**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,DC 20549**

 

**FORM 10-Q**

 
| **(Mark  One)** |
|-----------------|
|            |   |   |
| **x**           | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
| ** **      | ** ** | ** ** |
| ** **      | ** ** | **For  the quarterly period ended March 31, 2008** |
|            |   |   |
| **or**          |
|            |   |   |
| **o**           | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
| ** **      | ** ** | ** ** |
| ** **      | ** ** | **For  the transition period from**              **to**               |

 

**CommissionFile Number: 001-33471**

 

**EnerNOC, Inc.**

(Exact Name ofRegistrant as Specified in Its Charter)

 

| **Delaware**                                                     | ** ** | **87-0698303**                     |
|------------------------------------------------------------------|------------|------------------------------------|
| (State or Other  Jurisdiction of  Incorporation or Organization) |       | (IRS Employer  Identification No.) |
|                                                             |       |                               |
| **75  Federal Street  Suite 300****Boston, Massachusetts**  | ** ** | **02110**                          |
| (Address of  Principal Executive Offices)                        |       | (Zip Code)                         |

 

**(617) 224-9900**

(Registrant’sTelephone Number, Including Area Code)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.   Yes x     No o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See definitions of“large accelerated filer,” “accelerated filer,” and “smaller reporting company”in Rule 12b-2 of the Exchange Act. (Check one):

 

| Large  accelerated filer o                     |   | Accelerated filer o          |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer x                       |   | Smaller  reporting company o |
| (Do not check if  a smaller reporting company) |   |                              |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

 

Yes      o  No      x

 

There were 19,732,859shares of the registrant’s common stock, $.001 par value per share, outstandingas of May 9, 2008.

 

 

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**Table ofContents**

 

**EnerNOC, Inc.**

 

**Indexto Form 10-Q**

 
| ** **                                 | ** **                                                                                                         | ** ** | **Page** |
|--------------------------------------------|--------------------------------------------------------------------------------------------------------------------|------------|----------|
| ** **                                 |                                                                                                               |       |     |
| **Part I -  Financial Information**   |                                                                                                               |       |
|                                       |                                                                                                               |       |     |
| Item 1.                               | Financial Statements                                                                                               |       |     |
|                                       |                                                                                                               |       |     |
|                                       | Condensed  Consolidated Balance Sheets at March 31, 2008 (unaudited) and  December 31, 2007              |       | 3        |
|                                       |                                                                                                               |       |     |
|                                       | Unaudited Condensed Consolidated Statements  of Operations for the three months ended March 31, 2008 and 2007 |       | 4        |
|                                       |                                                                                                               |       |     |
|                                       | Unaudited Condensed Consolidated Statements  of Cash Flows for the three months ended March 31, 2008 and 2007 |       | 5        |
|                                       |                                                                                                               |       |     |
|                                       | Notes to Unaudited Condensed Consolidated Financial Statements                                                     |       | 6        |
|                                       |                                                                                                               |       |     |
| Item 2  .                             | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                        |       | 14       |
|                                       |                                                                                                               |       |     |
| Item 3.                               | Quantitative  and Qualitative Disclosures About Market Risk                                                        |       | 22       |
|                                       |                                                                                                               |       |     |
| Item 4T.                              | Controls and Procedures                                                                                            |       | 22       |
|                                       |                                                                                                               |       |     |
| **Part II -  Other Information** |                                                                                                               |       |
|                                       |                                                                                                               |       |     |
| Item 1.                               | Legal Proceedings                                                                                                  |       | 22       |
|                                       |                                                                                                               |       |     |
| Item 1A.                              | Risk Factors                                                                                                       |       | 23       |
|                                       |                                                                                                               |       |     |
| Item 2.                               | Unregistered  Sales of Equity Securities and Use of Proceeds                                                       |       | 25       |
|                                       |                                                                                                               |       |     |
| Item 6.                               | Exhibits                                                                                                           |       | 25       |
|                                       | Signatures                                                                                                         |       | 26       |
|                                       | Exhibit Index                                                                                                 |       | 27       |

 

2

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**PART I— FINANCIAL INFORMATION**

 

**EnerNOC, INC.**

 

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

 

**(in thousands, except share data)**

 
| ** **                                                                                                                                                                                    | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                    | ** ** | **(Unaudited)**          | ** ** | ** **                  | ** ** |
| **Assets**                                                                                                                                                                                    |       |                     |       |                        |       |
| Current assets                                                                                                                                                                                |       |                     |       |                        |       |
| Cash and cash  equivalents                                                                                                                                                                    |       | $                        | 48,435     |                        | $          | 70,242 |   |
| Restricted cash                                                                                                                                                                               |       | 11,038                   |       | 1,248                       |       |
| Marketable  securities                                                                                                                                                                        |       | 13,951                   |       | 15,500                      |       |
| Accounts  receivable, net allowance for doubtful accounts of $368                                                                                                                             |       | 8,139                    |       | 10,134                      |       |
| Deposits,  current                                                                                                                                                                            |       | 7,094                    |       | 1,955                       |       |
| Prepaid expenses  and other current assets                                                                                                                                                    |       | 2,038                    |       | 2,315                       |       |
|                                                                                                                                                                                          |       |                     |       |                        |       |
| Total current  assets                                                                                                                                                                         |       | 90,695                   |       | 101,394                     |       |
| Property and  equipment, net                                                                                                                                                                  |       | 25,556                   |       | 23,195                      |       |
| Goodwill and  other intangible assets, net                                                                                                                                                    |       | 13,658                   |       | 16,421                      |       |
| Restricted  cash—non current                                                                                                                                                             |       | 2,137                    |       | 1,770                       |       |
| Deposits,  non-current                                                                                                                                                                        |       | 7,155                    |       | 12,496                      |       |
| Other assets                                                                                                                                                                                  |       | 308                      |       | 308                         |       |
|                                                                                                                                                                                          |       |                     |       |                        |       |
| Total assets                                                                                                                                                                                  |       | $                        | 139,509    |                        | $          | 155,584 |   |
|                                                                                                                                                                                          |       |                     |       |                        |       |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                                |       |                     |       |                        |       |
| Current  liabilities                                                                                                                                                                          |       |                     |       |                        |       |
| Accounts payable                                                                                                                                                                              |       | $                        | 1,452      |                        | $          | 2,112 |   |
| Accrued capacity  payments                                                                                                                                                                    |       | 10,102                   |       | 9,069                       |       |
| Current portion  of deferred related-party acquisition payments                                                                                                                               |       | 326                      |       | 431                         |       |
| Accrued payroll  and related expenses                                                                                                                                                         |       | 3,449                    |       | 4,902                       |       |
| Accrued  Mdenergy, LLC earn-out                                                                                                                                                               |       | —                   |       | 3,357                       |       |
| Accrued expenses  and other current liabilities                                                                                                                                               |       | 1,666                    |       | 1,586                       |       |
| Deferred revenue                                                                                                                                                                              |       | 1,386                    |       | 2,403                       |       |
| Contingent  consideration provision                                                                                                                                                           |       | —                   |       | 2,247                       |       |
| Current portion  of long-term debt                                                                                                                                                            |       | 2,523                    |       | 2,451                       |       |
|                                                                                                                                                                                          |       |                     |       |                        |       |
| Total current  liabilities                                                                                                                                                                    |       | 20,904                   |       | 28,558                      |       |
| Long-term  liabilities                                                                                                                                                                        |       |                     |       |                        |       |
| Long-term debt,  net of current portion                                                                                                                                                       |       | 2,981                    |       | 3,640                       |       |
| Deferred tax  liability                                                                                                                                                                       |       | 185                      |       | 100                         |       |
| Other  liabilities                                                                                                                                                                            |       | 860                      |       | 869                         |       |
|                                                                                                                                                                                          |       |                     |       |                        |       |
| Total long-term  liabilities                                                                                                                                                                  |       | 4,026                    |       | 4,609                       |       |
| Commitments and  contingencies (Note 7)                                                                                                                                                       |       | —                   |       | —                      |       |
|                                                                                                                                                                                          |       |                     |       |                        |       |
| Stockholders’  equity                                                                                                                                                                    |       |                     |       |                        |       |
| Common stock,  $0.001 par value; 50,000,000 shares authorized, 19,551,185 and  19,180,504 shares issued and outstanding at March 31, 2008 and  December 31, 2007, respectively |       | 20                       |       | 19                          |       |
| Additional  paid-in capital                                                                                                                                                                   |       | 159,411                  |       | 156,250                     |       |
| Accumulated  deficit                                                                                                                                                                          |       | (44,852                  | )          | (33,852                     | )          |
|                                                                                                                                                                                          |       |                     |       |                        |       |
| Total  stockholders’ equity                                                                                                                                                              |       | 114,579                  |       | 122,417                     |       |
|                                                                                                                                                                                          |       |                     |       |                        |       |
| Total  liabilities and stockholders’ equity                                                                                                                                              |       | $                        | 139,509    |                        | $          | 155,584 |   |

 

See accompanying notes.

 

3

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**EnerNOC, INC.**

 

**UNAUDITED CONDENSED CONSOLIDATEDSTATEMENTS OF OPERATIONS**

 

**(in thousands, except share and per share data)**

 
| ** **                                                     | ** ** | **Three months ended March 31,** | ** ** |
|----------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                     | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| Revenues                                                       |       | $                                                    | 18,612     |   | $ | 9,971 |   |
| Cost of revenues                                               |       | 12,141                                               |       | 7,065 |   |
|                                                           |       |                                                 |       |   |   |
| Gross profit                                                   |       | 6,471                                                |       | 2,906 |   |
|                                                           |       |                                                 |       |   |   |
| Operating  expenses:                                           |       |                                                 |       |   |   |
| Selling and  marketing expenses                                |       | 5,833                                                |       | 3,067 |   |
| General and  administrative expenses                           |       | 10,824                                               |       | 3,466 |   |
| Research and  development expenses                             |       | 1,511                                                |       | 341 |   |
|                                                           |       |                                                 |       |   |   |
| Total operating  expenses                                      |       | 18,168                                               |       | 6,874 |   |
|                                                           |       |                                                 |       |   |   |
| Loss from  operations                                          |       | (11,697                                              | )          | (3,968 | ) |
| Interest and  other income                                     |       | 1,035                                                |       | 273 |   |
| Interest expense                                               |       | (253                                                 | )          | (119 | ) |
|                                                           |       |                                                 |       |   |   |
| Loss before  income tax expense                                |       | (10,915                                              | )          | (3,814 | ) |
| Provision for  income tax expense                              |       | (85                                                  | )          | — |   |
|                                                           |       |                                                 |       |   |   |
| Net loss                                                       |       | $                                                    | (11,000    | ) | $ | (3,814 | ) |
|                                                           |       |                                                 |       |   |   |
| Basic and  diluted net loss per share                          |       | $                                                    | (0.57      | ) | $ | (0.91 | ) |
|                                                           |       |                                                 |       |   |   |
| Weighted average  basic and diluted shares used in computation |       | 19,170,399                                           |       | 4,181,913 |   |

 

See accompanyingnotes.

