Filer þ

     Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o     NO þ

     The aggregate market value of Common Stock held by nonaffiliates of the registrant as of October 31, 2006, was $7,165,298. See Part III for a definition of nonaffiliates. The number of shares of Common Stock of the registrant outstanding as of April 30, 2007, was 3,527,070.

DOCUMENTS INCORPORATED BY REFERENCE

     The information called for by Part III (Items 10, 11, 12, 13, and 14) is incorporated herein by reference to the registrant’s definitive proxy statement for the 2007 Annual Meeting of Shareholders which is to be filed pursuant to Regulation 14A.

 

 

PART I

ITEM 1. BUSINESS

Servidyne, Inc. (i) provides comprehensive energy, infrastructure and productivity management solutions to owners and operators of commercial real estate; and (ii) engages in commercial real estate investment and development.

As used herein, the term “Company” refers to Servidyne, Inc. and its subsidiaries and predecessors, unless the context indicates otherwise, and the term “Parent” or “Parent Company” refers solely to Servidyne, Inc.

The Company was organized under Delaware law in 1960 to succeed to the business of A. R. Abrams, Inc., which was founded in 1925 by Alfred R. Abrams as a sole proprietorship. In 1984, the Company changed its state of incorporation from Delaware to Georgia. In July 2006, the Company changed its name from Abrams Industries, Inc. to Servidyne, Inc.

As of the beginning of the fiscal year ended April 30, 2007, the Company combined the operations of the former Energy and Facilities Solutions Segment and the former Energy Services Segment into one integrated segment, Building Performance Expert. As of April 30, 2007, the Company operates through two segments.

Further information on the businesses of the Company’s operating segments is discussed below. Financial information for the segments is set forth in Note 14 to the consolidated financial statements of the Company.

BUILDING PERFORMANCE EXPERT SEGMENT (“BPE”)

The BPE Segment provides comprehensive energy, infrastructure and productivity management solutions to owners and operators of commercial, industrial and institutional real estate. The BPE offerings are strategic building performance programs and services that enable customers to optimize the short-term and long-term financial performance of their building portfolios, while reducing greenhouse gas emissions and improving the satisfaction of their buildings’ occupants. The Company conducts such operations under the names Servidyne Systems, LLC and The Wheatstone Energy Group, LLC. The BPE Segment’s energy, infrastructure and productivity management solutions include the following:

•

The BPE Energy Solution is an integrated energy management program designed to help customers manage utility expenses, reduce energy consumption, and lower greenhouse gas emissions. Major elements of this comprehensive process include: expert energy audits and facility assessments; utility monitoring and energy costs benchmarking; development of strategic energy plans; turn-key design and implementation of energy savings projects; comprehensive preventive maintenance programs of energy consuming equipment; ongoing energy measurement and reporting; and program management.

•

The BPE Infrastructure Solution is a financially-driven strategic process to identify and transform wasteful and inefficient buildings into cost effective and environmentally sustainable facilities. Major elements of this comprehensive program include: expert facility assessments and retro-commissioning of existing systems; infrastructure capital planning; turn-key design and implementation of infrastructure upgrades and energy savings capital projects; ongoing preventive maintenance support; and other strategic services designed to lower facility operating costs and extend the lives of building infrastructures and equipment.

•

The BPE Productivity Solution is a broad-based program designed to help customers optimize the costs of onsite maintenance, improve the efficiency of facility-related workforces, and improve the operating efficiency of building systems and equipment. Major elements of this comprehensive process include: a detailed inventory of all facility assets and assessment of current maintenance practices and organization; the design, implementation and ongoing support of proprietary preventive maintenance and service request Web/wireless systems with integrated utility and maintenance reporting; and technical training.

The BPE Segment focuses its marketing and sales activities on: owners and operators of corporate, commercial office, REIT, hospitality, gaming, retail, industrial, and institutional facilities; national accounts; and energy service companies (ESCOs). The primary geographic focus for the business is the continental United States, although the Company does business internationally as well. Contracts and services are primarily obtained through negotiations with customers, but may also be obtained through competitive bids on larger energy savings and infrastructure upgrade projects.

REAL ESTATE SEGMENT

The Real Estate Segment has engaged in real estate activities since 1960. These activities primarily involve the acquisition, development, redevelopment, leasing, asset management, ownership, and sale of shopping centers in the Southeast and Midwest and office buildings in metropolitan Atlanta, Georgia. The Company uses third-party property managers and leasing agents for all of its multi-tenant properties and one of its two leaseback properties. The Company conducts its real estate operations through its subsidiaries, Abrams Properties, Inc., AFC Real Estate, Inc., and their respective affiliates.

The Company currently owns four shopping centers, two that it developed and two that it acquired, including a shopping center located in Orange Park, Florida, which was originally developed and sold by the Company, leased back to the Company, then subleased to Kmart Corporation, and then re-acquired by the Company in February 2007; and a shopping center located in Smyrna, Tennessee, that the Company acquired in July 2006. The shopping centers are held as long-term investments or will be marketed for sale, as the Company determines to be appropriate. See “ITEM 2. PROPERTIES — Owned Shopping Centers.” In November 2006, the Company sold its former shopping center located in Morton, Illinois, at a gain. The Company is also currently lessee and sublessor of two shopping centers that were developed and sold by the Company, leased back to the Company, and then subleased to Kmart Corporation. See “ITEM 2. PROPERTIES — Leaseback Shopping Centers.” In March 2007, the Company sold its leasehold interest in another such shopping center located in Richfield, Minnesota. In February 2007, the Company re-acquired the land and building in Orange Park, Florida, of which the Company had maintained a leasehold interest; the center is now classified as an owned shopping center. In addition, the Company owns three office properties, including an office building located in Newnan, Georgia, which the Company acquired in March 2007. See “ITEM 2. PROPERTIES — Office Buildings.” The Company also owns two tracts of undeveloped commercially zoned land. See “ITEM 2. PROPERTIES — Real Estate Held for Future Development, Lease, or Sale.” In August 2006, the Company sold its former manufacturing facility located in Atlanta, Georgia, at a gain. In April 2007, the Company sold an outparcel of land located in North Fort Myers, Florida, at a gain. In addition, the Company has entered into a contract to sell: its leasehold interest in a shopping center in Jacksonville, Florida; its leasehold interest in the land and the shopping center located in Columbus, Georgia; and its shopping center located in Orange Park, Florida, each at a gain. The contract specifies a closing date in fiscal 2008. The Company currently intends to use the net proceeds from this sale to acquire a like-kind property in order to qualify the sale and acquisition under the Internal Revenue Code Section 1031 for federal income tax deferral. The sale is subject to customary conditions, and there can be no assurance that the contract will close.

EMPLOYEES AND EMPLOYEE RELATIONS

At April 30, 2007, the Company employed 76 salaried employees and 6 hourly employees. The Company believes that its relations with its employees are good.

SEASONAL NATURE OF BUSINESS

The businesses of the BPE and Real Estate Segments generally are not seasonal. However, certain retail customers of the BPE Segment may choose to delay the implementation of energy savings projects during the peak winter holiday season.

COMPETITION

The industries in which the Company operates are highly competitive. The BPE Segment’s competition is widespread and ranges from multi-national firms to local and regional companies. The Real Estate Segment also operates in a competitive environment, with numerous parties competing for available properties, tenants, capital, and investors.

PRINCIPAL CUSTOMERS

The Company did not have any customer in fiscal 2007 that accounted for more than 10% of the Company’s consolidated revenues and whose loss would have a material adverse effect on the Company. See Note 14 to the consolidated financial statements of the Company for segment information.

BACKLOG

The following table indicates the backlog of contracts and rental income under lease agreements, by segment:

										Increase
		April 30,								(Decrease)
		2007				2006				Amount				Percent
BPE (1)		$	9,368,000			$	5,890,000			$	3,478,000				59
Real Estate (2)			5,981,000				5,479,000				502,000				9
Less: Intersegment Eliminations (3)			(564,000	)			(548,000	)			(16,000	)			3
Total Backlog		$	14,785,000			$	10,821,000			$	3,964,000				37

(1)

The increase in BPE backlog is primarily due to an increase of approximately:

	(a)		$1,814,000 or an increase of 188% in energy management services; and
	(b)		$1,564,000 or an increase of 72% from infrastructure upgrades and energy saving projects.

The Company’s BPE Segment estimates that the backlog at April 30, 2007, will be recognized prior to April 30, 2008, with the exception of approximately $1,223,000 relating to energy management services revenue to be recognized over a contract period of 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 cancellation rate for such contracts included in prior year’s backlog was approximately $194,000.

(2)

Real Estate backlog increased primarily as the result of approximately:

(a)

$469,000 of rental revenues related to the shopping center located in Smyrna, Tennessee, acquired by the Company in July 2006;

(b)

$381,000 of rental revenues related to an office building located in Newnan, Georgia, acquired by the Company in March 2007; and

(c)

an increase in net rental revenues of $49,000 related to successful leasing activities at other properties;

partially offset by:

(d)

approximately $300,000 of rental revenues related to the Company’s leaseback interest in a shopping center located in Richfield, Minnesota, which the Company sold on March 12, 2007; and

(e)

$183,000 of rental revenues as the result of the pending expiration in January 2008 of a third-party lease at the Company’s headquarters’ building located in Atlanta, Georgia.

(3)

Represents rental income at the Company’s headquarters building to be paid to the Real Estate Segment by the Parent Company and the BPE Segment.

Other than noted above, the Company estimates that the backlog at April 30, 2007, will be recognized prior to April 30, 2008. No assurance can be given as to future backlog levels or whether the Company will actually realize earnings from revenues resulting from the backlog existing at April 30, 2007.

REGULATION

The Company is subject to the authority of various federal, state, and local regulatory agencies including, among others, the Occupational Safety and Health Administration and the Environmental Protection Agency. The Company is also subject to local zoning regulations and building codes. Management believes that the Company is in substantial compliance with all governmental regulations. Management believes that the Company’s

compliance with federal, state, and local provisions, which have been enacted or adopted for regulating the discharge of materials into the environment, has no material adverse effect upon the capital expenditures, earnings, or competitive position of the Company.

EXECUTIVE OFFICERS OF THE REGISTRANT

The Executive Officers of the Company as of April 30, 2007, were as follows:

Alan R. Abrams (52)				Officer since 1988

Chairman of the Board since April 2006 and a Director of the Company since 1992, Mr. Abrams has been Chief Executive Officer since 1999 and President since 2000. He also served as Co-Chairman of the Board from 1998 to April 2006.

Mark J. Thomas (51)				Officer since 2003

Mr. Thomas has served as Chief Financial Officer since 2003. Prior to joining the Company, he was employed by Paragon Trade Brands (a manufacturing company), serving as Vice President of Finance & Corporate Controller from October 2000 to October 2002.

Melinda S. Garrett (51)		Officer since 1990

A Director of the Company since 1999, Ms. Garrett has served as Secretary since 2000 and Vice President since 2004. She previously served as Chief Financial Officer from 1997 to 2003, and also has served the Company’s subsidiary, Abrams Properties, Inc., as Chief Executive Officer since 2003 and President since 2001.

J. Andrew Abrams (47)				Officer since 1988

A Director of the Company since 1992, Mr. Abrams has been Executive Vice President since April 2006. He served as Co-Chairman of the Board from 1998 to 2006 and Vice President-Business Development from 2000 to April 2006.

M. Todd Jarvis (41)				Officer since 2006

Mr. Jarvis has served the Company’s subsidiary, Servidyne Systems, LLC, as President since March 2006 and Chief Executive Officer since April 2007. He also has served the Company’s subsidiary, The Wheatstone Energy Group, LLC, as President and Chief Executive Officer since March 2006, and was Vice President and Chief Operating Officer from December 2003 to March 2006. Prior to joining the Company, he was employed by The Wheatstone Energy Group, Inc., which the Company acquired in 2003, serving as Co-Founder, Vice President and Chief Operating Officer from 1992 to 2003.

Executive Officers of the Company are elected by the Board of Directors of the Company or the Board of the respective subsidiary to serve at the pleasure of the Board. Alan R. Abrams and J. Andrew Abrams are brothers. David L. Abrams, a member of the Board of Directors, is first cousin to Alan R. Abrams and J. Andrew Abrams. There are no other family relationships between any Executive Officers or Directors of the Company.

ITEM 1A. RISK FACTORS

The following factors, together with other matters described in this Annual Report on Form 10-K, should be considered in evaluating the Company. Any of the following potential risks, if actually realized, could result in a materially negative impact on the Company’s business and financial results. In such an event, the trading price of the Company’s stock could be negatively impacted.

Risks Related to the Company

The Company’s business depends on the success of its relatively new building performance energy, infrastructure, and productivity offerings. If the Company fails to grow these lines of business, its prospects could be adversely affected.

In the past several years, the Company has undergone a fundamental change in its primary focus by transitioning away from manufacturing and commercial construction to its current position as a provider of energy, infrastructure and facility services to commercial real estate owners and operators, through the BPE Segment. While the Real Estate Segment is still an important contributor to the Company’s revenues, earnings and cash

flows, it is not the primary element of the Company’s growth strategy. The Company intends to dedicate most of its future capital resources and management attention to growing the BPE Segment.

