##### Table of Contents



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, 2010
 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
 Yes o No þ
 Yes o No þ
 þ o
 Yes o No o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
   
 DOCUMENTS INCORPORATED BY REFERENCE




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POWERSECURE INTERNATIONAL, INC.
 Form 10-K
For the Fiscal Year Ended December 31, 2010
 TABLE OF CONTENTS
 PageCautionary Note Regarding Forward-Looking Statements
    
    
    1PART IItem 1. Business
    
    
    3Item 1A. Risk Factors
    
    
    21Item 1B. Unresolved Staff Comments
    
    
    46Item 2. Properties
    
    
    46Item 3. Legal Proceedings
    
    
    46Item 4. (Removed and Reserved)
    
    
    46PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
    
    
    47Item 6. Selected Financial Data
    
    
    48Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    50Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    81Item 8. Financial Statements and Supplementary Data
    
    
    81Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    81Item 9A. Controls and Procedures
    
    
    82Item 9B. Other Information
    
    
    84PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    85Item 11. Executive Compensation
    
    
    85Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
    
    
    85Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    85Item 14. Principal Accountant Fees and Services
    
    
    85PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    86Index to Financial Statements
    
    
    F-1Signatures
    
    
    S-1Exhibit Index
    
    
    X-1Exhibit 10.23Exhibit 21.1Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 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 current challenging economic and market conditions and their adverse effects 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 effects on our financial condition, results of operations and prospects of the
sale of our Southern Flow business and our strategy to monetize our non-core assets
where beneficial;
    
    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;
    
    fluctuations in our effective tax rates;
    
    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, warranty claims and other claims and proceedings that arise from time to
time.
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2




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PART I
 
 Item 1.
    
    Business
 Company Overview
     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.(Our Core Business 
Segment)NexGear® switchgear products and systems
    
    PowerSecure, Inc.Utility Infrastructure
    
    UtilityServices utility infrastructure
products and services, including transmission
and distribution system construction and
maintenance
    
    PowerSecure, Inc.UtilityEngineering and PowerServicesengineering, regulatory consulting, and
electric grid system design
    
    PowerSecure, Inc.Energy Efficiency
    
    EfficientLights® LED lighting for
grocery, drug, and convenience stores
    
    PowerSecure, Inc.IES LED lighting and lighting components for
OEMs, electronics manufacturers, and
commercial, industrial, and consumer lighting
applications
    
    PowerSecure, Inc.EnergyLitelighting and efficiency
products for commercial and industrial
customers, including street lights and area
lights for utilities and municipalities
    
    PowerSecure, Inc.Energy Services
    
    Energy Services
    
    Southern Flow oil and natural gas measurement
products and services (Sold effective January
1, 2011)
    
    Southern Flow
Companies, Inc.(Our Non-core 
Business Segment)WaterSecure® water processing and
disposal services for oil and natural gas
producers
    
    WaterSecure
Holdings, Inc.
  Recent Developments
    4




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The Industry, our Strategy, and our Business Areas of Focus
   
    
    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;
    
    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
    
    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, and financial return standards.
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Our Interactive Distributed Generation Business
 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
    
    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.
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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 electricity rate savings;
    
    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 Models
      8




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Our Utility Infrastructure Business
 Overview
  Market
   Products and Services
 TM TM
 TM
  9




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Business Model
   Our Energy Efficiency Business
 Overview
 TM TM TM TM
 Market
   10




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Products and Services and Business Model
     11




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Business Structure
   Our Energy Services Business Area and Segment
    Revenue Backlog
   12




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Customers
  Sales and Marketing
  Competition
     13




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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 existing and 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;
    
    our ability to develop and maintain our strategic relationships; and
    
    the price of our, and of our competitors, products and services, and the cost to
engineer, produce, and deliver our products compared to our competitors, as well as
other technological alternatives in the marketplace.
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Regulation
  Regulation of Electricity.
 Regulation of Energy and Smart Grid Solutions Operations
 
    
    licensing, permitting and inspection requirements applicable to electricians and
engineers;
    
    building and electrical codes;
    
    permitting and inspection requirements applicable to construction projects;
    
    regulations relating to worker safety and environmental protection;
    
    regulations pertaining to utilities and energy providers; and
    
    special bidding, procurement and other requirements on government projects.
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Regulation of Environment.
 Employees
  Raw Materials and Component Parts
   Intellectual Property
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
    
    the technological and creative skills of our personnel, including our
entrepreneurial culture;
    
    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
    17




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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.
    
    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, including generator technology, 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
enhance and complement 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 grocery, drug, and convenience stores. This business
operates under the brand name EfficientLights, and its product offerings include
EfficientLights lighting for reach-in refrigerated cases, walk-in refrigerated storage
coolers, and shelf lighting for open refrigerated cases. Additionally, we intend to
bring LED-based parking lot light and street lights to market in the future through our
EfficientLights 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.
    
    In April 2010, we launched an expansion of our LED lighting business through the
formation and acquisition of a two-thirds controlling interest in an LED lighting
development company, called IES. This business broadens our Energy Efficiency business
unit though the addition of turn-key product development, design and manufacturing of
solid state LED-based lights, including power drivers, light engines, and thermal
management solutions, as well as a family of street lights under the brand names of
SecureLite and PowerLite.
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Segment Information
  
    
    In our Energy and Smart Grid Solutions segment, we serve utilities and commercial,
institutional and industrial customers through our PowerSecure subsidiary, including
the specific areas of Interactive Distributed Generation, Utility Infrastructure and
Energy Efficiency.
    
    In our Energy Services segment, we provide customers in the oil and natural gas
production business with our water processing, recycling and disposal services through
our WaterSecure business. In this segment we had also provided customers in the oil
and natural gas production business with our measurement services and products through
our Southern Flow subsidiary, which we sold effective January 1, 2011.
  Discontinued Operations
  Additional Corporate Information
    Available Information
 www.powersecure.com www.sec.gov
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Executive Officers of the Registrant
  Name
    
    
    Age
    
    
    PositionsSidney Hinton
    
    
    48
    
    
    President, Chief Executive Officer and DirectorChristopher T. Hutter
    
    
    44
    
    
    Executive Vice President, Chief Financial Officer and TreasurerGary J. Zuiderveen
    
    
    51
    
    
    Vice President of Financial Reporting, Controller, Principal Accounting Officer, Assistant Treasurer and Secretary
  Sidney Hinton
 Christopher T. Hutter
 Gary J. Zuiderveen
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Item 1A.
    