 

4

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**EnerNOC, INC.**

 

**UNAUDITED****CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

 

**(in thousands)**

 
| ** **                                                                     | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                     | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| **Cash  flows from operating activities**                                      |       |                                             |       |   |   |
| Net loss                                                                       |       | $                                                | (11,000    | ) | $ | (3,814 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities:   |       |                                             |       |   |   |
| Depreciation                                                                   |       | 1,645                                            |       | 294 |   |
| Amortization of  intangibles                                                   |       | 516                                              |       | 550 |   |
| Stock-based  compensation expense                                              |       | 2,185                                            |       | 595 |   |
| Deferred tax  liability                                                        |       | 85                                               |       | — |   |
| Non-cash  interest expense                                                     |       | 45                                               |       | 44 |   |
| Increase  (decrease) in cash from changes in operating assets and liabilities: |       |                                             |       |   |   |
| Accounts  receivable                                                           |       | 1,995                                            |       | (1,893 | ) |
| Deferred revenue                                                               |       | (1,017                                           | )          | 888 |   |
| Prepaid expenses  and other current assets                                     |       | 277                                              |       | (850 | ) |
| Other noncurrent  assets                                                       |       | (45                                              | )          | (32 | ) |
| Other noncurrent  liabilities                                                  |       | (4                                               | )          | (3 | ) |
| Accrued capacity  payments                                                     |       | 1,033                                            |       | 1,306 |   |
| Accrued payroll  and related expenses                                          |       | (609                                             | )          | (364 | ) |
| Accounts payable  and accrued expenses                                         |       | (580                                             | )          | 2,998 |   |
|                                                                           |       |                                             |       |   |   |
| Net cash used in  operating activities                                         |       | (5,474                                           | )          | (281 | ) |
|                                                                           |       |                                             |       |   |   |
| **Cash  flows from investing activities**                                      |       |                                             |       |   |   |
| Purchase of  marketable securities                                             |       | (10,051                                          | )          | — |   |
| Sales and  maturities of marketable securities                                 |       | 11,600                                           |       | — |   |
| Purchase of  Mdenergy, LLC                                                |       | (3,357                                           | )          | — |   |
| Purchase of  Pinpoint Power DR LLC                                        |       | (105                                             | )          | (104 | ) |
| Purchases of  property and equipment                                           |       | (4,006                                           | )          | (5,324 | ) |
| Increase in  restricted cash and deposits for customer programs                |       | (9,955                                           | )          | (809 | ) |
|                                                                           |       |                                             |       |   |   |
| Net cash used in  investing activities                                         |       | (15,874                                          | )          | (6,237 | ) |
|                                                                           |       |                                             |       |   |   |
| **Cash  flows from financing activities**                                      |       |                                             |       |   |   |
| Proceeds from  exercises of stock options                                      |       | 128                                              |       | 15 |   |
| Proceeds from  borrowing                                                       |       | —                                           |       | 2,500 |   |
| Repayment of  borrowings and payments under capital leases                     |       | (587                                             | )          | (12 | ) |
| Proceeds from  the issuance of preferred stock, net of issuance costs          |       | —                                           |       | 9,990 |   |
| Repurchase of  treasury stock                                                  |       | —                                           |       | (395 | ) |
| Deferred initial  public offering costs                                        |       | —                                           |       | (2,183 | ) |
|                                                                           |       |                                             |       |   |   |
| Net cash (used  in) provided by financing activities                           |       | (459                                             | )          | 9,915 |   |
|                                                                           |       |                                             |       |   |   |
| Net change in  cash and cash equivalents                                       |       | (21,807                                          | )          | 3,397 |   |
| Cash and cash  equivalents at beginning of year                                |       | 70,242                                           |       | 9,184 |   |
|                                                                           |       |                                             |       |   |   |
| Cash and cash  equivalents at end of year                                      |       | $                                                | 48,435     |   | $ | 12,581 |   |
|                                                                           |       |                                             |       |   |   |
| **Supplemental  disclosure of cash flow information**                          |       |                                             |       |   |   |
| ** **                                                                     |       |                                             |       |   |   |
| **Non-cash  financing and investing activities**                               |       |                                             |       |   |   |
|                                                                           |       |                                             |       |   |   |
| Issuance of  common stock as bonus payments                                    |       | $                                                | 844        |   | $ | — |   |
|                                                                           |       |                                             |       |   |   |
| Vesting of  restricted stock                                                   |       | $                                                | 5          |   | $ | — |   |
|                                                                           |       |                                             |       |   |   |
| Accretion of  preferred stock issuance costs                                   |       | $                                                | —     |   | $ | 18 |   |

 

See accompanying notes.

 

5

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**EnerNOC,INC.**

 

**NOTES TO UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**(inthousands, except share and per share data)**

 

**1. Descriptionof Business and Basis of Presentation**

 

 **Description of Business**

 

EnerNOC, Inc.(the Company) is a service company that was incorporated in Delaware on June 5,2003. The Company operates in a single segment providing full-service demandresponse and energy management solutions. The Company enables energy users,energy suppliers, system operators, and utilities to reduce demand forelectricity during periods of peak demand or supply shortfalls by proactivelyshedding noncritical loads, dispatching backup generators, and analyzingreal-time data to optimize energy consumption. The Company’s demand responseand energy management solutions deliver immediate bottom-line benefits toend-use customers and energy suppliers while helping to create a more reliableand efficient electricity grid for system operators and utilities.

 

In May 2007,the Company completed its initial public offering (IPO) of 4,312,500 shares ofcommon stock at a price of $26.00 per share, which included the exercise of theunderwriters’ over-allotment option to purchase 562,500 shares and the sale of225,000 shares by certain of the Company’s stockholders. Net proceeds to theCompany from the IPO were approximately $95,200. In November 2007, the Company completed afollow-on public offering of 2,500,000 shares of its common stock at a price of$43.00 per share. Of the 2,500,000 shares, the Company sold 500,000 shares andselling stockholders sold 2,000,000 shares. This transaction resulted in netproceeds to the Company of $19,446.

 

**Reclassifications**

 

Certain amounts inprior periods have been reclassified to conform to the 2008 presentation. Thesereclassifications have no material impact on previously reported results ofoperations or stockholders’ equity. The reclassifications made related to thebalance sheet account groupings and did not change the total current assets orcurrent liabilities.

 

**Basis ofConsolidation**

 

The unaudited condensedconsolidated financial statements of the Company include the accounts of itswholly-owned subsidiaries and have been prepared in conformity with accountingprinciples generally accepted in the United States (GAAP). Intercompanytransactions and balances are eliminated upon consolidation. In the opinion ofthe Company’s management, the unaudited condensed consolidated financialstatements include all adjustments, consisting only of normal recurringadjustments, necessary for a fair presentation of the results of operations forthis period.

 

The results of operations for the three months ended March 31,2008 are not necessarily indicative of the results expected for the full fiscalyear ending December 31, 2008 or for any other fiscal period. Theaccompanying unaudited condensed consolidated financial statements should beread in conjunction with the audited consolidated financial statements for theyear ended December 31, 2007 and the footnotes thereto included in the Company’sannual report on Form 10-K for the fiscal year ended December 31,2007, as filed with the Securities and Exchange Commission (SEC) on March 28,2008.

 

**2.Acquisition**

 

On September 13,2007, the Company acquired all of the outstanding membership interests ofMdenergy, LLC (MDE), an energy procurement service provider, pursuant to theterms of a merger agreement. The total purchase price paid by the Company atclosing was approximately $7,900, of which $3,501 was paid in cash and theremainder of which was paid by the issuance of 139,056 shares of the Company’scommon stock.

 

In addition to theamounts paid at closing, the Company was obligated to pay to the former holdersof MDE membership interests an earnout equal to two times the revenues of MDE’sbusiness during the period from July 1, 2007 through December 31,2007. The contingent consideration related to the earnout in the amount ofapproximately $3,357 was paid in January of 2008 and was recorded asadditional purchase price.

 

*SupplementalInformation*

 

The following unauditedpro forma combined financial information is presented for comparative purposesfor the three months ended March 31, 2007 and gives effect to certainadjustments, including amortization of the definite life intangible assets asif the acquisition occurred on January 1, 2007. The information below isnot necessarily indicative of the results of operations that would haveactually been reported had the purchase occurred at the beginning of the periodpresented, nor is it necessarily indicative of future financial position orresults of operations:

 

6

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| ** **                                   | ** ** | **Three months ended  March 31, 2007** | ** ** |
|----------------------------------------------|------------|------------------------------------------------------------|------------|
| Revenues                                     |       | $                                                          | 10,531     |   |
| Net loss                                     |       | $                                                          | (3,658     | ) |
| Net loss per  share – basic and diluted |       | $                                                          | (0.86      | ) |

 

**3. Recent Accounting Pronouncements**

 

***SFAS No. 141R, Business Combinations***

 

In December 2007,the Financial Accounting Standards Board (FASB) issued Statement of FinancialAccounting Standards (SFAS) No. 141(R), *BusinessCombinations* (SFAS No. 141R). SFAS No. 141R willsignificantly change the accounting for and reporting of business combinationtransactions in consolidated financial statements. SFAS No. 141R retainsthe fundamental requirements in Statement 141,*Business Combinations,* while providing additional definitions, suchas the definition of the acquirer in a purchase and improvements in theapplication of how the acquisition method is applied. SFAS No. 141R becomeseffective January 1, 2009. Early adoption is not permitted. The Company iscurrently evaluating the impact this guidance will have on its consolidatedfinancial statements.

 

***SFAS No. 159, The Fair Value Option for FinancialAssets and Financial Liabilities***

 

In February 2007,the FASB issued SFAS No. 159, *The FairValue Option for Financial Assets and Financial Liabilities* (SFAS No. 159). SFAS No. 159provides an entity with the option, at specified election dates, to measurecertain financial assets and liabilities and other items at fair value, withchanges in fair value recognized in earnings as those changes occur. SFAS No. 159also establishes presentation and disclosure requirements that includedisplaying the fair value of those assets on the face of the balance sheet andproviding management’s reasons for electing the fair value option for eacheligible item. The Company adopted SFAS No. 159 on January 1, 2008and it does not have a significant impact on the Company’s results ofoperations and financial condition at this time.

 

**4. NetLoss Per Share**

 

Basic net loss per share is computed by dividing netloss by the weighted average number of common shares outstanding for theperiod. Diluted net loss per share is computed using the weighted averagenumber of common shares outstanding and, when dilutive, potential common sharesfrom options and warrants using the treasury stock method, and from convertiblesecurities using the as-converted method. The calculation of dilutive weightedaverage shares outstanding does not include the following potentially dilutiveshares as their effect would be antidilutive.

 

| ** **                                          | ** ** | **Three months ended March 31,** | ** ** |
|-----------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                          | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| Redeemable  Convertible Preferred Stock             |       | —                                               |       | 9,499,566 |   |
| Outstanding  options, restricted stock and warrants |       | 1,772,868                                            |       | 2,559,020 |   |
| Shares held in  escrow                              |       | 35,114                                               |       | — |   |
| Dilutive weighted  average shares outstanding       |       | 1,807,982                                            |       | 12,058,586 |   |

 

Included in thecalculation of the weighted average number of common shares outstanding at March 31,2008 and 2007 are 44,260 and 110,211 contingently issuable shares of commonstock, respectively. These shares were issuable in connection with the Company’sacquisition of Pinpoint Power DR LLC (PPDR) in 2005. These shares have beenincluded in the calculation as there are no restrictions for issuance exceptfor the passage of time.

 

The weighted averagecommon shares outstanding at March 31, 2008 does not include 35,114 sharesissued in the MDE acquisition that are held in escrow. These shares areincluded in the calculation of diluted shares outstanding as if the contingencyperiod ended on March 31, 2008. These shares contain restrictions which require the holder to return allor a portion of the shares if specific conditions are not met.

 

**5.Marketable Securities**

 

Cash equivalentsprincipally consist of money market funds and municipal bonds with originalmaturities of three months or less at the date of purchase. Marketablesecurities at March 31, 2008 are classified as “available-for-sale.” TheCompany’s investments in securities include auction-rate securities (ARS) andstate and municipal bonds. The securities the Company typically invests in areAAA-rated government-backed securities with interest rates typically rangingfrom 6.5% to 6.8% that have approximate contractual 

 

7

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maturities of at least26 years.

 

As of March 31,2008, all of the Company’s $3,898 par value ARS were subject to failed auctionsand none of the ARS succeeded in an auction subsequent to March 31,2008.  As a result of these failedauctions, the Company has the potential to benefit from a penalty feature inits interest rates, which allows it to earn an additional 5.1% to 14.0% ofinterest on these securities until the next auction is set to occur.  The Company will not be able to liquidate theinvestments until a successful auction occurs, a buyer is found outside theauction process, the securities are called or refinanced by the issuer, or thesecurities mature.  The Company believesthat it will be able to liquidate the investments at par within a reasonabletime period and that the issuers of the securities are currently able and willcontinue to make interest payments at the maximum rate.  The investments were classified as currentassets on the Condensed Consolidated Balance Sheet as of March 31, 2008based on the Company’s current expectations regarding liquidity.  However, the investments may need to bereclassified as long-term assets in the future if the liquidity of theinvestments does not improve.  TheCompany has not made any additional investments in ARS since March 31,2008.

