##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 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
(State or other jurisdiction of 
incorporation or organization)
    
    84-1169358
(I.R.S. Employer
Identification No.)1609 Heritage Commerce Court 
Wake Forest, North Carolina
(Address of principal executive offices)
    
    27587
(Zip code)
 
 þ o
 o o
  Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o o þ




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##### 



POWERSECURE INTERNATIONAL, INC.
 FORM 10-Q
For the Quarterly Period Ended September 30, 2009
 TABLE OF CONTENTS
 PagePART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsUnaudited Consolidated Balance Sheets -
September 30, 2009 and December 31, 2008
    
    
    3Unaudited Consolidated Statements of Operations -
For the Three and Nine Months Ended September 30, 2009 and
September 30, 2008
    
    
    5Unaudited Consolidated Statements of Cash Flows -
For the Nine Months Ended September 30, 2009 and
September 30, 2008
    
    
    6Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    30Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    66Item 4.
    
    Controls and Procedures
    
    
    67PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    69Item 1A.
    
    Risk Factors
    
    
    69Item 6.
    
    Exhibits
    
    
    69Signatures
    
    
    
    
    70EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### 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)
 September 30,
    
    
    December 31,Assets
    
    2009
    
    
    2008Current Assets:Cash and cash equivalents
    
    $
    11,892
    
    
    $
    24,316Trade receivables, net of allowance for doubtful accounts
of $295 and $276, respectively
    
    
    30,057
    
    
    
    25,215Inventories
    
    
    25,274
    
    
    
    19,713Deferred income taxes
    
    
    2,919
    
    
    
    2,919Prepaid expenses and other current assets
    
    
    917
    
    
    
    1,680Total current assets
    
    
    71,059
    
    
    
    73,843Property, plant and equipment:Equipment
    
    
    22,665
    
    
    
    20,297Furniture and fixtures
    
    
    669
    
    
    
    650Land, building and improvements
    
    
    4,794
    
    
    
    4,674Total property, plant and equipment, at cost
    
    
    28,128
    
    
    
    25,621Less accumulated depreciation and amortization
    
    
    4,928
    
    
    
    3,739Property, plant and equipment, net
    
    
    23,200
    
    
    
    21,882Other assets:Goodwill
    
    
    7,256
    
    
    
    7,256Restricted annuity contract
    
    
    2,198
    
    
    
    2,133Intangible rights and capitalized software costs, net of
accumulated amortization of $1,798 and $1,453, respectively
    
    
    1,325
    
    
    
    1,276Investment in unconsolidated affiliate
    
    
    3,739
    
    
    
    4,106Other assets
    
    
    285
    
    
    
    338Total other assets
    
    
    14,803
    
    
    
    15,109Total Assets
    
    $
    109,062
    
    
    $
    110,834
 See accompanying notes to consolidated financial statements.
 3




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##### Table of Contents



POWERSECURE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands, except share data)
 September 30,
    
    
    December 31,2009
    
    
    2008Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    5,278
    
    
    $
    5,817Accrued and other liabilities
    
    
    19,620
    
    
    
    23,147Restructuring charges payable
    
    
    608
    
    
    
    1,349Current income taxes payable
    
    
    50
    
    
    
    181Current unrecognized tax benefit
    
    
    243
    
    
    
    79Capital lease obligations
    
    
    746
    
    
    
    716Total current liabilities
    
    
    26,545
    
    
    
    31,289Long-term liabilites:Capital lease obligations
    
    
    4,638
    
    
    
    5,201Unrecognized tax benefit
    
    
    812
    
    
    
    790Deferred compensation
    
    
    637
    
    
    
    388Restructuring charges
    
    
    
    
    
    
    355Total long-term liabilities
    
    
    6,087
    
    
    
    6,734Commitments and contingencies (Note 9)Stockholders 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; 17,216,900 and 17,071,889 shares issued
and outstanding, respectively
    
    
    172
    
    
    
    171Additional paid-in-capital
    
    
    109,884
    
    
    
    108,384Accumulated deficit
    
    
    (34,540
    )
    
    
    (35,744
    )Total PowerSecure International stockholders equity
    
    
    75,516
    
    
    
    72,811Noncontrolling interest
    
    
    914
    
    
    
    Total stockholders equity
    
    
    76,430
    
    
    
    72,811Total Liabilities and Stockholders Equity
    
    $
    109,062
    
    
    $
    110,834
 See accompanying notes to consolidated financial statements.
 4




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##### Table of Contents



POWERSECURE INTERNATIONAL, INC. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)  (in thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues
    
    $
    27,721
    
    
    $
    33,557
    
    
    $
    72,576
    
    
    $
    109,084Cost of sales
    
    
    17,469
    
    
    
    22,646
    
    
    
    48,195
    
    
    
    74,353Gross profit
    
    
    10,252
    
    
    
    10,911
    
    
    
    24,381
    
    
    
    34,731Operating expenses:General and administrative
    
    
    6,399
    
    
    
    7,142
    
    
    
    18,511
    
    
    
    22,003Selling, marketing and service
    
    
    997
    
    
    
    1,252
    
    
    
    2,797
    
    
    
    4,465Depreciation and amortization
    
    
    657
    
    
    
    544
    
    
    
    1,762
    
    
    
    1,528Total operating expenses
    
    
    8,053
    
    
    
    8,938
    
    
    
    23,070
    
    
    
    27,996Operating income
    
    
    2,199
    
    
    
    1,973
    
    
    
    1,311
    
    
    
    6,735Other income and (expenses):Management fees
    
    
    106
    
    
    
    137
    
    
    
    309
    
    
    
    450Interest and other income
    
    
    36
    
    
    
    89
    
    
    
    127
    
    
    
    434Interest and finance charges
    
    
    (144
    )
    
    
    (55
    )
    
    
    (463
    )
    
    
    (158
    )Equity income
    
    
    429
    
    
    
    840
    
    
    
    1,307
    
    
    
    3,030Income before income taxes
    
    
    2,626
    
    
    
    2,984
    
    
    
    2,591
    
    
    
    10,491Income tax provision
    
    
    (423
    )
    
    
    (70
    )
    
    
    (473
    )
    
    
    (684
    )Income from continuing operations
    
    
    2,203
    
    
    
    2,914
    
    
    
    2,118
    
    
    
    9,807Discontinued operationsLoss on disposal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42
    )Loss from operations, including tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35
    )Loss on discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77
    )Net income
    
    
    2,203
    
    
    
    2,914
    
    
    
    2,118
    
    
    