    Risk Factors
  Risks Related to Our Business and Industry
 The ongoing economic difficulties, including the challenging business and market conditions and the
continuing volatility and disruption in the financial and capital markets, have adversely affected
our business and financial results in recent years and could materially and adversely affect our
business and financial results in future periods.
  
    
    utilities;
    
    industrial, institutional, commercial, and governmental users of electricity;
    
    grocery, drug and convenience store retailers; and
    
    oil 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 and financial conditions, including the ongoing
challenges in the economy and the difficult capital and credit markets, and the
potential for such economic and market challenges to continue or recur in the future,
negatively impacting our business operations and our revenues and net income, including
the negative impact these conditions could 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;
    
    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, and customers
delaying, deferring or canceling purchase orders or making smaller purchases than
expected;
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
    
    our ability to increase our revenues through long-term recurring revenue projects,
recognizing that increasing our revenues from recurring revenue projects will require
significant up-front capital expenditures and protract revenue and profit recognition,
while increasing our 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 and product and service revenues, 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 maintain and grow our utility infrastructure revenues, and maintain
and increase pricing, utilization rates and productivity rates, given the significant
levels of vehicles, tools and labor in which we have invested and which is required to
serve utilities in this business area;
    
    the sale of our Southern Flow business effective January 1, 2011, and the associated
loss of revenues, cash flow and income from that business;
    
    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
Energy Efficiency 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 the performance and ownership of the systems;
    
    our ability to access significant capital resources on a timely basis in order to
fund working capital requirements, fulfill large customer orders, and finance capital
required for recurring revenue projects and equipment for our utility infrastructure
business;
    
    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, including the timing, pricing and market
acceptance of our new products and services;
    
    changes in our pricing policies and those of our competitors, including the
introduction of lower cost competing technologies and the potential for them to impact
our pricing and our profit margins;
    
    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 including but not
limited to copper, aluminum and other raw materials, labor costs and other components
of our products and services, fuel prices including diesel, natural gas, oil and
gasoline, and our ability or inability to hedge or otherwise manage 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;
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
    
    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;
    
    the effects of governmental regulations and regulatory changes in our markets;
    
    the effects of litigation, warranty claims and other claims and 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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The recent sale of our non-core Southern Flow business will reduce our revenues and profits in the
near term and could adversely affect our financial results in the longer term, and we could
experience similar negative effects to our revenue and profit to the extent that we monetize our
other non-core business, our WaterSecure operations
  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, or 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;
    
    allow our cash position to fall below certain limits;
    
    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.
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
    
    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.
  From time to time, a large portion of our revenues and operating results are driven by significant
purchase commitments from one or a few customers, and if we do not continue to receive additional
significant purchase commitments in the future from those or other customers, our revenues and
operating results could be adversely affected.
   
    
    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.
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Because a significant portion of our backlog consists of non-contractual orders that can be
deferred, reduced or cancelled by the customers, our backlog may not be fully recognized or may not
result in profits.
  The quality and performance of our products are, in part, dependent on the quality of their
component parts that we obtain from various suppliers, as well as the specific design and purpose
for which the parts are incorporated into our systems, which makes us susceptible to performance
issues that arise from time to time that could materially and adversely affect our business, our
financial results and our reputation.
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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, or the closure
of the customers facility;
    
    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, and 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.
  We face potential challenges managing our growth to the extent the market continues its strong
adoption of LEDs for the general lighting market and for our products in particular.
  
    
    invest in adequate manufacturing facilities and equipment to meet customer demand;
    
    maintain a sufficient supply of raw materials to support our growth; and
    
    invest in research and development, engineering, sales and marketing, technical
support, distribution capabilities and administrative functions.
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The adoption of or changes in government policies, standards or regulations relating to the
efficiency, performance or other aspects of LED lighting or changes in government policies,
standards or regulations that discourage the use of certain traditional lighting technologies,
could impact the demand for our LED products.
   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.
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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.
  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
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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.
    We may incur liabilities or suffer negative financial or reputational impacts relating to
occupational health and safety matters and other accident and safety risks and hazards that are
inherent in energy operations.
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Because many of our businesses and our product offerings have limited histories and their business
strategies are still being developed, their markets may be limited and concentrated, and limited
information is available to evaluate their future prospects.
   
    
    anticipate, adapt and influence the changing regulatory climate for energy and
technology products, services and technology;
    
    provide 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;
    
    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 can materially and adversely affect our business.
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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
  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.
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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
    
    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.
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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.
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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.
  
    
    potential 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 in Colorado, 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 minority investors in this business who become dissatisfied with its
results or other business actions, transactions, 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.
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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.
   
    
    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.
  Our use of percentage-of-completion accounting could result in a reduction or elimination of
previously reported profits.
 .
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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
   We may have tax expense exposure that is greater than anticipated in our estimated tax liabilities.
   40




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Changes in our effective tax rate may have an adverse effect on our results of operations .
  
    
    changes in government administrations, such as at the Federal level in the United
States, as well as at the state level and in other countries in which we may from time
to time operate;
    
    changes in tax laws or interpretation of such tax laws and changes in generally
accepted accounting principles;
    
    the jurisdiction in which profits are determined to be earned and taxed;
    
    the resolution of issues arising from tax audits with various authorities;
    
    changes in the valuation of our deferred tax assets and liabilities;
    
    adjustments to estimated taxes upon finalization of various tax returns;
    
    increases in expenses not deductible for tax purposes;
    
    changes in available tax credits; and
    
    the recognition and measurement of uncertain tax positions.
  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.
   41




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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, customs 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.
    42




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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.
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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, or companies that investors consider comparisons to ours;
    
    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 in revenue or earnings guidance, new business announcements, or our revenue
backlog including timing and amounts;
    
    our financing and capital raising activities;
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
    
    recommendations by securities analysts and their revenue and earnings estimates,
including changes thereto;
    
    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.
    45




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##### Table of Contents



Item 1B.
    
    Unresolved Staff Comments
  
 Item 2.
    
    Properties
     
 Item 3.
    
    Legal Proceedings
  
 Item 4.
    
    (Removed and Reserved)
  46




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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 2010 Quarters Ended:March 31
    
    $
    8.58
    
    
    $
    6.09June 30
    
    
    11.68
    
    
    
    7.72September 30
    
    
    11.02
    
    
    
    8.26December 31
    
    
    9.90
    
    
    
    7.45Fiscal Year 2009 Quarters Ended:March 31
    
    $
    4.72
    
    
    $
    3.27June 30
    
    
    4.96
    
    
    
    3.46September 30
    
    
    6.91
    
    
    
    4.43December 31
    
    
    10.17
    
    
    
    6.70
  Holders
  Dividends
   47




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##### Table of Contents



Item 6.
    
    Selected Financial Data
  Consolidated Statement of Operations Data:
 Year Ended December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006(In thousands, except per share amounts)Revenues
    
    $
    97,514
    
    
    $
    85,426
    
    
    $
    115,993
    
    
    $
    94,923
    
    
    $
    99,543Cost of sales
    
    
    62,220
    
    
    
    54,231
    
    
    
    77,550
    
    
    
    65,015
    
    
    
    72,318Gross profit
    
    
    35,294
    
    
    
    31,195
    
    
    
    38,443
    
    
    
    29,908
    
    
    
    27,225Operating expenses:General and administrative
    
    
    29,339
    
    
    
    24,169
    
    
    
    27,128
    
    
    
    21,086
    
    
    
    17,612Selling, marketing and service
    
    
    5,154
    
    
    
    3,927
    
    
    
    5,325
    
    
    
    3,539
    
    
    
    2,848Depreciation and amortization
    
    
    2,754
    
    
    
    2,144
    
    
    
    1,847
    
    
    
    1,355
    
    
    
    764Restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,139
    
    
    
    Total operating expenses
    
    
    37,247
    
    
    
    30,240
    
    
    
    34,300
    
    
    
    40,119
    
    
    
    21,224Operating income (loss)
    
