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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from ___________ to ___________
 Commission file number: 001-12014
 POWERSECURE INTERNATIONAL, INC.
  Delaware
    
    84-1169358(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 1609 Heritage Commerce Court
Wake Forest, North Carolina 27587
 (919) 556-3056
  Title of each class
    
    Name of each exchange on which registeredCommon Stock, par value $.01 per share
    
    The Nasdaq Stock Market LLC
(Nasdaq Global Select Market)
 None
 o þ
 o þ
 þ o
 o o
 þ
  Large accelerated filer o
Accelerated filer þNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o o þ
   
 DOCUMENTS INCORPORATED BY REFERENCE




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POWERSECURE INTERNATIONAL, INC.
 Form 10-K
For the Fiscal Year Ended December 31, 2009
 TABLE OF CONTENTS
 PageCautionary Note Regarding Forward-Looking Statements
    
    
    1PART IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    19Item 1B.
    
    Unresolved Staff Comments
    
    
    42Item 2.
    
    Properties
    
    
    42Item 3.
    
    Legal Proceedings
    
    
    42Item 4.
    
    (Removed and Reserved)
    
    
    42PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    43Item 6.
    
    Selected Financial Data
    
    
    44Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    46Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    85Item 8.
    
    Financial Statements and Supplementary Data
    
    
    85Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    85Item 9A.
    
    Controls and Procedures
    
    
    86Item 9B.
    
    Other Information
    
    
    88PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    89Item 11.
    
    Executive Compensation
    
    
    89Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    89Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    89Item 14.
    
    Principal Accountant Fees and Services
    
    
    89PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    90Index to Financial Statements
    
    
    F-1Signatures
    
    
    S-1Exhibit Index
    
    
    X-1EX-10.24EX-10.25EX-10.32EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2




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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
  
    
    our prospects, including our future business, revenues, expenses, net income,
margins, profitability, cash flow, cash position, liquidity, financial condition and
results of operations, our targeted growth rate and our expectations about realizing
the revenue in our backlog and in our sales pipeline;
    
    the effects on our business, financial condition and results of operations
of current and future economic, business, market and regulatory conditions, including
the downturn in the economy and the adverse effects of the difficult credit markets on
our customers and their capital spending and ability to finance purchases of our
products, services, technologies and systems;
    
    the effects of fluctuations in sales on our business, revenues, expenses, net
income, margins, profitability, cash flow, liquidity, financial condition and results
of operations;
    
    our products, services, technologies and systems, including their quality and
performance in absolute terms and as compared to competitive alternatives, their
benefits to our customers and their ability to meet our customers requirements, and
our ability to successfully develop and market new products, services, technologies and
systems;
    
    our markets, including our market position or market share;
    
    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;
    
    the value of our assets and businesses, including the revenues, profits and cash
flow they are capable of delivering in the future;
    
    industry trends and customer preferences and the demand for our products, services,
technologies and systems;
    
    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.
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PART I
 
 Item 1. Business
 Company Overview
  
    
    Interactive Distributed Generation®,
    
    Utility Infrastructure,
    
    Energy Efficiency, and
    
    Energy Services.
 ®
   3




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Business Segment
    

Strategic Business Area
    
    Business Line and Primary Products and Services
    
    SubsidiaryEnergy and Smart
Grid Solutions
    
    Interactive
Distributed
Generation
    
    Interactive Distributed Generation®
power systems, smart grid monitoring for
electric utilities, peak shaving and demand
response, standby power dispatch and control
    
    PowerSecure, Inc.NexGear® switchgear products and systemsUtility Infrastructure
    
    UtilityServices® utility
infrastructure products and services,
including transmission and distribution system
construction and maintenance
    
    PowerSecure, Inc.UtilityEngineering® and
PowerServices®engineering,
regulatory consulting, and electric grid
system designEnergy Efficiency
    
    EfficientLights® LED lighting for
refrigerated cases in grocery, drug, and
convenience stores, other LED-based lighting
including street lights
    
    PowerSecure, Inc.EnergyLite®lighting and efficiency
products for commercial and industrial
customersEnergy Services
    
    Energy Services
    
    Southern Flow® oil and natural gas
measurement products and services
    
    Southern Flow
Companies, Inc.WaterSecure® water processing and
disposal services for oil and natural gas
producers
    
    WaterSecure
Holdings, Inc.
  The Industry, our Strategy, and our Business Areas of Focus
  ®
 
    
    by offering our existing portfolio of products and services that have demonstrated
their value in similar or complementary situations, usually customizing them for each
particular application;
    
    by offering new energy-related technologies and capabilities that are emerging or
being developed by third parties, which we can either incorporate into our existing
product lines or bring to market as new product offerings; and
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
    
    by developing new technologies and capabilities internally to serve existing and
potential customers when options do not exist in the marketplace that meet our quality,
effectiveness, cost, or financial return standards.
 ®
 Our Interactive Distributed Generation Business Area
 Overview
 ®
 Market
   
    
    manage constraints in their electric grid systems, particularly during times of peak
demand;
    
    minimize energy losses associated with moving electricity over long distances;
    
    manage challenges with respect to bottlenecks that can occur in electric
transmission and distribution systems;
    
    perform localized system maintenance without interrupting large users of electricity
in that particular area;
    
    operate with demand levels that are less volatile, enhancing the efficiency of their
overall system and invested capital; and
    
    reduce carbon emissions compared to traditional sources of spinning power reserves.
  
    
    providing a dependable source of backup power to protect their operations from
financial losses and other negative consequences of power outages, including utilizing
our systems both for preventative measures, such as when a storm is approaching, and
for emergency purposes, when utility power is interrupted; and
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
    
    providing electricity cost savings by utilizing the systems to provide power during
periods of high cost peak electricity demand, instead of drawing power from the utility
grid, which is referred to as peak shaving.
  Our Systems and Technology
 ®
 ®
 
    
    designing and engineering the distributed generation system;
    
    obtaining the required regulatory approvals and permits;
    
    establishing the electricity inter-connect between the utility and the customer to
take advantage of preferred rates;
    
    acquiring and installing the generators and other system equipment and controls;
    
    designing, engineering, constructing and installing the switchgear and process
controls; and
    
    providing continuous 24 x 7 monitoring and servicing of the system.
   Smart
Grid Monitoring Center and NexGear ® Technology
 ®
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Business Model
 ®
   7




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Our Utility Infrastructure Business Area
 Overview
  Market
   Products and Services
 ® ®
 ®
 8




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Business Model
   Our Energy Efficiency Business Area
 Overview
  Market
   9




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Products and Services and Business Model
   Business Structure
  Our Energy Services Business Area and Segment
   10




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Revenue Backlog
  Customers
  Sales and Marketing
  Competition
  11




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
    
    the performance and features functionality and benefits of our, and of our
competitors, products and services;
    
    the value to our customers for the price they pay for our products and services;
    
    the timing and market acceptance of new products and services and enhancements to
existing products and services developed by us and by our competitors, including the
effects of environmental initiatives on new technologies and customer preferences;
    
    our responsiveness to the needs of our customers;
    
    the ease of use of our, and of our competitors, products and services;
    
    the quality and reliability of our, and of our competitors, products and services;
    
    our reputation and the reputation of our competitors;
    
    our sales and marketing efforts;
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
    
    our ability to develop and maintain our strategic relationships; and
    
    the price of our, and of our competitors, products and services, as well as other
technological alternatives in the marketplace.
   Regulation
  Regulation of Electricity.
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Regulation of Environment.
 Employees
  Raw Materials and Component Parts
  Intellectual Property
    
    
    the technological and creative skills of our personnel;
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
    
    the development of new products, services and technologies;
    
    frequent product, service and technology enhancements;
    
    the return on investment that our products and services deliver to our customers;
    
    name recognition and reputation in the marketplace;
    
    customer and employee training and development; and
    
    reliable products and service support.
    Research and Development
   Business Investments and Acquisitions
  
    
    In 2001, we acquired a process control and electric switchgear design and
manufacturing firm, which provided the foundation for our NexGear switchgear solutions,
an important strategic component of our Interactive Distributed Generation systems.
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
    
    In 2005, we launched two new complementary businesses to serve our utility clients
by providing regulatory consulting, energy system engineering and design, and energy
conservation services. These engineering and consulting capabilities are operated under
the brand names UtilityEngineering and PowerServices and constitute the beginning of
our Utility Infrastructure business.
    
    In 2006, we formed a new business to provide energy efficiency services to
industrial and commercial customers, primarily involving efficient lighting products.
This business operates under the brand name EnergyLite, and now operates under our
Energy Efficiency business.
    
    Also in 2006, we launched a business unit focused on marketing the services of our
businesses to federal customers, primarily in conjunction with our utility alliances.
This investment represented the next step in the evolution and development of our
Utility Infrastructure business, and provided us the capability to do larger-scale
power projects for utilities and their federal customers.
    
    In late 2006, we acquired a business that provides us with the capability to build
trailers and enclosures for our distributed generation and switchgear equipment. This
business has now been fully incorporated into our Interactive Distributed
Generation® business primarily as a source of manufacturing for many of the
components of our distributed generation systems, and operates as part of our NexGear
operation.
    
    In mid-2007, we launched a business unit focused on providing utilities with
solutions involving building and servicing transmission and distribution systems. This
business operates under the brand name UtilityServices, and its capabilities further
enhanced and complemented our Utility Infrastructure business, strengthening the
breadth of our overall offerings in this area.
    
    In late 2007, we organized a new business to design and manufacture LED-based
lighting solutions, including initially solutions specifically aimed at substantially
reducing the energy consumed in lighting refrigerated cases in grocery, drug, and
convenience stores. This business operates under the brand name EfficientLights and its
initial refrigerated case light is the primary product in our Energy Efficiency
business.
    
    In May 2009, we established a new business unit, PowerPackages, LLC, to provide our
utility partners with an efficient, dependable, continuous power source for their
customers. The new business unit broadens our Interactive Distributed
Generation® system capabilities by utilizing medium speed engine technology
as the systems power source.
  Segment Information
  
    
    Through our PowerSecure subsidiary, we serve utilities and commercial, institutional
and industrial customers in our Energy and Smart Grid Solutions segment, including the
specific areas of Interactive Distributed Generation, Utility Infrastructure and Energy
Efficiency.
    
    Through our Southern Flow and WaterSecure subsidiaries, we serve customers in the
oil and natural gas production business in our Energy Services segment, with our
measurement services and products, as well as our water processing and disposal
services.
  Discontinued Operations
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Additional Corporate Information
  www.powersecure.com
 Available Information
 www.powersecure.com http://investor.powersecure.com http://www.sec.gov
  Executive Officers of the Registrant
  Name
    
    Age
    
    PositionsSidney Hinton
    
    
    47
    
    
    President, Chief Executive Officer and DirectorChristopher T. Hutter
    
    
    43
    
    
    Executive Vice President, Chief Financial Officer and TreasurerGary J. Zuiderveen
    
    
    50
    
    
    Vice President of Financial Reporting, Controller,
Principal Accounting Officer, Assistant Treasurer
and Secretary
  Sidney Hinton
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Christopher T. Hutter
 Gary J. Zuiderveen
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Item 1A. Risk Factors
  Risks Related to Our Business and Industry
 The economic recession and difficult business and market conditions and the continuing volatility
and disruption in the financial and capital markets has hurt our business and could materially and
adversely affect our business and financial results in future periods.
  
    
    utilities;
    
    industrial, institutional and commercial users of electricity;
    
    grocery, drug and convenience store retailers; and
    
    natural gas producers.
  Our operating results can fluctuate significantly from period to period, which makes our operating
results difficult to predict and can cause our operating results to be less than comparable periods
and expectations from time to time.
  
    
    the effects of general economic conditions, including the current significant
downturn in the economy and the ongoing difficult capital and credit markets, and the
strong likelihood of continuing future economic and market challenges negatively
impacting our business operations and our revenues and net income, including the
negative impact these conditions will have on the timing of and amounts of orders from
our customers and the potential these factors have to negatively impact our access to
capital to finance our business;
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
    
    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 increase our revenues through long-term recurring revenue projects in
our distributed generation and utility infrastructure business units, recognizing that
increasing our revenues from recurring revenue projects will require significant
up-front capital expenditures and protract revenue and profit recognition, while
increasing gross margins over the long-term, including our ability to sell, complete
and recognize satisfactory levels of quarterly revenues and net income related to our
project-based sales across our business lines, which are recognized and billed as they
are completed, in order to maintain our current profits and cash flow and to satisfy
our financial covenants in our credit facilities and to successfully finance the
recurring revenue 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, including without limitation with respect to our
EfficientLights business unit in relation to third party manufacturing arrangements we
have with vendors in China;
    
    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 our ownership of the systems;
    
    our ability to access significant capital resources on a timely basis in order to
fulfill large customer orders and to finance capital required for recurring revenue
projects;
    
    our ability to implement our business plans and strategies and the timing of such
implementation;
    
    the pace of revenue and profit realization from our new businesses and the
development and growth of their markets;
    
    the timing, pricing and market acceptance of our new products and services;
    
    changes in our pricing policies and those of our competitors;
    
    variations in the length of our sales cycle and in the product and service delivery
and construction process;
    
    changes in the mix of our products and services having differing margins;
    
    changes in our operating expenses, including prices for materials, labor and other
components of our products and services, fuel prices including diesel, natural gas, oil
and gasoline, and our ability to hedge these prices to protect our costs and revenues,
minimize the impact of volatile exchange rates and mitigate unforeseen or unanticipated
expenses;
    
    changes in our valuation allowance for our net deferred tax asset, and the resulting
impact on our current tax expenses, future tax expenses 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 of such conditions 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 difficult
capital markets conditions 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
such as utilities and large customers;
    
    economic conditions and regulations in the energy industry, especially in the
electricity, natural gas and oil sectors, including the effects of changes in energy
prices, electricity pricing and utility tariffs;
    
    changes in the prices charged by our suppliers;
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
    
    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 the development or
acquisition of technology or businesses, and the costs related to such development or
acquisitions.
      We may not be able to remain profitable or return to or exceed the levels of revenues, profits and
growth that we have experienced in recent years.
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We may require a substantial amount of additional funds to finance our capital requirements and the
growth of our business, and we may not be able to raise a sufficient amount of funds to do so on
terms favorable to us and our stockholders, or at all.
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Restrictions imposed on us by the terms of our credit facility limit how we conduct our business
and our ability to raise additional capital.
  
    
    incur additional indebtedness;
    
    create liens or other encumbrances;
    
    issue or redeem our securities;
    
    make dividend payments, stock repurchases and investments;
    
    incur capital expenditures above certain limits;
    
    amend our charter documents;
    
    sell or otherwise dispose of our or our subsidiaries stock or assets;
    
    liquidate or dissolve;
    
    make acquisitions above certain limits; or
    
    reorganize, recapitalize or engage in a similar business transaction.
  
    
    limited in how we conduct our business;
    
    unable to raise additional capital, through debt or equity financings, when needed
for our operations and growth; and
    
    unable to compete effectively, make desired acquisitions or to take advantage of new
business opportunities.
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A large portion of our revenues and operating results in recent years was driven by significant
purchase commitments from one customer, and if we do not continue to receive additional significant
purchase commitments in the future from other customers, our revenues and operating results could
be significant less than in those prior years.
   
    
    the loss of one or more large customers;
    
    any cancellation of orders by, or any reduction or delay in sales to, these
customers, including actual customer purchases being less than originally expected when
we received the project or sales awards;
    
    the failure of large purchase commitments to be renewed or to recur;
    
    delays in timing of future projects with existing and new customers;
    
    our inability to successfully develop relationships with additional customers; or
    
    future price concessions that we may have to make to these customers.
 We do not have long-term commitments for significant revenues with most of our customers and may be
unable to retain existing customers, attract new customers or replace departing customers with new
customers that can provide comparable revenues.
  A significant portion of our backlog consists of non-contractual orders that can be deferred or
cancelled by the customers, which could materially and adversely affect our results of operations.
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The quality and performance of our products are, in part, dependent on the quality of their
component parts that we obtain from various suppliers, which makes us susceptible to performance
issues that could materially and adversely affect our business, reputation and financial results.
    Because our future success depends, in part, upon the success of our recurring revenue project
business model, which requires us to make up-front investments in capital for distributed
generation equipment and utility infrastructure that we will continue to own, and therefore
requires us to incur the risks associated with ownership, if we do not receive substantially all of
the benefits anticipated by those projects or if one or more of the risks associated with those
projects materializes, then our financial condition and results of operations could be materially
and adversely affected.
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
    
    disputes arising with the customer about the project that ultimately results in
either the customer requiring us, or in us determining, to remove the equipment from
the customers site, which could result in a significant loss in revenues and cash flow
until the equipment can be re-deployed in a new project or, if the equipment is not
re-usable, a significant write-down of our assets;
    
    our inability to receive the intended benefits from the project due to changes
associated with the distributed generation model, such as due to changes in tariff
structures or customer requirements;
    
    our inability to receive recurring revenues due to customer issues, such as
deterioration in the customers ability to pay our ongoing fees or a dispute with the
customer delaying, deferring or reducing the project fees payable to us;
    
    the failure of the equipment to properly function and to perform and deliver the
intended benefits, which could result in claims by the customer for damages to its
equipment, lost revenues and profits or safety issues and in attempts by the customer
to cancel the contract related to the project or to refuse or to delay making payments
in amounts we believe are due to us under those contracts;
    
    new regulations, or changes in the interpretation of existing regulations, such as
those pertaining to air emissions or those relating to the requirements and conditions
for the ownership of power generation systems, that could render our projects no longer
economically viable, or technically obsolete, or legally impractical;
    
    the costs of operating and maintaining the systems increases significantly,
including fuel costs, maintenance expenses;
    
    damages, payment delays and other issues due to issues with the performance of
component parts;
    
    injuries to persons caused by problems or failures of equipment owned by us; and
    
    environmental effects, such as fuel spills, requiring costly and time-consuming
remediation efforts and potentially subjecting us to fines and penalties related to
environmental requirements and regulations.
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If we were to lose the services of one or more of our executive officers, we might not be able to
execute our business strategy and our business could be materially and adversely affected.
  If we are unable to continue to attract and retain key personnel, our business could be materially
and adversely affected.
  Price increases in some of the key components in our products and systems could materially and
adversely affect our operating results and cash flows.
  We depend on sole source and limited source suppliers for some of the key components and materials
in our products and systems, which makes us susceptible to supply shortages or price increases that
could materially and adversely affect our business.
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Our business is subject to the risk of changes in utility tariff structures, which changes could
materially and adversely affect our business as well as our financial condition and results of
operations.
  Our business is subject to the risk of changes in environmental requirements, which changes could
materially and adversely affect our business as well as our financial condition and results of
operations.
  In some of our project-based distributed generation system sales, the contracts with our customers
have long-term performance requirements that subject us to risks.
  Utility companies or governmental entities could place barriers to our entry into the marketplace
that could adversely affect our business
  We could become subject to burdensome government regulation that affects our ability to offer our
products and services or that affects demand for our products and services.
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We face numerous accident and safety risks and hazards that are inherent in energy operations.
  Because many of our businesses and our product offerings have limited histories and their business
strategies are still being developed and are unproven, their markets are limited and concentrated,
and limited information is available to evaluate their future prospects.
   
    
    anticipate and adapt to the changing regulatory climate for energy and technology
products, services and technology;
    
    provide these new products and services at price points that deliver economic
benefits to our customers and to us;
    
    expand our customer base in our new businesses;
    
    anticipate and adapt to the changing energy markets and customer preferences;
    
    attract, retain and motivate qualified personnel and leaders for these new
businesses;
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
    
    respond to actions taken by our competitors;
    
    integrate acquired businesses, technologies, products and services;
    
    generate revenues, gross margins, cash flow and profits from sales of new products
and services; and
    
    implement effective marketing strategies to promote awareness of our new businesses,
products and services.
  Changes in our product mix could materially and adversely affect our business.
  Severe, adverse weather conditions, such as hurricanes and tropical storms, can cause a severe
disruption in the business of Southern Flow by significantly reducing the short and mid-term demand
of its customers.
  We are subject to lawsuits, claims and proceedings from time to time, and in the future we could
become subject to new proceedings, and if any of those proceedings are material and are
successfully prosecuted against us, our business, financial condition and results of operations
could be materially and adversely affected.
  We extend product warranties which could adversely affect our operating results
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If we fail to successfully educate our potential customer and utility partners about the benefits
of our distributed generation systems or if the market otherwise fails to continue to develop and
expand the need for our solutions, or if new technologies become viable alternatives, then our
business could be limited and adversely affected.
  Because we are dependent upon the utility industry for a growing portion of our revenues,
reductions or deferrals of purchases of our products and services by utilities or their customers
could materially and adversely affect our business.
  Consolidation in our customer base and utility relationships generates risks that could adversely
affect our business.
  
    
    have vendors other than us from which they prefer to source our products and
services;
    
    seek to reduce the prices they pay for our products and services;
    
    have not adopted our methodologies and technology;
    
    impact organizational structures and personnel such that our relationships are
negatively affected; or
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
    
    in the case of utilities, the consolidation leads to changes in tariff structures
that are unfavorable to our business.
 Many of our products and services experience long and variable sales cycles, which could have a
negative impact on our results of operations for any given quarter or year.
  If we are unable to develop new and enhanced products and services that achieve market acceptance
in a timely manner, our operating results and competitive position could be harmed.
  
    
    the changing requirements and preferences of the potential customers in our markets;
    
    the accurate prediction of market requirements, including regulatory issues;
    
    the timely completion and introduction of new products and services;
    
    the quality, price and performance of new products and services;
    
    the availability, quality, price and performance of competing products, services and
technologies;
    
    our customer service and support capabilities and responsiveness;
    
    the successful development of our relationships with existing and potential
customers; and
    
    changes in industry standards.
    32




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Rapid technological changes may prevent us from remaining current with our technological resources
and maintaining competitive product and service offerings.
  
    
    effectively use and develop leading technologies;
    
    continue to develop our technical expertise;
    
    enhance our current products and services with new, improved and competitive
technology; and
    
    respond to technological changes in a cost-effective manner.
  Failures in the integrity of our current systems and future system upgrades could materially affect
our business performance and our ability to accurately and timely report our financial results.
  We face intense competition in the markets for our products, services and technology, and if we
cannot successfully compete in those markets, our business could be materially and adversely
affected.
   33




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##### Table of Contents



If we fail to effectively manage our operations as we grow, our ability to sell our products and
services and to provide quality customer service may be adversely affected.
  Our investment in and management of the water processing business held by our WaterSecure
operations presents risks to us.
  
    
    material adverse changes in the business, results of operations and financial
condition of the WaterSecure operations 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,
net income and cash flows of the business and, because we record equity income and
receive cash distributions from the business based upon its financial results and
available cash, adversely affect our financial results and cash flow;
    
    potential new market entrants and competition in the oil and natural gas market
generally and the specific oil and natural gas market served by our WaterSecure
operations, which could adversely affect the financial results of the business and,
accordingly, our results of operations;
    
    the hazards of oil production water processing and disposal facilities, including
fires, such as the fires that occurred at the facilities in early 2008, that can result
in loss of life, personal injuries, damages to facilities that may not be insured,
lawsuits by parties that are injured or damaged by those hazards, and the related loss
of business, revenues, net income and cash flows;
    
    environmental contamination and the costs associated with fixing any environmental
problems and the risk of damages due to such contamination;
    
    lawsuits by investors in this business who become dissatisfied with its results or
other business actions or managerial decisions;
    
    the ability of the business to finance its current and future capital needs;
    
    changes in the regulatory environment relating to the business;
    
    reliance upon significant suppliers and customers by the business; and
    
    changes in technology.
  We may be unable to acquire other businesses, technologies or companies or engage in other
strategic transactions, or to successfully realize the benefits of any such strategic transactions.
  34




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
    
    the difficulties in assimilating and integrating the operations, personnel, systems,
technologies, products and services of the acquired business;
    
    the technologies, products or businesses that we acquire may not achieve expected
levels of revenue, profitability, benefits or productivity;
    
    the difficulties in retaining, training, motivating and integrating key personnel;
    
    the diversion of managements time and resources away from our normal daily
operations;
    
    the difficulties in successfully incorporating licensed or acquired technology and
rights into our product and service offerings;
    
    the difficulties in maintaining uniform standards, controls, procedures and policies
within the combined organizations;
    
    the difficulties in retaining relationships with customers, employees and suppliers
of the acquired business;
    
    the risks of entering markets in which we have no or limited direct prior
experience;
    
    potential disruptions to our ongoing businesses; and
    
    unexpected costs and unknown risks and liabilities associated with the acquisition.
    If we fail to adequately protect our intellectual property rights, we could lose important
proprietary technology, which could materially and adversely affect our business.
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If we face claims of intellectual property infringement by third parties, we could encounter
expensive litigation, be liable for significant damages or incur restrictions on our ability to
sell our products and services.
   
    
    stop selling, incorporating or using our products and services that use the
infringed intellectual property;
    
    obtain from the owner of the infringed intellectual property right a license to sell
or use the relevant technology, which license may not be available on commercially
reasonable terms, or at all; or
    
    redesign the products and services that use the technology.
  When we become unable to use existing net operating loss carryforwards to offset future taxable
income for U.S. federal income tax purposes, either because we exhaust them or because we lose the
ability to use them for any reason, we would face exposure to significant tax liabilities in the
future, adversely affecting our net income and cash flow
  36




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We may have tax expense exposure that is greater than anticipated in our estimated tax liabilities.
  We are subject to the risks of owning real property.
  
    
    the possibility of environmental contamination and the costs associated with fixing
any environmental problems and the risk of damages resulting from such contamination;
    
    adverse changes in the value of the property, due to interest rate changes, changes
in the neighborhood in which the property is located, or other factors;
    
    ongoing maintenance expenses and costs of improvements;
    
    the possible need for structural improvements in order to complying with zoning,
seismic, disability act or other requirements; and
    
    possible disputes with neighboring owners or others.
 Our current and anticipated future international activities subject us to many legal, business,
political and economic risks and uncertainties that could adversely affect our operating results if
they materialize.
  37




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
    
    difficulties in collecting international accounts receivable and longer collection
periods;
    
    challenges caused by distance, language and cultural differences and by doing
business with foreign agencies and governments;
    
    the impact of local economic conditions and practices;
    
    difficulties in staffing and managing foreign operations;
    
    difficulties in complying with foreign regulatory and commercial requirements;
    
    increased costs associated with maintaining international marketing efforts;
    
    fluctuations in currency exchange rates;
    
    potential adverse tax consequences;
    
    adverse changes in applicable laws and regulatory requirements;
    
    import and export restrictions;
    
    export controls relating to technology;
    
    tariffs and other trade barriers;
    
    political, social and economic instability;
    
    reduced protection for intellectual property rights;
    
    cultural and language difficulties;
    
    natural disasters and public health emergencies;
    
    the potential nationalization of businesses;
    
    shipping costs and delays;
    
    foreign exchange controls that might prevent us from repatriating foreign earnings
or impair our ability to acquire inventory or transfer assets; and
    
    the localization and translation of products and services.
  We are subject to physical and financial risks associated with climate change.
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We may be subject to legislative and regulatory responses to climate change, with which compliance
could be difficult and costly.
  Risks Related to the Ownership of our Shares
 Our charter documents, as well as certain portions of Delaware law, contain anti-takeover
provisions that could discourage or prevent a third-party acquisition of our common stock, even if
an acquisition would be beneficial to our stockholders.
  
    
    a classified board of directors in which only approximately one-third of the total
board members are elected at each annual meeting;
    
    limitations on the ability of stockholders to change the authorized number of
directors or to fill vacancies on the board of directors;
    
    the prohibition of cumulative voting in the election of directors;
    
    provisions permitting a director to be re-elected in an uncontested election even if
less than a majority of the shares voted in that election vote in favor of that
director;
    
    authority for our board of directors to issue shares of our common stock and of our
preferred stock, and to determine the price, voting and other rights, preferences,
privileges and restrictions of undesignated shares of preferred stock, without any vote
by or approval of our stockholders;
    
    super-majority voting requirements to effect material amendments to our second
restated certificate and restated by-laws;
    
    a limitation on which persons may call a special meeting of stockholders;
    
    a prohibition on stockholders acting by written consent without a meeting;
    
    a fair price provision that sets minimum price requirements for potential acquirers
under certain conditions;
    
    anti-greenmail provisions which limit our ability to repurchase shares of common
stock from significant stockholders;
    
    restrictions under Delaware law on mergers and other business combinations between
us and any 15% stockholders; and
    
    advance notice requirements for director nominations and for stockholder proposals.
  39




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Our stockholder rights agreement makes effecting a change of control more difficult, which may
discourage offers for shares of our common stock.
  We have not in the past and we do not currently intend to pay cash dividends on our common stock.
  The market for our common stock is volatile and subject to extreme trading price and volume
fluctuations.
  
    
    the effects of economic and market conditions on our business and revenues,
especially the effects of the recent financial crisis and economic recession, including
the length thereof and the timing of and strength of an economic recovery and its
effects on our markets, and the volatility and disruption of the capital and the credit
markets on the demand for our products, services and technologies;
    
    actual or anticipated variations in our results of operations or those of our
competitors;
    
    announcements by us or our competitors of acquisitions, significant technical
innovations, new products or services, product improvements, significant contracts,
strategic relationships or capital commitments;
    
    the receipt, deferral or loss of significant customer orders, including replacing,
sustaining and growing revenues from new customers;
    
    the introduction of new products and services by us or by our competitors;
    
    the commencement of, or our involvement in, litigation or other legal or regulatory
proceedings;
    
    announcements by us or our competitors about the success or status of business;
    
    conditions or trends in the energy and technology industries in general, and in the
particular markets we serve;
    
    potential favorable or unfavorable regulatory and legislative impacts, including
provisions and spending which may or may not be included in federal economic stimulus
legislation;
    
    changes by us in revenue or earnings guidance;
    
    our financing and capital raising activities;
    
    recommendations by securities analysts;
 40




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
    
    changes in, or the failure by us to meet, securities analysts estimates and
expectations;
    
    the lower coverage by securities analysts and the media of smaller issuers like us;
    
    changes in the market valuation of other energy or technology companies;
    
    additions or departures of key personnel;
    
    purchases or sales of our common stock by our directors, executive officers and
significant stockholders; and
    
    general economic, business and market conditions.
   41




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Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
     
 Item 3. Legal Proceedings
  
 Item 4. (Removed and Reserved)
 42




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##### Table of Contents



PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
 Market Information
   High
    
    LowFiscal Year 2009 Quarters Ended:March 31
    
    $
    4.72
    
    
    $
    3.27June 30
    
    
    4.96
    
    
    
    3.46September 30
    
    
    6.91
    
    
    
    4.43December 31
    
    
    10.17
    
    
    
    6.70Fiscal Year 2008 Quarters Ended:March 31
    
    $
    13.87
    
    
    $
    10.50June 30
    
    
    12.70
    
    
    
    6.41September 30
    
    
    10.72
    
    
    
    5.65December 31
    
    
    6.41
    
    
    
    2.70
  Holders
  Dividends
  43




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Item 6. Selected Financial Data
  Consolidated Statement of
    
    Year Ended December 31,Operations Data:
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(In thousands, except per share amounts)Revenues
    
    $
    102,540
    
    
    $
    135,440
    
    
    $
    111,112
    
    
    $
    115,702
    
    
    $
    43,507Cost of sales
    
    
    67,015
    
    
    
    91,731
    
    
    
    76,805
    
    
    
    84,104
    
    
    
    31,242Gross profit
    
    
    35,525
    
    
    
    43,709
    
    
    
    34,307
    
    
    
    31,598
    
    
    
    12,265Operating expenses:General and administrative
    
    
    26,051
    
    
    
    29,021
    
    
    
    22,637
    
    
    
    19,084
    
    
    
    8,581Selling, marketing and service
    
    
    3,964
    
    
    
    5,348
    
    
    
    3,575
    
    
    
    2,860
    
    
    
    1,457Depreciation and amortization
    
    
    2,420
    
    
    
    2,031
    
    
    
    1,500
    
    
    
    885
    
    
    
    432Restructuring charges
    
    
    
    
    
    
    
    
    
    
    14,139
    
    
    
    
    
    
    
    Total operating expenses
    
    
    32,435
    
    
    
    36,400
    
    
    
    41,851
    
    
    
    22,829
    
    
    
    10,470Operating income (loss)
    
    
    3,090
    
    
    
    7,309
    
    
    
    (7,544
    )
    
    
    8,769
    
    
    
    1,795Other income and (expenses):Equity income
    
    
    2,167
    
    
    
    3,490
    
    
    
    2,774
    
    
    
    2,221
    
    
    
    1,690Management fees
    
    
    447
    
    
    
    556
    
    
    
    423
    
    
    
    365
    
    
    
    428Interest income and other income
    
    
    161
    
    
    
    490
    
    
    
    1,541
    
    
    
    1,059
    
    
    
    57Interest expense
    
    
    (607
    )
    
    
    (287
    )
    
    
    (57
    )
    
    
    (144
    )
    
    
    (570
    )Income (loss) before income taxes
    
    
    5,258
    
    
    
    11,558
    
    
    
    (2,863
    )
    
    
    12,270
    
    
    
    3,400Income tax benefit (provision)
    
    
    (953
    )
    
    
    (823
    )
    
    
    1,834
    
    
    
    (465
    )
    
    
    (46
    )Income (loss) from continuing
operations
    
    
    4,305
    
    
    
    10,735
    
    
    
    (1,029
    )
    
    
    11,805
    
    
    
    3,354Loss on discontinued operations (1)
    
    
    
    
    
    
    (77
    )
    
    
    (609
    )
    
    
    (28
    )
    
    
    (809
    )Net income (loss)
    
    
    4,305
    
    
    
    10,658
    
    
    
    (1,638
    )
    
    
    11,777
    
    
    
    2,545Less: Net income (loss) attributable
to noncontrolling interest
    
    
    1,512
    
    
    
    
    
    
    
    (30
    )
    
    
    72
    
    
    
    211Net income (loss) attributable to
PowerSecure International, Inc.
    
