##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 1-12014
 POWERSECURE INTERNATIONAL, INC.
  Delaware
    
    84-1169358(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)1609 Heritage Commerce CourtWake Forest, North Carolina
    
    27587(Address of principal executive offices)
    
    (Zip code)
 
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




---



##### 



POWERSECURE INTERNATIONAL, INC.
 FORM 10-Q
For the Quarterly Period Ended June 30, 2008
 TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial StatementsUnaudited Consolidated Balance Sheets  June 30, 2008 and December 31, 2007
    
    
    3Unaudited Consolidated Statements of Operations  For the Three and Six Months Ended June 30, 2008 and June 30, 2007
    
    
    5Unaudited Consolidated Statements of Cash Flows  For the Six Months Ended June 30, 2008 and June 30, 2007
    
    
    6Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    54Item 4. Controls and Procedures
    
    
    55PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    57Item 1A. Risk Factors
    
    
    57Item 4. Submission of Matters to a Vote of Security Holders
    
    
    60Item 6. Exhibits
    
    
    60Signatures
    
    
    62EX-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)
 June 30,
    
    
    December 31,ASSETS
    
    2008
    
    
    2007CURRENT ASSETS:Cash and cash equivalents
    
    $
    10,259,877
    
    
    $
    28,709,688Trade receivables, net of allowance for doubtful accounts
of $345,007 and $262,547, respectively
    
    
    40,339,361
    
    
    
    36,753,399Other receivables
    
    
    747,469
    
    
    
    376,198Inventories
    
    
    20,286,059
    
    
    
    20,785,549Deferred income taxes
    
    
    2,463,986
    
    
    
    2,528,636Prepaid expenses and other current assets
    
    
    692,014
    
    
    
    1,091,498Assets of discontinued operations held for sale (Note 3)
    
    
    
    
    
    
    2,399,589Total current assets
    
    
    74,788,766
    
    
    
    92,644,557PROPERTY, PLANT AND EQUIPMENT:Equipment
    
    
    18,073,620
    
    
    
    6,663,520Furniture and fixtures
    
    
    620,534
    
    
    
    614,589Land, building and improvements
    
    
    4,529,133
    
    
    
    1,013,022Total property, plant and equipment, at cost
    
    
    23,223,287
    
    
    
    8,291,131Less accumulated depreciation and amortization
    
    
    3,227,278
    
    
    
    2,640,424Property, plant and equipment, net
    
    
    19,996,009
    
    
    
    5,650,707OTHER ASSETS:Goodwill
    
    
    7,255,710
    
    
    
    7,255,710Restricted annuity contract
    
    
    2,071,416
    
    
    
    2,001,204Intangible rights and capitalized software costs, net of
accumulated amortization of $1,300,938 and $947,550, respectively
    
    
    1,374,653
    
    
    
    1,660,676Investment in unconsolidated affiliate (Note 2)
    
    
    5,268,617
    
    
    
    3,652,251Other assets
    
    
    96,760
    
    
    
    158,363Total other assets
    
    
    16,067,156
    
    
    
    14,728,204TOTAL
    
    $
    110,851,931
    
    
    $
    113,023,468
 See accompanying notes to consolidated financial statements.
 3




---



##### Table of Contents



POWERSECURE INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
 June 30,
    
    
    December 31,LIABILITIES AND STOCKHOLDERS EQUITY
    
    2008
    
    
    2007CURRENT LIABILITIES:Accounts payable
    
    $
    12,927,708
    
    
    $
    11,321,639Accrued and other liabilities
    
    
    24,273,736
    
    
    
    35,156,946Current income taxes payable
    
    
    56,004
    
    
    
    Restructuring charges payable
    
    
    1,718,851
    
    
    
    4,047,849Note payable (Note 4)
    
    
    129,200
    
    
    
    Liabilities of discontinued operations held for sale (Note 3)
    
    
    
    
    
    
    754,589Current unrecognized tax benefit
    
    
    83,987
    
    
    
    83,987Capital lease obligations
    
    
    1,445
    
    
    
    1,392Total current liabilities
    
    
    39,190,931
    
    
    
    51,366,402LONG-TERM NOTES PAYABLE (Note 4)
    
    
    2,390,200
    
    
    
    NON-CURRENT UNRECOGNIZED TAX BENEFIT
    
    
    674,173
    
    
    
    674,173NON-CURRENT RESTRUCTURING CHARGES
    
    
    887,222
    
    
    
    1,682,543DEFERRED COMPENSATION OBLIGATION
    
    
    221,760
    
    
    
    55,440NON-CURRENT CAPITAL LEASE OBLIGATIONS
    
    
    4,590
    
    
    
    5,326COMMITMENTS AND CONTINGENCIESMINORITY INTEREST IN SUBSIDIARY
    
    
    
    
    
    
    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; 17,020,928 and 16,860,267 shares issued
and outstanding, respectively
    
    
    170,209
    
    
    
    168,602Additional paid-in-capital
    
    
    106,899,288
    
    
    
    105,472,838Accumulated deficit
    
    
    (39,586,442
    )
    
    
    (46,401,856
    )Total stockholders equity
    
    
    67,483,055
    
    
    
    59,239,584TOTAL
    
    $
    110,851,931
    
    
    $
    113,023,468
 See accompanying notes to consolidated financial statements.
 4




---



##### Table of Contents



POWERSECURE INTERNATIONAL, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Operations
 (unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues
    
    $
    41,951,625
    
    
    $
    22,591,119
    
    
    $
    75,526,660
    
    
    $
    48,007,146Cost of sales
    
    
    28,194,795
    
    
    
    16,974,709
    
    
    
    51,749,721
    
    
    
    35,022,380Gross profit
    
    
    13,756,830
    
    
    
    5,616,410
    
    
    
    23,776,939
    
    
    
    12,984,766Operating expenses:General and administrative
    
    
    7,509,972
    
    
    
    4,912,858
    
    
    
    14,752,887
    
    
    
    10,354,040Selling, marketing and
service
    
    
    1,888,865
    
    
    
    697,847
    
    
    
    3,213,524
    
    
    
    1,316,465Depreciation and
amortization
    
    
    527,432
    
    
    
