##### 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, 2009
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 1-12014
 POWERSECURE INTERNATIONAL, INC.
  Delaware
    
    84-1169358(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)1609 Heritage Commerce Court 
Wake Forest, North Carolina
    
    27587(Address of principal executive offices)
    
    (Zip code)
 
  þ o
  o o
  Large accelerated filer oAccelerated filer þNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o o þ




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##### 



POWERSECURE INTERNATIONAL, INC.
 FORM 10-Q
For the Quarterly Period Ended June 30, 2009
 TABLE OF CONTENTS
 PagePART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsUnaudited Consolidated Balance Sheets -
June 30, 2009 and December 31, 2008
    
    
    3Unaudited Consolidated Statements of Operations -
For the Three and Six Months Ended June 30, 2009 and
June 30, 2008
    
    
    5Unaudited Consolidated Statements of Cash Flows -
For the Six Months Ended June 30, 2009 and
June 30, 2008
    
    
    6Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    27Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    61Item 4.
    
    Controls and Procedures
    
    
    62PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    64Item 1A.
    
    Risk Factors
    
    
    64Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    64Item 6.
    
    Exhibits
    
    
    64Signatures
    
    
    66EX-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)
 June 30,
    
    
    December 31,2009
    
    
    2008AssetsCurrent Assets:Cash and cash equivalents
    
    $
    18,861
    
    
    $
    24,316Trade receivables, net of allowance for doubtful accounts
of $264 and $276, respectively
    
    
    26,593
    
    
    
    25,215Inventories
    
    
    23,064
    
    
    
    19,713Deferred income taxes
    
    
    2,919
    
    
    
    2,919Prepaid expenses and other current assets
    
    
    1,309
    
    
    
    1,680Total current assets
    
    
    72,746
    
    
    
    73,843Property, plant and equipment:Equipment
    
    
    22,212
    
    
    
    20,297Furniture and fixtures
    
    
    658
    
    
    
    650Land, building and improvements
    
    
    4,711
    
    
    
    4,674Total property, plant and equipment, at cost
    
    
    27,581
    
    
    
    25,621Less accumulated depreciation and amortization
    
    
    4,435
    
    
    
    3,739Property, plant and equipment, net
    
    
    23,146
    
    
    
    21,882Other assets:Goodwill
    
    
    7,256
    
    
    
    7,256Restricted annuity contract
    
    
    2,176
    
    
    
    2,133Intangible rights and capitalized software costs, net of
accumulated amortization of $1,695 and $1,453, respectively
    
    
    1,122
    
    
    
    1,276Investment in unconsolidated affiliate
    
    
    3,854
    
    
    
    4,106Other assets
    
    
    325
    
    
    
    338Total other assets
    
    
    14,733
    
    
    
    15,109Total Assets
    
    $
    110,625
    
    
    $
    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)
 June 30,
    
    
    December 31,2009
    
    
    2008Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    7,309
    
    
    $
    5,817Accrued and other liabilities
    
    
    21,652
    
    
    
    23,147Restructuring charges payable
    
    
    890
    
    
    
    1,349Current income taxes payable
    
    
    
    
    
    
    181Current unrecognized tax benefit
    
    
    79
    
    
    
    79Capital lease obligations
    
    
    736
    
    
    
    716Total current liabilities
    
    
    30,666
    
    
    
    31,289Long-term liabilites:Capital lease obligations
    
    
    4,828
    
    
    
    5,201Unrecognized tax benefit
    
    
    790
    
    
    
    790Deferred compensation
    
    
    554
    
    
    
    388Restructuring charges
    
    
    
    
    
    
    355Total long-term liabilities
    
    
    6,172
    
    
    
    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; 17,217,531 and 17,071,889 shares issued
and outstanding, respectively
    
    
    172
    
    
    
    171Additional paid-in-capital
    
    
    109,444
    
    
    
    108,384Accumulated deficit
    
    
    (36,194
    )
    
    
    (35,744
    )Total PowerSecure International stockholders equity
    
    
    73,422
    
    
    
    72,811Noncontrolling interest
    
    
    365
    
    
    
    Total stockholders equity
    
    
    73,787
    
    
    
    72,811Total Liabilities and Stockholders Equity
    
    $
    110,625
    
    
    $
    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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues
    
    $
    25,135
    
    
    $
    41,952
    
    
    $
    44,855
    
    
    $
    75,527Cost of sales
    
    
    16,880
    
    
    
    28,152
    
    
    
    30,726
    
    
    
    51,707Gross profit
    
    
    8,255
    
    
    
    13,800
    
    
    
    14,129
    
    
    
    23,820Operating expenses:General and administrative
    
    
    6,006
    
    
    
    7,553
    
    
    
    12,026
    
    
    
    14,796Selling, marketing and service
    
    
    969
    
    
    
    1,889
    
    
    
    1,800
    
    
    
    3,214Depreciation and amortization
    
    
    563
    
    
    
    527
    
    
    
    1,105
    
    
    
    984Research and development
    
    
    66
    
    
    
    45
    
    
    
    86
    
    
    
    64Total operating expenses
    
    
    7,604
    
    
    
    10,014
    
    
    
    15,017
    
    
    
    19,058Operating income (loss)
    
    
    651
    
    
    
    3,786
    
    
    
    (888
    )
    
    
    4,762Other income and (expenses):Management fees
    
    
    98
    
    
    
    164
    
    
    
    203
    
    
    
    313Interest and other income
    
    
    38
    
    
    
    119
    
    
    
    91
    
    
    
    345Interest and finance charges
    
    
    (145
    )
    
    
    (52
    )
    
    
    (319
    )
    
    
    (103
    )Equity income
    
    
    401
    
    
    
    1,227
    
    
    
    878
    
    
    
    2,191Income (loss) before income taxes
    
    
    1,043
    
    
    
    5,244
    
    
    
    (35
    )
    
    
    7,508Income tax provision
    
    
    (26
    )
    
    
    (304
    )
    
    
    (50
    )
    
    
    (616
    )Income (loss) from continuing operations
    
    
    1,017
    
    
    
    4,940
    
    
    
    (85
    )
    