    9,730Less: Net income attributable to noncontrolling
interest
    
    
    (549
    )
    
    
    
    
    
    
    (914
    )
    
    
    Net income attributable to PowerSecure International
    
    $
    1,654
    
    
    $
    2,914
    
    
    $
    1,204
    
    
    $
    9,730Basic earnings (loss) per share attributable to
PowerSecure International common stockholders:Income from continuing operations
    
    $
    0.10
    
    
    $
    0.17
    
    
    $
    0.07
    
    
    $
    0.58Loss from discontinued operations
    
    
    .00
    
    
    
    .00
    
    
    
    .00
    
    
    
    (0.01
    )Net income attributable to PowerSecure
International common stockholders:
    
    $
    0.10
    
    
    $
    0.17
    
    
    $
    0.07
    
    
    $
    0.57Diluted earnings (loss) per share attributable to
PowerSecure International common stockholders:Income from continuing operations
    
    $
    0.09
    
    
    $
    0.17
    
    
    $
    0.07
    
    
    $
    0.56Loss from discontinued operations
    
    
    .00
    
    
    
    .00
    
    
    
    .00
    
    
    
    (0.00
    )Net income attributable to PowerSecure
International common stockholders:
    
    $
    0.09
    
    
    $
    0.17
    
    
    $
    0.07
    
    
    $
    0.56Amounts attributable to PowerSecure International
common stockholders:Income from continuing operations, net of tax
    
    $
    1,654
    
    
    $
    2,914
    
    
    $
    1,204
    
    
    $
    9,807Discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77
    )Net income
    
    $
    1,654
    
    
    $
    2,914
    
    
    $
    1,204
    
    
    $
    9,730
 See accompanying notes to consolidated financial statements.
 5




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POWERSECURE INTERNATIONAL, INC. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)  (in thousands)
 Nine MonthsEnded September 30,2009
    
    
    2008Cash flows from operating activities:Net income
    
    $
    1,204
    
    
    $
    9,730Adjustments to reconcile net income to net cash
used in operating activities:Depreciation and amortization
    
    
    1,762
    
    
    
    1,528Noncontrolling interest
    
    
    914
    
    
    
    Deferred income taxes
    
    
    
    
    
    
    65Loss on disposal of miscellaneous assets
    
    
    32
    
    
    
    162Equity in income of unconsolidated affiliate
    
    
    (1,307
    )
    
    
    (3,030
    )Distributions from unconsolidated affiliate
    
    
    1,618
    
    
    
    3,375Stock compensation expense
    
    
    1,202
    
    
    
    1,576Changes in operating assets and liabilities, net of
effect of aquisitons:Trade receivables, net
    
    
    (4,842
    )
    
    
    (2,538
    )Inventories
    
    
    (5,234
    )
    
    
    1,670Other current assets and liabilities
    
    
    631
    
    
    
    (52
    )Assets of discontinued operations held for sale
    
    
    
    
    
    
    2,400Other noncurrent assets
    
    
    53
    
    
    
    62Accounts payable
    
    
    (539
    )
    
    
    (2,834
    )Restructuring charges
    
    
    (1,096
    )
    
    
    (3,610
    )Accrued and other liabilities
    
    
    (3,526
    )
    
    
    (14,328
    )Liabilities of discontinued operations held for sale
    
    
    
    
    
    
    (755
    )Unrecognized tax benefits
    
    
    188
    
    
    
    78Deferred compensation obligation
    
    
    249
    
    
    
    249Restricted annuity contract
    
    
    (65
    )
    
    
    (105
    )Net cash used in operating activities
    
    
    (8,756
    )
    
    
    (6,357
    )Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (2,202
    )
    
    
    (15,857
    )Additions to intangible rights and software development
    
    
    (442
    )
    
    
    (200
    )Acquisition
    
    
    (800
    )
    
    
    (710
    )Proceeds from sale of property, plant and equipment
    
    
    12
    
    
    
    6Net cash used in investing activities
    
    
    (3,432
    )
    
    
    (16,761
    )Cash flows from financing activities:Proceeds from term loan
    
    
    
    
    
    
    2,584Proceeds from stock option and warrant exercises, net
of shares tendered
    
    
    298
    
    
    
    236Principal payments on long-term notes payable
    
    
    
    
    
    
    (97
    )Borrowings (payments) on line of credit
    
    
    
    
    
    
    Payments on capital lease obligations
    
    
    (534
    )
    
    
    (1
    )Net cash provided by (used in) financing activities
    
    
    (236
    )
    
    
    2,722NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (12,424
    )
    
    
    (20,396
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    24,316
    
    
    
    28,710CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    11,892
    
    
    $
    8,314
 See accompanying notes to consolidated financial statements.
 6




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##### 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




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Basis of Presentation
 Organization 
   Principles of Consolidation 
 Noncontrolling Interest in EfficientLights 
 Reclassification
 Use of Estimates
 8




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2. Summary of Significant Accounting Policies and Recent Accounting Standards
 Revenue Recognition
     9




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##### Table of Contents



Cash and Cash Equivalents
 Concentration of Credit Risk
  Warranty Reserve
 10




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##### Table of Contents



Share-Based Compensation
  Income Taxes
 Recent Accounting Standards
 Accounting Standards Codification The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Standards
 Noncontrolling Interest Consolidation
  11




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Accounting for Business Combinations Business Combinations
   Fair Value Measurements Fair Value Measurements and Disclosures
 12




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Derivative Instruments and Hedging Activities Derivatives and Hedging Activities
 Useful Life of Intangible Assets Intangibles  Goodwill and Other
  Defensive Intangible Assets Intangibles 
Goodwill and Other
 Participating Securities Earnings per Share
 13




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Three Months
    
    Nine MonthsEnded
    
    EndedPer Share Amounts:
    
    September 30, 2008
    
    September 30, 2008As Previously Reported:Income from continuing
operationsBasic
    
    $
    0.18
    
    
    $
    0.60Diluted
    
    $
    0.17
    
    
    $
    0.57Net incomeBasic
    
    $
    0.18
    
    
    $
    0.59Diluted
    
    $
    0.17
    
    
    $
    0.57As Reported Under New Guidance:Income from continuing
operationsBasic
    
    $
    0.17
    
    
    $
    0.58Diluted
    
    $
    0.17
    
    
    $
    0.56Net incomeBasic
    
    $
    0.17
    
    
    $
    0.57Diluted
    
    $
    0.17
    
    
    $
    0.56
 Additional Fair Value Measurement Guidance Fair Value Measurements and Disclosures
  Disclosures about Fair Value of Financial Instruments Financial Instruments
 14