    $
    2,793
    
    
    $
    10,658
    
    
    $
    (1,608
    )
    
    $
    11,705
    
    
    $
    2,334Basic earnings (loss) per share:Income (loss) from continuing
operations
    
    $
    0.16
    
    
    $
    0.63
    
    
    $
    (0.06
    )
    
    $
    0.78
    
    
    $
    0.26Loss from discontinued operations
    
    
    0.00
    
    
    
    (0.00
    )
    
    
    (0.04
    )
    
    
    (0.00
    )
    
    
    (0.07
    )Net income (loss)
    
    $
    0.16
    
    
    $
    0.63
    
    
    $
    (0.10
    )
    
    $
    0.78
    
    
    $
    0.19Diluted earnings (loss) per share:Income (loss) from continuing
operations
    
    $
    0.16
    
    
    $
    0.62
    
    
    $
    (0.06
    )
    
    $
    0.71
    
    
    $
    0.24Loss from discontinued operations
    
    
    0.00
    
    
    
    (0.00
    )
    
    
    (0.04
    )
    
    
    (0.00
    )
    
    
    (0.06
    )Net income (loss)
    
    $
    0.16
    
    
    $
    0.62
    
    
    $
    (0.10
    )
    
    $
    0.71
    
    
    $
    0.18Weighted average common shares outstanding:Basic (2)
    
    
    17,177
    
    
    
    16,978
    
    
    
    16,148
    
    
    
    15,063
    
    
    
    12,287Diluted
    
    
    17,343
    
    
    
    17,284
    
    
    
    16,148
    
    
    
    16,477
    
    
    
    13,361Amounts attributable to PowerSecureInternational, Inc. common stockholders:Income (loss) from continuing
operations
    
    $
    2,793
    
    
    $
    10,735
    
    
    $
    (999
    )
    
    $
    11,733
    
    
    $
    3,143Discontinued operations
    
    
    
    
    
    
    (77
    )
    
    
    (609
    )
    
    
    (28
    )
    
    
    (809
    )Net income (loss)
    
    $
    2,793
    
    
    $
    10,658
    
    
    $
    (1,608
    )
    
    $
    11,705
    
    
    $
    2,334
 
 (1)
    
    During fiscal 2007, our board of directors approved a plan to discontinue the business
of our Metretek 44




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Florida operation and substantially all of its assets and operations were
sold in March, 2008. During fiscal 2004, our board of directors approved a plan to
discontinue the business of our Metretek Contract Manufacturing (MCM) operation and all
of its manufacturing assets were sold in 2005 and 2006. The operations of the discontinued
Metretek Florida and MCM have been classified as discontinued operations for all periods
presented. In addition, certain other amounts prior to fiscal 2009 have been reclassified
to conform to fiscal 2009 presentation. Such reclassifications had no impact on our net
income (loss) or stockholders equity.(2)
    
    Basic shares outstanding for all periods presented include unvested restricted stock
awards that contain non-forfeitable rights to dividends on a basis equal to our other
common stockholders. Consolidated Balance
    
    December 31,Sheet Data:
    
    2009
    
    2008
    
    2007
    
    2006
    
    2005(In thousands)Cash and cash equivalents
    
    $
    20,169
    
    
    $
    24,316
    
    
    $
    28,710
    
    
    $
    15,916
    
    
    $
    2,188Working capital
    
    
    48,243
    
    
    
    42,554
    
    
    
    41,278
    
    
    
    38,988
    
    
    
    4,911Total assets
    
    
    111,477
    
    
    
    110,834
    
    
    
    113,023
    
    
    
    89,699
    
    
    
    33,319Long-term capital lease obligations
    
    
    4,445
    
    
    
    5,201
    
    
    
    5
    
    
    
    
    
    
    
    Revolving line of credit
and long-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,594Total stockholders equity
    
    
    79,239
    
    
    
    72,811
    
    
    
    59,240
    
    
    
    58,000
    
    
    
    16,230
 45




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Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
 The discussion in this item, as well as in other items in this report, contains
forward-looking statements within the meaning of and made under the safe harbor provisions of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements
are all statements other than statements of historical facts, including statements that refer to
plans, intentions, objectives, goals, strategies, hopes, beliefs, projections and expectations or
other characterizations of future events or performance, and assumptions underlying the foregoing.
See Cautionary Note Regarding Forward-Looking Statements at the beginning of this report.
Forward-looking statements are not guarantees of future performance or events, but are subject to
and qualified by known and unknown risks, uncertainties and other factors that could cause actual
results to differ materially from those expressed, anticipated or implied by such forward-looking
statements, including those risks, uncertainties and other factors described above in Item 1A.
Risk Factors, as well as other risks, uncertainties and factors discussed elsewhere in this
report, in documents that we include as exhibits to or incorporate by reference in this report, and
in other reports and documents that we from time to time file with or furnish to the SEC. You are
cautioned not to place undue reliance on any forward-looking statements, any of which could turn
out to be materially wrong. Any forward-looking statements made in this report speak only as of
the date of this report. We undertake no duty or obligation to update or revise any forward-looking
statement or to publicly disclose any update or revision for any reason, whether as a result of
changes in our expectations or the underlying assumptions, the receipt of new information, the
occurrence of future or unanticipated events, circumstances or conditions or otherwise.
  Overview
  
    
    from our existing portfolio of products and services that have demonstrated their
value in similar or complementary situations, usually customizing them for each
particular application,
    
    from new energy-related technologies and capabilities which are emerging or being
developed by third parties, that we can either incorporate into our existing product
lines or bring to market as a new product offering, and
    
    by developing new technologies and capabilities internally to serve existing and
potential customers when options do not exist in the marketplace that meet our quality,
effectiveness, cost, or financial return standards.
  Interactive Distributed Generation
  46




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Utility Infrastructure
    47




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Energy Efficiency
    Energy Services Business
   48




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How We Evaluate our Business Performance and Opportunities
 Major Qualitative and Quantitative Factors we Consider in the Evaluation of Our Business
  
    
    A significant amount of our business in our Interactive Distributed Generation,
Utility Infrastructure, and Energy Efficiency areas, which are the components of our
Energy and Smart Grid Solutions segment, involves large product and service orders.
Our revenue and profit in any particular period is significantly influenced by the
sales commitments for projects that we receive in periods which precede the reporting
period and then are completed and recognized in the reporting period. Accordingly, as
we plan our business and evaluate our results, particularly in the short-term, we are
focused on the revenue we expect to recognize from projects we have in our revenue
backlog, which includes project awards and orders we have received but have not yet
completed and recognized, as well as revenue opportunities in our sales pipeline, which
includes revenue from projects with respect to which we are in discussion with
customers but have not been awarded.
    
    Our net income in any particular period is significantly influenced by the gross
margins on the particular projects we complete, and for which revenue is recognized, in
that period. Because our projects are virtually all fixed price projects, we are
particularly focused on the cost of sales we incur to deliver each of our projects.
This cost of sales includes the cost of labor, materials, and other inputs that are
directly associated with that particular project. Our projects are priced with gross
margin expectations that provide us with our targeted financial returns, and variances
from these gross margin expectations are an area we regularly assess. The larger the
project or order, the more rigorously it is assessed, because larger projects influence
our profit to a greater degree than smaller projects. Our cost of sales and gross
margin results on particular projects can affect our future pricing and operational
decisions on similar projects, and can also influence our strategic decisions about the
products and services we will provide in the future, and the business model we will use
to provide them. However, because our projects and orders are generally custom priced,
the current market cost of commodity materials is incorporated into the price of our
projects and orders, which means that fluctuations in these commodity costs is
generally not a major focus of management.
    
    We believe that increasing the amount of Interactive Distributed Generation and
Utility Infrastructure business we perform under a recurring revenue model will
increase our profitability and increase the predictability of our results. We believe
that this, in turn, will increase shareholder value over the long-term. Since our
business strategy includes increasing the amount of revenue we generate from recurring
revenue contracts, we actively evaluate the progress we are making in this area. In
addition, recurring revenue projects generally require us to invest capital at the
beginning of the contract term to manufacture and install equipment. These capital
expenditures can be significant, and we actively evaluate expectations as to the timing
and amount of capital expenditure investments we will make for these recurring revenue
projects in the context of our overall revenue and profit expectations, cash and debt
position, lender covenants, and other financing constraints. This evaluation includes
expectations for capital investments in our revenue backlog as well as our revenue
pipeline.
    
    The growth of our business is dependent on the continued expansion and development
of our customer base, our utility relationships, and our new products and services.
For this reason, we actively evaluate our sales activity and productivity, revenue
pipeline, and new business awards for progress in the growth and development of our
customer base. We also actively evaluate the new products and services we are
developing for new and existing customers to determine their market opportunity, rate
of acceptance, and financial potential.
    
    Under our cost structure, including staffing, machinery and equipment, facilities,
and other overhead, we expect to be able to generate net income when our total revenues
are at least approximately $90-105 million. We actively evaluate our costs, and trends
in these costs, in conjunction with our revenue expectations and business opportunities
to ensure that we have the right infrastructure in place to
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maximize our long-term revenue and profit opportunities, while balancing the need to
deliver near term profits.
 
    
    We actively evaluate and plan our working capital needs, and the impact of these
needs on our cash and debt position. The primary areas that require significant
working capital are inventory, which tends to increase at the beginning of a project,
and at the start of a large order, and receivables, which tend to increase at the end
of a project, and at the end of a large order.
    
    We actively evaluate and plan for our expected revenue and profit results, including
the revenue and profit results from our Interactive Distributed Generation, Utility
Infrastructure, and Energy Efficiency businesses, which constitute our Energy and Smart
Grid Solutions Segment, as well as our Energy Services Area. In our Energy Services
area, the focus of our evaluation and planning involves our expectations for revenues,
the amount of which significantly influences our gross margins and profitability
because our Southern Flow business has cost of sales which are relatively fixed in
nature, consisting primarily of our service personnel costs. Therefore, higher
revenues will generally yield higher gross and operating margins at Southern Flow, and
correspondingly lower revenues will generally yield lower gross and operating margins.
In our WaterSecure businesses, we actively evaluate the volumes of water we receive and
process from customers, the price of oil, and the price of natural gas. These
variables are the most significant in determining the equity income and cash
distributions we receive from this business.
 Uncertainties, Trends, and Risks that can cause Fluctuations in our Operating Results
  
    
    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 in the near-to-mid term;
    
    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 increase our revenues through long-term recurring revenue projects,
recognizing that increasing revenues from recurring revenue projects will require
significant up-front capital expenditures and will protract revenue and profit
recognition, while increasing our 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 to satisfy our financial covenants in our debt facilities and successfully
finance the recurring portion of our business model;
    
    our ability to obtain adequate supplies of key components and materials of suitable
quality for our products on a timely and cost-effective basis, including the impact of
potential supply line constraints, substandard parts, and fluctuations in the cost of
raw materials and commodity prices;
    
    the performance of our products, services and technologies, and the ability of our
systems to meet the performance standards they are designed and built to deliver to our
customers, including but not limited to our recurring revenue projects for which we
retain the on-going risks associated with ownership of the systems;
    
    our ability to access significant capital resources on a timely basis in order to
fulfill large customer orders and finance capital required for recurring revenue
projects;
    
    our ability to implement our business plans and strategies and the development of
new products and services 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;
 50




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
    
    changes in the mix of products and services having differing margins;
    
    changes in our operating expenses, including prices for materials, labor, and other
components of our products and services, fuel prices (including diesel, natural gas,
and gasoline, among others) and our ability to hedge our fuel cost, exchange rates, as
well as unforeseen or unanticipated expenses;
    
    changes in our valuation allowance for our net deferred tax asset, and the resulting
impact on current tax expense, future tax expense, and balance sheet account balances;
    
    the effects of severe weather conditions, such as hurricanes, on the business
operations of our customers and the potential effect on our results of operations;
    
    the life cycles of our products and services, and competitive alternatives in the
marketplace;
    
    budgeting cycles of utilities and other industrial, commercial, and institutional
customers, including impacts of the current downturn in the economy and the difficult
capital markets and their impact on capital projects and other spending items;
    
    changes and uncertainties in the lead times required to obtain the necessary permits
and other governmental and regulatory approvals for projects;
    
    the development and maintenance of business relationships with strategic partners,
including utilities and large customers;
    
    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 tariffs;
    
    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.
     51




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Recent Developments
     52




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##### Table of Contents



Backlog
  Revenue backlog to be recognized after December 31, 2009
 Anticipated
    
    
    Estimated PrimaryDescription
    
    Revenue
    
    
    Recognition PeriodProject-based RevenueNear term
    
    $
    48 Million
    
    
    1Q10 through 3Q10Project-based RevenueLong term
    
    $
    20 Million
    
    
    4Q10 through 2011Recurring Revenue
    
    $
    52 Million
    
    
    1Q10 through 2019Backlog to be recognized after
December 31, 2009
    
    $
    120 Million
 Note: Anticipated revenue and primary recognition periods are estimates subject risks and
uncertainties and subject to change. Consistent with past practice, these revenue backlog
amounts are not intended to constitute our total revenue over the indicated time periods,
as we have additional, regular on-going revenues. Examples of additional, regular
recurring revenues include revenues from our Southern Flow business, engineering fees, and
certain monitoring and maintenance revenue, among others. Numbers may not add due to
rounding.
  53




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Operating Segments
  Energy and Smart Grid Solutions
 ®
 Energy Services
  Results of Operations
  2009 Compared to 2008
 Revenues
  Year-over-YearYear Ended December 31,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Segment Revenues:Energy and Smart
Grid Solutions
    
    $
    85,426
    
    
    $
    115,993
    
    
    $
    (30,567
    )
    
    
    -26.4
    %Energy Services
    
    
    17,114
    
    
    
    19,447
    
    
    
    (2,333
    )
    
    
    -12.0
    %Total
    
    $
    102,540
    
    
    $
    135,440
    
    
    $
    (32,900
    )
    
    
    -24.3
    %
  ® ®
 54




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Year-over-YearYear Ended December 31,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Revenues from Publix projects
    
    $
    10,292
    
    
    $
    45,211
    
    
    $
    (34,919
    )
    
    
    -77.2
    %Revenues from all other
customers
    
    
    75,134
    
    
    
    70,782
    
    
    
    4,352
    
    
    
    6.1
    %Total
    
    $
    85,426
    
    
    $
    115,993
    
    
    $
    (30,567
    )
    
    
    -26.4
    %Publix as a percentage of
total Energy and
Smart Grid Solutions
segment revenues
    
    
    12.0
    %
    
    
    39.0
    %
     55




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Gross Profit and Gross Profit Margins
  Year-over-YearYear Ended December 31,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Segment Cost of
Sales and Services:Energy and Smart
Grid Solutions
    
    $
    54,231
    
    
    $
    77,550
    
    
    $
    (23,319
    )
    
    
    -30.1
    %Energy Services
    
    
    12,784
    
    
    
    14,181
    
    
    
    (1,397
    )
    
    
    -9.9
    %Total
    
    $
    67,015
    
    
    $
    91,731
    
    
    $
    (24,716
    )
    
    
    -26.9
    %Segment Gross Profit:Energy and Smart
Grid Solutions
    
    $
    31,195
    
    
    $
    38,443
    
    
    $
    (7,248
    )
    
    
    -18.9
    %Energy Services
    
    
    4,330
    
    
    
    5,266
    
    
    
    (936
    )
    
    
    -17.8
    %Total
    
    $
    35,525
    
    
    $
    43,709
    
    
    $
    (8,184
    )
    
    
    -18.7
    %Segment Gross Profit
Margins:Energy and Smart
Grid Solutions
    
    
    36.5
    %
    
    
    33.1
    %Energy Services
    
    
    25.3
    %
    
    
    27.1
    %Total
    
    
    34.6
    %
    
    
    32.3
    %
     
    
    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;
 56




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
    
    Our ability to improve our operating efficiency and benefit from economies of
scale;
    
    Our ability to manage our materials and labor costs;
    
    The costs to maintain and operate distributed generation systems we own in
conjunction with recurring revenue contracts, including the price of fuel;
    
    The geographic density of our projects;
    
    The mix of higher and lower margin products and services;
    
    The selling price of products and services sold to customers, and the revenues we
expect to generate from recurring revenue projects;
    
    The price of oil and natural gas, the financial health of our customer base, and the
level of new oil and natural gas production activity in our operating geography;
    
    The rate of growth of our new businesses, which tend to incur costs in excess of
revenues in their earlier phases and then become profitable and more efficient over
time if they are successful; and
    
    Other factors described below under Fluctuations.
  Operating Expense
  Year-over-YearYear Ended December 31,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Consolidated
Operating Expenses:General and
administrative
    
    $
    26,051
    
    
    $
    29,021
    
    
    $
    (2,970
    )
    
    
    -10.2
    %Selling, marketing
and service
    
    
    3,964
    
    
    
    5,348
    
    
    
    (1,384
    )
    
    
    -25.9
    %Depreciation and
amortization
    
    
    2,420
    
    
    
    2,031
    
    
    
    389
    
    
    
    19.2
    %Total
    
    $
    32,435
    
    
    $
    36,400
    
    
    $
    (3,965
    )
    
    
    -10.9
    %
  General and Administrative Expenses.
 57




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Year-over-YearYear Ended December 31,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Segment G&A Expenses:Energy and Smart Grid
Solutions:Personnel costs
    
    $
    12,487
    
    
    $
    14,311
    
    
    $
    (1,824
    )
    
    
    -12.7
    %Vehicle lease and rental
    
    
    1,829
    
    
    
    2,449
    
    
    
    (620
    )
    
    
    -25.3
    %Insurance
    
    
    1,028
    
    
    
    941
    
    
    
    87
    
    
    
    9.2
    %Rent-office and
equipment
    
    
    776
    
    
    
    844
    
    
    
    (68
    )
    
    
    -8.1
    %Professional fees and
consulting
    
    
    456
    
    
    
    504
    
    
    
    (48
    )
    
    
    -9.5
    %Travel
    
    
    716
    
    
    
    864
    
    
    
    (148
    )
    
    
    -17.1
    %Development costs
    
    
    170
    
    
    
    118
    
    
    
    52
    
    
    
    44.1
    %Other
    
    
    1,665
    
    
    
    2,082
    
    
    
    (417
    )
    
    
    -20.0
    %Energy Services
    
    
    1,882
    
    
    
    1,900
    
    
    
    (18
    )
    
    
    -0.9
    %Unallocated Corporate Costs
    
    
    5,042
    
    
    
    5,008
    
    
    
    34
    
    
    
    0.7
    %Total
    
    $
    26,051
    
    
    $
    29,021
    
    
    $
    (2,970
    )
    
    
    -10.2
    %
    Selling, Marketing and Service Expenses.
 58




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Year-over-YearYear Ended December 31,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Segment Selling, Marketing
and Service:Energy and Smart Grid
Solutions:Salaries
    
    $
    1,858
    
    
    $
    2,140
    
    
    $
    (282
    )
    
    
    -13.2
    %Commission
    
    
    1,219
    
    
    
    2,025
    
    
    
    (806
    )
    
    
    -39.8
    %Travel
    
    
    514
    
    
    
    614
    
    
    
    (100
    )
    
    
    -16.3
    %Advertising and promotion
    
    
    307
    
    
    
    323
    
    
    
    (16
    )
    
    
    -5.0
    %Bad debt expense
    
    
    28
    
    
    
    204
    
    
    
    (176
    )
    
    
    -86.3
    %Other
    
    
    1
    
    
    
    19
    
    
    
    (18
    )
    
    
    -94.7
    %Energy Services
    
    
    37
    
    
    
    23
    
    
    
    14
    
    
    
    60.9
    %Total
    
    $
    3,964
    
    
    $
    5,348
    
    
    $
    (1,384
    )
    
    
    -25.9
    %
  Depreciation and Amortization Expenses.
 Other Income and Expenses
  59




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Year-over-YearYear Ended December 31,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Other Segment Income and
(Expenses):Energy and Smart Grid
Solutions:Interest income and
other income
    
    $
    3
    
    
    $
    82
    
    
    $
    (79
    )
    
    
    -96.3
    %Interest expense
    
    
    (334
    )
    
    
    (140
    )
    
    
    (194
    )
    
    
    138.6
    %Segment total
    
    
    (331
    )
    
    
    (58
    )
    
    
    (273
    )Energy Services:Equity income
    
    
    2,167
    
    
    
    3,490
    
    
    
    (1,323
    )
    
    
    -37.9
    %Management fees
    
    
    447
    
    
    
    556
    
    
    
    (109
    )
    
    
    -19.6
    %Interest income and
other income
    
    
    
    
    
    
    26
    
    
    
    (26
    )
    
    
    -100.0
    %Segment total
    
    
    2,614
    
    
    
    4,072
    
    
    
    (1,458
    )Unallocated Corporate:Interest income and
other income
    
    
    158
    
    
    
    382
    
    
    
    (224
    )
    
    
    -58.6
    %Interest expense
    
    
    (273
    )
    
    
    (147
    )
    
    
    (126
    )
    
    
    -85.7
    %Income tax benefit
(provision)
    
    
    (953
    )
    
    
    (823
    )
    
    
    (130
    )
    
    
    -15.8
    %Segment total
    
    
    (1,068
    )
    
    
    (588
    )
    
    
    (480
    )Total
    
    $
    1,215
    
    
    $
    3,426
    
    
    $
    (2,211
    )
 Equity Income.
 Management Fees.
 Interest Income and Other Income.
 Interest Expense.
 Income Taxes.
 60




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Noncontrolling Interest
  2008 Compared to 2007
 Revenues
  Year-over-YearYear Ended December 31,
    
    
    Difference2008
    
    
    2007
    
    
    $
    
    
    %Segment Revenues:Energy and Smart
Grid Solutions
    
    $
    115,993
    
    
    $
    94,923
    
    
    $
    21,070
    
    
    
    22.2
    %Energy Services
    
    
    19,447
    
    
    
    16,190
    
    
    
    3,257
    
    
    
    20.1
    %Total
    
    $
    135,440
    
    
    $
    111,113
    
    
    $
    24,327
    
    
    
    21.9
    %
  ® ®
 61




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Year-over-YearYear Ended December 31,
    
    
    Difference2008
    
    
    2007
    
    
    $
    
    
    %Revenues from Publix projects
    
    $
    45,211
    
    
    $
    52,001
    
    
    $
    (6,790
    )
    
    
    -13
    %Revnues from all other
customers
    
    
    70,782
    
    
    
    42,922
    
    
    
    27,860
    
    
    
    65
    %Total
    
    $
    115,993
    
    
    $
    94,923
    
    
    $
    21,070
    
    
    
    22
    %Publix as a percentage of total
Energy and
Smart Grid Solutions
segment revenues
    
    
    39.0
    %
    
    
    54.8
    %
  Gross Profit and Gross Profit Margins
  Year-over-YearYear Ended December 31,
    
    
    Difference2008
    
    
    2007
    
    
    $
    
    
    %Segment Cost of
Sales and Services:Energy and Smart
Grid Solutions
    
    $
    77,550
    
    
    $
    65,015
    
    
    $
    12,535
    
    
    
    19.3
    %Energy Services
    
    
    14,181
    
    
    
    11,790
    
    
    
    2,391
    
    
    
    20.3
    %Total
    
    $
    91,731
    
    
    $
    76,805
    
    
    $
    14,926
    
    
    
    19.4
    %Segment Gross Profit:Energy and Smart
Grid Solutions
    
    $
    38,443
    
    
    $
    29,908
    
    
    $
    8,535
    
    
    
    28.5
    %Energy Services
    
    
    5,266
    
    
    
    4,400
    
    
    
    866
    
    
    
    19.7
    %Total
    
    $
    43,709
    
    
    $
    34,308
    
    
    $
    9,401
    
    
    
    27.4
    %Segment Gross Profit
Margins:Energy and Smart
Grid Solutions
    
    
    33.1
    %
    
    
    31.5
    %Energy Services
    
    
    27.1
    %
    
    
    27.2
    %Total
    
    
    32.3
    %
    
    
    30.9
    %
   62




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Operating Expense
  Year-over-YearYear Ended December 31,
    
    
    Difference2008
    
    
    2007
    
    
    $
    
    
    %Consolidated Operating
Expenses:General and
administrative
    
    $
    29,021
    
    
    $
    22,637
    
    
    $
    6,384
    
    
    
    28.2
    %Selling, marketing
and service
    
    
    5,348
    
    
    
    3,575
    
    
    
    1,773
    
    
    
    49.6
    %Depreciation and
amortization
    
    
    2,031
    
    
    
    1,500
    
    
    
    531
    
    
    
    35.4
    %Restructuring charges
    
    
    
    
    
    
    14,139
    
    
    
    (14,139
    )
    
    
    -100.0
    %Total
    
    $
    36,400
    
    
    $
    41,851
    
    
    $
    (5,451
    )
    
    
    -13.0
    %
  General and Administrative Expenses.
 Year-over-YearYear Ended December 31,
    
    
    Difference2008
    
    
    2007
    
    
    $
    
    
    %Segment G&A Expenses:Energy and Smart Grid
Solutions:Personnel costs
    
    $
    14,311
    
    
    $
    11,141
    
    
    $
    3,170
    
    
    
    28.5
    %Vehicle lease and rental
    
    
    2,449
    
    
    
    1,568
    
    
    
    881
    
    
    
    56.2
    %Insurance
    
    
    941
    
    
    
    878
    
    
    
    63
    
    
    
    7.2
    %Rent-office and
equipment
    
    
    844
    
    
    
    711
    
    
    
    133
    
    
    
    18.7
    %Professional fees and
consulting
    
    
    504
    
    
    
    618
    
    
    
    (114
    )
    
    
    -18.4
    %Travel
    
    
    864
    
    
    
    388
    
    
    
    476
    
    
    
    122.7
    %Development
    
    
    118
    
    
    
