##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal year ended December 31, 2009
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission file number: 001-34289
 World Energy Solutions, Inc.
  Delaware
    
    04-3474959(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification Number)
 446 Main Street
Worcester, Massachusetts 01608  (Address of principal executive offices)
 (508) 459-8100  (Registrants telephone number, including area code)
 Securities registered under Section 12(b) of the Act:
    
    Name of each exchange on which registered:Common Stock, $.001 par value
    
    NASDAQ Capital MarketToronto Stock Exchange
 None
 Yes o No þ
 Yes o No þ
 þ o
 o o
 þ
 Rule 12b-2
 Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 o þ




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##### 



World Energy Solutions, Inc.
Form 10-K
For the Year Ended December 31, 2009
 Table of Contents
 PART IItem 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    11Item 1B. Unresolved Staff Comments
    
    
    18Item 2. Properties
    
    
    18Item 3. Legal Proceedings
    
    
    18Item 4. Reserved
    
    
    18PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
    
    
    19Item 6. Selected Consolidated Financial Data
    
    
    20Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 7A. Quantitative and Qualitative Disclosure about Market Risk
    
    
    33Item 8. Financial Statements and Supplementary Data
    
    
    34Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    34Item 9A. Controls and Procedures
    
    
    34Item 9A(T). Controls and Procedures
    
    
    34Item 9B. Other Information
    
    
    35PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    35Item 11. Executive Compensation
    
    
    35Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
    
    
    35Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    35Item 14. Principal Accountant Fees and Services
    
    
    35PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    36Signatures
    
    
    37Exhibit Index
    
    
    59Exhibit 10.21Exhibit 21.1Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
  FORWARD-LOOKING STATEMENTS
 This Report contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, which statements involve risks and
uncertainties. These statements relate to our future plans, objectives, expectations and
intentions. These statements may be identified by the use of words such as may, could, would,
should, will, expects, anticipates, intends, plans, believes, estimates and similar
expressions. Our actual results and timing of certain events could differ materially from those
discussed in these statements. Factors that could contribute to these differences include but are
not limited to, those discussed under Risk Factors, Managements Discussion and Analysis of
Financial Condition and Results of Operations, and elsewhere in this Report. The cautionary
statements made in this Report should be read as being applicable to all forward-looking statements
wherever they appear in this Report.




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##### Table of Contents



PART I
 
 Item 1. Business
 Overview
         1




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The Retail Energy Industry
 Retail Electricity Deregulation
  Federal
Power Act Public Utility Regulatory Policies Act Energy Policy Act Energy Policy Act
    Competitive Energy Suppliers:
 Aggregators, Brokers and Consultants:
 Online Brokers:
  2




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Retail Natural Gas
  Natural Gas Act
     Wholesale Energy
     Environmental Commodities
   3




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Company Strategy and Operations
 Overview
   
    
    energy and environmental commodities sourcing management  a database of suppliers and
contacts;
    
    lead management  a module to track prospective customers through the sales process;
    
    deal and task management  a module to list, assign and track steps to complete a
procurement successfully;
    
    market intelligence  databases of information related to market rules and pricing
trends for markets;
    
    request for proposal, or RFP, development  a module to create RFPs with a variety of
terms and parameters;
    
    conducting auctions  underlying software to manage the bidding and timing of an auction
and display the results;
    
    portfolio management  a database of contracts, sites, accounts and usage;
    
    commission reporting  a system to display forecasted and actual commissions due to
channel partners; and
    
    receivables management  a system to upload data received from suppliers and track
payment receipt.
   4




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Retail Electricity Transactions
    Annualized Backlog
(in millions)
 
  5




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##### Table of Contents



Retail Natural Gas Transactions
  Wholesale Transactions
  Environmental Commodity Transactions
  The Brokerage Process
      6




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Growth Strategy
  Continuing to Develop Channel Partner Relationships.
  7




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Number of Channel Partners
 
 Strengthening and Expanding Long-term Relationships with Government Agencies.
 Expand our Share in the Natural Gas Market.
 Leverage Early Wins in the Wholesale Market.
 Brokering Environmental Commodities.
 Making Strategic Acquisitions.
 Growing our Direct Sales Force.
  8




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Bidders, Listers and Channel Partners
 Bidders.
 Listers.
   Direct Sales.
 Channel Partners.
 Competition
   9




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Technology
    Seasonality
  Intellectual Property
     Personnel
   10




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Company Information
    
 Item 1A. Risk Factors
 You should carefully consider the risks and uncertainties described below before deciding to
invest in shares of our common stock. If any of the following risks or uncertainties actually
occurs, our business, prospects, financial condition and operating results would likely suffer,
possibly materially. In that event, the market price of our common stock could decline and you
could lose all or part of your investment.
 Risks Related to Our Business
 We have limited operating experience and a history of operating losses, and we may be subject to
risks inherent in early stage companies, which may make it difficult for you to evaluate our
business and prospects.
  A prolonged recession, instability in the financial markets, and insufficient financial sector
liquidity, could negatively impact our business.
  Our business is heavily influenced by how much regulated utility prices for energy are above or
below competitive market prices for energy and, accordingly, any changes in regulated prices or
cyclicality or volatility in competitive market prices heavily impacts our business.
   11




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We currently derive a substantial amount of our revenue from the brokerage of electricity, and as
a result our business is highly susceptible to factors affecting the electricity market over which
we have no control.
  The online brokerage of energy and environmental commodities is a relatively new and emerging
market and it is uncertain whether our auction model will gain widespread acceptance.
  Our success depends on the widespread adoption of purchasing electricity from competitive sources.
  Even if our auction brokerage model achieves widespread acceptance as the preferred means to
transact energy and environmental products, we may be unsuccessful in competing against current
and future competitors.
    12




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If we are unable to rapidly implement some or all of our major strategic initiatives, our ability
to improve our competitive position may be negatively impacted.
  
    
    continue to develop channel partner relationships;
 
    
    strengthen and expand long-term relationships with government agencies;
 
    
    target other energy-related markets;
 
    
    target utilities in order to broker energy-related products for them;
 
    
    further develop a green credits auction platform;
 
    
    make strategic acquisitions; and
 
    
    grow our direct sales force.
  Our costs will continue to increase as we expand our business and in the event that our revenue
does not increase proportionately, we will generate significant operating losses in the future.
  We depend on the services of our senior executives and other key personnel, the loss of whom could
negatively affect our business.
   We do not have contracts for fixed volumes with the bidders who use our auction platform and we
depend on a small number of key bidders, and the partial or complete loss of one or more of these
bidders as a participant on our auction platform could undermine our ability to execute effective
auctions.
   13




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We depend on a small number of key listers for a significant portion of our revenue, many of which
are government entities that have no obligation to use our auction platform or continue their
relationship with us, and the partial or complete loss of business of one or more of these
consumers could negatively affect our business.
  We depend on our channel partners to establish and develop certain of our relationships with
listers and the loss of certain channel partners could result in the loss of certain key listers.
  Our business depends heavily on information technology systems the interruption or
unavailability of which could materially damage our operations.
    Breaches of online security could damage or disrupt our reputation and our ability to do business.
   We depend on third-party service and technology providers and any loss or break-down in those
relationships could damage our operations significantly if we are unable to find alternative
providers.
   14




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To the extent that we expand our operations into foreign markets, additional costs and risks
associated with doing business internationally will apply.
  
    
    different regulatory requirements governing the energy marketplace;
 
    
    difficulty in establishing, staffing and managing international operations;
 
    
    regulatory regimes governing the Internet and auctioneering that may limit or
prevent our operations in some jurisdictions;
 
    
    different and more stringent data privacy laws;
 
    
    differing intellectual property laws;
 
    
    differing contract laws that prevent the enforceability of agreements between energy
suppliers and energy consumers;
 
    
    the imposition of special taxes, including local taxation of our fees or of
transactions through our exchange;
 
    
    strong local competitors;
 
    
    currency fluctuations; and
 
    
    political and economic instability.
  The application of taxes including sales taxes and other taxes could negatively affect our
business.
   Quill Quill
  U.S. federal or state legislative or regulatory reform of the current systems governing
commodities or energy may affect our ability to conduct our business profitably.
   15