This BPE Segment differs in some substantial ways from the Company’s now-discontinued manufacturing and commercial construction businesses, and from the ongoing business of the Real Estate Segment. For instance, several important offerings of the BPE Segment are information technology (“IT”) oriented, which represents a departure from the Company’s legacy businesses.

The Company’s ability to implement its growth strategy will depend upon a variety of factors that are not entirely within its control, including:

•

the ability to add new products and services for the BPE Segment, and the ability to keep current products and services competitive;

•

the ability to make profitable business acquisitions and the ability to integrate such acquired businesses into existing operations;

•

the hiring, training and retention of qualified personnel;

•

the establishment of new relationships or expansion of existing relationships with customers and suppliers; and

•

the availability of capital.

To date, the BPE Segment has not contributed substantially to the Company’s net earnings—in fact, it has yet to achieve sustained profitability. In the light of the relative newness of this segment to the Company, and the absence of a proven track record of sustained profitability, the Company cannot guarantee that its growth strategy will be successful. If the Company’s growth strategy were unsuccessful, its revenues, earnings, stock price, and the Company as a whole could be adversely affected.

The Company is redeploying a portion of its capital previously invested in the Real Estate Segment to grow the BPE Segment. The Company cannot guarantee that the return on investing these resources in the new segment, if any, will exceed the return that might otherwise be achievable from the Real Estate Segment.

The Company intends to dedicate the majority of its capital resources to growing the BPE Segment rather than the Real Estate Segment. Over the past several years, the Company has redeployed some of its capital previously invested in the Real Estate Segment (primarily through the sale of commercial properties) to the BPE Segment.

As noted above, the BPE segment does not have a proven track record of sustained profitability, in contrast to the Real Estate Segment, which has historically been consistently profitable, and has been the primary source of the Company’s net earnings in recent years. Accordingly, the Company cannot guarantee that the return on its investment in the BPE Segment, if any, will compare favorably to the results that might be achievable otherwise, if the Company were to reinvest its capital resources entirely in the Real Estate Segment (or any other line of business). If the Company’s efforts to grow the BPE Segment do not prove to be successful, the investment of this capital could be lost, which could have a material adverse effect on the Company’s financial position.

In recent years, net earnings have been driven significantly by capital gains from the sale of real estate investment properties. Without such gains recurring in the future, the Company might not be profitable.

The Company’s net earnings in recent years have been driven primarily by significant capital gains from sales of commercial real estate properties. Although some of the proceeds of these sales have been re-invested in new properties, a significant portion of the proceeds from these sales has been redeployed to growing the BPE Segment. Other proceeds from these sales have been distributed to shareholders as dividends. As a result, in recent years the Company’s real estate dispositions have exceeded its acquisitions, and in light of the Company’s focus on growing the BPE Segment, the Company anticipates that this trend is likely to continue. Consequently, real estate capital gains cannot be depended upon as a primary source for the Company’s long-term profitability.

Because of these factors, the Company’s net earnings in the future, unlike its net earnings over the past several years, likely will not result primarily from real estate dispositions. In addition, to the extent that the proceeds from real estate dispositions are not redeployed in acquiring new income-producing real estate properties, another

source of earnings—rental income—could be negatively impacted. Accordingly, in order for the Company to maintain or improve its net earnings in the future, the BPE Segment will need to be expanded to produce consistent net earnings. There can be no guarantee, however, that the BPE segment will be able to produce net earnings, if any, sufficient to match the contribution to the Company’s profitability that have resulted from the Real Estate Segment in the past several years, particularly in light of BPE Segment’s lack of a consistent track record of sustained profitability.

If the Company cannot find suitable business acquisition candidates, or integrate completed business acquisitions successfully, its prospects could be adversely affected.

In addition to organic growth, the Company’s strategy includes growth through business acquisitions. The Company’s BPE Segment, to which the Company is dedicating most of its capital resources and attention, was established through several business acquisitions during the past several years. The Company may compete for acquisition opportunities with other companies that have significantly greater financial resources. Therefore, there is a risk that the Company may be unable to complete an acquisition that it determines to be important to the growth strategy, because another company may be able to pay more for a potential acquisition candidate or may be able to use its financial resources to acquire a potential acquisition candidate before the Company could obtain any requisite financing for such acquisition.

Even if the Company completes a desirable business acquisition on favorable terms, the Company may not be able to successfully integrate on a timely basis any newly-acquired company into existing operations. Integration of a substantial business is a challenging, time-consuming and costly process. It is possible that the acquisition itself or the integration process could result in the loss of the acquired company’s management or other key employees, the disruption of the acquired company’s business, or inconsistencies in standards, controls, procedures and policies that could adversely affect the acquired company’s ability to maintain good relationships with suppliers, customers and employees.

In addition, successful integration of an acquired company requires the dedication of significant management resources that may temporarily detract attention from the Company’s and the acquired company’s day-to-day business. If management is not able to integrate the organization, operation and systems of the acquired company in a timely and efficient manner, the anticipated benefits of a completed acquisition may not be fully realized.

The Company may not be able to raise the additional capital necessary to implement its growth strategy.

In order to grow the BPE Segment, the Company anticipates having to continue to make expenditures in connection with adding new products and services offered by the BPE Segment and in connection with the potential future acquisitions of other companies. Although the Company believes it has sufficient resources to finance these expenditures, at some point there may be a requirement to seek additional sources of capital. The Company cannot always predict the amount of its expenditures in connection with growing its business, because opportunities for implementing it, particularly in the case of acquisitions, may arise unexpectedly. If a future acquisition opportunity were to arise, the Company would be required to evaluate the sources of financing then available, which might be limited on short notice, and the terms of any such financing available at the time. If the Company could not secure financing on acceptable terms, it might be unable to make such acquisition. Moreover, the Company cannot guarantee that financing would be available on acceptable terms, if at all, at the times such needs were to arise.

If the Company successfully implements its growth strategy, but is unable to effectively manage its growth, the Company’s revenues and profitability might be adversely affected.

The growth of the BPE Segment might place additional demands on the Company’s administrative, operational and financial resources, and might increase the demands on the Company’s financial systems and controls. The Company’s ability to manage its growth successfully may require the Company to continue to improve and expand these resources, systems and controls. If the Company were unable to efficiently manage its growth, the Company might not be able to produce optimal financial or operational results, even if the Company were successful in growing the BPE Segment. Difficulties that can arise when business growth outstrips the ability to manage the business include customer service or product delivery delays and the resulting loss of customers, higher personnel turnover, the foregoing of potential new business opportunities due to lack of available resources, and other potential negative effects. Rapidly growing businesses frequently outpace a company’s

ability to optimally manage such growth, due in large part to the reluctance to add the overhead costs of additional administrative personnel and resources before meaningful sales growth is achieved.

The Company is dependent upon key personnel and the loss of any such key personnel could adversely impair the Company’s ability to conduct its business. In addition, the implementation of the Company’s growth strategy will require the addition of suitable personnel.

One of the Company’s objectives is to develop and maintain a strong management team at all levels. At any given time, the Company could lose the services of key executives or other key employees. None of the key executives or other key employees is currently subject to employment agreements or contracts. The loss of services of any key personnel could have an adverse impact upon the Company’s results of operations, financial condition, and management’s ability to execute its business strategy. If the Company were to lose a member of its senior management team, the Company might be required to incur significant costs in identifying, hiring and retaining a replacement for the departing executive.

In addition, the growth of the BPE Segment will require the addition of qualified personnel. Some of the offerings of this segment, such as energy engineering and the IT-oriented products and services, may require personnel with special skills who are in high demand in the employment marketplace. The Company competes for such personnel with some companies with much greater resources. Accordingly, the Company may not be able attract and hire such personnel, or retain them in the face of better offers from larger competitors.

The Company is subject to changing regulations regarding corporate governance and required public disclosure that have increased both the costs of compliance and the risks of noncompliance. As a small public company, these costs of compliance may affect the Company disproportionately as compared with larger competitors.

As a public company, the Company is subject to rules and regulations by various governing bodies, including the Securities and Exchange Commission, NASDAQ, and Public Company Accounting Oversight Board, which are charged with the protection of investors and the oversight of companies whose securities are publicly traded. The Company’s efforts to comply with these new regulations, most notably the Sarbanes-Oxley Act of 2002, or “SOX,” may result in increased general and administrative expenses and a diversion of management time and attention from earnings-generating activities to compliance activities.

The Company is preparing to comply with the SOX requirements involving the assessment of its internal controls over financial reporting, which requirements are currently expected to go into effect for the Company in two phases over its fiscal years ending April 30, 2008, and April 30, 2009. The efforts to comply with the SOX requirements will require the commitment of significant financial and management resources.

In addition, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters, and additional costs necessitated by ongoing revisions to the Company’s disclosure and governance practices. If the Company fails to satisfactorily address and comply with these regulations and any subsequent revisions or additions, the business may be adversely impacted.

Moreover, many of the compliance costs of SOX and similar rules and regulations are not in direct proportion to the size of a particular company. As a small public company, these costs might affect the Company disproportionately, particularly in comparison to its larger public competitors. The Company may also be at a disadvantage vis-à-vis public company compliance costs compared with its privately held competitors, who are not subject to the same regulations.

Risks Related to the Company’s BPE Segment

Failure to adequately expand the BPE Segment’s sales force may impede its growth.

The BPE Segment is dependent on its direct sales force to obtain new customers, particularly large enterprise customers, and to manage its customer base. The Company competes in a very competitive marketplace for sales personnel with the advanced sales skills and technical knowledge the Company needs. The BPE Segment’s ability to achieve significant growth in revenue from BPE services in the future will depend, in large part, on the Company’s success in recruiting, training, motivating and retaining a sufficient number of qualified sales personnel. New personnel requires significant training. The Company’s recent hires and planned new hires

might not turn out to be as productive as the Company would like, and the Company might be unable to hire a sufficient number of qualified individuals in the future in the markets where the Company conducts or desires to conduct its business. If the Company were unable to hire and develop a sufficient number of qualified and productive sales personnel, sales of the BPE Segment could be adversely impacted, and as a result, the Company’s growth could be impeded.

As more of the BPE Segment’s sales efforts are targeted at larger enterprise customers, its sales cycle may become longer and more expensive, it may encounter pricing pressure and implementation challenges, and the Company may have to delay revenue recognition with respect to certain sales to these customers, all of which could harm the BPE Segment’s business.

The BPE Segment is concentrating on obtaining larger enterprise customers. As the Company targets more of these customers, the Company anticipates potentially facing greater selling costs, longer sales cycles, and less predictability in closing some of its sales. In this market segment, the customer’s decision to use the Company’s BPE products and services may be an enterprise-wide decision, and if so, these types of sales would require the Company to provide greater levels of education to prospective customers regarding the use and benefits of its building performance products and services. In addition, larger customers may demand more customization, enhanced integration services and additional product features and services. As a result of these factors, BPE sales opportunities may require the Company to devote greater sales support and professional services resources to individual customers, driving up the costs and time required to close sales, and diverting selling and professional services resources to a smaller number of larger transactions, while at the same time requiring the Company to delay revenue recognition on some of these transactions until the technical or implementation requirements have been met. In addition, larger enterprise customers may seek volume discounts and price concessions that could make these transactions less profitable. Because of these factors, the risk of not closing a sale with a larger enterprise customer may be greater than with smaller customers, and the results of such potential failure, due to higher costs and fewer overall ongoing sales initiatives, can be also be greater. Moreover, the bargaining power of larger enterprise customers may result in lower profit margins on BPE revenues.

A significant portion of BPE energy savings contract revenues come from energy service companies (“ESCOs”). If the ESCOs were to reduce or eliminate future contract awards, the Company’s business could be harmed.

The Company’s BPE Segment obtains a significant portion of its energy savings contract revenues from large ESCOs. If the Company were to obtain fewer such contracts, or if such contracts were completely curtailed, BPE revenues and profitability could be negatively impacted. Furthermore, the ESCOs, with whom the Company has built long-term relationships, might not be awarded future government and private sector contracts. Also, ESCOs are subject to audits and investigations by the government, the results of which could impact the ESCOs’ ability to obtain future contracts. Reductions in the number of ESCO contracts available for the Company to compete for could also adversely affect the BPE Segment’s earnings.

The value to customers of the various energy savings products and services offered by the Company’s BPE Segment is substantially impacted by the prevailing conditions of energy markets; if energy prices and utility costs were to decline, sales of the BPE Segment’s energy savings products and service offerings might not grow, or could even decline.

Many of the product and service offerings of the Company’s BPE Segment are energy efficiency savings products and services. The financial value to customers that install energy efficiency products and services is measured by energy and utility cost savings to be realized over time. Accordingly, the return on the customers’ investment for installing energy efficient products and services and the time period necessary for customers to recoup the initial investment required for these products and services are directly correlated with the prevailing market prices for energy. If the price of energy and utility rates were to drop, the customers’ energy savings and returns on investment from energy efficiency products and services would be less, and the time period over which the investment could be recovered through energy and utility costs savings would be extended. If energy prices were to decline, demand for energy efficiency products and services could decline as a result, as potential customers are dissuaded from an upfront investment that may not produce as attractive of a return on investment for some time. Consequently, a significant or sustained decline in energy prices may translate into fewer sales for the Company’s BPE energy offerings.