    148
    
    
    
    (30
    )
    
    
    -20.3
    %Other
    
    
    2,082
    
    
    
    1,443
    
    
    
    639
    
    
    
    44.3
    %Energy Services
    
    
    1,900
    
    
    
    1,581
    
    
    
    319
    
    
    
    20.2
    %Unallocated Corporate Costs
    
    
    5,008
    
    
    
    4,161
    
    
    
    847
    
    
    
    20.4
    %Total
    
    $
    29,021
    
    
    $
    22,637
    
    
    $
    6,384
    
    
    
    28.2
    %
  63




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Selling, Marketing and Service Expenses.
 Year-over-YearYear Ended December 31,
    
    
    Difference2008
    
    
    2007
    
    
    $
    
    
    %Segment Selling, Marketing
and Service:Energy and Smart Grid
Solutions:Salaries
    
    $
    2,140
    
    
    $
    1,181
    
    
    $
    959
    
    
    
    81.2
    %Commission
    
    
    2,025
    
    
    
    1,704
    
    
    
    321
    
    
    
    18.8
    %Travel
    
    
    614
    
    
    
    376
    
    
    
    238
    
    
    
    63.3
    %Advertising and promotion
    
    
    323
    
    
    
    247
    
    
    
    76
    
    
    
    30.8
    %Bad debt expense
    
    
    204
    
    
    
    12
    
    
    
    192
    
    
    
    1600.0
    %Other business
development costs
    
    
    19
    
    
    
    18
    
    
    
    1
    
    
    
    5.6
    %Energy Services
    
    
    23
    
    
    
    37
    
    
    
    (14
    )
    
    
    -37.8
    %Total
    
    $
    5,348
    
    
    $
    3,575
    
    
    $
    1,773
    
    
    
    49.6
    %
  Depreciation and Amortization Expenses. ®
 Restructuring Charges.
 64




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Other Income and Expenses
  Year-over-YearYear Ended December 31,
    
    
    Difference2008
    
    
    2007
    
    
    $
    
    
    %Other Segment Income and
(Expenses):Energy and Smart Grid
Solutions:Interest income and
other income
    
    $
    82
    
    
    $
    305
    
    
    $
    (223
    )
    
    
    -73.1
    %Interest expense
    
    
    (140
    )
    
    
    (7
    )
    
    
    (133
    )
    
    
    1900.0
    %Segment total
    
    
    (58
    )
    
    
    298
    
    
    
    (356
    )Energy Services:Equity income
    
    
    3,490
    
    
    
    2,774
    
    
    
    716
    
    
    
    25.8
    %Management fees
    
    
    556
    
    
    
    423
    
    
    
    133
    
    
    
    31.4
    %Interest income and
other income
    
    
    26
    
    
    
    409
    
    
    
    (383
    )
    
    
    -93.6
    %Interest expense
    
    
    
    
    
    
    (7
    )
    
    
    7
    
    
    
    -100.0
    %Segment total
    
    
    4,072
    
    
    
    3,599
    
    
    
    473Unallocated Corporate:Interest income and
other income
    
    
    382
    
    
    
    827
    
    
    
    (445
    )
    
    
    -53.8
    %Interest expense
    
    
    (147
    )
    
    
    (43
    )
    
    
    (104
    )
    
    
    -241.9
    %Income tax benefit
(provision)
    
    
    (823
    )
    
    
    1,834
    
    
    
    (2,657
    )
    
    
    144.9
    %Segment total
    
    
    (588
    )
    
    
    2,618
    
    
    
    (3,206
    )Total
    
    $
    3,426
    
    
    $
    6,515
    
    
    $
    (3,089
    )
 Equity Income.
 Management Fees.
 Interest Income and Other Income.
 Interest Expense.
 Income Taxes.
 65




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##### Table of Contents



Noncontrolling Interest
 Fluctuations
  
    
    the effects of general economic conditions, including the current significant
downturn in the economy and financial crisis in the capital and credit markets, and the
strong likelihood of continuing future economic and market challenges negatively
impacting our business and our revenues and profit, including the negative impact these
conditions will have on the timing of and amounts of orders from our customers, and on
our access to capital to finance our business;
    
    the size, timing and terms of sales and orders, including large customer orders, as
well as the effects of the timing of project phases of completion, customers delaying,
deferring or canceling purchase orders or making smaller purchases than expected;
    
    our ability to continue to grow our business and generate increased revenues from
customers other than Publix, our largest customer from 2006-2008;
    
    our ability to increase our revenues through long-term recurring revenue projects,
recognizing that increasing revenues from recurring revenue projects will require
significant up-front capital expenditures and will protract revenue and profit
recognition, while increasing our 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 to satisfy our financial covenants in our debt facilities and successfully
finance the recurring portion of our business model;
    
    our ability to obtain adequate supplies of key components and materials of suitable
quality for our products on a timely and cost-effective basis, including the impact of
potential supply line constraints, substandard parts, and fluctuations in the cost of
raw materials and commodity prices;
    
    the performance of our products, services and technologies, and the ability of our
systems to meet the performance standards they are designed and built to deliver to our
customers, including but not limited to our recurring revenue projects for which we
retain the on-going risks associated with ownership of the systems;
    
    our ability to access significant capital resources on a timely basis in order to
fulfill large customer orders and finance capital required for recurring revenue
projects;
    
    our ability to implement our business plans and strategies and the timing of such
implementation;
    
    the pace of revenue and profit realization from our new businesses and the
development and growth of their markets;
    
    the timing, pricing and market acceptance of our new products and services;
    
    changes in our pricing policies and those of our competitors;
    
    variations in the length of our sales cycle and product and service delivery and
construction process;
    
    changes in the mix of products and services having differing margins;
    
    changes in our operating expenses, including prices for materials, labor, and other
components of our
 66




---



##### Table of Contents



products and services, warranty expense, fuel prices (including
diesel, natural gas, and gasoline, among others) and our ability to hedge our fuel
cost, exchange rates, as well as unforeseen or unanticipated expenses;
 
    
    changes in our valuation allowance for our net deferred tax asset, and the resulting
impact on current tax expense, future tax expense, and balance sheet account balances;
    
    the effects of severe weather conditions, such as hurricanes, on the business
operations of our customers and the potential effect on our results of operations;
    
    the life cycles of our products and services, and competitive alternatives in the
marketplace;
    
    budgeting cycles of utilities and other industrial, commercial, and institutional
customers, including impacts of the current downturn in the economy and the difficult
capital markets and their impact on capital projects and other spending items;
    
    changes and uncertainties in the lead times required to obtain the necessary permits
and other governmental and regulatory approvals for projects;
    
    the development and maintenance of business relationships and on-going sales with
strategic partners, including utilities and large customers, and our ability to
continue to expand our customer base in each of our business areas due to being
dependent on a relatively small number of customers;
    
    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 tariffs;
    
    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.
     67




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##### Table of Contents



Liquidity and Capital Resources
 Overview
  
    
    operations;
    
    inventory;
    
    accounts receivable;
    
    property and equipment expenditures, including capital expenditures related to
recurring revenue projects;
    
    additional equity investments in our WaterSecure operations;
    
    software purchases or development;
    
    debt service requirements;
    
    lease obligations;
    
    restructuring obligations;
    
    deferred compensation obligations; and
    
    business and technology acquisitions and other growth transactions.
 Working Capital
  Cash Flows
  Year Ended December 31,2009
    
    
    2008
    
    
    2007Net cash flows provided by (used in)
operating activities
    
    $
    (614
    )
    
    $
    8,447
    
    
    $
    16,607Net cash flows used in investing activities
    
    
    (3,779
    )
    
    
    (19,017
    )
    
    
    (4,692
    )Net cash provided by financing activities
    
    
    246
    
    
    
    6,176
    
    
    
    879Net increase (decrease) in cash and
cash equivalents
    
    $
    (4,147
    )
    
    $
    (4,394
    )
    
    $
    12,794
 68




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##### Table of Contents



Cash Flows Provided by (Used in) Operating Activities
   
    
    our net income attributable to PowerSecure International, Inc. of $2.8 million;
    
    non-cash charges of $2.4 million in depreciation and amortization;
    
    non-cash stock-based compensation expense of $2.2 million;
    
    non-cash noncontrolling interest in the income of EfficientLights of $1.5 million
partially offset by cash distributions of $0.4 million to the noncontrolling member;
    
    cash distributions from our WaterSecure operations of $2.2 million offset by
non-cash equity income from those operations of $2.2 million;
    
    non-cash deferred income tax expense of $0.2 million;
    
    an increase of $3.1 million in accounts receivable;
    
    an increase of $1.6 million in inventories;
    
    a decrease of $0.2 million in other current assets and liabilities;
    
    a decrease of $1.7 million of accounts payable;
    
    a decrease of $2.8 million of accrued expenses;
    
    an increase of $0.6 million of unrecognized tax benefits;
    
    cash payments of $1.4 million on our restructuring obligations; and
    
    an increase in our deferred compensation obligation of $0.3 million.
  
    
    our net income attributable to PowerSecure International, Inc. of $10.7 million;
    
    non-cash charges of $2.0 million in depreciation and amortization;
    
    stock-based compensation expense of $2.6 million;
    
    cash distributions from our WaterSecure operations of $3.7 million partially offset
by non-cash equity income from those operations of $3.5 million;
    
    a decrease of $11.5 million in accounts receivable;
    
    a decrease of $1.4 million in inventories;
    
    a net $1.7 million decrease in assets and liabilities of discontinued operations;
    
    a decrease of $5.5 million of accounts payable;
    
    a decrease of $12.0 million of accrued expenses; and
    
    cash payments of $4.0 million on our restructuring obligations.
  
    
    our net loss attributable to PowerSecure International, Inc. of $1.6 million;
    
    non-cash restructuring charges, net of cash payments, of $5.7 million;
    
    non-cash charges of $1.5 million in depreciation and amortization;
    
    non-cash deferred income tax benefit of $2.3 million;
    
    stock-based compensations expense of $2.1 million;
    
    non-cash equity income from our WaterSecure operations of $2.8 million partially
offset by cash distributions from those operations of $2.6 million
    
    a decrease of $3.5 million in accounts receivable;
    
    an increase of $7.9 million in inventories;
    
    a net $0.6 million decrease in assets and liabilities of discontinued operations;
    
    a decrease of $3.8 million of accounts payable; and
    
    an increase of $19.3 million of accrued expenses.
 69




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##### Table of Contents



Cash Used in Investing Activities
  Cash Provided by Financing Activities
  Capital Spending
   Indebtedness
 Line of Credit .
 70




---



##### Table of Contents



71




---



##### Table of Contents



Equipment Line .
 Capital Lease Obligations.
     Restructuring Obligations.
 Preferred Stock Redemption
 72




---



##### Table of Contents



Contractual Obligations and Commercial Commitments
  Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1 - 3 Years
    
    
    4 - 5 Years
    
    
    5 YearsContractual ObligationsCredit facility (1)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Capital lease obligations (2)
    
    
    6,097
    
    
    
    1,017
    
    
    
    2,033
    
    
    
    2,032
    
    
    
    1,015Operating leases
    
    
    4,739
    
    
    
    1,263
    
    
    
    1,936
    
    
    
    1,352
    
    
    
    188Deferred compensation (3)
    
    
    2,661
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,661Non-compete agreement
    
    
    700
    
    
    
    200
    
    
    
    200
    
    
    
    200
    
    
    
    100Restructuring obligations
    
    
    325
    
    
    
    325
    
    
    
    
    
    
    
    
    
    
    
    Series B preferred stock
    
    
    104
    
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    14,626
    
    
    $
    2,909
    
    
    $
    4,169
    
    
    $
    3,584
    
    
    $
    3,964
 
 (1)
    
    Total repayments are based upon borrowings outstanding as of December 31, 2009, not
actual or projected borrowings after such date. Repayments do not include interest that may
become due and payable in any future period.(2)
    
    Repayment amounts include interest on the capital lease obligation.(3)
    
    Total amount represents our expected obligation on the deferred compensation arrangement and
does not include the value of the restricted annuity contract, or interest earnings thereon,
that we purchased to fund our obligation. Off-Balance Sheet Arrangements
  Liquidity
  73




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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
 74




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##### Table of Contents




    
    stock-based compensation.
  Revenue Recognition
        75




---



##### Table of Contents



Allowance for Doubtful Accounts
 Inventories
  Warranty Reserve
 Balance at
    
    Reserve
    
    Utilized/
    
    Balance atJanuary 1
    
    Additions
    
    Deductions
    
    December 312007
    
    $
    116
    
    
    $
    305
    
    
    $
    
    
    
    $
    4212008
    
    
    421
    
    
    
    326
    
    
    
    (50
    )
    
    
    6972009
    
    
    697
    
    
    
    109
    
    
    
    (37
    )
    
    
    769
 76




---



##### Table of Contents



Impairment of Long-Lived Assets
  Deferred Tax Valuation Allowance
 Uncertain Tax Positions.
   77




---



##### Table of Contents



Costs of Exit or Disposal Activities and Similar Nonrecurring Charges.
 Share-Based Compensation.
  Stock Option Expense
   WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Term (years)
    
    
    ValueBalance, December 31, 2008
    
    
    1,708
    
    
    $
    5.21Granted-Directors
    
    
    
    
    
    
    Granted-Employees
    
    
    43
    
    
    
    6.41Exercised
    
    
    (64
    )
    
    
    2.22Expired
    
    
    (6
    )
    
    
    6.88Forfeited
    
    
    (54
    )
    
    
    10.62Balance, December 31, 2009
    
    
    1,627
    
    
    $
    5.18
    
    
    
    4.87
    
    
    $
    2.03Exercisable, December 31, 2009
    
    
    1,334
    
    
    $
    4.85
    
    
    
    4.15
    
    
    $
    2.36
  78




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##### Table of Contents



WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Term (years)
    
    
    ValueBalance, December 31, 2007
    
    
    1,728
    
    
    $
    5.34Granted-Directors
    
    
    
    
    
    
    Granted-Employees
    
    
    232
    
    
    
    4.31Exercised
    
    
    (169
    )
    
    
    2.68Canceled
    
    
    
    
    
    
    Forfeited
    
    
    (83
    )
    
    
    10.85Balance, December 31, 2008
    
    
    1,708
    
    
    $
    5.21
    
    
    
    5.71
    
    
    $
    (1.92
    )Exercisable, December 31, 2008
    
    
    1,306
    
    
    $
    4.49
    
    
    
    4.80
    
    
    $
    (1.20
    )
  WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Term (years)
    
    
    ValueBalance, December 31, 2006
    
    
    2,085
    
    
    $
    4.61Granted-Directors
    
    
    38
    
    
    
    12.73Granted-Employees
    
    
    30
    
    
    
    12.67Exercised
    
    
    (411
    )
    
    
    2.68Canceled
    
    
    
    
    
    
    Forfeited
    
    
    (14
    )
    
    
    10.28Balance, December 31, 2007
    
    
    1,728
    
    
    $
    5.34
    
    
    
    5.96
    
    
    $
    8.22Exercisable, December 31, 2007
    
    
    1,358
    
    
    $
    3.89
    
    
    
    5.37
    
    
    $
    9.69
  2009
    
    2008
    
    2007Expected stock price volatilility
    
    
    57.4
    %
    
    
    65.0
    %
    
    
    75.7
    %Risk Free interest rate
    
    
    2.39
    %
    
    
    1.84
    %
    
    
    5.07
    %Annual dividends
    
    $
    
    
    
    $
    
    
    
    $
    Expected life  employees
    
    5 years
    
    5 years
    
    5 yearsExpected life  directors
    
    na
    
    na
    
    5 years
   79




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##### Table of Contents



Restricted Stock Awards
     WeightedUnvested
    
    
    AverageRestricted
    
    
    Grant DateShares
    
    
    Fair ValueBalance, January 1, 2007
    
    
    
    
    
    $
    Granted-Directors
    
    
    
    
    
    
    Granted-Officers
    
    
    645
    
    
    
    12.49Granted-Employees
    
    
    
    
    
    
    Vested
    
    
    (4
    )
    
    
    14.50Forfeited
    
    
    
    
    
    
    Balance, December 31, 2007
    
    
    641
    
    
    $
    12.48Granted-Directors
    
    
    34
    
    
    
    6.98Granted-Officers
    
    
    
    
    
    
    Granted-Employees
    
    
    28
    
    
    
    7.45Vested
    
    
    (75
    )
    
    
    11.62Forfeited
    
    
    
    
    
    
    Balance, December 31, 2008
    
    
    628
    
    
    $
    12.06Granted-Directors
    
    
    43
    
    
    
    4.65Granted-Officers
    
    
    194
    
    
    
    7.97Granted-Employees
    
    
    
    
    
    
    Vested
    
    
    (104
    )
    
    
    9.96Forfeited
    
    
    (6
    )
    
    
    8.50Cancelled
    
    
    (194
    )
    
    
    12.49Balance, December 31, 2009
    
    
    561
    
    
    $
    10.36
 80




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##### Table of Contents



Recent Accounting Pronouncements
 Accounting Standards Codification The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles
 Noncontrolling Interest Consolidation
 Participating Securities Earnings per Share
 Accounting for Business Combinations Business Combinations
 81




---



##### Table of Contents



Useful Life of Intangible Assets Intangibles  Goodwill and Other
 Defensive Intangible Assets Intangibles 
Goodwill and Other
 Fair Value Measurements Fair Value Measurements and Disclosures
 Financial Instruments
 Accounting for Non-Financial Assets and Non-Financial Liabilities Fair Value Measurements and Disclosures
 Additional Fair Value Measurement Guidance Fair Value Measurements and Disclosures
 82




---



##### Table of Contents



Disclosures about Fair Value of Financial Instruments Financial Instruments
 Fair Value Measurement of Liabilities Measuring Liabilities at Fair Value
 Derivative Instruments and Hedging Activities Derivatives and Hedging Activities
 Other-than-Temporary Impairments Investments -Other  Beneficial Interests in Securitized
Financial Assets
 Investments  Debt and Equity Securities
 83




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##### Table of Contents



Subsequent Events Disclosure Subsequent Events
 Accounting for Transfers of Financial Assets Transfers and Servicing
 Variable Interest Entities Consolidation
 Employers Disclosures about Postretirement Benefit Plan Assets Compensation  Retirement Benefits,
 Multiple Deliverable Revenue Arrangements Multiple Deliverable Revenue Arrangements  A Consensus of the FASB Emerging Issues Task Force Revenue Recognition
 Software Elements in Revenue Arrangements Certain Revenue Arrangements That Include Software Elements Software
 84




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##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk
  Interest Rate Risk.
  Commodity Price Risk
 Foreign Exchange Risk
  
 Item 8. Financial Statements and Supplementary Data
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  85




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##### Table of Contents



Item 9A. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
   Managements Report on Internal Control Over Financial Reporting
 Internal ControlIntegrated Framework
  Limitations in Control Systems
  86




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal ControlIntegrated Framework Managements Report on Internal Control Over Financial
Reporting
  a b c
  Internal ControlIntegrated Framework
   
 87




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##### Table of Contents



Item 9B. Other Information
  88




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##### Table of Contents



PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
   
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence
  
 Item 14. Principal Accounting Fees and Services
  89




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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 (a)
    
    We have filed the following documents as part of this Annual Report on Form 10-K:
 1.
    
    Financial StatementsThe following consolidated financial statements of PowerSecure International, Inc.
are included commencing on page F-1 of this report:Report of Independent Registered Public Accounting FirmConsolidated Balance Sheets as of December 31, 2009 and 2008Consolidated Statements of Operations for the Years Ended December 31, 2009, 2008 and 2007Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2009, 2008
and 2007Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and 2007Notes to Consolidated Financial StatementsThe following consolidated financial statements of Marcum Midstream 1995-2 Business
Trust are included commencing on page G-1 of this report:Report of Independent Registered Public Accounting FirmConsolidated Balance Sheets as of December 31, 2009 and 2008Consolidated Statements of Income for the Years Ended December 31, 2009, 2008 and 2007Consolidated Statements of Shareholders Equity for the Years Ended December 31, 2009, 2008
and 2007Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and 2007Notes to Consolidated Financial Statements2.
    
    Financial Statement SchedulesThe following financial statement schedule is filed as a part of this report:Schedule II  Valuation and Qualifying AccountsAll other financial statement schedules have been omitted because they are not
applicable or required or because the required information is presented in our
consolidated financial statements and notes thereto.3.
    
    ExhibitsThe exhibits required by this item are listed on the Exhibit Index immediately
following the signature page of this report.
 (b)
    
    Item 601 ExhibitsThe exhibits required by this item are listed on the accompanying Exhibit Index
immediately following the signature page of this report.(c)
    
    Financial Statement SchedulesThe financial statement schedules required by this item are listed under Item 15(a)(2) of this
report, above.
 90




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##### Table of Contents



POWERSECURE INTERNATIONAL, INC. AND SUBSIDIARIES
 
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of December 31, 2009 and 2008
    
    
    F-3Consolidated Statements of Operations for the Years Ended
December 31, 2009, 2008 and 2007
    
    
    F-5Consolidated Statements of Stockholders Equity for the Years
Ended December 31, 2009, 2008 and 2007
    
    
    F-6Consolidated Statements of Cash Flows for the Years Ended
December 31, 2009, 2008 and 2007
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-8
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal
ControlIntegrated Framework
 HEIN & ASSOCIATES LLP
 
 F-2




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##### Table of Contents



POWERSECURE INTERNATIONAL, INC. AND SUBSIDIARIES  CONSOLIDATED BALANCE SHEETS  (in thousands, except share data)
 December 31,2009
    
    
    2008AssetsCurrent Assets:Cash and cash equivalents
    
    $
    20,169
    
    
    $
    24,316Trade receivables, net of allowance for doubtful accounts
of $299 and $276, respectively
    
    
    28,332
    
    
    
    25,215Inventories
    
    
    21,632
    
    
    
    19,713Deferred income taxes
    
    
    2,713
    
    
    
    2,919Prepaid expenses and other current assets
    
    
    1,300
    
    
    
    1,680Total current assets
    
    
    74,146
    
    
    
    73,843Property, plant and equipment:Equipment
    
    
    22,252
    
    
    
    20,297Furniture and fixtures
    
    
    671
    
    
    
    650Land, building and improvements
    
    
    4,802
    
    
    
    4,674Total property, plant and equipment, at cost
    
    
    27,725
    
    
    
    25,621Less accumulated depreciation and amortization
    
    
    5,413
    
    
    
    3,739Property, plant and equipment, net
    
    
    22,312
    
    
    
    21,882Other assets:Goodwill
    
    
    7,256
    
    
    
    7,256Restricted annuity contract
    
    
    2,220
    
    
    
    2,133Intangible rights and capitalized software costs, net of
accumulated amortization of $1,890 and $1,453, respectively
    
    
    1,320
    
    
    
    1,276Investment in unconsolidated affiliate
    
    
    3,974
    
    
    
    4,106Other assets
    
    
    249
    
    
    
    338Total other assets
    
    
    15,019
    
    
    
    15,109Total Assets
    
    $
    111,477
    
    
    $
    110,834
 See accompanying notes to consolidated financial statements.
 F-3




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##### Table of Contents



POWERSECURE INTERNATIONAL, INC. AND SUBSIDIARIES  CONSOLIDATED BALANCE SHEETS  (in thousands, except share data)
 December 31,2009
    
    
    2008Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    4,116
    
    
    $
    5,817Accrued and other liabilities
    
    
    20,379
    
    
    
    23,147Restructuring charges payable
    
    
    325
    
    
    
    1,349Current income taxes payable
    
    
    
    
    
    
    181Current unrecognized tax benefit
    
    
    327
    
    
    
    79Current portion of capital lease obligations
    
    
    756
    
    
    
    716Total current liabilities
    
    
    25,903
    
    
    
    31,289Long-term liabilites:Revolving line of credit
    
    
    
    
    
    
    Capital lease obligations, net of current portion
    
    
    4,445
    
    
    
    5,201Unrecognized tax benefit
    
    
    1,169
    
    
    
    790Deferred compensation
    
    
    721
    
    
    
    388Restructuring charges
    
    
    
    
    
    
    355Total long-term liabilities
    
    
    6,335
    
    
    
    6,734Commitments and contingencies (Note 11)
    
    
    
    
    
    
    Stockholders Equity:PowerSecure International stockholders equity:Preferred stock  undesignated, $.01 par value; 2,000,000 shares
authorized; none issued and outstanding
    
    
    
    
    
    
    Preferred stock  Series C, $.01 par value; 500,000 shares
authorized; none issued and outstanding
    
    
    
    
    
    
    Common stock, $.01 par value; 25,000,000 shares
authorized; 17,241,650 and 17,071,889 shares issued
and outstanding, respectively
    
    
    172
    
    
    
    171Additional paid-in-capital
    
    
    110,911
    
    
    
    108,384Accumulated deficit
    
    
    (32,951
    )
    
    
    (35,744
    )Total PowerSecure International, Inc. stockholders equity
    
    
    78,132
    
    
    
    72,811Noncontrolling interest
    
    
    1,107
    
    
    
    Total stockholders equity
    
    
    79,239
    
    
    
    72,811Total Liabilities and Stockholders Equity
    
    $
    111,477
    
    
    $
    110,834
 See accompanying notes to consolidated financial statements.
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##### Table of Contents



POWERSECURE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 Year Ended December 31,2009
    
    
    2008
    
    
    2007Revenues
    
    $
    102,540
    
    
    $
    135,440
    
    
    $
    111,112Cost of sales
    
    
    67,015
    
    
    
    91,731
    
    
    
    76,805Gross profit
    
    
    35,525
    
    
    
    43,709
    
    
    
    34,307Operating expenses:General and administrative
    
    
    26,051
    
    
    
    29,021
    
    
    
    22,637Selling, marketing and service
    
    
    3,964
    
    
    
    5,348
    
    
    
    3,575Depreciation and amortization
    
    
    2,420
    
    
    
    2,031
    
    
    
    1,500Restructuring charges
    
    
    
    
    
    
    
    
    
    
    14,139Total operating expenses
    
    
    32,435
    
    
    
    36,400
    
    
    
    41,851Operating income (loss)
    
    
    3,090
    
    
    
    7,309
    
    
    
    (7,544
    )Other income and (expenses):Equity income
    
    
    2,167
    
    
    
    3,490
    
    
    
    2,774Management fees
    
    
    447
    
    
    
    556
    
    
    
    423Interest income and other income
    
    
    161
    
    
    
    490
    
    
    
    1,541Interest expense
    
    
    (607
    )
    
    
    (287
    )
    
    
    (57
    )Income (loss) before income taxes
    
    
    5,258
    
    
    
    11,558
    
    
    
    (2,863
    )Income tax (provision) benefit
    
    
    (953
    )
    
    
    (823
    )
    
    
    1,834Income (loss) from continuing operations
    
    
    4,305
    
    
    
    10,735
    
    
    
    (1,029
    )Loss on discontinued operations, net of tax (Note 7)
    
    
    
    
    
    
    (77
    )
    
    
    (609
    )Net income (loss)
    
    
    4,305
    
    
    
    10,658
    
    
    
    (1,638
    )Less: Net income (loss) attributable to noncontrolling interest
    
    
    1,512
    
    
    
    
    
    
    
    (30
    )Net income (loss) attributable to PowerSecure International, Inc.
    
    $
    2,793
    
    
    $
    10,658
    
    
    $
    (1,608
    )Basic earnings (loss) per share attributable toPowerSecure International, Inc. common stockholders:Income (loss) from continuing operations
    
    $
    0.16
    
    
    $
    0.63
    
    
    $
    (0.06
    )Loss from discontinued operations
    
    
    0.00
    
    
    
    (0.00
    )
    
    
    (0.04
    )Net income (loss) attributable to PowerSecure International, Inc. common stockholders
    
    $
    0.16
    
    
    $
    0.63
    
    
    $
    (0.10
    )Diluted earnings (loss) per share attributable toPowerSecure International, Inc. common stockholders:Income (loss) from continuing operations
    
    $
    0.16
    
    
    $
    0.62
    
    
    $
    (0.06
    )Loss from discontinued operations
    
    
    0.00
    
    
    
    0.00
    
    
    
    (0.04
    )Net income (loss) attributable to PowerSecure
International, Inc. common stockholders
    
    $
    0.16
    
    
    $
    0.62
    
    
    $
    (0.10
    )Amounts attributable to PowerSecure International, Inc.
common stockholders:Income (loss) from continuing operations, net of tax
    
    $
    2,793
    
    
    $
    10,735
    
    
    $
    (999
    )Discontinued operations, net of tax
    
    
    
    
    
    
    (77
    )
    
    
    (609
    )Net income (loss)
    
    $
    2,793
    
    
    $
    10,658
    
    
    $
    (1,608
    )
 See accompanying notes to consolidated financial statements.
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##### Table of Contents



POWERSECURE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(in thousands)
 Additional
    
    
    
    
    
    
    Non-Common Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    ControllingShares
    
    
    Value
    
    
    Capital
    
    
    Deficit
    
    
    Interest
    
    
    TotalBalance at January 1,
2007
    
    
    15,809
    
    
    $
    158
    
    
    $
    102,288
    
    
    $
    (44,446
    )
    
    
    
    
    
    $
    58,000Adoption of FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (348
    )
    
    
    
    
    
    
    (348
    )Noncontrolling interest:Capital contributed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    30
    
    
    
    30Share of losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )
    
    
    (30
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,608
    )
    
    
    
    
    
    
    (1,608
    )Stock option compensation
    
    
    
    
    
    
    
    
    
    
    972
    
    
    
    
    
    
    
    
    
    
    
    972Issuance and amortization of
restricted stock awards
    
    
    645
    
    
    
    7
    
    
    
    1,113
    
    
    
    
    
    
    
    
    
    
    
    1,120Stock option exercises, including
tax benefit of $52
    
    
    407
    
    
    
    4
    
    
    
    1,100
    
    
    
    
    
    
    
    
    
    
    
    1,104Balance at December 31, 2007
    
    
    16,861
    
    
    
    169
    
    
    
    105,473
    
    
    
    (46,402
    )
    
    
    
    
    
    
    59,240Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,658
    
    
    
    
    
    
    
    10,658Stock option compensation
    
    
    
    
    
    
    
    
    
    
    657
    
    
    
    
    
    
    
    
    
    
    
    657Issuance and amortization of
restricted stock awards
    
    
    42
    
    
    
    
    
    
    
    1,492
    
    
    
    
    
    
    
    
    
    
    
    1,492Stock option exercises, including
tax benefit of $263
    
    
    169
    
    
    
    2
    
    
    
    762
    
    
    
    
    
    
    
    
    
    
    
    764Balance at December 31, 2008
    
    
    17,072
    
    
    
    171
    
    
    
    108,384
    
    
    
    (35,744
    )
    
    
    
    
    
    
    72,811Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,793
    
    
    
    
    
    
    
    2,793Noncontrolling interest:Share of income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,512
    
    
    
    1,512Cash distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (405
    )
    
    
    (405
    )Stock option compensation
    
    
    
    
    
    
    
    
    
    
    555
    
    
    
    
    
    
    
    
    
    
    
    555Issuance and amortization of
restricted stock awards
    
    
    15
    
    
    
    
    
    
    
    1,473
    
    
    
    
    
    
    
    
    
    
    
    1,473Stock warrant and option
exercises,
including tax benefit of $48
    
    
    155
    
    
    
    1
    
    
    
    499
    
    
    
    
    
    
    
    
    
    
    
    500Balance at December 31, 2009
    
    
    17,242
    
    
    $
    172
    
    
    $
    110,911
    
    
    $
    (32,951
    )
    
    $
    1,107
    
    
    $
    79,239
 See accompanying notes to consolidated financial statements.
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##### Table of Contents



POWERSECURE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Year Ended Dectember 31,2009
    
    
    2008
    
    
    2007Cash flows from operating activities:Net income (loss) attributable to PowerSecure International, Inc.
    
