##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q/A
 Amendment No. 1
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2009
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 1-12014
 POWERSECURE INTERNATIONAL, INC.
  Delaware
    
    84-1169358(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)1609 Heritage Commerce CourtWake Forest, North Carolina
    
    27587(Address of principal executive offices)
    
    (Zip code)
 
  þ o
  o o
 Large accelerated filer oAccelerated filer þNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o
 o þ




---



##### Table of Contents



EXPLANATORY NOTE
   Backlog
  Revenue backlog to be recognized after March 31, 2009
 Anticipated
    
    Estimated PrimaryDescription
    
    Revenue
    
    Recognition PeriodProject-based RevenueNear term
    
    $37 Million
    
    2Q09-4Q09Project-based RevenueLong term
    
    $17 Million
    
    2010-2011Recurring Revenue
    
    $33 Million
    
    2Q09 through 2015Backlog to be recognized after March 31, 2009
    
    $87 Million




---



##### 



POWERSECURE INTERNATIONAL, INC.
 FORM 10-Q/A
For the Quarterly Period Ended March 31, 2009
 TABLE OF CONTENTS
 PagePART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsUnaudited
Consolidated Balance Sheets  March 31, 2009 and December 31, 2008
    
    3Unaudited Consolidated Statements of Operations  For the Three Months Ended March 31, 2009 and March 31, 2008
    
    5Unaudited Consolidated Statements of Cash Flows  For the Three Months Ended March 31, 2009 and March 31, 2008
    
    6Notes to Unaudited Consolidated Financial Statements
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    25Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    51Item 4.
    
    Controls and Procedures
    
    52PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    54Item 1A.
    
    Risk Factors
    
    54Item 5.
    
    Other Information
    
    54Item 6.
    
    Exhibits
    
    54Signatures
    
    
    
    55EX-31.1EX-31.2EX-32.1EX-32.2
  2




---



##### Table of Contents



PART I.
FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 POWERSECURE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands, except share data)
 March 31,
    
    
    December 31,2009
    
    
    2008AssetsCurrent Assets:Cash and cash equivalents
    
    $
    22,953
    
    
    $
    24,316Trade receivables, net of allowance for doubtful accounts
of $234 and $276, respectively
    
    
    20,360
    
    
    
    25,215Inventories
    
    
    20,451
    
    
    
    19,713Deferred income taxes
    
    
    2,919
    
    
    
    2,919Prepaid expenses and other current assets
    
    
    938
    
    
    
    1,680Total current assets
    
    
    67,621
    
    
    
    73,843Property, plant and equipment:Equipment
    
    
    20,904
    
    
    
    20,297Furniture and fixtures
    
    
    657
    
    
    
    650Land, building and improvements
    
    
    4,695
    
    
    
    4,674Total property, plant and equipment, at cost
    
    
    26,256
    
    
    
    25,621Less accumulated depreciation and amortization
    
    
    4,100
    
    
    
    3,739Property, plant and equipment, net
    
    
    22,156
    
    
    
    21,882Other assets:Goodwill
    
    
    7,256
    
    
    
    7,256Restricted annuity contract
    
    
    2,154
    
    
    
    2,133Intangible rights and capitalized software costs, net of
accumulated amortization of $1,579 and $1,453, respectively
    
    
    1,182
    
    
    
    1,276Investment in unconsolidated affiliate
    
    
    3,957
    
    
    
    4,106Other assets
    
    
    350
    
    
    
    338Total other assets
    
    
    14,899
    
    
    
    15,109Total Assets
    
    $
    104,676
    
    
    $
    110,834
 See accompanying notes to consolidated financial statements.
 3




---



##### Table of Contents



POWERSECURE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands, except share data)
 March 31,
    
    
    December 31,2009
    
    
    2008Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    3,758
    
    
    $
    5,817Accrued and other liabilities
    
    
    20,564
    
    
    
    23,147Restructuring charges payable
    
    
    1,119
    
    
    
    1,349Current income taxes payable
    
    
    45
    
    
    
    181Current unrecognized tax benefit
    
    
    79
    
    
    
    79Capital lease obligations
    
    
    726
    
    
    
    716Total current liabilities
    
    
    26,291
    
    
    
    31,289Longterm liabilites:Capital lease obligations
    
    
    5,016
    
    
    
    5,201Unrecognized tax benefit
    
    
    790
    
    
    
    790Deferred compensation
    
    
    471
    
    
    
    388Restructuring charges
    
    
    86
    
    
    
    355Total longterm liabilities
    
    
    6,363
    
    
    
    6,734Commitments and contingenciesStockholders Equity :PowerSecure International stockholders equity:Preferred stock  undesignated, $.01 par value; 2,000,000 shares
authorized; none issued and outstandingPreferred stock  Series C, $.01 par value; 500,000 shares
authorized; none issued and outstandingCommon stock, $.01 par value; 25,000,000 shares
authorized; 17,081,608 and 17,071,889 shares issued
and outstanding, respectively
    
    
    171
    
    
    
    171Additional paid-in-capital
    
    
    108,697
    
    
    
    108,384Accumulated deficit
    
    
    (36,880
    )
    
    
    (35,744
    )Total PowerSecure International stockholders equity
    
    
    71,988
    
    
    