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We may expand our business through the acquisition of other businesses and technologies which will
present special risks.
  
    
    the need to incur additional indebtedness, issue stock or use cash in order to
complete the acquisition;
 
    
    difficulty integrating acquired technologies, operations and personnel with the
existing business;
 
    
    diversion of management attention in connection with both negotiating the
acquisitions and integrating the assets;
 
    
    strain on managerial and operational resources as management tries to oversee larger
operations;
 
    
    the funding requirements for acquired companies may be significant;
 
    
    exposure to unforeseen liabilities of acquired companies;
 
    
    increased risk of costly and time-consuming litigation, including stockholder
lawsuits; and
 
    
    potential issuance of securities in connection with an acquisition with rights that
are superior to the rights of our common stockholders, or which may have a dilutive
effect on our common stockholders.
  Risks Relating to Intellectual Property
 We may be unable to adequately protect our intellectual property, which could harm us and affect
our ability to compete effectively.
  Our auction platform, services, technologies or usage of trade names could infringe the
intellectual property rights of others, which may lead to litigation that could itself be costly,
could result in the payment of substantial damages or royalties, and/or prevent us from using
technology that is essential to our business.
      16




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Risks Relating to Ownership of Our Common Stock
 Because there is a limited trading history for our common stock and our stock price may be
volatile, you may not be able to resell your shares at or above your purchase price.
  
    
    loss of any of the major listers or bidders using our auction platform;
 
    
    departure of key personnel;
 
    
    variations in our quarterly operating results;
 
    
    announcements by our competitors of significant contracts, new transaction
capabilities, enhancements, lower fees, acquisitions, distribution partnerships, joint
ventures or capital commitments;
 
    
    changes in governmental regulations and standards affecting the energy industry and
our products, including implementation of additional regulations relating to consumer
data privacy;
 
    
    decreases in financial estimates by equity research analysts;
 
    
    sales of common stock or other securities by us in the future; and
 
    
    fluctuations in stock market prices and volumes.
  Future sales of our common stock by persons who were stockholders prior to our initial public
offering or who required restricted securities that became available for public resale could cause
our stock price to decline.
  Our directors and executive officers have substantial control over us and could limit your ability
to influence the outcome of key transactions, including changes of control.
   17




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Our corporate documents and Delaware law make a takeover of our company more difficult, we have a
classified board of directors and certain provisions of our certificate of incorporation and
by-laws require a super-majority vote to amend, all of which may prevent certain changes in
control and limit the market price of our common stock.
  
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
  Approx. FloorLocation
    
    Space (Sq. Ft.)
    
    
    Principal Use446 Main Street, Worcester, MA (1)
    
    
    7,458
    
    
    Executive office and general administration1215 19th Street NW, Washington, DC (2)
    
    
    400
    
    
    Branch office10001 Woodloch Forest Drive, The Woodlands, TX (3)
    
    
    2,027
    
    
    Branch office770 East Market Street, West Chester, PA (4)
    
    
    575
    
    
    Branch office4495 Bradenton Avenue, Dublin OH (5)
    
    
    4,500
    
    
    Branch office
 Note:(1)
    
    Pursuant to a five year lease agreement with Sovereign Bank, as
amended, expiring December 31, 2010, at a monthly rate of $12,430 plus
operating expenses and taxes.(2)
    
    Pursuant to a five-year lease agreement with Roosevelt Land, LP
expiring July 16, 2011, at a monthly rate of $5,000, plus operating
expenses and taxes.(3)
    
    Pursuant to a five-year lease agreement with NNN Waterway Plaza,
expiring March 31, 2012, at a monthly rate escalating to $5,574, plus
operating expenses and taxes.(4)
    
    Pursuant to a two-year lease agreement, as amended, with High
Associates LTD expiring March 31, 2010, at a monthly rate escalating
to $970, plus certain operating expenses.(5)
    
    Pursuant to a 62-month lease agreement with Rickert Property
Management, expiring July 31, 2012, at a monthly rate escalating to
$3,750, plus operating expenses and taxes. 
 Item 3. Legal Proceedings
  
 Item 4. Reserved
  18




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    High
    
    
    Low2009:First quarter
    
    $
    3.85
    
    
    $
    2.10Second quarter
    
    $
    7.86
    
    
    $
    3.16Third quarter
    
    $
    5.20
    
    
    $
    3.00Fourth quarter
    
    $
    3.87
    
    
    $
    2.722008:First quarter
    
    $
    9.57
    
    
    $
    7.01Second quarter
    
    $
    14.19
    
    
    $
    8.76Third quarter
    
    $
    11.35
    
    
    $
    3.73Fourth quarter
    
    $
    4.43
    
    
    $
    1.37
    Recent Sales of Unregistered Securities
  Repurchase of Equity Securities
  Total Number of
    
    
    MaximumTotal
    
    
    
    
    
    
    Shares Purchased
    
    
    Number of SharesNumber of
    
    
    Average
    
    
    As Part of Publicly
    
    
    That May Yet BeShares
    
    
    Price Paid
    
    
    Announced Plans
    
    
    Purchased UnderPeriod
    
    Purchased
    
    
    Per Share
    
    
    Or Programs
    
    
    The Plan10/01/09  10/31/09
    
    
    201
    
    
    $
    3.01
    
    
    
    
    
    
    
    11/01/09  11/30/09
    
    
    60
    
    
    $
    3.01
    
    
    
    
    
    
    
    12/01/09  12/31/09
    
    
    1,329
    
    
    $
    3.17
    
    
    
    
    
    
    
    Total
    
    
    1,590
    
    
    $
    3.14
    
    
    
    
    
    
    
    
  19




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Item 6. Selected Consolidated Financial Data
  For the Years Ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Consolidated Statement of Operations
Data:Revenue
    
    $
    14,618,275
    
    
    $
    12,444,692
    
    
    $
    9,188,265
    
    
    $
    5,763,098
    
    
    $
    4,673,987Cost of revenue
    
    
    3,709,957
    
    
    
    4,552,215
    
    
    
    2,874,678
    
    
    
    1,166,426
    
    
    
    648,410Gross profit
    
    
    10,908,318
    
    
    
    7,892,477
    
    
    
    6,313,587
    
    
    
    4,596,672
    
    
    
    4,025,577Operating expenses:Sales and marketing
    
    
    9,714,900
    
    
    
    10,057,361
    
    
    
    8,598,256
    
    
    
    3,227,263
    
    
    
    2,649,786General and administrative
    
    
    3,520,886
    
    
    
    4,669,807
    
    
    
    5,858,810
    
    
    
    1,862,450
    
    
    
    995,703Total operating expenses
    
    
    13,235,786
    
    
    
    14,727,168
    
    
    
    14,457,066
    
    
    
    5,089,713
    
    
    
    3,645,489Operating income (loss)
    
    
    (2,327,468
    )
    
    
    (6,834,691
    )
    
    
    (8,143,479
    )
    
    
    (493,041
    )
    
    
    380,088Other income (expense), net
    
    
    (6,051
    )
    
    
    39,531
    
    
    
    563,294
    
    
    
    (312,280
    )
    
    
    (86,838
    )Income (loss) before income taxes
    
    
    (2,333,519
    )
    
    
    (6,795,160
    )
    
    
    (7,580,185
    )
    
    
    (805,321
    )
    
    
    293,250Income tax (expense) benefit
    
    
    
    
    
    
    
    
    
    
    (1,061,720
    )
    
    
    304,228
    
    
    
    754,000Net income (loss)
    
    
    (2,333,519
    )
    
    
    (6,795,160
    )
    
    
    (8,641,905
    )
    
    
    (501,093
    )
    
    
    1,047,250Accretion of preferred stock issuance
costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,299
    )
    
    
    (7,199
    )Net income (loss) available to
common stockholders
    
    $
    (2,333,519
    )
    
    $
    (6,795,160
    )
    
    $
    (8,641,905
    )
    
    $
    (507,392
    )
    
    $
    1,040,051Net income (loss) available to
common stockholders per share:Basic Voting
    
    $
    (0.27
    )
    
    $
    (0.82
    )
    
    $
    (1.08
    )
    