 

The following is asummary of the Company’s available-for-sale marketable securities as of March 31,2008 and December 31, 2007:

 
| ** **                                   | ** ** | **Gross unrealized** | ** ** |
|----------------------------------------------|------------|---------------------------|------------|
| **As of March 31, 2008** | ** ** | **Cost**                  | ** ** | **Gains** | ** ** | **Losses** | ** ** | **Fair value** | ** ** |
| Auction rate  securities                     |       | $                         | 3,898      |   | $ | — |   | $ | — |   | $ | 3,898 |   |
| State and  municipal bonds                   |       | 10,053                    |       |   |   |   |   | 10,053 |   |
|                                         |       |                      |       |   |   |   |   |   |   |
| Total                                        |       | $                         | 13,951     |   | $ | — |   | $ | — |   | $ | 13,951 |   |

 
| ** **                                      | ** ** | **Gross unrealized** | ** ** |
|-------------------------------------------------|------------|---------------------------|------------|
| **As of December 31, 2007** | ** ** | **Cost**                  | ** ** | **Gains** | ** ** | **Losses** | ** ** | **Fair value** | ** ** |
| Auction rate  securities                        |       | $                         | 5,600      |   | $ | — |   | $ | — |   | $ | 5,600 |   |
| State and  municipal bonds                      |       | 9,900                     |       |   |   |   |   | 9,900 |   |
|                                            |       |                      |       |   |   |   |   |   |   |
| Total                                           |       | $                         | 15,500     |   | $ | — |   | $ | — |   | $ | 15,500 |   |

 

The following is asummary of the cost and fair value of current available-for-sale marketablesecurities at March 31, 2008, by contractual maturity:

 

| ** **           | ** ** | **Cost** | ** ** | **Fair value** | ** ** |
|----------------------|------------|----------|------------|---------------------|------------|
|                 |       |     |       |                |       |
| Due after ten  years |       | $        | 13,951     |                | $          | 13,951 |   |
|                      |            |          |            |                     |            |  |  |

 

At March 31,2008, the Company had restricted cash of approximately $13,175 invested incertificates of deposit with original maturities greater than 90 days at acquisition.  All certificates of deposit have contractualmaturities of twelve months or less. The Company’s investments in certificatesof deposit have a fair value that approximates cost.

 

**Fair Value Measurements**

 

In September 2006,the FASB issued SFAS No. 157, *FairValue Measurements* (SFAS No. 157), which defines fair value,establishes a framework for measuring fair value in accordance with GAAP andexpands disclosures about fair value measurements.  SFAS No. 157 does not require any newfair value measurements, but its provisions apply to all other accountingpronouncements that require or permit fair value measurement.  SFAS No. 157 is effective for theCompany’s fiscal year beginning January 1, 2008 and for interim periodswithin that year.  In February 2008,the FASB issued FASB Staff Position (“FSP”) No 157-2, *Effectivedate of FASB Statement No. 157,* which delayed for one year theeffective date of SFAS No. 157 for nonfinancial assets and nonfinancialliabilities, except for items that are recognized or disclosed at fair value inthe financial statements on a recurring basis (at least annually).  As required, the Company adopted SFAS No. 157for its financial assets on January 1, 2008.  Adoption does not have a material impact onthe Company’s financial position or results of operations at this time. TheCompany has not yet determined the impact on its financial statements of the January 1,2009 adoption of SFAS No. 157 as it pertains to non-financial assets andliabilities.

 

8

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SFAS No. 157establishes a fair value hierarchy that requires the use of observable marketdata, when available, and prioritizes the inputs to valuation techniques usedto measure fair value in the following categories:

 

·                       Level 1 - Valuation is based upon quotedprices for identical instruments traded in active markets. Level 1 instrumentsinclude securities traded on active exchange markets, such as the New YorkStock Exchange.

 

·                       Level 2 - Valuation is based upon quotedprices for similar instruments in active markets, quoted prices for identicalor similar instruments in markets that are not active and model-based valuationtechniques for which all significant assumptions are observable in the market. 

 

·                       Level 3 - Valuation is generated frommodel-based techniques that use significant assumptions not observable in themarket. These unobservable assumptions reflect our own estimates of assumptionsmarket participants would use in pricing the asset or liability. 

 

Thetable below presents the balances of assets and liabilities measured at fairvalue on a recurring basis at March 31, 2008:

 
| ** **                 | ** ** | ** ** | ** ** | **Fair Value Measurements at March 31, 2008 Using**          | ** ** |
|----------------------------|------------|------------|------------|-------------------------------------------------------------------------------------------------|------------|
| ** **                 | ** ** | **Totals** | ** ** | **Quoted  Prices in Active  Markets for  Identical Assets  (Level 1)** | ** ** | **Significant  Other  Observable  Inputs  (Level 2)** | ** ** | **Unobservable  Inputs  (Level 3)** | ** ** |
| Auction rate  securities   |       | $          | 3,898      |                                                                                            | $          | — |   | 3,898 |   | — |   |
| State and  municipal bonds |       | $          | 10,053     |                                                                                            | $          | 10,053 |   | — |   | — |   |
|                       |       | $          | 13,951     |                                                                                            | $          | 10,053 |   | 3,898 |   | — |   |

 

**6.Property and Equipment**

 

Property and equipment asof March 31, 2008 and December 31, 2007 consisted of the following:

 
| ** **                      | ** ** | **Estimated Useful  Life (Years)** | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|---------------------------------|------------|----------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                            |       |                                         |       |                     |       |                        |       |
| Computers and  office equipment |       | 3                                            |       | $                        | 6,705      |                        | $          | 3,870 |   |
| Software                        |       | 3                                            |       | 3,543                    |       | 2,499                       |       |
| Demand response  equipment      |       | Lesser of useful life  or contract term      |       | 5,315                    |       | 4,523                       |       |
| Back-up  generators             |       | 5-10                                         |       | 12,962                   |       | 13,976                      |       |
| Furniture and  fixtures         |       | 5                                            |       | 795                      |       | 777                         |       |
| Leasehold  improvements         |       | Lesser of the useful  life or lease term     |       | 1,017                    |       | 902                         |       |
| Assets under  capital lease     |       | Lesser of the useful  life or lease term     |       | 222                      |       | 200                         |       |
| Construction-in-progress        |       |                                         |       | 1,027                    |       | 833                         |       |
|                            |       |                                         |       |                     |       |                        |       |
|                            |       |                                         |       | 31,586                   |       | 27,580                      |       |
| Accumulated  depreciation       |       |                                         |       | (6,030                   | )          | (4,385                      | )          |
|                            |       |                                         |       |                     |       |                        |       |
| Property and  equipment, net    |       |                                         |       | $                        | 25,556     |                        | $          | 23,195 |   |

 

Depreciation expense was$1,645 and $294 for the three months ended March 31, 2008 and 2007,respectively.  For the three months ended March 31, 2008 and 2007,$735 and $194 were included in cost of revenues, and $910 and $100 wereincluded in general and administrative expenses, respectively.

 

Software developmentcosts of $0 and $398 for the three months ended March 31, 2008 and 2007,respectively, have been capitalized in accordance with Statement of Position No. 98-1,*Accounting for the Cost of Computer SoftwareDeveloped or Obtained for Internal Use*.  The Company ceased capitalizing softwaredevelopment costs as of May 31, 2007 when the system became operational.The capitalized amount is included as software in property and equipment at March 31,2008 and December 31, 2007.

 

9

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Construction-in-progressconsists principally of demand response equipment and back-up generators thathave not been placed in service. Construction-in-progress at March 31,2008 and December 31, 2007 consisted of the following:

 
| ** **                                        | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|---------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Back-up  generators and demand response equipment |       | $                        | 1,027      |                        | $          | 778 |   |
| Capitalized  interest                             |       | —                   |       | 55                          |       |
|                                              |       | $                        | 1,027      |                        | $          | 833 |   |

 

**7.Commitments and Contingencies**

 

The Company issubject to certain performance guarantee requirements under certain customercontacts and open market bidding program participation rules. The Company haddeposits held by certain customers of $14,249 and $14,451 at March 31,2008 and December 31, 2007, respectively. These amounts primarilyrepresent up-front payments required by customers to participate in certainprograms and ensure that the Company will deliver its committed capacityamounts. If the Company fails to meet its minimum enrollment requirements, aportion or all of the deposit may be forfeited. The Company assessed theprobability of default under these agreements and has determined it to beremote. The Company expects the majority of the outstanding depositsoutstanding as of March 31, 2008 to be released in June 2008.

 

The Company iscontingently liable under unused letters of credit. Restricted cash balances inthe amount of $13,175 and $3,018 collateralize certain unused letters of creditat March 31, 2008 and December 31, 2007, respectively.

 

As of March 31, 2008, theCompany had $5,504 outstanding under its term loan facility.

 

**8.Stockholders’ Equity**

 

**StockSplit**

 

In May 2007,the Company effected a 2.831 for one split of its common stock. All financialinformation in the financial statements presented retroactively reflects theimpact of this split.

 

**9.Stock-Based Compensation**

 

*StockOptions*

 

The Company’s Amended andRestated 2003 Stock Option and Incentive Plan and the 2007 Employee, Directorand Consultant Stock Plan (the Plans) provide for the grant of incentive stockoptions, nonqualified stock options, restricted and unrestricted stock awardsand other stock-based awards to eligible employees, directors and consultantsof the Company. Options granted under the Plans are exercisable for a perioddetermined by the Company, but in no event longer than ten years from the dateof the grant. Options generally vest ratably over four years.

 

In order to estimate thefair value of options granted during the three months ended March 31, 2008and March 31, 2007, the Company utilized the Black-Scholes option pricingmodel, utilizing the following assumptions (weighted averages based on grantsduring the period):

 
| ** **                          | ** ** | **Three months ended March 31,** | ** ** |
|-------------------------------------|------------|------------------------------------------------------|------------|
| ** **                          | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| Risk-free  interest rate            |       | 2.79%                                                |       | 4.57% |   |
| Expected term of  options, in years |       | 6.25                                  |       | 6.25    |   |
| Expected annual  volatility         |       | 87%                                                  |       | 87% |   |
| Expected  dividend yield            |       | 0%                                                   |       | 0% |   |

 

The components ofstock-based compensation expense are disclosed below:

 
| ** **                            | ** ** | **Three months ended  March 31,** | ** ** |
|---------------------------------------|------------|--------------------------------------------------|------------|
| ** **                            | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| Stock option  expense (employees)     |       | $                                                | 1,906      |   | $ | 550 |   |
| Stock option  expense (non-employees) |       | 105                                              |       | 31 |   |
| Restricted stock                      |       | 174                                              |       | 14 |   |
|                                  |       |                                             |       |   |   |
| Total                                 |       | $                                                | 2,185      |   | $ | 595 |   |

 

10

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The following is a summaryof the Company’s stock option activity as of March 31, 2008 and the stockoption activity for all stock option plans during the three months ended March 31,2008:

 
| ** **                           | ** ** | ** ** | ** ** | **Three Months Ended March 31, 2008** | ** ** | ** **                              | ** **  |
|--------------------------------------|------------|------------|------------|----------------------------------------------------------------|------------|-----------------------------------------|-------------|
| ** **                           | ** ** | ** ** | ** ** | **Number of  Shares  Underlying  Options**                | ** ** | **Exercise Price  Per Share** | ** **  | **Weighted-Average  Exercise Price  Per Share** | ** ** | **Aggregate  Intrinsic  Value(1)** | ** ** |
|                                 |       |       |       |                                                           |       |                                    | ** **  | ** ** |   |   |   |
| Outstanding at  beginning of period  |       |       |       | 2,882,445                                                      |       | $                                       | 0.11-$48.54 |   | $ | 9.19 |   |   |   |
| Granted                              |       |       |       | 255,950                                                        |       |                                    |        | $ | 25.93 |   |   |   |
| Exercised                            |       |       |       | (168,220                                                       | )          |                                    |        | $ | 0.76 |   |   |   |
| Cancelled                            |       |       |       | (22,020                                                        | )          |                                    |        | $ | 13.95 |   |   |   |
|                                 |       |       |       |                                                           |       |                                    |        |   |   |   |   |
| Outstanding at  end of period        |       |       |       | 2,948,155                                                      |       | $                                       | 0.11-$48.54 |   | $ | 11.09 |   | $ | 18,551 |   |
| Remaining  contractual life in years |       |       |       | 8.62                                                           |       |                                    |        |   |   |   |   |
| Exercisable at  end of period        |       |       |       | 639,144                                                        |       | $                                       | 0.11-$38.13 |   | $ | 2.40 |   | $ | 5,522 |   |
| Remaining  contractual life in years |       |       |       | 8.11                                                           |       |                                    |        |   |   |   |   |

 

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*(1) *Theaggregate intrinsic value was calculated based on the positive differencebetween the estimated fair value of the Company’s common stock on March 31,2008 of $11.40 and the exercise price of the underlying options.