The BPE Segment offers some construction and design services. The Company, consequently, may be subject to liability for construction or design defects, product liability, and warranty claims arising in the ordinary course of business. The costs of insurance offering protection against such claims, if such insurance coverage is available to the Company for purchase, may be prohibitive, and the amount and scope of such coverage offered by insurance companies, if any, may be limited. Uninsured judgments against the Company may negatively affect its financial position. Even if the Company prevails in defending against construction and design defect claims, or if successful claims are covered by insurance, the Company’s reputation may be harmed.

A portion of the BPE Segment’s revenues and current backlog is based on fixed price or fixed unit price contracts that involve risks relating to the Company’s potential responsibility for the increased costs of performance under such a contract. Generally, under fixed price or fixed unit price contracts, any increase in the Company’s unit cost not caused by a modification or compensable change to the original contract, whether due to inflation, inefficiency, faulty estimates or other factors, is absorbed by the Company. There are a number of other factors that could create differences in contract performance, as compared to the original contract estimate, including, among other things, differing facility conditions, availability of skilled labor in a particular geographic location, availability of materials, and abnormal weather conditions.

The BPE Segment often utilizes subcontractors in performing services or completing projects, whose potential unavailability or unsatisfactory performance could have a material adverse effect on the Company’s business.

The Company often utilizes unaffiliated third-party subcontractors in order to perform some of its energy engineering and consulting services, much of its energy savings maintenance, installation and retrofit projects, and most of its other construction—related projects and services. As a consequence, in order to offer these services, the BPE Segment depends on the continuing availability of, and satisfactory performance by, such subcontractors. There may not be sufficient availability of such subcontractors at the times needed or in the markets in which the BPE Segment operates, or the quality of work by such subcontractors may prove to be below acceptable standards. In addition, the subcontractors may be unable to qualify for payment and performance bonds to insure their performance or may be otherwise inadequately capitalized. Insurance protection for construction defects, if any, available to subcontractors is increasingly expensive and may become unavailable, and the scope of such protection may become greatly limited. If as a result of such subcontractor problems or failures, the Company were unable to meet its contractual obligations to its customers or were unable to successfully recover sufficient indemnity from its subcontractors or their bond or insurance carriers, the Company could suffer losses which could decrease its net income, damage its customer relations, significantly harm its reputation, and otherwise have a material adverse effect on its business.

A key offering of the Company’s BPE Segment is replacing older existing lighting systems in commercial, industrial and other types of facilities with newer energy efficient lighting systems. The removal of old lighting systems can often involve the removal, handling and disposal of hazardous materials. As noted previously, various federal, state and local laws govern the handling of hazardous materials. Compliance with these regulations can be costly. If the Company were to fail to comply, it could face liability from government authorities or other third parties. Even in cases where the Company subcontracts the disposal of such materials, the Company could face potential liability. Not only could judgments, fines or similar penalties for environmental noncompliance negatively affect the Company’s financial position, the reputation of the BPE Segment and the Company’s other businesses could be harmed as well.

If the BPE Segment’s comprehensive energy, infrastructure and productivity Application Software Provider (“ASP”) offerings are not widely accepted, the Company’s operating results could be harmed.

The BPE Segment derives a significant portion of its recurring revenue from proprietary building performance software system sales. The latest iterations of its building performance software are primarily ASP-based solutions, whereby the BPE Segment operates the software systems at its data center, and customers access their data and reports on the Internet. This contrasts with previous versions of the BPE Segment’s preventative

maintenance work order management software systems, which typically were installed on customers’ computers. Future recurring revenues in the BPE Segment may be substantially dependent on continued customer demand for these ASP-based solutions.

Factors that might affect customer acceptance of the BPE Segment’s ASP solutions include:

	•		reluctance by enterprises to migrate to an ASP system from more traditional systems in which the software and related data is hosted and controlled locally by the customer;
	•		the price and performance of the Company’s ASP offerings;
	•		the level of customization the BPE Segment is able or willing to offer;
	•		potential adverse publicity about the Company, its services, or the viability, reliability or security of ASP systems generally from third party reviews, industry analyst reports, or disparaging statements made by competitors.

Many of these factors are beyond the Company’s control. If the BPE Segment’s ASP offerings were to fail to achieve widespread customer acceptance, the Company’s business could be harmed.

Because the BPE Segment’s comprehensive energy, infrastructure and productivity software offering, including the ASP offerings, are technologically complex, and because the BPE Segment has incorporated into these offerings a variety of new computer hardware and software, both developed in-house and acquired/licensed from third-party vendors, the offerings might have errors or defects, of which the Company is unaware, which users could identify only after they begin using these products and services. Any such errors or defects could result in unanticipated downtime for the BPE Segment’s customers and harm to the Company’s reputation and business.

The BPE Segment from time to time has found previously undetected defects in its software offerings, and new errors could be detected in its existing offerings sometime in the future. In addition, the BPE Segment’s customers may use its software products and services in unanticipated ways that may cause a disruption in service, or damage or loss of the customers’ data. With respect to the Company’s ASP offerings in particular, misuse by customers might result in a loss of service for other customers attempting to access their data. The Company’s ASP solutions are Internet-based, and Internet-based services frequently contain undetected errors when first introduced or when new versions or enhancements are first released.

Since the BPE Segment’s customers use its software products and services in important aspects of their businesses, any errors, defects, disruptions in service, data loss, or other performance problems related to the Company’s software products and services, could hurt the BPE Segment’s reputation and could damage its customers’ businesses. In such an event, if customers elect not to renew contracts, or delay or withhold payment to the Company, the Company could lose future potential sales or customers might make warranty claims against the Company, any of which could result in lower recurring revenues, lower backlog, an increase in the provision for doubtful accounts, an increase in collection cycles for accounts receivable, or the expense and risk of potential litigation.

The reputation of the Company’s relatively new BPE Segment depends significantly upon the BPE Segment maintaining a reputation for technological prowess. Consequently, the product and service offerings from this segment must continue to be up-to-date technologically. The success of enhancements and new features added to existing offerings, and the success of new products and services, such as the BPE Segment’s energy, infrastructure and productivity ASP offerings, depends on several factors, including the timely completion, introduction, and market acceptance of the enhancements, new features, or new products and services. Failure in this regard may significantly impair revenue growth of the BPE Segment.

In addition, because the ASP offerings are designed to operate on a variety of computer network hardware and software platforms using a standard Internet Web browser, the BPE Segment may need to regularly modify and enhance its offerings to keep pace with changes in Internet-related hardware, software, communication, Web browser and database technologies. The BPE Segment might not be successful in either adding such modifications and enhancements or in bringing them to market on a timely basis. Furthermore, uncertainties about the timing and nature of new computer network platforms or technologies, or modifications to existing platforms or technologies, could increase the Company’s research and development expenses. Any failure of any of the BPE Segment’s products and services to operate effectively with future computer network platforms and technologies could lessen the demand for the BPE Segment’s products and services, and result in customer dissatisfaction and harm to the BPE Segment’s business.

The BPE Segment’s energy, infrastructure and productivity software products and services involve the storage of customers’ data and information, whether locally on the customers’ own computers, or on the Company’s computers in the case of the BPE Segment’s new ASP offerings and one of its older legacy products, and the transmission of such data and information in the case of the ASP and the older legacy products. Security breaches could expose the Company to a risk of loss of this data and information, potential litigation and possible liability. If security measures were breached as a result of third-party action, employee error, malfeasance or otherwise, during transfer of data and information to data centers or at any time, and, as a result, someone were to obtain unauthorized access to any customers’ data and information, the Company’s reputation might be damaged, its business might suffer, and it might incur significant losses and liability. Because techniques used to obtain unauthorized access or to sabotage computer systems change frequently and generally are not recognized until launched against a target, the BPE Segment might be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of the security were to occur, the market perception of the effectiveness of the BPE Segment’s security measures could be harmed and the BPE Segment could lose sales and customers.

If the Company fails to protect its intellectual property rights adequately, particularly for the Company’s software products and services, competitors might gain access to the Company’s technology, and the Company’s business could be harmed. In addition, defending the Company’s intellectual property rights might entail significant expense. Any of the Company’s intellectual property rights may be challenged by others or invalidated through administrative process or litigation.

Currently, the Company has no issued patents and may be unable to obtain patent protection for its technology. In addition, if any patents were issued in the future, they might not provide the Company with any competitive advantages, or subsequently may be successfully challenged by third parties. Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain.

Effective patent, trademark, copyright and trade secret protection may not be available to the Company in every country in which its service is available. The laws of some foreign countries may not be as protective of intellectual property rights as those in the U.S., and mechanisms for enforcement of intellectual property rights may be inadequate. Accordingly, despite the Company’s efforts, the Company might be unable to prevent third parties from infringing upon or misappropriating its intellectual property.

The Company might be required to spend significant resources to monitor and protect its intellectual property rights. The Company might initiate claims or litigation against third parties for infringement of the Company’s proprietary rights or to establish the validity of the Company’s proprietary rights. Any litigation, whether or not it is resolved in the Company’s favor, could result in significant expense to the Company and divert the efforts of the Company’s technical and management personnel.

For its ASP offerings, the BPE Segment generally recognizes revenue from customers ratably over the terms of their subscription agreements, which are typically 12 to 24 months, although terms can range from one to 60 months. As a result, a portion of the revenue that the Company’s BPE Segment reports in each quarter is deferred revenue from subscription agreements entered into during previous quarters. Consequently, a decline in new or renewed subscriptions in any one quarter would not necessarily be fully reflected in the revenue of that quarter, but could negatively affect revenue in future quarters. In addition, the BPE Segment might be unable to adjust its cost structure to reflect such reduced revenues. Accordingly, the effect of significant downturns in sales and market acceptance of the BPE Segment’s ASP offerings might not be fully reflected in the BPE Segment’s results of operations until future periods. The Segment’s subscription model also makes it difficult to rapidly increase revenue simply because of additional sales of its ASP offerings in any period, as revenue from the ASP offerings from new customers must be recognized over the applicable subscription term.

As Internet commerce continues to evolve, increasing regulation by federal, state or foreign agencies becomes more likely. For example, the Company believes increased regulation is likely in the area of data privacy, and laws and regulations applying to the solicitation, collection, processing or use of personal or consumer information could affect customers’ ability to use and share data, potentially reducing demand for ASP solutions in which data is processed by third parties, and restricting the Company’s ability to store, process and share data with its customers. In addition, taxation of services provided over the Internet, or other charges imposed by government agencies or by private organizations for accessing the Internet, might also be imposed. Any regulation imposing fees for Internet use or restricting information exchange over the Internet could result in a decline in the use of the Internet and the viability of Internet-based services, which could harm the Company’s ASP products and services.

Much of the work performed by the BPE Segment requires significant interaction with its customers. Therefore, the Company must have its customer’s full cooperation to complete projects on a timely basis. In the early stages of a project, the Company is at risk to customers not providing accurate and timely data for project implementation. Also, the Company must frequently access customer facilities, the restriction of which could delay or prevent the completion of projects.

Risks Related to the Company’s Real Estate Segment

The Company ‘s ownership of commercial real estate involves a number of risks, including general economic and market risks, leasing risk, uninsured losses and condemnation costs, and environmental issues, the effects of which could adversely affect the Company’s real estate business.

The Company’s assets might not generate income sufficient to pay expenses, service debt and adequately maintain its real estate properties. Several factors may adversely affect the economic performance and value of the properties. These factors include, among other things:

	•		Changes in the national, regional and local economic climate;
	•		Local conditions such as an oversupply of properties or a reduction in demand for properties;
	•		The attractiveness of the properties to prospective tenants;
	•		Competition from other available properties;
	•		Changes in market rental rates; and
	•		The need to periodically repair, renovate and re-lease space.

The performance of the Real Estate Segment also depends on the ability to collect rent and expense reimbursements from tenants, and to pay for adequate maintenance, insurance and other operating costs (including real estate taxes), which costs could increase over time. Also, the expenses of owning and operating a

property are not necessarily reduced when circumstances such as market factors and competition cause a reduction in income from the property. If a property is mortgaged and the Company is unable to generate sufficient rental income to cover the mortgage payments, the lender could foreclose on the mortgage and take the property. In addition, capital market conditions, the availability and cost of financing, insurance costs, changes in laws and governmental regulations (including those governing usage, zoning, environmental, and property taxes), other uncontrollable operating costs and financial distress or bankruptcies of tenants could adversely affect the Company’s financial condition.

Operating revenues in the Real Estate Segment are dependent upon entering into multi-year leases with and collecting rents from tenants. National, regional and local economic conditions might adversely impact tenants and potential tenants in the various marketplaces in which the Company’s properties are located, and accordingly, could affect the tenant’s ability to continue to pay rents and possibly to continue to operate in their leased space. Tenants sometimes experience bankruptcies, and pursuant to the various bankruptcy laws, leases may be rejected and thereby terminated prematurely. When leases expire or are terminated, replacement tenants may or may not be available upon acceptable terms and conditions. In addition, the Company’s cash flows and results of operations could be adversely impacted if existing leases were to expire or were terminated, and at such time, market rental rates were lower than the previous contractual rental rates.