    365,323
    
    
    
    984,676
    
    
    
    697,864Research and development
    
    
    44,569
    
    
    
    84,723
    
    
    
    63,781
    
    
    
    102,247Restructuring charges
    
    
    
    
    
    
    14,139,216
    
    
    
    
    
    
    
    14,139,216Total operating expenses
    
    
    9,970,838
    
    
    
    20,199,967
    
    
    
    19,014,868
    
    
    
    26,609,832Operating income (loss)
    
    
    3,785,992
    
    
    
    (14,583,557
    )
    
    
    4,762,071
    
    
    
    (13,625,066
    )Other income and (expenses):Management fees
    
    
    163,875
    
    
    
    101,636
    
    
    
    313,208
    
    
    
    203,282Interest income
    
    
    118,312
    
    
    
    126,198
    
    
    
    345,062
    
    
    
    350,401Interest and finance charges
    
    
    (51,736
    )
    
    
    (7,874
    )
    
    
    (102,864
    )
    
    
    (14,197
    )Equity income
    
    
    1,226,738
    
    
    
    672,735
    
    
    
    2,190,560
    
    
    
    1,321,295Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    556,340Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) before income taxes
    
    
    5,243,181
    
    
    
    (13,690,862
    )
    
    
    7,508,037
    
    
    
    (11,207,945
    )Income tax provision
    
    
    (303,169
    )
    
    
    (170,140
    )
    
    
    (614,455
    )
    
    
    (476,277
    )Income (loss) from
continuing operations
    
    
    4,940,012
    
    
    
    (13,861,002
    )
    
    
    6,893,582
    
    
    
    (11,684,222
    )Discontinued
operationsMetretek FloridaLoss on disposal
    
    
    
    
    
    
    (140,490
    )
    
    
    (42,278
    )
    
    
    (140,490
    )Income (loss) from
operations
    
    
    
    
    
    
    146,288
    
    
    
    (35,890
    )
    
    
    202,864Income (loss) from
discontinued operations
    
    
    
    
    
    
    5,798
    
    
    
    (78,168
    )
    
    
    62,374Net income (loss)
    
    $
    4,940,012
    
    
    $
    (13,855,204
    )
    
    $
    6,815,414
    
    
    $
    (11,621,848
    )PER SHARE AMOUNTS (NOTE 1):Income (loss) from
continuing operations:Basic
    
    $
    0.30
    
    
    $
    (0.87
    )
    
    $
    0.42
    
    
    $
    (0.74
    )Diluted
    
    $
    0.29
    
    
    $
    (0.87
    )
    
    $
    0.40
    
    
    $
    (0.74
    )Net income (loss)Basic
    
    $
    0.30
    
    
    $
    (0.87
    )
    
    $
    0.42
    
    
    $
    (0.73
    )Diluted
    
    $
    0.29
    
    
    $
    (0.87
    )
    
    $
    0.40
    
    
    $
    (0.73
    )WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:Basic
    
    
    16,337,808
    
    
    
    15,935,336
    
    
    
    16,327,493
    
    
    
    15,883,210Diluted
    
    
    17,084,821
    
    
    
    15,935,336
    
    
    
    17,170,028
    
    
    
    15,883,210
 See accompanying notes to consolidated financial statements.
 5




---



##### Table of Contents



POWERSECURE INTERNATIONAL, INC.
 
 Consolidated Statements of Cash Flows
 (unaudited)
 Six Months EndedJune 30,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    6,815,414
    
    
    $
    (11,621,848
    )Adjustments to reconcile net income (loss) to net cash
used in operating activities:Depreciation and amortization
    
    
    984,676
    
    
    
    717,033Minority interest in subsidiary
    
    
    
    
    
    
    Deferred income taxes
    
    
    64,650
    
    
    
    Loss on disposal of miscellaneous assets
    
    
    148,682
    
    
    
    72,999Equity in income of unconsolidated affiliate
    
    
    (2,190,560
    )
    
    
    (1,321,295
    )Distributions from unconsolidated affiliate
    
    
    543,944
    
    
    
    1,414,254Stock compensation expense
    
    
    1,215,479
    
    
    
    467,976Changes in other assets and liabilities:Trade receivables, net
    
    
    (3,585,962
    )
    
    
    312,409Inventories
    
    
    499,490
    
    
    
    (1,820,867
    )Other current assets
    
    
    84,217
    
    
    
    57,236Assets of discontinued operations held for sale
    
    
    2,399,589
    
    
    
    144,490Other noncurrent assets
    
    
    61,603
    
    
    
    (11,490
    )Accounts payable
    
    
    1,606,069
    
    
    
    (10,281,558
    )Restructuring charges, net of cash payments
    
    
    (3,124,319
    )
    
    
    10,520,521Accrued and other liabilities
    
    
    (10,883,210
    )
    
    
    2,892,579Liabilites of discontinued operations held for sale
    
    
    (754,589
    )
    
    
    Deferred compensation obligation
    
    
    166,320
    
    
    
    Retirement annuity
    
    
    (70,212
    )
    
    
    Net cash used in operating activities
    
    
    (6,018,719
    )
    
    
    (8,457,561
    )CASH FLOWS FROM INVESTING ACTIVITIES:Additions to property, plant and equipment
    
    
    (15,052,851
    )
    
    
    (557,421
    )Additions to intangible rights and software development
    
    
    (110,486
    )
    
    
    (254,664
    )Proceeds from sale of property, plant and equipment
    
    
    950
    
    
    
    Net cash used in investing activities
    
    
    (15,162,387
    )
    
    
    (812,085
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from term loan
    
    
    2,584,000
    
    
    
    Proceeds from stock option exercises, net of shares tendered
    
    
    212,578
    
    
    
    401,322Principal payments on long-term notes payable
    
    
    (64,600
    )
    
    
    Payments on preferred stock redemptions
    
    
    
    
    
    
    (220,186
    )Payments on capital lease obligations
    
    
    (683
    )
    
    
    (3,703
    )Net cash provided by financing activities
    
    
    2,731,295
    
    
    
    177,433NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (18,449,811
    )
    