    $
    2,793
    
    
    $
    10,658
    
    
    $
    (1,608
    )Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    2,420
    
    
    
    2,031
    
    
    
    1,500Stock compensation expense
    
    
    2,171
    
    
    
    2,647
    
    
    
    2,092Noncontrolling interest  earnings (loss)
    
    
    1,512
    
    
    
    
    
    
    
    (30
    )Noncontrolling interest  distributions to minority member
    
    
    (405
    )
    
    
    
    
    
    
    Deferred income taxes
    
    
    206
    
    
    
    (390
    )
    
    
    (2,297
    )Loss on disposal of miscellaneous assets
    
    
    27
    
    
    
    209
    
    
    
    90Equity in income of unconsolidated affiliate
    
    
    (2,167
    )
    
    
    (3,490
    )
    
    
    (2,774
    )Distributions from unconsolidated affiliate
    
    
    2,224
    
    
    
    3,678
    
    
    
    2,575Changes in operating assets and liabilities, net of
effect of aquisitons:Trade receivables, net
    
    
    (3,116
    )
    
    
    11,538
    
    
    
    3,502Inventories
    
    
    (1,592
    )
    
    
    1,361
    
    
    
    (7,903
    )Other current assets and liabilities
    
    
    198
    
    
    
    (30
    )
    
    
    (786
    )Net assets of discontinued operations held for sale
    
    
    
    
    
    
    1,699
    
    
    
    571Other noncurrent assets
    
    
    89
    
    
    
    (180
    )
    
    
    (7
    )Accounts payable
    
    
    (1,701
    )
    
    
    (5,505
    )
    
    
    (3,840
    )Restructuring charges
    
    
    (1,379
    )
    
    
    (4,027
    )
    
    
    5,729Accrued and other liabilities
    
    
    (2,767
    )
    
    
    (12,063
    )
    
    
    19,350Unrecognized tax benefits
    
    
    627
    
    
    
    110
    
    
    
    411Deferred compensation obligation
    
    
    333
    
    
    
    333
    
    
    
    55Restricted annuity contract
    
    
    (87
    )
    
    
    (132
    )
    
    
    (23
    )Net cash provided by (used in) operating activities
    
    
    (614
    )
    
    
    8,447
    
    
    
    16,607Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (2,440
    )
    
    
    (18,032
    )
    
    
    (2,147
    )Additions to intangible rights and software development
    
    
    (551
    )
    
    
    (281
    )
    
    
    (574
    )Proceeds from sale of property, plant and equipment
    
    
    12
    
    
    
    6
    
    
    
    7Investment in unconsolidated affiliate
    
    
    
    
    
    
    (710
    )
    
    
    Acquisition
    
    
    (800
    )
    
    
    
    
    
    
    Purchase of restricted annuity contract
    
    
    
    
    
    
    
    
    
    
    (1,978
    )Net cash used in investing activities
    
    
    (3,779
    )
    
    
    (19,017
    )
    
    
    (4,692
    )Cash flows from financing activities:Borrowings (payments) on revolving line of credit
    
    
    
    
    
    
    
    
    
    
    Proceeds from sale leaseback transactions
    
    
    605
    
    
    
    5,912
    
    
    
    Payments on capital lease obligations
    
    
    (716
    )
    
    
    (2
    )
    
    
    (5
    )Proceeds from term loan
    
    
    
    
    
    
    2,584
    
    
    
    Principal payments on term loan
    
    
    
    
    
    
    (2,584
    )
    
    
    Proceeds from stock option and warrant exercises, net of shares
tendered
    
    
    357
    
    
    
    266
    
    
    
    1,104Payments on preferred stock redemptions
    
    
    
    
    
    
    
    
    
    
    (220
    )Net cash provided by financing activities
    
    
    246
    
    
    
    6,176
    
    
    
    879NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (4,147
    )
    
    
    (4,394
    )
    
    
    12,794CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    24,316
    
    
    
    28,710
    
    
    
    15,916CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    20,169
    
    
    $
    24,316
    
    
    $
    28,710
 See accompanying notes to consolidated financial statements.
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##### Table of Contents



POWERSECURE INTERNATIONAL, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007  in thousands, except per share data)
 1.
    
    Description of Business and Basis of PresentationDescription of BusinessPowerSecure International, Inc., headquartered in Wake Forest, North Carolina, is a leading
provider of Energy and Smart Grid Solutions to electric utilities, their commercial,
institutional and industrial customers, and of Energy Services to oil and natural gas
producers. We provide these customers with products and services in four strategic business
areas:
 
    
    Interactive Distributed Generation®,
    
    Utility Infrastructure,
    
    Energy Efficiency, and
    
    Energy Services.
 Our Energy and Smart Grid Solutions segment is operated through our largest wholly-owned
subsidiary PowerSecure, Inc., which we refer to as our PowerSecure subsidiary. This segment
includes three of our four strategic business areas: Interactive Distributed
Generation®, Utility Infrastructure and Energy Efficiency. These three areas are
focused on providing utilities and their commercial, institutional and industrial customers
with products and services to help them generate, deliver, and utilize electricity more
efficiently and are intended to deliver strong returns on investment. These three business
areas share common or complementary utility relationships and customer categories, common
sales and overhead resources, and facilities. However, each area in this segment possesses
distinct technical disciplines and specific capabilities that are designed to provide a
competitive advantage in the marketplace for its specific products and services, including
that areas personnel, technology, engineering, and intellectual capital. This segment
operates primarily out of our Wake Forest, North Carolina headquarters office, and its
operations also include several satellite office and manufacturing facilities, the largest of
which are in Raleigh, North Carolina, McDonough, Georgia, and Anderson, South Carolina. The
locations of our sales organization for this segment are generally in close proximity to the
utilities and commercial, industrial, and institutional customers they serve.Our Energy Services segment is operated through our two other principal operating
subsidiaries, Southern Flow Companies, Inc., which we refer to as Southern Flow, and
WaterSecure Holdings, Inc., which we refer to as WaterSecure. Our Southern Flow business
provides oil and natural gas measurement services to customers involved in oil and natural gas
production, transportation, and processing, with a focus on the natural gas market. Southern
Flow is headquartered in Lafayette, Louisiana, and provides these services through ten
division offices located throughout the Gulf of Mexico, Southwest, Midwest and Rocky Mountain
regions. WaterSecure owns approximately 40% of the equity interests in an unconsolidated
business, Marcum Midstream 1995-2 Business Trust, which we refer to as MM 1995-2 or as our
WaterSecure operations. Our WaterSecure operations provide water processing and disposal
services for oil and natural gas producers in northeastern Colorado utilizing environmentally
responsible technologies and processes.See Note 15 for more information concerning our reportable segments.In August 2007, we changed our name from Metretek Technologies, Inc. to PowerSecure
International, Inc.
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Basis of PresentationOrganization The accompanying consolidated financial statements include the accounts of
PowerSecure International, Inc. and its subsidiaries, primarily, PowerSecure, Inc. (our
PowerSecure subsidiary) (and its majority-owned and wholly-owned subsidiaries,
UtilityEngineering, Inc., PowerServices, Inc., EnergyLite, Inc., EfficientLights, LLC, Reids
Trailer, Inc. and PowerPackages, LLC), Southern Flow Companies, Inc. (Southern Flow),
WaterSecure Holdings, Inc. (WaterSecure), and Marcum Gas Metering, Inc. (fka Metretek
International, Inc. and Metretek, Incorporated) (Metretek Florida), collectively referred to
as the Company or we or us or our.The consolidated financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America. The consolidated financial
statements presented reflect entries necessary for the fair presentation of the Consolidated
Statements of Operations for the years ended December 31, 2009, 2008 and 2007, Consolidated
Balance Sheets as of December 31, 2009 and 2008 and Consolidated Statements of Cash Flows for
the years ended December 31, 2009, 2008 and 2007. All entries required for the fair
presentation of the financial statements are of a normal recurring nature.Principles of Consolidation The consolidated financial statements include the accounts of
PowerSecure International, Inc. and its subsidiaries after elimination of intercompany accounts
and transactions. We use the equity method to account for our investment in unconsolidated
affiliate.Noncontrolling Interest in EfficientLights Our PowerSecure subsidiary has a 67% controlling
ownership interest in EfficientLights which is consolidated in our financial statements. The
33% noncontrolling ownership interest in the income (loss) of EfficientLights is included as a
reduction to net income (loss) to derive income (loss) attributable to PowerSecure
International shareholders in our consolidated statement of operations. The 33% noncontrolling
ownership interest in the equity of EfficientLights is shown as a separate component of
stockholders equity in our consolidated balance sheet.Use of Estimates The preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America requires that our
management make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Significant estimates include
percentage-of-completion estimates for revenue and cost of sales recognition, allowance for
doubtful accounts receivable, inventory valuation reserves, warranty reserves and our deferred
tax valuation allowance.Reclassifications Certain 2008 and 2007 amounts have been reclassified to conform to
current year presentation. Such reclassifications had no effect on net income or loss or
stockholders equity.2.
    
    Summary of Significant Accounting Policies and Recent Accounting StandardsRevenue Recognition For our distributed generation turn-key project-based sales and our
utility infrastructure projects, we recognize revenue and profit as work progresses using the
percentage-of-completion method, which relies on various estimates. We believe the use of the
percentage-of-completion method of accounting for our distributed generation projects is
preferable to the completed contract method because a typical distributed generation
construction project occurs over several accounting periods and the percentage-of-completion
method is a better method to match the revenues and costs to the reporting period in which the
construction services are performed. Nearly all of our
distributed generation projects are fixed-price contracts, with the exception of certain
contracts which provide for additional billings based on wire usage to connect the distributed
generation equipment to customer facilities.
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In applying the percentage-of-completion method to our distributed generation turn-key
projects, we have identified the key output project phases that are standard components of our
construction projects. We have further identified, based on past experience, an estimate of
the value of each of these output phases based on a combination of costs incurred and the value
added to the overall construction project. While the order of these phases varies depending on
the project, each of these output phases is necessary to complete each project and each phase
is an integral part of the turnkey product solution we deliver to our customers. We use these
output phases and percentages to measure our progress toward completion of our construction
projects. For each reporting period, the status of each project, by phase, is determined by
employees who are managers of or are otherwise directly involved with the constructions project
and is reviewed by our accounting personnel. Utilizing this information, we recognize project
revenues (and associated project costs) and gross profit based on the percentage associated
with output phases that are complete or in process on each of our projects.In applying the percentage-of-completion method to our utility infrastructure projects, sales
and gross profit are recognized as work is performed based on the relationship between actual
costs incurred and total estimated costs at completion.In all cases where we utilize the percentage-of-completion, revenues and gross profit are
adjusted prospectively for revisions in estimated total contract costs and contract values.
Estimated losses, if any, are recorded when identified. While a project is in process, amounts
billed to customers in excess of revenues recognized to date are classified as current
liabilities. Likewise, amounts recognized as revenue in excess of actual billings to date are
recorded as unbilled accounts receivable. In the event a contract provides for adjustments to
the contract price for actual wire or other raw material usage, we recognize the associated
revenue when the actual costs are incurred and the customer is billed.Because the percentage-of-completion method of accounting relies upon estimates described
above, recognized revenues and profits are subject to revision as a project progresses to
completion. Revisions in profit estimates are charged to income in the period in which the
facts that give rise to the revision become known. In the event we were required to adjust any
particular projects estimated revenues or costs, the effect on the current period earnings may
or may not be insignificant. If, however, conditions arise that requires us to adjust our
estimated revenues or costs for a series of similar construction projects, the effect on
current period earnings would more likely be significant. In addition, certain contracts
provide for cancellation provisions prior to completion of a project. The cancellation
provisions generally provide for payment of costs incurred, but may result in an adjustment to
profit already recognized in a prior period.We recognize equipment and product revenue when persuasive evidence of a non-cancelable
arrangement exists, delivery has occurred and/or services have been rendered, the price is
fixed or determinable, and collectability is reasonably assured. Equipment and product sales
are generally made directly to end users of the product, who are responsible for payment for
the product.Service revenue includes regulatory consulting and rate design services, power system
engineering services, energy conservation services, chart services, field services, laboratory
analysis, data management services, and monitoring and maintenance services. Revenues from
these services are recognized when the service is performed and the customer has accepted the
work.Revenues on our recurring revenue distributed generation projects are recognized over the term
of the contract as we provide utilities and their customers with access to distributed
generation systems we own for standby power and peak shaving or, in certain cases, when energy
savings are realized by the
customer at their site. These contracts can involve multiple parties, with one party paying us
for the value of backup power (usually, but not always, a commercial, industrial, or
institutional customer), and one party paying us for the value of the electrical capacity
provided by the system (usually a utility).Sales of certain goods or services sometimes involve the provision of multiple elements.
Revenues from contracts with multiple element arrangements are recognized as each element is
earned based on the
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relative fair value of each element and when the delivered elements have
value to customers on a standalone basis. Amounts allocated to each element are based on its
objectively determined fair value, such as the sales price for the product or service when it
is sold separately or competitor prices for similar products or services.Cash and Cash Equivalents Cash and all highly liquid investments with a maturity of three
months or less from the date of purchase, including money market mutual funds, short-term time
deposits, and government agency and corporate obligations, are classified as cash and cash
equivalents. Supplemental statement of cash flows information is as follows:
 2009
    
    2008
    
    2007Cash paid during the year for:Interest
    
    $
    474
    
    
    $
    171
    
    
    $
    26Income taxes
    
    
    338
    
    
    
    491
    
    
    
    848Supplemental schedule of non-cash investing
and financing activities:Capital lease obligations incurred for the
purchase of equipment
    
    
    
    
    
    
    5,912
    
    
    
    8Equipment transferred to inventory
    
    
    
    
    
    
    288
    
    
    
    
 Accounts Receivable Our customers include a wide variety of mid-sized and large
businesses, utilities and institutions. We perform ongoing credit evaluations of our
customers financial condition and generally do not require collateral. We continuously
monitor collections and payments from our customers and regularly adjust credit limits of
customers based upon payment history and a customers current credit worthiness, as judged by
us. We maintain a provision for estimated credit losses.Concentration of Credit Risk We are subject to concentrations of credit risk from our cash
and cash equivalents and accounts receivable. We limit our exposure to credit risk associated
with cash and cash equivalents by placing our cash and cash equivalents with multiple domestic
financial institutions. Nevertheless, our cash in bank deposit accounts at these financial
institutions frequently exceeds federally insured limits. We further limit our exposure to
credit risk associated with these cash accounts by adherence to our investment policy. We have
not experienced any losses in such accounts.From time to time, we have derived a material portion of our revenues from one or more
significant customers. During the year ended December 31, 2009, Publix Super Markets
(Publix), which was our largest customer in fiscal 2007 and 2008, generated $11,271 of
revenues, which constituted 11% of our consolidated revenues. During the year ended December
31, 2008, Publix constituted $45,211 of revenues, or 33% of our consolidated revenues. During
the year ended December 31, 2007, Publix constituted $52,132 of revenues, or 47% of our
consolidated revenues. The total accounts receivable from Publix at December 31, 2009 and 2008
was $1,723 and $5,404, respectively. We expect our
revenues from Publix to be at lower levels in future years due to our completion of the
installations of distributed generation systems at virtually all of the existing locations they
intend to equip with the systems.To date, nearly all our revenues have been derived from sales to customers within the United
States.
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Inventories Inventories are stated at the lower of cost (determined primarily on a
specific-identification basis) or market. Inventories at December 31, 2009 and 2008 are
summarized as follows:
 2009
    
    
    2008Raw materials, equipment and supplies
    
    $
    14,321
    
    
    $
    5,203Work in process
    
    
    5,959
    
    
    
    12,721Finished goods and merchandise
    
    
    3,129
    
    
    
    1,999Valuation reserve
    
    
    (1,777
    )
    
    
    (210
    )Total
    
    $
    21,632
    
    
    $
    19,713
 Raw materials, equipment and supplies consist primarily of equipment with long lead-times
purchased for anticipated customer orders. Work in progress consists primarily of equipment
and parts allocated to specific distributed generation turn-key projects and utility
infrastructure projects accounted for on the percentage-of-completion basis. Finished goods
and merchandise consists primarily of equipment and parts stocked for resale to natural gas
producers by our Southern Flow subsidiary.Property, Plant and Equipment Property, plant and equipment are stated at cost and are
generally depreciated using the straight-line method over their estimated useful lives, which
depending on asset class ranges from 3 to 30 years. Depreciation expense on property, plant
and equipment was $1,874, $1,345, and $816 for the years ended December 31, 2009, 2008 and
2007, respectively. Property, plant and equipment includes items under capital lease with a
net book value of $5,719 and $5,892 at December 31, 2009 and 2008, respectively.Goodwill and Other Intangible AssetsWe amortize the cost of intangible assets that do not
have an indefinite life over their estimated useful lives. We do not amortize goodwill and
intangible assets with indefinite lives. Amortization expense on intangible assets was $471,
$619, and $623 for the years ended December 31, 2009, 2008 and 2007, respectively. We perform
reviews of goodwill and intangible assets with indefinite lives for impairment annually, as of
October 1, or more frequently if impairment indicators arise. Based on the results of our
annual reviews, we have concluded that there has been no impairment of goodwill or intangible
assets during the three years ended December 31, 2009.We capitalize software development costs integral to our products once technological
feasibility of the products and software has been determined. Purchased software and software
development costs are amortized over five years, using the straight-line method. Unamortized
software and software development costs at December 31, 2009 and 2008 are $407 and $291,
respectively. Patents and license agreements are amortized using the straight-line method over
the lesser of their estimated economic lives or their legal term of existence, currently 3 to 5
years. Unamortized patent and license costs at December 31, 2009 and 2008 are $463 and $306,
respectively.During 2006, our PowerSecure subsidiary purchased contract and intellectual property rights to
provide services to federal customers of an investor-owned utility. The contract rights are
being amortized over their expected contract terms. The intellectual property rights are being
amortized over ten years, using the straight-line method. Unamortized contract and
intellectual property rights at December 31, 2009 and 2008 are $500 and $679, respectively.Debt Issuance Costs Debt issuance costs are amortized over the term of the corresponding
debt instrument using the straight-line method, which approximates the effective interest
method. Amortization and write-off of debt issuance costs was $148, $103 and $18 for the years
ended December 31, 2009, 2008 and 2007, respectively, and is included in interest expense in
our consolidated statement of operations.
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Debt issuance costs are included in other current assets and other non-current assets and
consisted of the following as of December 31, 2009 and 2008:
 2009
    
    
    2008Debt issuance costs, beginning of year
    
    $
    433
    
    
    $
    121Addition of debt issuance costs
    
    
    14
    
    
    
    415Write-off of debt issuance costs
    
    
    
    
    
    
    (43
    )Amortization of debt issuance costs
    
    
    (148
    )
    
    
    (60
    )Debt issuance costs, end of year
    
    $
    299
    
    
    $
    433
 Accrued and Other Liabilities Accrued and other liabilities at December 31, 2009 and
2008 are summarized as follows:
 2009
    
    
    2008Accrued project costs
    
    $
    8,844
    
    
    $
    10,086Payroll, employee benefits and related liabilities
    
    
    4,441
    
    
    
    5,790Sales, property and franchise taxes payable
    
    
    361
    
    
    
    566Advance billings on projects in progress
    
    
    4,913
    
    
    
    4,750Preferred stock redemption obligation
    
    
    104
    
    
    
    104Deferred revenue
    
    
    512
    
    
    
    527Insurance premiums and reserves
    
    
    24
    
    
    
    149Warranty reserve
    
    
    769
    
    
    
    697Other
    
    
    411
    
    
    
    478Total
    
    $
    20,379
    
    
    $
    23,147
 Warranty Reserve We provide a standard one-year warranty for our distributed generation
and switchgear equipment, and a five-year warranty for our EfficientLights lighting products.
In addition, we offer extended warranty terms on our distributed generation turn-key and
switchgear projects. We reserve for the estimated cost of product warranties when revenue is
recognized, and we evaluate our reserve periodically by comparing our warranty repair
experience by product. The purchase price for extended warranties or extended warranties
included in the contract terms are deferred as a component of our warranty reserve. The
warranty reserve included in Accrued and other liabilities is set forth below.
 Year Ended December 31,2009
    
    
    2008
    
    
    2007Warranty provision at the beginning of the year
    
    $
    697
    
    
    $
    421
    
    
    $
    116Accruals for warranties issued during the year
    
    
    109
    
    
    
    326
    
    
    
    305Warranty settlements during the year
    
    
    (37
    )
    
    
    (30
    )
    
    
    Changes in liability for pre-existing
warranties during the year
    
    
    
    
    
    
    (20
    )
    
    
    Warranty provision at the end of the year
    
    $
    769
    
    
    $
    697
    
    
    $
    421
 Share-Based Compensation We measure compensation cost for all stock-based awards at the
fair value on date of grant and recognize the compensation expense over the service period for
awards expected to vest. We measure the fair value of restricted stock awards based on the
number of shares granted and the quoted price of our common stock on the date of the grant, and
we measure the fair value of stock options using the Black-Scholes valuation model. These fair
values are recognized as compensation expense over the service period, net of estimated
forfeitures.Pre-tax share-based compensation expense for our stock options and restricted stock awards
recognized during the years ended December 31, 2009, 2008 and 2007 was $2,123, $2,384 and
$2,092,
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respectively, and is included in general and administrative expense in the accompanying
consolidated statements of operations.Impairment or Disposal of Long-Lived AssetsWe evaluate our long-lived assets whenever
significant events or changes in circumstances occur that indicate that the carrying amount of
an asset may not be recoverable. Recoverability of these assets is determined by comparing the
forecasted undiscounted future net cash flows from the operations to which the assets relate,
based on managements best estimates using appropriate assumptions and projections at the time,
to the carrying amount of the assets. If the carrying value is determined not to be
recoverable from future operating cash flows, the asset is deemed impaired and an impairment
loss is recognized equal to the amount by which the carrying amount exceeds the estimated fair
value of the asset. We did not record any impairment charges during the three years ended
December 31, 2009.Income Taxes We recognize deferred income tax assets and liabilities for the estimated
future tax consequences attributable to temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. We have
net operating loss carryforwards available in certain jurisdictions to reduce future taxable
income. Future tax benefits for net operating loss carryforwards are recognized to the extent
that realization of these benefits is considered more likely than not. To the extent that
available evidence raises doubt about the realization of a deferred income tax asset, a
valuation allowance is established.We recognize a liability and income tax expense, including potential penalties and interest,
for uncertain income tax positions taken or expected to be taken. The liability is adjusted
for positions taken when the applicable statute of limitations expires or when the uncertainty
of a particular position is resolved.Recent Accounting StandardsAccounting Standards Codification In June 2009, the Financial Accounting Standards Board
(FASB) issued Financial Accounting Standards (FAS) No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles(FAS 168). FAS
168 established the FASB Accounting Standards Codification (ASC), also known collectively as
the Codification, as the source of authoritative U.S. generally accepted accounting
principles recognized by the FASB to be applied by nongovernmental entities. The Codification
superseded all existing non-SEC accounting and reporting standards. Rules and interpretive
releases of the SEC under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. We adopted the provisions of FAS 168 on a prospective
basis effective September 30, 2009. The adoption of FAS 168 had no effect on our financial
position or results of operations or on our financial statement disclosures, except that we
have replaced references to GAAP with references to the applicable ASC topics.Noncontrolling InterestIn December 2007, the FASB issued new guidance for the accounting for
noncontrolling interests. The new guidance, which is now a part of ASC 810, Consolidation,
establishes accounting and reporting standards for noncontrolling interests in a subsidiary and
for the deconsolidation of a subsidiary. In addition, it clarifies that a noncontrolling
interest in a subsidiary is an ownership interest in the consolidated entity that should be
reported as a component of equity in the consolidated financial statements. We adopted the new
guidance on a prospective basis beginning January 1, 2009.Under the new guidance, the 33% noncontrolling members ownership interest in the equity of
EfficientLights is included as a separate component of stockholders equity in our consolidated
balance sheet at December 31, 2009. The 33% noncontrolling members ownership interest in the
income of EfficientLights for the year ended December 31, 2009 is included in our consolidated
statements of operations as a reduction of net income and earnings per share attributable to
PowerSecure International common stockholders. Finally, the noncontrolling members interest
in the losses accumulated by EfficientLights through December 31, 2008 is ignored for
presentation purposes in subsequent
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consolidated financial statements until such time as
EfficientLights is deconsolidated or the
noncontrolling members interest in EfficientLights is acquired.At December 31, 2008, the accumulated share of losses attributable to the noncontrolling
members interest in EfficientLights exceeded his basis by $479. Under prior guidance, these
losses were effectively allocated to PowerSecure International, Inc. shareholders in our
historical consolidated financial statements. Also under prior guidance, the noncontrolling
members interest in the current period income of EfficientLights would have been first offset
against the $479 accumulated unrecognized noncontrolling member losses. Accordingly, the
effect of the new guidance was to increase the noncontrolling members interest in the equity
section of our consolidated balance sheet by $479 at December 31, 2009, and to allocate $479 of
income to the noncontrolling member during the year ended December 31, 2009 that would have
otherwise been allocable to PowerSecure International, Inc. shareholders under prior guidance.Participating SecuritiesIn June 2008, the FASB issued new guidance on determining whether
instruments granted in share-based payment transactions are participating securities. The new
guidance, which is now part of ASC 260, Earnings per Share, addresses whether instruments
granted in share-based payment transactions are participating securities prior to vesting and,
therefore, should be included in the earnings allocation in computing earnings per share (EPS)
under the two-class method. Under the new guidance, participating securities are redefined
to include unvested share-based payment awards that contain non-forfeitable dividends or
dividend equivalents as participating securities to be included in the computation of EPS
pursuant to the two-class method. All of our unvested restricted stock awards contain
non-forfeitable rights to dividends on a basis equal to our other common stockholders. The new
guidance was effective for financial statements issued for fiscal years beginning after
December 15, 2008 and we adopted the new guidance effective January 1, 2009. In accordance
with the provisions of the new guidance, all prior-period basic and diluted EPS data presented
were restated to reflect the retrospective application of its computational guidance.In accordance with the provisions of the new guidance, all prior-period basic and diluted EPS
data presented were restated to reflect the retrospective application of its computational
guidance. The adoption of the new guidance increased our basic weighted average shares
outstanding at December 31, 2008 and 2007, and reduced our previously reported earnings per
share for the year ended December 31, 2008. While the adoptions of the new guidance increased
our basic weighted average shares outstanding at December 31, 2007, there was no effect on the
previously reported loss per share for the year ended December 31, 2007. The following
schedule shows the effects of adoption of the new guidance for the years ended December 31,
2008 and 2007:
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December 31,2008
    
    2007Per Share Amounts:As Previously Reported:Income (loss) from continuing operationsBasic
    
    $
    0.66
    
    
    $
    (0.06
    )Diluted
    
    $
    0.63
    
    
    $
    (0.06
    )Net income (loss)Basic
    
    $
    0.65
    
    
    $
    (0.10
    )Diluted
    
    $
    0.63
    
    
    $
    (0.10
    )As Reported Under New Guidance:Income (loss) from continuing operationsBasic
    