Accidents, flooding and other losses at the Company’s properties could materially adversely affect the Company’s operating results. Casualties may occur that significantly damage an operating property, and insurance proceeds, if any, may be materially less than the total loss incurred by the Company. Property ownership also involves potential liability to third parties for such matters as personal injuries occurring on a property. The Company, however, maintains casualty and liability insurance under policies that management believes to be customary and appropriate. In addition to uninsured losses, various government authorities may condemn all or part of an operating property or investments in land. Such condemnations could adversely affect the commercial viability of such property or investment in land.

Environmental issues that could arise at the Company’s properties could have an adverse effect on the Company’s financial condition and results of operations. Federal, state and local laws and regulations relating to the protection of the environment may require a current or previous owner or operator of real estate to investigate and clean up hazardous or toxic substances or petroleum product releases at a property. The property owner or operator might have to pay a governmental entity or third parties for property damage, and for investigation and clean-up costs incurred by such parties in connection with such contamination. These laws typically impose clean-up responsibility and liability without regard to whether the owner or operator previously knew of or caused the presence of the contaminants. Even if more than one person might have been responsible for the contamination, each person covered by the environmental laws might be held responsible for all of the clean-up costs incurred. In addition, third parties might sue the owner or operator of a site for damages and costs resulting from environmental contamination emanating from that site. Currently, the Company is not aware of any environmental liabilities at its properties that it believes would have a material adverse effect on its business, assets, financial condition or results of operations. Unidentified environmental liabilities could arise, however, and could have an adverse effect on the Company’s financial condition and results of operations.

The Company’s Real Estate Segment typically holds real estate assets until such time as it believes to be optimal to sell them. Normally, this will be during relatively strong real estate markets. However, factors beyond the Company’s control could make it necessary for the Company to dispose of real estate properties during weak real estate markets. Following a period when the market values of the Company’s real estate assets were to fall significantly, the Company could be required to sell real estate assets at a time when it may be inopportune to do so. Further, markets for real estate assets are not usually highly liquid, which can make it particularly difficult to realize acceptable selling prices when disposing of real estate assets during weak markets.

The Company may incur debt from time to time to finance acquisitions, capital expenditures or for other purposes. A property’s current leasing status, physical condition, net operating income, global, national, regional or local economic conditions, financial market conditions, the level of liquidity available in real estate markets, the Company’s financial position, the terms and conditions of or status of the Company’s other real estate or corporate loans, or other prior financial commitments could impair the Company’s ability to refinance real estate properties at the times when such refinancing might be necessary. Moreover, such refinancing might not be available upon acceptable terms, including in respect of interest rates, amortization schedules, or loan maturities.

None.

The Company, through its Real Estate Segment, owns its corporate headquarters building, which contains approximately 65,880 square feet of leasable office space. The building is located in the North x Northwest Office Park, 1945 The Exchange, in suburban Atlanta, Georgia. The Company and both operating segments have their main offices located in this building. In addition to the 25,928 square feet of offices leased by Servidyne entities, another 39,952 square feet is leased to unaffiliated tenants. In addition, the Company, through its BPE Segment, also leases 5,000 square feet of space for a warehouse through a lease that currently expires in March 2008.

As of April 30, 2007, the Company owned or had an interest in the following real properties:

The Company’s Real Estate Segment owns four shopping centers, two that it developed and two that it acquired. The following chart provides relevant information relating to the owned shopping centers:

										Percentage												Rental								Principal
										of Square				Calendar								Income								Amount of
						Leasable				Footage				Year(s)								Per Leased				Debt				Debt
						Square				Leased as of				Placed in				Rental				Square				Service				Outstanding
						Feet in				April 30,				Service by				Income				Foot				Payments				as of April 30,
Location		Acres				Building(s)				2007				Company				2007				2007 (1)				2007 (2)				2007 (3)
11459 Old Nashville Hwy.			8.0				51,925				95				2006				$   466,963				$9.47				$197,088				$4,100,000
Smyrna, TN (4)
380 Blanding Blvd.			9.4				84,180				100				2007				264,000				3.14				—				—
Orange Park, FL (5)
2500 Airport Thruway			8.0				87,543				100				1980, 1988				441,286				5.04				390,946				408,335
Columbus, GA (6) (7)
8102 Blanding Blvd.			18.8				174,220				96				1999				1,638,743				9.80				610,238				7,394,243
Jacksonville, FL (8)

The Company’s shopping center located in Morton, Illinois, was sold at a gain in November 2006, and is not included above.

The centers located in Columbus, Georgia, and Orange Park, Florida, are leased exclusively to Kmart. The Columbus, Georgia, lease expires in May 2008 and Kmart has ten five-year renewal options. The Orange Park, Florida, lease expires in July 2011 and has eight five-year renewal options.

Anchor tenant lease terms for the centers in Jacksonville, Florida, and Smyrna, Tennessee, are shown in the following table:

Lease

Options

Anchor

Square

Expiration

to

Tenant (1)

Location

Footage

Date

Renew

Harbor Freight Tools

Jacksonville, FL

12,500

2012

4 for 5 years each

Publix (2)

Jacksonville, FL

85,560

2010

6 for 5 years each

Office Depot

Jacksonville, FL

22,692

2008

2 for 5 years each

Food Lion

Smyrna, TN

33,000

2019

4 for 5 years each

With the exception of the Kmart lease in Columbus, Georgia, and the Harbor Freight Tools lease in Jacksonville, Florida, all of the anchor tenant leases and some of the small shop leases provide for contingent rentals if sales generated by the respective tenant in the leased space exceed specified predetermined amounts. In some cases, contingent rentals are subject to certain rights of offset for the amounts that ad valorem taxes may exceed specified predetermined amounts. In fiscal 2007, the Company did not recognize any amounts in contingent rent from owned shopping centers.

Typically, tenants reimburse the Company for a portion of ad valorem taxes (subject to the rights of offset against contingent rents mentioned above), insurance and common area maintenance costs. Kmart, under its lease, has total responsibility for maintenance, insurance and taxes for the center in Columbus, Georgia.

The Company, through its Real Estate Segment, owns three office properties in metropolitan Atlanta, Georgia: the corporate headquarters building in Atlanta, an office park in Marietta, and an office building in Newnan. The following chart provides pertinent information relating to the office properties:

										Percentage												Rental								Principal
										of Square				Calendar								Income								Amount of
						Leasable				Footage				Year(s)								Per Leased				Debt				Debt
						Square				Leased as of				Placed in				Rental				Square				Service				Outstanding
						Feet in				April 30,				Service by				Income				Foot				Payments				as of April 30,
Location		Acres				Building(s)				2007				Company				2007				2007 (1)				2007 (2)				2007 (3)
246 Bullsboro Dr.			1.35				21,000				94				2007			$	51,830			$	2.63			$	24,549			$	2,500,000
Newnan, GA (4)
1945 The Exchange			3.12				65,880				100				1997				1,354,505				20.56				443,571				4,539,270
Atlanta, GA (5)
1501-1523			8.82				121,476				75				1997				1,553,729				17.05				538,925				5,779,170
Johnson Ferry Rd.
Marietta, GA (6)

Anchor tenant lease terms for the owned office properties are shown in the following table:

						Lease		Options
Anchor				Square		Expiration		to
Tenant (1)		Location		Footage		Date		Renew
SunTrust Bank		Atlanta, GA		35,788		2008		None
Servidyne, Inc. (2)		Atlanta, GA		25,928		2011		None
United Realty		Newnan, GA		13,286		2014		2 for 5 years each

Typically, tenants reimburse the Company for a portion of ad valorem taxes, insurance and operating expenses.

The Company, through its Real Estate Segment, has a leasehold interest in two shopping centers that it developed, sold to unrelated third parties, and leased back from such parties under leases currently expiring from years 2012 to 2014. Both of the centers are subleased by the Company entirely to Kmart Corporation. The Kmart subleases each provide for contingent rentals if sales exceed specified predetermined amounts. The Davenport, Iowa, and Jacksonville, Florida, properties have eight remaining five-year renewal options. The Company’s leases

with the fee owners for Davenport, Iowa, and Jacksonville, Florida, each contain renewal options coextensive with Kmart’s renewal options on the subleases.

Kmart, under its subleases, is responsible for insurance and ad valorem taxes, but has the right to offset against contingent rentals for any ad valorem taxes paid in excess of specified amounts. In fiscal 2007, the Company recognized approximately $25,000 of contingent rental from leaseback shopping centers. The Company is responsible for structural and roof maintenance of the centers. The Company is also responsible for underground utilities, parking lots and driveways, except for routine upkeep, which is the responsibility of the subtenant, Kmart. The Company’s leases contain exculpatory provisions, which limit the Company’s liability for payments to its interest in the respective leases.

The following chart provides certain information relating to the leaseback shopping centers:

						Square				Calendar Years				Rental				Rental Income				Rent
						Feet in				Placed in Service				Income				per Square Foot				Expense
Location		Acres				Building(s)				by Company				2007				2007 (1)				2007
Davenport, IA			10.0				84,180				1977			$	255,308			$	3.03			$	105,203
Jacksonville, FL (2)			11.6				97,032				1979				303,419				3.13				258,858

The Orange Park, Florida, leaseback center was purchased by the Company in February 2007, and is not included above, but shown as an owned shopping center. See “OWNED SHOPPING CENTERS.”

The Company sold its interest in its former leaseback shopping center in Richfield, Minnesota, at a gain in March 2007. This leaseback shopping center is not included above.

The Company, through its Real Estate Segment, owns the following real estate, which is held for future development, leasing, or sale:

The Company, through its Real Estate Segment, owns the following real estate, which is held for future development, leasing, or sale:

				Calendar Year
				Development		Intended
Location		Acres		Completed		Use (1)
Mundy Mill Road		5.3		1987		Commerical development pads or
Oakwood, GA						up to four outlots
North Cleveland Avenue		0.73		1993		One outlot
North Ft. Myers, FL

There is no debt on these properties. The Company will either develop the properties or will continue to hold them for future sale or lease to others.

The Company’s former manufacturing and warehouse facility in downtown Atlanta, Georgia, was sold at a gain in August 2006. The Company sold one outlot in North Fort Myers, Florida, at a gain in April 2007. These properties are not included above.

For further information on the Company’s real properties, see Notes 4, 6, and 8 to the consolidated financial statements, and “SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION.”

ITEM 3. LEGAL PROCEEDINGS

The Company is subject to various legal proceedings and claims that may arise from time to time in the ordinary course of business. While the occurrence or resolution of such matters cannot be predicted with certainty, the Company believes that the final outcome of any such matters would not have a material adverse effect on the Company’s financial position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

																		DIVIDENDS PAID
		MARKET PRICES																PER SHARE
		FISCAL 2007								FISCAL 2006								2007				2006
		HIGH				LOW				HIGH				LOW
		TRADE				TRADE				TRADE				TRADE
First Quarter		$	4.62			$	4.00			$	10.44			$	3.91			$	0.036			$	0.036
Second Quarter			4.28				3.85				8.07				4.35				0.036				0.036
Third Quarter			5.97				3.92				5.15				3.98				0.036				0.036
Fourth Quarter			5.46				4.05				6.00				4.01				0.036				0.036

The Common Stock of Servidyne, Inc. is traded on the NASDAQ National Global Market (Symbol: SERV). Prior to July 2006, the Common Stock was traded on NASDAQ under the symbol “ABRI.” The approximate number of holders of Common Stock was 640 (including shareholders of record and shares held in street name) as of June 30, 2007. The Company repurchased 4,900 shares of its Common Stock during its fiscal year ended April 30, 2007.

The information required by this item with respect to its equity compensation plan will be included in the Company’s definitive proxy materials for its 2007 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission, under the heading “Equity Compensation Plan,” and is hereby incorporated herein by reference.

SHAREHOLDER RETURN

Set forth below is a line graph and table comparing, for the five-year period ending April 30, 2007, the cumulative total shareholder return (assuming reinvestment of dividends) on the Company’s Common Stock, with that of: (i) all U.S. companies quoted on NASDAQ; (ii) all retail trade companies quoted on NASDAQ; and (iii) all companies in the Dow Jones U.S. Business Support Services Index. The comparison assumes $100 was invested on April 30, 2002, in the Company’s Common Stock and in each of the indices shown. The stock price performance shown on the graph below is not necessarily indicative of future price performance.