    
    (9,092,213
    )CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD
    
    
    28,709,688
    
    
    
    15,916,460CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    10,259,877
    
    
    $
    6,824,247
 See accompanying notes to consolidated financial statements.
 6




---



##### Table of Contents



POWERSECURE INTERNATIONAL, INC. AND SUBSIDIARIES
 
 Notes to Unaudited Consolidated Financial Statements
   1. Summary of Significant Accounting Policies
 Organization 
   Principles of Consolidation 
 Use of Estimates 
 Basic and Diluted Earnings (Loss) Per Share 
 7




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Income (loss) from continuing operations
    
    $
    4,940,012
    
    
    $
    (13,861,002
    )
    
    $
    6,893,582
    
    
    $
    (11,684,222
    )Income (loss) from discontinued operations
    
    
    
    
    
    
    5,798
    
    
    
    (78,168
    )
    
    
    62,374Net income (loss)
    
    $
    4,940,012
    
    
    $
    (13,855,204
    )
    
    $
    6,815,414
    
    
    $
    (11,621,848
    )Basic weighted-average common
shares outstanding in period
    
    
    16,337,808
    
    
    
    15,935,336
    
    
    
    16,327,493
    
    
    
    15,883,210Add dilutive effects of stock
options and warrants
    
    
    747,013
    
    
    
    
    
    
    
    842,535
    
    
    
    Diluted weighted-average common
shares outstanding in period
    
    
    17,084,821
    
    
    
    15,935,336
    
    
    
    17,170,028
    
    
    
    15,883,210Basic earnings (loss) per common share:Income (loss) from continuing operations
    
    $
    0.30
    
    
    $
    (0.87
    )
    
    $
    0.42
    
    
    $
    (0.74
    )Income (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.01Basic earnings (loss) per common share
    
    $
    0.30
    
    
    $
    (0.87
    )
    
    $
    0.42
    
    
    $
    (0.73
    )Diluted earnings (loss) per common share:Income (loss) from continuing operations
    
    $
    0.29
    
    
    $
    (0.87
    )
    
    $
    0.40
    
    
    $
    (0.74
    )Income (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.01Diluted earnings (loss) per common share
    
    $
    0.29
    
    
    $
    (0.87
    )
    
    $
    0.40
    
    
    $
    (0.73
    )
 Cash and Cash Equivalents 
 8




---



##### Table of Contents



Minority Interest 
  Income Taxes
  Fair Value Measurements 
 Financial Assets and Financial Liabilities 
 9




---



##### Table of Contents



Business Combinations 
 Derivative Instruments and Hedging Activities 
 Reclassification
 2. Investment in Unconsolidated Affiliate
   10




---



##### Table of Contents



June 30,
    
    
    December 31,2008
    
    
    2007Total current assets
    
    $
    7,663,357
    
    
    $
    3,136,735Property, plant and equipment, net
    
    
    8,149,286
    
    
    
    8,366,745Total other assets
    
    
    9,075
    
    
    
    13,469Total assets
    
    $
    15,821,718
    
    
    $
    11,516,949Total current liabilities
    
    $
    1,416,141
    
    
    $
    1,362,482Long-term note payable
    
    
    2,083,149
    
    
    
    2,372,807Total shareholders equity
    
    
    12,322,428
    
    
    
    7,781,660Total liabilities and shareholders equity
    
    $
    15,821,718
    
    
    $
    11,516,949
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Total revenues
    
    $
    5,477,900
    
    
    $
    3,157,694
    
    
    $
    10,367,221
    
    
    $
    6,303,143Total costs and expenses
    
    
    2,095,003
    
    
    
    1,302,534
    
    
    
    4,326,453
    
    
    
    2,659,491Net income
    
    $
    3,382,897
    
    
    $
    1,855,160
    
    
    $
    6,040,768
    
    
    $
    3,643,652
 3. Discontinued Operations
   11




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Total revenues
    
    $
    
    
    
    $
    1,242,232
    
    
    $
    1,284,576
    
    
    $
    2,194,949Operating expenses
    
    
    
    
    
    
    1,095,944
    
    
    
    1,320,466
    
    
    
    1,992,085Income (loss) from operations
    
    
    
    
    
    
    146,288
    
    
    
    (35,890
    )
    
    
    202,864Loss on disposal
    
    
    
    
    
    
    (140,490
    )
    
    
    (42,278
    )
    
    
    (140,490
    )Income (loss) from
discontinued operations
    
    $
    
    
    
    $
    5,798
    
    
    $
    (78,168
    )
    
    $
    62,374
  12




---



##### Table of Contents



December 31,2007Inventories
    
    $
    1,189,437Prepaid expenses and other current assets
    
    
    195,159Property, plant and equipment, net
    
    
    162,618Goodwill
    
    
    770,558Intangible assets, less accumulated amortization
    
    
    47,530Other assets
    
    
    34,287Assets of discontinued operations held
for sale or liquidation
    
    $
    2,399,589Current liabilities
    
    $
    754,589Other
    
    
    Liabilities of discontinued operations held
for sale or liquidation
    
    $
    754,589
  4. Debt
 Line of Credit
   13




---



##### Table of Contents



14




---



##### Table of Contents



Equipment Line
 15




---



##### Table of Contents



5. Share-Based Compensation
  Stock Options
   16




---



##### Table of Contents



WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Term (years)
    
    
    ValueBalance, December 31, 2007
    
    
    1,727,868
    
    
    $
    5.34Granted-Directors
    
    
    
    
    
    
    Granted-Employees
    
    
    30,000
    
    
    
    12.14Exercised
    
    
    (141,983
    )
    
    
    3.15Canceled
    
    
    
    
    
    
    Forfeited
    
    
    (5,000
    )
    
    
    13.55Balance, June 30, 2008
    
    
    1,610,885
    
    
    $
    5.63
    
    
    
    5.72
    
    
    $
    1.63Exercisable, June 30, 2008
    
    
    1,305,135
    
    
    $
    4.44
    
    
    
    5.25
    
    
    $
    2.82
  17




---



##### Table of Contents



WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Term (years)
    
    
    ValueBalance, December 31, 2006
    
    
    2,085,344
    
    
    $
    4.61Granted-Directors
    
    
    22,500
    
    
    