    
    (1,953
    )
    
    
    955
    
    
    
    4,143
    
    
    
    (10,211
    )
    
    
    6,001Other income and (expenses):Equity income
    
    
    3,182
    
    
    
    2,167
    
    
    
    3,490
    
    
    
    2,774
    
    
    
    2,221Management fees
    
    
    583
    
    
    
    447
    
    
    
    556
    
    
    
    423
    
    
    
    365Interest income and other income
    
    
    99
    
    
    
    161
    
    
    
    464
    
    
    
    1,131
    
    
    
    1,036Interest expense
    
    
    (619
    )
    
    
    (607
    )
    
    
    (287
    )
    
    
    (51
    )
    
    
    (130
    )Income (loss) before income taxes
    
    
    1,292
    
    
    
    3,123
    
    
    
    8,366
    
    
    
    (5,934
    )
    
    
    9,493Income tax benefit (provision)
    
    
    (526
    )
    
    
    (331
    )
    
    
    (729
    )
    
    
    2,256
    
    
    
    (175
    )Income (loss) from continuing operations
    
    
    766
    
    
    
    2,792
    
    
    
    7,637
    
    
    
    (3,678
    )
    
    
    9,318Income from discontinued operations (1)
    
    
    2,543
    
    
    
    1,513
    
    
    
    3,021
    
    
    
    2,040
    
    
    
    2,459Net income (loss)
    
    
    3,309
    
    
    
    4,305
    
    
    
    10,658
    
    
    
    (1,638
    )
    
    
    11,777Less: Net income attributable
to noncontrolling interest
    
    
    153
    
    
    
    (1,512
    )
    
    
    
    
    
    
    30
    
    
    
    (72
    )Net income (loss) attributable to
PowerSecure International, Inc.
    
    $
    3,462
    
    
    $
    2,793
    
    
    $
    10,658
    
    
    $
    (1,608
    )
    
    $
    11,705Basic earnings (loss) per share:Income (loss) from continuing
operations
    
    $
    0.05
    
    
    $
    0.07
    
    
    $
    0.45
    
    
    $
    (0.23
    )
    
    $
    0.62Income from discontinued operations
    
    
    0.14
    
    
    
    0.09
    
    
    
    0.18
    
    
    
    0.13
    
    
    
    0.16Net income (loss)
    
    $
    0.19
    
    
    $
    0.16
    
    
    $
    0.63
    
    
    $
    (0.10
    )
    
    $
    0.78Diluted earnings (loss) per share:Income (loss) from continuing
operations
    
    $
    0.05
    
    
    $
    0.07
    
    
    $
    0.44
    
    
    $
    (0.23
    )
    
    $
    0.56Income from discontinued operations
    
    
    0.14
    
    
    
    0.09
    
    
    
    0.18
    
    
    
    0.13
    
    
    
    0.15Net income (loss)
    
    $
    0.19
    
    
    $
    0.16
    
    
    $
    0.62
    
    
    $
    (0.10
    )
    
    $
    0.71Weighted average common shares outstanding:Basic (2)
    
    
    18,133
    
    
    
    17,177
    
    
    
    16,978
    
    
    
    16,148
    
    
    
    15,063Diluted
    
    
    18,603
    
    
    
    17,343
    
    
    
    17,284
    
    
    
    16,148
    
    
    
    16,477Amounts
attributable to PowerSecure International, Inc. common stockholders:Income (loss) from continuing
operations
    
    $
    919
    
    
    $
    1,280
    
    
    $
    7,637
    
    
    $
    (3,648
    )
    
    $
    9,246Discontinued operations
    
    
    2,543
    
    
    
    1,513
    
    
    
    3,021
    
    
    
    2,040
    
    
    
    2,459Net income (loss)
    
    $
    3,462
    
    
    $
    2,793
    
    
    $
    10,658
    
    
    $
    (1,608
    )
    
    $
    11,705
  48




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##### Table of Contents



(1)
    
    During fiscal 2010, our board of directors approved a plan to sell our Southern Flow
business and all of its assets and operations were sold effective January 1, 2011. During
fiscal 2007, our board of directors approved a plan to discontinue the business of our
Metretek Florida operation and substantially all of its assets and operations were sold in
March, 2008. The operations of Southern Flow and Metretek Florida have been classified as
discontinued operations for all periods presented. In addition, certain other amounts
prior to fiscal 2010 have been reclassified to conform to fiscal 2010 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 Sheet Data:
 December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006(In thousands)Cash and cash equivalents
    
    $
    8,202
    
    
    $
    20,169
    
    
    $
    24,316
    
    
    $
    28,710
    
    
    $
    15,916Working capital
    
    
    54,514
    
    
    
    47,221
    
    
    
    42,554
    
    
    
    41,278
    
    
    
    38,988Total assets
    
    
    120,529
    
    
    
    111,477
    
    
    
    110,834
    
    
    
    113,023
    
    
    
    89,699Long-term capital lease
obligations
    
    
    3,647
    
    
    
    4,445
    
    
    
    5,201
    
    
    
    5
    
    
    
    Revolving line of credit
and long-term debt
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total stockholders equity
    
    
    87,244
    
    
    
    79,239
    
    
    
    72,811
    
    
    
    59,240
    
    
    
    58,000
  49




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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, and financial return standards.
    50




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Interactive Distributed Generation
      Utility Infrastructure
    51




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Energy Efficiency
   
  Energy Services Business
   52




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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 products and services delivered,
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 product or service 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 generally evaluate our Interactive Distributed Generation business on a
project-by-project basis to determine if we are pricing and delivering our products and
services profitably, as well as from an overall perspective to determine the levels of
revenue, expense, and profit required to deliver sustained profitable growth. We
generally evaluate our Energy Efficiency business on a product-by-product basis and a
customer-by-customer basis to determine if our products are profitable and customer
pricing and service delivery is effective, as well as from an overall perspective to
determine the levels of revenue, expense, and profit required to deliver sustained
profitable growth. Finally, we generally evaluate our Utility Infrastructure business
on a customer-by-customer basis and a project-by-project basis to determine if our
services are being priced and executed profitably, as well as from an overall
perspective to determine the levels of revenue, expense, and profit required to deliver
sustained profitable growth.
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
    
    We believe that increasing the amount of Interactive Distributed Generation 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.
    