    $
    (0.11
    )
    
    $
    0.21Basic Non-Voting
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0.21Diluted Voting and Non-Voting
    
    $
    (0.27
    )
    
    $
    (0.82
    )
    
    $
    (1.08
    )
    
    $
    (0.11
    )
    
    $
    0.15Weighted average shares outstanding
 Basic:Voting Common Stock
    
    
    8,512,060
    
    
    
    8,310,315
    
    
    
    7,979,359
    
    
    
    4,557,648
    
    
    
    3,304,947Non-Voting Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    677,833Total Common Stock-Basic
    
    
    8,512,060
    
    
    
    8,310,315
    
    
    
    7,979,359
    
    
    
    4,557,648
    
    
    
    3,982,780Weighted average shares outstanding
 Diluted:
    
    
    8,512,060
    
    
    
    8,310,315
    
    
    
    7,979,359
    
    
    
    4,557,648
    
    
    
    5,450,656
 As of December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Consolidated Balance Sheet Data:Cash and cash equivalents
    
    $
    2,046,909
    
    
    $
    1,731,411
    
    
    $
    7,001,884
    
    
    $
    17,483,886
    
    
    $
    1,584,066Working capital
    
    
    1,548,986
    
    
    
    742,478
    
    
    
    5,323,622
    
    
    
    16,639,898
    
    
    
    1,372,542Total assets
    
    
    13,894,125
    
    
    
    14,776,640
    
    
    
    20,800,565
    
    
    
    20,791,381
    
    
    
    3,787,842Long-term liabilities
    
    
    16,003
    
    
    
    3,737
    
    
    
    46,222
    
    
    
    87,844
    
    
    
    1,879,745Series A redeemable convertible
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,501,698Accumulated deficit
    
    
    (21,981,951
    )
    
    
    (19,648,432
    )
    
    
    (12,853,272
    )
    
    
    (4,211,367
    )
    
    
    (3,710,274
    )Total stockholders equity (deficit)
    
    $
    10,258,142
    
    
    $
    11,009,131
    
    
    $
    16,859,799
    
    
    $
    17,945,002
    
    
    $
    (938,883
    )
  20




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 You should read the following discussion and analysis of our financial condition and results
of operations together with our consolidated financial statements and related notes appearing
elsewhere in this Annual Report on Form 10-K . Some of the information contained in this discussion
and analysis includes forward-looking statements that involve risks and uncertainties. You should
review the Risk Factors section of this Annual Report for a discussion of important factors that
could cause actual results to differ materially from the results described in or implied by the
forward-looking statements contained in the following discussion and analysis.
 Overview
        21




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Operations
 Revenue
 Retail Electricity Transactions
      22




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Retail Natural Gas Transactions
  Wholesale Transactions
  Environmental Commodity Transactions
  Cost of revenue
  
    
    salaries, employee benefits and stock-based compensation associated with our auction
management services, which are directly related to the development and production of the
online auction and maintenance of market-related data on our auction platform and monthly
management fees (our supply desk function);
 
    
    amortization of capitalized costs associated with our auction platform and acquired
developed technology; and
 
    
    rent, depreciation and other related overhead and facility-related costs.
 Sales and marketing
  
    
    salaries, employee benefits and stock-based compensation related to sales and marketing
personnel;
 
    
    third party commission expenses to our channel partners;
 
    
    travel and related expenses;
 
    
    amortization related to customer relationships and contracts;
 
    
    rent, depreciation and other related overhead and facility-related costs; and
 
    
    general marketing costs such as trade shows, marketing materials and outsourced services.
  23




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General and administrative
  
    
    salaries, employee benefits and stock-based compensation related to general and
administrative personnel;
 
    
    accounting, legal, and other professional fees; and
 
    
    rent, depreciation and other related overhead and facility-related costs.
 Interest income (expense), net
  
    
    interest income earned on cash held in the bank; and
 
    
    interest expense related to capital leases.
 Income tax expense
  Results of Operations
  For the Years EndedDecember 31,2009
    
    
    2008
    
    
    2007Revenue
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Cost of revenue
    
    
    25
    
    
    
    37
    
    
    
    31Gross profit
    
    
    75
    
    
    
    63
    
    
    
    69Operating expenses:Sales and marketing
    
    
    67
    
    
    
    81
    
    
    
    94General and administrative
    
    
    24
    
    
    
    38
    
    
    
    64Operating loss
    
    
    (16
    )
    
    
    (56
    )
    
    
    (89
    )Interest income (expense)
    
    
    
    
    
    
    
    
    
    
    7Income tax expense
    
    
    
    
    
    
    
    
    
    
    (12
    )Net loss
    
    
    (16
    )%
    
    
    (56
    )%
    
    
    (94
    )%
 Comparison of the Years Ended December 31, 2009 and 2008
 Revenue
 For the Years EndedDecember 31,2009
    
    
    2008
    
    
    IncreaseRevenue
    
    $
    14,618,275
    
    
    $
    12,444,692
    
    
    $
    2,173,583
    
    
    
    17
    %
  Cost of revenue
 For the Years Ended December 31,2009
    
    
    2008$
    
    
    % of Revenue
    
    
    $
    
    
    % of Revenue
    
    
    DecreaseCost of revenue
    
    $
    3,709,957
    
    
    
    25
    %
    
    $
    4,552,215
    
    
    
    37
    %
    
    $
    (842,258
    )
    
    
    (19
    %)
   24




---



##### Table of Contents



Operating expenses
 For the Years Ended December 31,2009
    
    
    2008$
    
    
    % of Revenue
    
    
    $
    
    
    % of Revenue
    
    
    DecreaseSales and marketing
    
    $
    9,714,900
    
    
    
    67
    %
    
    $
    10,057,361
    
    
    
    81
    %
    
    $
    (342,461
    )
    
    
    (3
    %)General and administrative
    
    
    3,520,886
    
    
    
    24
    
    
    
    4,669,807
    
    
    
    38
    
    
    
    (1,148,921
    )
    
    
    (25
    )Total operating expenses
    
    $
    13,235,786
    
    
    
    91
    %
    
    $
    14,727,168
    
    
    
    119
    %
    
    $
    (1,491,382
    )
    
    
    (10
    %)
   Interest income (expense), net
  Income tax expense
  Net loss
  Comparison of the Years Ended December 31, 2008 and 2007
 Revenue
 For the Years EndedDecember 31,2008
    
    
    2007
    
    
    IncreaseRevenue
    
    $
    12,444,692
    
    
    $
    9,188,265
    
    
    $
    3,256,427
    
    
    
    35
    %
   25




---



##### Table of Contents



Cost of revenue
 For the Years Ended December 31,2008
    
    
    2007$
    
    
    % of Revenue
    
    
    $
    
    
    % of Revenue
    
    
    IncreaseCost of revenue
    
    $
    4,552,215
    
    
    
    37
    %
    
    $
    2,874,678
    
    
    
    31
    %
    
    $
    1,677,537
    
    
    
    58
    %
  Operating expenses
 For the Years Ended December 31,2008
    
    
    2007$
    
    
    % of Revenue
    
    
    $
    
    
    % of Revenue
    
    
    Increase / (Decrease)Sales and marketing
    
    $
    10,057,361
    
    
    
    81
    %
    
    $
    8,598,256
    
    
    
    94
    %
    
    $
    1,459,105
    
    
    
    17
    %General and administrative
    
    
    4,669,807
    
    
    
    38
    
    
    
    5,858,810
    
    
    
    64
    
    
    
    (1,189,003
    )
    
    
    (20
    )Total operating expenses
    
    $
    14,727,168
    
    
    
    119
    %
    
    $
    14,457,066
    
    
    
    158
    %
    
    $
    270,102
    
    
    
    2
    %
   Interest income (expense), net
  Income tax expense
  Net loss
  Liquidity and Capital Resources
   26




---



##### Table of Contents



Comparison of December 31, 2009 to December 31, 2008
 December 31,
    
    
    December 31,2009
    
    
    2008
    
    
    Increase/(Decrease)Cash and cash equivalents
    
    $
    2,046,909
    
    
    $
    1,731,411
    
    
    $
    315,498
    
    
    