    $
    0.63
    
    
    $
    (0.06
    )Diluted
    
    $
    0.62
    
    
    $
    (0.06
    )Net income (loss)Basic
    
    $
    0.63
    
    
    $
    (0.10
    )Diluted
    
    $
    0.62
    
    
    $
    (0.10
    )
 Accounting for Business CombinationsIn December 2007, the FASB issued revised guidance
for the accounting for business combinations. The revised guidance, which is now part of ASC
805, Business Combinations, requires the fair value measurement of assets acquired, liabilities
assumed and any noncontrolling interest in the acquiree, at the acquisition date with limited
exceptions. Previously, a cost allocation approach was used to allocate the cost of the
acquisition based on the estimated fair value of the individual assets acquired and liabilities
assumed. The cost allocation approach treated acquisition-related costs and restructuring
costs that the acquirer expected to incur as a liability on the acquisition date, as part of
the cost of the acquisition. Under the revised guidance, those costs are recognized in the
consolidated statement of income separately from the business combination. The revised
guidance applies to business combinations for acquisitions occurring on or after January 1,
2009. Accordingly, the revised guidance did not impact our previous transactions involving
purchase accounting but acquisitions after that date are accounted for under the revised
guidance.In April 2009, the FASB issued new guidance for recognizing and measuring pre-acquisition
contingencies in a business combination. Under the new guidance, which is now part of ASC 805,
pre-acquisition contingencies are recognized at their acquisition-date fair value. The new
guidance does not prescribe specific accounting for subsequent measurement and accounting for
contingencies. The adoption of the new guidance on January 1, 2009 had no effect on our
financial position or results of operations or on our financial statement disclosures.Useful Life of Intangible AssetsIn April 2008, the FASB issued revised guidance on
determining the useful life of intangible assets. The revised guidance, which is now a part of
ASC 350, Intangibles  Goodwill and Other, amends the factors that an entity should consider
in determining the useful life of a recognized intangible asset to include the entitys
historical experience in renewing or extending similar arrangements, whether or not the
arrangements have explicit renewal or extension provisions. Previously, an entity was
precluded from using its own assumptions about renewal or extension of an arrangement where
there was likely to be substantial cost or modifications. The revised guidance may result in
the useful life of an entitys intangible asset differing from the period of expected cash
flows that was used to measure the fair value of the underlying asset using the market
participants perceived value. Disclosure to provide information on an entitys intent and/or
ability to renew or extend the arrangement is also required. The revised guidance was effective
for financial statements issued for fiscal years beginning after December 15, 2008 and for
interim periods within those fiscal years. The adoption of the revised guidance on January 1,
2009 had no effect on our financial position or results of operations or on our financial
statement disclosures related to existing intangible assets.
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Defensive Intangible AssetsIn November 2008, the FASB issued new guidance on accounting for
defensive intangible assets. The new guidance, which is now a part of ASC 350, Intangibles 
Goodwill and Other, applies to defensive intangible assets, which are acquired intangible
assets that the acquirer does not intend to actively use but intends to hold to prevent its
competitors from obtaining access to them. As these assets are separately identifiable, the
new guidance requires an acquiring entity to account for defensive intangible assets as a
separate unit of accounting and amortized to
expense over the period the asset diminished in value. Defensive intangible assets must be
recognized at fair value in accordance with ASC 805 and ASC 820. The adoption of the new
guidance on January 1, 2009 had no effect on our financial position or results of operations or
on our financial statement disclosures.Fair Value MeasurementsIn September 2006, the FASB issued new guidance for measuring fair
value. The new guidance, which is now part of ASC 820, Fair Value Measurements and
Disclosures, defines fair value to measure assets and liabilities, establishes a framework for
measuring fair value, and requires additional disclosures about the use of fair value. This
guidance is applicable whenever another accounting pronouncement requires or permits assets and
liabilities to be measured at fair value. This guidance does not expand or require any new
fair value measures. This guidance became effective for us on January 1, 2008. The adoption
of the guidance had no effect on our financial position or results of operations or on our
financial statement disclosures.In February 2007, the FASB issued new guidance creating a fair value option. The new guidance,
which is now part of ASC 825, Financial Instruments, permits entities to choose to measure many
financial instruments and certain other items at fair value that are not currently required to
be measured at fair value. The new guidance became effective for us on January 1, 2008. The
adoption of the new guidance had no effect on our financial position or results of operations
or on our financial statement disclosures.Accounting for Non-Financial Assets and Non-Financial LiabilitiesIn February 2008, the FASB
issued new guidance for the accounting for non-financial assets and non-financial liabilities.
The new guidance, which is now a part of ASC 820, Fair Value Measurements and Disclosures,
permitted a one-year deferral of the application of fair value accounting for all non-financial
assets and non-financial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis. The adoption of the new guidance on
January 1, 2009 did not have any effect on our financial position or our results of operations
or on our financial statement disclosures.Additional Fair Value Measurement GuidanceIn April 2009, the FASB issued new guidance for
determining when a transaction is not orderly and for estimating fair value when there has been
a significant decrease in the volume and level of activity for an asset or liability. The new
guidance, which is now part of ASC 820, Fair Value Measurements and Disclosures, requires
disclosure of the inputs and valuation techniques used, as well as any changes in valuation
techniques and inputs used during the period, to measure fair value in interim and annual
periods. In addition, the presentation of the fair value hierarchy is required to be presented
by major security type as described in ASC 320. The provisions of the new guidance were
effective for interim periods ending after June 15, 2009. The adoption of the new guidance on
April 1, 2009 had no effect on our financial position or results of operations or on our
financial statement disclosures.Disclosures about Fair Value of Financial InstrumentsIn April 2009, the FASB issued new
guidance related to the disclosure of the fair value of financial instruments. The new
guidance, which is now part of ASC 825, Financial Instruments, requires disclosure of the fair
value of financial instruments whenever a publicly traded company issues financial information
in interim reporting periods in addition to the annual disclosure required at year-end. The
provisions of the new guidance were effective for interim periods ending after June 15, 2009.
The adoption of the new guidance on April 1, 2009 had no effect on our financial position or
results of operations or our financial statement disclosures.
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Fair Value Measurement of LiabilitiesIn August 2009, the FASB issued Accounting Standards
Update (ASU) No. 2009-05, Measuring Liabilities at Fair Value, an update to ASC 820. ASU No.
2009-05 provides guidance on the fair value measurement of liabilities. The new guidance
provides clarification that in certain circumstances in which a quoted price in an active
market for the identical
liability is not available, a company is required to measure fair value using one or more of
the following valuation techniques: the quoted price of the identical liability when traded as
an asset, the quoted prices for similar liabilities or similar liabilities when traded as
assets, and/or another valuation technique that is consistent with the principles of fair value
measurements. The new guidance is effective for interim and annual periods beginning after
August 27, 2009. The adoption of ASU No. 2009-05 on October 1, 2009 did not have any impact on
our financial position or results of operations or on our financial statement disclosures.Derivative Instruments and Hedging ActivitiesIn March 2008, the FASB issued new guidance on
the disclosure of derivative instruments and hedging activities. The new guidance, which is
now a part of ASC 815, Derivatives and Hedging Activities, requires qualitative disclosures
about objectives and strategies for using derivatives, quantitative disclosures about fair
value amounts of, and gains and losses on, derivative instruments, and disclosures about
credit-risk-related contingent features in derivative agreements. The provisions of the new
guidance were effective for financial statements issued for fiscal years beginning after
November 15, 2008. The adoption of the new guidance had no effect on our financial position or
results of operations or on our financial statement disclosures since we did not engage in any
hedging activity or hold any derivative instruments.Other-than-Temporary ImpairmentsIn January 2009, the FASB issued amendments to the
other-than-temporary impairments model for certain investments in securitizations. The
amendments, which are now part of ASC 325-40, Investments -Other  Beneficial Interests in
Securitized Financial Assets, amend prior guidance to achieve more consistent determination of
whether an other-than-temporary impairment has occurred. ASC 325-40 also retains and emphasizes
the objective of an other than-temporary impairment assessment and the related disclosure
requirements in previous guidance. ASC 325-40 is effective for interim and annual reporting
periods ending after December 15, 2008, and is required to be applied prospectively. The
adoption of the new guidance did not have any effect on our financial position or results of
operations or on our financial statement disclosures.In April 2009, the FASB issued new guidance for the accounting for other-than-temporary
impairments of debt and equity securities. Under the new guidance, which is now part of ASC
320, Investments  Debt and Equity Securities, an other-than-temporary impairment is
recognized when an entity has the intent to sell a debt security or when it is more likely than
not that an entity will be required to sell the debt security before its anticipated recovery
in value. Additionally, the new guidance changes the presentation and amount of
other-than-temporary impairment losses recognized in the income statement for instances in
which an entity does not intend to sell a debt security, or it is more likely than not that an
entity will not be required to sell a debt security prior to the anticipated recovery of its
remaining cost basis. As such, when adjusting the debt instrument to fair value on the
companys balance sheet, the credit component of an other-than-temporary impairment of a debt
security will be recorded through earnings and the remaining portion in other comprehensive
income. The credit portion of the change in fair value of the debt security is measured on the
basis of an entitys estimate of the decrease in expected cash flows. In addition to the
changes in measurement and presentation, the disclosure requirements related to
other-than-temporary impairments relating to debt securities are expanded, and all such
disclosures are required to be included in both interim and annual periods. The provisions of
the new guidance were effective for interim periods ending after June 15, 2009. The adoption
of the new guidance on April 1, 2009 had no effect on our financial position or results of
operations or on our financial statement disclosures.Subsequent Events DisclosureIn May 2009, the FASB issued new guidance for accounting for
subsequent events. The new guidance, which is now part of ASC 855, Subsequent Events, is
consistent with existing accounting standards in defining subsequent events as events or
transactions that occur after the balance sheet date but before the financial statements are
issued or are available to be issued.
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The new guidance defines two types of subsequent events:
recognized subsequent events and non-recognized subsequent events. Recognized subsequent
events provide additional evidence about
conditions that existed at the balance sheet date and must be reflected in the companys
financial statements. Non-recognized subsequent events provide evidence about conditions that
arose after the balance sheet date and are not reflected in the financial statements of a
company. Certain non-recognized subsequent events may require disclosure to prevent the
financial statements from being misleading. The new guidance was effective on a prospective
basis for interim or annual periods ending after June 15, 2009. The adoption of the new
guidance on April 1, 2009 had no effect on our financial position or results of operations or
on our financial statements.Accounting for Transfers of Financial AssetsIn June 2009, the FASB issued new guidance on the
accounting for the transfers of financial assets. The new guidance, which is now part of ASC
860, Transfers and Servicing, requires additional disclosures for transfers of financial
assets, including securitization transactions, and any continuing exposure to the risks related
to transferred financial assets. There is no longer a concept of a qualifying special-purpose
entity, and the requirements for derecognizing financial assets have changed. The new guidance
is effective on a prospective basis for the annual period beginning after November 15, 2009 and
interim and annual periods thereafter. We do not expect the adoption of the new guidance will
have any impact on our financial position or results of operations or on our financial
statement disclosures.Variable Interest EntitiesIn June 2009, the FASB issued revised guidance on the accounting
for variable interest entities. The revised guidance, which is now part of ASC 810-10,
Consolidation, reflects the elimination of the concept of a qualifying special-purpose entity
and replaces the quantitative-based risks and rewards calculation of the previous guidance for
determining which company, if any, has a controlling financial interest in a variable interest
entity. The revised guidance requires an analysis of whether a company has: (1) the power to
direct the activities of a variable interest entity that most significantly impact the entitys
economic performance and (2) the obligation to absorb the losses that could potentially be
significant to the entity or the right to receive benefits from the entity that could
potentially be significant to the entity. An entity is required to be re-evaluated as a
variable interest entity when the holders of the equity investment at risk, as a group, lose
the power from voting rights or similar rights to direct the activities that most significantly
impact the entitys economic performance. Additional disclosures are required about a
companys involvement in variable interest entities and an ongoing assessment of whether a
company is the primary beneficiary. The revised guidance is effective for all variable
interest entities owned on or formed after January 1, 2010. We do not expect that the
provisions of the revised guidance will have any effect on our financial position or results of
operations or on our financial statement disclosures.Employers Disclosures about Postretirement Benefit Plan AssetsIn December 2008, the FASB
issued new guidance on the disclosure of postretirement benefit plan assets. The new guidance,
which is now part of ASC 715, Compensation  Retirement Benefits,requires an employer to
provide certain disclosures about plan assets of its defined benefit pension or other
postretirement plans. The required disclosures include the investment policies and strategies
of the plans, the fair value of the major categories of plan assets, the inputs and valuation
techniques used to develop fair value measurements and a description of significant
concentrations of risk in plan assets. The new guidance is effective on a prospective basis
for fiscal years ending after December 15, 2009. The adoption of the new guidance on January
1, 2009 did not have any effect on our financial position or results of operations or on our
financial statement disclosures.Multiple Deliverable Revenue ArrangementsIn October 2009, the FASB issued ASU No. 2009-13,
Multiple Deliverable Revenue Arrangements  A Consensus of the FASB Emerging Issues Task
Force, which updates ASC 605, Revenue Recognition. ASU No. 2009-13 provides application
guidance on whether multiple deliverables exist, how the deliverables should be separated and
how the consideration should be allocated to one or more units of accounting. This update
establishes a selling price hierarchy for determining the selling price of a deliverable. The
selling price used for each deliverable will be based on vendor-specific objective evidence, if
available, third-party evidence if vendor-specific
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objective evidence is not available, or estimated selling price if neither vendor-specific or
third-party evidence is available. We will be required to apply the new guidance prospectively
for revenue arrangements entered into or materially modified after January 1, 2011; however,
early application is permitted. We are currently evaluating the effect that this update may
have on our financial position or results of operations or on our financial statement
disclosures.Software Elements in Revenue ArrangementsIn October 2009, the FASB issued ASU No. 2009-14,
Certain Revenue Arrangements That Include Software Elements, updating ASC 985, Software. This
update provides new standards that amend the scope of previous software revenue guidance by
excluding non-software components of tangible products and certain software components of
tangible products. These new standards are effective for our fiscal year beginning January 1,
2011; however, early adoption is permitted. We are currently evaluating the effect that this
update may have on our financial position or results of operations or on our financial
statement disclosures.3.
    
    Earnings (Loss) per ShareBasic earnings (loss) per share is computed by dividing net income (loss) attributable to
PowerSecure International, Inc. common stockholders by the weighted average number of common
shares outstanding during the period. Diluted earnings (loss) per share attributable to
PowerSecure International, Inc. common stockholders is computed using the weighted average
number of common shares outstanding and, when dilutive, potential common shares from stock
options and warrants using the treasury stock method. Diluted earnings per share excludes the
impact of potential common shares related to stock options and warrants in periods in which we
reported a loss from continuing operations or in which the option or warrant exercise price is
greater than the average market price of our common stock during the period because the effect
would be antidilutive. A total of 942,000 common shares issuable upon the exercise of
in-the-money stock options and warrants were excluded from the diluted weighted average number
of shares outstanding for the year ended December 31, 2007 because their effect was
antidilutive.The following table sets forth the calculation of basic and diluted earnings (loss) per share
attributable to PowerSecure International, Inc. common stockholders:
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Year Ended December 31,2009
    
    
    2008
    
    
    2007Income (loss) from continuing
operations
    
    $
    2,793
    
    
    $
    10,735
    
    
    $
    (999
    )Loss from discontinued operations
    
    
    
    
    
    
    (77
    )
    
    
    (609
    )Net income (loss)
    
    $
    2,793
    
    
    $
    10,658
    
    
    $
    (1,608
    )Basic weighted-average common
shares outstanding in period
    
    
    17,177
    
    
    
    16,978
    
    
    
    16,148Add dilutive effects of stock
options and warrants
    
    
    166
    
    
    
    306
    
    
    
    Diluted weighted-average common
shares outstanding in period
    
    
    17,343
    
    
    
    17,284
    
    
    
    16,148Basic earnings (loss) per common
share:Income (loss) from continuing
operations
    
    $
    0.16
    
    
    $
    0.63
    
    
    $
    (0.06
    )Loss from discontinued operations
    
    
    
    
    
    
    (0.00
    )
    
    
    (0.04
    )Basic earnings (loss) per common
share
    
    $
    0.16
    
    
    $
    0.63
    
    
    $
    (0.10
    )Diluted earnings (loss) per common
share:Income (loss) from continuing
operations
    
    $
    0.16
    
    
    $
    0.62
    
    
    $
    (0.06
    )Loss from discontinued operations
    
    
    
    
    
    
    (0.00
    )
    
    
    (0.04
    )Diluted earnings (loss) per
common share
    
    $
    0.16
    
    
    $
    0.62
    
    
    $
    (0.10
    )
 4.
    
    AcquisitionsPowerPackages AcquisitionIn May 2009, our PowerSecure subsidiary established a new business
unit, PowerPackages, LLC, to provide our utility partners with an efficient, dependable
continuous power source for their customers. The new business unit broadens our PowerSecure
subsidiarys interactive distributed generation system capabilities by utilizing medium speed
engine technology as the systems power source. To facilitate the new business unit, our
PowerSecure subsidiary purchased, for cash, certain inventory and equipment of Design Power
International, Inc. The fair value of the assets acquired was $800, which also represented the
purchase price of the assets. The following provides additional information regarding the fair
value of the assets acquired:
 Inventory
    
    $
    408Equipment
    
    
    392Total assets
    
    $
    800
 The operations of PowerPackages, LLC have been included within our Energy and Smart Grid
Solutions operating segment from the date of acquisition. Pro forma results of operations for
the years ended December 31, 2008 and 2007 have not been included herein as the effects of the
acquisition were not material to our results of operations.EfficientLights Acquisition During the third quarter of 2007, our PowerSecure subsidiary
formed EfficientLights, LLC. EfficientLights designs and manufactures lighting solutions that
substantially reduce the energy consumed in lighting refrigerated cases in grocery and retail
drug stores. EfficientLights purchased certain energy conservation assets and operations from
Advanced Specialty Products, Inc. (ASP) and its founder in exchange for cash, assumption of
certain liabilities, and a 33.33% noncontrolling interest in EfficientLights. The assets
acquired included the assets and technology associated with its primary product, an LED
lighting solution for freezer cases in retail
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chains that consumes approximately one-third the energy of a comparable fluorescent unit. As a
result of the acquisition, our PowerSecure subsidiary owns 66.67% of the ownership interest in
EfficientLights and the principal of ASP, who is now the President of EfficientLights, owns the
remaining 33.33% noncontrolling interest. In connection with the acquisition of the assets and
business, our PowerSecure subsidiary acquired an option to purchase the remaining one-third
ownership interest of EfficientLights in exchange for 1,000,000 shares of our common stock.
The acquisition was accounted for as a purchase, and the operating results of EfficientLights
have been included in the consolidated statement of operations from the date of acquisition.
The noncontrolling members interest in accumulated losses of EfficientLights exceeded his
basis in EfficientLights at December 31, 2007. Accordingly, under accounting standards in
existence at that time, we discontinued recording additional noncontrolling interest losses in
EfficientLights effective January 1, 2008. We resumed recording noncontrolling interest in the
income of EfficientLights effective January 1, 2009, upon the adoption of new standards set
forth in ASC 810.The purchase price of the EfficientLights acquisition was allocated as follows:
 Cash
    
    $
    60Equipment
    
    
    89Intangible rights
    
    
    11Accounts payable
    
    
    (70
    )Minority interest
    
    
    (30
    )Net assets acquired
    
    $
    60
 The operations of EfficientLights have been included within our Energy and Smart Grid
Solutions operating segment from the date of acquisition. Pro forma results of operations for
the year ended December 31, 2007 have not been included herein as the effects of the
acquisition were not material to our results of operations.
 5.
    
    Restructuring ChargesThe accompanying consolidated results of operations for the year ended December 31, 2007
include restructuring charges for severance and associated costs related to certain
organizational changes focused on accelerating our growth, and especially the growth of our
PowerSecure subsidiary. These restructuring charges also include costs related to our decision
to relocate our corporate headquarters from Denver, Colorado to our PowerSecure subsidiarys
facilities in Wake Forest, North Carolina. These restructuring charges totaled $14,139
pre-tax, $8,625 after-tax, and $0.83 per fully diluted share. These pre-tax charges are
reported in the Restructuring charges line in the accompanying consolidated statement of
operations for the year ended December 31, 2007 and are recorded in the Unallocated Corporate
Costs amounts included in the segment financial information in Note 15.These restructuring charges were the result of certain organizational changes made in April
2007 by our board of directors that were focused on accelerating our growth, and especially the
growth of our PowerSecure subsidiary. In April 2007, W. Phillip Marcum, one of our founders,
resigned as our Chairman of the Board, President and Chief Executive Officer, and the Board
appointed Sidney Hinton, who had previously served as President and Chief Executive Officer of
our PowerSecure subsidiary, to also to serve as our President and Chief Executive Officer and
appointed a non-employee director to serve as our Chairman. Also in April 2007, A. Bradley
Gabbard, also one of our founders, resigned as our Executive Vice President and Chief Financial
Officer.As a result of these organizational changes, we recorded restructuring charges of $14,139 in
fiscal 2007. These charges included severance of $7,661 for our former Chief Executive
Officer, $5,237 for our former Chief Financial Officer, $182 for other individuals, as well as
$1,000 of third-party professional fees and other expenses directly related to implementing the organizational
changes. During the years
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ended December 31, 2009, 2008 and 2007, we made cash payments in the
aggregate amount of $1,379, $4,026 and $8,410, respectively, for the liability accrued for
these organizational changes. The balance of our remaining payment obligations at December 31,
2009 of $325 will be paid during the first half of 2010.Also in April 2007, our Board approved a plan to relocate our corporate headquarters from
Denver, Colorado to our facilities in Wake Forest, North Carolina. In connection with the
relocation, we incurred $23 in lease termination costs, all of which were incurred and paid
during the year ended December 31, 2007 and recorded as restructuring charges.
 6.
    
    Investment in Unconsolidated AffiliateThrough WaterSecure, we currently own 40.45% of the equity interests in Marcum Midstream 1995-2
Business Trust (MM 95-2). During the year ended December 31, 2008, WaterSecure acquired
additional equity interests in MM 95-2 at a purchase price of $710. We used cash on hand to
acquire the additional equity interests in MM 95-2 in 2008.MM 95-2 owns and operates five water processing and disposal facilities located in northeastern
Colorado. The balance of our equity investment MM 95-2 includes approximately $748 and $822 of
unamortized purchase premiums we paid on our acquired interests at December 31, 2009 and 2008,
respectively. The premiums are being amortized over a period of 14 years, which represents the
estimated weighted average useful life of the underlying assets acquired. Amortization expense
on the premiums was $74, $67, and $61 for the years ended December 31, 2009, 2008, and 2007,
respectively.The following table sets forth certain summarized financial information for MM 95-2 at December
31, 2009 and 2008 and for the years ended December 31, 2009, 2008 and 2007:
 December 31,2009
    
    
    2008Total current assets
    
    $
    2,942
    
    
    $
    4,645Property, plant and equipment, net
    
    
    8,879
    
    
    
    8,067Total other assets
    
    
    6
    
    
    
    17Total assets
    
    $
    11,827
    
    
    $
    12,729Total current liabilities
    
    $
    1,433
    
    
    $
    1,393Long-term note payable
    
    
    2,749
    
    
    
    3,550Total shareholders equity
    
    
    7,645
    
    
    
    7,786Total liabilities and
shareholders equity
    
    $
    11,827
    
    
    $
    12,729
 Year Ended December 31,2009
    
    
    2008
    
    
    2007Total revenues
    
    $
    12,969
    
    
    $
    17,906
    
    
    $
    13,205Total costs and expenses
    
    
    7,610
    
    
    
    8,652
    
    
    
    5,556Net income
    
    $
    5,359
    
    
    $
    9,254
    
    
    $
    7,649
 7.
    
    Discontinued OperationsIn December 2007, our board of directors approved a plan to sell substantially all of the
assets of Metretek Florida, which operated our automated data collection and telemetry segment.
The board of directors adopted this plan in conjunction with its review of our strategic
alternatives for our non-core businesses. On March 14, 2008, Metretek Florida entered into an
Asset Purchase Agreement with
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Mercury Instruments LLC (Mercury). Under the purchase agreement, Metretek Florida sold
substantially all of its assets and business to Mercury for a total purchase price of $2,250.
The sale was completed March 31, 2008. On April 1, 2008, we received proceeds from the sale in
the amount of $1,800, and the remaining proceeds from the sale in the amount of $450 were
deposited by the seller into an escrow account, the balance of which was included in other
receivables in the accompanying consolidated balance sheet at December 31, 2008. Proceeds from
the escrow account in the amount of $414, net of warranty claims submitted by Mercury, were
received in March 2009.As a result of the sale, we recorded an after-tax estimated loss on disposal of our
discontinued operations of $1,120 during the fourth quarter of fiscal 2007. Upon closing of
the sale, we recorded an additional loss on disposition in the amount of $42 during the year
ended December 31, 2008 to reflect changes in assets and liabilities sold from December 31,
2007 to the date of closing.The operations of Metretek Florida have been included in our consolidated statements of
operations as discontinued operations. Results of discontinued operations for the years ended
December 31 were as follows:
 2008
    
    
    2007Total revenues
    
    $
    1,285
    
    
    $
    5,240Operating expenses
    
    
    1,321
    
    
    
    4,599Income (loss) from operations
    
    
    (36
    )
    
    
    641Income tax benefit
    
    
    1
    
    
    
    11Loss on disposal
    
    
    (42
    )
    
    
    (1,261
    )Loss from discontinued operations
    
    $
    (77
    )
    
    $
    (609
    )
 Net cash flows of our discontinued operations from the categories of investing and
financing activities were not significant for the years ended December 31, 2008 and 2007.
 8.
    
    Deferred Compensation PlanIn his employment agreement (see Note 11), Sidney Hinton, our President and Chief Executive
Officer, has a deferred compensation arrangement that provides for payments by us to him, upon
retirement, monthly amounts ranging from $15 per month, if he commences receiving payments at
age 53, to $20 per month, if he commences receiving payments at age 58, which payments continue
for life. The deferred compensation payments under the plan vest on the earlier of August 15,
2012 or upon a change in control. We funded our obligation under the deferred compensation
plan in 2007 through the purchase of a fixed deferred annuity contract in the amount of $1,978
through John Hancock Annuities. The deferred annuity contract provides for a guaranteed
minimum interest rate on the annuity sufficient to meet our obligations under the deferred
compensation plan. If the deferred compensation fails to vest, then the annuity reverts to us.
We are subject to income tax on the earnings of the annuity. The fair value of the annuity,
including interest thereon, at December 31, 2009 and 2008 is $2,220 and $2,133, respectively,
and is included in the accompanying consolidated balance sheet under other assets. We are
accruing our obligation under the deferred compensation agreement over a period of eight years.
The liability for the deferred compensation obligation at December 31, 2009 and 2008 is $721
and $388, respectively, and is included in the accompanying consolidated balance sheet under
deferred compensation obligation. The accompanying consolidated statements of operations
includes general and administrative expense in the amount of $333, $329 and $59 for the years
ended December 31, 2009, 2008 and 2007, respectively, associated with the deferred compensation
plan.
 9.
    