    13.02Granted-Employees
    
    
    Exercised
    
    
    (200,066
    )
    
    
    2.25Canceled
    
    
    
    
    
    
    Forfeited
    
    
    (2,500
    )
    
    
    3.06Balance, June 30, 2007
    
    
    1,905,278
    
    
    $
    4.96
    
    
    
    6.31
    
    
    $
    10.48Exercisable, June 30, 2007
    
    
    1,496,278
    
    
    $
    5.00
    
    
    
    5.74
    
    
    $
    11.79
  June 30,
    
    June 30,2008
    
    2007Expected stock price volatilility
    
    
    60.3
    %
    
    
    75.7
    %Risk Free interest rate
    
    
    2.96
    %
    
    
    5.09
    %Annual dividends
    
    $
    
    
    
    $
    Expected life  employee options
    
    5 years
    
    naExpected life  director options
    
    na
    
    5 years
   18




---



##### Table of Contents



Restricted Stock Awards
  WeightedUnvested
    
    
    AverageRestricted
    
    
    Grant DateShares
    
    
    Fair ValueBalance, December 31, 2007
    
    
    640,500
    
    
    $
    12.48Granted-Directors
    
    
    23,148
    
    
    
    8.64Granted-Officers
    
    
    
    
    
    
    Granted-Employees
    
    
    15,000
    
    
    
    8.50Vested
    
    
    (60,000
    )
    
    
    12.34Forfeited
    
    
    
    
    
    
    Balance, June 30, 2008
    
    
    618,648
    
    
    $
    12.25
  
    
    A total of 300,000 restricted shares will cliff vest in their entirety on August 15,
2012, provided the officer holding those shares remains employed by us on that date.
    
    A total of 22,500 restricted shares will cliff vest in their entirety on December
10, 2012, provided the officers holding those shares remain employed by us on that date.
    
    The remaining 258,000 restricted shares vest in four equal annual installments,
commencing when our annual report on Form 10-K for the year ended December 31, 2008 is
filed, based upon the achievement of performance targets each year relating to our income
from continuing operations for fiscal years 2008 through 2012.
  19




---



##### Table of Contents



6. Commitments and Contingencies
   20




---



##### Table of Contents



7. Segment Information
  Distributed Generation and Energy Efficiency
 21




---



##### Table of Contents



Natural Gas Measurement Services
   22




---



##### Table of Contents



Summarized Segment Financial Information
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:PowerSecure
    
    $
    37,058
    
    
    $
    18,614
    
    
    $
    66,164
    
    
    $
    40,129Southern Flow
    
    
    4,894
    
    
    
    3,978
    
    
    
    9,363
    
    
    
    7,878Total
    
    $
    41,952
    
    
    $
    22,592
    
    
    $
    75,527
    
    
    $
    48,007Gross profit:PowerSecure
    
    $
    12,247
    
    
    $
    4,478
    
    
    $
    21,050
    
    
    $
    10,795Southern Flow
    
    
    1,510
    
    
    
    1,138
    
    
    
    2,727
    
    
    
    2,190Total
    
    $
    13,757
    
    
    $
    5,616
    
    
    $
    23,777
    
    
    $
    12,985Segment profit (loss) (1):PowerSecure
    
    $
    4,080
    
    
    $
    (517
    )
    
    $
    5,679
    
    
    $
    773Southern Flow
    
    
    962
    
    
    
    718
    
    
    
    1,712
    
    
    
    1,339Other
    
    
    (1,256
    )
    
    
    (14,785
    )
    
    
    (2,629
    )
    
    
    (15,737
    )Total
    
    $
    3,786
    
    
    $
    (14,584
    )
    
    $
    4,762
    
    
    $
    (13,625
    )Capital expenditures:PowerSecure
    
    $
    7,635
    
    
    $
    215
    
    
    $
    15,084
    
    
    $
    551Southern Flow
    
    
    37
    
    
    
    40
    
    
    
    79
    
    
    
    207Other
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    54Total
    
    $
    7,672
    
    
    $
    290
    
    
    $
    15,163
    
    
    $
    812Depreciation and amortization:PowerSecure
    
    $
    468
    
    
    $
    313
    
    
    $
    867
    
    
    $
    595Southern Flow
    
    
    42
    
    
    
    35
    
    
    
    84
    
    
    
    67Other
    
    
    17
    
    
    
    17
    
    
    
    34
    
    
    
    36Total
    
    $
    527
    
    
    $
    365
    
    
    $
    985
    
    
    $
    698
 June 30,2008
    
    
    2007Total assets:PowerSecure
    
    $
    83,919
    
    
    $
    57,367Southern Flow
    
    
    10,929
    
    
    
    11,804Other
    
    
    16,004
    
    
    
    12,345Total
    
    $
    110,852
    
    
    $
    81,516
 
 (1)
    
    Segment profit (loss) represents operating income (loss). 23




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Introduction
  Overview
    24




---



##### Table of Contents



Recent Developments
  25




---



##### Table of Contents



26




---



##### Table of Contents



Anticipated
    
    
    Estimated PrimaryDescription
    
    Revenue
    
    
    Recognition PeriodBacklog to be placed in service after June 30, 2008Project-based RevenueNear Term
    
    $
    49 Million
    
    
    
    3Q08, 4Q08, 1Q09Project-based RevenueLong Term
    
    $
    32 Million
    
    
    Years 2009-2011Recurring Revenue-Acquired in 2008
    
    $
    20 Million
    
    

2H08 through 2013Backlog to be placed in service after June 30, 2008
    
    $
    101 MillionRecurring Revenue to be recognized for assets
placed in service prior to June 30, 2008
    
    $
    11 Million
    
    
    2008 through 2014Total Backlog
    
    $
    112 Million
 
 Note:
    
    Anticipated revenue and primary recognition periods are estimates subject to change. These
backlog amounts are not intended to constitute the Companys total revenue over the indicated time
periods, as the Company has additional, regular on-going revenue streams. Examples our additional,
regular recurring revenues include revenues from our Southern Flow business, UtilityEngineering and
PowerServices engineering fees, and monitoring revenue, among others.  Operating Segments
  27