 

Of the stock optionsoutstanding as of March 31, 2008, 15,570 options were held bynon-employees and 2,932,585 options were held by employees. The amount ofunrecognized stock-based compensation expense that may be recognized foroutstanding unvested options as of March 31, 2008 was $24,692 which is tobe recognized over a weighted average period of 3.3 years. The amount thatmay be recognized into expense over the next four years is as follows:

 

| 2008   |   | $     | 5,976  |   |
|--------|--------|-------|--------|--------|
| 2009   |   | 7,795 |   |
| 2010   |   | 7,496 |   |
| 2011   |   | 3,356 |   |
| 2012   |   | 69    |   |
|   |   | $     | 24,692 |   |

 

*RestrictedStock*

 

The following tablesummarizes restricted stock activity during the three months ended March 31,2008:

 

| ** **                          | ** ** | **Number of  Shares** | ** ** | **Weighted  Average  Grant Date  Fair Value  Per Share** | ** ** |
|-------------------------------------|------------|----------------------------|------------|-------------------------------------------------------------------------|------------|
| Unvested at  December 31, 2007 |       | 154,669                    |       | $                                                                       | 10.96      |   |
| Granted                             |       | 175,500                    |       | $                                                                       | 15.50      |   |
| Vested                              |       | (9,529                     | )          | $                                                                       | 1.53       |   |
|                                |       |                       |       |                                                                    |       |
| Unvested at  March 31, 2008    |       | 320,640                    |       | $                                                                       | 14.21      |   |

 

All shares underlyingawards of restricted stock are restricted in that they are not transferableuntil they vest. The shares typically vest ratably over a four year period fromthe date of issuance, with the exception of 2,000 shares issued in 2007 thatvested immediately and 30,000 shares issued in 2008 that vest ratably over athree year period from the date of issuance. The fair value of the restrictedstock is expensed ratably over the vesting period. The shares of restrictedstock have been issued at no cost to the recipients, 

 

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except for 152,460 sharesof restricted stock granted in 2006 that were purchased for $0.51 per share.The Company records the proceeds received for unvested shares in accruedexpenses. The amount is amortized into additional paid-in capital as the sharesvest. If the employee who received the restricted stock leaves the Companyprior to the vesting date for any reason, the shares of restricted stock willbe forfeited and returned to the Company. For restricted stock at March 31,2008, the Company had $3,757 of stock-based compensation expense, which isexpected to be recognized over a weighted average period of 3.6 years.

 

**10.Income Taxes**

 

No currentprovision for federal or state income taxes has been recorded, as the Company hasincurred cumulative net operating losses since inception.  The Company has recorded a deferred taxprovision for $85 related to tax deductible goodwill for the three months endedMarch 31, 2008.  Amounts due tovarious states for excise taxes are included in general and administrativeexpense and accrued expenses and other current liabilities as of March 31, 2008and December 31, 2007.

 

**11.Related Party Transactions**

 

**DeferredAcquisition Payments**

 

On June 1,2005, the Company acquired all of the outstanding membership interests in PPDRfrom the sole member of PPDR (the Sole Member) in a purchase businesscombination pursuant to a purchase agreement (the Purchase Agreement). Underthe Purchase Agreement, the Company is required to (i) make fixed paymentsof $5,925 and (ii) issue 303,001 shares of the Company’s common stock tothe Sole Member. As of March 31, 2008, 44,260 shares remain to be issuedthrough May 31, 2008. As part of the Purchase Agreement, the Companyacquired a demand response contract that contains a one-year option to extend,as of May 31, 2008, at the sole discretion of a certain customer. Ifexercised, the Company is obligated to make an additional payment of $2,366 andissue an additional 28,287 shares of the Company’s common stock in connectionwith the Purchase Agreement. In February 2008, the customer informed theCompany that it elected not to exercise the one-year option to extend;therefore, no additional payments, including the contingent consideration of$2,247, or shares will be due to the Sole Member. This amount had been recordedas a liability at December 31, 2007 and was reversed, along with acorresponding reduction to intangible assets during the first quarter of 2008.

 

As of March 31,2008, deferred payments to the Sole Member and the fair value of the commonstock to be issued to the Sole Member are as follows:

 
| **At March 31, 2008** | ** ** | **Gross  Payment** | ** ** | **Discount  Payment** | ** ** | **Common  Stock** | ** ** | **Total** | ** ** |
|--------------------------------------|------------|--------------------|------------|-----------------------|------------|-------------------|------------|-----------|------------|
| Current  liability                   |       | $                  | 304        |                  | $          | 282               |       | $         | 44         |   | $ | 326 |   |
| Long-term  liability                 |       | —             |       | —                |       | —            |       | —    |       |
| Total                                |       | $                  | 304        |                  | $          | 282               |       | $         | 44         |   | $ | 326 |   |

 

**12.Industry Segment Information**

 

Based on qualitative andquantitative criteria established by SFAS No. 131*Disclosures about Segments of an Enterprise andRelated Information*, the Company operates within one reportablesegment.

 

During the three monthsended March 31, 2008 and 2007, the Company had certain customers whoserevenue individually represented 10% or more of the Company’s total revenues asfollows:

 
| ** ** | ** ** | **Three Months Ended March 31,** | ** ** |
|------------|------------|------------------------------------------------------|------------|
| ** ** | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| ** ** | ** ** | **Revenues**                                         | ** ** | **% of Total  Revenues** | ** ** | **Revenues** | ** ** | **% of Total  Revenues** | ** ** |
| ** ** | ** ** | ** **                                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Customer 1 |       | $                                                    | 11,112     |   | 60% |   | $ | 6,014 |   | 60% |   |
| Customer 2 |       | 3,986                                                |       | 21% |   | 3,443 |   | 35% |   |
|       |       |                                                 |       |   |   |   |   |   |   |
| Total      |       | $                                                    | 15,098     |   | 81% |   | $ | 9,457 |   | 95% |   |

 

**13. Legal Proceedings**

 

The Company is subject to legal proceedings, claims and litigation arisingin the ordinary course of business. The Company does not expect the ultimatecosts to resolve these matters to have a material adverse effect on itsconsolidated financial position, results of operations or cash flows. Inaddition to ordinary-course litigation, the Company is a party to thelitigation described below.

 

12

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In March 2008, three purported class action lawsuits were filed in theUnited States District Court for the District of Massachusetts against theCompany, several of its officers and directors, and certain of the underwritersfrom the Company’s November 2007 follow-on public offering of its commonstock. The plaintiffs claim to represent those persons who purchased shares ofthe Company’s common stock from November 1, 2007 through February 27,2008 and/or those persons who purchased shares of the Company’s common stock inconnection with its follow-on public offering. The plaintiffs allege, among otherthings, that the defendants made false and misleading statements and failed todisclose material information in various SEC filings, press releases and otherpublic statements. The complaints allege various claims under the SecuritiesAct of 1933, as amended, the Securities Exchange Act of 1934, as amended, and Rule 10b-5promulgated thereunder. The complaints seek, among other relief, classcertification, unspecified damages, fees, and such other relief as the courtmay deem just and proper.

 

The Company believes that it and the other defendants have substantiallegal and factual defenses to the claims and allegations contained in thecomplaints, and the Company intends to pursue these defenses vigorously. Therecan be no assurance, however, that the Company will be successful, and anadverse resolution of any of the lawsuits could have a material effect on theCompany’s consolidated financial position and results of operations in theperiod in which a lawsuit is resolved. In addition, although the Companycarries insurance for these types of claims, a judgment significantly in excessof the Company’s insurance coverage could materially and adversely affect theCompany’s financial condition, results of operations and cash flows. TheCompany is not presently able to reasonably estimate potential losses, if any,related to the lawsuits.

 

**14. Subsequent Events**

 

In May 2008,the Company acquired 100% of the membership interests of South RiverConsulting, LLC, or SRC, for a purchase price equal to approximately $4.8million, subject to certain upward adjustments, which consisted of $3.0 millionin cash and 120,000 shares of the Company’s common stock that had a value ofapproximately $1.8 million as of the closing date, plus certain earn-outpayments contingent on SRC attaining specific revenue and gross margin targetsover the next 24 months.

 

13

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**Item 2.  Management’sDiscussion and Analysis of Financial Condition and Results of Operations.**

 

*Thefollowing discussion should be read in conjunction with our unaudited financialstatements and related notes thereto included elsewhere in this Quarterly Reporton Form 10-Q, as well as the audited financial statements and notesthereto and Management’s Discussion and Analysis of Financial Condition andResults of Operations for the fiscal year ended December 31, 2007,included in our Annual Report on Form 10-K for the year ended December 31,2007, as filed with the Securities and Exchange Commission, or the SEC, on March 28,2008. This Quarterly Report on Form 10-Q contains forward-lookingstatements within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934,as amended. Without limiting the foregoing, the words “may,” “will,” “should,” “could,”“expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,”“continue,” “target” and variations of these terms or the negatives of thoseterms and similar expressions are intended to identify forward-lookingstatements. All forward-looking statements included in this Quarterly Report onForm 10-Q are based on current expectations, estimates, forecasts andprojections and the beliefs and assumptions of our management including,without limitation, our expectations regarding our results of operations,selling and marketing expenses, general and administrative expenses, researchand development expenses, and the sufficiency of our cash for futureoperations. We assume no obligation to revise or update any suchforward-looking statements. Our actual results could differ materially fromthose anticipated in these forward-looking statements as a result of certainimportant factors, including those set forth below under this Item 2 — “Management’sDiscussion and Analysis of Financial Condition and Results of Operations,” Part II,Item 1A — “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q,as well as in our Annual Report on Form 10-K for the year ended December 31,2007. You should carefully review those factors and also carefully review therisks outlined in other documents that we file from time to time with the SEC.*

 

**Overview**

 

We are a leadingdeveloper and provider of clean and intelligent energy solutions. We use ourNetwork Operations Center, or NOC, to remotely manage and reduce electricityconsumption across a network of commercial, institutional and industrialcustomer sites to enable a more information-based and responsive, orintelligent, electric power grid. Our customers are electric power gridoperators and utilities, as well as commercial, institutional and industrialend-users of electricity. Our demand response and energy management solutionshelp optimize the balance of electric supply and demand and create a lower riskand more environmentally sound alternative to building additional power plantsand transmission lines. Grid operators and utilities pay us a stream ofrecurring cash flows for managing demand response capacity that we share withparticipating end-use customers. We receive most of our revenues from gridoperators and utilities and we make payments to end-users of electricity for bothcontracting to reduce electricity usage and actually doing so when called upon.In doing so, we establish a base of installed users for an expanding portfolioof our technology-enabled energy management solutions.

 

Our customer basehas grown from 19 commercial, institutional and industrial customers with 70sites in our network as of December 31, 2004 to 1,062 end-use customersfor our demand response solutions with 2,864 sites in our demand responsenetwork as of March 31, 2008. The demand response capacity we managethrough our network has grown from 10 megawatts, or MW, as of December 31,2004 to 1,502 MW as of March 31, 2008.

 

We continue todevote substantially all of our efforts toward the sale of our demand responseand energy management solutions. We have incurred cumulative net losses of$44.9 million from inception to March 31, 2008. Our net losses were$11.0 million and $3.8 million for the three months ended March 31,2008 and March 31, 2007, respectively.