    
    6,892Discontinued operationsLoss on disposal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42
    )Loss from operations, including tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35
    )Loss on discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77
    )Net income (loss)
    
    
    1,017
    
    
    
    4,940
    
    
    
    (85
    )
    
    
    6,815Less: Net income attributable to noncontrolling interest
    
    
    (331
    )
    
    
    
    
    
    
    (365
    )
    
    
    Net income (loss) attributable to PowerSecure International
    
    $
    686
    
    
    $
    4,940
    
    
    $
    (450
    )
    
    $
    6,815Basic earnings (loss) per share attributable to
PowerSecure International common stockholders:Income (loss) from continuing operations
    
    $
    0.04
    
    
    $
    0.29
    
    
    $
    (0.03
    )
    
    $
    0.41Loss from discontinued operations
    
    
    .00
    
    
    
    .00
    
    
    
    .00
    
    
    
    (0.01
    )Net income (loss) attributable to PowerSecure
International common stockholders:
    
    $
    0.04
    
    
    $
    0.29
    
    
    $
    (0.03
    )
    
    $
    0.40Diluted earnings (loss) per share attributable to
PowerSecure International common stockholders:Income (loss) from continuing operations
    
    $
    0.04
    
    
    $
    0.28
    
    
    $
    (0.03
    )
    
    $
    0.40Loss from discontinued operations
    
    
    .00
    
    
    
    .00
    
    
    
    .00
    
    
    
    (0.01
    )Net income (loss) attributable to PowerSecure
International common stockholders:
    
    $
    0.04
    
    
    $
    0.28
    
    
    $
    (0.03
    )
    
    $
    0.39Amounts attributable to PowerSecure International common stockholders:Income (loss) from continuing operations, net of tax
    
    $
    686
    
    
    $
    4,940
    
    
    $
    (450
    )
    
    $
    6,892Discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77
    )Net income (loss)
    
    $
    686
    
    
    $
    4,940
    
    
    $
    (450
    )
    
    $
    6,815
 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)
 Six MonthsEnded June 30,2009
    
    
    2008Cash flows from operating activities:Net income (loss)
    
    $
    (450
    )
    
    $
    6,815Adjustments to reconcile net income (loss) to net cash
used in operating activities:Depreciation and amortization
    
    
    1,105
    
    
    
    985Noncontrolling interest
    
    
    365
    
    
    
    Deferred income taxes
    
    
    
    
    
    
    65Loss on disposal of miscellaneous assets
    
    
    30
    
    
    
    149Equity in income of unconsolidated affiliate
    
    
    (878
    )
    
    
    (2,191
    )Distributions from unconsolidated affiliate
    
    
    1,093
    
    
    
    544Stock compensation expense
    
    
    787
    
    
    
    1,215Changes in operating assets and liabilities, net of
effect of aquisitons:Trade receivables, net
    
    
    (1,378
    )
    
    
    (3,586
    )Inventories
    
    
    (3,024
    )
    
    
    499Other current assets and liabilities
    
    
    189
    
    
    
    84Assets of discontinued operations held for sale
    
    
    
    
    
    
    2,400Other noncurrent assets
    
    
    14
    
    
    
    62Accounts payable
    
    
    1,492
    
    
    
    1,606Restructuring charges
    
    
    (814
    )
    
    
    (3,124
    )Accrued and other liabilities
    
    
    (1,494
    )
    
    
    (10,883
    )Liabilities of discontinued operations held for sale
    
    
    
    
    
    
    (755
    )Deferred compensation obligation
    
    
    166
    
    
    
    166Restricted annuity contract
    
    
    (43
    )
    
    
    (70
    )Net cash used in operating activities
    
    
    (2,840
    )
    
    
    (6,019
    )Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (1,612
    )
    
    
    (15,053
    )Additions to intangible rights and software development
    
    
    (134
    )
    
    
    (110
    )Acquisition
    
    
    (800
    )
    
    
    Proceeds from sale of property, plant and equipment
    
    
    10
    
    
    
    1Net cash used in investing activities
    
    
    (2,536
    )
    
    
    (15,162
    )Cash flows from financing activities:Proceeds from term loan
    
    
    
    
    
    
    2,584Proceeds from stock option and warrant exercises, net of shares tendered
    
    
    274
    
    
    
    212Principal payments on long-term notes payable
    
    
    
    
    
    
    (65
    )Borrowings (payments) on line of credit
    
    
    
    
    
    
    Payments on capital lease obligations
    
    
    (353
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    (79
    )
    
    
    2,731NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (5,455
    )
    
    
    (18,450
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    24,316
    
    
    
    28,710CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    18,861
    
    
    $
    10,260
 See accompanying notes to consolidated financial statements.
 6




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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 Pronouncements
 Revenue Recognition
     9




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Cash and Cash Equivalents
 Concentration of Credit Risk
  Warranty Reserve
 10




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Share-Based Compensation
  Income Taxes
 Recent Accounting Pronouncements
 Noncontrolling Interest
 11




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Accounting for Business Combinations
 Derivative Instruments and Hedging Activities
 Useful Life of Intangible Assets
 Participating Securities
 Defensive Intangible Assets
 12




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Fair Value Accounting Standards
    Employers Disclosures about Postretirement Benefit Plan Assets
 Subsequent Events Disclosure
 13




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Accounting for Transfers of Financial Assets
 Variable Interest Entities
 Codification and Hierarchy of Accounting Standards
 3. Earnings (Loss) per Share
  14




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Amounts attributable to PowerSecure International,
Inc. common stockholders:Income (loss) from continuing
operations
    
    $
    686
    
    
    $
    4,940
    
    
    $
    (450
    )
    
    $
    6,892Loss from discontinued
operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77
    )Net income (loss)
    
    $
    686
    
    
    $
    4,940
    
    
    $
    (450
    )
    
    $
    6,815Basic weighted-average common
shares outstanding in period
    
    
    17,159
    
    
    
    16,927
    
    
    
    17,127
    
    
    
    16,912Add dilutive effects of stock
options and warrants
    
    
    
    
    
    
    416
    
    
    
    
    
    
    
    516Diluted weighted-average common
shares outstanding in period
    
    
    17,159
    
    
    
    17,343
    
    
    