    72,811Noncontrolling interest
    
    
    34
    
    
    
    Total stockholders equity
    
    
    72,022
    
    
    
    72,811Total Liabilities and Stockholders Equity
    
    $
    104,676
    
    
    $
    110,834
 See accompanying notes to consolidated financial statements.
 4




---



##### Table of Contents



POWERSECURE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share data)
 Three Months EndedMarch 31,2009
    
    
    2008Revenues
    
    $
    19,720
    
    
    $
    33,575Cost of sales
    
    
    13,846
    
    
    
    23,555Gross profit
    
    
    5,874
    
    
    
    10,020Operating expenses:General and administrative
    
    
    6,020
    
    
    
    7,243Selling, marketing and service
    
    
    831
    
    
    
    1,325Depreciation and amortization
    
    
    542
    
    
    
    457Research and development
    
    
    20
    
    
    
    19Total operating expenses
    
    
    7,413
    
    
    
    9,044Operating income (loss)
    
    
    (1,539
    )
    
    
    976Other income and (expenses):Management fees
    
    
    105
    
    
    
    149Interest and other income
    
    
    53
    
    
    
    226Interest and finance charges
    
    
    (174
    )
    
    
    (51
    )Equity income
    
    
    477
    
    
    
    964Income (loss) before income taxes
    
    
    (1,078
    )
    
    
    2,264Income tax provision
    
    
    (24
    )
    
    
    (312
    )Income (loss) from continuing operations
    
    
    (1,102
    )
    
    
    1,952Discontinued operationsLoss on disposal
    
    
    
    
    
    
    (42
    )Loss from operations, including tax benefit
of $2 in 2008
    
    
    
    
    
    
    (35
    )Loss on discontinued operations
    
    
    
    
    
    
    (77
    )Net income (loss)
    
    
    (1,102
    )
    
    
    1,875Less: Net income attributable to noncontrolling interest
    
    
    (34
    )
    
    
    Net income (loss) attributable to PowerSecure International
    
    $
    (1,136
    )
    
    $
    1,875Basic earnings (loss) per share attributable to
PowerSecure International common stockholders:Income (loss) from continuing operations
    
    $
    (0.07
    )
    
    $
    0.12Loss from discontinued operations
    
    
    .00
    
    
    
    (0.01
    )Net income (loss) attributable to PowerSecure
International common stockholders:
    
    $
    (0.07
    )
    
    $
    0.11Diluted earnings (loss) per share attributable to
PowerSecure International common stockholders:Income (loss) from continuing operations
    
    $
    (0.07
    )
    
    $
    0.11Loss from discontinued operations
    
    
    .00
    
    
    
    (0.00
    )Net income (loss) attributable to PowerSecure
International common stockholders:
    
    $
    (0.07
    )
    
    $
    0.11Amounts attributable to PowerSecure International common
stockholders:Income (loss) from continuing operations, net of tax
    
    $
    (1,136
    )
    
    $
    1,952Discontinued operations, net of tax
    
    
    
    
    
    
    (77
    )Net income (loss)
    
    $
    (1,136
    )
    
    $
    1,875
 See accompanying notes to consolidated financial statements.
 5




---



##### Table of Contents



POWERSECURE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
 Three MonthsEnded March 31,2009
    
    
    2008Cash flows from operating activities:Net income (loss)
    
    $
    (1,136
    )
    
    $
    1,875Adjustments to reconcile net income (loss) to net cash
used in operating activities:Depreciation and amortization
    
    
    542
    
    
    
    457Noncontrolling interest
    
    
    34
    
    
    
    Deferred income taxes
    
    
    
    
    
    
    65Loss on disposal of miscellaneous assets
    
    
    26
    
    
    
    5Equity in income of unconsolidated affiliate
    
    
    (477
    )
    
    
    (964
    )Distributions from unconsolidated affiliate
    
    
    607
    
    
    
    544Stock compensation expense
    
    
    354
    
    
    
    614Changes in operating assets and liabilities, net of
effect of aquisitons:Trade receivables, net
    
    
    4,855
    
    
    
    1,539Inventories
    
    
    (820
    )
    
    
    2,374Other current assets and liabilities
    
    
    606
    
    
    
    (1,916
    )Assets of discontinued operations held for sale
    
    
    
    
    
    
    2,400Other noncurrent assets
    
    
    (11
    )
    
    
    77Accounts payable
    
    
    (2,059
    )
    
    
    177Restructuring charges
    
    
    (499
    )
    
    
    (555
    )Accrued and other liabilities
    
    
    (2,583
    )
    
    
    (8,363
    )Liabilities of discontinued operations held for sale
    
    
    
    
    
    
    (755
    )Deferred compensation obligation
    
    
    83
    
    
    
    83Restricted annuity contract
    
    
    (21
    )
    
    
    (35
    )Net cash used in operating activities
    
    
    (499
    )
    
    
    (2,378
    )Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (582
    )
    
    
    (7,413
    )Additions to intangible rights and software development
    
    
    (72
    )
    
    
    (78
    )Proceeds from sale of property, plant and equipment
    
    
    6
    
    
    
    1Net cash used in investing activities
    
    
    (648
    )
    
    
    (7,490
    )Cash flows from financing activities:Proceeds from term loan
    
    
    