				4/30/02					4/30/03					4/30/04					4/30/05					4/30/06					4/30/07
	Servidyne, Inc.			$	100.00				$	78.82				$	84.11				$	102.77				$	111.82				$	112.94
	NASDAQ Stock Market (U.S. Companies)			$	100.00				$	84.47				$	113.81				$	114.26				$	140.77				$	154.02
	Dow Jones U.S. Business Support Services Index *			$	100.00				$	74.51				$	95.46				$	90.53				$	115.63				$	131.54
	NASDAQ Retail Trade Stocks *			$	100.00				$	87.40				$	116.60				$	133.90				$	158.00				$	165.50

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected financial data for the Company and should be read in conjunction with the consolidated financial statements and the notes thereto:

Years Ended April 30,		2007				2006 (1)				2005 (1)				2004 (1)				2003 (1)
Net Earnings (Loss) (2)		$	966,626			$	525,766			$	1,800,358			$	(1,850,126	)		$	(1,073,524	)
Net Loss — Continuing Operations		$	(1,008,014	)		$	(347,439	)		$	(1,439,570	)		$	(2,840,901	)		$	(2,339,131	)
Net Earnings — Discontinued Operations		$	1,974,640			$	873,205			$	3,239,928			$	990,775			$	1,265,607
Net Earnings (Loss) Per Share (2)		$	.27			$	.15			$	.51			$	(.56	)		$	(.33	)
Net Loss Per Share — Continuing Operations		$	(.29	)		$	(.10	)		$	(.41	)		$	(.86	)		$	(.72	)
Net Earnings Per Share — Discontinued Operations		$	.56			$	.25			$	.92			$	.30			$	.39
Consolidated Revenues — Continuing Operations		$	19,372,886			$	18,226,503			$	21,147,042			$	11,810,297			$	10,055,211
Consolidated Revenues — Discontinued Operations		$	—			$	6,516,684			$	13,526,480			$	51,636,859			$	78,069,309
Weighted Average Shares Outstanding at Year-End (3)			3,529,509				3,531,089				3,526,041				3,292,137				3,231,440
Cash Dividends Paid Per Share (3)		$	.14			$	.14			$	.29			$	.14			$	.14
Shareholders’ Equity		$	21,460,211			$	20,946,748			$	20,913,411			$	19,997,527			$	21,257,952
Shareholders’ Equity Per Share		$	6.08			$	5.93			$	5.93			$	6.07			$	6.58
Working Capital		$	5,724,082			$	8,352,086			$	10,450,202			$	7,207,333			$	7,638,091
Depreciation and Amortization — Continuing Operations (4)		$	1,714,973			$	1,352,811			$	1,443,399			$	1,606,838			$	1,270,153
Total Assets		$	57,393,421			$	52,410,256			$	57,067,172			$	61,876,019			$	73,797,098
Income-Producing Properties and Property and Equipment, net (5)		$	31,961,029			$	21,550,117			$	21,511,672			$	21,528,503			$	21,974,453
Income-Producing Properties — Discontinued Operations		$	—			$	18,004			$	3,738,200			$	8,705,641			$	21,676,397
Long-Term Debt (6)		$	25,138,741			$	19,603,408			$	20,598,826			$	19,976,471			$	18,813,391
Long-term Debt — Discontinued Operations		$	—			$	1,686,134			$	4,755,781			$	7,435,182			$	14,709,923
Total Liabilities		$	35,933,210			$	31,463,508			$	36,153,761			$	41,878,492			$	52,539,146
Variable Rate Debt (6)(7)(8)		$	3,400,000			$	930,000			$	1,000,000			$	1,000,000			$	—
Return on Average Shareholders’ Equity (2)			4.6	%			2.5	%			8.8	%			(9.0	)%			(4.9	)%

(1)		Results have been reclassified from prior year’s Annual Report on Form 10-K pursuant to SFAS 144.
(2)		Includes continuing operations, discontinued operations, and extraordinary items, if any.
(3)		Adjusted for 10% stock dividend.
(4)		Depreciation and amortization for certain sold income-producing properties have been reclassified as discontinued operations and, therefore, are not included for all periods presented.
(5)		Does not include property held for sale, real estate held for future development or sale, or sold income-producing properties that have been reclassified as assets of discontinued operations.
(6)		Does not include mortgage debt associated with sold income-producing properties that have been reclassified as discontinued operations.
(7)		Includes short-term and long-term debt.
(8)		Variable rate interim debt of $2.5 million was replaced with fixed-rate permanent debt subsequent to fiscal 2007 year-end. See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — “Note 20. Subsequent Events.”

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

The Company is organized into two operating segments: BPE and Real Estate. The Company continues to seek additional new BPE products and service offerings, which may come in part in the future from business acquisitions.

The Company also formerly provided commercial construction services as a general contractor. The Company made the decision to discontinue its operations as a general contractor in fiscal 2004. In accordance with Statement of Financial Accounting Standard (“SFAS”) 144, Accounting for the Impairment or Disposal of Long- Lived Assets, the Company’s former Construction Segment has been reclassified as a discontinued operation and is no longer reported as a separate operating segment. All amounts in this Annual Report on Form 10-K have been restated so they are consistent with the current presentation.

In “RESULTS OF OPERATIONS” below, changes in revenues, costs and expenses, and selling, general and administrative expenses from period to period are analyzed on a segment basis. For net earnings and similar profit information on a consolidated basis, please see “ITEM 6. SELECTED FINANCIAL DATA” or the Company’s consolidated financial statements. Pursuant to SFAS 144, the figures in the following charts for all periods presented do not include Real Estate Segment revenues, costs and expenses, and selling, general and administrative expenses generated by certain formerly owned income-producing properties, which have been sold; such amounts have been reclassified as discontinued operations (See “Critical Accounting Policies — Discontinued Operations” later in this discussion and analysis section). In addition, the figures in the following charts do not include the revenues and costs and expenses generated by certain sales of real estate held for sale or future development, although the gains on these sales are included in the results from continuing operations, and are discussed later in this discussion and analysis section.

RESULTS OF OPERATIONS

REVENUES

Revenues from continuing operations for fiscal 2007 were $19,372,886, compared to $18,226,503 and $21,147,042 for fiscal 2006 and fiscal 2005, respectively. This represents an increase in revenues of 6% in 2007 after a decrease in revenues of 14% in 2006. Revenues include interest income of $262,363, $181,984, and $79,436, for 2007, 2006, and 2005, respectively, and other income of $90,303, $325,289, and $79,854, for 2007, 2006, and 2005, respectively. The figures in Chart A below, however, do not include interest income, other income, intersegment revenues, or revenues from sales of real estate assets. If more than one segment is involved, revenues are reported by the segment that sells the product or service to an unaffiliated purchaser.

REVENUES FROM CONTINUING OPERATIONS
SUMMARY BY SEGMENT

CHART A
(Dollars in Thousands)

		Years Ended																Years Ended
		April 30,								Increase								April 30,								(Decrease)
		2007				2006				Amount				Percent				2006				2005				Amount				Percent
BPE (1)		$	12,830			$	11,612			$	1,218				10			$	11,612			$	13,075			$	(1,463	)			(11	)
Real Estate (2)			6,191				6,108				83				1				6,108				7,913				(1,805	)			(23	)
Total		$	19,021			$	17,720			$	1,301				7			$	17,720			$	20,988			$	(3,268	)			(16	)

(1)

In the current year, fiscal 2007, BPE revenues increased approximately $1,218,000 or 10%, compared to the same period in fiscal 2006, primarily due to:

	a)		an increase in revenues related to energy management services of approximately $666,000 or 59%;
	b)		an increase in revenues related to the Company’s productivity solution services of approximately $255,000 or 10%; and
	c)		an increase in revenues related to energy saving projects of approximately $219,000 or 3%.

In the prior year, fiscal 2006, BPE revenues decreased approximately $1,463,000 or 11%, compared to the same period in fiscal 2005, primarily due to:

	a)		the revenues of approximately $2,607,000 from one large energy savings project in the education and government sector and one large energy savings project in the retail sector being included in fiscal 2005; and
	b)		a net decrease in revenues from legacy proprietary software products of $66,000;
			partially offset by:

	c)		the recognition of approximately $660,000 in revenues in the first quarter of fiscal 2006 from a consulting services contract that was substantially performed in prior periods and did not have any current year associated costs and expenses (See Chart B);
	d)		an increase in revenues related to energy management services of approximately $261,000; and
	e)		an increase in revenues related to the Company’s productivity solution services of approximately $96,000.

(2)

In the current year, fiscal 2007, Real Estate revenues increased approximately $83,000 or 1%, compared to the same period in fiscal 2006, primarily due to:

	a)		an increase in rental revenue of approximately $467,000 as the result of the acquisition of a shopping center in Smyrna, Tennessee, in July 2006;
	b)		an increase in rental revenue as the result of leasing of the Company’s existing properties of approximately $143,000;
	c)		one-time revenues of $150,000 in conjunction with the sale of the Company’s former leaseback interest in a shopping center located in Richfield, Minnesota, in March 2007; and
	d)		an increase in rental revenue of approximately $52,000 as the result of the acquisition of an office building in Newnan, Georgia, in March 2007;
			partially offset by:
	e)		one-time revenues of $425,000 in conjunction with the sale of the Company’s former leaseback interest in a shopping center located in Bayonet Point, Florida, in April 2006; and
	f)		an associated decrease in leaseback rental income of approximately $341,000 as a result of the sales of the Company’s former leaseback interests mentioned in (c) and (e) above.

In the prior year, fiscal 2006, Real Estate revenues decreased approximately $1,805,000 or 23%, compared to the same period in fiscal 2005, primarily due to:

	a)		one-time revenues of $2,250,000 in fiscal 2005, in conjunction with the sale of the Company’s former leaseback interest in a shopping center in Minneapolis, Minnesota, in September 2004; and
	b)		an associated decrease in leaseback income of approximately $141,000, related to the leaseback sale mentioned in (a) above;
			partially offset by:
	c)		one-time revenues of $425,000 in conjunction with the sale of the Company’s former leaseback interest in a shopping center in Bayonet Point, Florida, in April 2006; and
	d)		an increase in rental revenue in fiscal 2006 of approximately $179,000 related to increased occupancy.

COST AND EXPENSES: APPLICABLE TO REVENUES

As a percentage of total segment revenues (See Chart A), the applicable total segment costs and expenses applicable to revenues (See Chart B) of $11,981,115 for fiscal 2007, $10,623,946 for fiscal 2006, and $12,516,284 for fiscal 2005, were 63%, 60%, and 60%, respectively. In reviewing Chart B, the reader should recognize that the volume of revenues generally will affect the amounts and percentages.

COSTS AND EXPENSES: APPLICABLE TO REVENUES FROM CONTINUING OPERATIONS
SUMMARY BY SEGMENT

CHART B
(Dollars in Thousands)

														Percent of
														Segment Revenues
														from Continuing Operations
		Years Ended												for Years Ended
		April 30,												April 30,
		2007				2006				2005				2007				2006				2005
BPE (1)		$	8,142			$	6,736			$	8,421				63				58				64
Real Estate (2)			3,839				3,888				4,095				62				64				52
Total		$	11,981			$	10,624			$	12,516				63				60				60

	a)		increased costs related to the conversion of customers to the Company’s Web/wireless proprietary facility management software and the amortization of capitalized software costs; and
	b)		the recognition of costs related to one energy savings project job which had a lower gross margin compared to other such jobs.

In the prior year, fiscal 2006, costs and expenses on a dollar basis decreased approximately $1,685,000 or 20%, compared to the same period of fiscal 2005, primarily as the result of the corresponding decrease in revenues. On a percentage basis, costs and expenses decreased for fiscal 2006, compared to fiscal 2005, primarily as a result of:

	a)		improved operational efficiencies on energy savings projects;
	b)		better utilization of capacity in energy management services; and
	c)		the recognition of revenue from a consulting services contract in the first quarter of fiscal 2006, that had no current year costs and expenses.

(2)

In the current year, fiscal 2007, Real Estate costs and expenses on a dollar basis from continuing operations decreased $49,000 or 1%, compared to the same period of fiscal 2006, primarily due to:

	a)		the absence of lease costs of $288,000 as the result of the sale of the Company’s former leaseback interest in a shopping center located in Bayonet Point, Florida, in April 2006;
	b)		the reduction of lease costs of $46,000 as the result of the sale of the Company’s former leaseback interest in a shopping center located in Richfield, Minnesota, in March 2007; and
	c)		the scheduled reduction of lease costs of $89,000 pursuant to a lease agreement provision for the Company’s leaseback shopping center located in Davenport, Iowa;
			partially offset by:
	d)		an increase in rental operating costs and expenses of approximately $304,000 as the result of the acquisition of the shopping center located in Smyrna, Tennessee, in July 2006;
	e)		an increase in rental operating costs and expenses of approximately $44,000 as the result of the acquisition of the office building located in Newnan, Georgia, in March 2007; and
	f)		an increase in operating expenses of approximately $36,000 primarily for marketing and leasing expenses at two of the Company’s income producing properties.

In the prior year, fiscal 2006, Real Estate costs and expenses on a dollar basis decreased $207,000 or 5%, compared to the same period of fiscal 2005, primarily due to the absence of lease costs of $115,000 in fiscal 2006

as the result of the sale of the Company’s former leaseback interest in a shopping center located in Minneapolis, Minnesota, in September 2004.

In the prior year, fiscal 2006, Real Estate costs and expenses as a percentage of revenues were higher, compared to fiscal 2005, primarily due to the absence of the one-time revenues of $2,250,000 that were included in fiscal 2005, as a result of the sale of the Company’s former leaseback interest in a shopping center in Minneapolis, Minnesota, in October 2004; the costs of the sale were $42,115.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

For fiscal years 2007, 2006, and 2005, selling, general and administrative (“SG&A”) expenses from continuing operations (see Chart C) were $9,192,082, $8,689,499, and $9,331,313, respectively. As a percentage of consolidated revenues from continuing operations, these expenses were 48%, 49%, and 44% in 2007, 2006, and 2005, respectively. In reviewing Chart C, the reader should recognize that the volume of revenues generally affects these amounts and percentages. The percentages in Chart C are based on expenses as they relate to segment revenues from continuing operations in Chart A, with the exception that Parent expenses and total expenses relate to consolidated revenues (Chart A).