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Other-Than-Temporary Impairments Investments  Debt and Equity Securities
   Employers Disclosures about Postretirement Benefit Plan Assets Compensation  Retirement Benefits,
 Subsequent Events Disclosure Subsequent Events
 15




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Fair Value Measurement of Liabilities
 Accounting for Transfers of Financial Assets Accounting for Transfers of Financial Assets,
an Amendment of FASB Statement No. 140
 Variable Interest Entities Amendments to FASB Interpretation No. 46(R
 Multiple Deliverable Revenue Arrangements Multiple Deliverable Revenue Arrangements  A Consensus of the FASB Emerging Issues Task Force.
 16




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3. Earnings (Loss) per Share
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Amounts attributable to PowerSecure International,
Inc. common stockholders:Income from continuing operations
    
    $
    1,654
    
    
    $
    2,914
    
    
    $
    1,204
    
    
    $
    9,807Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77
    )Net income
    
    $
    1,654
    
    
    $
    2,914
    
    
    $
    1,204
    
    
    $
    9,730Basic weighted-average common
shares outstanding in period
    
    
    17,218
    
    
    
    17,027
    
    
    
    17,158
    
    
    
    16,951Add dilutive effects of stock
options and warrants
    
    
    249
    
    
    
    158
    
    
    
    16
    
    
    
    426Diluted weighted-average common
shares outstanding in period
    
    
    17,467
    
    
    
    17,185
    
    
    
    17,174
    
    
    
    17,377Basic earnings (loss) per common share:Income from continuing operations
    
    $
    0.10
    
    
    $
    0.17
    
    
    $
    0.07
    
    
    $
    0.58Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (0.01
    )Basic earnings per common share
    
    $
    0.10
    
    
    $
    0.17
    
    
    $
    0.07
    
    
    $
    0.57Diluted earnings (loss) per common
share:Income from continuing operations
    
    $
    0.09
    
    
    $
    0.17
    
    
    $
    0.07
    
    
    $
    0.56Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (0.00
    )Diluted earnings per common share
    
    $
    0.09
    
    
    $
    0.17
    
    
    $
    0.07
    
    
    $
    0.56
 4. New Business Unit
  17




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Inventory
    
    $
    408Equipment
    
    
    392Total assets
    
    $
    800
  5. Investment in Unconsolidated Affiliate
   September 30,
    
    
    December 31,2009
    
    
    2008Total current assets
    
    $
    2,335
    
    
    $
    4,645Property, plant and equipment, net
    
    
    9,063
    
    
    
    8,067Total other assets
    
    
    8
    
    
    
    17Total assets
    
    $
    11,406
    
    
    $
    12,729Total current liabilities
    
    $
    1,435
    
    
    $
    1,393Long-term note payable
    
    
    2,955
    
    
    
    3,550Total shareholders equity
    
    
    7,016
    
    
    
    7,786Total liabilities and shareholders
equity
    
    $
    11,406
    
    
    $
    12,729
 18




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Total revenues
    
    $
    3,034
    
    
    $
    4,404
    
    
    $
    8,707
    
    
    $
    14,771Total costs and
expenses
    
    
    1,973
    
    
    
    2,329
    
    
    
    5,477
    
    
    
    6,655Net income
    
    $
    1,061
    
    
    $
    2,075
    
    
    $
    3,230
    
    
    $
    8,116
 6. Debt
 Line of Credit
      19




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Equipment Line 
 20




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##### Table of Contents



7. Capital Lease Obligations
      8. Share-Based Compensation
 Stock Plans
 21




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##### Table of Contents



Stock Options
  WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Term (years)
    
    
    ValueBalance, December
31, 2008
    
    
    1,708
    
    
    $
    5.21Granted
    
    
    20
    
    
    
    4.57Exercised
    
    
    (39
    )
    
    
    2.11Expired
    
    
    (6
    )
    
    
    6.88Forfeited
    
    
    (54
    )
    
    
    10.62Balance, September
30, 2009
    
    
    1,629
    
    
    $
    5.10
    
    
    
    5.03
    
    
    $
    1.68Exercisable,
September 30, 2009
    
    
    1,311
    
    
    $
    4.83
    
    
    
    4.25
    
    
    $
    1.95
  22




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WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Term (years)
    
    
    ValueBalance, December
31, 2007
    
    
    1,728
    
    
    $
    5.34Granted
    
    
    30
    
    
    
    12.14Exercised
    
    
    (149
    )
    
    
    3.15Canceled
    
    
    
    
    
    
    Forfeited
    
    
    (63
    )
    
    
    11.22Balance, September
30, 2008
    
    
    1,546
    
    
    $
    5.44
    
    
    
    5.38
    
    
    $
    0.62Exercisable,
September 30, 2008
    
    
    1,297
    
    
    $
    4.45
    
    
    
    4.98
    
    
    $
    1.62
  September 30,2009
    
    2008Expected stock price
volatilility
    
    
    54.3
    %
    
    
    60.3
    %Risk Free interest rate
    
    
    2.65
    %
    
    
    2.96
    %Annual dividends
    
    $
    
    
    
    $
    Expected life  employee
options
    
    5 years
    
    5 yearsExpected life  director
options
    
    na
    
    na
    Restricted Stock Awards
 23




---



##### Table of Contents



WeightedUnvested
    
    
    AverageRestricted
    
    
    Grant DateShares
    
    
    Fair ValueBalance, December 31, 2008
    
    
    628
    
    
    $
    12.06Granted
    
    
    43
    
    
    
    4.65Vested
    
    
    (90
    )
    
    
    10.86Forfeited
    
    
    (6
    )
    
    
    8.50Balance, September 30, 2009
    
    
    575
    
    
    $
    11.73
  WeightedUnvested
    
    
    AverageRestricted
    
    
    Grant DateShares
    
    
    Fair ValueBalance, December 31, 2007
    
    
    641
    
    
    $
    12.48Granted
    
    
    50
    
    
    
    7.99Vested
    
    
    (66
    )
    
    
    12.01Forfeited
    
    
    
    
    
    
    Balance, September 30, 2008
    
    
    625
    
    
    $
    12.16
  
    
    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.
    
    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.
    