    We actively evaluate our costs, including staffing, machinery and equipment,
facilities, and other overhead, 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 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 WaterSecure
businesses, which currently comprise our Energy Services segment, 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 and financial conditions, including the ongoing
challenges in the economy and the difficult capital and credit markets, and the
potential for such economic and market challenges to continue or recur in the future,
negatively impacting our business operations and our revenues and net income, including
the negative impact these conditions could 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;
    
    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, and 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 and product and service revenue, 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;
  54




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
    
    our ability to maintain and grow our utility infrastructure revenues, and maintain
and increase pricing, utilization rates, and productivity rates, given the significant
levels of vehicles, tools, and labor in which we have invested and is required to serve
utilities in this business area;
    
    the recent sale of our Southern Flow business, and the associated loss of revenues,
cash flow and income from that business;
    
    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 Energy Efficiency 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 the performance and ownership of the systems;
    
    our ability to access significant capital resources on a timely basis in order to
fund working capital requirements, fulfill large customer orders, and finance capital
required for recurring revenue projects and equipment for our utility infrastructure
business;
    
    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, including the timing, pricing and market
acceptance of our new products and services;
    
    changes in our pricing policies and those of our competitors, including the
introduction of lower cost competing technologies and the potential for them to impact
our pricing and our profit margins;
    
    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 including but not
limited to copper, aluminum, and other raw materials, labor costs, and other components
of our products and services, fuel prices including diesel, natural gas, oil and
gasoline, and our ability or inability to hedge or otherwise manage 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 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 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 market 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 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 the development of or
acquisition of technology or businesses, and the costs related to such development or
acquisitions.
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Recent Developments
    56




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57




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Financial Results Highlights
         58




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Backlog
  Revenue Backlog to be recognized after December 31, 2010
 Anticipated
    
    
    Estimated PrimaryDescription
    
    Revenue
    
    
    Recognition PeriodProject-based Revenue  Near term
    
    $
    50 Million
    
    
    1Q11 through 3Q11Project-based Revenue  Long term
    
    $
    29 Million
    
    
    4Q11 through 2013Recurring Revenue
    
    $
    71 Million
    
    
    1Q11 through 2019Revenue Backlog to be recognized after December 31, 2010
    
    $
    150 Million
 Note: Anticipated revenue and estimated primary recognition periods are subject to risks and
uncertanities as indicated in Cautionary Note Regarding Forward-Looking Statements above. Consistent with past practice, these amounts are not
intended to constitute the Companys total revenue over the indicated time periods, as the Company
has additional, regular on-going revenues. Examples of additional, regular recurring revenues include
revenues from the engineering fees, and service revenue, among others. Numbers may not add due to rounding.
  Operating Segments
  Energy and Smart Grid Solutions
  Energy Services
  Results of Operations
   59




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2010 Compared to 2009
 Revenues
  Year-over-YearYear Ended December 31,
    
    
    Difference2010
    
    
    2009
    
    
    $
    
    
    %Energy and SmartGrid Solutions:Interactive Distributed Generation
    
    $
    52,142
    
    
    $
    42,889
    
    
    $
    9,253
    
    
    
    21.6
    %Utility Infrastructure
    
    
    24,275
    
    
    
    19,584
    
    
    
    4,691
    
    
    
    24.0
    %Energy Efficiency
    
    
    21,097
    
    
    
    22,953
    
    
    
    (1,856
    )
    
    
    -8.1
    %Total
    
    $
    97,514
    
    
    $
    85,426
    
    
    $
    12,088
    
    
    
    14.2
    %
      60




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Gross Profit and Gross Profit Margin
  Year-over-YearYear Ended December 31,
    
    
    Difference2010
    
    
    2009
    
    
    $
    
    
    %Energy and Smart Grid Solutions:Cost of Sales
    
    $
    62,220
    
    
    $
    54,231
    
    
    $
    7,989
    
    
    
    14.7
    %Gross Profit
    
    $
    35,294
    
    
    $
    31,195
    
    
    $
    4,099
    
    
    
    13.1
    %Gross Profit Margin
    
    
    36.2
    %
    
    
    36.5
    %
    
    
    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, the most significant of
which is personnel and equipment costs;
    
    Our ability to improve our operating efficiency and benefit from economies of scale;
    
    Our level of investments in our businesses, particularly for anticipated or new or
business awards;
    
    The mix of higher and lower margin projects, products and services, and the impact
of new products and technologies on our pricing and volumes;
    
    Our ability to manage our materials and labor costs, including any future
inflationary pressures;
    
    The costs to maintain and operate distributed generation systems we own in
conjunction with recurring revenue contracts, including the price of fuel, as well as
their operating performance;
    
    The geographic density of our projects;
    
    The selling price of products and services sold to customers, and the revenues we
expect to generate from recurring revenue projects;
    
    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.
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Operating Expense
  Year-over-YearYear Ended December 31,
    
    
    Difference2010
    
    
    2009
    
    
    $
    
    
    %Consolidated Operating Expenses:General and administrative
    
    $
    29,339
    
    
    $
    24,169
    
    
    $
    5,170
    
    
    
    21.4
    %Selling, marketing and service
    
    
    5,154
    
    
    
    3,927
    
    
    
    1,227
    
    
    
    31.2
    %Depreciation and amortization
    
    
    2,754
    
    
    
    2,144
    
    
    
    610
    
    
    
    28.5
    %Total
    
    $
    37,247
    
    
    $
    30,240
    
    
    $
    7,007
    
    
    
    23.2
    %
  General and Administrative Expenses.
 Year-over-YearYear Ended December 31,
    
    
    Difference2010
    
    
    2009
    
    
    $
    
    
    %Segment G&A Expenses:Energy and Smart Grid Solutions:Personnel costs
    
    $
    15,156
    
    
    $
    12,487
    
    
    $
    2,669
    
    
    
    21.4
    %Vehicle lease and rental
    
    
    1,814
    
    
    
    1,829
    
    
    
    (15
    )
    
    
    -0.8
    %Insurance
    
    
    1,069
    
    
    
    1,028
    
    
    
    41
    
    
    
    4.0
    %Rent-office and equipment
    
    
    931
    
    
    
    776
    
    
    
    155
    
    
    
    20.0
    %Professional fees and consulting
    
    
    894
    
    
    
    456
    
    
    
    438
    
    
    
    96.1
    %Travel
    
    
    1,070
    
    
    
    716
    
    
    
    354
    
    
    
    49.4
    %Development costs
    
    
    362
    
    
    
    170
    
    
    
    192
    
    
    
    112.9
    %Other
    
    
    2,689
    
    
    
    1,665
    
    
    
    1,024
    
    
    
    61.5
    %Energy Services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    n/mUnallocated Corporate Costs
    
    
    5,354
    
    
    
    5,042
    
    
    
    312
    
    
    
    6.2
    %Total
    
    $
    29,339
    
    
    $
    24,169
    
    
    $
    5,170
    
    
    
    21.4
    %
   62




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Selling, Marketing and Service Expenses.
 Year-over-YearYear Ended December 31
    
    
    Difference2010
    
    
    2009
    
    
    $
    
    
    %Segment Selling, Marketing and Service:Energy and Smart Grid Solutions:Salaries
    
    $
    2,330
    
    
    $
    1,859
    
    
    $
    471
    
    
    
    25.3
    %Commission
    
    
    1,312
    
    
    
    1,219
    
    
    
    93
    
    
    
    7.6
    %Travel
    
    
    772
    
    
    
    514
    
    
    
    258
    
    
    
    50.2
    %Advertising and promotion
    
    
    535
    
    
    
    307
    
    
    
    228
    
    
    
    74.3
    %Bad debt expense (recovery)
    
    
    205
    
    
    
    28
    
    
    
    177
    
    
    
    632.1
    %Energy Services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    n/mTotal
    
    $
    5,154
    
    
    $
    3,927
    
    
    $
    1,227
    
    
    
    31.2
    %
  Depreciation and Amortization Expenses.
  63




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Other Income and Expenses
  Year-over-YearYear Ended December 31,
    
    
    Difference2010
    
    
    2009
    
    
    $
    
    
    %Other Segment Income and (Expenses):Energy and Smart Grid Solutions:Interest income and other income
    