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES FROM CONTINUING OPERATIONS
SUMMARY BY SEGMENT

CHART C
(Dollars in Thousands)

														Percent of
														Segment Revenues
		Years Ended												for Years Ended
		April 30,												April 30,
		2007				2006				2005				2007				2006				2005
BPE (1)		$	4,645			$	4,417			$	4,415				36				38				34
Real Estate (2)			815				976				1,401				13				16				18
Parent (3)			3,732				3,297				3,516				20				19				17
Total		$	9,192			$	8,690			$	9,332				48				49				44

(1)		In the current year, fiscal 2007, BPE SG&A expenses as a percentage of revenues from continuing operations decreased, compared to the same period of fiscal 2006, primarily because the increase in revenues did not require a proportional increase in SG&A expenses.
		In the current year, fiscal 2007, on a dollar basis, BPE SG&A expenses from continuing operations increased $228,000 or 5%, compared to the same period of fiscal 2006, primarily due to expenses associated with the Company’s enhanced sales and marketing efforts.
(2)		In the current year, fiscal 2007, compared to the same period in fiscal 2006, Real Estate SG&A expenses on a dollar and percentage basis decreased $161,000 or 16%, primarily as a result of:

	a)		a decrease in operating expenses of $64,000 related to the Company’s real estate held for future development;
	b)		a decrease in legal fees of $22,000; and
	c)		a decrease of $77,000 in personnel related costs.

In the prior year, fiscal 2006, Real Estate SG&A expenses on a dollar and percentage basis were $425,000 or 30% lower, compared to the same period of fiscal 2005, primarily due to the legal costs and net settlement costs that were incurred in fiscal 2005, related to the conclusion of arbitration proceedings.

(3)

In the current year, fiscal 2007, compared to the same period in fiscal 2006, Parent SG&A expenses on a dollar basis increased $435,000 or 13%, as a result of:

	a)		an increase in consulting fees of approximately $111,000 primarily related to the Company’s enhanced sales and marketing efforts;
	b)		an increase in incentive compensation costs of approximately $211,000 as the result of the successful achievement of the Company-wide earnings and performance goals in fiscal 2007;
	c)		an increase in legal fees of approximately $128,000 related to the ongoing pursuit of an insurance claim by the Company; and
	d)		a one-time, non-cash charge in the fourth quarter of approximately $155,000 for the settlement of a cash surrender value of a life insurance policy resulting from the death of a former officer and director of the Company.

In the prior year, fiscal 2006, Parent SG&A expenses on a dollar basis decreased $219,000 or 6%, compared to the same period in 2005, primarily due to lower incentive compensation costs.

INTEREST COSTS

Interest costs of $1,615,558, $1,401,734, and $1,605,785, in fiscal years 2007, 2006, and 2005, respectively, are primarily related to mortgages on real estate. There was no capitalized interest in any of the years presented.

ACQUISITIONS

Fiscal 2007

On March 12, 2007, Newnan Office Plaza, LLC, a newly-formed wholly-owned subsidiary of the Company, acquired an office building located in Newnan, Georgia. The Company used the net cash proceeds from the sale of its former shopping center located in Morton, Illinois, and the sale of its former leaseback interest in a shopping center located in Richfield, Minnesota, which proceeds had been held in escrow by a qualified third party intermediary, as well as interim bank financing of $2.5 million, to purchase the income-producing property for approximately $4.25 million, including the costs associated with completing the transaction. The acquisition was structured, which qualified the sale and acquisition, as a tax deferred exchange under Internal Revenue Code Section 1031. On June 1, 2007, the interim loan was replaced by a permanent loan of $3.2 million. See Footnote 20 — “Subsequent Events.”

On February 12, 2007, Abrams Orange Park, LLC, a newly-formed wholly-owned subsidiary of the Company, acquired the land and building associated with the Company’s leaseback shopping center located in Orange Park, Florida. The Company’s lease with the owner of the land and building was terminated in connection therewith. The Company used net cash proceeds of approximately $1.83 million from the sale of its former manufacturing and warehouse facility, which proceeds had been held in escrow by a qualified third party intermediary, and approximately $1.03 million of the Company’s own cash to purchase the income-producing property for approximately $2.86 million, including costs associated with completing the transaction. The acquisition was structured, which qualified the sale and acquisition, as a tax deferred exchange under Internal Revenue Code Section 1031.

On July 14, 2006, Stewartsboro Crossing, LLC, a newly-formed, wholly owned subsidiary of the Company, acquired a shopping center located in Smyrna, Tennessee. The Company used net cash proceeds from the sale of its former medical office building, which proceeds had been held in escrow by a qualified third party intermediary, along with interim bank financing, to purchase the income-producing property for approximately $5.27 million, including the costs associated with completing the transaction. On September 8, 2006, the Company replaced its interim bank loan of $2.6 million with a permanent loan in the amount of $4.1 million. The permanent loan bears interest at 6.26% with interest only payments for the first twelve months, and then the loan will be amortized using a 30-year amortization schedule until it matures on October 1, 2016. The acquisition was structured, which qualified the sale and acquisition, as a tax deferred exchange under Internal Revenue Code Section 1031.

Fiscal 2006

There were no acquisitions in fiscal 2006.

Fiscal 2005

On May 26, 2004, a wholly-owned subsidiary of the Company acquired the operating business and assets of Building Performance Engineers, Inc. for a purchase price of $337,984, in order to expand the Company’s capabilities in energy efficiency engineering and design. The consideration consisted of 21,126 newly-issued shares of the Company’s Common Stock, with a fair value of $94,906 at the date of acquisition, a note payable in the amount of $136,500 (net of discount of $13,500), and cash of $106,578 (including direct acquisition expenses). The amount and type of consideration was determined by negotiation among the parties.

GAINS ON SALE OF REAL ESTATE HELD FOR SALE OR FUTURE DEVELOPMENT

Fiscal 2007

On April 26, 2007, the Company closed on the sale of an outlot located in North Fort Myers, Florida, for a sales price of $925,000, resulting in a pre-tax gain of approximately $335,000. After selling expenses, the sale generated net cash proceeds of approximately $842,000.

On August 29, 2006, the Company sold its former manufacturing and warehouse facility located in downtown Atlanta, Georgia, for a sales price of $2.05 million, resulting in a pre-tax gain on the sale of approximately $1.55 million. After selling expenses, the sale generated cash proceeds of approximately $1.87 million. The Company used the net proceeds from this sale to re-acquire the land and building associated with its shopping center in Orange Park, Florida, which qualified the sale and acquisition under Internal Revenue Code Section 1031 for federal income tax deferral.

Fiscal 2006

On April 28, 2006, the Company closed on the sale of a 7.1 acre tract of land in North Fort Myers, Florida, for a sales price of approximately $2.4 million, resulting in a pre-tax gain of approximately $1.2 million. After selling expenses, the sale generated cash proceeds of approximately $2.36 million.

On December 22, 2005, the Company closed on the sale of a 4.7 acre tract of land in Louisville, Kentucky, for a sales price of approximately $270,000, resulting in a pre-tax gain of approximately $184,000. After selling expenses, the sale generated cash proceeds of approximately $265,000.

On October 28, 2005, the Company closed on the sale of an outlot located in North Fort Myers, Florida, for a sales price of $625,000, resulting in a pre-tax gain of approximately $296,000. After selling expenses, the sale generated proceeds of approximately $576,000, of which $450,000 was recorded as a note receivable, bearing interest at an annual rate of 7.25%, commencing on December 1, 2005, with interest only payments due monthly until the note matured on April 28, 2006. On May 12, 2006, the note receivable was paid in full.

On October 21, 2005, the Company closed on the sale of an outlot located in North Fort Myers, Florida, for a sales price of approximately $529,000, resulting in a pre-tax gain of approximately $246,000. After selling expenses, the sale generated cash proceeds of approximately $490,000.

Fiscal 2005

On January 31, 2005, the Company closed on the sale of an outlot located in North Fort Myers, Florida, for a sales price of $515,000, resulting in a pre-tax gain of approximately $191,000. After selling expenses, the sale generated net cash proceeds of approximately $468,000.

DISCONTINUED OPERATIONS

Fiscal 2007

On November 1, 2006, the Company sold its owned shopping center located in Morton, Illinois, for a sales price of $3.55 million, resulting in a pre-tax gain on the sale of approximately $3.48 million. After selling expenses, repayment of the mortgage loan and associated costs, the sale generated net cash proceeds of approximately $1.72 million. The Company used the net cash proceeds from this sale in the acquisition of its office building located in Newnan, Georgia, which qualified the sale and acquisition under Internal Revenue Code Section 1031 for federal income tax deferral.

Fiscal 2006

On January 30, 2006, the Company closed on the sale of its former medical office building in Douglasville, Georgia, for a sales price of $5.5 million, resulting in a pre-tax gain of approximately $1.38 million. After selling expenses and the repayment of the mortgage note payable, the sale generated cash proceeds of approximately $2.5 million. The Company provided short-term financing to the purchaser at closing for a portion of the transaction, and initially recorded a note receivable in the amount of $3.3 million, bearing interest at an annual rate of 5.5%, commencing on March 1, 2006, with interest only payments due monthly until paid at maturity on May 31, 2006. On April 12, 2006, the note was paid in full and the proceeds were assigned to a qualified third party intermediary. On July 14, 2006, the Company used the proceeds in the acquisition of a shopping center located in Smyrna, Tennessee, which qualified the sale for federal income tax deferral under Internal Revenue Code Section 1031.

Fiscal 2005

On April 18, 2005, the Company closed on the sale of its former shopping center located in Jackson, Michigan, for a sales price of $7.4 million, resulting in a pre-tax gain of approximately $4.1 million. After selling expenses, repayment of the mortgage note payable of approximately $2.4 million, and other associated costs, the sale generated net cash proceeds of approximately $4.78 million. The Company’s federal tax liability of approximately $1.5 million related to the sale was offset with the Company’s net operating loss carryforwards for tax purposes.

On February 9, 2005, the Company closed on the sale of its former shopping center located in Cincinnati, Ohio, for a sales price of $3.6 million, resulting in a pre-tax gain of approximately $850,000. After selling expenses, the sale generated net cash proceeds of $3.45 million. The Company’s federal tax liability of approximately $1.5 million related to the sale was offset with the Company’s net operating loss carryforwards for tax purposes.

OTHER DISPOSITIONS

Fiscal 2007

On March 12, 2007, the Company closed on the sale of its former leaseback interest in a shopping center located in Richfield, Minnesota, for a sales price of $150,000, resulting in a pre-tax gain and net cash proceeds of approximately $140,000. The Company used the net cash proceeds from this sale in the acquisition of its office building located in Newnan, Georgia, which qualified the sale and acquisition under Internal Revenue Code Section 1031 for federal income tax deferral.

Fiscal 2006

On April 13, 2006, the Company closed on the sale of its former leaseback interest in a shopping center located in Bayonet Point, Florida, for a sales price of $425,000, resulting in a pre-tax gain and net cash proceeds of approximately $415,000. The Company had intended to use the net proceeds from this sale to acquire an additional income-producing property, which would qualify the sale under Internal Revenue Code Section 1031 for federal income tax deferral, and placed the proceeds with a third party intermediary in connection therewith. In May 2006, the Company elected not to use the proceeds to purchase an additional income-producing property, and the proceeds were then released from escrow to the Company.

Fiscal 2005

On September 29, 2004, the Company closed on the sale of its former leaseback interest in a shopping center in Minneapolis, Minnesota, for a sales price of $2.25 million, resulting in a pre-tax gain of $2.2 million and net cash proceeds of approximately $2.2 million.

LIQUIDITY AND CAPITAL RESOURCES

Working capital was $5,724,082 at April 30, 2007, compared to $8,352,086 at April 30, 2006, a change of 31%. Operating activities used cash of approximately $759,000 primarily from:

	a)		cash payments of approximately $472,000 during fiscal 2007 related to the incentive compensation resulting from the successful achievement of Company-wide earnings and performance goals in fiscal 2006;
	b)		an increase in current assets of $129,000, primarily related to prepaid property taxes; and
	c)		current year losses from continuing operations of approximately $1,008,000;
			partially offset by:

d)

a decrease in note receivables of approximately $892,000 primarily related to receipt of payments pursuant to a consulting services contract.

Investing activities used cash of approximately $7,216,000, primarily from:

	a)		the deposit with a qualified intermediary of cash proceeds of approximately $3,862,000 generated by sales of real estate, which qualified the sales for federal income tax deferrals under the Internal Revenue Code Section 1031;
	b)		additions to income-producing properties of approximately $319,000, primarily related to tenant and building improvements;
	c)		additions to property and equipment of approximately $186,000, primarily related to the purchase of three vehicles and computer hardware for internal use in the BPE Segment;
	d)		additions to intangibles of approximately $831,000, primarily related to the software development costs for one of the Company’s productivity solution offerings; and
	e)		acquisitions costs, net of escrowed cash that was deposited with a qualified intermediary, of approximately $5,119,000, related to the purchase of a shopping center in Smyrna, Tennessee, an office building in Newnan, Georgia, and a shopping center located in Orange Park, Florida;
			partially offset by:
	f)		the release of approximately $419,000 in sales proceeds previously held in escrow for the intended purpose of purchasing a replacement property to qualify the sale of the Company’s former interest in a leaseback property located in Bayonet Point, Florida, for tax deferral under Internal Revenue Code Section 1031. In May 2006, the Company elected not to purchase a replacement property and the proceeds were released to the Company; and
	g)		proceeds of approximately $2,709,000 from the sale of the Company’s former manufacturing facility located in Atlanta, Georgia, in August 2006, and the sale of an outlot located in North Fort Myers, Florida, in April 2007.