    17,127
    
    
    
    17,428Basic earnings (loss) per
common share:Income (loss) from continuing
operations
    
    $
    0.04
    
    
    $
    0.29
    
    
    $
    (0.03
    )
    
    $
    0.41Loss from discontinued
operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (0.01
    )Basic earnings (loss) per
common share
    
    $
    0.04
    
    
    $
    0.29
    
    
    $
    (0.03
    )
    
    $
    0.40Diluted earnings (loss) per
common share:Income (loss) from continuing
operations
    
    $
    0.04
    
    
    $
    0.28
    
    
    $
    (0.03
    )
    
    $
    0.40Loss from discontinued
operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (0.01
    )Diluted earnings (loss) per
common share
    
    $
    0.04
    
    
    $
    0.28
    
    
    $
    (0.03
    )
    
    $
    0.39
 4. New Business Unit
  Inventory
    
    $
    408Equipment
    
    
    392Total assets
    
    $
    800
  15




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5. Investment in Unconsolidated Affiliate
   June 30,
    
    
    December 31,2009
    
    
    2008Total current assets
    
    $
    2,650
    
    
    $
    4,645Property, plant and equipment, net
    
    
    9,234
    
    
    
    8,067Total other assets
    
    
    11
    
    
    
    17Total assets
    
    $
    11,895
    
    
    $
    12,729Total current liabilities
    
    $
    1,482
    
    
    $
    1,393Long-term note payable
    
    
    3,157
    
    
    
    3,550Total shareholders equity
    
    
    7,256
    
    
    
    7,786Total liabilities and shareholders equity
    
    $
    11,895
    
    
    $
    12,729
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Total revenues
    
    $
    2,687
    
    
    $
    5,478
    
    
    $
    5,674
    
    
    $
    10,367Total costs and
expenses
    
    
    1,696
    
    
    
    2,095
    
    
    
    3,504
    
    
    
    4,326Net income
    
    $
    991
    
    
    $
    3,383
    
    
    $
    2,170
    
    
    $
    6,041
 6. Debt
 Line of Credit
  16




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17




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Equipment Line 
 7. Capital Lease Obligations
  18




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8. Share-Based Compensation
 Stock Plans
  19




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Stock Options
  WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Term (years)
    
    
    ValueBalance, December 31,
2008
    
    
    1,708
    
    
    $
    5.21Granted
    
    
    20
    
    
    
    4.57Exercised
    
    
    (33
    )
    
    
    1.62Expired
    
    
    (6
    )
    
    
    6.88Forfeited
    
    
    (49
    )
    
    
    11.19Balance, June 30, 2009
    
    
    1,640
    
    
    $
    5.09
    
    
    
    5.27
    
    
    $
    (0.83
    )Exercisable, June 30,
2009
    
    
    1,311
    
    
    $
    4.79
    
    
    
    4.46
    
    
    $
    (0.53
    )
  WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Term (years)
    
    
    ValueBalance, December 31,
2007
    
    
    1,728
    
    
    $
    5.34Granted
    
    
    30
    
    
    
    12.14Exercised
    
    
    (142
    )
    
    
    3.15Canceled
    
    
    
    
    
    
    Forfeited
    
    
    (5
    )
    
    
    13.55Balance, June 30, 2008
    
    
    1,611
    
    
    $
    5.63
    
    
    
    5.72
    
    
    $
    1.63Exercisable, June 30,
2008
    
    
    1,305
    
    
    $
    4.44
    
    
    
    5.25
    
    
    $
    2.82
  20




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June 30,
    
    June 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
  WeightedUnvested
    
    
    AverageRestricted
    
    
    Grant DateShares
    
    
    Fair ValueBalance, December 31, 2008
    
    
    628
    
    
    $
    12.06Granted
    
    
    43
    
    
    
    4.65Vested
    
    
    (76
    )
    
    
    11.90Forfeited
    
    
    
    
    
    
    Balance, June 30, 2009
    
    
    595
    
    
    $
    11.54
 21




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##### Table of Contents



WeightedUnvested
    
    
    AverageRestricted
    
    
    Grant DateShares
    
    
    Fair ValueBalance, December 31, 2007
    
    
    641
    
    
    $
    12.48Granted
    
    
    38
    
    
    
    8.58Vested
    
    
    (60
    )
    
    
    12.34Forfeited
    
    
    
    
    
    
    Balance, June 30, 2008
    
    
    619
    
    
    $
    12.25
  
    
    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.
    
    The remaining 193,500 restricted shares vest in three equal annual installments,
commencing when our annual report on Form 10-K for the year ended December 31, 2009 is
filed, but only upon the achievement of performance targets each year relating to our
net income for fiscal years 2009 through 2012.
    
    All restricted and unvested shares will automatically vest upon a change in
control.
  9. Commitments and Contingencies
   22




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23




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##### Table of Contents



10. Income Taxes
  11. Segment Information
  Energy and Smart Grid Solutions
 Energy Services
   24




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##### Table of Contents



Three Months Ended June 30, 2009Energy and
    
    
    
    
    
    
    UnallocatedSmart Grid
    
    
    Energy
    
    
    CorporateSolutions
    
    
    Services
    
    
    Costs
    
    
    TotalRevenues
    
    $
    20,671
    
    
    $
    4,464
    
    
    $
    
    
    
    $
    25,135Cost of sales
    
    
    13,629
    
    
    
    3,251
    
    
    
    
    
    
    
    16,880Gross profit
    
    
    7,042
    
    
    
    1,213
    
    
    
    
    
    
    
    8,255Operating expenses:General and
administrative
    
    
    4,308
    
    
    
    500
    
    
    
    1,198
    
    
    
    6,006Selling,
marketing and
service
    
    
    957
    
    
    
    12
    
    
    
    
    
    
    
    969Depreciation and
amortization
    
    
    477
    
    
    
    85
    
    
    
    1
    
    
    
    563Research and
development
    
    
    66
    
    
    
    
    
    
    
    
    
    
    
    66Total operating
expenses
    
    
    5,808
    
    
    
    597
    
    
    
    1,199
    
    
    
    7,604Operating income (loss)
    
    
    1,234
    
    
    