    A total of 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, based upon the
 24




---



##### Table of Contents



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.
   9. Commitments and Contingencies
    25




---



##### Table of Contents



10. Income Taxes
  11. Segment Information
  Energy and Smart Grid Solutions ®
 26




---



##### Table of Contents



Energy Services
   Three Months Ended September 30, 2009Energy and
    
    
    
    
    
    
    UnallocatedSmart Grid
    
    
    Energy
    
    
    CorporateSolutions
    
    
    Services
    
    
    Costs
    
    
    TotalRevenues
    
    $
    23,579
    
    
    $
    4,142
    
    
    $
    
    
    
    $
    27,721Cost of sales
    
    
    14,316
    
    
    
    3,153
    
    
    
    
    
    
    
    17,469Gross profit
    
    
    9,263
    
    
    
    989
    
    
    
    
    
    
    
    10,252Operating expenses:General and
administrative
    
    
    4,802
    
    
    
    454
    
    
    
    1,143
    
    
    
    6,399Selling,
marketing and
service
    
    
    981
    
    
    
    16
    
    
    
    
    
    
    
    997Depreciation and
amortization
    
    
    564
    
    
    
    92
    
    
    
    1
    
    
    
    657Total operating
expenses
    
    
    6,347
    
    
    
    562
    
    
    
    1,144
    
    
    
    8,053Operating income (loss)
    
    
    2,916
    
    
    
    427
    
    
    
    (1,144
    )
    
    
    2,199Other income and
(expenses)Management fees
    
    
    
    
    
    
    106
    
    
    
    
    
    
    
    106Equity income
    
    
    
    
    
    
    429
    
    
    
    
    
    
    
    429Interest and
other income
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    36Interest and
finance charges
    
    
    (75
    )
    
    
    
    
    
    
    (69
    )
    
    
    (144
    )Income (loss) before
income taxes
    
    $
    2,841
    
    
    $
    962
    
    
    $
    (1,177
    )
    
    $
    2,626Total capital
expenditures
    
    $
    804
    
    
    $
    94
    
    
    $
    
    
    
    $
    898Total investment in
unconsolidated
affiliate
    
    $
    
    
    
    $
    3,739
    
    
    $
    
    
    
    $
    3,739Total assets
    
    $
    79,965
    
    
    $
    15,959
    
    
    $
    13,138
    
    
    $
    109,062
 27




---



##### Table of Contents



Three Months Ended September 30, 2008Energy and
    
    
    
    
    
    
    UnallocatedSmart Grid
    
    
    Energy
    
    
    CorporateSolutions
    
    
    Services
    
    
    Costs
    
    
    TotalRevenues
    
    $
    28,706
    
    
    $
    4,851
    
    
    $
    
    
    
    $
    33,557Cost of sales
    
    
    18,950
    
    
    
    3,696
    
    
    
    
    
    
    
    22,646Gross profit
    
    
    9,756
    
    
    
    1,155
    
    
    
    
    
    
    
    10,911Operating expenses:General and
administrative
    
    
    5,624
    
    
    
    515
    
    
    
    1,003
    
    
    
    7,142Selling, marketing
and service
    
    
    1,245
    
    
    
    7
    
    
    
    
    
    
    
    1,252Depreciation and
amortization
    
    
    479
    
    
    
    63
    
    
    
    2
    
    
    
    544Total operating expenses
    
    
    7,348
    
    
    
    585
    
    
    
    1,005
    
    
    
    8,938Operating income (loss)
    
    
    2,408
    
    
    
    570
    
    
    
    (1,005
    )
    
    
    1,973Other income and
(expenses)Management fees
    
    
    
    
    
    
    137
    
    
    
    
    
    
    
    137Equity income
    
    
    
    
    
    
    840
    
    
    
    
    
    
    
    840Interest and other
income
    
    
    32
    
    
    
    1
    
    
    
    56
    
    
    
    89Interest and
finance charges
    
    
    (28
    )
    
    
    
    
    
    
    (27
    )
    
    
    (55
    )Income (loss) before
income taxes
    
    $
    2,412
    
    
    $
    1,548
    
    
    $
    (976
    )
    
    $
    2,984Total capital
expenditures
    
    $
    742
    
    
    $
    152
    
    
    $
    
    
    
    $
    894Total investment in
unconsolidated
affiliate
    
    $
    
    
    
    $
    3,968
    
    
    $
    
    
    
    $
    3,968Total assets
    
    $
    79,287
    
    
    $
    16,027
    
    
    $
    10,583
    
    
    $
    105,897
 Nine Months Ended September 30, 2009Energy and
    
    
    
    
    
    
    UnallocatedSmart Grid
    
    
    Energy
    
    
    CorporateSolutions
    
    
    Services
    
    
    Costs
    
    
    TotalRevenues
    
    $
    59,465
    
    
    $
    13,111
    
    
    $
    
    
    
    $
    72,576Cost of sales
    
    
    38,386
    
    
    
    9,809
    
    
    
    
    
    
    
    48,195Gross profit
    
    
    21,079
    
    
    
    3,302
    
    
    
    
    
    
    
    24,381Operating expenses:General and
administrative
    
    
    13,589
    
    
    
    1,469
    
    
    
    3,453
    
    
    
    18,511Selling,
marketing and
service
    
    
    2,764
    
    
    
    33
    
    
    
    
    
    
    
    2,797Depreciation and
amortization
    
    
    1,501
    
    
    
    257
    
    
    
    4
    
    
    
    1,762Total operating
expenses
    
    
    17,854
    
    
    
    1,759
    
    
    
    3,457
    
    
    
    23,070Operating income (loss)
    
    
    3,225
    
    
    
    1,543
    
    
    
    (3,457
    )
    
    
    1,311Other income and
(expenses)Management fees
    
    
    
    
    
    
    309
    
    
    
    
    
    
    
    309Equity income
    
    
    
    
    
    
    1,307
    
    
    
    
    
    
    
    1,307Interest and
other income
    
    
    3
    
    
    
    
    
    
    
    124
    
    
    
    127Interest and
finance charges
    
    
    (260
    )
    
    
    
    
    
    
    (203
    )
    
    
    (463
    )Income (loss) before
income taxes
    
    $
    2,968
    
    
    $
    3,159
    
    
    $
    (3,536
    )
    
    $
    2,591Total capital
expenditures
    
    $
    2,270
    
    
    $
    374
    
    
    $
    
    
    
    $
    2,644
 28




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##### Table of Contents



Nine Months Ended September 30, 2008Energy and
    
    
    
    
    
    
    UnallocatedSmart Grid
    
    
    Energy
    
    
    CorporateSolutions
    
    
    Services
    
    
    Costs
    
    
    TotalRevenues
    
    $
    94,869
    
    
    $
    14,215
    
    
    $
    
    
    