    $
    
    
    
    $
    3
    
    
    $
    (3
    )
    
    
    -100.0
    %Interest expense
    
    
    (341
    )
    
    
    (334
    )
    
    
    (7
    )
    
    
    -2.1
    %Segment total
    
    
    (341
    )
    
    
    (331
    )
    
    
    (10
    )Energy Services:Equity income
    
    
    3,182
    
    
    
    2,167
    
    
    
    1,015
    
    
    
    46.8
    %Management fees
    
    
    583
    
    
    
    447
    
    
    
    136
    
    
    
    30.4
    %Segment total
    
    
    3,765
    
    
    
    2,614
    
    
    
    1,151Unallocated Corporate:Interest income and other income
    
    
    99
    
    
    
    158
    
    
    
    (59
    )
    
    
    -37.3
    %Interest expense
    
    
    (278
    )
    
    
    (273
    )
    
    
    (5
    )
    
    
    -1.8
    %Income tax benefit (provision)
    
    
    (526
    )
    
    
    (331
    )
    
    
    (195
    )
    
    
    -58.9
    %Segment total
    
    
    (705
    )
    
    
    (446
    )
    
    
    (259
    )Total
    
    $
    2,719
    
    
    $
    1,837
    
    
    $
    882
 Equity Income.
 Management Fees.
 Interest Income and Other Income.
 Interest Expense.
 Income Taxes.
  64




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Noncontrolling Interest
 2009 Compared to 2008
 Revenues
  Year-over-YearYear Ended December 31,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Energy and SmartGrid Solutions:Interactive Distributed Generation
    
    $
    42,889
    
    
    $
    84,369
    
    
    $
    (41,480
    )
    
    
    -49.2
    %Utility Infrastructure
    
    
    19,584
    
    
    
    25,361
    
    
    
    (5,777
    )
    
    
    -22.8
    %Energy Efficiency
    
    
    22,953
    
    
    
    6,263
    
    
    
    16,690
    
    
    
    266.5
    %Total
    
    $
    85,426
    
    
    $
    115,993
    
    
    $
    (30,567
    )
    
    
    -26.4
    %
    65




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Gross Profit and Gross Profit Margins
  Year-over-YearYear Ended December 31,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Energy and Smart Grid Solutions:Cost of Sales
    
    $
    54,231
    
    
    $
    77,550
    
    
    $
    (23,319
    )
    
    
    -30.1
    %Gross Profit
    
    $
    31,195
    
    
    $
    38,443
    
    
    $
    (7,248
    )
    
    
    -18.9
    %Gross Profit Margin
    
    
    36.5
    %
    
    
    33.1
    %
  Operating Expense
  Year-over-YearYear Ended December 31,
    
    
    Difference2009
    
    
    2008
    
    
    $
    
    
    %Consolidated Operating Expenses:General and administrative
    
    $
    24,169
    
    
    $
    27,128
    
    
    $
    (2,959
    )
    
    
    -10.9
    %Selling, marketing and service
    
    
    3,927
    
    
    
    5,325
    
    
    
    (1,398
    )
    
    
    -26.3
    %Depreciation and amortization
    
    
    2,144
    
    
    
    1,847
    
    
    
    297
    
    
    
    16.1
    %Total
    
    $
    30,240
    
    
    $
    34,300
    
    
    $
    (4,060
    )
    
    
    -11.8
    %
   66




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General and Administrative Expenses.
 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
    
    
    
    
    
    
    7
    
    
    
    (7
    )
    
    
    -100.0
    %Unallocated Corporate Costs
    
    
    5,042
    
    
    
    5,008
    
    
    
    34
    
    
    
    0.7
    %Total
    
    $
    24,169
    
    
    $
    27,128
    
    
    $
    (2,959
    )
    
    
    -10.9
    %
   Selling, Marketing and Service Expenses.
 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    n/mTotal
    
    $
    3,927
    
    
    $
    5,325
    
    
    $
    (1,398
    )
    
    
    -26.3
    %
 Depreciation and Amortization Expenses.
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Other Income and Expenses
  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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    n/mSegment total
    
    
    2,614
    
    
    
    4,046
    
    
    
    (1,432
    )Unallocated Corporate:Interest income and other income
    
    
    158
    
    
    
    382
    
    
    
    (224
    )
    
    
    -58.6
    %Interest expense
    
    
    (273
    )
    
    
    (147
    )
    
    
    (126
    )
    
    
    -85.7
    %Income tax benefit (provision)
    
    
    (331
    )
    
    
    (729
    )
    
    
    398
    
    
    
    54.6
    %Segment total
    
    
    (446
    )
    
    
    (494
    )
    
    
    48Total
    
    $
    1,837
    
    
    $
    3,494
    
    
    $
    (1,657
    )
 Equity Income.
 Management Fees.
 Interest Income and Other Income.
 Interest Expense.
 Income Taxes.
 Noncontrolling Interest
  68




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##### Table of Contents



Fluctuations
   Liquidity and Capital Resources
 Overview
  
    
    operations;
    
    inventory, accounts receivable, and working capital needs;
    
    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;
    
    deferred compensation obligations; and
    
    business and technology acquisitions and other growth transactions.
 Working Capital
   69




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##### Table of Contents



Cash Flows
  Year Ended December 31,2010
    
    
    2009
    
    
    2008Net cash flows provided by (used in) operating activities
    
    $
    (6,638
    )
    
    $
    (614
    )
    
    $
    8,447Net cash flows used in investing activities
    
    
    (10,840
    )
    
    
    (3,779
    )
    
    
    (19,017
    )Net cash provided by financing activities
    
    
    5,511
    
    
    
    246
    
    
    
    6,176Net decrease in cash and cash equivalents
    
    $
    (11,967
    )
    
    $
    (4,147
    )
    
    $
    (4,394
    )
 Cash Flows Provided by (Used in) Operating Activities
   
    
    our income from continuing operations of $0.8 million;
    
    non-cash charges of $2.8 million in depreciation and amortization;
    
    non-cash stock-based compensation expense of $2.1 million;
    
    cash distributions of $0.9 million to the noncontrolling member of EfficientLights;
    
    non-cash equity income from our WaterSecure operations of $3.2 million partially
offset by cash distributions from those operations of $2.7 million;
    
    non-cash deferred income tax expense of $0.3 million;
    
    an increase of $4.0 million in accounts receivable;
    
    an increase of $5.3 million in inventories;
    
    a decrease of $0.5 million in other current assets and liabilities;
    
    an increase of $3.8 million of accounts payable;
    
    a decrease of $8.6 million of accrued expenses;
    
    an increase of $0.2 million of unrecognized tax benefits;
    
    cash payments of $0.3 million on our restructuring obligations;
    
    an increase in our deferred compensation obligation of $0.3 million; and
    
    cash provided by our discontinued operations of $2.8 million.
  
    
    our income from continuing operations of $2.8 million;
    
    non-cash charges of $2.1 million in depreciation and amortization;
    
    non-cash stock-based compensation expense of $2.2 million;
    
    cash distributions of $0.4 million to the noncontrolling member of EfficientLights;
    