    
    
    
    2,584Proceeds from stock option exercises,
net of shares tendered
    
    
    (41
    )
    
    
    86Borrowings (payments) on line of credit
    
    
    
    
    
    
    Payments on capital lease obligations
    
    
    (175
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    (216
    )
    
    
    2,670NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (1,363
    )
    
    
    (7,198
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    24,316
    
    
    
    28,710CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    22,953
    
    
    $
    21,512
 See accompanying notes to consolidated financial statements.
 6




---



##### Table of Contents



POWERSECURE INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
 1. Description of Business and Basis of Presentation
 Description of Business
      7




---



##### Table of Contents



Basis of Presentation
 Organization 
   Principles of Consolidation 
 Reclassification
 Use of Estimates
 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements
 Revenue Recognition
 8




---



##### Table of Contents



9




---



##### Table of Contents



Cash and Cash Equivalents
 Concentration of Credit Risk
  Warranty Reserve
 Noncontrolling Interest
 10




---



##### Table of Contents



Share-Based Compensation
  Income Taxes
 Recent Accounting Pronouncements
 Accounting for Business Combinations
 11




---



##### Table of Contents



Derivative Instruments and Hedging Activities
 Useful Life of Intangible Assets
 Participating Securities
 Defensive Intangible Assets
 12




---



##### Table of Contents



Fair Value Accounting Standards
    Employers Disclosures about Postretirement Benefit Plan Assets
 3. Earnings (Loss) per Share
  13




---



##### Table of Contents



Three Months EndedMarch 31,2009
    
    
    2008Amounts attributable to PowerSecure International,
Inc. common stockholders:Income (loss) from continuing operations
    
    $
    (1,136
    )
    
    $
    1,952Loss from discontinued operations
    
    
    
    
    
    
    (77
    )Net income (loss)
    
    $
    (1,136
    )
    
    $
    1,875Basic weighted-average common
shares outstanding in period
    
    
    17,095
    
    
    
    16,897Add dilutive effects of stock
options and warrants
    
    
    
    
    
    
    622Diluted weighted-average common
shares outstanding in period
    
    
    17,095
    
    
    
    17,519Basic earnings (loss) per common share:Income (loss) from continuing operations
    
    $
    (0.07
    )
    
    $
    0.12Loss from discontinued operations
    
    
    
    
    
    
    (0.01
    )Basic earnings (loss) per common share
    
    $
    (0.07
    )
    
    $
    0.11Diluted earnings (loss) per common share:Income (loss) from continuing operations
    
    $
    (0.07
    )
    
    $
    0.11Loss from discontinued operations
    
    
    
    
    
    
    (0.00
    )Diluted earnings (loss) per common share
    
    $
    (0.07
    )
    
    $
    0.11
 4. Investment in Unconsolidated Affiliate
   14




---



##### Table of Contents



March 31,
    
    
    December 31,2009
    
    
    2008Total current assets
    
    $
    2,759
    
    
    $
    4,645Property, plant and equipment, net
    
    
    9,318
    
    
    
    8,067Total other assets
    
    
    14
    
    
    
    17Total assets
    
    $
    12,091
    
    
    $
    12,729Total current liabilities
    
    $
    1,272
    
    
    $
    1,393Long-term note payable
    
    
    3,355
    
    
    
    3,550Total shareholders equity
    
    
    7,464
    
    
    
    7,786Total liabilities and shareholders equity
    
    $
    12,091
    
    
    $
    12,729
 Three Months EndedMarch 31,2009
    
    
    2008Total revenues
    
    $
    2,986
    
    
    $
    4,889Total costs and expenses
    
    
    1,808
    
    
    
    2,231Net income
    
    $
    1,178
    
    
    $
    2,658
 5. Debt
 Line of Credit
    15




---



##### Table of Contents



16




---



##### Table of Contents



Equipment Line 
 6. Capital Lease Obligations
    17




---



##### Table of Contents



7. Share-Based Compensation
  Stock Plans
  Stock Options
  18




---



##### Table of Contents



WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Term (years)
    
    
    ValueBalance, December 31, 2008
    
    
    1,708
    
    
    $
    5.21Granted-Directors
    
    
    
    
    
    
    Granted-Employees
    
    
    
    
    
    
    Exercised
    
    
    (30
    )
    
    
    1.50Canceled
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Balance, March 31, 2009
    
    
    1,678
    
    
    $
    5.28
    
    
    
    5.52
    
    
    $
    (1.86
    )Exercisable, March 31, 2009
    
    
    1,306
    
    
    $
    4.68
    
    
    
    4.66
    
    
    $
    (1.26
    )
  WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Term (years)
    
    
    ValueBalance, December 31, 2007
    
    
    1,728
    
    
    $
    5.34Granted-Directors
    
    
    
    
    
    
    Granted-Employees
    
    
    20
    
    
    
    12.36Exercised
    
    
    (48
    )
    
    
    1.79Canceled
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Balance, March 31, 2008
    
    
    1,700
    
    
    $
    5.52
    
    
    
    5.82
    
    
    $
    6.32Exercisable, March 31, 2008
    
    
    1,348
    
    
    $
    4.12
    
    
    