    18
    %Trade accounts receivable
    
    
    2,909,024
    
    
    
    2,343,593
    
    
    
    565,431
    
    
    
    24Days sales outstanding
    
    
    76
    
    
    
    62
    
    
    
    14
    
    
    
    23Working capital
    
    
    1,548,986
    
    
    
    742,478
    
    
    
    806,508
    
    
    
    109Stockholders equity
    
    
    10,258,142
    
    
    
    11,009,131
    
    
    
    (750,989
    )
    
    
    (7
    )
       27




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##### Table of Contents



Comparison of December 31, 2008 to December 31, 2007
 December 31,
    
    
    December 31,2008
    
    
    2007
    
    
    Increase/(Decrease)Cash and cash equivalents
    
    $
    1,731,411
    
    
    $
    7,001,884
    
    
    $
    (5,270,473
    )
    
    
    (75
    %)Trade accounts receivable
    
    
    2,343,593
    
    
    
    1,878,233
    
    
    
    465,360
    
    
    
    25Days sales outstanding
    
    
    62
    
    
    
    56
    
    
    
    6
    
    
    
    11Working capital
    
    
    742,478
    
    
    
    5,323,622
    
    
    
    (4,581,144
    )
    
    
    (86
    )Stockholders equity
    
    
    11,009,131
    
    
    
    16,859,799
    
    
    
    (5,850,668
    )
    
    
    (35
    )
    Contractual Obligations and Other Commercial Commitments
  Payments Due by Period2015 andContractual Obligations
    
    2010
    
    
    2011 and 2012
    
    
    2013 and 2014
    
    
    Thereafter
    
    
    TotalCapital leases
    
    $
    17,721
    
    
    $
    16,538
    
    
    $
    
    
    
    $
    
    
    
    $
    34,259Operating leases
    
    
    316,345
    
    
    
    185,038
    
    
    
    
    
    
    
    
    
    
    
    501,383Total contractual obligations
    
    $
    334,066
    
    
    $
    201,576
    
    
    $
    
    
    
    $
    
    
    
    $
    535,642
 Critical Accounting Policies
    28




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##### Table of Contents



Revenue Recognition
 Retail Electricity Transactions
   
    
    Payments received prior to the issuance of the financial statements;
 
    
    Usage updates from energy suppliers;
 
    
    Usage data from utilities;
 
    
    Comparable historical usage data; and
 
    
    Historical variances to previous estimates.
  
    
    Historical usage data obtained from the energy consumer in conjunction with the execution
of the auction;
 
    
    Geographic/utility usage patterns based on actual data received;
 
    
    Analysis of prior year usage patterns; and
 
    
    Specific review of individual energy supplier/location accounts.
   Retail Natural Gas Transactions
  Wholesale Transactions
   29




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##### Table of Contents



Environmental Commodity Transactions
  Channel Partner Commissions
  Revenue Estimation
  Allowance for Doubtful Accounts
  Software Development
   Goodwill
    30




---



##### Table of Contents



Intangible Assets
   Impairment of Long-Lived and Intangible Assets
  Income Taxes
   Share-Based Compensation
   31




---



##### Table of Contents



Expected
    
    
    Risk
    
    
    Expected
    
    
    ExpectedYear ended December 31,
    
    Dividend Yield
    
    
    Interest Rate
    
    
    Option Life
    
    
    Volatility2009
    
    
    
    
    
    
    2.28
    %
    
    4.75 years
    
    
    
    113
    %2008
    
    
    
    
    
    
    1.67
    %
    
    4.75 years
    
    
    
    87
    %2007
    
    
    
    
    
    
    4.66
    %
    
    4.61 years
    
    
    
    54
    %
   WeightedAverageShares
    
    
    Exercise PriceOutstanding at December 31, 2008
    
    
    626,456
    
    
    $
    5.08Granted
    
    
    242,700
    
    
    $
    3.47Canceled
    
    
    (156,248
    )
    
    $
    9.85Exercised
    
    
    (53,020
    )
    
    $
    0.55Outstanding at December 31, 2009
    
    
    659,888
    
    
    $
    3.73
  Options Outstanding
    
    
    Options ExercisableWeighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    
    AverageRemaining
    
    
    Aggregate
    
    
    Number
    
    
    Remaining
    
    
    AggregateRange of
    
    
    
    
    
    Contractual
    
    
    Intrinsic
    
    
    of Shares
    
    
    Contractual
    
    
    IntrinsicExercise Prices
    
    Options
    
    
    Life
    
    
    Value
    
    
    Exercisable
    
    
    Life
    
    
    Value$0.20  $1.99
    
    
    162,530
    
    
    0.86 years
    
    
    $
    433,955
    
    
    
    162,530
    
    
    0.86 years
    
    
    $
    433,955$2.00  $3.80
    
    
    360,480
    
    
    5.85 years
    
    
    
    84,974
    
    
    
    85,005
    
    
    3.32 years
    
    
    
    34,880$3.81  $11.29
    
    
    97,001
    
    
    4.27 years
    
    
    
    
    
    
    
    59,477
    
    
    3.58 years
    
    
    
    $11.30  $13.40
    
    
    39,877
    
    
    4.31 years
    
    
    
    
    
    
    
    26,381
    
    
    4.31 years
    
    
    
    659,888
    
    
    4.30 years
    
    
    $
    518,929
    
    
    
    333,393
    
    
    2.24 years
    
    
    $
    468,835
  Restricted Stock
  Weighted AverageShares
    
    
    Grant PriceOutstanding at December 31, 2008
    
    
    118,603
    
    
    $
    9.76Granted
    
    
    38,559
    
    
    $
    3.45Canceled
    
    
    (33,943
    )
    
    $
    9.45Vested
    
    
    (88,918
    )
    
    $
    6.90Unvested at December 31, 2009
    
    
    34,301
    
    
    $
    10.38
   32




---



##### Table of Contents



Recent Accounting Pronouncements
 Generally Accepted Accounting Principles
     Seasonality
  Cyclicality
  
 Item 7A. Quantitative and Qualitative Disclosures about Market Risk
 Market Risk
   33




---



##### Table of Contents



Impact of Inflation and Changing Prices
  Foreign Currency Fluctuation
  
 Item 8. Financial Statements and Supplementary Data
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
  
 Item 9A. Controls and Procedures
  
 Item 9A(T). Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Internal Control Over Financial Reporting
     34




---



##### Table of Contents



Item 9B. Other Information
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate
Governance
  www.worldenergy.com
  
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence
  
 Item 14. Principal Accountant Fees and Services
 
  35




---



##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
        36




---



##### Table of Contents



SIGNATURES
  WORLD ENERGY SOLUTIONS, INC.By:
    /s/ Richard Domaleski
    March 4, 2010Richard DomaleskiChief Executive Officer  Signature
    
    Title
    
    Date/s/ Richard Domaleski

Richard Domaleski
    
    Chief Executive Officer and Director
    
    March 4, 2010/s/ James Parslow

James Parslow
    
    Chief Financial Officer
    
    March 4, 2010/s/ Edward Libbey

Edward Libbey
    
    Chairman of the Board and Director
    
    March 4, 2010/s/ Patrick Bischoff

Patrick Bischoff
    
    Director
    
    March 4, 2010/s/ John Wellard

John Wellard
    
    Director
    
    March 4, 2010/s/ Thad Wolfe

Thad Wolfe
    
    Director
    
    March 4, 2010
  37




---



##### Table of Contents



WORLD ENERGY SOLUTIONS, INC.
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    
    39CONSOLIDATED FINANCIAL STATEMENTS:Consolidated Balance Sheets for World Energy Solutions, Inc. at December 31, 2009 and December 31, 2008
    
    
    40Consolidated Statements of Operations for World Energy Solutions, Inc. for the years ended December 31, 2009, 2008 and 2007
    
    
    41Consolidated Statements of Stockholders Equity for World Energy Solutions, Inc. for the years ended December 31, 2009,
2008 and 2007
    
    
    42Consolidated Statements of Cash Flows for World Energy Solutions, Inc. for the years ended December 31, 2009, 2008 and 2007
    
    
    43Notes to Consolidated Financial Statements
    
    
    44
  38




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
  39




---



##### Table of Contents



WORLD ENERGY SOLUTIONS, INC.
 