    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;
  70




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##### Table of Contents




    
    a decrease of $2.7 million of accrued expenses;
    
    an increase of $0.6 million of unrecognized tax benefits;
    
    cash payments of $1.4 million on our restructuring obligations;
    
    an increase in our deferred compensation obligation of $0.3 million; and
    
    cash provided by our discontinued operations of $1.7 million.
  
    
    our net income from continuing operations of $7.6 million;
    
    non-cash charges of $1.8 million in depreciation and amortization;
    
    non-cash 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 decrease of $5.5 million of accounts payable;
    
    a decrease of $12.0 million of accrued expenses;
    
    cash payments of $4.0 million on our restructuring obligations; and
    
    cash provided by our discontinued operations of $4.9 million.
 Cash Used in Investing Activities
  Cash Provided by Financing Activities
  Capital Spending
    71




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##### Table of Contents



Indebtedness
 Line of Credit.
        72




---



##### Table of Contents



Capital Lease Obligations.
    Restructuring Obligations.
 Preferred Stock Redemption
  73




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##### 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)
    
    $
    5,000
    
    
    $
    
    
    
    $
    5,000
    
    
    $
    
    
    
    $
    Capital lease obligations (2)
    
    
    5,077
    
    
    
    1,016
    
    
    
    2,031
    
    
    
    2,030
    
    
    
    Operating leases
    
    
    7,669
    
    
    
    1,586
    
    
    
    2,824
    
    
    
    1,752
    
    
    
    1,507Deferred compensation (3)
    
    
    2,661
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,661Non-compete agreement
    
    
    500
    
    
    
    100
    
    
    
    200
    
    
    
    200
    
    
    
    Series B preferred stock
    
    
    104
    
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    21,011
    
    
    $
    2,806
    
    
    $
    10,055
    
    
    $
    3,982
    
    
    $
    4,168
 
 (1)
    
    Total repayments are based upon borrowings outstanding as of December 31, 2010, not actual
or projected borrowings after such date.(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
   74




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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
    
    stock-based compensation.
   75




---



##### Table of Contents



Revenue Recognition.
          76




---



##### Table of Contents



Allowance for Doubtful Accounts
 Inventories
  Warranty Reserve
 Balance at
    
    
    Reserve
    
    
    Utilized/
    
    
    Balance atJanuary 1
    
    
    Additions
    
    
    Deductions
    
    
    December 312008
    
    $
    421
    
    
    $
    326
    
    
    $
    (50
    )
    
    $
    6972009
    
    
    697
    
    
    
    109
    
    
    
    (37
    )
    
    
    7692010
    
    
    769
    
    
    
    380
    
    
    
    (62
    )
    
    
    1,087
  77




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##### Table of Contents



Impairment of Long-Lived Assets
  Deferred Tax Valuation Allowance
 Uncertain Tax Positions.
     78




---



##### Table of Contents



Costs of Exit or Disposal Activities and Similar Nonrecurring Charges.
 Share-Based Compensation.
  Stock Option Expense
  Restricted Stock Awards
     79




---



##### Table of Contents



Recent Accounting Pronouncements
 Revenue RecognitionMilestone Method Revenue Recognition  Milestone Method (Topic 605): Milestone Method
of Revenue Recognition
 Improving Disclosures about Fair Value Measurements Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair
Value Measurements
 Multiple Deliverable Revenue Arrangements Multiple Deliverable Revenue Arrangements  A Consensus of the FASB Emerging Issues Task Force (Topic 605) Revenue Recognition
  80




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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
   81




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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
   82




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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
   
  83




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##### Table of Contents



Item 9B.
    
    Other Information
   84




---



##### 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
   85




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##### Table of Contents



PART IV
 
 Item 15.
    
    Exhibits, Financial Statement Schedules
 (a)
    
    We have filed the following documents as part of this Annual Report on Form 10-K:
 1.
    
    Financial Statements
  
 
 
 
 2.
    
    Financial Statement Schedules
    3.
    
    Exhibits
  (b)
    
    Item 601 Exhibits
 The exhibits required by this item are listed on the accompanying Exhibit Index
immediately following the signature page of this report.
 (c)
    
    Financial Statement Schedules
   86




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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, 2010 and 2009
    
    
    F-3Consolidated Statements of Operations for the Years Ended December 31, 2010, 2009 and 2008
    
    
    F-5Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2010, 2009 and 2008
    
    
    F-6Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2009 and 2008
    
    
    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 31,2010
    
    
    2009AssetsCurrent Assets:Cash and cash equivalents
    
    $
    8,202
    
    
    $
    20,169Trade receivables, net of allowance for doubtful accounts
of $415 and $299, respectively
    
    
    29,290
    
    
    
    28,332Assets of discontinued operations held for sale
    
    
    12,183
    
    
    
    Inventories
    
    
    25,011
    
    
    
    21,632Current deferred income taxes
    
    
    1,731
    
    
    
    1,691Prepaid expenses and other current assets
    
    
    933
    
    
    
    1,300Total current assets
    
    
    77,350
    
    
    
    73,124Property, plant and equipment:Equipment
    
    
    24,946
    
    
    
    22,252Furniture and fixtures
    
    
    280
    
    
    
    671Land, building and improvements
    
    
    5,720
    
    
    
    4,802Total property, plant and equipment, at cost
    
    
    30,946
    
    
    
    27,725Less accumulated depreciation and amortization
    
    
    5,899
    
    
    
    5,413Property, plant and equipment, net
    
    
    25,047
    
    
    
    22,312Other assets:Goodwill
    
    
    7,970
    
    
    
    7,256Deferred income taxes, net of current portion
    
    
    1,244
    
    
    
    1,022Restricted annuity contract
    
    
    2,306
    
    
    
    2,220Intangible rights and capitalized software costs, net of
accumulated amortization of $2,463 and $1,890,
respectively
    
    
    1,942
    
    
    
    1,320Investment in unconsolidated affiliate
    
    
    4,346
    
    
    
    3,974Other assets
    
    
    324
    
    
    
    249Total other assets
    
    
    18,132
    
    
    
    16,041Total Assets
    
    $
    120,529
    
    
    $
    111,477
 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 31,2010
    
    
    2009Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    8,438
    
    
    $
    4,116Accrued and other liabilities
    
    
    10,986
    
    
    
    20,379Liabilities of discontinued operations held for sale
    
    
    1,411
    
    
    
    Restructuring charges payable
    
    
    
    
    
    
    325Current income taxes payable
    
    
    251
    
    
    
    Current unrecognized tax benefit
    
    
    954
    
    
    
    327Current portion of capital lease obligations
    
    
    796
    
    
    
    756Total current liabilities
    
    
    22,836
    
    
    
    25,903Long-term liabilites:Revolving line of credit
    
    
    5,000
    
    
    
    Capital lease obligations, net of current portion
    
    
    3,647
    
    
    
    4,445Unrecognized tax benefit, net of current portion
    
    
    749
    
    
    
    1,169Deferred compensation
    
    
    1,053
    
    
    
    721Total long-term liabilities
    
    
    10,449
    
    
    
    6,335Commitments and contingencies (Notes 9 and 10)
    
    
    
    
    
    
    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; 18,701,614 and 17,241,650 shares issued
and outstanding, respectively
    
    
    187
    
    
    