    $
    109,084Cost of sales
    
    
    64,021
    
    
    
    10,332
    
    
    
    
    
    
    
    74,353Gross profit
    
    
    30,848
    
    
    
    3,883
    
    
    
    
    
    
    
    34,731Operating expenses:General and
administrative
    
    
    16,964
    
    
    
    1,445
    
    
    
    3,594
    
    
    
    22,003Selling, marketing
and service
    
    
    4,452
    
    
    
    13
    
    
    
    
    
    
    
    4,465Depreciation and
amortization
    
    
    1,345
    
    
    
    178
    
    
    
    5
    
    
    
    1,528Total operating expenses
    
    
    22,761
    
    
    
    1,636
    
    
    
    3,599
    
    
    
    27,996Operating income (loss)
    
    
    8,087
    
    
    
    2,247
    
    
    
    (3,599
    )
    
    
    6,735Other income and
(expenses)Management fees
    
    
    
    
    
    
    450
    
    
    
    
    
    
    
    450Equity income
    
    
    
    
    
    
    3,030
    
    
    
    
    
    
    
    3,030Interest and other
income
    
    
    72
    
    
    
    25
    
    
    
    337
    
    
    
    434Interest and
finance charges
    
    
    (82
    )
    
    
    
    
    
    
    (76
    )
    
    
    (158
    )Income (loss) before
income taxes
    
    $
    8,077
    
    
    $
    5,752
    
    
    $
    (3,338
    )
    
    $
    10,491Total capital
expenditures
    
    $
    15,826
    
    
    $
    231
    
    
    $
    
    
    
    $
    16,057
 * * * * *
 29




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Introduction
  Overview
 ® ®
 ® ® ®
   30




---



##### Table of Contents



Recent Developments
   ®
 31




---



##### Table of Contents



Backlog
  32




---



##### Table of Contents



Revenue backlog to be recognized after September 30, 2009
 Anticipated
    
    Estimated PrimaryDescription
    
    Revenue
    
    Recognition PeriodProject-based RevenueNear term
    
    $35 Million
    
    4Q09 through 2Q10Project-based RevenueLong term
    
    $19 Million
    
    3Q10 through 2011Recurring Revenue
    
    $37 Million
    
    4Q09 through 2016Backlog to be recognized after
September 30, 2009
    
    $90 Million
 Note: Anticipated revenue and primary recognition periods are estimates subject risks and
uncertainties and subject to change. Consistent with past practice, these revenue backlog amounts
are not intended to constitute our total revenue over the indicated time periods, as we have
additional, regular on-going revenues. Examples of additional, regular recurring revenues include
revenues from our Southern Flow business, engineering fees, and certain monitoring and maintenance
revenue, among others. Numbers may not add due to rounding.
  Operating Segments
  Energy and Smart Grid Solutions
 ®
 33




---



##### Table of Contents



Energy Services
  Results of Operations
  Third Quarter 2009 Compared to Third Quarter 2008
 Revenues
  Quarter Ended
    
    
    Period-over-PeriodSeptember 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Segment Revenues:Energy and Smart Grid Solutions
    
    $
    23,579
    
    
    $
    28,706
    
    
    $
    (5,127
    )
    
    
    -17.9
    %Energy Services
    
    
    4,142
    
    
    
    4,851
    
    
    
    (709
    )
    
    
    -14.6
    %Total
    
    $
    27,721
    
    
    $
    33,557
    
    
    $
    (5,836
    )
    
    
    -17.4
    %
  ® ®
 34




---



##### Table of Contents



Quarter Ended
    
    
    Period-over-PeriodSeptember 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Revenues from Publix projects
    
    $
    3,454
    
    
    $
    9,002
    
    
    $
    (5,548
    )
    
    
    -61.6
    %Revenues from all other customers
    
    
    20,125
    
    
    
    19,704
    
    
    
    421
    
    
    
    2.1
    %Total
    
    $
    23,579
    
    
    $
    28,706
    
    
    $
    (5,127
    )
    
    
    -17.9
    %Publix as a percentage of total Energy and
Smart Grid Solutions segment revenues
    
    
    14.6
    %
    
    
    31.4
    %
     35




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##### Table of Contents



Gross Profit and Gross Profit Margins
  Quarter Ended
    
    
    Period-over-PeriodSeptember 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Segment Cost of Sales and Services:Energy and Smart Grid Solutions
    
    $
    14,316
    
    
    $
    18,951
    
    
    $
    (4,635
    )
    
    
    -24.5
    %Energy Services
    
    
    3,153
    
    
    
    3,695
    
    
    
    (542
    )
    
    
    -14.7
    %Total
    
    $
    17,469
    
    
    $
    22,646
    
    
    $
    (5,177
    )
    
    
    -22.9
    %Segment Gross Profit:Energy and Smart Grid Solutions
    
    $
    9,263
    
    
    $
    9,755
    
    
    $
    (492
    )
    
    
    -5.0
    %Energy Services
    
    
    989
    
    
    
    1,156
    
    
    
    (167
    )
    
    
    -14.4
    %Total
    
    $
    10,252
    
    
    $
    10,911
    
    
    $
    (659
    )
    
    
    -6.0
    %Segment Gross Profit Margins:Energy and Smart Grid Solutions
    
    
    39.3
    %
    
    
    34.0
    %Energy Services
    
    
    23.9
    %
    
    
    23.8
    %Total
    
    
    37.0
    %
    
    
    32.5
    %
   36




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##### 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;
    
    Our ability to manage our materials and labor costs;
    
    The cost to maintain and run distributed generation systems we own in conjunction
with recurring revenue contracts, including the price of fuel;
    
    The geographic density of our projects;
    
    The mix of higher and lower margin products and services;
    
    The selling price of products and services sold to customers, and the revenues we
expect to generate from recurring revenue projects;
    
    The price of oil and natural gas, the financial health of our customer base, and the
level of new oil and natural gas production activity in our operating geography;
    
    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.
  37




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Operating Expense
  Quarter Ended
    
    
    Period-over-PeriodSeptember 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Consolidated Operating Expenses:General and administrative
    
    $
    6,399
    
    
    $
    7,142
    
    
    $
    (743
    )
    
    
    -10.4
    %Selling, marketing and service
    
    
    997
    
    
    
    1,252
    
    
    
    (255
    )
    
    
    -20.4
    %Depreciation and amortization
    
    
    657
    
    
    
    544
    
    
    
    113
    
    
    
    20.8
    %Total
    
    $
    8,053
    
    
    $
    8,938
    
    
    $
    (885
    )
    