    DebtLine of Credit In August 2007, we entered into a revolving credit agreement with Citibank,
N.A., as the administrative agent, providing for a three-year $25,000 senior, first-priority
secured revolving and
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term credit facility. The revolving credit facility refinanced and expanded our prior credit
facility with First National Bank of Colorado. The agreement was guaranteed by our active
subsidiaries and secured by all of our assets and the assets of our subsidiaries.In January 2008, we entered into a $2,584 term credit agreement with Citibank, for the purpose
of financing a portion of the purchase price of our Wake Forest, North Carolina principal
executive offices and the offices of our PowerSecure subsidiary. This term credit facility
contained virtually the same terms, and was secured by the same collateral, including security
interest and guarantees, as our revolving credit facility, but did not reduce our available
borrowings under the revolving credit facility.In January 2008, we entered into a first amendment to the revolving credit agreement with
Citibank, modifying the credit agreement to incorporate and facilitate the term credit
agreement and to amend certain technical provisions of the credit agreement.In May 2008, we entered into a second amendment to the revolving credit agreement and first
amendment to term credit agreement with Citibank, modifying the credit agreement and term
credit agreement to eliminate the restrictive covenants on annual capital expenditures.In November 2008, we entered into a third amendment to the revolving credit agreement with
Citibank, and expanded the lenders to include SunTrust bank and BB&T. The amendment expanded
the amount of the credit facility to $50,000 and modified certain terms and conditions of the
revolving credit agreement, including extending the maturity date to November 2011, increasing
the interest rate, adding a feature to enable balances used to finance recurring revenue
projects to continue to be financed after November 2011 under an extended term facility that
matures in November 2013, certain affirmative, negative and financial covenants, the use of
proceeds and other terms of the credit agreement. The credit facility, as amended, is a
$50,000 senior, first-priority secured revolving credit facility that is guaranteed by all of
our active subsidiaries and secured by all of our assets and the assets of our active
subsidiaries.We may, from time to time, request an increase in the aggregate revolving commitment amount by
up to $15,000 without the prior consent of the lenders provided that each lender has the
unilateral right to determine whether it agrees to increase its revolving commitment and that
no lender is required to increase its individual pro rata commitment amount without such
lenders consent.Pursuant to the third amendment, the credit facility, as a revolving credit facility, matures
and terminates on November 13, 2011. However, we have the option prior to that maturity date
to convert a portion of outstanding principal balance, in an amount not to exceed the present
value of estimated annual contract revenues receivable under the initial term of contracts for
recurring revenue projects executed after December 31, 2007, into a non-revolving term loan for
a two year period expiring November 12, 2013, making quarterly payments based upon a four year
fully amortized basis.We intend to use the proceeds available under the credit facility to finance our PowerSecure
subsidiarys recurring revenue projects as well as to finance capital expenditures, working
capital, acquisitions, and general corporate purposes. Our outstanding borrowings under the
credit facility at any time, the proceeds of which were used for working capital purposes and
not in connection with recurring revenue projects, cannot exceed $15,000.As amended, outstanding balances under the credit facility bear interest, at our discretion, at
either the London Interbank Offered Rate for the corresponding deposits of U. S. Dollars plus
an applicable margin, which is on a sliding scale ranging from 175 basis points to 300 basis
points based upon the our leverage ratio, or at Citibanks alternate base rate plus an
applicable margin, on a sliding scale ranging from 0 basis points to 125 basis points based
upon our leverage ratio. Our leverage ratio is the ratio of our funded indebtedness as of a
given date to our consolidated EBITDA as defined in the credit agreement for the four
consecutive quarters ending on such date. Citibanks alternate base rate is equal
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to the higher of the Federal Funds Rate as published by the Federal Reserve of New York plus
0.50%, and Citibanks prime commercial lending rate.The credit facility is not subject to any borrowing base computations or limitations, but does
contain certain financial covenants. Our maximum leverage ratio cannot exceed 3.25. Our
minimum fixed charge coverage ratio must be in excess of 1.50, where the fixed charge coverage
ratio is defined as the ratio of the aggregate of our trailing 12 month consolidated EBITDA
plus our lease or rent expense minus our taxes based on income and payable in cash, divided by
the sum of our consolidated interest charges plus our lease or rent expenses plus our scheduled
principal payments and dividends, computed over the previous period. Also, our minimum asset
coverage must be in excess of 1.25, where our asset coverage is defined as the summation of 80%
of the book value of accounts receivable plus 60% of the book value of inventory plus 50% of
the book value of net fixed assets, divided by total funded debt outstanding. In addition, we
are required to maintain a minimum consolidated tangible net worth, computed on a quarterly
basis, equal to approximately $42.8 million, plus 50% of our net income each year ending after
December 31, 2007, with no reduction for any net loss in any year, plus 100% of any equity we
raise through the sale of equity interests, less the amount of any non-cash charges or losses.
Finally, our debt to worth ratio, which is the ratio of our total consolidated indebtedness to
our consolidated tangible net worth, cannot exceed 1.5 to 1.0 at the end of any quarter. At
December 31, 2009 and 2008, we were in compliance with these financial covenants.Under the amended credit facility, our cumulative capital expenditures beginning in 2008 cannot
exceed the sum of $5,000 plus $1,250 per quarter, on a cumulative basis, plus an allowance for
our PowerSecure subsidiary recurring revenue projects generated after December 31, 2007. The
amendment to the credit facility did not significantly modify the other representations and
warranties and affirmative and negative covenants under the credit agreement, including
restrictions with respect to liens, indebtedness, loans and investments, material changes in
our business, asset sales or leases or transfers of assets, restricted payments such as
distributions and dividends, mergers or consolidations and transactions with affiliates.Upon the sale of any of our assets or the assets of our subsidiaries other than in the ordinary
course of business or the public or private sale of any of our equity or debt or the equity or
debt of our subsidiaries other than equity issuances where the aggregate net equity proceeds do
not exceed $10,000, we are required to use the net proceeds thereof to repay any indebtedness
then outstanding under the credit facility, except for certain reinvestment provisions.Our obligations under the credit facility are secured by guarantees and security agreements by
each of our active subsidiaries, including but not limited to our PowerSecure subsidiary,
Southern Flow and WaterSecure. The guarantees guaranty all of our obligations under the credit
facility, and the security agreements grant to the lenders a first priority security interest
in virtually all of the assets of each of the parties to the credit agreement.The credit agreement also contains customary events of default, including payment defaults,
breach of representations and warranties, covenant defaults, cross-defaults, certain bankruptcy
or insolvency events, judgment defaults and certain ERISA-related events.In connection with the third amendment to the credit facility described above, we used
approximately $2,500 of cash on hand to repay the outstanding balance of, and to terminate, the
term credit agreement, dated as of January 17, 2008, between us and Citibank.At December 31, 2009 and 2008, there were no balances outstanding under the credit facility and
we had $50,000 available to borrow. However, the availability of this capital under our credit
facility includes restrictions on the use of proceeds, and is dependent upon our ability to
satisfy certain financial and operating covenants, as described above.
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Equipment Line On July 22, 2008, Caterpillar Financial Services Corporation (Caterpillar)
renewed a line of credit to finance the purchase, from time to time, of Caterpillar generators
to be used in our PowerSecure subsidiarys projects, primarily those projects sold under the
recurring revenue model, pursuant to a letter by Caterpillar containing the terms of this
credit line. The line of credit was increased from its previous $7.5 million level to $10.0
million. Under this line of credit, our PowerSecure subsidiary could submit equipment
purchases to Caterpillar for financing, and Caterpillar could provide such financing in its
discretion at an interest rate, for a period of time between 12 and 60 months and upon such
financing instruments, such as a promissory note or an installment sales contract, as set by
Caterpillar on a project by project basis. This line of credit from Caterpillar was a
permitted indebtedness under our credit facility with Citibank, although no amounts were drawn
on the line. It expired on September 30, 2009.
 10.
    
    Capital Lease ObligationsIn December 2008, we entered into a sale and leaseback transaction with SunTrust Equipment
Finance and Leasing (SunTrust), an affiliate of SunTrust Bank, resulting in the sale of
distributed generation equipment placed in service at customer locations and a lease of the
equipment from SunTrust. We received $5,912 from the sale of the equipment which we will repay
to SunTrust under the terms of the lease with monthly payments of $85 of principal and interest
over a period of 84 months. At the expiration of the term of the lease, we have the option to
purchase the equipment for $1, assuming no default under the lease by us has occurred and is
then continuing. The lease is guaranteed by us under an equipment lease guaranty. The lease
and the lease guaranty constitute permitted indebtedness under our current credit agreement,
under which an affiliate of the lessor is one of the lenders.Proceeds of the lease financing are being used to finance our PowerSecure subsidiarys
recurring revenue projects as well as to finance capital expenditures and working capital. We
account for the lease financing as a capital lease in our consolidated financial statements in
accordance with generally accepted accounting principles.The lease provides our PowerSecure subsidiary with limited rights, subject to the lessors
approval which will not be unreasonably withheld, to relocate and substitute equipment during
its term. The lease contains customary representations and warranties, covenants relating to
the use and maintenance of the equipment, indemnification, events of default, including payment
defaults, breach of representations and warranties, covenant defaults, cross-defaults, certain
bankruptcy or insolvency events, customary for leases of this nature. The lease also grants to
the lessor certain remedies upon a default, including the right to cancel the lease, to
accelerate all rent payments for the remainder of the term of the lease, to recover liquidated
damages, or to repossess and re-lease, sell or otherwise dispose of the equipment.Under the lease guaranty, we have unconditionally guaranteed the obligations of our PowerSecure
subsidiary under the lease for the benefit of the lessor.Capital lease obligations at December 31, 2009 consist of the equipment described above as well
as a $5 equipment lease at Southern Flow payable in monthly installments, including interest,
at 6.85%. The scheduled annual payments on our capital lease obligations are as follows:
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ScheduledYear Ending December 31:
    
    Payments2010
    
    $
    1,0172011
    
    
    1,0172012
    
    
    1,0162013
    
    
    1,0162014 and beyond
    
    
    2,031Total minimum lease payments
    
    
    6,097Less: Interest included in the lease payments
    
    
    896Present value of minimum lease payments
    
    $
    5,201
 11.
    
    Commitments and Contingencies and Income from Litigation SettlementsIncome from Litigation Settlements As a result of final litigation settlements in 2006 and
2007 of claims against parties involved in a 2001 class action lawsuit, we recorded income
during the year ended December 31, 2007 in the amount of $385. This amount is included in
interest and other income in our consolidated statements of operations.Other Matters From time to time, we hire employees that are subject to restrictive
covenants, such as non-competition agreements with their former employers. We comply, and
require our employees to comply, with the terms of all known restrictive covenants. However,
we have in the past and may in the future receive claims and demands by some former employers
alleging actual or potential violations of these restrictive covenants. While we do not
believe any pending claims have merit, we cannot provide any assurance of the outcome of these
claims.From time to time, in the ordinary course of business we encounter performance issues with key
component parts we utilize in our distributed generation systems, switchgear systems, utility
infrastructure products, and lighting products, such as engines, generators, alternators,
breakers, fuel systems, LED and other lighting technologies, and other complex electrical
components. While we strive to utilize high quality component parts from reputable suppliers,
and to back-up their quality and performance with manufacturers warranties, even the best
parts and components have performance issues from time to time, and these performance issues
create significant financial and operating risks to our business, operations and financial
results. Additionally, because we regularly develop new products and technical designs, we
often incorporate component parts into these new products in configurations, for uses, and in
environments, for which limited experience exists that exposes us to performance risks which
may or may not be covered by warranties. These risks include the expense, time, focus and
resources involved in repairing, replacing or modifying distributed generation systems,
generators, engines, alternators, switchgear systems and lighting systems for component part
malfunctions, whether or not covered under manufacturers warranties and the burden and costs
we would incur due to manufacturers disputing or failing to timely and fully honor their
warranty obligations for quality and performance issues. These risks also include the
potential material and adverse effects on our business, operations, reputation and financial
results, including reduced revenues, additional expenses and capital cost, and asset
write-offs, due to the cancellation or deferral of projects by our customers, or claims made by
our customers for damages, as a result of performance issues.Although we believe our suppliers warranties generally cover many of these performance issues,
from time to time we face disputes with our suppliers with respect to those performance issues
and their warranty obligations, or the performance issues are not covered by manufacturers
warranties, and our customers may claim to incur damages as a result of those performance
issues. In those cases, we
vigorously defend our position and rights, including our warranty rights, and we take all
commercially practical actions to ensure our customers are fully satisfied with the quality of
our products and services and do not incur any damages. We estimate that from time to time we
have performance issues with an amount equivalent to approximately 5-10% of our estimated
annual revenues related to component parts
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installed in distributed generation systems, lighting products, and other products and
equipment we have sold to various customers across our business lines, and additional
performance issues could arise in the future. We work collaboratively with the manufacturers
to resolve these issues. However, in the event the manufacturers solutions do not fully
satisfy the required performance standards, we could incur additional costs to replace,
rebuild, or repair these systems and equipment, as well as incur adverse material future
financial consequences related to the cancellation of customer contracts, including reduced
revenues (and backlog), additional expenses and capital cost, and asset write-offs. In certain
instances, these performance issues could also result in customers claims for damages. To
date, manufacturers have rectified these performance issues to meet our customers required
performance standards with minimal additional cost to us, however, we cannot provide any
assurance that an acceptable solution will be achieved in each case in the future, or if a
solution is achieved the timing or costs to us associated with such solutions. Additionally,
the outcome of any warranty claims is inherently difficult to predict due to the uncertainty of
technical solutions, cost, customer requirements, and the uncertainty inherent in litigation
and disputes generally, and thus there is no assurance we will not be adversely affected by
these, or other performance issues with key parts and components. In addition, the mere
existence of performance issues, even if finally resolved with our suppliers, can have an
adverse effect on our reputation for quality, which could adversely affect our business.
Accordingly, potential negative financial impacts from these items cannot be estimated at this
time.From time to time, we are involved in other disputes, claims, proceedings and legal actions
arising in the ordinary course of business. We intend to vigorously defend all claims against
us. Although the ultimate outcome of these proceedings cannot be accurately predicted due to
the inherent uncertainty of litigation, in the opinion of management, based upon current
information, no other currently pending or overtly threatened proceeding is expected to have a
material adverse effect on our business, financial condition or results of operations.Operating Leases We lease business facilities, equipment and vehicles under operating lease
agreements which specify minimum rentals. Substantially all leases have renewal provisions.
Rental expense for the years ended December 31, 2009, 2008 and 2007 totaled $2,589, $3,038 and
$2,455, respectively. Future minimum rental payments under noncancelable operating leases
having an initial or remaining term of more than one year are as follows:
 ScheduledYear Ending December 31:
    
    Payments2010
    
    $
    1,2632011
    
    
    1,0222012
    
    
    9142013
    
    
    8692014 and thereafter
    
    
    671Total minimum rental payments
    
    $
    4,739
 Employee Benefit Plan We have a defined contribution savings and investment plan (the
401(k) Plan) under Section 401(k) of the Internal Revenue Code. All employees age 18 or
older are eligible to participate in the 401(k) Plan. The 401(k) Plan provides for
discretionary contributions by employees of up to 80% of their eligible compensation. In 2008
and 2007, we made discretionary matching contributions of 50% of participant contributions,
subject to a maximum of 6% of each participants eligible compensation. In January 2009, we
amended the 401(k) Plan to temporarily eliminate discretionary contributions to highly
compensated participants and to reduce discretionary contributions to all other participants.
In December 2009, we amended the 401(k) Plan to reinstate matching contributions at the
previous levels to all participants commending January 1, 2010. Our 401(k) Plan
expense for the years ended December 31, 2009, 2008 and 2007 was $175, $454 and $354,
respectively.Employment Agreements On August 15, 2007, we entered into an Employment and Non-Competition
Agreement (the Hinton Employment Agreement) with Sidney Hinton, our President and Chief
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Executive Officer. The key terms of the Hinton Employment Agreement include a five year term,
with automatic one-year renewals, an increase in base salary, annual bonuses equal to 7% of our
PowerSecure subsidiarys cash flow from operations, a grant of 600,000 restricted shares of our
common stock (see Note 14), a $5,000 life insurance policy, a disability insurance policy and
an annuity upon his retirement (see Note 8). The Hinton Employment Agreement also provides for
severance benefits equal to as much as three times the sum of his most recent base salary plus
his average bonuses for the two years before and for the year of the date of termination,
depending upon the circumstances of his termination.On December 10, 2007, we entered into an Employment and Non-Competition Agreement (the Hutter
Employment Agreement) with Christopher Hutter, our Executive Vice President and Chief Financial Officer.
The key terms of the Hutter Employment Agreement include a five year term, with automatic
one-year renewals, annual bonuses up to 35% of his base salary, and a grant of 25,000
restricted shares of our common stock (see Note 14). The Hutter Employment Agreement also
provides for severance benefits equal to as much as two times the sum of his most recent base
salary plus his average bonuses for the two years before and for the year of the date of
termination, depending upon the circumstances of his termination.The Hinton and Hutter Employment Agreements were amended on December 31, 2008 to comply with
the provisions of Section 409A of the internal Revenue Code, relating to deferred compensation,
but the substantive provisions of these employment agreements were not materially changed.On December 17, 2009, our Board of Directors approved an amendment and restatement of the
Hinton Employment Agreement in order to extend the term of Mr. Hintons employment to December
31, 2015 and to modify certain other terms and conditions of his employment and compensation.
Among other terms and conditions that were modified, the amended Hinton Employment Agreement
increased Mr. Hintons base salary, replaced his prior annual bonus arrangement with an annual
incentive plan to be based on such factors, metrics and terms as the Board of Directors
establishes each year, and eliminated the severance compensation to which Mr. Hinton would have
been entitled if he were to voluntarily terminate his employment with us without good reason
(as defined in the Hinton Employment Agreement). The amended Hinton Employment Agreement also
provided for a cash payment to Hinton in the amount of $550,000 as compensation for the
modification of Mr. Hintons Employment Agreement with respect to the severance arrangement.We also have employment agreements with certain other executive officers and with other key
employees which provide for base salary, restricted stock grants, incentive compensation,
change-in-control provisions, non-competition provisions, severance arrangements, and other
normal employment terms and conditions.Related Party Distributorship and Non-Compete Agreement In August 2009, we entered into a
distributorship and non-compete arrangement with Apex Controls, Inc. (Apex) and its
principal, Jonathan Hinton (J. Hinton), a former officer of our PowerSecure subsidiary and
the son of Sidney Hinton, our President and Chief Executive Officer. Under this arrangement,
we appointed Apex as our independent, non-exclusive distributor, primarily to sell and
distribute our EfficientLights LED lighting solutions for refrigerated cases. Under this
arrangement, we have the right of first refusal to purchase Apex upon the proposed sale of 50%
or more of the assets or equity of Apex, on the same basis as the proposed purchaser.The arrangement increases our sales resources in this growing product line. We entered into
this arrangement in order to enhance our ability to accelerate sales of our EfficientLights
product line and to restrict Apex and J. Hinton from competing with us through October 1, 2015.In consideration for services and the covenants and obligations of Apex and J. Hinton under the
arrangment, PowerSecure will pay Apex a commission, on an as-collected basis, for sales of
PowerSecures products and services generated by Apex. In addition, PowerSecure paid J. Hinton
$200 upon entering into the arrangement and will pay J. Hinton additional payments of $200 in
January 2010
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and $100 annually from 2011 through 2015. We recognized expense of $49 in our
consolidated statement of operations during the year ended December 31, 2009 related to the
arrangement.The distributorship and non-compete arrangement will continue until October 1, 2015, although
it may be terminated earlier upon a breach or default or upon other adverse events related to
Apex. Our payment obligations continue and could accelerate upon a sale of PowerSecure, and
terminate upon the death of J. Hinton. The arrangement was approved by the Audit Committee of
our Board of Directors.
 12.
    
    Income TaxesWe record a deferred tax liability or asset (net of a valuation allowance) in our financial
statements by applying the provisions of applicable laws to measure the deferred tax
consequences of temporary differences that will result in net taxable or deductible amounts in
future years as a result of events recognized in the financial statements in the current or
preceding years.The income tax benefit (provision) included in the accompanying consolidated statements of
operations represents changes in our net deferred tax assets, federal alternative minimum tax
and state income taxes in various state jurisdictions in which we have taxable activities. The
following table summarizes our income tax benefit (provision) for the years ended December 31:
 2009
    
    
    2008
    
    
    2007Current:Federal
    
    $
    (17
    )
    
    $
    (192
    )
    
    $
    (60
    )State
    
    
    (682
    )
    
    
    (1,021
    )
    
    
    (113
    )Total current
    
    
    (699
    )
    
    
    (1,213
    )
    
    
    (173
    )Deferred:Federal
    
    
    (467
    )
    
    
    340
    
    
    
    1,865State
    
    
    213
    
    
    
    50
    
    
    
    142Total deferred
    
    
    (254
    )
    
    
    390
    
    
    
    2,007Total benefit (provision)
    
    $
    (953
    )
    
    $
    (823
    )
    
    $
    1,834
 Total income tax expense from continuing operations differs from the amount computed by
applying the statutory federal income tax rate to income (loss) from continuing operations
before income tax expense. Following is a table reconciling such differences for the years
ended December 31:
 2009
    
    
    2008
    
    
    2007Federal taxes at statutory rate
    
    
    34.00
    %
    
    
    34.00
    %
    
    
    34.00
    %State taxes, net of federal benefit
    
    
    12.07
    %
    
    
    7.61
    %
    
    
    -5.24
    %Permanent items
    
    
    6.85
    %
    
    
    1.62
    %
    
    
    -10.68
    %Alternative minimum tax
    
    
    0.00
    %
    
    
    1.67
    %
    
    
    -2.13
    %Tax benefit for NOL, net of valuation allowance
    
    
    -23.26
    %
    
    
    -39.17
    %
    
    
    33.51
    %True ups and other adjustments
    
    
    -4.22
    %
    
    
    1.41
    %
    
    
    15.25
    %Effective income tax rate for continuing
operations
    
    
    25.44
    %
    
    
    7.14
    %
    
    
    64.71
    %
 The components of our federal and state deferred tax assets and liabilities at December
31, 2009 and 2008 are shown below:
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2009
    
    
    2008Deferred tax assets:Net operating loss carryforwards
    
    $
    10,164
    
    
    $
    7,447Tax credit carryforwards
    
    
    274
    
    
    
    392Allowance for bad debts
    
    
    103
    
    
    
    107Restructuring charges
    
    
    122
    
    
    
    2,051Equity compensation
    
    
    1,288
    
    
    
    948Other
    
    
    1,615
    
    
    
    517Gross deferred tax assets
    
    
    13,566
    
    
    
    11,462Deferred tax liabilities:Differences between book and tax basis of property and
equipment and intangible assets
    
    
    5,172
    
    
    
    3,375Investment in MM 1995-2
    
    
    244
    
    
    
    113Other
    
    
    631
    
    
    
    249Gross deferred tax liabilities
    
    
    6,047
    
    
    
    3,737Net deferred tax asset
    
    
    7,519
    
    
    
    7,725Valuation allowance and other
    
    
    (4,806
    )
    
    
    (4,806
    )Deferred tax assets, net
    
    $
    2,713
    
    
    $
    2,919
 We believe that based on all available evidence, including our history of generating
taxable income in the years ended December 31, 2009, 2008 and 2007, along with the anticipated
generation of taxable income in 2010 and beyond, it is more likely than not that some portion
of the net deferred tax assets that existed at December 31, 2009 and 2008 will be realized.
None of the valuation allowance was released during the year ended December 31, 2009 and $4,503
of the valuation allowance was released during the year ended December 31, 2008. The deferred
tax asset for net operating loss carryforwards at December 31, 2009 and 2008 does not include
$22 and $121, respectively, that relates to the tax effect of stock options for which the
benefit will not be recognized in stockholders equity until the period that the amounts
decrease taxes payable. The related $64 and $356 tax deduction at December 31, 2009 and 2008
are included in the unused net operating loss below.
 At December 31, 2009, we had unused federal net operating losses to carry forward against
future years taxable income of $28,584 and various state carryforwards that expire in various
amounts from 2010 to 2026.
 We or our subsidiaries file income tax returns in the U.S. federal jurisdiction and in various
state jurisdictions. The process of filing income tax returns requires us, in consultation
with our tax advisors, to make judgments regarding how we will apply intricate and often
ambiguous laws, regulations, administrative rulings and court precedents. If and when the tax
returns are audited by taxing authorities, these judgments may be questioned or disallowed in
total or in part. As a result, when determining the accounting entries necessary to accurately
reflect income taxes currently payable and/or refundable, we must make assumptions regarding
the likelihood of success in defending our judgments in the event of audits.
 We allocate a portion of our corporate expenses to our subsidiaries in the state income tax
returns that they are required to file. The allocation of corporate expenses, and the amounts
of such allocations, to our subsidiaries for state income tax purposes is an interpretation of
state income tax regulations that may be challenged by state taxing authorities and may be
disallowed, in whole or in part, upon audit by such taxing authorities. Accordingly, we have
recorded a liability for our estimate of taxes, penalties
and interest associated with this uncertain tax position. Our estimate is based on assumptions
regarding the likelihood of successfully defending this tax position in an audit. We believe
the allocation of a portion of our corporate expenses to our subsidiaries is our only material
uncertain tax position at December 31, 2009 and 2008.
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With few exceptions, we are no longer subject to U.S. federal, state and local income tax
examinations by tax authorities for years prior to 2006. The following is a reconciliation of
the beginning and ending amounts of unrecognized state income tax benefits:
 UnrecognizedTaxBenefitBalance at January 1, 2007
    
    $
    348Current year increase (decrease) as a result of
tax positions taken during the year
    
    
    473Reductions as a result of a lapse of
the applicable statute of limitations
    
    
    (63
    )Balance at December 31, 2007
    
    
    758Current year increase (decrease) as a result of
tax positions taken during the year
    
    
    195Reductions as a result of a lapse of
the applicable statute of limitations
    
    
    (84
    )Balance at December 31, 2008
    
    
    869Current year increase (decrease) as a result of
tax positions taken during the year
    
    
    668Reductions as a result of a lapse of
the applicable statute of limitations
    
    
    (41
    )Balance at December 31, 2009
    
    $
    1,496
 We believe nearly all of our unrecognized tax benefits would, if recognized, affect our
effective tax rate.
 We recognize interest and penalties related to our tax contingencies as income tax expense.
The total amount of interest and penalties recognized in the accompanying consolidated
statement of operations for the years ended December 31, 2009, 2008 and 2007 is $239, $77 and
$116, respectively. The total amount of interest and penalties recognized in the accompanying
consolidated statement of financial position at December 31, 2009 and 2008 is $510 and $248,
respectively. We expect that the unrecognized tax benefit associated with our corporate
expense allocation will increase in 2010 as we have determined that a majority of our ongoing
corporate costs relate to activities that benefit each of
our operating subsidiaries or they relate to personnel that are employed at our operating
subsidiaries. We are not able, at this time, to reasonably estimate the range of the possible
change.
 13.
    
    Capital Stock
 Stockholder Rights Plan On December 12, 1991, our board of directors adopted a Stockholder
Rights Plan, which was amended and restated on October 25, 2001 in order to extend, renew and
modify its terms (as amended and restated, the Rights Plan), to protect stockholder interests
against takeover strategies that may not provide maximum shareholder value. Pursuant to the
Rights Plan, a dividend of one preferred stock purchase right (Right) was issued with respect
to each share of our common stock outstanding on December 9, 1991, and attaches to each share
of common stock we issued thereafter. No separate certificates representing the Rights have
been issued. Each Right entitles the holder to purchase one one-hundredth of a share of our
Series C. Preferred Stock at an exercise price of $15.00 per share under certain circumstances.
This portion of a preferred share provides the holder with approximately the same dividend,
voting and liquidation rights as one share of common stock. If any person or group (referred
to as an Acquiring Person) becomes the beneficial owner of, or announces a tender offer that
would result in the Acquiring Person becoming the beneficial owner of, 15% or more of our
common stock (subject to certain exceptions), then each Right, other than Rights held by the
Acquiring Person
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which become void, will become exercisable for our common stock, or of the
Acquiring Person in the case where the Acquiring Person acquires us, having a then current
market value of twice the exercise price of the Right. At the option of the board of
directors, the Rights may be redeemed for $0.01 per Right or exchanged for shares of our common
stock at the exchange rate of one share per Right, in each case subject to adjustment. Until a
Right is exercised, the holder thereof, as such, has no rights as a stockholder. The Rights
will expire on November 30, 2011, unless such date is extended prior thereto by the board of
directors.
 Stock Warrants In May 2004, we completed a private placement to institutional and accredited
investors of 3,510,548 shares of our common stock and warrants to purchase 1,053,164 shares of
our common stock (the 2004 Private Placement), raising gross proceeds of $10,883. The
warrants issued in the 2004 Private Placement had an exercise price of $3.41 per share of
common stock and were set to expire in May 2009. At December 31, 2008, 91,001 warrants
remained outstanding. These outstanding warrants were exercised in April 2009 resulting in
proceeds of $307 to us and the issuance of 91,001 shares of our common stock during the year
ended December 31, 2009.Series B Preferred Stock In February 2000, we completed a $14,000 private placement
consisting of 1,400,000 shares of common stock, 7,000 shares of Series B convertible preferred
stock and warrants to purchase 700,000 shares of our common stock. All unconverted Series B
preferred stock was subject to mandatory redemption on December 9, 2004. The warrants issued
in the private placement expired unexercised on December 9, 2004.
 During the year ended December 31, 2007, we retired shares of Series B preferred stock at a
total redemption value of $220. There were no shares of Series B preferred stock presented for
redemption during the years ended December 31, 2009 or 2008. At December 31, 2009, our
redemption obligation on the remaining 71 shares of Series B preferred stock is $104. We
expect to retire the remaining shares of Series B preferred stock during 2010 as the holders of
the remaining preferred shares present such shares to us for redemption. The balance of the
redemption obligation is included in accrued and other liabilities in the accompanying
consolidated balance sheets.
 14.
    