 Consolidated Balance Sheets
 December 31,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,046,909
    
    
    $
    1,731,411Trade accounts receivable, net
    
    
    2,909,024
    
    
    
    2,343,593Prepaid expenses and other current assets
    
    
    213,033
    
    
    
    431,246Total current assets
    
    
    5,168,966
    
    
    
    4,506,250Property and equipment, net
    
    
    371,033
    
    
    
    487,211Capitalized software, net
    
    
    398,884
    
    
    
    627,275Intangibles, net
    
    
    4,750,497
    
    
    
    5,949,609Goodwill
    
    
    3,178,701
    
    
    
    3,178,701Other assets
    
    
    26,044
    
    
    
    27,594Total assets
    
    $
    13,894,125
    
    
    $
    14,776,640LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    285,212
    
    
    $
    593,553Accrued commissions
    
    
    835,342
    
    
    
    777,784Accrued compensation
    
    
    1,280,683
    
    
    
    1,118,168Accrued expenses
    
    
    328,816
    
    
    
    355,511Deferred revenue and customer advances
    
    
    873,752
    
    
    
    876,271Capital lease obligations
    
    
    16,175
    
    
    
    42,485Total current liabilities
    
    
    3,619,980
    
    
    
    3,763,772Capital lease obligations, net of current portion
    
    
    16,003
    
    
    
    3,737Total liabilities
    
    
    3,635,983
    
    
    
    3,767,509Commitments and contingencies (Note 9)Stockholders equity:Preferred stock, $0.0001 par value; 5,000,000 shares authorized, no shares issued
or outstanding
    
    
    
    
    
    
    Common stock, $0.0001 par value; 15,000,000 shares authorized; 8,889,357
shares issued and 8,850,474 shares outstanding at December 31, 2009, and
8,410,727 shares issued and 8,397,684 shares outstanding at December 31,
2008
    
    
    885
    
    
    
    840Additional paid-in capital
    
    
    32,431,240
    
    
    
    30,755,596Accumulated deficit
    
    
    (21,981,951
    )
    
    
    (19,648,432
    )Treasury stock, at cost; 38,883 shares at December 31, 2009 and 13,043 shares
at December 31, 2008
    
    
    (192,032
    )
    
    
    (98,873
    )Total stockholders equity
    
    
    10,258,142
    
    
    
    11,009,131Total liabilities and stockholders equity
    
    $
    13,894,125
    
    
    $
    14,776,640
   40




---



##### Table of Contents



WORLD ENERGY SOLUTIONS, INC.
 
 Consolidated Statements of Operations
 Years Ended December 31,2009
    
    
    2008
    
    
    2007Revenue:Brokerage commissions and transaction fees
    
    $
    13,524,578
    
    
    $
    11,156,215
    
    
    $
    8,401,791Management fees
    
    
    1,093,697
    
    
    
    1,288,477
    
    
    
    786,474Total revenue
    
    
    14,618,275
    
    
    
    12,444,692
    
    
    
    9,188,265Cost of revenue
    
    
    3,709,957
    
    
    
    4,552,215
    
    
    
    2,874,678Gross profit
    
    
    10,908,318
    
    
    
    7,892,477
    
    
    
    6,313,587Operating expenses:Sales and marketing
    
    
    9,714,900
    
    
    
    10,057,361
    
    
    
    8,598,256General and administrative
    
    
    3,520,886
    
    
    
    4,669,807
    
    
    
    5,858,810Total operating expenses
    
    
    13,235,786
    
    
    
    14,727,168
    
    
    
    14,457,066Operating loss
    
    
    (2,327,468
    )
    
    
    (6,834,691
    )
    
    
    (8,143,479
    )Interest income (expense):Interest income
    
    
    611
    
    
    
    45,132
    
    
    
    573,395Interest expense
    
    
    (6,662
    )
    
    
    (5,601
    )
    
    
    (10,101
    )Total interest income (expense), net
    
    
    (6,051
    )
    
    
    39,531
    
    
    
    563,294Loss before income taxes
    
    
    (2,333,519
    )
    
    
    (6,795,160
    )
    
    
    (7,580,185
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    (1,061,720
    )Net loss
    
    $
    (2,333,519
    )
    
    $
    (6,795,160
    )
    
    $
    (8,641,905
    )Net loss per common share  basic and diluted
    
    $
    (0.27
    )
    
    $
    (0.82
    )
    
    $
    (1.08
    )Weighted average shares outstanding   basic and diluted
    
    
    8,512,060
    
    
    
    8,310,315
    
    
    
    7,979,359
   41




---



##### Table of Contents



WORLD ENERGY SOLUTIONS, INC.
 
 Consolidated Statements of Stockholders Equity
Years Ended December 31, 2009, 2008, and 2007
 Common Stock
    
    
    Treasury Stock
    
    
    Additional
    
    
    
    
    
    
    TotalNumber of
    
    
    $0.0001
    
    
    Number of
    
    
    Stated at
    
    
    Paid-in
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Par Value
    
    
    Shares
    
    
    Cost
    
    
    Capital
    
    
    Deficit
    
    
    EquityBalance, December 31, 2006
    
    
    7,651,174
    
    
    $
    765
    
    
    
    
    
    
    $
    
    
    
    $
    22,155,604
    
    
    $
    (4,211,367
    )
    
    $
    17,945,002Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    982,190
    
    
    
    
    
    
    
    982,190Issuance of common stock
in connection with
acquisition of
EnergyGateway
    
    
    537,500
    
    
    
    54
    
    
    
    
    
    
    
    
    
    
    
    6,523,178
    
    
    
    
    
    
    
    6,523,232Issuance of common stock
in connection with
restricted stock grant
    
    
    40,000
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    Reversal of issuance
costs related to initial
public offering of common
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,468
    
    
    
    
    
    
    
    48,468Exercise of stock options
    
    
    11,250
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    2,811
    
    
    
    
    
    
    
    2,812Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,641,905
    )
    
    
    (8,641,905
    )Balance, December 31, 2007
    
    
    8,239,924
    
    
    
    824
    
    
    
    
    
    
    
    
    
    
    
    29,712,247
    
    
    
    (12,853,272
    )
    
    
    16,859,799Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,006,560
    
    
    
    
    
    
    
    1,006,560Issuance of common stock
in connection with
restricted stock grants
    
    
    32,564
    
    
    
    3
    
    
    
    13,043
    
    
    
    (98,873
    )
    
    
    (3
    )
    
    
    
    
    
    
    (98,873
    )Exercise of stock warrants
    
    
    67,123
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    20,130
    
    
    
    
    
    
    
    20,137Exercise of stock options
    
    
    58,073
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    16,662
    
    
    
    
    
    
    
    16,668Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,795,160
    )
    
    
    (6,795,160
    )Balance, December 31, 2008
    
    
    8,397,684
    
    
    
    840
    
    
    
    13,043
    
    
    
    (98,873
    )
    
    
    30,755,596
    
    
    
    (19,648,432
    )
    
    
    11,009,131Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    633,285
    
    
    
    
    
    
    
    633,285Issuance of common stock
in connection with
restricted stock grants
    
    
    63,070
    
    
    
    6
    
    
    
    25,840
    
    
    
    (93,159
    )
    
    
    77,707
    
    
    
    
    
    
    
    (15,446
    )Issuance of common stock
in connection with
private placement, net
    
    
    336,700
    
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    935,442
    
    
    
    
    
    
    
    935,476Exercise of stock options
    
    
    53,020
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    29,210
    
    
    
    
    
    
    
    29,215Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,333,519
    )
    
    
    (2,333,519
    )Balance, December 31, 2009
    
    
    8,850,474
    
    
    $
    885
    
    
    
    38,883
    
    
    $
    (192,032
    )
    
    $
    32,431,240
    
    
    $
    (21,981,951
    )
    
    $
    10,258,142
   42




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##### Table of Contents



WORLD ENERGY SOLUTIONS, INC.
 