    616
    
    
    
    (1,199
    )
    
    
    651Other income and
(expenses)Management fees
    
    
    
    
    
    
    98
    
    
    
    
    
    
    
    98Equity income
    
    
    
    
    
    
    401
    
    
    
    
    
    
    
    401Interest and
other income
    
    
    
    
    
    
    
    
    
    
    38
    
    
    
    38Interest and
finance charges
    
    
    (77
    )
    
    
    
    
    
    
    (68
    )
    
    
    (145
    )Income (loss) before
income taxes
    
    $
    1,157
    
    
    $
    1,115
    
    
    $
    (1,229
    )
    
    $
    1,043Total capital
expenditures
    
    $
    925
    
    
    $
    167
    
    
    $
    
    
    
    $
    1,092Total investment in
unconsolidated
affiliate
    
    $
    
    
    
    $
    3,854
    
    
    $
    
    
    
    $
    3,854Total assets
    
    $
    77,882
    
    
    $
    15,912
    
    
    $
    16,831
    
    
    $
    110,625
 Three Months Ended June 30, 2008Energy and
    
    
    
    
    
    
    UnallocatedSmart Grid
    
    
    Energy
    
    
    CorporateSolutions
    
    
    Services
    
    
    Costs
    
    
    TotalRevenues
    
    $
    37,058
    
    
    $
    4,894
    
    
    $
    
    
    
    $
    41,952Cost of sales
    
    
    24,768
    
    
    
    3,384
    
    
    
    
    
    
    
    28,152Gross profit
    
    
    12,290
    
    
    
    1,510
    
    
    
    
    
    
    
    13,800Operating expenses:General and
administrative
    
    
    5,811
    
    
    
    507
    
    
    
    1,235
    
    
    
    7,553Selling, marketing
and service
    
    
    1,886
    
    
    
    3
    
    
    
    
    
    
    
    1,889Depreciation and
amortization
    
    
    468
    
    
    
    57
    
    
    
    2
    
    
    
    527Reasearch and
development
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    45Total operating expenses
    
    
    8,210
    
    
    
    567
    
    
    
    1,237
    
    
    
    10,014Operating income (loss)
    
    
    4,080
    
    
    
    943
    
    
    
    (1,237
    )
    
    
    3,786Other income and
(expenses)Management fees
    
    
    
    
    
    
    164
    
    
    
    
    
    
    
    164Equity income
    
    
    
    
    
    
    1,227
    
    
    
    
    
    
    
    1,227Interest and other
income
    
    
    9
    
    
    
    7
    
    
    
    103
    
    
    
    119Interest and
finance charges
    
    
    (27
    )
    
    
    
    
    
    
    (25
    )
    
    
    (52
    )Income (loss) before
income taxes
    
    $
    4,062
    
    
    $
    2,341
    
    
    $
    (1,159
    )
    
    $
    5,244Total capital
expenditures
    
    $
    7,635
    
    
    $
    37
    
    
    $
    
    
    
    $
    7,672Total investment in
unconsolidated
affiliate
    
    $
    
    
    
    $
    5,269
    
    
    $
    
    
    
    $
    5,269Total assets
    
    $
    83,919
    
    
    $
    16,362
    
    
    $
    10,571
    
    
    $
    110,852
 25




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Six Months Ended June 30, 2009Energy and
    
    
    
    
    
    
    UnallocatedSmart Grid
    
    
    Energy
    
    
    CorporateSolutions
    
    
    Services
    
    
    Costs
    
    
    TotalRevenues
    
    $
    35,886
    
    
    $
    8,969
    
    
    $
    
    
    
    $
    44,855Cost of sales
    
    
    24,070
    
    
    
    6,656
    
    
    
    
    
    
    
    30,726Gross profit
    
    
    11,816
    
    
    
    2,313
    
    
    
    
    
    
    
    14,129Operating expenses:General and
administrative
    
    
    8,701
    
    
    
    1,014
    
    
    
    2,311
    
    
    
    12,026Selling,
marketing and
service
    
    
    1,783
    
    
    
    17
    
    
    
    
    
    
    
    1,800Depreciation and
amortization
    
    
    938
    
    
    
    165
    
    
    
    2
    
    
    
    1,105Reasearch and
development
    
    
    86
    
    
    
    
    
    
    
    
    
    
    
    86Total operating
expenses
    
    
    11,508
    
    
    
    1,196
    
    
    
    2,313
    
    
    
    15,017Operating income (loss)
    
    
    308
    
    
    
    1,117
    
    
    
    (2,313
    )
    
    
    (888
    )Other income and
(expenses)Management fees
    
    
    
    
    
    
    203
    
    
    
    
    
    
    
    203Equity income
    
    
    
    
    
    
    878
    
    
    
    
    
    
    
    878Interest and
other income
    
    
    3
    
    
    
    
    
    
    
    88
    
    
    
    91Interest and
finance charges
    
    
    (185
    )
    
    
    
    
    
    
    (134
    )
    
    
    (319
    )Income (loss) before
income taxes
    
    $
    126
    
    
    $
    2,198
    
    
    $
    (2,359
    )
    
    $
    (35
    )Total capital
expenditures
    
    $
    1,466
    
    
    $
    280
    
    
    $
    
    
    
    $
    1,746
 Six Months Ended June 30, 2008Energy and
    
    
    
    
    
    
    UnallocatedSmart Grid
    
    
    Energy
    
    
    CorporateSolutions
    
    
    Services
    
    
    Costs
    
    
    TotalRevenues
    
    $
    66,164
    
    
    $
    9,363
    
    
    $
    
    
    
    $
    75,527Cost of sales
    
    
    45,071
    
    
    
    6,636
    
    
    
    
    
    
    
    51,707Gross profit
    
    
    21,093
    
    
    
    2,727
    
    
    
    
    
    
    
    23,820Operating expenses:General and
administrative
    
    
    11,276
    
    
    
    929
    
    
    
    2,591
    
    
    
    14,796Selling, marketing
and service
    
    
    3,208
    
    
    
    6
    
    
    
    
    
    
    
    3,214Depreciation and
amortization
    
    
    867
    
    
    
    114
    
    
    
    3
    
    
    