    
    -9.9
    %
  General and Administrative Expenses.
 38




---



##### Table of Contents



Quarter Ended
    
    
    Period-over-PeriodSeptember 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Segment G&A Expenses:Energy and Smart Grid Solutions:Personnel costs
    
    $
    3,054
    
    
    $
    3,740
    
    
    $
    (686
    )
    
    
    -18.3
    %Vehicle lease and rental
    
    
    545
    
    
    
    676
    
    
    
    (131
    )
    
    
    -19.4
    %Insurance
    
    
    265
    
    
    
    249
    
    
    
    16
    
    
    
    6.4
    %Rent-office and equipment
    
    
    209
    
    
    
    206
    
    
    
    3
    
    
    
    1.5
    %Professional fees and consulting
    
    
    169
    
    
    
    96
    
    
    
    73
    
    
    
    76.0
    %Travel
    
    
    189
    
    
    
    212
    
    
    
    (23
    )
    
    
    -10.8
    %Development costs
    
    
    18
    
    
    
    29
    
    
    
    (11
    )
    
    
    -37.9
    %Other
    
    
    353
    
    
    
    416
    
    
    
    (63
    )
    
    
    -15.1
    %Energy Services
    
    
    454
    
    
    
    515
    
    
    
    (61
    )
    
    
    -11.8
    %Unallocated Corporate Costs
    
    
    1,143
    
    
    
    1,003
    
    
    
    140
    
    
    
    14.0
    %Total
    
    $
    6,399
    
    
    $
    7,142
    
    
    $
    (743
    )
    
    
    -10.4
    %
    Selling, Marketing and Service Expenses.
 39




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##### Table of Contents



Quarter Ended
    
    
    Period-over-PeriodSeptember 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Segment Selling, Marketing and Service:Energy and Smart Grid Solutions:Salaries
    
    $
    463
    
    
    $
    523
    
    
    $
    (60
    )
    
    
    -11.5
    %Commission
    
    
    271
    
    
    
    507
    
    
    
    (236
    )
    
    
    -46.5
    %Travel
    
    
    136
    
    
    
    148
    
    
    
    (12
    )
    
    
    -8.1
    %Advertising and promotion
    
    
    92
    
    
    
    72
    
    
    
    20
    
    
    
    27.8
    %Bad debt expense (recovery)
    
    
    19
    
    
    
    (5
    )
    
    
    24
    
    
    
    -480.0
    %Energy Services
    
    
    16
    
    
    
    7
    
    
    
    9
    
    
    
    128.6
    %Total
    
    $
    997
    
    
    $
    1,252
    
    
    $
    (255
    )
    
    
    -20.4
    %
  Depreciation and Amortization Expenses.
 Other Income and Expenses
  40




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##### Table of Contents



Quarter Ended
    
    
    Period-over-PeriodSeptember 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Other Segment Income and (Expenses):Energy and Smart Grid
Solutions:Interest and other
income
    
    $
    
    
    
    $
    32
    
    
    $
    (32
    )
    
    
    -100.0
    %Interest and
finance charges
    
    
    (75
    )
    
    
    (28
    )
    
    
    (47
    )
    
    
    167.9
    %Segment total
    
    
    (75
    )
    
    
    4
    
    
    
    (79
    )Energy Services:Management fees
    
    
    106
    
    
    
    137
    
    
    
    (31
    )
    
    
    -22.6
    %Equity income
    
    
    429
    
    
    
    840
    
    
    
    (411
    )
    
    
    -48.9
    %Interest and other
income
    
    
    
    
    
    
    1
    
    
    
    (1
    )
    
    
    -100.0
    %Segment total
    
    
    535
    
    
    
    978
    
    
    
    (443
    )Unallocated Corporate:Interest and other
income
    
    
    36
    
    
    
    56
    
    
    
    (20
    )
    
    
    -35.7
    %Interest and
finance charges
    
    
    (69
    )
    
    
    (27
    )
    
    
    (42
    )
    
    
    -155.6
    %Income tax benefit
(provision)
    
    
    (423
    )
    
    
    (70
    )
    
    
    (353
    )
    
    
    -504.3
    %Segment total
    
    
    (456
    )
    
    
    (41
    )
    
    
    (415
    )Total
    
    $
    4
    
    
    $
    941
    
    
    $
    (937
    )
 Interest and Other Income.
 Interest and Finance Charges.
 Management Fees.
 41




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##### Table of Contents



Equity Income.
 Income Taxes.
 Nine Month Period 2009 Compared to Nine Month Period 2008
 Revenues
  Nine Months Ended
    
    
    Period-over-PeriodSeptember 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Segment Revenues:Energy and
Smart Grid
Solutions
    
    $
    59,465
    
    
    $
    94,869
    
    
    $
    (35,404
    )
    
    
    -37.3
    %Energy Services
    
    
    13,111
    
    
    
    14,215
    
    
    
    (1,104
    )
    
    
    -7.8
    %Total
    
    $
    72,576
    
    
    $
    109,084
    
    
    $
    (36,508
    )
    
    
    -33.5
    %
  ® ®
 42




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##### Table of Contents



Nine Months Ended
    
    
    Period-over-PeriodSeptember 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Revenues from Publix
projects
    
    $
    7,593
    
    
    $
    42,093
    
    
    $
    (34,500
    )
    
    
    -82.0
    %Revenues from all
other customers
    
    
    51,872
    
    
    
    52,776
    
    
    
    (904
    )
    
    
    -1.7
    %Total
    
    $
    59,465
    
    
    $
    94,869
    
    
    $
    (35,404
    )
    
    
    -37.3
    %Publix as a
percentage of total
Energy and
Smart Grid
Solutions
segment
revenues
    
    
    12.8
    %
    
    
    44.4
    %
     43




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##### Table of Contents



Gross Profit and Gross Profit Margins
  Nine Months Ended
    
    
    Period-over-PeriodSeptember 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Segment Cost of
Sales and Services:Energy and
Smart Grid
Solutions
    
    $
    38,386
    
    
    $
    64,021
    
    
    $
    (25,635
    )
    
    
    -40.0
    %Energy Services
    
    
    9,809
    
    
    
    10,332
    
    
    
    (523
    )
    
    
    -5.1
    %Total
    
    $
    48,195
    
    
    $
    74,353
    
    
    $
    (26,158
    )
    
    
    -35.2
    %Segment Gross Profit:Energy and
Smart Grid
Solutions
    
    $
    21,079
    
    
    $
    30,848
    
    
    $
    (9,769
    )
    