 Consolidated Statements of Cash Flows
 Years Ended December 31,2009
    
    
    2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (2,333,519
    )
    
    $
    (6,795,160
    )
    
    $
    (8,641,905
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    1,655,895
    
    
    
    1,756,068
    
    
    
    1,028,497Deferred taxes
    
    
    
    
    
    
    
    
    
    
    1,061,720Share-based compensation
    
    
    633,285
    
    
    
    1,006,560
    
    
    
    982,190Loss on disposal of property and equipment
    
    
    1,604
    
    
    
    
    
    
    
    Changes in operating assets and liabilities, net of the effects of
acquisition:Trade accounts receivable
    
    
    (565,431
    )
    
    
    (465,360
    )
    
    
    17,590Prepaid expenses and other assets
    
    
    219,763
    
    
    
    (93,847
    )
    
    
    (133,377
    )Accounts payable
    
    
    (308,341
    )
    
    
    (386,935
    )
    
    
    80,491Accrued commissions
    
    
    57,558
    
    
    
    64,865
    
    
    
    (308,514
    )Accrued compensation
    
    
    240,228
    
    
    
    (398,250
    )
    
    
    1,212,088Accrued expenses
    
    
    (26,695
    )
    
    
    76,349
    
    
    
    33,762Deferred revenue and customer advances
    
    
    (2,519
    )
    
    
    512,338
    
    
    
    68,525Net cash used in operating activities
    
    
    (428,172
    )
    
    
    (4,723,372
    )
    
    
    (4,598,933
    )Cash flows from investing activities:Costs incurred in software development
    
    
    (82,070
    )
    
    
    (402,705
    )
    
    
    (469,171
    )Net cash paid in acquisition of EnergyGateway, net of cash
acquired
    
    
    
    
    
    
    
    
    
    
    (4,904,358
    )Purchases of property and equipment
    
    
    (1,432
    )
    
    
    (40,704
    )
    
    
    (456,095
    )Cash received in sale of property and equipment
    
    
    500
    
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (83,002
    )
    
    
    (443,409
    )
    
    
    (5,829,624
    )Cash flows from financing activities:Proceeds from exercise of stock options
    
    
    29,215
    
    
    
    16,668
    
    
    
    2,812Proceeds from exercise of stock warrants
    
    
    
    
    
    
    20,137
    
    
    
    Proceeds from the sale of common stock, net
    
    
    935,476
    
    
    
    
    
    
    
    Principal payments on capital lease obligations
    
    
    (44,860
    )
    
    
    (41,624
    )
    
    
    (56,257
    )Purchase of treasury stock
    
    
    (93,159
    )
    
    
    (98,873
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    826,672
    
    
    
    (103,692
    )
    
    
    (53,445
    )Net increase (decrease) in cash and cash equivalents
    
    
    315,498
    
    
    
    (5,270,473
    )
    
    
    (10,482,002
    )Cash and cash equivalents, beginning of year
    
    
    1,731,411
    
    
    
    7,001,884
    
    
    
    17,483,886Cash and cash equivalents, end of year
    
    $
    2,046,909
    
    
    $
    1,731,411
    
    
    $
    7,001,884Supplemental Disclosure of Cash Flow Information:Net cash received (paid) for interest
    
    $
    (5,494
    )
    
    $
    45,419
    
    
    $
    612,303Non-cash activities:Fair value of common stock issued in acquisition of EnergyGateway
    
    $
    
    
    
    $
    
    
    
    $
    6,536,000Fair value of restricted common stock granted to employees
    
    $
    77,713
    
    
    $
    
    
    
    $
    Net capital lease obligations
    
    $
    30,816
    
    
    $
    
    
    
    $
    Reversal of accrued expenses related to initial public offering
of common stock
    
    $
    
    
    
    $
    
    
    
    $
    48,468
   43




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##### Table of Contents



WORLD ENERGY SOLUTIONS, INC.
 
 Notes to Consolidated Financial Statements
 NOTE 1  NATURE OF BUSINESS, BASIS OF PRESENTATION
        44




---



##### Table of Contents



NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation
  Use of Estimates
  Revenue Recognition
 Retail Electricity Transactions
   
    
    Payments received prior to the issuance of the financial statements;
    
    Usage updates from energy suppliers;
    
    Usage data from utilities;
    
    Comparable historical usage data; and
    
    Historical variances to previous estimates.
  
    
    Historical usage data obtained from the energy consumer in conjunction with the execution of
the auction;
    
    Geographic/utility usage patterns based on actual data received;
    
    Analysis of prior year usage patterns; and
    
    Specific review of individual energy supplier/location accounts.
    45




---



##### Table of Contents



Retail Natural Gas Transactions
  Wholesale Transactions
  Environmental Commodity Transactions
  Channel Partner Commissions
  Revenue Estimation
  Software Development
 .
 2010
    
    $
    268,0002011
    
    
    113,0002012 and thereafter
    
    
    18,000$
    399,000
  46




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##### Table of Contents



Goodwill
   Intangible Assets
   2010
    
    $
    1,027,0002011
    
    
    957,0002012
    
    
    675,0002013
    
    
    473,0002014 and thereafter
    
    
    1,618,000$
    4,750,000
 Impairment of Long-Lived and Intangible Assets
  Income Taxes
   47




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##### Table of Contents



Share-Based Compensation
  Year ended
    
    Expected
    
    
    Risk
    
    
    Expected
    
    
    ExpectedDecember 31,
    
    Dividend Yield
    
    
    Interest Rate
    
    
    Option Life
    
    
    Volatility2009
    
    
    
    
    
    
    2.28
    %
    
    4.75 years
    
    
    
    113
    %2008
    
    
    
    
    
    
    1.67
    %
    
    4.75 years
    
    
    
    87
    %2007
    
    
    
    
    
    
    4.66
    %
    
    4.61 years
    
    
    
    54
    %
 Share-Based Payment.
  Years Ended December 31,2009
    
    
    2008
    
    
    2007Cost of revenue
    
    $
    93,000
    
    
    $
    197,000
    
    
    $
    103,000Sales and marketing
    
    
    350,000
    
    
    
    670,000
    
    
    
    753,000General and administrative
    
    
    190,000
    
    
    
    140,000
    
    
    
    126,000Total share-based compensation
    
    $
    633,000
    
    
    $
    1,007,000
    
    
    $
    982,000
    48




---



##### Table of Contents



Cash and Cash Equivalents
  Property and Equipment
  Advertising Expense
  Comprehensive Income (Loss)
  Fair Value of Financial Instruments
  Segment Reporting
  Concentration of Credit Risk and Off-Balance Sheet Risk
    49




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##### Table of Contents



Trade accounts receivable as ofRevenue for the year ended December 31,
    
    
    December 31,Bidder / Lister
    
    2009
    
    
    2008
    
    
    2007
    
    
    2009
    
    
    2008A
    
    
    15
    %
    
    
    22
    %
    
    
    21
    %
    
    
    23
    %
    
    
    33
    %B
    
    
    7
    %
    
    
    8
    %
    
    
    7
    %
    
    
    7
    %
    
    
    16
    %C
    
    
    9
    %
    
    
    7
    %
    
    
    11
    %
    
    
    15
    %
    
    
    18
    %
  Loss Per Share
      Recent Accounting Pronouncements
 Generally Accepted Accounting Principles
  50




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##### Table of Contents



NOTE 3  TRADE ACCOUNTS RECEIVABLE, NET
    December 31,2009
    
    
    2008Unbilled accounts receivable
    
    $
    2,631,792
    
    
    $
    1,901,892Billed accounts receivable
    
    
    314,527
    
    
    
    487,0892,946,319
    
    
    
    2,388,981Allowance for doubtful accounts
    
    
    (37,295
    )
    
    
    (45,388
    )Trade accounts receivable, net
    
    $
    2,909,024
    
    
    $
    2,343,593
  51




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##### Table of Contents



NOTE 4  PROPERTY AND EQUIPMENT, NET
  December 31,2009
    
    
    2008Leasehold improvements
    
    $
    65,451
    
    
    $
    65,451Equipment
    
    
    443,137
    
    
    
    452,312Furniture and fixtures
    
    
    435,579
    
    
    
    434,147944,167
    
    
    
    951,910Less accumulated depreciation
    
    
    (573,134
    )
    