---



##### Table of Contents



Distributed Generation and Energy Efficiency
    28




---



##### Table of Contents



Natural Gas Measurement Services
  Results of Operations
  Second Quarter 2008 Compared to Second Quarter 2007
 Revenues
  Period-over-PeriodQuarter Ended June 30,
    
    
    Difference2008
    
    
    2007
    
    
    $
    
    
    %(In thousands)Segment Revenues:PowerSecure
    
    $
    37,058
    
    
    $
    18,614
    
    
    $
    18,444
    
    
    
    99.1
    %Southern Flow
    
    
    4,894
    
    
    
    3,978
    
    
    
    916
    
    
    
    23.0
    %Total
    
    $
    41,952
    
    
    $
    22,592
    
    
    $
    19,360
    
    
    
    85.7
    %
   29




---



##### Table of Contents



Quarter Ended June 30,2008
    
    
    2007(In thousands)Revenues
from Publix projects
    
    $
    19,226
    
    
    $
    7,395All other PowerSecure subsidiary revenues
    
    
    17,832
    
    
    
    11,219Total PowerSecure subsidiary revenues
    
    $
    37,058
    
    
    $
    18,614Publix as a percentage of total
PowerSecure subsidiary revenues
    
    
    51.9
    %
    
    
    39.7
    %
   Gross Profit and Gross Profit Margins
  30




---



##### Table of Contents



Period-over-PeriodQuarter Ended June 30,
    
    
    Difference2008
    
    
    2007
    
    
    $
    
    
    %(In thousands)Segment Cost of Sales and Services:PowerSecure
    
    $
    24,811
    
    
    $
    14,135
    
    
    $
    10,676
    
    
    
    75.5
    %Southern Flow
    
    
    3,384
    
    
    
    2,840
    
    
    
    544
    
    
    
    19.2
    %Total
    
    $
    28,195
    
    
    $
    16,975
    
    
    $
    11,220
    
    
    
    66.1
    %Segment Gross Profit:PowerSecure
    
    $
    12,247
    
    
    $
    4,478
    
    
    $
    7,769
    
    
    
    173.5
    %Southern Flow
    
    
    1,510
    
    
    
    1,138
    
    
    
    372
    
    
    
    32.7
    %Total
    
    $
    13,757
    
    
    $
    5,616
    
    
    $
    8,141
    
    
    
    145.0
    %Segment Gross Profit Margins:PowerSecure
    
    
    33.0
    %
    
    
    24.1
    %Southern Flow
    
    
    30.9
    %
    
    
    28.6
    %Total
    
    
    32.8
    %
    
    
    24.9
    %
     
    
    Our ability to improve our operating efficiency and benefit from economies of scale;
 31




---



##### Table of Contents




    
    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
  Period-over-PeriodQuarter Ended June 30,
    
    
    Difference2008
    
    
    2007
    
    
    $
    
    
    %(In thousands)Operating Expenses:General and administrative
    
    $
    7,510
    
    
    $
    4,913
    
    
    $
    2,597
    
    
    
    52.9
    %Selling, marketing and service
    
    
    1,889
    
    
    
    698
    
    
    
    1,191
    
    
    
    170.6
    %Depreciation and amortization
    
    
    527
    
    
    
    365
    
    
    
    162
    
    
    
    44.4
    %Research and development
    
    
    45
    
    
    
    85
    
    
    
    (40
    )
    
    
    -47.1
    %Restructuring charges
    
    
    
    
    
    
    14,139
    
    
    
    (14,139
    )
    
    
    -100.0
    %Total
    
    $
    9,971
    
    
    $
    20,200
    
    
    $
    (10,229
    )
    
    
    -50.6
    %
  32




---



##### Table of Contents



General and Administrative Expenses.
 Period-over-PeriodQuarter Ended June 30,
    
    
    Difference2008
    
    
    2007
    
    
    $
    
    
    %(In thousands)PowerSecure Subsidiary G&A Expense:Personnel costs
    
    $
    3,850
    
    
    $
    2,420
    
    
    $
    1,430
    
    
    
    59.1
    %Vehicle lease and rental
    
    
    639
    
    
    
    381
    
    
    
    258
    
    
    
    67.7
    %Insurance
    
    
    258
    
    
    
    280
    
    
    
    (22
    )
    
    
    -7.9
    %Rent-office and equipment
    
    
    216
    
    
    
    173
    
    
    
    43
    
    
    
    24.9
    %Professional fees and consulting
    
    
    112
    
    
    
    227
    
    
    
    (115
    )
    
    
    -50.7
    %Travel
    
    
    249
    
    
    
    122
    
    
    
    127
    
    
    
    104.1
    %Other
    
    
    443
    
    
    
    299
    
    
    
    144
    
    
    
    48.2
    %Southern Flow G&A Expense
    
    
    504
    
    
    
    382
    
    
    
    122
    
    
    
    31.9
    %Corporate Overhead Expense
    
    
    1,239
    
    
    
    629
    
    
    
    610
    
    
    
    97.0
    %Total
    
    $
    7,510
    
    
    $
    4,913
    
    
    $
    2,597
    
    
    
    52.9
    %
    33




---



##### Table of Contents



Selling, Marketing and Service Expenses.
 Period-over-PeriodQuarter Ended June 30,
    
    
    Difference2008
    
    
    2007
    
    
    $
    
    
    %(In thousands)PowerSecure Selling and Marketing Expense:Salaries
    
    $
    562
    
    
    $
    268
    
    
    $
    294
    
    
    
    109.7
    %Commission
    
    
    827
    
    
    
    236
    
    
    
    591
    
    
    
    250.4
    %Travel
    
    
    155
    
    
    
    94
    
    
    
    61
    
    
    
    64.9
    %Advertising and promotion
    
    
    102
    
    
    
    56
    
    
    
    46
    
    
    
    82.1
    %Bad debt expense
    
    
    239
    
    
    
    41
    
    
    
    198
    
    
    
    482.9
    %Other business development costs
    
    
    4
    
    
    
    3
    
    
    
    1
    
    
    