    5.25
    
    
    $
    7.74
    19




---



##### Table of Contents



Restricted Stock Awards
  WeightedUnvested
    
    
    AverageRestricted
    
    
    Grant DateShares
    
    
    Fair ValueBalance, December 31, 2008
    
    
    628
    
    
    $
    12.06Granted
    
    
    
    
    
    
    Vested
    
    
    (69
    )
    
    
    12.11Forfeited
    
    
    
    
    
    
    Balance, March 31, 2009
    
    
    559
    
    
    $
    12.05
  WeightedUnvested
    
    
    AverageRestricted
    
    
    Grant DateShares
    
    
    Fair ValueBalance, December 31, 2007
    
    
    641
    
    
    $
    12.48Granted
    
    
    
    
    
    
    Vested
    
    
    (60
    )
    
    
    12.34Forfeited
    
    
    
    
    
    
    Balance, March 31, 2008
    
    
    581
    
    
    $
    12.49
  
    
    A total of 300,000 restricted shares will cliff vest in their entirety on August
15, 2012, provided the officer remains employed with us through that date.
 20




---



##### Table of Contents




    
    A total of 22,500 restricted shares will cliff vest in their entirety on December
10, 2012, provided the officers remain employed with us through that date.
    
    The remaining 193,500 restricted shares vest in three equal annual installments,
commencing when our annual report on Form 10-K for the year ended December 31, 2009 is
filed, but only upon the achievement of performance targets each year relating to our
net income for fiscal years 2009 through 2012.
    
    All restricted and unvested shares will automatically vest upon a change in
control.
  8. Commitments and Contingencies
    21




---



##### Table of Contents



9. Income Taxes
  10. Segment Information
  Energy and Smart Grid Solutions
 22




---



##### Table of Contents



Energy Services
   23




---



##### Table of Contents



Three Months Ended March 31, 2009Energy and
    
    
    
    
    
    
    UnallocatedSmart Grid
    
    
    Energy
    
    
    CorporateSolutions
    
    
    Services
    
    
    Costs
    
    
    TotalRevenues
    
    $
    15,215
    
    
    $
    4,505
    
    
    $
    
    
    
    $
    19,720Cost of sales
    
    
    10,441
    
    
    
    3,405
    
    
    
    
    
    
    
    13,846Gross profit
    
    
    4,774
    
    
    
    1,100
    
    
    
    
    
    
    
    5,874Operating expenses:General and administrative
    
    
    4,393
    
    
    
    514
    
    
    
    1,113
    
    
    
    6,020Selling, marketing and service
    
    
    826
    
    
    
    5
    
    
    
    
    
    
    
    831Depreciation and amortization
    
    
    461
    
    
    
    80
    
    
    
    1
    
    
    
    542Reasearch and development
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    20Total operating expenses
    
    
    5,700
    
    
    
    599
    
    
    
    1,114
    
    
    
    7,413Operating income (loss)
    
    
    (926
    )
    
    
    501
    
    
    
    (1,114
    )
    
    
    (1,539
    )Other income and (expenses)Management fees
    
    
    
    
    
    
    105
    
    
    
    
    
    
    
    105Equity income
    
    
    
    
    
    
    477
    
    
    
    
    
    
    
    477Interest and other income
    
    
    3
    
    
    
    
    
    
    
    50
    
    
    
    53Interest and finance charges
    
    
    (107
    )
    
    
    
    
    
    
    (67
    )
    
    
    (174
    )Income (loss) before
income taxes
    
    $
    (1,030
    )
    
    $
    1,083
    
    
    $
    (1,131
    )
    
    $
    (1,078
    )Total capital expenditures
    
    $
    541
    
    
    $
    113
    
    
    $
    
    
    
    $
    654Total investment in
unconsolidated affiliate
    
    $
    
    
    
    $
    3,957
    
    
    $
    
    
    
    $
    3,957Total assets
    
    $
    69,340
    
    
    $
    15,709
    
    
    $
    19,627
    
    
    $
    104,676
 Three Months Ended March 31, 2008Energy and
    
    
    
    
    
    
    UnallocatedSmart Grid
    
    
    Energy
    
    
    CorporateSolutions
    
    
    Services
    
    
    Costs
    
    
    TotalRevenues
    
    $
    29,106
    
    
    $
    4,469
    
    
    $
    
    
    
    $
    33,575Cost of sales
    
    
    20,303
    
    
    
    3,252
    
    
    
    
    
    
    
    23,555Gross profit
    
    
    8,803
    
    
    
    1,217
    
    
    
    
    
    
    
    10,020Operating expenses:General and administrative
    
    
    5,465
    
    
    
    422
    
    
    
    1,356
    
    
    
    7,243Selling, marketing and service
    
    
    1,322
    
    
    
    3
    
    
    
    
    
    
    
    1,325Depreciation and amortization
    
    
    398
    
    
    
    58
    
    
    
    1
    
    
    
    457Reasearch and development
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    19Total operating expenses
    
    
    7,204
    
    
    
    483
    
    
    
    1,357
    
    
    
    9,044Operating income (loss)
    
    
    1,599
    
    
    
    734
    
    
    
    (1,357
    )
    
    
    976Other income and (expenses)Management fees
    
    
    
    
    
    
    149
    
    
    