Financing activities provided cash of approximately $4,987,000 primarily from:

	(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; and
	(b)		proceeds of $2,500,000 from an interim bank loan on the Company’s office building located in Newnan, Georgia;
			partially offset by:
	(c)		scheduled principal payments on mortgage notes and other long-term debt of approximately $930,000; and
	(d)		payment of four regular quarterly cash dividends to shareholders totaling approximately $509,000.

Discontinued operations provided cash of $1,321,631, primarily from the sale of the Company’s former shopping center located in Morton, Illinois.

The Company anticipates that its existing cash balances, equity, proceeds from potential sales of real estate, cash flow provided by potential financing or refinancing of debt obligations, and cash flow generated from operations will, for the foreseeable future, provide adequate liquidity and financial flexibility for the Company to meet its needs for working capital, capital expenditures, and investment activities.

Secured letter of credit

In conjunction with terms of the mortgage on an owned office building, the Company is required to provide for potential future tenant improvement costs and lease commissions at that property through additional collateral, in the form of a letter of credit in the amount of $150,000 from July 17, 2002, through July 16, 2005, $300,000 from July 17, 2005, through July 16, 2008, and $450,000 from July 17, 2008, through August 1, 2012. The letter of credit is secured by a certificate of deposit, which is recorded on the accompanying consolidated balance sheet as of April 30, 2007, and April 30, 2006, as a long-term other asset.

Repurchases of Common Stock

In March 2007, the Company’s Board of Directors authorized the repurchase of up to 50,000 shares of the Company’s Common Stock in the twelve-month period beginning March 8, 2007, and ending on March 7, 2008. Any such purchases, if made, could be made in the open market at prevailing prices or in privately negotiated transactions. The Company repurchased 4,900 shares in the period between May 1, 2006, and June 30, 2007.

CONTRACTUAL OBLIGATIONS

A summary of the Company’s contractual obligations at April 30, 2007, are as follows:

		Payments Due by Period
						Less than												More than
Contractual Obligations		Total				1 Year				1 - 3 Years				3 - 5 Years				5 Years
Mortgage notes payable (1)			32,921,556			$	2,402,547			$	6,410,140			$	8,537,730			$	15,571,139
Operating leases (2)			1,606,377				257,390				495,384				495,384				358,219
Other long-term debt (3)			1,980,488				407,170				354,680				1,218,638				—
Total		$	36,508,421			$	3,067,107			$	7,260,204			$	10,251,752			$	15,929,358

EFFECTS OF INFLATION ON REVENUES AND OPERATING PROFITS

The effects of inflation upon the Company’s operating results are varied. Inflation in recent years has been modest and has had minimal effect on the Company.

The Building Performance Expert (BPE) Segment generally has contracts that are renewed on an annual basis. At the time of renewal, contract fees may be increased, subject to customer approval. As inflation affects the Company’s costs, primarily labor, the Company could seek a price increase for its contracts in order to protect its profit margin. Also, the BPE Segment typically engages in contracts of short duration with fixed prices, which normally will minimize any erosion of its profit margin due to inflation. As inflation affects the Company’s costs, primarily labor and materials, the Company could seek a price increase for subsequent contracts to protect its profit margin.

In the Real Estate Segment, several of the anchor retail tenant leases are long-term (original terms over 20 years), with fixed rents, and some of retail leases have contingent rent provisions by which the Company may earn additional rent as a result of increases in tenants’ sales in excess of specified predetermined targets. In some cases, however, the contingent rent provisions permit the tenant to offset against contingent rents any portion of the tenant’s share of ad valorem taxes that is above a specified predetermined amount. If inflation were to rise, the tenant’s sales could increase, potentially generating contingent rent, but ad valorem taxes would

probably increase as well, which, in turn, could cause a decrease in the contingent rents. Furthermore, the Company has certain repair obligations, and the costs of repairs generally increase with inflation. Inflation causes interest rates to rise, which has a positive effect on investment income, but could have a negative effect on profit margins, because of the increased costs of contracts and the increase in interest expense for variable rate loans.

CRITICAL ACCOUNTING POLICIES

A critical accounting policy is one which is both important to the portrayal of the Company’s financial position and results of operations, and requires the Company to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related notes. In preparing these financial statements, the Company has made its best estimates and used its best judgments regarding certain amounts included in the financial statements, giving due consideration to materiality. The application of these accounting policies involves the exercise of judgment and the use of assumptions regarding future uncertainties, and as a result, actual results could differ from those estimates. Management believes that the Company’s most critical accounting policies include:

Revenue Recognition

Revenues derived from implementation, training, support and base service license fees from customers accessing the Company’s proprietary building performance expert software on an application service provider (ASP) basis follow the provisions of Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) 104, Revenue Recognition. For these sources of revenues, the Company recognizes revenue when all of the following conditions are met: there is persuasive evidence of an arrangement; service has been provided to the customer; the collection of fees is probable; and the amount of fees to be paid by the customer is fixed and determinable. The Company’s license arrangements do not include general rights of return. Revenues are recognized ratably over the contract terms beginning on the commencement date of each contract. Amounts that have been invoiced are recorded in accounts receivable and in revenue or deferred revenue, depending on the timing of when the revenue recognition criteria have been met. Additionally, the Company defers such direct costs and amortizes them over the same time period as the revenue is recognized.

Energy engineering and consulting services are accounted for separately and are recognized as the services are rendered in accordance with SAB 104. Sales of proprietary client services computer software solutions and hardware products are recognized when products are sold.

Energy savings project revenues are reported on the percentage-of-completion method, using costs incurred to date in relation to estimated total costs of the contracts to measure the stage of completion. Original contract prices are adjusted for change orders in the amounts that are reasonably estimated based on the Company’s historical experience. The cumulative effects of changes in estimated total contract costs and revenues (change orders) are recorded in the period in which the facts requiring such revisions become known, and are accounted for using the percentage-of-completion method. At the time it is determined that a contract is expected to result in a loss, the entire estimated loss is recorded.

The Company leases space in its income-producing properties to tenants and recognizes minimum base rentals as revenue on a straight-line basis over the lease term. The lease term usually begins when the tenant takes possession of, or controls the physical use of, the leased asset. Generally, this occurs on the lease commencement date. In determining what constitutes the leased asset, the Company evaluates whether the Company or the tenant is the owner of the improvements. If the Company is the owner of the improvements, then the leased asset is the finished space. In such instances, revenue recognition begins when the tenant takes possession of the finished space, typically when the improvements are substantially complete. If the Company determines that the improvements belong to the tenant, then the leased asset is the unimproved space, and any improvement allowances funded by the Company under the lease are treated as lease incentives that reduce the revenue recognized over the term of the lease. In these circumstances, the Company begins revenue recognition when the tenant takes possession of the unimproved space. The Company considers a number of different factors in order to evaluate who owns the improvements. These factors include (1) whether the lease stipulates the terms and conditions of how an improvement allowance may be spent; (2) whether the tenant or the Company retains legal title to the improvements; (3) the uniqueness of the improvements; (4) the expected economic life of the improvements relative to the length of the lease; and (5) who constructs or directs the construction of the

improvements. The determination of who owns the improvements is subject to significant judgment. In making the determination, the Company considers all of the above factors; however, no one factor is determinative in reaching a conclusion. Certain leases may also require tenants to pay additional rental amounts as partial reimbursements for their share of property operating and common area expenses, real estate taxes, and insurance, which are recognized when earned. In addition, certain leases require retail tenants to pay incremental rental amounts, which are contingent upon their store sales. These percentage rents are recognized only if and when earned and are not recognized on a straight-line basis.

Revenue from the sale of real estate assets is recognized when all of the following has occurred: (a) the property is transferred from the Company to the buyer; (b) the buyer’s initial and continuing investment is adequate to demonstrate a commitment to pay for the property; and (c) the buyer has assumed all future ownership risks of the property. Costs of sales related to real estate assets are based on the specific property sold. If a portion or unit of a property is sold, a proportionate share of the total cost of the development or acquisition is charged to cost of sales.

Income-Producing Properties and Property and Equipment

Income-producing properties are stated at historical cost, and are depreciated for financial reporting purposes using the straight-line method over the estimated useful lives of the assets. Significant additions that extend asset lives are capitalized and are depreciated over their respective estimated useful lives. Normal maintenance and repair costs are expensed as incurred. Interest and other carrying costs related to real estate assets under active development are capitalized. Other costs of development and construction of real estate assets are also capitalized. Capitalization of interest and other carrying costs is discontinued when a project is substantially completed or if active development ceases. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Property and equipment are recorded at historical cost, and are depreciated for financial reporting purposes using the straight-line method over the estimated useful lives of the respective assets.

Valuation of Goodwill and Other Intangible Assets

Goodwill and intangible assets with indefinite lives are reviewed for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying basis of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying basis of the asset to the future net discounted cash flows expected to be generated by the asset. If an asset is determined to be impaired, the impairment to be recognized is determined by the amount by which the carrying amount of the asset exceeds the asset’s estimated fair value. Assets to be disposed of are reported at the lower of their carrying basis or estimated fair value less estimated costs to sell. The most significant assumptions in the impairment analysis are estimated future revenue growth, estimated future profit margins and discount rate. The Company estimates future revenue growth by utilizing several factors, which include revenue currently in backlog, commitments from long-standing customers, targeted revenue from qualified prospects, and revenues expected to be generated from new sales or marketing initiatives. The discount rate is determined by an average cost of the Company’s equity and debt. The Company performed the annual impairment analysis of goodwill and indefinite lived intangible assets for the Building Performance Expert Segment in the quarter ended January 31, 2007, as required by SFAS 142. Additionally, the Company performed a sensitivity analysis assuming the discount rate was 100 basis points higher and the growth rate was 30% lower than those used in the initial analysis. The analyses did not result in an impairment for fiscal 2007. As of April 30, 2007, the Company does not believe that any of its goodwill or other intangible assets are impaired.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets and liabilities are adjusted in the period of enactment for the effect of a change in tax law or rates.

Discontinued Operations

The Company adopted SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, effective in fiscal 2003, which requires, among other things, that the gains and losses from the disposition of certain income-producing real estate assets, and associated liabilities, operating results, and cash flows be reflected as discontinued operations in the financial statements for all periods presented. Although net earnings are not affected, the Company has reclassified results that were previously included in continuing operations as discontinued operations for qualifying dispositions under SFAS 144.

Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board issued Interpretation 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes, an interpretation of SFAS 109, Accounting for Income Taxes, to create a single model to address accounting for uncertainty in tax positions. FIN 48 clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company adopted FIN 48 as of May 1, 2007, as required. The cumulative effect of adopting FIN 48 will be recorded in retained earnings and other accounts as applicable. The Company has not determined the effect, if any, the adoption of FIN 48 will have on the Company’s financial position and results of operations.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Certain statements contained or incorporated by reference in this Annual Report on Form 10-K, including without limitation, statements containing the words “believes,” “anticipates,” “estimates,” “expects,” “plans,” and words of similar import, are forward-looking statements within the meaning of the federal securities laws. Such forward-looking statements involve known and unknown risks, uncertainties and other matters which may cause the actual past results, performance, or achievements of the Company to be materially different from any future results, performance, or uncertainties expressed or implied by such forward-looking statements.

The factors set forth in “ITEM 1A. RISK FACTORS” could cause actual results to differ materially from those predicted in the Company’s forward-looking statements. In addition, factors relating to general global, national, regional, and local economic conditions, including international political stability, national defense, homeland security, natural disasters, terrorism, employment levels, wage and salary levels, consumer confidence, availability of credit, taxation policies, the Sarbanes-Oxley Act, SEC reporting requirements, fees paid to vendors in order to remain in compliance with the Sarbanes-Oxley Act and SEC requirements, interest rates, capital spending, and inflation could positively or negatively impact the Company and its customers, suppliers, and sources of capital. Any significant negative impact from these factors could result in material adverse effects on the Company’s results of operations and financial condition.

The Company is also at risk for many other matters beyond its control, including, but not limited to: the possible impact, if any, on earnings due to the ultimate disposition of legal proceedings in which the Company may be involved; the potential loss of significant customers; the Company’s future ability to sell or refinance its real estate; the possibility of not achieving projected backlog revenues or not realizing earnings from such revenues; the cost and availability of insurance; the ability of the Company to attract and retain key personnel; weather conditions; changes in laws and regulations, including changes in accounting standards, generally accepted accounting principles, and regulatory requirements of the SEC and NASDAQ; overall vacancy rates in the markets where the Company leases retail and office space; overall capital spending trends in the economy; the timing and amount of earnings recognition related to the possible sale of real estate properties held for sale; delays in or cancellations of customers’ orders; inflation; the level and volatility of energy prices; the level and volatility of interest rates; the failure of a subcontractor to perform; and the deterioration in the financial stability of an anchor tenant, other significant customer, or subcontractor.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s major market risk exposure arises from future changes in interest rates and the resulting potential impact on variable rate debt instruments. The Company at April 30, 2007, had variable rate debt of $3.4 million. On June 1, 2007, variable rate interim debt of $2.5 million was replaced with fixed-rate permanent debt subsequent to fiscal year-end. See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — “Note 20. Subsequent Events.” In addition, the Company has interest rate risk associated with fixed rate debt. The Company’s objectives in interest rate risk management are to limit the potential negative impact of interest rates on earnings and cash flows and to lower overall borrowing costs. To achieve these objectives, the Company borrows at fixed rates when it believes it is in its best interests to do so, and may enter into derivative financial instruments, such as interest rate swaps and caps, in order to limit its exposure to interest rate fluctuations. The Company does not enter into derivative or interest rate transactions for speculative purposes. There were no derivative contracts in effect at April 30, 2007, or April 30, 2006.