    33.3
    %Total
    
    $
    1,889
    
    
    $
    698
    
    
    $
    1,191
    
    
    
    170.6
    %
  Depreciation and Amortization Expenses.
 Research and Development Expenses.
 34




---



##### Table of Contents



Restructuring Charges.
 Other Income and Expenses
  Period-over-PeriodQuarter Ended June 30,
    
    Difference2008
    
    2007
    
    $
    
    %(In thousands)Other Income and (Expenses):Management fees
    
    $
    164
    
    
    $
    102
    
    
    $
    62
    
    
    
    60.8
    %Interest income
    
    
    118
    
    
    
    126
    
    
    
    (8
    )
    
    
    -6.3
    %Interest and finance charges
    
    
    (52
    )
    
    
    (8
    )
    
    
    (44
    )
    
    
    -550.0
    %Equity income
    
    
    1,227
    
    
    
    673
    
    
    
    554
    
    
    
    82.3
    %Income tax benefit (provision)
    
    
    (303
    )
    
    
    (170
    )
    
    
    (133
    )
    
    
    -78.2
    %
 Management Fees.
 Interest Income.
 Interest and Finance Charges.
 35




---



##### Table of Contents



Equity Income.
 Income Taxes.
 Six Month Period 2008 Compared to Six Month Period 2007
 Revenues
  36




---



##### Table of Contents



Period-over-PeriodSix Months Ended June 30,
    
    
    Difference2008
    
    
    2007
    
    
    $
    
    
    %(In thousands)Segment Revenues:PowerSecure
    
    $
    66,164
    
    
    $
    40,129
    
    
    $
    26,035
    
    
    
    64.9
    %Southern Flow
    
    
    9,363
    
    
    
    7,878
    
    
    
    1,485
    
    
    
    18.8
    %Total
    
    $
    75,527
    
    
    $
    48,007
    
    
    $
    27,520
    
    
    
    57.3
    %
    Six Months Ended June 30,2008
    
    
    2007(In thousands)Revenues from
Publix projects
    
    $
    33,091
    
    
    $
    21,896All other PowerSecure subsidiary revenues
    
    
    33,073
    
    
    
    18,233Total PowerSecure subsidiary revenues
    
    $
    66,164
    
    
    $
    40,129Publix as a percentage of total PowerSecure subsidiary revenues
    
    
    50.0
    %
    
    
    54.6
    %
  37




---



##### Table of Contents



Gross Profit and Gross Profit Margins
  Period-over-PeriodSix Months Ended June 30,
    
    
    Difference2008
    
    
    2007
    
    
    $
    
    
    %(In thousands)Segment Cost of Sales and Services:PowerSecure
    
    $
    45,114
    
    
    $
    29,334
    
    
    $
    15,780
    
    
    
    53.8
    %Southern Flow
    
    
    6,636
    
    
    
    5,688
    
    
    
    948
    
    
    
    16.7
    %Total
    
    $
    51,750
    
    
    $
    35,022
    
    
    $
    16,728
    
    
    
    47.8
    %Segment Gross Profit:PowerSecure
    
    $
    21,050
    
    
    $
    10,795
    
    
    $
    10,255
    
    
    
    95.0
    %Southern Flow
    
    
    2,727
    
    
    
    2,190
    
    
    
    537
    
    
    
    24.5
    %Total
    
    $
    23,777
    
    
    $
    12,985
    
    
    $
    10,792
    
    
    
    83.1
    %Segment Gross Profit Margins:PowerSecure
    
    
    31.8
    %
    
    
    26.9
    %Southern Flow
    
    
    29.1
    %
    
    
    27.8
    %Total
    
    
    31.5
    %
    
    
    27.0
    %
   38




---



##### Table of Contents



Operating Expense
  Period-over-PeriodSix Months Ended June 30,
    
    
    Difference2008
    
    
    2007
    
    
    $
    
    
    %(In thousands)Operating Expenses:General and administrative
    
    $
    14,753
    
    
    $
    10,354
    
    
    $
    4,399
    
    
    
    42.5
    %Selling, marketing and service
    
    
    3,213
    
    
    
    1,317
    
    
    
    1,896
    
    
    
    144.0
    %Depreciation and amortization
    
    
    985
    
    
    
    698
    
    
    
    287
    
    
    
    41.1
    %Research and development
    
    
    64
    
    
    
    102
    
    
    
    (38
    )
    
    
    -37.3
    %Restructuring charges
    
    
    
    
    
    
    14,139
    
    
    
    (14,139
    )
    
    
    -100.0
    %Total
    
    $
    19,015
    
    
    $
    26,610
    
    
    $
    (7,595
    )
    
    
    -28.5
    %
 General and Administrative Expenses.
 Period-over-PeriodSix Months Ended June 30,
    
    
    Difference2008
    
    
    2007
    
    
    $
    
    
    %(In thousands)PowerSecure Subsidiary G&A Expense:Personnel costs
    
    $
    7,324
    
    
    $
    5,304
    
    
    $
    2,020
    
    
    
    38.1
    %Vehicle lease and rental
    
    
    1,119
    
    
    
    722
    
    
    
    397
    
    
    
    55.0
    %Insurance
    
    
    457
    
    
    
    483
    
    
    
    (26
    )
    
    
    -5.4
    %Rent-office and equipment
    
    
    449
    
    
    
    292
    
    
    
    157
    
    
    
    53.8
    %Professional fees and consulting
    
    
    339
    
    
    
    380
    
    
    
    (41
    )
    
    
    -10.8
    %Travel
    
    
    455
    
    
    
    228
    
    
    
    227
    
    
    
    99.6
    %Other
    
    
    1,090
    
    
    
    604
    
    
    
    486
    
    
    
    80.5
    %Southern Flow G&A Expense
    
    
    925
    
    
    
    779
    
    
    
    146
    
    
    
    18.7
    %Corporate Overhead Expense
    
    
    2,595
    
    
    
    1,562
    
    
    
    1,033
    
    
    
    66.1
    %Total
    
    $
    14,753
    
    
    $
    10,354
    
    
    $
    4,399
    
    
    
    42.5
    %
 39




---



##### Table of Contents



Selling, Marketing and Service Expenses.
 Period-over-PeriodSix Months Ended June 30,
    