    
    
    
    
    149Equity income
    
    
    
    
    
    
    964
    
    
    
    
    
    
    
    964Interest and other income
    
    
    31
    
    
    
    17
    
    
    
    178
    
    
    
    226Interest and finance charges
    
    
    (27
    )
    
    
    
    
    
    
    (24
    )
    
    
    (51
    )Income (loss) before
income taxes
    
    $
    1,603
    
    
    $
    1,864
    
    
    $
    (1,203
    )
    
    $
    2,264Total capital expenditures
    
    $
    7,449
    
    
    $
    42
    
    
    $
    
    
    
    $
    7,491Total investment in
unconsolidated affiliate
    
    $
    
    
    
    $
    4,057
    
    
    $
    
    
    
    $
    4,057Total assets
    
    $
    67,317
    
    
    $
    16,806
    
    
    $
    24,647
    
    
    $
    108,770
 24




---



##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
 Introduction
  Overview
 ®
 ® ® ®
 ®
   25




---



##### Table of Contents



Recent Developments
 ®
   26




---



##### Table of Contents



Backlog
  Revenue backlog to be recognized after March 31, 2009
 Anticipated
    
    Estimated PrimaryDescription
    
    Revenue
    
    Recognition PeriodProject-based RevenueNear term
    
    $37 Million
    
    2Q09-4Q09Project-based RevenueLong term
    
    $17 Million
    
    2010-2011Recurring Revenue
    
    $33 Million
    
    2Q09 through 2015Backlog to be recognized after March 31, 2009
    
    $87 Million
   Operating Segments
  Energy and Smart Grid Solutions
 ®
 27




---



##### Table of Contents



Energy Services
  Results of Operations
  First Quarter 2009 Compared to First Quarter 2008
 Revenues
  Period-over-PeriodQuarter Ended March 31,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Segment Revenues:Energy and Smart Grid Solutions
    
    $
    15,215
    
    
    $
    29,106
    
    
    $
    (13,891
    )
    
    
    -47.7
    %Energy Services
    
    
    4,505
    
    
    
    4,469
    
    
    
    36
    
    
    
    0.8
    %Total
    
    $
    19,720
    
    
    $
    33,575
    
    
    $
    (13,855
    )
    
    
    -41.3
    %
  ® ®
 28




---



##### Table of Contents



Period-over-PeriodQuarter Ended March 31,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Revenues from Publix projects
    
    $
    2,042
    
    
    $
    13,866
    
    
    $
    (11,824
    )
    
    
    -85.3
    %Revenues from all other customers
    
    
    13,173
    
    
    
    15,240
    
    
    
    (2,067
    )
    
    
    -13.6
    %Total
    
    $
    15,215
    
    
    $
    29,106
    
    
    $
    (13,891
    )
    
    
    -47.7
    %Publix as a percentage of total Energy and
Smart Grid Solutions segment revenues
    
    
    13.4
    %
    
    
    47.6
    %
    29




---



##### Table of Contents



Gross Profit and Gross Profit Margins
  Period-over-PeriodQuarter Ended March 31,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Segment Cost of Sales and Services:Energy and Smart Grid Solutions
    
    $
    10,441
    
    
    $
    20,303
    
    
    $
    (9,862
    )
    
    
    -48.6
    %Energy Services
    
    
    3,405
    
    
    
    3,252
    
    
    
    153
    
    
    
    4.7
    %Total
    
    $
    13,846
    
    
    $
    23,555
    
    
    $
    (9,709
    )
    
    
    -41.2
    %Segment Gross Profit:Energy and Smart Grid Solutions
    
    $
    4,774
    
    
    $
    8,803
    
    
    $
    (4,029
    )
    
    
    -45.8
    %Energy Services
    
    
    1,100
    
    
    
    1,217
    
    
    
    (117
    )
    
    
    -9.6
    %Total
    
    $
    5,874
    
    
    $
    10,020
    
    
    $
    (4,146
    )
    
    
    -41.4
    %Segment Gross Profit Margins:Energy and Smart Grid Solutions
    
    
    31.4
    %
    
    
    30.2
    %Energy Services
    
    
    24.4
    %
    
    
    27.2
    %Total
    
    
    29.8
    %
    
    
    29.8
    %
   30




---



##### Table of Contents




    
    The absolute level of revenue achieved in any particular period, given that portions
of our cost of sales are relatively fixed over the near-term;
    
    Our ability to improve our operating efficiency and benefit from economies of scale,
including anticipated reductions in gross profit margins when sales are lower;
    
    Our ability to manage our materials and labor costs;
    
    The geographic density of our projects;
    
    The mix of higher and lower margin products and services;
    
    The selling price of our products and services;
    
    The rate of growth of our new businesses, which tend to incur costs in excess of
revenues in their earlier phases and then become profitable and more efficient over
time if they are successful; and
    
    Other factors described below under Fluctuations.
  Operating Expense
  31




---



##### Table of Contents



Period-over-PeriodQuarter Ended March 31,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Consolidated Operating Expenses:General and administrative
    
    $
    6,020
    
    
    $
    7,243
    
    
    $
    (1,223
    )
    
    
    -16.9
    %Selling, marketing and service
    
    
    831
    
    
    
    1,325
    
    
    