    Share-Based Compensation
 We recognize compensation expense for all share-based awards made to employees and directors
based on estimated fair values on the date of grant.
 Stock Plans Historically, we have granted stock options and restricted stock awards to
employees and directors under various stock plans. We currently maintain two stock plans.
 Under our 1998 Stock Incentive Plan, as amended (the 1998 Stock Plan), we granted incentive
stock options, non-qualified stock options, stock appreciation rights, restricted stock,
performance awards and other stock-based awards to our officers, directors, employees,
consultants and advisors for shares of our common stock. Stock options granted under the 1998
Stock Plan contained exercise prices not less than the fair market value of our common stock on
the date of grant, and had a term of 10 years from the date of grant. Nonqualified stock
option grants to our directors under the 1998 Stock Plan generally vested over periods up to
two years. Qualified stock option grants to our employees under the 1998 Stock Plan generally
vested over periods up to five years. The 1998 Stock Plan expired on June 12, 2008, and no
additional awards may be made under the 1998 Stock Plan, although awards granted prior to such
date will remain outstanding and subject to the terms and conditions of those awards.
 In March 2008, our board of directors adopted the PowerSecure International, Inc. 2008 Stock
Incentive Plan (the 2008 Stock Plan), which was approved by our stockholders at the Annual
Meeting of Stockholders held on June 9, 2008. The 2008 Stock Plan authorizes our board of
directors to grant incentive stock options, non-qualified stock options, stock appreciation
rights, restricted stock, performance awards and other stock-based awards to our officers,
directors, employees, consultants and advisors for up to an aggregate of 600,000 shares of our
common stock. Stock options granted under the 2008 Stock Plan must contain exercise prices not
less than the fair market value of our common stock on
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the date of grant, and must contain a
term not in excess of 10 years from the date of grant. The 2008 Stock Plan replaced our 1998
Stock Plan.
 Stock Options Net income (loss) for the years ended December 31, 2009, 2008 and 2007
includes $556, $656 and $972, respectively, of pre-tax compensation costs related to
outstanding stock options. The after-tax compensation cost of outstanding stock options for
the years ended December 31, 2009, 2008 and 2007 was $339, $400 and $593, respectively. All of
the stock option compensation expense is included in general and administrative expenses in the
accompanying consolidated statements of operations.
 A summary of option activity for the year ended December 31, 2009 is as follows:
 WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Term (years)
    
    
    ValueBalance, December 31, 2008
    
    
    1,708
    
    
    $
    5.21Granted-Directors
    
    
    
    
    
    
    Granted-Employees
    
    
    43
    
    
    
    6.41Exercised
    
    
    (64
    )
    
    
    2.22Expired
    
    
    (6
    )
    
    
    6.88Forfeited
    
    
    (54
    )
    
    
    10.62Balance, December 31, 2009
    
    
    1,627
    
    
    $
    5.18
    
    
    
    4.87
    
    
    $
    2.03Exercisable, December 31, 2009
    
    
    1,334
    
    
    $
    4.85
    
    
    
    4.15
    
    
    $
    2.36
 A summary of option activity for the year ended December 31, 2008 is as follows:
 WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Term (years)
    
    
    ValueBalance, December 31, 2007
    
    
    1,728
    
    
    $
    5.34Granted-Directors
    
    
    
    
    
    
    Granted-Employees
    
    
    232
    
    
    
    4.31Exercised
    
    
    (169
    )
    
    
    2.68Canceled
    
    
    
    
    
    
    Forfeited
    
    
    (83
    )
    
    
    10.85Balance, December 31, 2008
    
    
    1,708
    
    
    $
    5.21
    
    
    
    5.71
    
    
    $
    (1.92
    )Exercisable, December 31, 2008
    
    
    1,306
    
    
    $
    4.49
    
    
    
    4.80
    
    
    $
    (1.20
    )
 A summary of option activity for the year ended December 31, 2007 is as follows:
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WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Term (years)
    
    
    ValueBalance, December 31, 2006
    
    
    2,085
    
    
    $
    4.61Granted-Directors
    
    
    38
    
    
    
    12.73Granted-Employees
    
    
    30
    
    
    
    12.67Exercised
    
    
    (411
    )
    
    
    2.68Canceled
    
    
    
    
    
    
    Forfeited
    
    
    (14
    )
    
    
    10.28Balance, December 31, 2007
    
    
    1,728
    
    
    $
    5.34
    
    
    
    5.96
    
    
    $
    8.22Exercisable, December 31, 2007
    
    
    1,358
    
    
    $
    3.89
    
    
    
    5.37
    
    
    $
    9.69
 There were no options granted to our directors during the years ended December 31, 2009
and 2008. The weighted average grant date fair value of the options granted to our directors
during the year ended December 31, 2007 was $8.29. The weighted average grant date fair value
of the options granted to employees during the years ended December 31, 2009, 2008 and 2007 was
$3.30, $2.55 and $8.25, respectively. The fair value was measured using the Black-Scholes
valuation model with the following assumptions for the years ended December 31:
 2009
    
    2008
    
    2007Expected stock price volatilility
    
    
    57.4
    %
    
    
    65.0
    %
    
    
    75.7
    %Risk Free interest rate
    
    
    2.39
    %
    
    
    1.84
    %
    
    
    5.07
    %Annual dividends
    
    $
    
    
    
    $
    
    
    
    $
    Expected life  employees
    
    5 years
    
    5 years
    
    5 yearsExpected life  directors
    
    na
    
    na
    
    5 years
 The fair value of the stock option grants are amortized over their respective service
periods using the straight-line method and assuming a forfeiture rate of 5%.
 At December 31, 2009 and 2008, there was $820 and $1,453, respectively, of total unrecognized
compensation costs related to stock options. These costs at December 31, 2009 are expected to
be recognized over a weighted average period of 1.58 years.
 The total intrinsic value of stock options exercised during the years ended December 31, 2009,
2008 and 2007 was $213, $1,023 and $4,532, respectively. Cash received from stock option
exercises for the years ended December 31, 2009, 2008 and 2007 was $141, $501 and $1,052,
respectively. The tax benefit realized on the 2009, 2008 and 2007 stock option exercises was
$48, $263 and $52, respectively. The total grant date fair value of stock options vested
during the years ended December 31, 2009, 2008 and 2007 was $604, $820 and $971, respectively.
 Restricted Stock Awards Net income (loss) for the years ended December 31, 2009, 2008 and
2007 includes $1,567, $1,728 and $1,120, respectively, of pre-tax compensation costs related to
outstanding restricted stock awards granted to directors, certain officers and our employees.
All of the restricted stock award compensation expense during the years ended December 31,
2009, 2008 and 2007 is included in general and administrative expenses in the accompanying
consolidated statements of operations.
 On December 17, 2009, our Board of Directors approved amendments to the restricted stock
agreements with certain of our officers, including Messrs. Hinton and Hutter. These amendments
modified the vesting conditions of the performance goals applicable to 193,500 performance
shares that were originally issued in 2007. Under the original restricted stock agreements,
645,000 restricted shares were issued to the officers in 2007. A total of 322,500, of the
restricted shares vest five years after the date of
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##### Table of Contents



grant based on continued service through
the employment date, and the remaining 322,500 restricted shares (the performances shares) vest
annually through 2011 based on certain performance goals established in 2007 and increasing
annually relating to our consolidated net income. Of the total 322,500 performance shares
issued in 2007, 129,000 of those performance shares vested in 2008 and 2009 upon the attainment
of the performance goals for 2007 and 2008.
 The Board amended the restricted stock agreements to modify the vesting conditions for the
64,500 performance shares related to fiscal 2009. In addition, our Board amended the
restricted stock agreements to modify the vesting conditions for the 129,000 performance shares
related to the Companys 2010 and 2011 fiscal years in order to reflect new performance goals
that are more appropriate for those years under the current conditions and circumstances of the
Company and the economy. These amendments did not change the cliff vesting condition for the
322,500 service shares granted under the restricted stock agreement, which service shares vest
five years after the original 2007 grant dates subject to continued employment service by the
officers.
 A summary of unvested restricted stock award activity for the three years ended December 31,
2009 is as follows. The 193,500 amended restricted performance shares are reflected as
cancelled and granted in the following table during the year ended December 31, 2009:
 WeightedUnvested
    
    
    AverageRestricted
    
    
    Grant DateShares
    
    
    Fair ValueBalance, January 1, 2007
    
    
    
    
    
    $
    Granted-Directors
    
    
    
    
    
    
    Granted-Officers
    
    
    645
    
    
    
    12.49Granted-Employees
    
    
    
    
    
    
    Vested
    
    
    (4
    )
    
    
    14.50Forfeited
    
    
    
    
    
    
    Balance, December 31, 2007
    
    
    641
    
    
    $
    12.48Granted-Directors
    
    
    34
    
    
    
    6.98Granted-Officers
    
    
    
    
    
    
    Granted-Employees
    
    
    28
    
    
    
    7.45Vested
    
    
    (75
    )
    
    
    11.62Forfeited
    
    
    
    
    
    
    Balance, December 31, 2008
    
    
    628
    
    
    $
    12.06Granted-Directors
    
    
    43
    
    
    
    4.65Granted-Officers
    
    
    194
    
    
    
    7.97Granted-Employees
    
    
    
    
    
    
    Vested
    
    
    (104
    )
    
    
    9.96Forfeited
    
    
    (6
    )
    
    
    8.50Cancelled
    
    
    (194
    )
    
    
    12.49Balance, December 31, 2009
    
    
    561
    
    
    $
    10.36
 Restricted shares are subject to forfeiture and cannot be sold or otherwise transferred
until they vest. If the holder of the restricted shares leaves us before the restricted shares
vest, other than due to termination by us without cause, then any unvested restricted shares
will be forfeited and returned to us. The restricted shares granted to directors vest in equal
amounts over a period of one or three years, depending on the nature of the grant. The
restricted shares granted to employees other than officers vest in equal annual amounts over
five years. The unvested restricted shares granted to our officers vest as described above.
All restricted and unvested shares will automatically vest upon a change in control.
 F-37




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##### Table of Contents



The fair value of the cliff vesting restricted shares is being amortized on a straight-line
basis over the vesting period. The fair value of the performance vesting shares is expensed as
the achievement of the performance criteria becomes probable and the related service period
conditions are met. At December 31, 2009, the balance of unrecognized compensation cost
related to unvested restricted shares was $3,360, which, assuming all future performance
criteria will be met, we expect will be recognized over a weighted average period of
approximately 3 years.
 15.
    
    Segment and Related Information
 Our operating segments represent components of our business for which discrete financial
information is available and is reviewed regularly by the chief operating decision-maker, or
decision-making group, to evaluate performance and make operating decisions. We conduct our
operations through two operating segments: Energy and Smart Grid Solutions, and Energy
Services. Our reportable segments are strategic business units that offer different products
and services and serve different customer bases. They are managed separately because each
business requires different technology and marketing strategies. Previously, we were also
engaged in a third business segment, Automated Energy Data
Collection and Telemetry. That segment of our business has been discontinued and the results
of its operations are excluded from our segment information below.
 Energy and Smart Grid Solutions Through our PowerSecure subsidiary we serve utilities and
commercial, institutional, and industrial customers in the areas of Interactive Distributed
Generation®, Utility Infrastructure and Energy Efficiency. Each of these PowerSecure
subsidiary business units operates in a distinct market with distinct technical disciplines,
but shares a common customer base with other PowerSecure subsidiary products and services and
which we grow through shared resources and customer relationships. Accordingly, these units
are included within our Energy and Smart Grid Solutions segment results; and
 Energy Services Through our Southern Flow and WaterSecure subsidiaries we serve customers in
the oil and natural gas production business with our measurement services and products, and
water processing and disposal services. Southern Flows services include on-site field
services, chart processing and analysis, laboratory analysis, and data management and
reporting. These services are provided principally to customers involved in natural gas
production, gathering, transportation and processing. WaterSecure, through its equity
investment in MM 1995-2, provides water processing and disposal for oil and natural gas
producers.
 The accounting policies of the reportable segments are the same as those described in Note 1 of
the Notes to Consolidated Financial Statements. We evaluate the performance of our operating
segments based on income (loss) before income taxes. Intersegment sales are not significant.
 Summarized financial information concerning our reportable segments is shown in the following
table. Unallocated corporate cost amounts include corporate overhead and related items
including restructuring charges, other income and assets of discontinued operations which, for
purposes of evaluating the operations of our segments, are not allocated to our segment
activities. Total asset amounts exclude intercompany receivable balances eliminated in
consolidation.
 F-38




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##### Table of Contents



Year Ended December 31, 2009Energy and
    
    
    
    
    
    
    UnallocatedSmartgrid
    
    
    Energy
    
    
    CorporateSolutions
    
    
    Services
    
    
    Costs
    
    
    TotalRevenues
    
    $
    85,426
    
    
    $
    17,114
    
    
    $
    
    
    
    $
    102,540Cost of sales
    
    
    54,231
    
    
    
    12,784
    
    
    
    
    
    
    
    67,015Gross profit
    
    
    31,195
    
    
    
    4,330
    
    
    
    
    
    
    
    35,525Operating expenses:General and administrative
    
    
    19,127
    
    
    
    1,882
    
    
    
    5,042
    
    
    
    26,051Selling, marketing and service
    
    
    3,927
    
    
    
    37
    
    
    
    
    
    
    
    3,964Depreciation and amortization
    
    
    2,065
    
    
    
    350
    
    
    
    5
    
    
    
    2,420Total operating expenses
    
    
    25,119
    
    
    
    2,269
    
    
    
    5,047
    
    
    
    32,435Operating income (loss)
    
    
    6,076
    
    
    
    2,061
    
    
    
    (5,047
    )
    
    
    3,090Other income and (expenses):Equity income
    
    
    
    
    
    
    2,167
    
    
    
    
    
    
    
    2,167Management fees
    
    
    
    
    
    
    447
    
    
    
    
    
    
    
    447Interest income and other income
    
    
    3
    
    
    
    
    
    
    
    158
    
    
    
    161Interest expense
    
    
    (334
    )
    
    
    
    
    
    
    (273
    )
    
    
    (607
    )Income (loss) before income taxes
    
    $
    5,745
    
    
    $
    4,675
    
    
    $
    (5,162
    )
    
    $
    5,258Total capital expenditures
    
    $
    2,591
    
    
    $
    398
    
    
    $
    2
    
    
    $
    2,991Total investment in
unconsolidated affiliate
    
    $
    
    
    
    $
    3,974
    
    
    $
    
    
    
    $
    3,974Total assets
    
    $
    78,818
    
    
    $
    16,749
    
    
    $
    15,910
    
    
    $
    111,477
 Year Ended December 31, 2008Energy and
    
    
    
    
    
    
    UnallocatedSmartgrid
    
    
    Energy
    
    
    CorporateSolutions
    
    
    Services
    
    
    Costs
    
    
    TotalRevenues
    
    $
    115,993
    
    
    $
    19,447
    
    
    $
    
    
    
    $
    135,440Cost of sales
    
    
    77,550
    
    
    
    14,181
    
    
    
    
    
    
    
    91,731Gross profit
    
    
    38,443
    
    
    
    5,266
    
    
    
    
    
    
    
    43,709Operating expenses:General and administrative
    
    
    22,113
    
    
    
    1,900
    
    
    
    5,008
    
    
    
    29,021Selling, marketing and service
    
    
    5,325
    
    
    
    23
    
    
    
    
    
    
    
    5,348Depreciation and amortization
    
    
    1,774
    
    
    
    251
    
    
    
    6
    
    
    
    2,031Total operating expenses
    
    
    29,212
    
    
    
    2,174
    
    
    
    5,014
    
    
    
    36,400Operating income (loss)
    
    
    9,231
    
    
    
    3,092
    
    
    
    (5,014
    )
    
    
    7,309Other income and (expenses):Equity income
    
    
    
    
    
    
    3,490
    
    
    
    
    
    
    
    3,490Management fees
    
    
    
    
    
    
    556
    
    
    
    
    
    
    
    556Interest income and other income
    
    
    82
    
    
    
    26
    
    
    
    382
    
    
    
    490Interest expense
    
    
    (140
    )
    
    
    
    
    
    
    (147
    )
    
    
    (287
    )Income (loss) before income taxes
    
    $
    9,173
    
    
    $
    7,164
    
    
    $
    (4,779
    )
    
    $
    11,558Total capital expenditures
    
    $
    17,897
    
    
    $
    1,126
    
    
    $
    
    
    
    $
    19,023Total investment in
unconsolidated affiliate
    
    $
    
    
    
    $
    4,106
    
    
    $
    
    
    
    $
    4,106Total assets
    
    $
    79,485
    
    
    $
    16,731
    
    
    $
    14,618
    
    
    $
    110,834
 F-39




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##### Table of Contents



Year Ended December 31, 2007Energy and
    
    
    
    
    
    
    UnallocatedSmartgrid
    
    
    Energy
    
    
    CorporateSolutions
    
    
    Services
    
    
    Costs
    
    
    TotalRevenues
    
    $
    94,923
    
    
    $
    16,189
    
    
    $
    
    
    
    $
    111,112Cost of sales
    
    
    65,015
    
    
    
    11,790
    
    
    
    
    
    
    
    76,805Gross profit
    
    
    29,908
    
    
    
    4,399
    
    
    
    
    
    
    
    34,307Operating expenses:General and administrative
    
    
    16,895
    
    
    
    1,581
    
    
    
    4,161
    
    
    
    22,637Selling, marketing and service
    
    
    3,538
    
    
    
    37
    
    
    
    
    
    
    
    3,575Depreciation and amortization
    
    
    1,285
    
    
    
    205
    
    
    
    10
    
    
    
    1,500Restructuring charges
    
    
    
    
    
    
    
    
    
    
    14,139
    
    
    
    14,139Total operating expenses
    
    
    21,718
    
    
    
    1,823
    
    
    
    18,310
    
    
    
    41,851Operating income (loss)
    
    
    8,190
    
    
    
    2,576
    
    
    
    (18,310
    )
    
    
    (7,544
    )Other income and (expenses):Equity income
    
    
    
    
    
    
    2,774
    
    
    
    
    
    
    
    2,774Management fees
    
    
    
    
    
    
    423
    
    
    
    
    
    
    
    423Interest income and other income
    
    
    305
    
    
    
    409
    
    
    
    827
    
    
    
    1,541Interest expense
    
    
    (7
    )
    
    
    (7
    )
    
    
    (43
    )
    
    
    (57
    )Income (loss) before income taxes
    
    $
    8,488
    
    
    $
    6,175
    
    
    $
    (17,526
    )
    
    $
    (2,863
    )Total capital expenditures
    
    $
    2,338
    
    
    $
    383
    
    
    $
    
    
    
    $
    2,721Total investment in unconsolidated affiliate
    
    $
    
    
    
    $
    3,652
    
    
    $
    
    
    
    $
    3,652Total assets
    
    $
    71,010
    
    
    $
    16,900
    
    
    $
    25,113
    
    
    $
    113,023
 To date, nearly all our revenues have been derived from sales to customers within the United
States.
 16.
    
    Unaudited Quarterly Consolidated Financial DataThe following table illustrates selected unaudited consolidated quarterly statement of
operations data for the years ended December 31, 2009 and 2008. In our opinion, this unaudited
information has been prepared on substantially the same basis as the consolidated financial
statements appearing elsewhere in this Annual Report on Form 10-K and includes all adjustments
(consisting of normal recurring adjustments) necessary to present fairly the unaudited
consolidated quarterly
data. The unaudited consolidated quarterly data should be read together with the audited
consolidated financial statements and notes thereto appearing elsewhere in this Annual Report
on Form 10-K. The results for any quarter are not necessarily indicative of results for any
future period.
 F-40




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##### Table of Contents



Quarter in 2009First
    
    
    Second
    
    
    Third
    
    
    FourthTotal revenues
    
    $
    19,720
    
    
    $
    25,135
    
    
    $
    27,721
    
    
    $
    29,964Operating income (loss)
    
    
    (1,539
    )
    
    
    651
    
    
    
    2,199
    
    
    
    1,779Other income (expense), net
    
    
    (16
    )
    
    
    (9
    )
    
    
    (2
    )
    
    
    28Equity income
    
    
    477
    
    
    
    401
    
    
    
    429
    
    
    
    860Income taxes
    
    
    (24
    )
    
    
    (26
    )
    
    
    (423
    )
    
    
    (480
    )Income (loss) from continuing operations
    
    
    (1,102
    )
    
    
    1,017
    
    
    
    2,203
    
    
    
    2,187Income (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    
    (1,102
    )
    
    
    1,017
    
    
    
    2,203
    
    
    
    2,187Less: Income attributable to noncontrolling interest
    
    
    (34
    )
    
    
    (331
    )
    
    
    (549
    )
    
    
    (598
    )Income (loss) attributable to PowerSecure
International
    
    $
    (1,136
    )
    
    $
    686
    
    
    $
    1,654
    
    
    $
    1,589Basic earnings per common share:Income (loss) from continuing operations
    
    $
    (0.07
    )
    
    $
    0.04
    
    
    $
    0.10
    
    
    $
    0.09Income (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Basic earnings per common share
    
    $
    (0.07
    )
    
    $
    0.04
    
    
    $
    0.10
    
    
    $
    0.09Diluted earnings per common share:Income (loss) from continuing operations
    
    $
    (0.07
    )
    
    $
    0.04
    
    
    $
    0.09
    
    
    $
    0.09Income (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted earnings per common share
    
    $
    (0.07
    )
    
    $
    0.04
    
    
    $
    0.09
    
    
    $
    0.09
 Quarter in 2008First
    
    
    Second
    
    
    Third
    
    
    FourthTotal revenues
    
    $
    33,575
    
    
    $
    41,952
    
    
    $
    33,557
    
    
    $
    26,356Operating income (loss)
    
    
    976
    
    
    
    3,786
    
    
    
    1,973
    
    
    
    574Other income, net
    
    
    325
    
    
    
    230
    
    
    
    171
    
    
    
    33Equity income
    
    
    964
    
    
    
    1,227
    
    
    
    839
    
    
    
    460Income taxes
    
    
    (311
    )
    
    
    (303
    )
    
    
    (70
    )
    
    
    (139
    )Income (loss) from continuing operations
    
    
    1,954
    
    
    
    4,940
    
    
    
    2,913
    
    
    
    928Income (loss) from discontinued operations
    
    
    (77
    )
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    1,877
    
    
    $
    4,940
    
    
    $
    2,913
    
    
    $
    928Less: Income attributable to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) attributable to PowerSecure
International
    
    $
    1,877
    
    
    $
    4,940
    
    
    $
    2,913
    
    
    $
    928Basic earnings per common share:Income from continuing operations
    
    $
    0.12
    
    
    $
    0.29
    
    
    $
    0.17
    
    
    $
    0.05Income (loss) from discontinued operations
    
    
    (0.01
    )
    
    
    
    
    
    
    
    
    
    
    Basic earnings per common share
    
    $
    0.11
    
    
    $
    0.29
    
    
    $
    0.17
    
    
    $
    0.05Diluted earnings per common share:Income (loss) from continuing operations
    
    $
    0.11
    
    
    $
    0.28
    
    
    $
    0.17
    
    
    $
    0.05Income (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted earnings per common share
    
    $
    0.11
    
    
    $
    0.28
    
    
    $
    0.17
    
    
    $
    0.05
  F-41




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##### Table of Contents



SCHEDULE II
 POWERSECURE INTERNATIONAL, INC.
 VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2009, 2008 and 2007
(In thousands)
 Additions:Balance at
    
    Charged to
    
    
    
    
    
    Balance atBeginning
    
    Operating
    
    Deductions:
    
    End ofDescription
    
    of Period
    
    Expenses
    
    Write-offs
    
    PeriodAllowance for doubtful accounts:Year ended December 31, 2009
    
    $
    276
    
    
    $
    53
    
    
    $
    (30
    ) (1)
    
    $
    299Year ended December 31, 2008
    
    
    262
    
    
    
    216
    
    
    
    (202
    ) (1)
    
    
    276Year ended December 31, 2007
    
    
    225
    
    
    
    43
    
    
    
    (6
    ) (1)
    
    
    262Inventory reserve:Year ended December 31, 2009
    
    $
    211
    
    
    $
    1,618
    
    
    $
    (52
    )(2)
    
    $
    1,777Year ended December 31, 2008
    
    
    128
    
    
    
    122
    
    
    
    (39
    )(2)
    
    
    211Year ended December 31, 2007
    
    
    202
    
    
    
    67
    
    
    
    (141
    )(2)
    
    
    128
 
 (1)
    
    Represents amounts written off as uncollectible, less recoveries.(2)
    
    Represents amounts written off against reserve, less recoveries.




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##### Table of Contents



MARCUM MIDSTREAM 1995-2 BUSINESS TRUST AND SUBSIDIARY
 TABLE OF CONTENTS
 PageREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    
    G-2CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2009 AND 2008
    
    
    G-3CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED
DECEMBER 31, 2009, 2008 AND 2007
    
    
    G-4CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
    
    
    G-5CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 2009, 2008 AND 2007
    
    
    G-6NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    G-7
 G-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     HEIN & ASSOCIATES LLP
 
 G-2




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##### Table of Contents



MARCUM MIDSTREAM 1995-2 BUSINESS TRUST AND SUBSIDIARY
 
 CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2009 AND 2008
 2009
    
    
    2008ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    1,058,878
    
    
    $
    3,229,909Trade receivables (net of allowance for doubtful accounts of
$9,454 and $9,454, respectively)
    
    
    1,848,767
    
    
    
    1,392,947Prepaid expenses
    
    
    34,500
    
    
    
    22,000Total current assets
    
    
    2,942,145
    
    
    
    4,644,856PROPERTY, PLANT AND EQUIPMENT, AT COST:Wells and storage tanks
    
    
    9,752,032
    
    
    
    8,218,524Equipment
    
    
    4,446,830
    
    
    
    4,184,738Land and improvements
    
    
    2,231,358
    
    
    
    2,005,330Total
    
    
    16,430,220
    
    
    
    14,408,592Less accumulated depletion and depreciation
    
    
    7,551,067
    
    
    
    6,340,984Property, plant and equipment, net
    
    
    8,879,153
    
    
    
    8,067,608OTHER ASSETS:Deferred loan charges (net of accumulated amortization
of $10,540 and $878, respectively)
    
    
    
    
    
    
    9,662Intangible assets (net of accumulated amortization
of $14,168 and $12,834, respectively)
    
    
    5,832
    
    
    
    7,166Total other assets
    
    
    5,832
    
    
    
    16,828TOTAL
    
    $
    11,827,130
    
    
    $
    12,729,292LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Current portion of note payable (Note 3)
    
    $
    801,029
    
    
    $
    749,396Accounts payable
    
    
    260,840
    
    
    
    292,112Administration fee
    
    
    14,125
    
    
    
    14,125Management fee
    
    
    212,993
    
    
    
    157,087Operator fee
    
    
    47,204
    
    
    
    40,538Accrued and other liabilities
    
    
    96,743
    
    
    
    139,429Total current liabilities
    
    
    1,432,934
    
    
    
    1,392,687LONG-TERM NOTE PAYABLE, NET OF
CURRENT PORTION (Note 3)
    
    
    2,749,575
    
    
    
    3,550,604COMMITMENTS AND CONTINGENCIES (Note 4)SHAREHOLDERS EQUITY
    
    
    7,644,621
    
    
    
    7,786,001TOTAL
    
    $
    11,827,130
    
    
    $
    12,729,292
 See notes to consolidated financial statements.
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MARCUM MIDSTREAM 1995-2 BUSINESS TRUST AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
 2009
    
    
    2008
    
    
    2007REVENUE:Disposal fees and mineral product sales
    
    $
    12,962,073
    
    
    $
    17,874,921
    
    
    $
    13,135,040Interest and other
    
    
    6,770
    
    
    
    31,023
    
    
    
    70,787Total revenue
    
    
    12,968,843
    
    
    
    17,905,944
    
    
    
    13,205,827COSTS AND EXPENSES:Cost of operations
    
    
    4,944,942
    
    
    
    5,983,306
    
    
    
    3,454,204Depreciation and amortization
    
    
    1,211,417
    
    
    
    1,087,606
    
    
    
    761,793General and administrative costs
    
    
    286,149
    
    
    
    275,511
    
    
    
    390,280Administration fee
    
    
    56,500
    
    
    
    56,500
    
    
    
    56,500Management fee
    
    
    648,104
    
    
    
    893,746
    
    
    
    656,752Operator fee
    
    
    188,817
    
    
    
    162,150
    
    
    
    132,102Interest and finance charges
    
    
    274,294
    
    
    
    192,784
    
    
    
    104,738Total costs and expenses
    
    
    7,610,223
    
    
    
    8,651,603
    
    
    
    5,556,369NET INCOME
    
    $
    5,358,620
    
    
    $
    9,254,341
    
    
    $
    7,649,458
 See notes to consolidated financial statements.
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MARCUM MIDSTREAM 1995-2 BUSINESS TRUST AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
 ShareholdersEquityBALANCE, JANUARY 1, 2007
    
    $
    7,232,202Cash distributions paid
    
    
    (7,100,000
    )Net income
    
    
    7,649,458BALANCE, DECEMBER 31, 2007
    
    
    7,781,660Cash distributions paid
    
    
    (9,250,000
    )Net income
    
    
    9,254,341BALANCE, DECEMBER 31, 2008
    
    
    7,786,001Cash distributions paid
    
    
    (5,500,000
    )Net income
    
    
    5,358,620BALANCE, DECEMBER 31, 2009
    
    $
    7,644,621
 See notes to consolidated financial statements.
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MARCUM MIDSTREAM 1995-2 BUSINESS TRUST AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
 2009
    
    
    2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    5,358,620
    
    
    $
    9,254,341
    
    
    $
    7,649,458Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    1,211,417
    
    
    
    1,087,606
    
    
    
    761,793Changes in other assets and liabilities:Trade receivables, net
    
    
    (455,820
    )
    
    
    323,194
    
    
    
    (506,523
    )Accounts payable
    
    
    (31,272
    )
    
    
    (186,410
    )
    
    
    232,810Management fee
    
    
    55,906
    
    
    
    (27,711
    )
    
    
    52,437Operator fee
    
    
    6,666
    
    
    
    5,918
    
    
    
    2,787Accrued expenses
    
    
    (42,686
    )
    
    
    38,808
    
    
    
    14,926Prepaid expenses and other
    
    
    (2,838
    )
    
    
    (1,025
    )
    
    
    (4,970
    )Net cash provided by operating activities
    
    
    6,099,993
    
    
    
    10,494,721
    
    
    
    8,202,718CASH FLOWS FROM INVESTING ACTIVITIES:Well development and enhancement
    
    
    (1,923,201
    )
    
    
    (224,205
    )
    
    
    (3,028,648
    )Other capital expenditures
    
    
    (98,427
    )
    
    
    (562,931
    )
    
    
    (269,838
    )Net cash used in investing activities
    
    
    (2,021,628
    )
    
    
    (787,136
    )
    
    
    (3,298,486
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from note payable
    
    
    
    
    
    
    4,300,000
    
    
    
    3,100,000Payments on note payable
    
    
    (749,396
    )
    
    
    (2,922,603
    )
    
    
    (1,090,195
    )Distributions to preferred shareholders
    
    
    (5,500,000
    )
    
    
    (9,250,000
    )
    
    
    (7,100,000
    )Net cash used in financing activities
    
    
    (6,249,396
    )
    
    
    (7,872,603
    )
    
    
    (5,090,195
    )NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
    
    
    (2,171,031
    )
    
    
    1,834,982
    
    
    
    (185,963
    )CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR
    
    
    3,229,909
    
    
    
    1,394,927
    
    
    
    1,580,890CASH AND CASH EQUIVALENTS AT END OF YEAR
    
    $
    1,058,878
    
    
    $
    3,229,909
    
    
    $
    1,394,927
 See notes to consolidated financial statements.
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MARCUM MIDSTREAM 1995-2 BUSINESS TRUST AND SUBSIDIARY
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
 1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Organization The accompanying consolidated financial statements includes the accounts of
Marcum Midstream 1995-2 Business Trust and its wholly-owned subsidiary, Marcum Midstream 1995-2
EC Holding, LLC (MM95-2 EC Holding), collectively referred to as the Trust. The Trust
commenced operations on February 8, 1996. The Trust owns and operates six injection wells at
five oil field production water disposal facilities located in northeastern Colorado. MM95-2
EC Holding was formed by the Trust in July 2002 for the purpose of acquiring additional
operating assets.
 WaterSecure Holdings, Inc. (WaterSecure), a wholly-owned subsidiary of PowerSecure
International, Inc., is the managing trustee of the Trust, and Conquest Oil Company
(Conquest) operates the Trust assets under an operating agreement with the Trust.
Collectively, WaterSecure and Conquest, along with their affiliates, owned 178.2, or 78.8%, of
the 226 outstanding shares of the Trust at January 1, 2008. In July 2008, WaterSecure and
Conquest purchased additional shares of the Trust, thereby increasing their collective
ownership (along with their affiliates) to 197.1 shares, or 87.2%, of the 226 outstanding
shares of the Trust at December 31, 2009 and 2008.
 Principles of Consolidation The consolidated financial statements include the accounts of
the Trust and its subsidiary. All intercompany accounts and transactions have been eliminated
in consolidation.
 Revenue Recognition Revenues from disposal fees are recognized upon delivery and acceptance
of water to be disposed. Revenues from mineral product sales are recognized upon delivery to
the customer. Revenue amounts shown in the accompanying consolidated statements of income are
net of severance and conservation taxes and certain royalty interests.
 Statements of Cash Flows The Trust considers all highly liquid investments with an original
maturity of three months or less at time of purchase to be cash equivalents. The Trust
maintains its cash in bank deposit accounts which, at times, may exceed federally insured
limits. The Trust has not experienced any losses in such accounts. The Trust does not believe
it is exposed to any significant credit risk on cash and cash equivalents. Supplemental
statement of cash flows information is as follows:
 2009
    
    
    2008
    
    
    2007Cash paid for interest
    
    $
    264,633
    
    
    $
    186,936
    
    
    $
    102,253
 Statements of Shareholders EquityThere are 226 shares of the Trust authorized and
outstanding. There are no other authorized forms of ownership interest of the Trust.
 Receivables and Credit Policies Trade receivables consist of uncollateralized customer
obligations due under normal trade terms requiring payment within 30 days of the invoice date.
The Trust reviews trade receivables periodically and reduces the carrying amount by a valuation
allowance that reflects managements best estimate of the amount that may not be collectible.
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Property, Plant and Equipment Property, plant and equipment is stated at cost. The majority
of the Trust operating assets are depreciated based upon a units-of-production method while
equipment and land improvements are depreciated on the straight-line basis over estimated
useful lives ranging from 5 to 15 years. Management has evaluated future asset retirement
obligations and has concluded that estimated asset retirement obligations of the Trust are not
material.
 Other Intangibles Other intangible assets are being amortized on the straight-line basis
over 15 years.
 Income Taxes For federal and state income tax purposes, the Trust is treated as a
partnership and is not subject to federal or state income taxes. Accordingly, no provision for
federal income taxes is included in the financial statements of the Trust and the tax effects
of its activities accrue to the shareholders. The Trusts tax returns, the qualification of
the Trust as a partnership for federal income tax purposes, and the amount of taxable income or
loss are subject to examination by federal and state taxing authorities. If such examinations
result in changes to the Trusts taxable income or tax status, the tax liability of the
shareholders could change accordingly.
 The Financial Accounting Standards Board issued new guidance on accounting for uncertainty in
income taxes. The Trust adopted this new guidance for the year ended December 31, 2009.
Management evaluated the Trusts tax positions and concluded that the Trust had taken no
uncertain tax positions that require adjustment to the financial statements to comply with the
provisions of this guidance. There are currently no federal or state income tax examinations
underway. The Trusts tax years of 2006 and forward are subject to examination by federal and
state taxing authorities.
 Use of Estimates The preparation of the Trusts financial statements in conformity with
accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the amounts reported in these financial statements
and accompanying notes. Actual results could differ from those estimates.
 Major Customers Three customers have historically generated the majority of the Trusts
disposal fee revenues. In addition, revenues from mineral product sales are currently
generated from purchases by one customer, however management believes other customers would
purchase such products at substantially the same volumes and at prevailing market prices in the
event the current customer discontinued purchasing from the Trust.
 Subsequent Events The Trust has evaluated subsequent events through February 25, 2010, the
date on which the financial statements were available to be issued.
 2.
    