    
    Difference2008
    
    
    2007
    
    
    $
    
    
    %(In thousands)PowerSecure Selling and Marketing Expense:Salaries
    
    $
    1,098
    
    
    $
    530
    
    
    $
    568
    
    
    
    107.2
    %Commission
    
    
    1,312
    
    
    
    516
    
    
    
    796
    
    
    
    154.3
    %Travel
    
    
    324
    
    
    
    163
    
    
    
    161
    
    
    
    98.8
    %Advertising and promotion
    
    
    222
    
    
    
    90
    
    
    
    132
    
    
    
    146.7
    %Bad debt expense
    
    
    251
    
    
    
    12
    
    
    
    239
    
    
    
    1991.7
    %Other business development costs
    
    
    6
    
    
    
    6
    
    
    
    
    
    
    
    0.0
    %Total
    
    $
    3,213
    
    
    $
    1,317
    
    
    $
    1,896
    
    
    
    144.0
    %
 40




---



##### Table of Contents



Depreciation and Amortization Expenses.
 Research and Development Expenses.
 Restructuring Charges.
 Other Income and Expenses
  Period-over-PeriodSix Months Ended June 30,
    
    Difference2008
    
    2007
    
    $
    
    %(In thousands)Other Income and (Expenses):Management fees
    
    $
    313
    
    
    $
    203
    
    
    $
    110
    
    
    
    54.2
    %Interest income
    
    
    345
    
    
    
    350
    
    
    
    (5
    )
    
    
    -1.4
    %Interest and finance charges
    
    
    (103
    )
    
    
    (14
    )
    
    
    (89
    )
    
    
    -635.7
    %Equity income
    
    
    2,191
    
    
    
    1,321
    
    
    
    870
    
    
    
    65.9
    %Other income
    
    
    
    
    
    
    556
    
    
    
    (556
    )
    
    
    -100.0
    %Income tax benefit (provision)
    
    
    (614
    )
    
    
    (476
    )
    
    
    (138
    )
    
    
    -29.0
    %
 Management Fees.
 41




---



##### Table of Contents



Interest Income.
 Interest and Finance Charges.
 Equity Income.
 Other Income.
 Income Taxes.
 Fluctuations
  
    
    the size, timing and terms of sales and orders, including large customer orders, such
as the significant Publix orders, as well as the effects of customers delaying, deferring
or canceling purchase orders or making smaller purchases than expected;
    
    our ability to continue to grow our business and revenues from non-Publix customers;
 42




---



##### Table of Contents




    
    the effects of the current and future economic and market challenges on our business
and revenues, especially due to these effects of these challenges on the timing of orders
from our customers;
    
    our ability to obtain adequate supplies of key components and materials for our
products on a timely and cost-effective basis, including the impact of fluctuations in the
cost of raw materials;
    
    our ability to implement our business plans and strategies and the timing of such
implementation;
    
    the pace of development of our new businesses and the 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 product and service implementation process;
    
    changes in the mix of products and services having differing margins;
    
    the effects of severe weather conditions, such as hurricanes, on the demand
requirements
of our customers;
    
    the life cycles of our products and services;
    
    budgeting cycles of utilities and other major customers;
    
    changes and uncertainties in the lead times required to obtain the necessary permits
and other governmental and regulatory approvals for projects;
    
    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;
    
    the effects of governmental regulations and regulatory changes in our markets;
    
    general economic and political conditions;
    
    the effects of litigation, claims and other proceedings;
    
    our ability to make and obtain the expected benefits from acquisitions of technology or
businesses, and the costs related to such acquisitions;
    
    changes in our operating expenses; and
    
    changes in our valuation allowance for our net deferred tax asset.
    
    the development and maintenance of business relationships with strategic partners.
   43




---



##### Table of Contents



Liquidity and Capital Resources
 Overview
  
    
    operations;
    
    inventory;
    
    accounts receivable;
 44




---



##### Table of Contents




    
    property and equipment acquisitions, including investments in recurring
revenue projects;
    
    software purchases or development;
    
    debt service requirements;
    
    restructuring obligations;
    
    deferred compensation obligations; and
    
    business and technology acquisitions and other growth transactions.
 Working Capital
  Cash Flows
  Six Months Ended June 30,2008
    
    
    2007(In thousands)Net cash flows used in operating activities
    
    $
    (6,019
    )
    
    $
    (8,457
    )Net cash flows used in investing activities
    
    
    (15,162
    )
    
    
    (812
    )Net cash provided by financing activities
    
    
    2,731
    
    
    
    177Net decrease in cash and cash equivalents
    
    $
    (18,450
    )
    
    $
    (9,092
    )
 Cash Flows Used in Operating Activities
   45




---



##### Table of Contents



Cash Used in Investing Activities
  Cash Provided by Financing Activities
  46




---



##### Table of Contents



Capital Spending
   Indebtedness
 Restructuring Obligations.
 Working Capital Credit Facility.
  47




---



##### Table of Contents



Equipment Line.
 48




---



##### Table of Contents



Preferred Stock Redemption
 Contractual Obligations and Commercial Commitments
  Payments Due by Period (1)Remainder of
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    2008
    
    
    1 - 3 Years
    
    
    4 - 5 Years
    
    
    5 YearsContractual ObligationsLine of credit facility (2)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Term credit facility
    
    
    2,519,000
    
    
    
    32,000
    
    
    
    258,000
    
    
    
    258,000
    
    
    
    1,971,000Restructuring obligations
    
    
    2,606,000
    
    
    
    924,000
    
    
    
    1,682,000
    
    
    
    
    
    
    
    Capital lease obligations
    
    
    6,000
    
    
    
    
    
    
    
    4,000
    
    
    
    2,000
    
    
    
    Operating leases
    
    
    2,671,000
    
    
    
    445,000
    
    
    
    1,268,000
    
    
    
    615,000
    
    
    
    343,000Deferred compensation (3)
    
    
    2,495,000
    
    
    
    167,000
    
    
    
    666,000
    
    
    
    666,000
    
    
    
    996,000Series B preferred stock
    
    
    104,000
    
    
    