    (494
    )
    
    
    -37.3
    %Depreciation and amortization
    
    
    542
    
    
    
    457
    
    
    
    85
    
    
    
    18.6
    %Research and development
    
    
    20
    
    
    
    19
    
    
    
    1
    
    
    
    5.3
    %Total
    
    $
    7,413
    
    
    $
    9,044
    
    
    $
    (1,631
    )
    
    
    -18.0
    %
  General and Administrative Expenses.
 Period-over-PeriodQuarter Ended March 31,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Segment G&A Expenses:Energy and Smart Grid Solutions:Personnel costs
    
    $
    3,281
    
    
    $
    3,473
    
    
    $
    (192
    )
    
    
    -5.5
    %Vehicle lease and rental
    
    
    323
    
    
    
    479
    
    
    
    (156
    )
    
    
    -32.6
    %Insurance
    
    
    266
    
    
    
    199
    
    
    
    67
    
    
    
    33.7
    %Rent-office and equipment
    
    
    168
    
    
    
    234
    
    
    
    (66
    )
    
    
    -28.2
    %Professional fees and consulting
    
    
    43
    
    
    
    227
    
    
    
    (184
    )
    
    
    -81.1
    %Travel
    
    
    186
    
    
    
    206
    
    
    
    (20
    )
    
    
    -9.7
    %Other
    
    
    126
    
    
    
    647
    
    
    
    (521
    )
    
    
    -80.5
    %Energy Services
    
    
    514
    
    
    
    421
    
    
    
    93
    
    
    
    22.1
    %Unallocated Corporate Costs
    
    
    1,113
    
    
    
    1,357
    
    
    
    (244
    )
    
    
    -18.0
    %Total
    
    $
    6,020
    
    
    $
    7,243
    
    
    $
    (1,223
    )
    
    
    -16.9
    %
 32




---



##### Table of Contents



Selling, Marketing and Service Expenses.
 33




---



##### Table of Contents



Period-over-PeriodQuarter Ended March 31,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Segment Selling, Marketing and Service:Energy and Smart Grid Solutions:Salaries
    
    $
    456
    
    
    $
    536
    
    
    $
    (80
    )
    
    
    -14.9
    %Commission
    
    
    219
    
    
    
    507
    
    
    
    (288
    )
    
    
    -56.8
    %Travel
    
    
    129
    
    
    
    169
    
    
    
    (40
    )
    
    
    -23.7
    %Advertising and promotion
    
    
    37
    
    
    
    98
    
    
    
    (61
    )
    
    
    -62.2
    %Bad debt expense (recovery)
    
    
    (15
    )
    
    
    12
    
    
    
    (27
    )
    
    
    -225.0
    %Energy Services
    
    
    5
    
    
    
    3
    
    
    
    2
    
    
    
    66.7
    %Total
    
    $
    831
    
    
    $
    1,325
    
    
    $
    (494
    )
    
    
    -37.3
    %
  Depreciation and Amortization Expenses. ®
 Research and Development Expenses.
 Other Income and Expenses
  34




---



##### Table of Contents



Period-over-PeriodQuarter Ended March 31,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Other Segment Income and
(Expenses):Energy and Smart Grid Solutions:Interest and other income
    
    $
    3
    
    
    $
    31
    
    
    $
    (28
    )
    
    
    -90.3
    %Interest and finance charges
    
    
    (107
    )
    
    
    (27
    )
    
    
    (80
    )
    
    
    296.3
    %Segment total
    
    
    (104
    )
    
    
    4
    
    
    
    (108
    )Energy Services:Management fees
    
    
    105
    
    
    
    149
    
    
    
    (44
    )
    
    
    -29.5
    %Equity income
    
    
    477
    
    
    
    964
    
    
    
    (487
    )
    
    
    -50.5
    %Interest and other income
    
    
    
    
    
    
    17
    
    
    
    (17
    )
    
    
    -100.0
    %Segment total
    
    
    582
    
    
    
    1,130
    
    
    
    (548
    )Unallocated Corporate:Interest and other income
    
    
    50
    
    
    
    178
    
    
    
    (128
    )
    
    
    -71.9
    %Interest and finance charges
    
    
    (67
    )
    
    
    (24
    )
    
    
    (43
    )
    
    
    -179.2
    %Income tax benefit (provision)
    
    
    (24
    )
    
    
    (312
    )
    
    
    288
    
    
    
    92.3
    %Segment total
    
    
    (41
    )
    
    
    (158
    )
    
    
    117Total
    
    $
    437
    
    
    $
    976
    
    
    $
    (539
    )
 Interest and Other Income.
 Interest and Finance Charges.
 Management Fees.
 35




---



##### Table of Contents



Equity Income.
 Income Taxes.
 Fluctuations
  
    
    the effects of general economic conditions, including the current significant
downturn in the economy and financial crisis in the capital and credit markets, and
the strong likelihood of continuing future economic and market challenges negatively
impacting our business and our revenues and profit, including the negative impact
these challenging market conditions will have on the timing of and amounts of orders
from our customers, and on our access to capital to finance our business;
    
    the size, timing and terms of sales and orders, including large customer orders, as
well as the effects of the timing of project phases of completion, customers delaying,
deferring or canceling purchase orders or making smaller purchases than expected;
    
    our ability to continue to grow our business and generate increased revenues from
customers other than Publix, our largest customer from 2006-2008, and our ability to
replace the revenues from Publix with new revenue streams;
 36