    984Reasearch and
development
    
    
    64
    
    
    
    
    
    
    
    
    
    
    
    64Total operating expenses
    
    
    15,415
    
    
    
    1,049
    
    
    
    2,594
    
    
    
    19,058Operating income (loss)
    
    
    5,678
    
    
    
    1,678
    
    
    
    (2,594
    )
    
    
    4,762Other income and
(expenses)Management fees
    
    
    
    
    
    
    313
    
    
    
    
    
    
    
    313Equity income
    
    
    
    
    
    
    2,191
    
    
    
    
    
    
    
    2,191Interest and other
income
    
    
    40
    
    
    
    24
    
    
    
    281
    
    
    
    345Interest and
finance charges
    
    
    (54
    )
    
    
    
    
    
    
    (49
    )
    
    
    (103
    )Income (loss) before
income taxes
    
    $
    5,664
    
    
    $
    4,206
    
    
    $
    (2,362
    )
    
    $
    7,508Total capital
expenditures
    
    $
    15,084
    
    
    $
    79
    
    
    $
    
    
    
    $
    15,163
 26




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Introduction
  Overview
 ® ®
 ® ® ®
  27




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##### Table of Contents



Recent Developments
  ®
  28




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##### Table of Contents



Backlog
  29




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##### Table of Contents



Revenue backlog to be recognized after June 30, 2009
 Anticipated
    
    Estimated PrimaryDescription
    
    Revenue
    
    Recognition PeriodProject-based RevenueNear term
    
    $38 Million
    
    3Q09 through 1Q10Project-based RevenueLong term
    
    $18 Million
    
    2Q10 through 2011Recurring Revenue
    
    $32 Million
    
    3Q09 through 2015Backlog to be recognized after June 30, 2009
    
    $88 Million
   Operating Segments
  Energy and Smart Grid Solutions
 ®
 Energy Services
  30




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Results of Operations
  Second Quarter 2009 Compared to Second Quarter 2008
 Revenues
  Period-over-PeriodQuarter Ended June 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Segment Revenues:Energy and Smart Grid Solutions
    
    $
    20,671
    
    
    $
    37,058
    
    
    $
    (16,387
    )
    
    
    -44.2
    %Energy Services
    
    
    4,464
    
    
    
    4,894
    
    
    
    (430
    )
    
    
    -8.8
    %Total
    
    $
    25,135
    
    
    $
    41,952
    
    
    $
    (16,817
    )
    
    
    -40.1
    %
  ® ®
 31




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##### Table of Contents



Period-over-PeriodQuarter Ended June 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Revenues from Publix projects
    
    $
    2,097
    
    
    $
    19,226
    
    
    $
    (17,129
    )
    
    
    -89.1
    %Revenues from all other customers
    
    
    18,574
    
    
    
    17,832
    
    
    
    742
    
    
    
    4.2
    %Total
    
    $
    20,671
    
    
    $
    37,058
    
    
    $
    (16,387
    )
    
    
    -44.2
    %Publix as a percentage of total Energy and
Smart Grid Solutions segment revenues
    
    
    10.1
    %
    
    
    51.9
    %
     32




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Gross Profit and Gross Profit Margins
  Period-over-PeriodQuarter Ended June 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Segment Cost of Sales and Services:Energy and Smart Grid Solutions
    
    $
    13,629
    
    
    $
    24,768
    
    
    $
    (11,139
    )
    
    
    -45.0
    %Energy Services
    
    
    3,251
    
    
    
    3,384
    
    
    
    (133
    )
    
    
    -3.9
    %Total
    
    $
    16,880
    
    
    $
    28,152
    
    
    $
    (11,272
    )
    
    
    -40.0
    %Segment Gross Profit:Energy and Smart Grid Solutions
    
    $
    7,042
    
    
    $
    12,290
    
    
    $
    (5,248
    )
    
    
    -42.7
    %Energy Services
    
    
    1,213
    
    
    
    1,510
    
    
    
    (297
    )
    
    
    -19.7
    %Total
    
    $
    8,255
    
    
    $
    13,800
    
    
    $
    (5,545
    )
    
    
    -40.2
    %Segment Gross Profit Margins:Energy and Smart Grid Solutions
    
    
    34.1
    %
    
    
    33.2
    %Energy Services
    
    
    27.2
    %
    
    
    30.9
    %Total
    
    
    32.8
    %
    
    
    32.9
    %
    33




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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 geographic density of our projects;
    
    The mix of higher and lower margin products and services;
    
    The selling price of our products and services;
    
    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.
  Operating Expense
  34




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##### Table of Contents



Period-over-PeriodQuarter Ended June 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Consolidated Operating Expenses:General and administrative
    
    $
    6,006
    
    
    $
    7,553
    
    
    $
    (1,547
    )
    
    
    -20.5
    %Selling, marketing and service
    
    
    969
    
    
    
    1,889
    
    
    
    (920
    )
    
    
    -48.7
    %Depreciation and amortization
    
    
    563
    
    
    
    527
    
    
    
    36
    
    
    
    6.8
    %Research and development
    
    
    66
    
    
    
    45
    
    
    
    21
    
    
    
    46.7
    %Total
    
    $
    7,604
    
    
    $
    10,014
    
    
    $
    (2,410
    )
    
    
    -24.1
    %
  General and Administrative Expenses.
 Period-over-PeriodQuarter Ended June 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Segment G&A Expenses:Energy and Smart Grid Solutions:Personnel costs
    
    $
    2,772
    
    
    $
    3,850
    
    
    $
    (1,078
    )
    
    
    -28.0
    %Vehicle lease and rental
    
    
    450
    
    
    
    640
    
    
    
    (190
    )
    
    
    -29.7
    %Insurance
    
    
    275
    
    
    
    258
    
    
    
    17
    
    
    
    6.6
    %Rent-office and equipment
    
    
    194
    
    
    
    207
    
    
    
    (13
    )
    
    
    -6.3
    %Professional fees and consulting
    
    
    102
    
    
    
    112
    
    
    
    (10
    )
    
    
    -8.9
    %Travel
    
    
    169
    
    
    
    249
    
    
    
    (80
    )
    