    WELL DEVELOPMENT COSTS
 In the fourth quarter of 2006, the Trust acquired additional land for expansion of its
operating activities. During 2007, the Trust developed a sixth well on the land. The well was
placed into service in December 2007. Total cost of the development (including land) was
$3,042,000, and assets were allocated as follows:
 Well and storage tanks
    
    $
    1,486,000Equipment
    
    
    1,037,000Land and improvements
    
    
    519,000Total
    
    $
    3,042,000
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In the first quarter of 2009, the Trust expanded its operating capacity by drilling a
seventh well at an existing facility site. The seventh well was placed into service in March
2009. Total cost of the development was $1,522,000, and the assets were allocated entirely to
wells and storage tanks.
 In each case, the well development was financed principally through a term loan with Bank of
Choice, as described further in Note 3.
 3.
    
    NOTE PAYABLE
 During 2007, in order to finance the development of the Trusts sixth operating well and to
refinance the then outstanding principal balance on an existing loan, the Trust entered into a
Term Loan Agreement (the 2007 Loan) with Bank of Choice in the aggregate principal amount of
$3,100,000, which was evidenced by a note payable to the lender (the 2007 Note). Of the
total proceeds from the 2007 Loan, $537,000 was used to refinance an existing loan and the
balance was used to fund the well development costs described in Note 2.
 Interest accrued on the unpaid balance of the 2007 Note at a fixed annual rate of 7.2% per year
and required monthly principal and interest payments to the lender in the amount of $61,837
through the maturity date of August 28, 2012. The 2007 Note was collateralized by a first
priority interest in the assets of the sixth well. Fees incurred in connection with the 2007
Loan in the amount of $7,455 were deferred and amortized over the first year of the loan.
 In December 2008, in order to finance the development of a seventh operating well and to
refinance the remaining principal and extend the maturity date on the 2007 Loan, the Trust
entered into a new Term Loan Agreement (the 2008 Loan) with Bank of Choice in the aggregate
principal amount of $4,300,000, which was evidenced by a promissory note payable to the order
of the lender (the 2008 Note). Of the total proceeds of the 2008 Loan, $2,429,000 was used
to refinance the 2007 Loan, approximately $1,522,000 was used to finance the development of a
seventh operating well and the balance was used to acquire other equipment items in 2009.
 Interest accrues on the unpaid balance of the 2008 Note at a fixed annual rate of 6.59% and the
2008 Loan calls for monthly principal and interest payments to the lender in the amount of
$84,502 through the maturity date of December 9, 2013. The 2008 Note is collateralized by a
first priority interest in all assets of the Trust including accounts receivable, inventory and
equipment and the assets of the seventh well. Fees incurred in connection with the 2008 Loan
in the amount of $10,540 were deferred and were amortized over the first year of the loan. At
December 31, 2009, scheduled principal payments on the 2008 Note payable over the remaining
term of the 2008 Note are as follows:
 Years Ended
    
    PrincipalDecember 31,
    
    Payments2010
    
    $
    801,0292011
    
    
    856,2202012
    
    
    915,2132013
    
    
    978,142$
    3,550,604
 4.
    
    COMMITMENTS AND CONTINGENCIES
 In December 2002, after the Trust completed an acquisition of certain operating assets
including real property, the Trust discovered certain contamination of the soils under the
site. Shortly thereafter, the
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Trust filed a complaint against the seller in Colorado State
District Court, for enforcement of seller indemnifications in the asset purchase agreement. The
Trust engaged an environmental engineering firm to evaluate the extent of the contamination,
and that firm concluded that approximately 1% of the property area had been contaminated. The
environmental firm developed, and the Trust implemented an active remediation plan in 2004 that
consisted of installation of a soil vapor extraction system with periodic testing of
groundwater and air samples. Trust management currently expects the remediation efforts and
quarterly groundwater and air sampling will continue throughout 2010, until the contamination
has been fully remediated and the assets are in full compliance with applicable environmental
requirements. Although no assurance can be given, Trust management believes the contamination
will be successfully remediated using the active remediation plan described above, with no
material adverse effects to the financial position or results of operations of the Trust.
 In early 2005, the Trust began a planned upgrade to various components of another of its
operating facilities. As the improvement project began, Trust management found that soils under
the facility had small levels of contamination. The environmental firm used in the above
remediation was engaged to direct the Trust on the appropriate course to return the soils to a
level in compliance within regulatory limits. The environmental firm initially recommended,
and the regulatory authorities did not indicate otherwise, that no active remediation process
was likely necessary due to the small levels of contamination, the limited area impacted, and
the cost to implement a remediation process. Further, the environmental firm indicated that
naturally occurring processes would likely eliminate the contamination over time, although
those processes may occur over a period of several years. Upon further review of the site data
from 2008 and 2009, the environmental firm proposed, and the Trust will implement, an active
form of remediation in 2010 to accelerate the elimination of the contamination. The remedial
method consists of a soil vapor extraction and air sparge system, similar in nature to the
system successfully implemented above, but with the added component of air sparging. Trust
management currently expects the system will operate for two years, followed by one year of
quarterly groundwater and air monitoring and testing. Although no assurance can be given,
Trust management believes the contamination will be successfully remediated using the active
remediation plan described above, with no material adverse effects to the financial position or
results of operations of the Trust.
 The Trust is subject to regulations and reporting requirements covering water quality, land
use, the storage of oil and water, and the disposal of water. Compliance is continually
assessed by Trust management. Regulations, interpretations and enforcement policies can
change, which may adversely impact the Trusts operations in the future. Additionally, from
time to time, in the normal course of operations, oil or water spills or releases into the
environment may occur. The Trust must pay all or a portion of the cost to remediate sites
where such environmental contamination has occurred as a result of activities of the Trust. To
date, the Trust is not aware of any such environmental contamination caused by the activities
of the Trust that would have material adverse effects to the financial position or
results of operations of the Trust. However, the nature of environmental contamination matters
is inherently uncertain, and Trust management cannot provide any guarantee or assurance that
all environmental contamination has been identified, or that the current or future remediation
efforts will be successful. Additional contamination, either currently undetected or
undetectable, or arising in the future, could later be discovered.
 In January 2008, two of the Trusts facilities suffered explosions and fire damage in separate
incidents. One of the facilities suffered significant damage and was temporarily shut down for
approximately two weeks. The other facility suffered minimal damage, but was also limited in
its operating activities for a short period. In the most serious incident, one of the
operators employees and two agents of trucking companies bringing water to the facility were
hospitalized with injuries suffered in the explosion and fire.
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As a result of these incidents, the Trust completed a series of changes recommended by safety
experts to minimize the risk of future explosions or fires. During the year ended December 31,
2008, the Trust incurred $152,000 of uninsured fire expense and incurred $388,000 of safety
improvement expenses. The Trust continues to incur operational expenses related to safety and
monitoring and expects such expenses to continue in the future. However, due to the nature of
the Trusts activities, the risk of future fires or explosions cannot be fully eliminated.
Damages resulting from future fires or explosions may result in injury or loss of human life,
extensive loss of or damage to equipment and assets of the Trust, its customers and agents, and
could result in temporary or permanent shut down of one or more of the Trusts facilities.
 In January 2010, a civil action was filed in Weld County, District Court, State of Colorado, by
the two trucking company agents injured in the January 2008 explosion and fire described above.
The action names Conquest, as operator (and presumably on behalf of the Trust), along with an
unrelated party as defendants. The action alleges, among other things, that the operator was
negligent in allowing what it should have known to be highly flammable hazardous liquid to be
disposed of at the Trusts disposal site and for allowing a dangerous condition to exist on the
Trusts property which would result in ignition of any highly flammable hazardous liquid
resulting in substantial risk of suffering injury. The action seeks recovery of plaintiffs
past and future economic loss, recovery of medical expenses, unspecified permanent injury, and
pain and suffering.
 Management of the Trust intends to vigorously defend this action and intends to pursue any
appropriate claims against the other defendant and any other appropriate parties. Further, the
Trust maintains general liability insurance that management believes covers this claim.
Because of the inherent uncertainty of litigation, the adequacy of insurance, the merits of
potential cross-claims against other parties, and the amount of damages claimed, management of
the Trust is unable to predict the outcome the resolution of this claim will have on the
business, financial position or results of operations of the Trust or estimate the range of
potential losses, if any. Accordingly, no amount has been accrued in the financial statements
of the Trust related to this matter.
 5.
    
    TRUST GENERAL AND ADMINISTRATIVE COSTS
 Pursuant to the Second Amended and Restated Declaration of Trust (the Restated Declaration),
the Trust incurred $221,000, $192,000 and $282,000 of Active Trustee and Trust Officer
consulting and retainer fees and expense reimbursements paid to WaterSecure, Conquest and their
affiliates during the years ended December 31, 2009, 2008 and 2007, respectively.
 6.
    
    CASH DISTRIBUTIONS AND PROFIT ALLOCATIONS
 Cash distributions and profit and loss allocations are determined by terms set forth in the
Restated Declaration. Generally, the Trust distributes all cash provided by operating
activities less amounts paid for acquisitions and capital expenditures, and debt service
requirements. All profits and cash distributions are allocated to shareholders in amounts
equal to their percentage ownership of the shares of the Trust.
 7.
    
    OTHER RELATED PARTY TRANSACTIONS
 Pursuant to the Restated Declaration, WaterSecure, as managing trustee, is entitled to
compensation for services rendered to the Trust. The compensation includes an annual Trust
administration fee equal to 1% of the total initial capital subscriptions of the shareholders
and an annual Trust management fee of 5% of Trust revenues, paid quarterly in arrears. The
Trust management fee is reduced to 4% for any quarter that Trust revenues during the prior four
consecutive calendar quarters do not exceed $3 million.
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Conquest, as operator, has been
reimbursed for direct operating expenses incurred during the years ended December 31, 2009,
2008 and 2007 in the amount of $1,684,000, $1,823,000 and $1,211,000, respectively, which costs
are included in cost of operations in the accompanying statements of income, and is paid an
annual operator fee (currently $175,000 ($25,000 per injection well), adjusted upward or
downward annually based on changes in the consumer price index). In December 1999, Conquest
and WaterSecure agreed to share equally all future management fees, administrative fees and
operator fees received from the Trust. Accounts payable at December 31, 2009 and 2008 includes
a liability in the amount of $91,000 and $4,000, respectively, payable to Conquest for
unreimbursed direct operating expenses.
 In September 2003, the Trust entered into a License Agreement (the License Agreement) with an
entity wholly owned by the principals of Conquest, the Operator. The License Agreement runs
month-to-month and provides the Trust with an alternative facility, owned by the Conquest
principals, to dispose of water for certain customers of the Trust. The Trust is obligated to
pay a monthly fee to the Conquest principals of $5,000 for rights under the License Agreement.
The Trust earns revenues from disposal fees for water disposed at that facility for the Trusts
customers. During the years ended December 31, 2009 and 2008, the Trust paid a net $9,000 and
$25,000, respectively; and during the year ended December 31, 2007, the Trust earned a net
$17,000 under the License Agreement, which amounts are included in interest and other revenues
in the Trusts consolidated statements of income. In 2009, the License Agreement was
terminated and no amounts will be paid or received under the agreement in the future.
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##### Table of Contents



SIGNATURES
  POWERSECURE INTERNATIONAL, INC.By:
    /s/ SIDNEY HINTONSidney HintonPresident and Chief Executive OfficerDate: March 11, 2010 POWER OF ATTORNEY
   Signature
    
    Title
    
    Date/s/ SIDNEY HINTON

Sidney Hinton
    
    President, Chief Executive Officer
and Director
(Principal Executive Officer)
    
    March 11, 2010/s/ CHRISTOPHER T. HUTTER

Christopher T. Hutter
    
    Executive Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary
(Principal Financial Officer)
    
    March 11, 2010/s/ GARY J. ZUIDERVEEN

Gary J. Zuiderveen
    
    Vice President of Financial Reporting, 
Controller, Principal Accounting Officer, 
Assistant Treasurer and Secretary
(Principal Accounting Officer)
    
    March 11, 2010/s/ ANTHONY D. PELL

Anthony D. Pell
    
    Director
    
    March 11, 2010/s/ KEVIN P. COLLINS

Kevin P. Collins
    
    Director
    
    March 11, 2010/s/ JOHN A. (ANDY) MILLER

John A. (Andy) Miller
    
    Director
    
    March 11, 2010/s/ THOMAS J. MADDEN III

Thomas J. Madden III
    
    Director
    
    March 11, 2010
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POWERSECURE INTERNATIONAL, INC.
Form 10-K
For the Year Ended December 31, 2009
 
 EXHIBIT INDEX
 Number
    
    Description(3.1)
    
    Second Restated Certificate of Incorporation of Registrant.
(Incorporated by reference to Exhibit 4.1 to Registrants Registration
Statement on Form S-3, Registration No. 333-96369.)(3.2)
    
    Certificate of Ownership and Merger, as filed with the
Secretary of State of the State of Delaware on August 22, 2007, merging
PowerSecure International, Inc. into Registrant and amending Registrants
Second Amended and Restated Certificate of Incorporation to change the
Registrants name to PowerSecure International, Inc. (Incorporated by reference
to Exhibit 3.1 to Registrants Current Report on Form 8-K filed on August 22,
2007.)(3.3)
    
    Amended and Restated By-Laws of Registrant. (Incorporated by
reference to Exhibit 3.1 to Registrants Current Report on Form 8-K filed on
April 10, 2009.)(4.1)
    
    Specimen Common Stock Certificate. (Incorporated by reference
to Exhibit 4.1 to Registrants Registration Statement on Form S-18,
Registration No. 33-44558.)(4.2)
    
    Amended and Restated Rights Agreement, dated as of November
30, 2001, between Registrant and Computershare Investor Services, LLC.
(Incorporated by reference to Exhibit 4.1 to Registrants Registration
Statement on Form 8-A/A, Amendment No. 5, filed November 30, 2001.)(4.3)
    
    Amendment No. 1, dated as of April 22, 2004, to Amended and
Restated Rights Agreement between Registrant and ComputerShare Investor
Services, LLC. (Incorporated by reference to Exhibit 10.6 to Registrants
Current Report on Form 8-K filed May 6, 2004).(4.4)
    
    Amendment No. 2, dated as of March 29, 2006, to Amended and
Restated Rights Agreement between Registrant and ComputerShare Investor
Services, LLC. (Incorporated by reference to Exhibit 10.3 to Registrants
Current Report on Form 8-K filed March 30, 2006).(4.5)
    
    Form of Registration Rights Agreement, dated as of March 29,
2006, by and among Registrant and the investors named therein. (Incorporated by
reference to Exhibit 10.5 to Registrants Current Report on Form 8-K filed
March 30, 2006).(10.1)
    
    Separation Agreement, dated as of April 16, 2007, between Registrant and W.
Phillip Marcum (Incorporated by reference to Exhibit 10.1 to Registrants
Current Report on Form 8-K, filed April 20, 2007)*(10.2)
    
    Registrants 1998 Stock Incentive Plan, amended and restated as of June 12,
2006. (Incorporated by reference to Exhibit 4.3 to Registrants Registration
Statement on Form S-8, Registration No. 333-134938.)*(10.3)
    
    Form of Incentive Stock Option Agreement under the Registrants 1998 Stock
Incentive Plan, as amended. (Incorporated by reference to Exhibit 10.1 to
Registrants Current Report on Form 8-K, filed August 25, 2004)*(10.4)
    
    Form of Non-Qualified Stock Option Agreement under the Registrants 1998
Stock Incentive Plan, as amended. (Incorporated by reference to Exhibit 10.2
to Registrants Current Report on Form 8-K, filed August 25, 2004)*
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Number
    
    Description(10.5)
    
    Form of Restricted Stock Agreement under the Registrants 1998 Stock
Incentive Plan, as amended. (Incorporated by reference to Exhibit 10.3 to
Registrants Current Report on Form 8-K, filed August 25, 2004)*(10.6)
    
    Registrants 2008 Stock Incentive Plan. (Incorporated by reference to Exhibit
10.1 to Registrants Registration Statement on Form S-8, Registration No.
333-151540.)(10.7)
    
    Form of Restricted Stock Agreement under the Registrants 2008 Stock
Incentive Plan. (Incorporated by reference to Exhibit 10.2 to Registrants
Current Report on Form 8-K filed June 13, 2008.)(10.8)
    
    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.)(10.9)
    
    Form of Non-Qualified Stock Option Agreement under the Registrants 2008
Stock Incentive Plan. (Incorporated by reference to Exhibit 10.4 to
Registrants Current Report on Form 8-K filed June 13, 2008.)(10.10)
    
    Form of Indemnification Agreement between Registrant and its directors and
executive officers. (Incorporated by reference to Exhibit 10.1 to Registrants
Current Report on Form 8-K filed April 10, 2009.)(10.11)
    
    Prototype  Basic Plan Document for the Metretek  Southern Flow Savings and
Investment Plan. (Incorporated by reference to Exhibit 4.7 to Registrants
Registration Statement on Form S-8, Registration No. 333-42698.)*(10.12)
    
    Adoption Agreement for the Metretek  Southern Flow Savings and Investment
Plan. (Incorporated by reference to Exhibit 4.8 to Registrants Registration
Statement on Form S-8, Registration No. 333-42698.)*(10.13)
    
    Second Amended and Restated Employment and Non-Competition Agreement, dated
as of December 17, 2009, by and between PowerSecure International, Inc. and
Sidney Hinton. (Incorporated by reference to Exhibit 10.1 to Registrants
Current Report on Form 8-K filed December 21, 2009)*(10.14)
    
    Restricted Stock Agreement, dated as of August 15, 2007, by and between
Registrant and Sidney Hinton. (Incorporated by reference to Exhibit 10.2 to
Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2007)*(10.15)
    
    Amendment No. 1 to Restricted Stock Agreement, dated as of December 31,
2007, by and between Registrant and Sidney Hinton. (Incorporated by reference to
Exhibit 10.1 to Registrants Current Report on Form 8-K filed January 7,
2008)*(10.16)
    
    Amendment No. 2 to Restricted Stock Agreement, dated as of December 17,
2009, by and between Registrant and Sidney Hinton. (Incorporated by reference to
Exhibit 10.2 to Registrants Current Report on Form 8-K filed December 21,
2009)*(10.17)
    
    First Amended and Restated Employment and Non-Competition Agreement, dated
as of December 31, 2008, by and between PowerSecure International, Inc. and
Christopher T. Hutter. (Incorporated by reference to Exhibit 10.2 to
Registrants Current Report on Form 8-K filed January 7, 2009)*(10.18)
    
    Restricted Stock Agreement, dated as of December 10, 2007, by and between
Registrant and Christopher T. Hutter. (Incorporated by reference to Exhibit
10.2 to Registrants Current Report on Form 8-K filed December 12, 2007)*(10.19)
    
    Amendment No. 1 to Restricted Stock Agreement, dated as of December 17,
2009, by and between Registrant and Christopher T. Hutter. (Incorporated by
reference to Exhibit 10.3 to Registrants Current Report on Form 8-K filed
December 21, 2009)*
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##### Table of Contents



Number
    
    Description(10.20)
    
    First Amended and Restated Employment and Non-Competition Agreement, dated
as of December 31, 2008, by and between PowerSecure International, Inc. and
Gary J. Zuiderveen. (Incorporated by reference to Exhibit 10.3 to Registrants
Current Report on Form 8-K filed January 7, 2009)*(10.21)
    
    Restricted Stock Agreement, dated as of December 10, 2007, to Employment and
Non-Competition Agreement by and between Registrant and Gary J. Zuiderveen.
(Incorporated by reference to Exhibit 10.4 to Registrants Current Report on
Form 8-K filed December 12, 2007)*(10.22)
    
    Amendment No. 1 to Restricted Stock Agreement, dated as of December 17,
2009, by and between Registrant and Gary J. Zuiderveen. (Incorporated by
reference to Exhibit 10.4 to Registrants Current Report on Form 8-K filed
December 21, 2009)*(10.23)
    
    Second Amended and Restated Employment and Non-Competition Agreement, dated
as of December 31, 2008, by and between Southern Flow Companies, Inc. and John
D. Bernard. (Incorporated by reference to Exhibit 10.4 to Registrants Current
Report on Form 8-K filed January 7, 2009)*(10.24)
    
    Summary Sheet of Compensation of Non-Employee Directors. (Filed herewith.)*(10.25)
    
    Credit Agreement, dated as of August 23, 2007, among Registrant, the
financial institutions from time to time parties thereto as lenders, and
Citibank, N.A., as administrative agent. (Filed herewith.)(10.26)
    
    First Amendment to Credit Agreement, dated as of January 17, 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 10.6 to Registrants Current Report on Form 8-K filed
January 23, 2008.)(10.27)
    
    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 quarter ended March 31, 2008.)(10.28)
    
    Third Amendment to Credit Agreement, dated as of November 13, 2008, among
PowerSecure International, Inc., as borrower, Citibank, N.A., as administrative
agent and lender, and SunTrust Bank and Branch Banking and Trust Company, as
lenders. (Incorporated by reference to Exhibit 10.2 to Registrants Current
Report on Form 8-K filed August 24, 2007.)**(10.29)
    
    Form of Security Agreement, dated as of August 23, 2007, by each of
Registrant and its active subsidiaries in favor of Citibank, N.A., as
administrative agent, as secured party. (Incorporated by reference to Exhibit
10.2 to Registrants Current Report on Form 8-K filed August 24, 2007.)(10.30)
    
    Form of First Amendment to Security Agreement, dated as of January 17, 2008,
by each of Registrant and its active subsidiaries in favor of Citibank, N.A.,
as administrative agent, as secured party. (Incorporated by reference to
Exhibit 10.4 to Registrants Current Report on Form 8-K filed January 23,
2008.)(10.31)
    
    Form of Guaranty, dated as of August 23, 2007, by each active subsidiary of
Registrant in favor of Citibank, N.A., as administrative agent. (Incorporated
by reference to Exhibit 10.3 to Registrants Current Report on Form 8-K filed
August 24, 2007.)
 X-3




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##### Table of Contents



Number
    
    Description(10.32)
    
    Term Credit Agreement, dated as of January 17, 2008, among Registrant, the
financial institutions from time to time parties thereto as lenders, and
Citibank, N.A., as administrative agent. (Filed herewith.)(10.33)
    
    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 quarter ended March 31, 2008.)(10.34)
    
    Form of First Amendment to Security Agreement, dated as of January 17, 2008,
by each of Registrant and its active subsidiaries in favor of Citibank, N.A.,
as administrative agent, as secured party. (Incorporated by reference to
Exhibit 10.4 to Registrants Current Report on Form 8-K filed January 23,
2008.)(10.35)
    
    Guaranty, dated as of January 17, 2008, by the active subsidiaries of
Registrant in favor of Citibank, N.A., as administrative agent. (Incorporated
by reference to Exhibit 10.5 to Registrants Current Report on Form 8-K filed
January 23, 2008.)(10.36)
    
    Form of Equipment Lease Agreement, dated as of December 22, 2008, between
SunTrust Equipment Finance & Leasing Corp., as lessor, and PowerSecure, Inc.,
as lessee. (Incorporated by reference to Exhibit 10.1 to Registrants Current
Report on Form 8-K filed December 30, 2008.)(10.37)
    
    Form of Equipment Lease Guaranty, dated as of December 22, 2008, by
Registrant in favor of SunTrust Equipment Finance & Leasing Corp. (Incorporated
by reference to Exhibit 10.2 to Registrants Current Report on Form 8-K filed
December 30, 2008.)(10.38)
    
    Master Lease Agreement, dated as of November 25, 2009, between BB&T
Equipment Finance Corporation, as lessor, and PowerSecure, Inc., as lessee.
(Incorporated by reference to Exhibit 10.1 to Registrants Current Report on
Form 8-K filed December 2, 2009.)(10.39)
    
    Master Lease Guaranty, dated as of November 25, 2009, by Registrant in favor
of BB&T Equipment Finance Corporation. (Incorporated by reference to Exhibit
10.2 to Registrants Current Report on Form 8-K filed December 2, 2009.)(10.40)
    
    Equipment Schedule Series A No. 1, dated as of November 27, 2009, between
BB&T Equipment Finance Corporation, as lessor, and PowerSecure, Inc., as
lessee. (Incorporated by reference to Exhibit 10.3 to Registrants Current
Report on Form 8-K filed December 2, 2009.)(10.41)
    
    Rider No. 1 to Equipment Schedule Series A No. 1, dated as of November 27,
2009, between BB&T Equipment Finance Corporation, as lessor, and PowerSecure,
Inc., as lessee. (Incorporated by reference to Exhibit 10.4 to Registrants
Current Report on Form 8-K filed December 2, 2009.)(10.42)
    
    Rider No. 2 to Equipment Schedule Series A No. 1, dated as of November 27,
2009, between BB&T Equipment Finance Corporation, as lessor, and PowerSecure,
Inc., as lessee. (Incorporated by reference to Exhibit 10.5 to Registrants
Current Report on Form 8-K filed December 2, 2009.)(10.43)
    
    PowerSecure, Inc. Key Employee Long-Term Retention Plan. (Incorporated by
reference to Exhibit 10.2 to Registrants Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 2006.)*(10.44)
    
    Real Estate Purchase Agreement, dated as of January 16, 2008, between
PowerSecure, Inc. and H & C Holdings, LLC. (Incorporated by reference to
Exhibit 10.1 to Registrants Current Report on Form 8-K filed January 23,
2008.)
 X-4




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##### Table of Contents



Number
    
    Description(10.45)
    
    Asset Purchase Agreement, dated as of March 14, 2008, between Registrant,
Metretek, Incorporated and Mercury Instruments LLC. (Incorporated by reference
to Exhibit 10.38 to Registrants Annual Report on Form 10-K for the year ended
December 31, 2007.)(14.1)
    
    Registrants Code of Ethics for Principal Executive Officer and Senior
Financial Officers. (Incorporated by reference to Exhibit 14.1 to Registrants
Annual Report on Form 10-K for the year ended December 31, 2003.)(14.2)
    
    Registrants Code of Business Conduct and Ethics. (Incorporated by reference
to Exhibit 14.2 to Registrants Annual Report on Form 10-K for the year ended
December 31, 2003.)(21.1)
    
    List of Subsidiaries of Registrant (Filed herewith.)(23.1)
    
    Consent of Hein & Associates LLP, Independent Registered Public Accounting
Firm (Filed herewith.)(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.)
 
 *
    
    Indicates management contract or compensation plan or arrangement.**
    
    Portions of this exhibit have been omitted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2 of the Securities
Exchange Act of 1934, as amended, that has been granted by the Securities and Exchange Commission. X-5