 

14

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In May 2008, weacquired 100% of the membership interests of South River Consulting, LLC, orSRC, for a purchase price equal to approximately $4.8 million, subject tocertain upward adjustments, which consisted of $3.0 million in cash and 120,000shares of our common stock that had a value of approximately $1.8 million as ofthe closing date, plus certain earn-out payments contingent on SRC attainingspecific revenue and gross margin targets over the next 24 months.

 

**Revenuesand Expense Components**

 

***Revenues***

 

We deriverecurring revenues from the sale of our demand response and energy managementsolutions. Our revenues from our demand response solutions primarily consist ofcapacity and energy payments. In certain markets, we enter into long-termcapacity contracts with grid operators and utilities, generally ranging fromthree to 10 years in duration, to deploy our demand response solutions. Inaddition, we derive revenues from demand response capacity that we makeavailable in open market programs, which are open market bidding opportunitiesestablished by grid operators or utilities. In these open market programs, gridoperators and utilities generally seek bids from companies such as ours toprovide demand response capacity based on prices offered in competitivebidding. These opportunities are generally characterized by flexible capacitycommitments and prices that vary by month.

 

Where we have along-term contract, we receive periodic capacity payments, which may varymonthly or seasonally, based upon enrolled capacity and predetermined paymentrates. Where we operate in open markets, our revenues from demand responsecapacity payments generally vary month-to-month based upon our enrolledcapacity and the market payment rate. Under both long-term contracts and openmarket programs, we receive capacity payments regardless of whether we arecalled upon to reduce demand for electricity from the electric power grid. Atleast once per year, we demonstrate our capacity either through a demand responseevent or a measurement and verification test. This demonstrated capacity istypically used to calculate the continuing periodic capacity payments to bemade to us until the next demand response event or test establishes a newdemonstrated capacity amount. In most cases, we also receive an additionalpayment for the amount of energy usage that we actually curtail from the grid;we call this an energy payment. The energy payment is based upon the amount ofenergy usage that we actually reduce from the electricity grid in kilowatthours during the demand response event.

 

Our energymanagement solutions include energy procurement services where we evaluate ourend-use customers’ energy purchasing needs and assist them in procuring morecost effective electricity. We receive a monthly fee from the competitiveelectricity provider based upon the actual consumption of electricity used byour end-use customers. Demand response audits are services where we evaluateend-use customers’ energy utilization and operating flexibility to determinepotential savings opportunities from implementing demand response, conservingenergy and limiting peak demand. We receive a fee from our electric gridoperator and utility customers for each audit typically based upon a contractuallyspecified rate times the amount of kilowatts, or kW, we identify that can bereduced from the electric power grid. We also use our PowerTrak platform todeliver energy analytics and control and emissions tracking and tradingsupport. We generally receive either a subscription-based fee or a percentagesavings fee for these energy management solutions. We have yet to earnsubstantial revenues from these energy management solutions.

 

In accordance withStaff Accounting Bulletin No. 104, Revenue Recognition, or SAB No. 104,in all of our arrangements, we do not recognize any revenues until we candetermine that persuasive evidence of an arrangement exists, services have beenprovided, the fee is fixed or determinable, and we deem collection to be probable.As program rules may differ for each contract and/or region where we operate,we assess whether or not we have met the specific service requirements anddefer revenues as necessary. In accordance with SAB No. 104, we recognizedemand response revenues when we have provided verification to the gridoperator or utility of our ability to deliver the committed capacity under theagreement. Committed capacity is verified through the results of an actualdemand response event or a measurement and verification test. Once the capacityamount has been verified, the revenues are recognized and future revenuesbecome fixed or determinable and are recognized monthly until the nextverification event. In subsequent verification events, if our verified capacityis below the previously verified amount, the customer will reduce futurepayments based on the adjusted verified capacity amounts. The payments receivedfrom the customer can be decreased or increased, up to the committed capacityamounts under the agreement, in connection with subsequent verification events.Revenues recognized between demand response events or tests are not subject tocustomer refund.

 

As of March 31,2008, we had 1,502 MW under management in our demand response network, meaningthat we had entered into definitive contracts with our commercial,institutional and industrial customers with respect to 1,502 MW of demandresponse capacity. In most of the markets in which we originally focused ourgrowth, we generally begin earning revenues from our MW under management withinapproximately one month from the date on which we “enable” such MW, or the dateon which we can reduce such MW from the electricity grid if called upon to doso. An 

 

15

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exception is the PJMInterconnection, or PJM, forward capacity market, which is a market in which wematerially increased our participation during the first quarter of 2008 and inwhich we expect to continue to increase our participation and derive revenues.Because PJM operates on a June to May delivery-year basis, a MW thatwe enable after June of each year may not begin earning revenue until June ofthe following year. This results in a longer average lag time in our portfoliofrom the point in time when we consider a MW to be under management to when weearn revenues from such MW. Of the 1,502 MW under management as of March 31,2008, 399 were subject to this PJM lag, which means that we expect those 399 MWto begin generating revenue for us in June 2008. As we approach June ofeach year, we expect the number of MW subject to the PJM lag to increase.

 

Revenues generatedfrom fixed price contracts with, and open market sales to, ISO New EnglandInc., or ISO-NE, a grid operator customer, accounted for 60% of our totalrevenues in each of the three months ended March 31, 2008 and March 31,2007, respectively. Specifically, an aggregate of 8% and 12% of our totalrevenues for the three months ended March 31, 2008 and March 31,2007, respectively, were generated under two fixed price contracts with ISO-NE,both of which expire on May 31, 2008, and the remainder in both periods wasgenerated under open market sales to ISO-NE. In addition, 21% and 35% of our total revenues for the three monthsended March 31, 2008 and March 31, 2007, respectively, were generatedunder a fixed price contract with The Connecticut Light and Power Company, or CL&P,which expires on December 31, 2008. Although we entered into a new 170 MW fixed price contract with CL&Pin February 2008, which we expected would partially offset the impact ofthe expiration of our existing fixed price contracts with ISO-NE and CL&Pon our revenues, this new contract was denied regulatory approval by theConnecticut Department of Public Utility Control, or the DPUC, in April 2008.  We intend to file a motion for reconsideration and to work withCL&P to submit another proposal for consideration by the DPUC, asnecessary.  If we are unable to enter into, or obtain regulatory approvalof, a new fixed price contract with CL&P, we intend to enroll all or aportion of the MW represented by our existing fixed price contracts with ISO-NEand CL&P in other available demand response programs, which other programswill likely provide significantly lower capacity payments than our existingfixed price contracts with ISO-NE and CL&P. For example, the capacitypayments available under ISO-NE’s Real-Time Demand Response program aresignificantly lower than the capacity payments available under these existingfixed price contracts.

 

***Cost of Revenues***

 

Cost of revenuesfor our demand response solutions consists of payments that we make to ourcommercial, institutional and industrial customers for their participation inour demand response network. We generally enter into one to five year contractswith our end-use customers under which we deliver recurring cash payments tothem for the capacity they commit to make available on demand. We alsogenerally make an additional payment when a customer reduces consumption ofenergy from the electric power grid. The equipment and installation costs forour devices at our commercial, institutional and industrial customer sites arecapitalized and depreciated over the lesser of the remaining term of thecontract, for fixed contracts, or the estimated useful life of the equipmentand this depreciation is also reflected in cost of revenues. We also includethe monthly telecommunications/data costs we incur as a result of beingconnected to our commercial, institutional and industrial sites. Cost of revenuesfor energy management solutions include the wages and associated benefits thatwe pay to our project managers for the performance of those services.

 

***Gross Profit***

 

Gross profitconsists of our total revenues less our cost of revenues. Our gross profit hasbeen, and will be, affected by many factors, including (a) the demand forour demand response and energy management solutions, (b) the selling priceof our solutions, (c) our cost of revenues, (d) the introduction ofnew clean and intelligent energy solutions and (e) our ability to open andenter new markets/regions and expand deeper into markets we already serve.

 

***Operating Expenses***

 

Operating expensesconsist of selling and marketing, general and administrative, and research anddevelopment expenses. Personnel-related costs are the most significantcomponent of each of these expense categories. We grew from eight employees at December 31,2003 to 286 employees at March 31, 2008. We expect to continue to hireemployees to support our growth for the foreseeable future. In addition, weincur significant up-front costs associated with the expansion of the number ofMW under our management, which we expect to continue for the foreseeablefuture. Although we expect our overall operating expenses to increase inabsolute dollar terms for the foreseeable future as we grow our MW undermanagement and further increase our headcount, we expect our overall operatingexpenses to decrease as a percentage of total annual revenues as we leverageour existing employee base and continue generating revenues from our MW undermanagement.

 

*Sellingand Marketing*

 

Selling andmarketing expenses consist primarily of (a) salaries and related personnelcosts, including costs associated with share-based payment awards, (b) commissions,(c) travel, lodging and other out-of-pocket expenses, (d) marketingprograms such as trade shows, and (e) other related overhead. Commissionsare recorded as an expense when earned by the employee. We expect increases inselling and marketing expenses in absolute dollar terms for the foreseeablefuture as we further increase the number of sales professionals and, to alesser extent, increase our marketing activities. We expect selling andmarketing expenses to decrease as a percentage of total annual revenues as weleverage our current sales and marketing personnel.

 

*Generaland Administrative*

 

General andadministrative expenses consist primarily of (a) salaries and relatedpersonnel costs, including costs associated with share-based payment awards,related to our executive, finance, human resource, information technology andoperations organizations, (b) facilities expenses, (c) accounting andlegal professional fees, and (d) other related overhead. We expect generaland administrative expenses to continue to increase in absolute dollar termsand as a percentage of total annual revenues for the foreseeable future as weinvest in infrastructure to support continued growth and incur additionalexpenses related to being a public 

 

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company, includingincreased audit and legal professional fees, costs of compliance withsecurities and other regulations, investor relations expenses, and higherinsurance premiums.

 

*Researchand Development*

 

Research and developmentexpenses consist primarily of (a) salaries and related personnel costs,including costs associated with share-based payment awards, related to ourengineering organization, (b) payments to suppliers for design andconsulting services, (c) costs relating to the design and development ofnew solutions and enhancement of existing solutions, (d) quality assuranceand testing, and (e) other related overhead. During the three months endedMarch 31, 2008 and 2007, respectively, we capitalized internal softwareand development costs of $0 and $0.4 million in accordance withSOP 98-1,*Accounting for the Cost ofComputer Software Developed or Obtained for Internal Use,* and theamount is included as software in property and equipment at March 31,2008. We intend to continue to invest in our research and development efforts.We expect research and development expenses to increase in absolute dollarterms for the foreseeable future and to decrease as a percentage of totalrevenues in the long term.

 

***Stock-Based Compensation***

 

Effective as of January 1,2006, we adopted the requirements of Statement of Financial AccountingStandards (SFAS) No. 123R, *Share BasedPayment* (SFAS No. 123(R)) using the modified prospectivemethod. SFAS No. 123(R) addresses all forms of share-based paymentawards, including shares issued under employee stock purchase plans, stockoptions, restricted stock and stock appreciation rights. SFAS No. 123(R) requiresus to expense share-based payment awards with compensation cost for share-basedpayment transactions measured at fair value. For the three months ended March 31,2008 and 2007, we recorded expenses of approximately $2.2 million and$0.6 million, respectively, in connection with share-based payment awardsto employees and non-employees. With respect to grants through March 31,2008, a future expense of non-vested options of approximately$24.7 million is expected to be recognized over a weighted average periodof 3.3 years and a future expense of restricted stock awards ofapproximately $3.8 million is expected to be recognized over a weighted averageperiod of 3.6 years.

 

***Interest and Other Income***

 

Interest and other incomeconsist primarily of interest income earned on cash balances and othernon-operating income. We historically have invested our cash in money marketfunds, municipal bonds and auction rate securities.

 

***Interest Expense***

 

Interest expense consistsof interest on our debt facilities.