    
    -32.1
    %Other
    
    
    346
    
    
    
    495
    
    
    
    (149
    )
    
    
    -30.1
    %Energy Services
    
    
    500
    
    
    
    507
    
    
    
    (7
    )
    
    
    -1.4
    %Unallocated Corporate Costs
    
    
    1,198
    
    
    
    1,235
    
    
    
    (37
    )
    
    
    -3.0
    %Total
    
    $
    6,006
    
    
    $
    7,553
    
    
    $
    (1,547
    )
    
    
    -20.5
    %
 35




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##### Table of Contents



Selling, Marketing and Service Expenses.
 36




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##### Table of Contents



Period-over-PeriodQuarter Ended June 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Segment Selling, Marketing and Service:Energy and Smart Grid Solutions:Salaries
    
    $
    451
    
    
    $
    562
    
    
    $
    (111
    )
    
    
    -19.8
    %Commission
    
    
    280
    
    
    
    808
    
    
    
    (528
    )
    
    
    -65.3
    %Travel
    
    
    126
    
    
    
    155
    
    
    
    (29
    )
    
    
    -18.7
    %Advertising and promotion
    
    
    78
    
    
    
    122
    
    
    
    (44
    )
    
    
    -36.1
    %Bad debt expense (recovery)
    
    
    22
    
    
    
    239
    
    
    
    (217
    )
    
    
    -90.8
    %Energy Services
    
    
    12
    
    
    
    3
    
    
    
    9
    
    
    
    300.0
    %Total
    
    $
    969
    
    
    $
    1,889
    
    
    $
    (920
    )
    
    
    -48.7
    %
  Depreciation and Amortization Expenses.
 Research and Development Expenses.
 Other Income and Expenses
  37




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##### Table of Contents



Period-over-PeriodQuarter Ended June 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Other Segment Income and (Expenses):Energy and Smart Grid Solutions:Interest and other income
    
    $
    
    
    
    $
    9
    
    
    $
    (9
    )
    
    
    -100.0
    %Interest and finance charges
    
    
    (77
    )
    
    
    (27
    )
    
    
    (50
    )
    
    
    185.2
    %Segment total
    
    
    (77
    )
    
    
    (18
    )
    
    
    (59
    )Energy Services:Management fees
    
    
    98
    
    
    
    164
    
    
    
    (66
    )
    
    
    -40.2
    %Equity income
    
    
    401
    
    
    
    1,227
    
    
    
    (826
    )
    
    
    -67.3
    %Interest and other income
    
    
    
    
    
    
    7
    
    
    
    (7
    )
    
    
    -100.0
    %Segment total
    
    
    499
    
    
    
    1,398
    
    
    
    (899
    )Unallocated Corporate:Interest and other income
    
    
    38
    
    
    
    103
    
    
    
    (65
    )
    
    
    -63.1
    %Interest and finance charges
    
    
    (68
    )
    
    
    (25
    )
    
    
    (43
    )
    
    
    -172.0
    %Income tax benefit (provision)
    
    
    (26
    )
    
    
    (304
    )
    
    
    278
    
    
    
    91.4
    %Segment total
    
    
    (56
    )
    
    
    (226
    )
    
    
    170Total
    
    $
    366
    
    
    $
    1,154
    
    
    $
    (788
    )
 Interest and Other Income.
 Interest and Finance Charges.
 Management Fees.
 38




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##### Table of Contents



Equity Income.
 Income Taxes.
 Six Month Period 2009 Compared to Six Month Period 2008
 Revenues
  Period-over-PeriodSix Months Ended June 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Segment Revenues:Energy and Smart Grid Solutions
    
    $
    35,886
    
    
    $
    66,164
    
    
    $
    (30,278
    )
    
    
    -45.8
    %Energy Services
    
    
    8,969
    
    
    
    9,363
    
    
    
    (394
    )
    
    
    -4.2
    %Total
    
    $
    44,855
    
    
    $
    75,527
    
    
    $
    (30,672
    )
    
    
    -40.6
    %
  39




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##### Table of Contents



® ®
  Period-over-PeriodSix Months Ended June 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Revenues from Publix projects
    
    $
    4,139
    
    
    $
    33,091
    
    
    $
    (28,952
    )
    
    
    -87.5
    %Revenues from all other customers
    
    
    31,747
    
    
    
    33,073
    
    
    
    (1,326
    )
    
    
    -4.0
    %Total
    
    $
    35,886
    
    
    $
    66,164
    
    
    $
    (30,278
    )
    
    
    -45.8
    %Publix as a percentage of total Energy and
Smart Grid Solutions segment revenues
    
    
    11.5
    %
    
    
    50.0
    %
    40




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##### Table of Contents



Gross Profit and Gross Profit Margins
  Period-over-PeriodSix Months Ended June 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Segment Cost of Sales and Services:Energy and Smart Grid Solutions
    
    $
    24,070
    
    
    $
    45,071
    
    
    $
    (21,001
    )
    
    
    -46.6
    %Energy Services
    
    
    6,656
    
    
    
    6,636
    
    
    
    20
    
    
    
    0.3
    %Total
    
    $
    30,726
    
    
    $
    51,707
    
    
    $
    (20,981
    )
    
    
    -40.6
    %Segment Gross Profit:Energy and Smart Grid Solutions
    
    $
    11,816
    
    
    $
    21,093
    
    
    $
    (9,277
    )
    
    
    -44.0
    %Energy Services
    
    
    2,313
    
    
    
    2,727
    
    
    
    (414
    )
    
    
    -15.2
    %Total
    
    $
    14,129
    
    
    $
    23,820
    
    
    $
    (9,691
    )
    
    
    -40.7
    %Segment Gross Profit Margins:Energy and Smart Grid Solutions
    
    
    32.9
    %
    
    
    31.9
    %Energy Services
    
    
    25.8
    %
    
    
    29.1
    %Total
    
    
    31.5
    %
    
    
    31.5
    %
   41




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Operating Expense
  Period-over-PeriodSix Months Ended June 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Consolidated Operating Expenses:General and administrative
    
    $
    12,026
    
    
    $
    14,796
    
    
    $
    (2,770
    )
    