    
    -31.7
    %Energy Services
    
    
    3,302
    
    
    
    3,883
    
    
    
    (581
    )
    
    
    -15.0
    %Total
    
    $
    24,381
    
    
    $
    34,731
    
    
    $
    (10,350
    )
    
    
    -29.8
    %Segment Gross Profit
Margins:Energy and
Smart Grid
Solutions
    
    
    35.4
    %
    
    
    32.5
    %Energy Services
    
    
    25.2
    %
    
    
    27.3
    %Total
    
    
    33.6
    %
    
    
    31.8
    %
    44




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##### Table of Contents



Operating Expense
  Nine Months Ended
    
    
    Period-over-PeriodSeptember 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Consolidated Operating Expenses:General and
administrative
    
    $
    18,511
    
    
    $
    22,003
    
    
    $
    (3,492
    )
    
    
    -15.9
    %Selling,
marketing and
service
    
    
    2,797
    
    
    
    4,465
    
    
    
    (1,668
    )
    
    
    -37.4
    %Depreciation and
amortization
    
    
    1,762
    
    
    
    1,528
    
    
    
    234
    
    
    
    15.3
    %Total
    
    $
    23,070
    
    
    $
    27,996
    
    
    $
    (4,926
    )
    
    
    -17.6
    %
  General and Administrative Expenses.
 45




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##### Table of Contents



Nine Months Ended
    
    
    Period-over-PeriodSeptember 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Segment G&A Expenses:Energy and Smart Grid
Solutions:Personnel costs
    
    $
    8,748
    
    
    $
    11,064
    
    
    $
    (2,316
    )
    
    
    -20.9
    %Vehicle lease
and rental
    
    
    1,318
    
    
    
    1,794
    
    
    
    (476
    )
    
    
    -26.5
    %Insurance
    
    
    806
    
    
    
    706
    
    
    
    100
    
    
    
    14.2
    %Rent-office and
equipment
    
    
    570
    
    
    
    656
    
    
    
    (86
    )
    
    
    -13.1
    %Professional
fees and
consulting
    
    
    314
    
    
    
    435
    
    
    
    (121
    )
    
    
    -27.8
    %Travel
    
    
    544
    
    
    
    667
    
    
    
    (123
    )
    
    
    -18.4
    %Development costs
    
    
    104
    
    
    
    93
    
    
    
    11
    
    
    
    11.8
    %Other
    
    
    1,185
    
    
    
    1,549
    
    
    
    (364
    )
    
    
    -23.5
    %Energy Services
    
    
    1,469
    
    
    
    1,445
    
    
    
    24
    
    
    
    1.7
    %Unallocated Corporate
Costs
    
    
    3,453
    
    
    
    3,594
    
    
    
    (141
    )
    
    
    -3.9
    %Total
    
    $
    18,511
    
    
    $
    22,003
    
    
    $
    (3,492
    )
    
    
    -15.9
    %
    Selling, Marketing and Service Expenses.
 46




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Nine Months Ended
    
    
    Period-over-PeriodSeptember 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Segment Selling,
Marketing and
Service:Energy and Smart
Grid Solutions:Salaries
    
    $
    1,368
    
    
    $
    1,621
    
    
    $
    (253
    )
    
    
    -15.6
    %Commission
    
    
    770
    
    
    
    1,841
    
    
    
    (1,071
    )
    
    
    -58.2
    %Travel
    
    
    392
    
    
    
    472
    
    
    
    (80
    )
    
    
    -16.9
    %Advertising
and promotion
    
    
    208
    
    
    
    272
    
    
    
    (64
    )
    
    
    -23.5
    %Bad debt
expense
(recovery)
    
    
    26
    
    
    
    246
    
    
    
    (220
    )
    
    
    -89.4
    %Energy Services
    
    
    33
    
    
    
    13
    
    
    
    20
    
    
    
    153.8
    %Total
    
    $
    2,797
    
    
    $
    4,465
    
    
    $
    (1,668
    )
    
    
    -37.4
    %
  Depreciation and Amortization Expenses. ®
 Other Income and Expenses
  47




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Nine Months Ended
    
    
    Period-over-PeriodSeptember 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Other Segment Income and (Expenses):Energy and Smart Grid Solutions:Interest and other income
    
    $
    3
    
    
    $
    72
    
    
    $
    (69
    )
    
    
    -95.8
    %Interest and finance charges
    
    
    (260
    )
    
    
    (82
    )
    
    
    (178
    )
    
    
    217.1
    %Segment total
    
    
    (257
    )
    
    
    (10
    )
    
    
    (247
    )Energy Services:Management fees
    
    
    309
    
    
    
    450
    
    
    
    (141
    )
    
    
    -31.3
    %Equity income
    
    
    1,307
    
    
    
    3,030
    
    
    
    (1,723
    )
    
    
    -56.9
    %Interest and other income
    
    
    
    
    
    
    25
    
    
    
    (25
    )
    
    
    -100.0
    %Segment total
    
    
    1,616
    
    
    
    3,505
    
    
    
    (1,889
    )Unallocated Corporate:Interest and other income
    
    
    124
    
    
    
    337
    
    
    
    (213
    )
    
    
    -63.2
    %Interest and finance charges
    
    
    (203
    )
    
    
    (76
    )
    
    
    (127
    )
    
    
    -167.1
    %Income tax benefit (provision)
    
    
    (473
    )
    
    
    (684
    )
    
    
    211
    
    
    
    30.8
    %Segment total
    
    
    (552
    )
    
    
    (423
    )
    
    
    (129
    )Total
    
    $
    807
    
    
    $
    3,072
    
    
    $
    (2,265
    )
 Interest and Other Income.
 Interest and Finance Charges
 Management Fees.
 Equity Income.
 48




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##### Table of Contents



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 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;
    
    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;
 49




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##### Table of Contents




    
    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 prices for materials, labor,
and other components of our products and services, fuel prices (including diesel,
natural gas, and gasoline, among others) and our ability to hedge our fuel cost,
exchange rates, as well as 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
the difficult capital markets and their impact 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 and
electricity pricing and utility tarrifs;
    
    changes in the prices charged by our suppliers;
    
    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.
   50




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##### Table of Contents



Liquidity and Capital Resources
 Overview
  
    
    operations;
    
    inventory;
    
    accounts receivable;
 51




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##### Table of Contents




    
    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
  Nine Months EndedSeptember 30,2009
    
    
    2008Net cash flows used in operating activities
    
    $
    (8,756
    )
    