The following table summarizes information related to the Company’s market risk sensitive debt instruments as of April 30, 2007:

		Expected Maturity Date
		Fiscal Year Ending April 30
		(Dollars in Thousands)
																														Estimated
																						There-								Fair
		2008				2009				2010				2011				2012				after				Total				Value
Fixed rate debt		$	1,035				520				562				5,948				396				14,312			$	22,773			$	22,359
Average interest rate			6.8	%			6.8	%			6.8	%			7.2	%			6.7	%			6.6	%
Variable rate debt (1)		$	—				2,500				—				—				900				—				3,400			$	3,400

The estimated fair value of the Company’s debt, as of April 30, 2007, is determined by a discounted cash flow analysis using current borrowing rates for debt with similar terms and remaining maturities. Such fair value is subject to future changes in interest rates. Generally, the fair value will increase as interest rates fall and decrease as interest rates rise.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
Servidyne, Inc.:

We have audited the accompanying consolidated balance sheets of Servidyne, Inc. and subsidiaries (the “Company”) as of April 30, 2007 and 2006, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended April 30, 2007. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Servidyne, Inc. and subsidiaries as of April 30, 2007, and 2006, and the results of their operations and their cash flows for each of the three years in the period ended April 30, 2007, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule for 2007, 2006, and 2005 when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth herein.

As described in Note 2 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards Board No. 123(R), Share-Based Payment, on May 1, 2006, based on the modified prospective application transition method.

/s/ Deloitte & Touche LLP

Atlanta, Georgia
July 11, 2007

CONSOLIDATED BALANCE SHEETS

		April 30,
		2007				2006
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 3)		$	5,662,894			$	7,329,805
Restricted cash (Note 3)			—				418,594
Receivables:
Trade accounts and notes, net of allowance for doubtful accounts of $10,104 in 2007 and $11,061 in 2006			1,385,020				889,798
Contracts, net of allowance for doubtful accounts of $4,609 in 2007, and $0 in 2006, including retained amounts of $200,447 in 2007 and $171,303 in 2006 (Note 5)			830,080				1,519,509
Costs and earnings in excess of billings (Note 5)			265,540				286,824
Notes receivable			10,500				902,505
Deferred income taxes (Note 10)			443,030				622,927
Other (Note 2)			1,613,035				966,454
Total current assets			10,210,099				12,936,416
INCOME-PRODUCING PROPERTIES, net (Notes 6 and 8)			31,961,029				20,706,913
PROPERTY AND EQUIPMENT, net (Note 7)			838,886				843,204
RESTRICTED CASH (Note 3)			—				3,241,310
ASSETS OF DISCONTINUED OPERATIONS (Note 4)			—				61,419
OTHER ASSETS:
Real estate held for future development or sale			1,124,850				1,925,427
Intangible assets, net (Note 17)			3,940,418				3,065,961
Goodwill			5,458,717				5,458,717
Other (Note 2)			3,859,422				4,170,889
Total assets		$	57,393,421			$	52,410,256
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Trade and subcontractors payables, including retained amounts of $63,541 in 2007 and $20,988 in 2006		$	635,308			$	705,647
Accrued expenses			2,011,711				2,013,360
Accrued incentive compensation			584,416				471,619
Billings in excess of costs and earnings (Note 5)			219,305				211,676
Liabilities of discontinued operations (Note 4)			—				253,392
Current maturities of long-term debt			1,035,277				928,636
Total current liabilities			4,486,017				4,584,330
DEFERRED INCOME TAXES (Note 10)			4,233,498				3,710,599
LIABILITIES OF DISCONTINUED OPERATIONS (Note 4)			—				1,686,134
OTHER LIABILITIES			2,074,954				1,879,037
MORTGAGE NOTES PAYABLE, less current maturities (Note 8)			23,963,741				18,120,408
OTHER LONG-TERM DEBT, less current maturities (Note 9)			1,175,000				1,483,000
Total liabilities			35,933,210				31,463,508
COMMITMENTS AND CONTINGENCIES (Notes 8, 9, 18, and 20)
SHAREHOLDERS’ EQUITY:
Common stock, $1 par value; 5,000,000 shares authorized; 3,695,336 issued and 3,527,070 outstanding at April 30, 2007, 3,695,336 issued and 3,532,180 outstanding at April 30, 2006			3,695,336				3,695,336
Additional paid-in capital			4,875,160				4,803,133
Deferred stock compensation			—				(4,420	)
Retained earnings			13,684,779				13,227,076
Treasury stock (common shares) of 168,266 in 2007 and 163,156 in 2006			(795,064	)			(774,377	)
Total shareholders’ equity			21,460,211				20,946,748
Total liabilities and shareholder’s equity		$	57,393,421			$	52,410,256

CONSOLIDATED STATEMENTS OF OPERATIONS

		Years Ended April 30,
		2007				2006				2005
REVENUES:
Building Performance Expert		$	12,829,553			$	11,611,479			$	13,074,855
Rental income			6,190,667				6,107,751				7,912,897
Interest income			262,363				181,984				79,436
Other income			90,303				325,289				79,854
			19,372,886				18,226,503				21,147,042
COSTS AND EXPENSES:
Building Performance Expert			8,142,049				6,735,464				8,421,559
Rental property operating expenses, excluding interest			3,839,066				3,888,482				4,094,725
			11,981,115				10,623,946				12,516,284
Selling, general and administrative expenses			9,192,082				8,689,499				9,331,313
Loss on extinguishment of debt			—				—				218,071
Interest costs incurred			1,615,558				1,401,734				1,605,785
			22,788,755				20,715,179				23,671,453
GAINS ON SALE OF REAL ESTATE (Note 16), net of costs of sales of $1,094,679 in 2007, $1,895,697 in 2006, and $324,379 in 2005			1,880,321				1,928,290				190,621
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES			(1,535,548	)			(560,386	)			(2,333,790	)
INCOME TAX BENEFIT (Note 10):
Current			(20,574	)			46,505				—
Deferred			(506,960	)			(259,452	)			(894,220	)
			(527,534	)			(212,947	)			(894,220	)
LOSS FROM CONTINUING OPERATIONS			(1,008,014	)			(347,439	)			(1,439,570	)
DISCONTINUED OPERATIONS (Note 4):
(Loss) earnings from discontinued operations, adjusted for applicable income tax (benefit) expense of ($113,509), $9,588, and ($180,770), respectively			(185,200	)			15,647				(370,043	)
Gain on sale of real estate income-producing properties, adjusted for applicable income tax expense of $1,323,773, $525,600 and $1,977,390, respectively			2,159,840				857,558				3,609,971
EARNINGS FROM DISCONTINUED OPERATIONS			1,974,640				873,205				3,239,928
NET EARNINGS		$	966,626			$	525,766			$	1,800,358
NET EARNINGS (LOSS) PER SHARE (Note 13):
From continuing operations — basic and diluted		$	(.29	)		$	(.10	)		$	(.41	)
From discontinued operations — basic and diluted			.56				.25				.92
Net earnings per share — basic and diluted		$	.27			$	.15			$	.51

See accompanying notes to consoidated financial statements.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

										Additional				Deferred
		Common Stock								Paid-In				Stock				Retained				Treasury
		Shares				Amount				Capital				Compensation				Earnings				Stock				Total
BALANCES at April 30, 2004			3,327,628			$	3,327,628			$	2,963,874			$	(26,855	)		$	14,412,663			$	(679,783	)		$	19,997,527
Net earnings			—				—				—				—				1,800,358				—				1,800,358
Common stock issued			29,973				29,973				104,108				(39,175	)			—				—				94,906
Stock compensation expense			—				—				—				51,868				—				(5,159	)			46,709
Cash 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	)			20,913,411
Net earnings			—				—				—				—				525,766				—				525,766
Common stock issued			1,800				1,800				6,660				(8,460	)			—								—
Stock compensation expense			—				—				—				18,202				—				(1,871	)			16,331
Stock option exercise			732				732				2,196				—				—				—				2,928
Cash 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	)			20,946,748
Net earnings			—				—				—				—				966,626				—				966,626
Common stock acquired			—				—				—				—				—				(19,747	)			(19,747	)
Stock compensation expense			—				—				72,027				4,420				—				(940	)			75,507
Cash 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	)		$	21,460,211

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Fiscal Year Ended
		2007				2006				2005
Cash flows from operating activities:
Net earnings		$	966,626			$	525,766			$	1,800,358
Earnings from discontinued operations, net of tax			(1,974,640	)			(873,205	)			(3,239,928	)
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:
Gain on sale of real estate			(1,880,321	)			(1,928,291	)			(190,621	)
Depreciation and amortization			1,714,973				1,352,811				1,443,399
Deferred tax expense (benefit)			(506,960	)			180,474				853,058
Stock compensation expense			75,507				16,331				46,709
Cash surrender value			66,542				(121,110	)			(112,879	)
Straight-line rent			(38,264	)			(44,568	)			(165,188	)
Provision for (recovery of) doubtful accounts, net			27,152				(58,740	)			21,289
Loss on disposal of property and equipment			—				17,232				—
Loss on early extinguishment of debt			—				—				218,071
Changes in assets and liabilities, net of effect of acquisitions:
Receivables, net			70,575				301,463				(959,098	)
Notes receivable, net			892,005				(509,568	)			—
Costs and earnings in excess of billings			21,284				25,957				201,138
Other current assets			(128,875	)			(99,432	)			(274,687	)
Other assets			(14,003	)			(33,716	)			(184,428	)
Trade and subcontractors payable			(70,339	)			(182,750	)			196,831
Accrued expenses			(52,501	)			166,848				(271,005	)
Accrued incentive compensation			112,797				(617,750	)			1,089,369
Billings in excess of costs and earnings			7,629				(314,836	)			428,073
Other liabilities			(48,599	)			(84,887	)			43,460
Net cash (used in) provided by operating activities			(759,412	)			(2,281,971	)			943,921
Cash flows from investing activities:
Proceeds from sale of real estate temporarily held in escrow			418,594				8,272,399				—
Deposit of cash proceeds from sale of real estate temporarily held in escrow			(3,861,664	)			(3,659,904	)			(8,272,399	)
Proceeds from maturity of held-to-maturity investment			—				2,000,000				200,000
Purchase of held-to-maturity investments			—				(300,000	)			—
Proceeds from sale of real estate held for future sale or development			2,709,444				3,245,595				515,000
Additions to real estate held for sale or future development			(28,546	)			—				—
Additions to income-producing properties, net			(318,528	)			(724,333	)			(459,243	)
Additions to property, equipment and other, net			(185,989	)			(202,910	)			(469,661	)
Additions to intangible assets, net			(830,713	)			(866,753	)			(605,041	)
Acquisition, net of escrowed cash			(5,118,575	)			—				(169,624	)
Net cash (used in) provided by investing activities			(7,215,977	)			7,764,094				(9,260,968	)
Cash flows from financing activities:
Debt proceeds			9,200,000				—				—
Scheduled debt repayments			(929,986	)			(905,212	)			(715,357	)
Mortgage principal payoff			(2,600,000	)			—				(1,974,042	)
Deferred loan costs paid			(154,497	)			—				(50,000	)
Cash dividends			(508,923	)			(511,688	)			(1,026,089	)
Repurchase of Common Stock			(19,747	)			—				—
Proceeds from exercise of stock options			—				2,928				—
Net cash provided by (used in) financing activities			4,986,847				(1,413,972	)			(3,765,488	)
Cash flows from discontinued operations:
Operating activities			111,531				(397,366	)			2,312,034
Investing activities			3,134,788				5,360,366				8,118,366
Financing activities			(1,924,688	)			(3,103,991	)			(3,324,899	)
Net cash provided by discontinued operations			1,321,631				1,859,009				7,105,501
Net (decrease) increase in cash and cash equivalents			(1,666,911	)			5,927,160				(4,977,034	)
Cash and cash equivalents at beginning of period			7,329,805				1,402,645				6,379,679
Cash and cash equivalents at end of period		$	5,662,894			$	7,329,805			$	1,402,645
Supplemental disclosure of noncash financing activities:
Issuance of Common Stock under 2000 Stock Award Plan		$	—			$	8,460			$	39,175
Supplemental schedule of cash flow information:
Cash paid during the year for interest		$	2,152,747			$	2,004,677			$	1,996,986
Cash (refunded) paid during the year for income taxes, net		$	(20,572	)		$	141,771			$	58,488