    
    -18.7
    %Selling, marketing and service
    
    
    1,800
    
    
    
    3,214
    
    
    
    (1,414
    )
    
    
    -44.0
    %Depreciation and amortization
    
    
    1,105
    
    
    
    984
    
    
    
    121
    
    
    
    12.3
    %Research and development
    
    
    86
    
    
    
    64
    
    
    
    22
    
    
    
    34.4
    %Total
    
    $
    15,017
    
    
    $
    19,058
    
    
    $
    (4,041
    )
    
    
    -21.2
    %
  General and Administrative Expenses.
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##### Table of Contents



Period-over-PeriodSix Months Ended June 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Segment G&A Expenses:Energy and Smart Grid Solutions:Personnel costs
    
    $
    5,694
    
    
    $
    7,324
    
    
    $
    (1,630
    )
    
    
    -22.3
    %Vehicle lease and rental
    
    
    773
    
    
    
    1,119
    
    
    
    (346
    )
    
    
    -30.9
    %Insurance
    
    
    541
    
    
    
    457
    
    
    
    84
    
    
    
    18.4
    %Rent-office and equipment
    
    
    361
    
    
    
    449
    
    
    
    (88
    )
    
    
    -19.6
    %Professional fees and consulting
    
    
    145
    
    
    
    339
    
    
    
    (194
    )
    
    
    -57.2
    %Travel
    
    
    355
    
    
    
    455
    
    
    
    (100
    )
    
    
    -22.0
    %Other
    
    
    832
    
    
    
    1,133
    
    
    
    (301
    )
    
    
    -26.6
    %Energy Services
    
    
    1,014
    
    
    
    929
    
    
    
    85
    
    
    
    9.1
    %Unallocated Corporate Costs
    
    
    2,311
    
    
    
    2,591
    
    
    
    (280
    )
    
    
    -10.8
    %Total
    
    $
    12,026
    
    
    $
    14,796
    
    
    $
    (2,770
    )
    
    
    -18.7
    %
    Selling, Marketing and Service Expenses.
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Period-over-PeriodSix Months Ended June 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Segment Selling, Marketing and Service:Energy and Smart Grid Solutions:Salaries
    
    $
    907
    
    
    $
    1,098
    
    
    $
    (191
    )
    
    
    -17.4
    %Commission
    
    
    498
    
    
    
    1,312
    
    
    
    (814
    )
    
    
    -62.0
    %Travel
    
    
    256
    
    
    
    324
    
    
    
    (68
    )
    
    
    -21.0
    %Advertising and promotion
    
    
    114
    
    
    
    223
    
    
    
    (109
    )
    
    
    -48.9
    %Bad debt expense (recovery)
    
    
    8
    
    
    
    251
    
    
    
    (243
    )
    
    
    -96.8
    %Energy Services
    
    
    17
    
    
    
    6
    
    
    
    11
    
    
    
    183.3
    %Total
    
    $
    1,800
    
    
    $
    3,214
    
    
    $
    (1,414
    )
    
    
    -44.0
    %
  Depreciation and Amortization Expenses. ®
 Research and Development Expenses.
 Other Income and Expenses
  44




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Period-over-PeriodSix Months Ended June 30,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Other Segment Income and
(Expenses):Energy and Smart Grid Solutions:Interest and other income
    
    $
    3
    
    
    $
    40
    
    
    $
    (37
    )
    
    
    -92.5
    %Interest and finance charges
    
    
    (185
    )
    
    
    (54
    )
    
    
    (131
    )
    
    
    242.6
    %Segment total
    
    
    (182
    )
    
    
    (14
    )
    
    
    (168
    )Energy Services:Management fees
    
    
    203
    
    
    
    313
    
    
    
    (110
    )
    
    
    -35.1
    %Equity income
    
    
    878
    
    
    
    2,191
    
    
    
    (1,313
    )
    
    
    -59.9
    %Interest and other income
    
    
    
    
    
    
    24
    
    
    
    (24
    )
    
    
    -100.0
    %Segment total
    
    
    1,081
    
    
    
    2,528
    
    
    
    (1,447
    )Unallocated Corporate:Interest and other income
    
    
    88
    
    
    
    281
    
    
    
    (193
    )
    
    
    -68.7
    %Interest and finance charges
    
    
    (134
    )
    
    
    (49
    )
    
    
    (85
    )
    
    
    -173.5
    %Income tax benefit (provision)
    
    
    (50
    )
    
    
    (616
    )
    
    
    566
    
    
    
    91.9
    %Segment total
    
    
    (96
    )
    
    
    (384
    )
    
    
    288Total
    
    $
    803
    
    
    $
    2,130
    
    
    $
    (1,327
    )
 Interest and Other Income.
 Interest and Finance Charges
 Management Fees.
 Equity Income.
 45




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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, and our ability to
replace the revenues from Publix with new revenue streams;
    
    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;
 46




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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 unforeseen or unanticipated expenses;
    
    changes in our valuation allowance for our net deferred tax asset, and the resulting
impact on current tax expense, future tax expense, and balance sheet account balances;
    
    the effects of severe weather conditions, such as hurricanes, on the business
operations of our customers and the potential effect on our results of operations;
    
    the life cycles of our products and services, and competitive alternatives in the
marketplace;
    
    budgeting cycles of utilities and other industrial, commercial, and institutional
customers, including impacts of the current downturn in the economy and capital markets
crisis on capital projects and other spending items;
    
    changes and uncertainties in the lead times required to obtain the necessary permits
and other governmental and regulatory approvals for projects;
    
    the development and maintenance of business relationships with strategic partners;
    
    economic conditions in the energy industry, especially in the natural gas and
electricity sectors including the effect of changes in energy prices 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.
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Liquidity and Capital Resources
 Overview
  
    
    operations;
    
    inventory;
    
    accounts receivable;
    
    property and equipment expenditures, including capital expenditures related to
recurring
 48




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##### Table of Contents



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
  Six Months Ended June 30,2009
    
    
    2008Net cash flows used in operating activities
    
    $
    (2,840
    )
    
    $
    (6,019
    )Net cash flows used in investing activities
    
    
    (2,536
    )
    
    
    (15,162
    )Net cash provided by (used in) financing activities
    
    
    (79
    )
    