    
    (464,699
    )Property and equipment, net
    
    $
    371,033
    
    
    $
    487,211
  NOTE 5  COMMON AND PREFERRED STOCK
 Preferred Stock
  Common Stock
     Treasury Stock
   52




---



##### Table of Contents



Common Stock Warrants
  WeightedAverageShares
    
    
    Exercise PriceWarrants outstanding, December 31, 2006 and 2007
    
    
    200,081
    
    
    $
    5.42Granted
    
    
    
    
    
    $
    Exercised
    
    
    (67,123
    )
    
    $
    0.30Canceled/expired
    
    
    
    
    
    $
    Warrants outstanding, December 31, 2008
    
    
    132,958
    
    
    $
    8.00Granted
    
    
    
    
    
    $
    Exercised
    
    
    
    
    
    $
    Canceled/expired
    
    
    (128,698
    )
    
    $
    8.27Warrants outstanding, December 31, 2009
    
    
    4,260
    
    
    $
    0.30
  NOTE 6  EMPLOYEE BENEFIT PLANS
 Stock Options
  WeightedAverageShares
    
    
    Exercise PriceOutstanding at December 31, 2006
    
    
    448,303
    
    
    $
    2.55Granted
    
    
    302,000
    
    
    $
    12.45Canceled
    
    
    (68,750
    )
    
    $
    8.24Exercised
    
    
    (11,250
    )
    
    $
    0.25Outstanding at December 31, 2007
    
    
    670,303
    
    
    $
    6.47Granted
    
    
    120,600
    
    
    $
    2.00Canceled
    
    
    (106,374
    )
    
    $
    12.93Exercised
    
    
    (58,073
    )
    
    $
    0.29Outstanding at December 31, 2008
    
    
    626,456
    
    
    $
    5.08Granted
    
    
    242,700
    
    
    $
    3.47Canceled
    
    
    (156,248
    )
    
    $
    9.85Exercised
    
    
    (53,020
    )
    
    $
    0.55Outstanding at December 31, 2009
    
    
    659,888
    
    
    $
    3.73
  53




---



##### Table of Contents



Options Outstanding
    
    
    Options ExercisableWeighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    
    AverageRemaining
    
    
    Aggregate
    
    
    Number
    
    
    Remaining
    
    
    AggregateRange of
    
    
    
    
    
    Contractual
    
    
    Intrinsic
    
    
    of Shares
    
    
    Contractual
    
    
    IntrinsicExercise Prices
    
    Options
    
    
    Life
    
    
    Value
    
    
    Exercisable
    
    
    Life
    
    
    Value$0.20  $1.99
    
    
    162,530
    
    
    0.86 Years
    
    $
    433,955
    
    
    
    162,530
    
    
    0.86 Years
    
    $
    433,955$2.00  $3.80
    
    
    360,480
    
    
    5.85 Years
    
    
    84,974
    
    
    
    85,005
    
    
    3.32 Years
    
    
    34,880$3.81  $11.29
    
    
    97,001
    
    
    4.27 Years
    
    
    
    
    
    
    59,477
    
    
    3.58 Years
    
    
    $11.30  $13.40
    
    
    39,877
    
    
    4.31 Years
    
    
    
    
    
    
    26,381
    
    
    4.31 Years
    
    
    659,888
    
    
    4.30 Years
    
    $
    518,929
    
    
    
    333,393
    
    
    2.24 Years
    
    $
    468,835
  Restricted Stock
  WeightedAverageShares
    
    
    Grant PriceOutstanding at December 31, 2006
    
    
    
    
    
    $
    Granted
    
    
    192,850
    
    
    $
    11.28Canceled
    
    
    (8,000
    )
    
    $
    12.11Vested
    
    
    (40,000
    )
    
    $
    12.11Outstanding at December 31, 2007
    
    
    144,850
    
    
    $
    11.00Granted
    
    
    79,300
    
    
    $
    8.65Canceled
    
    
    (59,940
    )
    
    $
    10.22Vested
    
    
    (45,607
    )
    
    $
    11.18Outstanding at December 31, 2008
    
    
    118,603
    
    
    $
    9.76Granted
    
    
    38,559
    
    
    $
    3.45Canceled
    
    
    (33,943
    )
    
    $
    9.45Vested
    
    
    (88,918
    )
    
    $
    6.90Outstanding at December 31, 2009
    
    
    34,301
    
    
    $
    10.38
  401(k) Plan
  NOTE 7  RELATED PARTIES
   54




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##### Table of Contents



NOTE 8  INCOME TAXES
  December 31,2009
    
    
    2008Depreciation and amortization
    
    $
    468,643
    
    
    $
    481,668Commission income
    
    
    
    
    
    
    (623,358
    )Accruals and reserves
    
    
    9,469
    
    
    
    774,629Prepaids
    
    
    
    
    
    
    (53,594
    )Net operating loss carryforwards
    
    
    7,470,335
    
    
    
    6,756,6127,948,447
    
    
    
    7,335,957Valuation allowance
    
    
    (7,948,447
    )
    
    
    (7,335,957
    )$
    
    
    
    $
    
  Years Ended December 31,2009
    
    
    2008
    
    
    2007Current income tax expense:Federal
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred income tax expense:Federal
    
    
    
    
    
    
    
    
    
    
    823,703State
    
    
    
    
    
    
    
    
    
    
    238,017
    
    
    
    
    
    
    
    1,061,720Total income tax expense:
    
    $
    
    
    
    $
    
    
    
    $
    1,061,720
  Years Ended December 31,2009
    
    
    2008
    
    
    2007Income tax at federal statutory rate
    
    
    (34.0
    )%
    
    
    (34.0
    )%
    
    
    (34.0
    )%Increase (decrease) in tax resulting from:State taxes, net of federal benefit
    
    
    (6.3
    )%
    
    
    (6.3
    )%
    
    
    (6.3
    )%Permanent differences
    
    
    6.0
    %
    
    
    0.7
    %
    
    
    0.7
    %Change in valuation allowance
    
    
    34.3
    %
    
    
    39.6
    %
    
    
    53.6
    %0.0
    %
    
    
    0.0
    %
    
    
    14.0
    %
    55




---



##### Table of Contents



NOTE 9  COMMITMENTS AND CONTINGENCIES
 Leases
  Capital
    
    
    OperatingLeases
    
    
    Leases2010
    
    $
    17,721
    
    
    $
    316,3452011
    
    
    15,327
    
    
    
    142,0652012
    
    
    1,211
    
    
    
    42,9732013
    
    
    
    
    
    
    2014
    
    
    
    
    
    
    Total future minimum lease payments
    
    
    34,259
    
    
    $
    501,383Less: amounts representing interest
    
    
    (2,081
    )Present value of future minimum lease payments
    
    
    32,178Less: current portion
    
    
    16,175Capital lease obligation, net of current portion
    
    $
    16,003
  Service Agreement
  NOTE 10  CREDIT ARRANGEMENT
   56




---



##### Table of Contents



NOTE 11  ACQUISITION
    Current assets
    
    $
    247,938Fixed assets
    
    
    18,755Other assets
    
    
    3,092Intangible assets:Non-compete agreements
    
    
    680,000Customer relationships
    
    
    4,740,000Customer contracts
    
    
    500,000Supplier agreements
    
    
    380,000Developed technology
    
    
    1,830,000Goodwill
    
    
    3,178,701Current liabilities
    
    
    (138,128
    )Net assets acquired
    
    $
    11,440,358
   57




---



##### Table of Contents



NOTE 12  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
  For The Quarters EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2009Revenue
    
    $
    3,977,779
    
    
    $
    3,682,476
    
    
    $
    3,458,262
    
    
    $
    3,499,758Gross profit
    
    
    2,887,827
    
    
    
    2,697,580
    
    
    
    2,564,594
    
    
    
    2,758,317Operating loss
    
    
    (663,957
    )
    
    
    (793,060
    )
    
    
    (635,209
    )
    
    
    (235,242
    )Net loss
    
    
    (665,074
    )
    
    
    (795,104
    )
    
    
    (636,702
    )
    
    
    (236,639
    )Net loss per common share  basic and diluted
    
    $
    (0.08
    )
    