 

**ConsolidatedResults of Operations**

 

***Three Months Ended March 31, 2008 Compared to the ThreeMonths Ended March 31, 2007***

 

***Revenues***

 

The following tablesummarizes our revenues for the three months ended March 31, 2008 and 2007(dollars in thousands):

 
| ** **                   | ** ** | **Three Months  Ended March 31.** | ** ** | **Percentage** | ** ** |
|------------------------------|------------|--------------------------------------------------|------------|----------------|------------|
| ** **                   | ** ** | **2008**                                         | ** ** | **2007**       | ** ** | **Change** | ** ** |
| Revenues:                    |       |                                             |       |           |       |   |   |
| Demand response  solutions   |       | $                                                | 17,608     |           | $          | 9,719 |   | 81.2 | % |
| Energy  management solutions |       | 1,004                                            |       | 252            |       | 298.4 | % |
| Total revenues               |       | $                                                | 18,612     |           | $          | 9,971 |   | 86.7 | % |

 

During the three monthsended March 31, 2008, the increase in our demand response solutionsrevenues compared to the same period in 2007 was primarily due to an increasein our MW under management in all operating regions and the enrollment of newend-use customers in our demand response programs. Also contributing to theincrease in our demand response solutions revenues was an increase in thenumber of our commercial, institutional and industrial customers utilizing ourprice-based demand response solutions to reduce their electrical consumptionfrom the electric power grid during times of high wholesale market prices.  Additionally, during the three months ended March 31,2008, we had a demand response event called by a grid operator customer thatallowed us to recognize $1.1 million of revenues associated with this customer,which had been deferred at December 31, 2007. As of March 31, 2008,we had 1,502 MW of electric capacity under management compared to 562 MW undermanagement as of March 31, 2007.

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During the threemonths ended March 31, 2008, the increase in our energy managementsolutions revenues compared to the same period in 2007 was primarily due to ouracquisition of Mdenergy, LLC, or MDE, an energy procurement services provider,and to end-use customers continuing to utilize our energy procurement servicesoffering, under which offering we evaluate our end-use customers’ energypurchasing needs and assist them in procuring more cost effective electricity. Duringthe three months ended March 31, 2008, we also received revenues from ourdemand response audits pursuant to which we evaluate end-use customers’ energyutilization and operating flexibility to determine potential savingsopportunities from implementing demand response, conserving energy and limitingpeak demand.

 

We expect ourrevenues to increase in 2008 compared to 2007 as we seek to further increaseour MW under management in all operating regions, enroll new end-use customersin our demand response programs, continue to sell our energy managementsolutions to our new and existing demand response customers and pursue morefavorable pricing opportunities. In February 2008, ISO-NE notified us thatit will not extend our two fixed price contracts representing approximately 80MW that expire on May 31, 2008. In February 2008, we entered into a new170 MW fixed price contract with CL&P, which we expected would partiallyoffset the impact of the expiration of these ISO-NE contracts and our existingfixed price contract with CL&P, which represents approximately 110 MW and whichexpires on December 31, 2008, on our revenues. However, on April 2,2008, we were notified by the DPUC that this new contract was denied regulatoryapproval.  We intend to file a motion forreconsideration and to work with CL&P to submit another proposal forconsideration by the DPUC, as necessary. If we are unable to enter into, andobtain regulatory approval of, a new fixed price contract with CL&P, otherdemand response programs in which we enroll these MW will likely providesignificantly lower capacity payments than our existing fixed price contractswith ISO-NE and CL&P and our revenues will be significantly and adverselyaffected.

 

***Gross Profit and Gross Margin***

 

The following tablessummarize our gross profit and gross margin percentages for our demand responseand energy management solutions for the three months ended March 31, 2008and 2007 (dollars in thousands):

 

| **Three Months Ended March 31,** | ** ** |
|------------------------------------------------------|------------|
| **2008**                                             | ** ** | **2007** | ** ** |
| **Gross  Profit**                                    | ** ** | **Gross  Margin** | ** ** | **Gross  Profit** | ** ** | **Gross  Margin** | ** ** |
| $                                                    | 6,471      |   | 34.8 | % | $ | 2,906 |   | 29.1 | % |
|                                                      |            |  |  |  |  |  |  |  |  |

 

Our gross profit increasedduring the three months ended March 31, 2008 when compared to the sameperiod in 2007 primarily due to our continued growth and more favorablecontract terms with our commercial, institutional and industrial customers. In2008, we expect our gross margin percentage to continue to increase as we seekto sell higher gross margin energy management solutions to our existing demandresponse customers and seek to achieve more favorable contract terms with ourcommercial, institutional and industrial customers.

 

***Operating Expenses***

 

The following tablessummarize our operating expenses for the three months ended March 31, 2008and 2007 (dollars in thousands):

 
| ** **                           | ** ** | **Three Months Ended March 31,** | ** ** | **Percentage** | ** ** |
|--------------------------------------|------------|------------------------------------------------------|------------|----------------|------------|
| ** **                           | ** ** | **2008**                                             | ** ** | **2007**       | ** ** | **Change** | ** ** |
| Operating  Expenses:                 |       |                                                 |       |           |       |   |   |
| Selling and  marketing expenses      |       | $                                                    | 5,833      |           | $          | 3,067 |   | 90.2 | % |
| General and  administrative expenses |       | 10,824                                               |       | 3,466          |       | 212.3 | % |
| Research and  development expenses   |       | 1,511                                                |       | 341            |       | 343.1 | % |
| Total                                |       | $                                                    | 18,168     |           | $          | 6,874 |   | 164.3 | % |

 

Operating expensesconsist of selling and marketing, general and administrative, and research anddevelopment expenses. Personnel-related costs are the most significantcomponent of each of these expense categories, including costs associated withshare-based payment awards. We grew from 131 employees at March 31, 2007to 286 employees at March 31, 2008. In 2008, we expect to increase ourheadcount by approximately 40% to 50% over headcount at the end of 2007, whenwe had 253 employees, and we expect to continue to hire employees to supportour growth for the foreseeable future. In addition, we incur significantup-front costs 

 

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associated with theexpansion of the number of MW under our management, which we expect to continuefor the foreseeable future. Although we expect our overall operating expensesto increase in absolute dollar terms for the foreseeable future as we grow ourMW under management and further increase our headcount, we expect our overalloperating expenses to decrease as a percentage of total annual revenues as weleverage our existing employee base and continue generating revenues from ourMW under management.

 

In certain forwardcapacity markets in which we choose to participate, such as PJM, we may enableour commercial, institutional and industrial customers up to twelve months inadvance of enrolling them in a particular program. This market feature createsa longer average lag time across our portfolio from the point in time when weconsider a MW to be under management to when we earn revenues from such MW.Because we incur selling and marketing and operational expenses, includingsalaries and related personnel costs, at the time of enrollment, we believethere may be a trend of higher up-front costs than we have incurred historically.

 

***Selling and Marketing Expenses***

 

 Theincrease in selling and marketing expenses was primarily due to an increase inemployee related costs, excluding stock based compensation, from $1.6 millionfor the three months ended March 31, 2007 to $4.7 million for the threemonths ended March 31, 2008. The number of selling and marketing employeesincreased from 55 at March 31, 2007 to 101 at March 31, 2008.Stock-based compensation expense related to selling and marketing employees forthe three months ended March 31, 2008 increased $0.6 million to $0.9million, when compared to the same period in 2007.

 

***General and Administrative Expenses***

 

The increase in generaland administrative expenses was primarily due to an increase in employeerelated costs, excluding stock based compensation, from $1.5 million for thethree months ended March 31, 2007 to $5.1 million for the three monthsended March 31, 2008, as well as to greater costs associated with being apublic company. The number of general and administrative employees, includingemployees in our operations group, increased from 57 at March 31, 2007 to144 at March 31, 2008. Stock-based compensation expense related to generaland administrative employees for the three months ended March 31, 2008increased $0.9 million to $1.2 million, when compared to the same period in2007.

 

***Research and Development Expenses***

 

The increase in researchand development expenses was primarily due to an increase in employee relatedcosts, excluding stock based compensation, from $0.7 million for the threemonths ended March 31, 2007 to $1.3 million for the three months ended March 31,2008. The number of research and development employees increased from 19 at March 31,2007 to 41 at March 31, 2008. Stock-based compensation expense related toresearch and development employees for the three months ended March 31,2008 increased from $42,000 to $0.1 million, when compared to the same periodin 2007.

 

***Interest and Other Income (Expense), Net***

 

Net interest andother income was $0.8 million for the three months ended March 31, 2008,compared to net interest and other expense of $0.2 million for the three monthsended March 31, 2007.

 

Interest and otherincome in the three months ended March 31, 2008 was $1.0 million ascompared to $0.3 million at March 31, 2007.  The increase was primarily due to interestincome earned on the proceeds from our IPO and follow-on public offering.

 

Interest expensefor the three months ended March 31, 2008 was $0.3 million compared to$0.1 million at March 31, 2007.  Theincrease was primarily due to a higher average outstanding debt balance duringthe three months ended March 31, 2008. In addition, for the three months ended March 31,2008 and 2007, we capitalized interest related to construction in progressprojects totaling approximately $0.1 million in each period.

 

***Income Taxes***

 

We had a provisionfor income taxes of $0.1 million and $0 for the three months ended March 31,2008 and 2007, respectively. The provision for the three months ended March 31,2008 relates to the amortization of tax deductible goodwill not offset by netoperating losses. We provided a full valuation allowance for our deferred taxassets because the realization of any future tax benefits could not besufficiently assured as of March 31, 2008 or March 31, 2007.

 

**Liquidityand Capital Resources**

 

***Overview***

 

Revenues generatedfrom fixed price contracts with, and open market sales to, ISO-NE accounted for60% of our total revenues for the three months ended March 31, 2008 and March 31,2007, respectively. Specifically, an aggregate of 8% and 12% of our totalrevenues for the three months ended March 31, 2008 and March 31,2007, respectively, were generated under two fixed price contracts with ISO-NE,both of which expire on May 31, 2008, and the remainder in both periods wasgenerated under open market sales to ISO-NE. ISO-NE has notified us that it will not extend either contract beyond May 31,2008.  In addition, 21% and 35% of ourtotal revenues for the three months ended March 31, 2008 and March 31,2007, respectively, were generated under a fixed price contract with CL&P,which expires on December 31, 2008.  We do not expect the expiration of our fixedprice contracts with ISO-NE and CL&P to have a material impact on ourliquidity.

 

As of March 31,2008, we had cash, cash equivalents, and marketable securities totaling $62.4million, of which $48.4 million represented cash and cash equivalents, adecrease of $23.4 million from the December 31, 2007 balance of $85.7million.  This decrease included the effect of posting $10.0 million offinancial assurances to satisfy certain demand response marketrequirements.  As of March 31, 2008,we had restricted cash of $13.2 million and financial assurance deposits of$14.2 million, totaling $27.4 million 

 

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as compared to $17.5million as of December 31, 2007, an increase of $10.0 million.  As wefulfill our obligations and enroll capacity in certain markets, a portion orall of these deposits will be released.  We expect a majority of thesedeposits will be released in the second quarter of 2008. We believe that ourexisting cash and cash equivalents and marketable securities at March 31,2008 and our anticipated cash flows from operating activities will besufficient to meet our anticipated cash needs, including investing activities,for at least the next 24 months.

 

Our investments insecurities include auction-rate securities, or ARS, and state and municipalbonds. The securities we typically invest in are AAA-rated government-backedsecurities with interest rates typically ranging from 6.5% to 6.8% that haveapproximate contractual maturities of at least 26 years. However, becauseof the short-term nature of our investment in these ARS, they have beenclassified as available-for-sale and included in short-term investments on ourconsolidated balance sheet. Our holdings of ARS as of March 31, 2008 and December 31,2007 were $3.9 million and $5.6 million, respectively.

 

As of March 31,2008, we had $3.9 million par value ARS that were subject to failed auctionsand none of the ARS succeeded in an auction subsequent to March 31,2008.  As a result of these failedauctions, we have the potential to benefit from a penalty feature in ourinterest rates, which allows us to earn an additional 5.1% to 14.0% of intereston these securities until the next auction is set to occur.  We will not be able to liquidate theinvestments until a successful auction occurs, a buyer is found outside theauction process, the securities are called or refinanced by the issuer, or thesecurities mature.  We believe that wewill be able to liquidate the investments at par within a reasonable timeperiod and that the issuers of the securities are currently able and will continueto make interest payments at the maximum rate. The investments were classified as current assets in our condensedconsolidated balance sheet as of March 31, 2008 based on our currentexpectations regarding liquidity. However, the investments may need to be reclassified as long-term assetsin the future if the liquidity of the investments does not improve.