    104,000
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    10,401,000
    
    
    $
    1,672,000
    
    
    $
    3,878,000
    
    
    $
    1,541,000
    
    
    $
    3,310,000
 
 (1)
    
    Does not include interest that may become due and payable on such obligations in any future
period. 49




---



##### Table of Contents



(2)
    
    Total repayments are based upon borrowings outstanding as of June 30, 2008, not actual or
projected borrowings after such date.(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
  Critical Accounting Policies
  50




---



##### 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
   51




---



##### Table of Contents



52




---



##### Table of Contents



Cautionary Note Regarding Forward-Looking Statements
  
    
    our prospects, including our future revenues, the realization of our current revenue
backlog, expenses, net income, margins, profitability, cash flow, liquidity, financial
condition and results of operations;
    
    our products and services and our markets, including market position, market share,
market demand and benefits of our products and services to customers;
    
    our ability to successfully develop, operate and grow 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, available borrowings under our credit arrangements and other
capital resources, to meet our future working capital, capital expenditure, including
 53




---



##### Table of Contents



capital requirements to execute recurring revenue model projects, 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;
    
    the effects on our business, financial condition and results of operations of litigation
and other claims and proceedings that arise from time to time; and
    
    future economic, business, market and regulatory conditions.
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  54




---



##### Table of Contents



Interest Rate Risk.
  Commodity Price Risk
 Foreign Exchange Risk
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  55




---



##### Table of Contents



Changes in Internal Control over Financial Reporting
  Limitations in Control Systems
  56




---



##### Table of Contents



PART II
OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  The quality and performance of our distributed generation systems and related products and
systems  is, in part, dependent on the quality of component parts we source from various
manufacturers, which makes us susceptible to performance issues that could materially and
adversely affect our business and financial results.
  57




---



##### Table of Contents



Our management of the WaterSecure operations, a private energy program, presents risks to
us.
  
    
    material adverse changes in the business, results of operations and financial
condition of the program due to events, conditions and factors outside of our control,
such as changes in the price of oil and other general and local conditions affecting
the oil and gas market generally, which could reduce the revenues and net income of the
program and, accordingly, our results of operations;
    
    potential new market entrants and competition resulting from the current oil and gas
market generally and the specific oil and gas market served by our WaterSecure
operations, which could adversely affect the financial results of our WaterSecure
operations and, accordingly, our results of operations;
    
    lawsuits by investors in this program who become dissatisfied with the results of
the program;
    
    hazards of oil production water disposal facilities, including fires and
environmental hazards, such as the 2008 fires, that can result in loss of life,
personal injuries, damages to facilities that may not be insured and lost business,
revenues, net income and cash flows due to the interruptions caused by such hazards;
    
    risks inherent in managing a program and taking significant actions that affect its
investors;
    
    changes in the regulatory environment relating to the program;
    
    reliance upon significant suppliers and customers by the program; and
    
    changes in technology.
  The recent downturn in general economic and market conditions could materially and adversely
affect our business.
  58




---



##### Table of Contents



59




---



##### Table of Contents



Item 4.  Submission of Matters to a Vote of Security Holders
  Proposal 1:
    
    To elect two directors, each to serve for a three-year term and until his
successor is duly elected and qualified.
 For
    
    WithheldKevin P. Collins
    
    
    11,173,144
    
    
    
    2,103,570John A. (Andy) Miller
    
    
    12,495,094
    
    
    
    781,620
 Proposal 2:
    
    To approve the PowerSecure International, Inc. 2008 Stock Incentive Plan.
 For
    
    Against
    
    Abstain
    
    Non-Votes7,596,903
    
    
    
    711,109
    
    
    
    33,229
    
    
    
    4,935,473
 Proposal 3:
    
    To ratify the appointment of Hein & Associates LLP as the Companys independent
registered public accounting firm for the fiscal year ending December 31, 2008.
 For
    
    Against
    
    Abstain12,930,872
    
    
    
    203,158
    
    
    
    142,684
 
 Item 6. Exhibits
 (10.1)
    
    Second Amendment to Credit Agreement, dated as of May 5, 2008, among
Registrant, the financial institutions from time to time parties thereto as
lenders, and Citibank, N.A., as administrative agent. (Incorporated by
reference to Exhibit 10.8 to Registrants Quarterly Report on Form 10-Q for the
fiscal period ended March 31, 2008.)(10.2)
    
    First Amendment to Term Credit Agreement, dated as of May 5, 2008, among
Registrant, the financial institutions from time to time parties thereto as
lenders, and Citibank, N.A., as administrative agent. (Incorporated by
reference to Exhibit 10.9 to Registrants Quarterly Report on Form 10-Q for the
fiscal period ended March 31, 2008.)(10.3)
    
    PowerSecure International, Inc. 2008 Stock Incentive Plan. (Incorporated by
reference to Exhibit 10.1 to the PowerSecure
 60




---



##### Table of Contents



International, Inc. Registration
Statement on Form S-8, Registration No. 333-151540.)(10.4)
    
    Form of Restricted Stock Agreement under the PowerSecure International, Inc.
2008 Stock Incentive Plan. (Incorporated by reference to Exhibit 10.2 to
Registrants Current Report on Form 8-K filed June 13, 2008.)(10.5)
    
    Form of Incentive Stock Option Agreement for Employees under the PowerSecure
International, Inc. 2008 Stock Incentive Plan. (Incorporated by reference to
Exhibit 10.3 to Registrants Current Report on Form 8-K filed June 13, 2008.)(10.6)
    
    Form of Non-Qualified Stock Option Agreement under the PowerSecure
International, Inc. 2008 Stock Incentive Plan. (Incorporated by reference to
Exhibit 10.4 to Registrants Current Report on Form 8-K filed June 13, 2008.)(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.)
 61




---



##### Table of Contents



SIGNATURES
  POWERSECURE INTERNATIONAL, INC.Date:    August 7, 2008
    By:
    /s/ Sidney HintonSidney HintonPresident and Chief Executive OfficerDate: August 7, 2008
    By:
    /s/ Christopher T. HutterChristopher T. HutterVice President, Chief Financial Officer,
Treasurer and Assistant Secretary 62