---



##### Table of Contents




    
    our ability to increase our revenues through long-term recurring revenue projects,
recognizing that increased revenues from recurring revenue projects requires
significant up-front capital expenditures and protracts revenue and profit
recognition, while increasing gross margins over the long-term; as well as our ability
to sell, complete, and recognize satisfactory levels of quarterly revenue and profits
related to our project-based sales, in order to maintain current profits, cash flow,
and covenants related to our debt facilities and successfully finance the recurring
portion of our business model;
    
    our ability to obtain adequate supplies of key components and materials of suitable
quality for our products on a timely and cost-effective basis, including the impact of
potential supply line constraints, substandard parts, and fluctuations in the cost of
raw materials and commodity prices;
    
    the performance of our products, services and technologies, and the ability of our
systems to meet the performance standards they are designed and built to deliver to
our customers, including but not limited to our recurring revenue projects for which
we retain the on-going risks associated with ownership of the systems;
    
    our ability to access significant capital resources on a timely basis in order to
fulfill large customer orders and finance capital required for recurring revenue
projects;
    
    our ability to implement our business plans and strategies and the timing of such
implementation;
    
    the pace of revenue and profit realization from our new businesses and the
development and growth of their markets;
    
    the timing, pricing and market acceptance of our new products and services;
    
    changes in our pricing policies and those of our competitors;
    
    variations in the length of our sales cycle and product and service delivery and
construction process;
    
    changes in the mix of products and services having differing margins;
    
    changes in our operating expenses, including unforeseen or unanticipated expenses;
    
    changes in our valuation allowance for our net deferred tax asset, and the
resulting impact on current tax expense, future tax expense, and balance sheet account
balances;
    
    the effects of severe weather conditions, such as hurricanes, on the business
operations of our customers and the potential effect on our results of operations;
    
    the life cycles of our products and services, and competitive alternatives in the
marketplace;
    
    budgeting cycles of utilities and other industrial, commercial, and institutional
customers, including impacts of the current downturn in the economy and capital
markets crisis on capital projects and other spending items;
    
    changes and uncertainties in the lead times required to obtain the necessary
permits and other governmental and regulatory approvals for projects;
    
    the development and maintenance of business relationships with strategic partners;
    
    economic conditions in the energy industry, especially in the natural gas and
electricity sectors including the effect of changes in energy prices;
    
    changes in the prices charged by our suppliers;
 37




---



##### Table of Contents




    
    the effects of governmental regulations and regulatory changes in our markets;
    
    the effects of litigation, claims and other proceedings; and
    
    our ability to make and obtain the expected benefits from acquisitions of
technology or businesses, and the costs related to such acquisitions.
      38




---



##### Table of Contents



Liquidity and Capital Resources
 Overview
  
    
    operations;
    
    inventory;
    
    accounts receivable;
    
    property and equipment expenditures, including capital expenditures related to
recurring revenue projects;
    
    additional equity investments in our WaterSecure operations;
    
    software purchases or development;
    
    debt service requirements;
    
    lease obligations;
    
    restructuring obligations;
    
    deferred compensation obligations; and
    
    business and technology acquisitions and other growth transactions.
 Working Capital
  Cash Flows
  39




---



##### Table of Contents



Quarter Ended March 31,2009
    
    
    2008Net cash flows used in operating activities
    
    $
    (499
    )
    
    $
    (2,378
    )Net cash flows used in investing activities
    
    
    (648
    )
    
    
    (7,490
    )Net cash provided by (used in) financing activities
    
    
    (216
    )
    
    
    2,670Net decrease in cash and cash equivalents
    
    $
    (1,363
    )
    
    $
    (7,198
    )
 Cash Used in Operating Activities
   
    
    our net loss of $1.1 million;
    
    non-cash charges of $0.5 million in depreciation and amortization;
    
    stock-based compensation expense of $0.4 million;
    
    cash distributions from our WaterSecure operations of $0.6 million partially offset
by non-cash equity income from those operations of $0.5 million;
    
    a decrease of $4.9 million in accounts receivable;
    
    an increase of $0.8 million in inventories;
    
    a decrease of $0.6 million in other current assets and liabilities
    
    a decrease of $2.0 million of accounts payable;
    
    a decrease of $2.6 million of accrued expenses; and
    
    cash payments of $0.5 million on our restructuring obligations.
  
    
    our net income of $1.9 million;
    
    non-cash charges of $0.5 million in depreciation and amortization;
    
    stock-based compensations expense of $0.6 million;
    
    non-cash equity income from our WaterSecure operations of $1.0 million partially
offset by cash distributions from those operations of $0.5 million
    
    a decrease of $1.5 million in accounts receivable;
    
    a decrease of $2.4 million in inventories;
    
    an increase of $1.9 million of other current assets and liabilities;
    
    a net $1.6 million decrease in assets and liabilities of discontinued operations;
    
    an increase of $0.2 million of accounts payable;
    
    a decrease of $8.4 million of accrued expenses; and
    
    cash payments of $0.6 million on our restructuring obligations.
 Cash Used in Investing Activities
 40