 

We are contingently liable under unused letters ofcredit. Included in the March 31, 2008 and December 31, 2007restricted cash balances are amounts used to collateralize unused letters ofcredit in the amount of $13.2 million and $3.0 million, respectively.

 

***Cash Flows***

 

The following table summarizes our cash flows for thethree months ended March 31, 2008 and 2007 (dollars in thousands):

 
| ** **                                             | ** ** | **Three Months  Ended March 31,** | ** ** |
|--------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                             | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| ** **                                             | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Cash flows used  in operating activities               |       | $                                                | (5,474     | ) | $ | (281 | ) |
| Cash flows used  in investing activities               |       | (15,874                                          | )          | (6,237 | ) |
| Cash flows (used  in) provided by financing activities |       | (459                                             | )          | 9,915 |   |
| Net increase (decrease)  in cash and cash equivalents  |       | $                                                | (21,807    | ) | $ | 3,397 |   |

 

***Cash Flows Used in Operating Activities***

 

Cash used in operatingactivities primarily consists of net income (loss) adjusted for certainnon-cash items including depreciation and amortization, stock-basedcompensation expenses, and the effect of changes in working capital and otheractivities.

 

Cash used in operatingactivities in the three months ended March 31, 2008 was $5.5 million andconsisted of an $11.0 million net loss offset by approximately $1.1 million ofnet cash provided for working capital purposes and other activities and by $4.4million of non-cash items, consisting primarily of depreciation andamortization, interest expense and stock-based compensation charges. Cashprovided for working capital and other activities primarily reflected a $2.0million decrease in accounts receivable due to the timing of cash receiptsunder our programs, a $1.0 million increase in accrued capacity payments and a$0.3 million decrease in prepaid expenses and other current assets.  These amounts were partially offset by anincrease of $0.6 million in accounts payable and accrued expenses, an increaseof $1.0 million in deferred revenues as our operations continued to grow and adecrease of $0.6 million in accrued payroll and related expenses.

 

Cash used in operatingactivities in the three months ended March 31, 2007 was $0.3 million andconsisted of a $3.8 million net loss partially offset by $2.0 million of netcash provided by working capital and other activities and by $1.5 million ofnon-cash items, consisting primarily of depreciation and amortization andstock-based compensation charges. Cash provided by working capital and otheractivities primarily reflected a $3.0 million increase in accounts payable andaccrued expenses as our operations continued to grow, an increase in accruedcapacity payments of $1.3 million, and an increase of $0.9 million in deferredrevenues.  These amounts were offset by a$1.9 million increase in accounts receivable attributable to the significantincrease in revenues and $0.9 million increase in prepaid and other noncurrentassets and a decrease in accrued payroll and related expenses of $0.4 million.

 

***Cash Flows Used in Investing Activities***

 

Cash used in investing activitieswas $15.9 million for the three months ended March 31, 2008. Our principalcash investments related to installation services used to build out and expandour demand response programs, purchases of property and 

 

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equipment, and the cashportion earnout for our acquisition of MDE. For the three months ended March 31,2008, purchases of available-for-sale securities were approximately$10.1 million and sales of available-for-sale maturities were $11.7million.  During the three months ended March 31,2008, we increased our restricted cash and deposits for customer programs by$10.0 million.  During the three monthsended March 31, 2008, we incurred $4.0 million in capital expenditures ofwhich $2.8 million was related to office equipment, $0.8 million was related todemand response equipment and $0.4 million related to other miscellaneousexpenditures. In addition, we paid $3.4 million related to the earnoutobligation incurred in connection with our acquisition of MDE.

 

For the three monthsended March 31, 2007, cash used in investing activities was$6.2 million. Our principal cash investments during this period related topurchases of equipment, furniture and fixtures, the cash portion of thepurchase price for our acquisition of all the membership interests of PinpointPower DR, and installation services used to build out and expand our demandresponse programs. During the three months ended March 31, 2007, weincurred $5.3 million in capital expenditures of which $3.5 million was relatedto construction-in-progress, $1.3 million was related to equipment and softwareand $0.5 million was capitalized interest and internal software developmentcosts. In addition, we disbursed $0.1 million related to our acquisition ofPinpoint Power DR.

 

***Cash Flows (Used in) Provided by Financing Activities***

 

Cash flows used infinancing activities were $0.5 million for the three months ended March 31,2008. Cash flows provided by financing activities were $9.9 million for thethree months ended March 31, 2007. Cash flows (used in) provided by financingactivities consisted of the following:

 

*EquityFinancing Activities*

 

During the three monthsended March 31, 2007, we incurred $2.2 million of costs associated withthe filing of our initial public offering, or IPO.

 

In February 2007, werepurchased 104,392 shares of our common stock for $0.4 million. In January 2007,we raised $10.0 million of proceeds through sales of our Series CConvertible Preferred Stock.

 

In addition, we receivedapproximately $0.1 million and $15,000 from exercises of common stock optionsduring the three months ended March 31, 2008 and March 31, 2007,respectively.

 

*CreditFacility Borrowings*

 

During the three monthsended March 31, 2008, we made $0.6 million of scheduled principal paymentson our outstanding debt.  During thethree months ended March 31, 2007, we borrowed $2.5 million under our loanand security agreement and made scheduled principal payments on our outstandingdebt and capital lease obligations of $12,000.

 

**CapitalSpending**

 

We have made capitalexpenditures primarily for general corporate purposes to support our growth andfor equipment installation related to our demand response programs. Our capitalexpenditures totaled $4.0 million and $5.3 million for the three months ended March 31,2008 and 2007, respectively.

 

**ContractualObligations**

 

As of March 31, 2008, ourcontractual obligations disclosure contained in our Annual Report on Form 10-Kfor the year ended December 31, 2007, which we filed with the SEC on March 28,2008, has not materially changed.

 

**Off-BalanceSheet Arrangements**

 

We have no off-balancesheet arrangements other than letters of credit issued in the ordinary courseof business.

 

**Applicationof Critical Accounting Policies and Use of Estimates**

 

Our financial statementsare prepared in accordance with accounting principles generally accepted in theUnited States. The preparation of these financial statements requires that wemake estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. We base our estimates on historical experience andon various other assumptions that we believe to be reasonable under thecircumstances. We evaluate our estimates and assumptions on an ongoing basis.Our actual results may differ significantly from these estimates underdifferent assumptions or conditions. There have been no material changes tothese estimates during the three months ended March 31, 2008. For a detailedexplanation of the judgments made in these areas, refer to “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”within our Annual Report on Form 10-K for the year ended December 31,2007, which we filed with the SEC on March 28, 2008.

 

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**Item 3. Quantitative and Qualitative Disclosure About Market Risk**

 

***Foreign Exchange Risk***

 

We face minimal exposure to adverse movements in foreign currencyexchange rates.

 

***Interest Rate Risk***

 

As of March 31, 2008, all of our $5.5 million of outstanding debtwas at fixed interest rates; therefore, there was no significant impact fromchanges in interest rates.

 

We manage our cash and cash equivalents and marketable securitiesportfolio considering investment opportunities and risks, tax consequences andoverall financing strategies. Our investment portfolio consists primarily ofcash and cash equivalents, money market funds, and municipal auction ratesecurities with carrying amounts approximating market value. As our investmentsare made with highly rated municipal auction rate securities and short-termsecurities, we are not anticipating any significant impact in the short termfrom a change in interest rates.

 

Our investments in securities include ARS and state and municipalbonds. The securities we typically invest in are AAA-rated government-backedsecurities with interest rates typically ranging from 6.5% to 6.8% that haveapproximate contractual maturities of at least 26 years. However, becauseof the short-term nature of our investment in these ARS, they have beenclassified as available-for-sale and included in short-term investments on ourconsolidated balance sheet. Our holdings of ARS as of March 31, 2008 and December 31,2007 were $3.9 million and $5.6 million, respectively.

 

As of March 31, 2008, we had $3.9 million par value ARS that weresubject to failed auctions and none of the ARS succeeded in an auctionsubsequent to March 31, 2008.  As aresult of these failed auctions, we have the potential to benefit from apenalty feature in our interest rates, which allows us to earn an additional5.1% to 14.0% of interest on these securities until the next auction is set tooccur.  We will not be able to liquidatethe investments until a successful auction occurs, a buyer is found outside theauction process, the securities are called or refinanced by the issuer, or thesecurities mature.  We believe that wewill be able to liquidate the investments at par within a reasonable timeperiod, and that the issuers of the securities are currently able and willcontinue to make interest payments at the maximum rate.  The investments were classified as currentassets in our condensed consolidated balance sheet as of March 31, 2008based on our current expectations regarding liquidity.  However, the investments may need to bereclassified as long-term assets in the future if the liquidity of theinvestments does not improve.

 

**Item 4T.  Controls andProcedures.**

 

***Evaluation ofDisclosure Controls and Procedures***

 

Our management, with the participation of our chief executive officerand chief financial officer, evaluated the effectiveness of our disclosurecontrols and procedures as of March 31, 2008. The term “disclosurecontrols and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934, as amended, or the Exchange Act, meanscontrols and other procedures of a company that are designed to ensure thatinformation required to be disclosed by a company in the reports that it filesor submits under the Exchange Act is recorded, processed, summarized andreported, within the time periods specified in the SEC’s rules and forms.Disclosure controls and procedures include, without limitation, controls andprocedures designed to ensure that information required to be disclosed by a companyin the reports that it files or submits under the Exchange Act is accumulatedand communicated to the company’s management, including its principal executiveand principal financial officers as appropriate to allow timely decisionsregarding required disclosure. Our management recognizes that any controls andprocedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving their objectives and management necessarilyapplies its judgment in evaluating the cost-benefit relationship of possiblecontrols and procedures. Based on the evaluation of our disclosure controls andprocedures as of March 31, 2008, our chief executive officer and chieffinancial officer concluded that, as of such date, our disclosure controls andprocedures were effective at the reasonable assurance level.

 

***Internal Control over Financial Reporting***

 

No change in our internal control over financial reporting (as definedin Rules 13a-15(f) and 15d-15(f) under the Exchange Act)occurred during the fiscal quarter ended March 31, 2008, which hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

 

**PART II — OTHER INFORMATION**

 

**Item 1.    LegalProceedings.**

 

We are subject to legal proceedings, claims and litigation arising inthe ordinary course of business. We do not expect the ultimate costs to resolvethese matters to have a material adverse effect on our consolidated financialposition, results of operations or cash flows. In addition to ordinary-courselitigation, we are a party to the litigation described below.

 

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In March 2008, three purported class action lawsuits were filed inthe United States District Court for the District of Massachusetts against us,several of our officers and directors and certain of the underwriters from our November 2007follow-on public offering of our common stock. The plaintiffs claim torepresent those persons who purchased shares of our common stock from November 1,2007 through February 27, 2008 and/or those persons who purchased sharesof our common stock in connection with our follow-on public offering. Theplaintiffs allege, among other things, that the defendants made false andmisleading statements and failed to disclose material information in variousSEC filings, press releases and other public statements. The complaints allegevarious claims under the Securities Act of 1933, as amended, or the SecuritiesAct, the Exchange Act and Rule 10b-5 promulgated thereunder. Thecomplaints seek, among other relief, class certification, unspecified damages,fees and such other relief as the court may deem just and proper.

 

We believe that we and the other defendants have substantial legal andfactual defenses to the claims and allegations contained in the complaints, andwe will pursue these defenses vigorously. There can be no assurance, however,that we will be successful, and an adverse resolution of any of the lawsuitscould have a material effect on our consolidated financial position and resultsof operations in the period in which a lawsuit is resolved. In addition,although we carry insurance for these types of claims, a judgment significantlyin excess of our insurance coverage could materially and adversely affect ourfinancial condition, results of operations and cash flows. We are not presentlyable to reasonably estimate potential losses, if any, related to the lawsuits.