    $
    (6,357
    )Net cash flows used in investing activities
    
    
    (3,432
    )
    
    
    (16,761
    )Net cash provided by (used in) financing activities
    
    
    (236
    )
    
    
    2,722Net decrease in cash and cash equivalents
    
    $
    (12,424
    )
    
    $
    (20,396
    )
 Cash Used in Operating Activities
   52




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
    
    our net income of $1.2 million;
    
    non-cash charges of $1.8 million in depreciation and amortization;
    
    non-cash stock-based compensation expense of $1.2 million;
    
    non-cash noncontrolling interest in the income of EfficientLights of $0.9 million;
    
    cash distributions from our WaterSecure operations of $1.6 million partially offset
by non-cash equity income from those operations of $1.3 million;
    
    an increase of $4.8 million in accounts receivable;
    
    an increase of $5.2 million in inventories;
    
    a decrease of $0.7 million in other current assets and liabilities;
    
    a decrease of $0.5 million of accounts payable;
    
    a decrease of $3.5 million of accrued expenses;
    
    an increase of $0.2 million of unrecognized tax benefits;
    
    cash payments of $1.1 million on our restructuring obligations; and
    
    an increase in our deferred compensation obligation of $0.2 million.
  
    
    our net income of $9.7 million;
    
    non-cash charges of $1.5 million in depreciation and amortization;
    
    non-cash stock-based compensations expense of $1.6 million;
    
    cash distributions from our WaterSecure operations of $3.4 million partially offset
by non-cash equity income from those operations of $3.0 million;
    
    a non-cash loss on disposal of miscellaneous assets of $0.2 million;
    
    an increase of $2.5 million in accounts receivable;
    
    a decrease of $1.7 million in inventories;
    
    a net $1.6 million decrease in assets and liabilities of discontinued operations;
    
    a decrease of $2.8 million of accounts payable;
    
    a decrease of $14.3 million of accrued expenses; and
    
    cash payments of $3.6 million on our restructuring obligations.
 Cash Used in Investing Activities
  53




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##### Table of Contents



Cash Provided by (Used in) Financing Activities
  Capital Spending
   Indebtedness
 Line of Credit .
    54




---



##### Table of Contents



55




---



##### Table of Contents



Equipment Line .
 Capital Lease Obligations.
     56




---



##### Table of Contents



Restructuring Obligations.
 Contractual Obligations and Commercial Commitments
  Payments Due by PeriodRemainder
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    of 2009
    
    
    1 - 3 Years
    
    
    4 - 5 Years
    
    
    5 YearsContractual ObligationsCredit facility (1)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Restructuring obligations
    
    
    608
    
    
    
    253
    
    
    
    355
    
    
    
    
    
    
    
    Capital lease obligations (2)
    
    
    6,351
    
    
    
    254
    
    
    
    2,034
    
    
    
    2,032
    
    
    
    2,031Operating leases
    
    
    2,614
    
    
    
    247
    
    
    
    1,281
    
    
    
    974
    
    
    
    112Deferred compensation (3)
    
    
    2,661
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,661Series B preferred stock
    
    
    104
    
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    12,338
    
    
    $
    858
    
    
    $
    3,670
    
    
    $
    3,006
    
    
    $
    4,804
 
 (1)
    
    Total repayments are based upon borrowings outstanding as of September 30, 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. 57




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##### Table of Contents



Off-Balance Sheet Arrangements
  Liquidity
   58




---



##### Table of Contents



Critical Accounting Policies
   
    
    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 Standards
 Accounting Standards Codification
 59




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##### Table of Contents



The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Standards
 Noncontrolling Interest Consolidation
   Accounting for Business Combinations Business Combinations
 60




---



##### Table of Contents



Fair Value Measurements Fair Value Measurements and Disclosures
 Derivative Instruments and Hedging Activities Derivatives and Hedging Activities
 Useful Life of Intangible Assets Intangibles  Goodwill and Other
  61




---



##### Table of Contents



Defensive Intangible Assets Intangibles  Goodwill and Other
 Participating Securities Earnings per Share
  Three Months
    
    Nine MonthsEnded
    
    EndedPer Share Amounts:
    
    September 30, 2008
    
    September 30, 2008As Previously Reported:Income from continuing
operationsBasic
    
    $
    0.18
    
    
    $
    0.60Diluted
    
    $
    0.17
    
    
    $
    0.57Net incomeBasic
    
    $
    0.18
    
    
    $
    0.59Diluted
    
    $
    0.17
    
    
    $
    0.57As Reported Under New Guidance:Income from continuing
operationsBasic
    
    $
    0.17
    
    
    $
    0.58Diluted
    
    $
    0.17
    
    
    $
    0.56Net incomeBasic
    
    $
    0.17
    
    
    $
    0.57Diluted
    
    $
    0.17
    
    
    $
    0.56
 62




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##### Table of Contents



Additional Fair Value Measurement Guidance Fair Value Measurements and Disclosures
  Disclosures about Fair Value of Financial Instruments Financial Instruments
 Other-Than-Temporary Impairments Investments  Debt and Equity Securities
   Employers Disclosures about Postretirement Benefit Plan Assets Compensation  Retirement Benefits,
 63




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##### Table of Contents



Subsequent Events Disclosure Subsequent Events
 Fair Value Measurement of Liabilities
 Accounting for Transfers of Financial Assets Accounting for Transfers of Financial Assets,
an Amendment of FASB Statement No. 140
 Variable Interest Entities Amendments to FASB Interpretation No. 46(R
 64




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##### Table of Contents



Multiple Deliverable Revenue Arrangements Multiple Deliverable Revenue Arrangements  A Consensus of the FASB Emerging Issues Task Force.
 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;
 65




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##### Table of Contents




    
    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.
   
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
  66




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##### Table of Contents



Interest Rate Risk.
  Commodity Price Risk
 Foreign Exchange Risk
  
 Item 4.
    
    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  67




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##### Table of Contents



Changes in Internal Control Over Financial Reporting
  Limitations in Control Systems
  68




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##### Table of Contents



PART II
OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  
 Item 1A.
    
    Risk Factors
  
 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.)
 69




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##### Table of Contents



SIGNATURES
  POWERSECURE INTERNATIONAL, INC.Date:    November 5, 2009
    By:
    /s/ Sidney HintonSidney HintonPresident and Chief Executive OfficerDate:    November 5, 2009
    By:
    /s/ Christopher T. HutterChristopher T. HutterVice President, Chief Financial Officer,
Treasurer and Assistant Secretary 70