---



##### Table of Contents



Cash Provided by (Used in) Financing Activities
  Capital Spending
   Indebtedness
 Line of Credit .
   41




---



##### Table of Contents



42




---



##### Table of Contents



Equipment Line .
 Capital Lease Obligations.
  43




---



##### Table of Contents



Restructuring Obligations.
 Contractual Obligations and Commercial Commitments
  44




---



##### Table of Contents



Payments Due by PeriodRemainder
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    of 2009
    
    
    1 - 3 Years
    
    
    4 - 5 Years
    
    
    5 YearsContractual ObligationsCredit facility (1)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Restructuring obligations
    
    
    1,205
    
    
    
    850
    
    
    
    355
    
    
    
    
    
    
    
    Capital lease obligations (2)
    
    
    6,859
    
    
    
    762
    
    
    
    2,034
    
    
    
    2,032
    
    
    
    2,031Operating leases
    
    
    3,108
    
    
    
    741
    
    
    
    1,281
    
    
    
    974
    
    
    
    112Deferred compensation (3)
    
    
    2,661
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,661Liabilities of discontinued operations
    
    
    27
    
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    Series B preferred stock
    
    
    104
    
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    13,964
    
    
    $
    2,484
    
    
    $
    3,670
    
    
    $
    3,006
    
    
    $
    4,804
 
 (1)
    
    Total repayments are based upon borrowings outstanding as of March 31, 2009, not
actual or projected borrowings after such date. Repayments do not include interest that
may become due and payable in any future period.(2)
    
    Repayment amounts include interest on the capital lease obligation.(3)
    
    Total amount represents our expected obligation on the deferred compensation
arrangement and does not include the value of the restricted annuity contract, or interest
earnings thereon, that we purchased to fund our obligation. Off-Balance Sheet Arrangements
  Liquidity
  45




---



##### Table of Contents



Critical Accounting Policies
   46




---



##### Table of Contents




    
    revenue recognition;
    
    allowance for doubtful accounts;
    
    inventories;
    
    warranty reserve;
    
    impairment of long-lived assets;
    
    deferred tax valuation allowance;
    
    uncertain tax positions;
    
    costs of exit or disposal activities and similar nonrecurring charges; and
    
    stock-based compensation.
  Recent Accounting Pronouncements
 Noncontrolling Interest
 Accounting for Business Combinations
 47




---



##### Table of Contents



Derivative Instruments and Hedging Activities
 Useful Life of Intangible Assets
 Participating Securities
 Defensive Intangible Assets
 48




---



##### Table of Contents



Fair Value Accounting Standards
    Employers Disclosures about Postretirement Benefit Plan Assets
 49




---



##### Table of Contents



Cautionary Note Regarding Forward-Looking Statements
  
    
    our prospects, including our future revenues, expenses, net income, margins,
profitability, cash flow, liquidity, financial condition and results of operations and
our expectations about realizing our backlog;
    
    the effects on our business, financial condition and results of operations of
current and future economic, business, market and regulatory conditions, including the
current downturn in the economy and the adverse effects of the credit crisis on our
customers and their capital spending and ability to finance purchases of our products,
services, technologies and systems;
    
    our products and services, including their quality and performance, their benefits
to our customers and their ability to meet our customers requirements;
    
    our markets, including market position, market share, market demand;
    
    our ability to successfully develop, operate, grow and diversify our operations and
businesses;
    
    our business plans, strategies, goals and objectives, and our ability to
successfully achieve them;
    
    the sufficiency of our capital resources, including our cash and cash equivalents,
funds generated from operations, availability of borrowings under our credit and
financing arrangements and other capital resources, to meet our future working
capital, capital expenditure, lease and debt service and business growth needs;
    
    industry trends and customer preferences;
    
    the nature and intensity of our competition, and our ability to successfully
compete in our markets;
    
    business acquisitions, combinations, sales, alliances, ventures and other similar
business transactions and relationships; and
    
    the effects on our business, financial condition and results of operations of
litigation and other claims and proceedings that arise from time to time.
  50




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Interest Rate Risk.
  Commodity Price Risk
 51




---



##### Table of Contents



Foreign Exchange Risk
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  Limitations in Control Systems
  52




---



##### Table of Contents



53




---



##### Table of Contents



PART II
OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 5. Other Information
  
 Item 6. Exhibits
 (31.1)
    
    Certification of Chief Executive
Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities
Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith.)(31.2)
    
    Certification of Chief Financial
Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities
Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith.)(32.1)
    
    Certification of Chief Executive
Officer pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) or 15d-14(b)
under the Securities Exchange Act of 1934, as amended, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith.)(32.2)
    
    Certification of Chief Financial
Officer pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) or 15d-14(b)
under the Securities Exchange Act of 1934, as amended, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith.)
 54




---



##### Table of Contents



SIGNATURES
  POWERSECURE INTERNATIONAL, INC.Date: May 8, 2009
    By:
    /s/ Sidney HintonSidney HintonPresident and Chief Executive OfficerDate: May 8, 2009
    By:
    /s/ Christopher T. HutterChristopher T. HutterVice President, Chief Financial Officer,
Treasurer and Assistant Secretary 55