 

**Item 1A. Risk Factors.**

 

We operate in a rapidlychanging environment that involves a number of risks that could materiallyaffect our business, financial condition or future results, some of which arebeyond our control. In addition to the other information set forth in this QuarterlyReport on Form 10-Q, the risks and uncertainties that we believe are mostimportant for you to consider are discussed in Part I, “Item 1A. RiskFactors” in our Annual Report on Form 10-K for the year ended December 31,2007. There are no material changes to the Risk Factors described in our AnnualReport on Form 10-K for the fiscal year ended December 31, 2007 otherthan changes to the risk factors listed below.**These risk factors have been updated toreflect****denial by the DPUC of regulatory approval of our 170 MW contract withCL&P, the Federal Energy Regulatory Commission’s, or the FERC, approval ofISO-NE’s market rule change to its Day-Ahead Load Response program anda filing that our subsidiary, Celerity Energy Partners San Diego, LLC, madewith the FERC in April 2008. Additional risks and uncertainties not presently known to us, which wecurrently deem immaterial or which are similar to those faced by othercompanies in our industry or business in general, may also impair our businessoperations.

 

**Risks Related to Our Business**

 

***A substantial majorityof our revenues are generated from contracts with, and open market sales to, asmall number of grid operator and utility customers, including in particularone grid operator customer with which certain of our contracts are expiring in May 2008,and the modification or termination of these contracts or sales relationshipscould materially adversely affect our business.***

 

Revenues generated fromfixed price contracts with, and open market sales to, ISO-NE accounted for 60%of our total revenues for the three months ended March 31, 2008 and March 31,2007, respectively. Specifically, an aggregate of 8% and 12% of our totalrevenues for the three months ended March 31, 2008 and March 31,2007, respectively, were generated under two fixed price contracts with ISO-NE,both of which expire on May 31, 2008, and the remainder in both periods wasgenerated under open market sales to ISO-NE. ISO-NE has notified us that it will not extend either contract beyond May 31,2008.  In addition, 21% and 35% of ourtotal revenues for the three months ended March 31, 2008 and March 31,2007, respectively, were generated under a fixed price contract with CL&P,which expires on December 31, 2008.

 

These three fixed price contracts with ISO-NE andCL&P represent an aggregate of approximately 190 MW of demand responsecapacity under our management as of March 31, 2008. We entered into a new170 MW fixed price contract with CL&P in February 2008, which weexpected would partially offset the impact of the expiration of our existingfixed price contracts with ISO-NE and CL&P on our revenues.  However, on April 2, 2008, we receivednotification from the DPUC that the DPUC denied regulatory approval of this newcontract.  Although we intend to file a motion for reconsideration and towork with CL&P to submit another proposal for consideration by the DPUC, asnecessary, there can be no assurance that such motion or proposal will besuccessful.  If we are unable to enter into, and obtain regulatoryapproval of, a new fixed price contract with CL&P, we intend to enroll allor a portion of the MW represented by our existing fixed price contracts withISO-NE and CL&P in other available demand response programs, which otherprograms will likely provide significantly lower capacity payments than ourexisting fixed price contracts with ISO-NE and CL&P. For example, thecapacity payments available under ISO-NE’s Real-Time Demand 

 

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Response program are significantly lower than the capacity paymentsavailable under these existing fixed price contracts. Thus, the failure toenter into, and obtain regulatory approval for, a new contract with CL&Pcould significantly reduce our future revenues and have a material adverseeffect on our business.

 

***Our business issubject to government regulation, and may become subject to modified or newgovernment regulation, which may negatively impact our ability to market ourclean and intelligent energy solutions.***

 

While the electric power markets in which we operateare regulated, most of our business is not directly subject to the regulatoryframework applicable to the generation and transmission of electricity.However, we may become directly subject to the regulation of the FERC, to theextent we own, operate, or control generation used to make wholesale sales ofpower. In addition, our subsidiary Celerity Energy Partners SanDiego, LLC, or Celerity, is subject to direct regulation by FERC, becauseCelerity exports power to the electric power grid for resale pursuant to acontract with San Diego Gas & Electric Company.

 

In addition, the installation of devices used inproviding our solutions and electric generators sometimes installed oractivated when providing demand response solutions may be subject to governmentaloversight and regulation under state and local ordinances relating to buildingcodes, public safety regulations pertaining to electrical connections and localand state licensing requirements. In a relatively few instances, we have agreedto own and operate a back-up generator at a commercial, institutional orindustrial customer location for a period of time and to activate the generatorwhen capacity is called for dispatch so that the commercial, institutional orindustrial customer can reduce its consumption of electricity from the electricpower grid. These generators could become ineligible to participate in demandresponse programs in the future, or be compensated less for such participation,thereby reducing our revenues and adversely affecting our financial position.In addition, certain of our contracts and expansion of existing contracts withgrid operators and utility customers are subject to approval by federal, state,provincial or local regulatory agencies. There can be no assurance that suchapprovals will be obtained or be issued on a timely basis, if at all. Forexample, we received notification in April 2008 from the DPUC that theDPUC denied our request for approval of our contract with CL&P for up to170 MW of demand response capacity. Although we intend to file a motion forreconsideration and are working with CL&P to submit a revised proposal inconnection with this contract, there can be no assurance that such motion orproposal will be successful

 

Additionally, federal, state, provincial or localgovernmental entities may seek to change existing regulations, imposeadditional regulations or change their interpretation of the applicability ofexisting regulations. Any modified or new government regulation applicable toour current or future solutions, whether at the federal, state, provincial orlocal level, may negatively impact the installation, servicing and marketing ofthose solutions and increase our costs and the price of our solutions.

 

***We depend on theelectric power industry for revenues and, as a result, our operating resultshave experienced, and may continue to experience, significant variability dueto volatility in electric power industry spending and other factors affectingthe electric utility industry, such as seasonality of peak demand.***

 

We currently derive substantially all of our revenuesfrom the sale of demand response solutions, directly or indirectly, to theelectric power industry. Purchases of our demand response solutions by gridoperators or electric utilities may be deferred or cancelled as a result ofmany factors, including mergers and acquisitions involving electric utilities,changing regulations or program rules, fluctuations in interest rates andincreased electric utility capital spending on traditional supply-sideresources. In addition, sales of capacity in open markets are particularlysusceptible to variability based on changes in the spending patterns of ourgrid operator and utility customers and on associated fluctuating market pricesfor capacity. For example, in February 2008, ISO-NE implemented a market rule changeto its Day-Ahead Load Response program, a program in which we have historicallybeen an active participant. The change, which was approved by FERC in April 2008,would result in less opportunity for demand response to participate in thisprogram and may negatively impact our revenues and could delay or prevent ourprofitability. In addition, peak demand for electricity and other capacityconstraints tend to be seasonal. Peak demand in the United States tends to bemost extreme in warmer months, which may lead some capacity markets to yieldhigher prices for capacity or contract for the availability of a greater amountof capacity during these warmer months. As a result, our demand responserevenues may be seasonal. For example, in 2006, our demand response revenues inthe third quarter were higher than our demand response revenues in the fourthquarter. Further, occasional events, such as a spike in natural gas prices, canlead grid operators and utilities to implement short-term calls for demandresponse capacity to respond to these events, but we cannot be sure that suchcalls will continue or that we will be in a position to generate revenues whenthey do occur. We have experienced, and may in the future experience,significant variability in our revenues, on both an annual and a quarterlybasis, as a result of these and other factors. Pronounced variability or anextended period of reduction in spending by grid operators and utilities, orcontinued requests from grid operators and utilities to pay for demand responsecapacity at prices that are not equal on a monthly or quarterly basis over thecourse of a contract year, could negatively impact our business and make itdifficult for us to accurately forecast our future sales, which could lead toincreased spending by us that does not result in increases in revenues.

 

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***We may incursignificant penalties and fines if found to be in non-compliance with anyapplicable State or Federal regulation, despite best efforts at compliance andadherence.***

 

While the electric power markets in which we operateare regulated, most of our business is not directly subject to the regulatoryframework applicable to the generation and transmission of electricity.However, regulations by the FERC related to market design, market rules,tariffs, and bidding rules impact how we can interact with our gridoperator and utility customers. In addition, we are aware that our subsidiaryCelerity exports some power to the electric power grid and is thus subject todirect regulation by the FERC and its regulations related to the sale ofwholesale power at market based rates. Despite our efforts to manage compliancewith such regulations, we may be found to be in non-compliance with suchregulations and therefore subject to penalties or fines. For example, werecently determined that prior to our acquisition of Celerity in May 2006,Celerity failed to make requisite filings with the FERC in connection withtransactions relating to our acquisition. Celerity made such required filingswith the FERC on April 25, 2008, but the proceeding is ongoing andCelerity may be subject to penalties and fines, any of which may have a materialadverse effect on our business, financial condition and results of operations.

 

**Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.**

 

(a)    Unregistered Sales of Equity Securities

 

None.

 

(b)      Use of Proceeds

 

We registered shares of our common stock in connection with our IPOunder the Securities Act. The registration statement on Form S-1 (File No. 333-140632)filed in connection with our IPO was declared effective by the SEC on May 17,2007. Including shares sold pursuant to the exercise by the underwriters oftheir over-allotment option, 4,087,500 shares of our common stock wereregistered and sold in the IPO by us and an additional 225,000 shares of commonstock were registered and sold by the selling stockholders named in the registrationstatement. All the shares were sold at a price to the public of $26.00 pershare. The net offering proceeds received by us, after deducting underwritingdiscounts and commissions and expenses incurred in connection with theoffering, were approximately $95.2 million. Through March 31, 2008, approximately $7.1 million of the proceeds fromour IPO have been used to fund the operations of our business and for generalcorporate purposes, approximately $9.8 million have been used to purchase andinstall equipment, approximately $0.8 have been used to repay indebtedness andapproximately $6.2 million have been used to fund acquisitions and makepayments outstanding on prior acquisitions. The remainder of the net proceedsfrom the IPO are invested in short-term investment grade securities and moneymarket accounts. There has been no material change in the planned use ofproceeds from our IPO as described in our final prospectus filed with the SECon May 18, 2007 pursuant to Rule 424(b).

 

**Item 6. Exhibits.**

 
| 31.1   |   | Certification of  Chief Executive Officer of EnerNOC, Inc. pursuant to  Rule 13a-14(a) or Rule 15d-14(a) promulgated under the  Securities Exchange Act of 1934, as amended.                                                                                                         |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                          |
| 31.2   |   | Certification of  Chief Financial Officer of EnerNOC, Inc. pursuant to  Rule 13a-14(a) or Rule 15d-14(a) promulgated under the  Securities Exchange Act of 1934, as amended.                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                          |
| 32.1   |   | Certification of  Chief Executive Officer and Chief Financial Officer of EnerNOC, Inc.  pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act  of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002. |

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 

 
|                     | EnerNOC, Inc. |
|--------------------------|--------------------|
|                     |               |
| Date: May 13,  2008 | By:                | /s/ Timothy G.  Healy |
|                     |               | Timothy G. Healy |
|                     |               | Chief Executive  Officer |
|                     |               | (principal  executive officer) |
|                     |               |   |
| Date: May 13,  2008 | By:                | /s/ Neal C.  Isaacson |
|                     |               | Neal C. Isaacson |
|                     |               | Chief Financial  Officer |
|                     |               | (principal  financial and accounting officer) |

 

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**Exhibit Index**

 
| **Number** | ** ** | **Description of Exhibit**                                                                                                                                                                                                                                                                                    |
|------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                                                                          |
| 31.1       |       | Certification of  Chief Executive Officer of EnerNOC, Inc. pursuant to  Rule 13a-14(a) or Rule 15d-14(a) promulgated under the  Securities Exchange Act of 1934, as amended.                                                                                                         |
| 31.2       |       | Certification of  Chief Financial Officer of EnerNOC, Inc. pursuant to  Rule 13a-14(a) or Rule 15d-14(a) promulgated under the  Securities Exchange Act of 1934, as amended.                                                                                                         |
| 32.1       |       | Certification of  Chief Executive Officer and Chief Financial Officer of EnerNOC, Inc.  pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act  of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002. |

 

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