    $
    (0.09
    )
    
    $
    (0.08
    )
    
    $
    (0.03
    )Weighted average shares outstanding  basic
and diluted
    
    
    8,419,721
    
    
    
    8,446,999
    
    
    
    8,468,500
    
    
    
    8,710,3052008Revenue
    
    $
    3,114,517
    
    
    $
    2,760,695
    
    
    $
    3,289,515
    
    
    $
    3,279,965Gross profit
    
    
    1,878,464
    
    
    
    1,483,836
    
    
    
    2,176,190
    
    
    
    2,353,987Operating loss
    
    
    (2,186,255
    )
    
    
    (2,387,730
    )
    
    
    (1,221,038
    )
    
    
    (1,039,668
    )Net loss
    
    
    (2,159,942
    )
    
    
    (2,380,317
    )
    
    
    (1,215,820
    )
    
    
    (1,039,081
    )Net loss per common share  basic and diluted
    
    $
    (0.26
    )
    
    $
    (0.29
    )
    
    $
    (0.15
    )
    
    $
    (0.12
    )Weighted average shares outstanding  basic
and diluted
    
    
    8,251,948
    
    
    
    8,288,673
    
    
    
    8,321,595
    
    
    
    8,378,173
  58




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##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    Description2.1
    
    
    Asset Purchase Agreement by and among World Energy Solutions, Inc., EnergyGateway, LLC and the Members of EnergyGateway, LLC dated May
23, 2007 (incorporated by reference to Exhibit 99.1 to our report on Form 8-K filed May 24, 2007).3.1
    
    
    Form of Amended and Restated Certificate of Incorporation of World Energy (incorporated by reference to Exhibit 3.4 to our Registration
Statement of Form S-1 (File No. 333-136528)).3.2
    
    
    Certificate of Amendment to Amended and Restated Certificate of Incorporation of World Energy Solutions, Inc. (incorporated by
reference to Exhibit 3.1 to our report on Form 8-K filed March 30, 2009).3.3
    
    
    Form of Amended and Restated By-laws of World Energy (incorporated by reference to Exhibit 3.5 to our Registration Statement of Form
S-1(File No. 333-136528)).4.1
    
    
    Specimen Certificate evidencing shares of common stock (incorporated by reference to Exhibit 4.1 to our Registration Statement of Form
S-1 (File No. 333-136528)).10.1
    +
    
    2003 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to our Registration Statement of Form S-1 (File No. 333-136528)).10.2
    +
    
    2006 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to our Registration Statement of Form S-1 (File No. 333-136528)).10.3
    
    
    Note and Warrant Purchase Agreement, dated November 7, 2005, between World Energy and Massachusetts Capital Resource Company
(incorporated by reference to Exhibit 10.3 to our Registration Statement of Form S-1 (File No. 333-136528)).10.4
    
    
    Subordinated Note due 2013, dated November 7, 2005 (incorporated by reference to Exhibit 10.4 to our Registration Statement of Form S-1
(File No. 333-136528)).10.5
    
    
    Voting Common Stock Purchase Warrant, dated November 7, 2005 (incorporated by reference to Exhibit 10.5 to our Registration Statement
of Form S-1 (File No. 333-136528)).10.6
    
    
    Form of Common Stock Purchase Warrants (incorporated by reference to Exhibit 10.6 to our Registration Statement of Form S-1 (File No.
333-136528)).10.7
    
    
    Solicitation/Contract/Order for Commercial Items, dated September 28, 2005, between U.S. General Services Administration and World
Energy (incorporated by reference to Exhibit 10.7 to our Registration Statement of Form S-1 (File No. 333-136528)).10.8
    
    
    Agreement to Provide Software and Support for a Reverse Energy Auction Procurement to the Maryland Department of General Services,
dated March 16, 2006, by and between World Energy and the State of Maryland (incorporated by reference to Exhibit 10.8 to our
Registration Statement of Form S-1 (File No. 333-136528)).10.9
    ++
    
    Contract, dated January 9, 2006, by and between Montgomery County, Maryland and World Energy (incorporated by reference to Exhibit 10.9
to our Registration Statement of Form S-1 (File No. 333-136528)).10.10
    
    
    Emergency Purchase/Interim Agreement, dated March 28, 2006, by and between the Commonwealth of Pennsylvania, Department of General
Services and World Energy (incorporated by reference to Exhibit 10.10 to our Registration Statement of Form S-1 (File No. 333-136528)).10.11
    
    
    Professional Services Agreement, dated June 1, 2005, between World Energy and Science Applications International Corporation
(incorporated by reference to Exhibit 10.11 to our Registration Statement of Form S-1 (File No. 333-136528)).10.12
    
    
    Escrow Agreement (incorporated by reference to Exhibit 10.12 to our Registration Statement of Form S-1 (File No. 333-136528)).10.13
    +
    
    Offer letter agreement, dated October 1, 2003, between World Energy and Philip V. Adams (incorporated by reference to Exhibit 10.13 to
our Registration Statement of Form S-1(File No. 333-136528)).10.14
    +
    
    Offer letter agreement, dated April 5, 2006, between World Energy and James Parslow (incorporated by reference to Exhibit 10.14 to our
Registration Statement of Form S-1 (File No. 333-136528)).10.15
    
    
    Lease, dated September 8, 2004, between Sovereign Bank and World Energy (incorporated by reference to Exhibit 10.15 to our Registration
Statement of Form S-1(File No. 333-136528)).10.16
    
    
    Lease, dated June 21, 2006, between Roosevelt Land, LP and World Energy (incorporated by reference to Exhibit 10.16 to our Registration
Statement of Form S-1 (File No. 333-136528)).10.17
    
    
    Form of Warrant being issued to Underwriters (incorporated by reference to Exhibit 10.17 to our Registration Statement of Form S-1
(File No. 333-136528)).10.18
    
    
    Form of Registration Rights Agreement with Underwriters (incorporated by reference to Exhibit 10.18 to our Registration Statement of
Form S-1 (File No. 333-136528)).10.19
    
    
    Loan and Security Agreement with Silicon Valley Bank dated September 8, 2008 (incorporated by reference to Exhibit 10.1 to our report
on Form 8-K filed September 8, 2008).10.20
    
    
    First Loan Modification, dated September 30, 2009 to Loan and Security Agreement with Silicon Valley Bank (incorporated by reference to
Exhibit 10.1 to our report on Form 8-K filed
October 6, 2009).10.21
    *
    
    Form of Securities Purchase Agreement executed
with respect to $1.4 million in common stock purchases made by
certain investors.21.1
    *
    
    List of Subsidiaries.23.1
    *
    
    Consent of UHY LLP, Independent Registered Public Accounting Firm.31.1
    *
    
    Certification of the Chief Executive Officer pursuant to Rule 15d-14(a) under the Securities Exchange Act.31.2
    *
    
    Certification of the Chief Financial Officer pursuant to Rule 15d-14(a) under the Securities Exchange Act.
  59




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##### Table of Contents



Exhibit
    
    Description32.1
    *
    
    Certification of the Chief Executive Officer pursuant to Rule 15d-14(b) under the Securities Exchange Act.32.2
    *
    
    Certification of the Chief Financial Officer pursuant to Rule 15d-14(b) under the Securities Exchange Act.99.1
    +
    
    Third Amendment of Consulting Agreement dated October 9, 2007 (incorporated by reference to Exhibit 99.1 to our report on Form 8-K
filed October 12, 2007).99.2
    +
    
    Second Amendment of Consulting Agreement dated July 5, 2007 (incorporated by reference to Exhibit 99.1 to our report on Form 8-K filed
July 5, 2007).99.3
    +
    
    Amended Consulting Agreement dated April 5, 2007 (incorporated by reference to Exhibit 99.1 to our report on Form 8-K filed April 9,
2007).99.4
    +
    
    Consulting Agreement dated January 10, 2007 (incorporated by reference to Exhibit 99.1 to our report on Form 8-K filed January 11, 2007).
 *
    
    Filed herewith+
    
    Indicates a management contract or any compensatory plan, contract or arrangement++
    
    Confidential treatment requested as to certain portions, which portions have been filed separately with the Securities and
Exchange Commission  60