    172Additional paid-in-capital
    
    
    114,791
    
    
    
    110,911Accumulated deficit
    
    
    (29,489
    )
    
    
    (32,951
    )Total PowerSecure International, Inc. stockholders equity
    
    
    85,489
    
    
    
    78,132Noncontrolling interest
    
    
    1,755
    
    
    
    1,107Total stockholders equity
    
    
    87,244
    
    
    
    79,239Total Liabilities and Stockholders Equity
    
    $
    120,529
    
    
    $
    111,477
 See accompanying notes to consolidated financial statements.
  F - 4




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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 31,2010
    
    
    2009
    
    
    2008Revenues
    
    $
    97,514
    
    
    $
    85,426
    
    
    $
    115,993Cost of sales
    
    
    62,220
    
    
    
    54,231
    
    
    
    77,550Gross profit
    
    
    35,294
    
    
    
    31,195
    
    
    
    38,443Operating expenses:General and administrative
    
    
    29,339
    
    
    
    24,169
    
    
    
    27,128Selling, marketing and service
    
    
    5,154
    
    
    
    3,927
    
    
    
    5,325Depreciation and amortization
    
    
    2,754
    
    
    
    2,144
    
    
    
    1,847Total operating expenses
    
    
    37,247
    
    
    
    30,240
    
    
    
    34,300Operating income (loss)
    
    
    (1,953
    )
    
    
    955
    
    
    
    4,143Other income and (expenses):Equity income from unconsolidated affiliate
    
    
    3,182
    
    
    
    2,167
    
    
    
    3,490Management fees
    
    
    583
    
    
    
    447
    
    
    
    556Interest income and other income
    
    
    99
    
    
    
    161
    
    
    
    464Interest expense
    
    
    (619
    )
    
    
    (607
    )
    
    
    (287
    )Income before income taxes
    
    
    1,292
    
    
    
    3,123
    
    
    
    8,366Income tax provision
    
    
    (526
    )
    
    
    (331
    )
    
    
    (729
    )Income from continuing operations
    
    
    766
    
    
    
    2,792
    
    
    
    7,637Discontinued operations (Note 5):Income from operations, net of tax
    
    
    2,543
    
    
    
    1,513
    
    
    
    3,063Gain (loss) on disposal, net of tax
    
    
    
    
    
    
    
    
    
    
    (42
    )Income from discontinued operations, net of tax
    
    
    2,543
    
    
    
    1,513
    
    
    
    3,021Net income
    
    
    3,309
    
    
    
    4,305
    
    
    
    10,658Less: Net (income) loss attributable to noncontrolling
interest
    
    
    153
    
    
    
    (1,512
    )
    
    
    Net income attributable to PowerSecure International, Inc.
    
    $
    3,462
    
    
    $
    2,793
    
    
    $
    10,658Basic
earnings per share attributable to PowerSecure International, Inc. common stockholders:Income from continuing operations
    
    $
    0.05
    
    
    $
    0.07
    
    
    $
    0.45Income from discontinued operations
    
    
    0.14
    
    
    
    0.09
    
    
    
    0.18Net income
attributable to PowerSecure International, Inc. common stockholders
    
    $
    0.19
    
    
    $
    0.16
    
    
    $
    0.63Diluted
earnings per share attributable to PowerSecure International, Inc. common stockholders:Income from continuing operations
    
    $
    0.05
    
    
    $
    0.07
    
    
    $
    0.44Income from discontinued operations
    
    
    0.14
    
    
    
    0.09
    
    
    
    0.18Net income
attributable to PowerSecure International, Inc. common stockholders
    
    $
    0.19
    
    
    $
    0.16
    
    
    $
    0.62Amounts attributable to PowerSecure International, Inc.
common stockholders:Income from continuing operations, net of tax
    
    $
    919
    
    
    $
    1,280
    
    
    $
    7,637Income from discontinued operations, net of tax
    
    
    2,543
    
    
    
    1,513
    
    
    
    3,021Net income
    
    $
    3,462
    
    
    $
    2,793
    
    
    $
    10,658
 See accompanying notes to consolidated financial statements.
  F - 5




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##### Table of Contents



POWERSECURE INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
 (in thousands)
 Additional
    
    
    
    
    
    
    Non-Common Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    ControllingShares
    
    
    Value
    
    
    Capital
    
    
    Deficit
    
    
    Interest
    
    
    TotalBalance at January 1, 2008
    
    
    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
    
    
    
    79,239Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,462
    
    
    
    
    
    
    
    3,462Noncontrolling interest:Capital contribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,188
    
    
    
    2,188Acquisition of noncontrolling
interest
    
    
    1,025
    
    
    
    10
    
    
    
    492
    
    
    
    
    
    
    
    (510
    )
    
    
    (8
    )Share of income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (153
    )
    
    
    (153
    )Cash distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (877
    )
    
    
    (877
    )Stock option compensation
    
    
    
    
    
    
    
    
    
    
    381
    
    
    
    
    
    
    
    
    
    
    
    381Issuance and amortization of
restricted stock awards
    
    
    
    
    
    
    
    
    
    
    1,378
    
    
    
    
    
    
    
    
    
    
    
    1,378Stock option exercises,
including tax benefit of $177
    
    
    435
    
    
    
    5
    
    
    
    1,629
    
    
    
    
    
    
    
    
    
    
    
    1,634Balance at December 31, 2010
    
    
    18,702
    
    
    $
    187
    
    
    $
    114,791
    
    
    $
    (29,489
    )
    
    $
    1,755
    
    
    $
    87,244
 See accompanying notes to consolidated financial statements.
  F - 6




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##### Table of Contents



POWERSECURE INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Year Ended Dectember 31,2010
    
    
    2009
    
    
    2008Cash flows from operating activities:Net income
    
    $
    3,309
    
    
    $
    4,305
    
    
    $
    10,658Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Income from discontinued operations
    
    
    (2,543
    )
    
    
    (1,513
    )
    
    
    (3,021
    )Depreciation and amortization
    
    
    2,754
    
    
    
    2,144
    
    
    
    1,847Stock compensation expense
    
    
    2,119
    
    
    
    2,171
    
    
    
    2,647Distributions to noncontrolling shareholder
    
    
    (877
    )
    
    
    (405
    )
    
    
    Deferred income taxes
    
    
    (262
    )
    
    
    206
    
    
    
    (390
    )Loss on disposal of miscellaneous assets
    
    
    41
    
    
    
    27
    
    
    
    209Equity in income of unconsolidated affiliate
    
    
    (3,182
    )
    
    
    (2,167
    )
    
    
    (3,490
    )Distributions from unconsolidated affiliate
    
    
    2,737
    
    
    
    2,224
    
    
    
    3,678Changes in operating assets and liabilities, net of
effect of aquisitons:Trade receivables, net
    
    
    (4,037
    )
    
    
    (3,116
    )
    
    
    11,538Inventories
    
    
    (5,280
    )
    
    
    (1,592
    )
    
    
    1,361Other current assets and liabilities
    
    
    468
    
    
    
    198
    
    
    
    (30
    )Other noncurrent assets
    
    
    (62
    )
    
    
    89
    
    
    
    (180
    )Accounts payable
    
    
    3,840
    
    
    
    (1,701
    )
    