    
    2,731Net decrease in cash and cash equivalents
    
    $
    (5,455
    )
    
    $
    (18,450
    )
 Cash Used in Operating Activities
   
    
    our net loss of $0.5 million;
    
    non-cash charges of $1.1 million in depreciation and amortization;
    
    non-cash stock-based compensation expense of $0.8 million;
 49




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##### Table of Contents




    
    non-cash noncontrolling interest in the income of EfficientLights of 0.4 million;
    
    cash distributions from our WaterSecure operations of $1.1 million partially offset
by non-cash equity income from those operations of $0.9 million;
    
    an increase of $1.4 million in accounts receivable;
    
    an increase of $3.0 million in inventories;
    
    a decrease of $0.2 million in other current assets and liabilities
    
    an increase of $1.5 million of accounts payable;
    
    a decrease of $1.5 million of accrued expenses;
    
    cash payments of $0.8 million on our restructuring obligations; and
    
    an increase in our deferred compensation obligation of $0.2 million.
  
    
    our net income of $6.8 million;
    
    non-cash charges of $1.0 million in depreciation and amortization;
    
    non-cash stock-based compensations expense of $1.2 million;
    
    non-cash equity income from our WaterSecure operations of $2.2 million partially
offset by cash distributions from those operations of $0.5 million;
    
    a non-cash loss on disposal of miscellaneous assets of $0.2 million
    
    an increase of $3.6 million in accounts receivable;
    
    a decrease of $0.5 million in inventories;
    
    an increase of $0.3 million of other assets and liabilities;
    
    a net $1.6 million decrease in assets and liabilities of discontinued operations;
    
    an increase of $1.6 million of accounts payable;
    
    a decrease of $10.9 million of accrued expenses; and
    
    cash payments of $3.1 million on our restructuring obligations.
 Cash Used in Investing Activities
  Cash Provided by (Used in) Financing Activities
  50




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Capital Spending
   Indebtedness
 Line of Credit .
     51




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52




---



##### Table of Contents



Equipment Line .
 Capital Lease Obligations.
    53




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##### 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
    
    
    890
    
    
    
    535
    
    
    
    355
    
    
    
    
    
    
    
    Capital lease
obligations (2)
    
    
    6,605
    
    
    
    508
    
    
    
    2,034
    
    
    
    2,032
    
    
    
    2,031Operating leases
    
    
    2,861
    
    
    
    494
    
    
    
    1,281
    
    
    
    974
    
    
    
    112Deferred compensation (3)
    
    
    2,661
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,661Series B preferred stock
    
    
    104
    
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    13,121
    
    
    $
    1,641
    
    
    $
    3,670
    
    
    $
    3,006
    
    
    $
    4,804
 54




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##### Table of Contents



(1)
    
    Total repayments are based upon borrowings outstanding as of June 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. Off-Balance Sheet Arrangements
  Liquidity
   55




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##### 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
 56




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##### Table of Contents




    
    stock-based compensation.
  Recent Accounting Pronouncements
 Noncontrolling Interest
 Accounting for Business Combinations
 Derivative Instruments and Hedging Activities
 Useful Life of Intangible Assets
 57




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##### Table of Contents



Participating Securities
 Defensive Intangible Assets
 Fair Value Accounting Standards
   58




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##### Table of Contents



Employers Disclosures about Postretirement Benefit Plan Assets
 Subsequent Events Disclosure
 Accounting for Transfers of Financial Assets
 Variable Interest Entities
 59




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##### Table of Contents



Codification and Hierarchy of Accounting Standards
 Cautionary Note Regarding Forward-Looking Statements
  
    
    our prospects, including our future revenues, expenses, net income, margins,
profitability, cash flow, liquidity, financial condition and results of operations and
our expectations about realizing our backlog;
    
    the effects on our business, financial condition and results of operations of
current and future economic, business, market and regulatory conditions, including the
current downturn in the economy and the adverse effects of the credit crisis on our
customers and their capital spending and ability to finance purchases of our products,
services, technologies and systems;
    
    our products and services, including their quality and performance, their benefits
to our customers and their ability to meet our customers requirements;
    
    our markets, including market position, market share, market demand;
    
    our ability to successfully develop, operate, grow and diversify our operations and
businesses;
    
    our business plans, strategies, goals and objectives, and our ability to
successfully achieve them;
    
    the sufficiency of our capital resources, including our cash and cash equivalents,
funds generated from operations, availability of borrowings under our credit and
financing arrangements and other capital resources, to meet our future working capital,
capital expenditure, lease and debt service and business growth needs;
    
    industry trends and customer preferences;
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##### Table of Contents




    
    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
  Interest Rate Risk.
  61




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##### Table of Contents



Commodity Price Risk
 Foreign Exchange Risk
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  62




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Limitations in Control Systems
  63




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PART II
OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 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
    
    WithheldAnthony D. Pell
    
    
    13,621,731
    
    
    
    646,249Thomas J. Madden III
    
    
    13,726,002
    
    
    
    541,978
 Proposal 2:
    
    To ratify the appointment of Hein & Associates LLP as the Companys independent
registered public accounting firm for the fiscal year ending December 31, 2009.
 For
    
    Against
    
    Abstain14,000,055
    
    187,405
    
    80,521
 
 Item 6. Exhibits
 (3.1)
    
    Amended and Restated By-Laws of PowerSecure International,
Inc., effective April 6, 2009 (Incorporated by reference to Exhibit 3.1 to the
Companys Current Report on Form 8-K filed on April 10, 2009.)(10.1)
    
    Form of Indemnification Agreement, dated as of April 6, 2009, by and between
PowerSecure International, Inc. and each of its directors and
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##### Table of Contents



executive officers (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on April 10, 2009.)(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.)
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##### Table of Contents



SIGNATURES
  POWERSECURE INTERNATIONAL, INC.Date:    August 6, 2009
    By:
    /s/ Sidney HintonSidney HintonPresident and Chief Executive OfficerDate:    August 6, 2009
    By:
    /s/ Christopher T. HutterChristopher T. HutterVice President, Chief Financial Officer,
Treasurer and Assistant Secretary 66