    
    (5,505
    )Restructuring charges
    
    
    (325
    )
    
    
    (1,379
    )
    
    
    (4,027
    )Accrued and other liabilities
    
    
    (8,631
    )
    
    
    (2,715
    )
    
    
    (12,063
    )Unrecognized tax benefits
    
    
    207
    
    
    
    627
    
    
    
    110Deferred compensation obligation
    
    
    332
    
    
    
    333
    
    
    
    333Restricted annuity contract
    
    
    (86
    )
    
    
    (87
    )
    
    
    (132
    )Net cash provided by (used in) continuing operations
    
    
    (9,478
    )
    
    
    (2,351
    )
    
    
    3,543Net cash provided by discontinued operations
    
    
    2,840
    
    
    
    1,737
    
    
    
    4,904Net cash provided by (used in) operating activities
    
    
    (6,638
    )
    
    
    (614
    )
    
    
    8,447Cash flows from investing activities:Acquisitions
    
    
    (4,413
    )
    
    
    (800
    )
    
    
    Purchases of property, plant and equipment
    
    
    (5,499
    )
    
    
    (2,042
    )
    
    
    (17,615
    )Additions to intangible rights and software development
    
    
    (633
    )
    
    
    (551
    )
    
    
    (281
    )Proceeds from sale of property, plant and equipment
    
    
    13
    
    
    
    11
    
    
    
    6Investment in unconsolidated affiliate
    
    
    
    
    
    
    
    
    
    
    (710
    )Discontinued operations investing activities
    
    
    (308
    )
    
    
    (397
    )
    
    
    (417
    )Net cash used in investing activities
    
    
    (10,840
    )
    
    
    (3,779
    )
    
    
    (19,017
    )Cash flows from financing activities:Borrowings (payments) on revolving line of credit
    
    
    5,000
    
    
    
    
    
    
    
    Proceeds from sale leaseback transactions
    
    
    
    
    
    
    605
    
    
    
    5,912Payments on capital lease obligations
    
    
    (756
    )
    
    
    (716
    )
    
    
    (2
    )Proceeds from term loan
    
    
    
    
    
    
    
    
    
    
    2,584Principal payments on term loan
    
    
    
    
    
    
    
    
    
    
    (2,584
    )Proceeds from stock option and warrant exercises, net
of shares tendered
    
    
    1,267
    
    
    
    357
    
    
    
    266Net cash provided by financing activities
    
    
    5,511
    
    
    
    246
    
    
    
    6,176NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (11,967
    )
    
    
    (4,147
    )
    
    
    (4,394
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    20,169
    
    
    
    24,316
    
    
    
    28,710CASH AND CASH EQUIVALENTS AT END OF YEAR
    
    $
    8,202
    
    
    $
    20,169
    
    
    $
    24,316
 See accompanying notes to consolidated financial statements.
  F - 7




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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 Presentation
 Description of Business
  ®
    F - 8




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##### Table of Contents



Basis of Presentation
 Organization
  Principles of Consolidation 
 Noncontrolling Interests 
   F - 9




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##### Table of Contents



Noncontrolling InterestEfficientLights
    
    
    IES
    
    
    TotalBalance, January 1, 2008
    
    $
    
    
    
    $
    
    
    
    $
    Income (loss)
    
    
    
    
    
    
    
    
    
    
    Distributions
    
    
    
    
    
    
    
    
    
    
    Balance, December 31, 2008
    
    
    
    
    
    
    
    
    
    
    Income (loss)
    
    
    1,512
    
    
    
    
    
    
    
    1,512Distributions
    
    
    (405
    )
    
    
    
    
    
    
    (405
    )Balance, December 31, 2009
    
    
    1,107
    
    
    
    
    
    
    
    1,107Capital Contributions
    
    
    
    
    
    
    2,188
    
    
    
    2,188Income (loss)
    
    
    280
    
    
    
    (433
    )
    
    
    (153
    )Distributions
    
    
    (877
    )
    
    
    
    
    
    
    (877
    )Acqusition of noncontrolling interest
    
    
    (510
    )
    
    
    
    
    
    
    (510
    )Balance, December 31, 2010
    
    $
    
    
    
    $
    1,755
    
    
    $
    1,755
 Use of Estimates
 Reclassifications
 2.
    
    Summary of Significant Accounting Policies and Recent Accounting Standards
 Revenue Recognition
  F - 10




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##### Table of Contents



F - 11




---



##### Table of Contents



Cash and Cash Equivalents
 2010
    
    
    2009
    
    
    2008Cash paid during the year for:Interest-continuing operations
    
    $
    461
    
    
    $
    474
    
    
    $
    171Income taxes-continuing operations
    
    
    281
    
    
    
    169
    
    
    
    432Income taxes-discontinued operations
    
    
    62
    
    
    
    169
    
    
    
    59Supplemental schedule of non-cash investing
and financing activities:Capital lease obligations incurred for the
purchase of equipment
    
    
    
    
    
    
    
    
    
    
    5,912Equipment transferred to inventory
    
    
    
    
    
    
    
    
    
    
    288
 Accounts Receivable
 Concentration of Credit Risk
  F - 12




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##### Table of Contents



Inventories
 2010
    
    
    2009Raw materials, equipment and supplies
    
    $
    16,088
    
    
    $
    14,321Work in process
    
    
    7,161
    
    
    
    5,959Finished goods and merchandise
    
    
    3,554
    
    
    
    3,129Valuation reserve
    
    
    (1,792
    )
    
    
    (1,777
    )Total
    
    $
    25,011
    
    
    $
    21,632
  Property, Plant and Equipment
 Goodwill and Other Intangible Assets
 2010Goodwill, beginning of year
    
    $
    7,256Addition due to the aquisiton of IES (Note 4)
    
    
    5,945Goodwill included in assets of discontinued
operations held for sale (Note 5)
    
    
    (5,231
    )Goodwill, end of year
    
    $
    7,970
  F - 13




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##### Table of Contents



Debt Issuance Costs
  2010
    
    
    2009Debt issuance costs, beginning of year
    
    $
    299
    
    
    $
    433Addition of debt issuance costs
    
    
    156
    
    
    
    14Amortization of debt issuance costs
    
    
    (141
    )
    
    
    (148
    )Debt issuance costs, end of year
    
    $
    314
    
    
    $
    299
  F - 14




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##### Table of Contents



Accrued and Other Liabilities
 2010
    
    
    2009Accrued project costs
    
    $
    3,746
    
    
    $
    8,844Payroll, employee benefits and related liabilities
    
    
    3,024
    
    
    
    4,441Sales, property and franchise taxes payable
    
    
    187
    
    
    
    361Advance billings on projects in progress
    
    
    1,842
    
    
    
    4,913Preferred stock redemption obligation
    
    
    104
    
    
    
    104Deferred revenue
    
    
    545
    
    
    
    512Warranty reserve
    
    
    1,087
    
    
    
    769Other
    
    
    451
    
    
    
    435Total
    
    $
    10,986
    
    
    $
    20,379
 Warranty Reserve
 Year Ended December 31,2010
    
    
    2009
    
    
    2008Warranty provision at the beginning of the year
    
    $
    769
    
    
    $
    697
    
    
    $
    421Accruals for warranties issued during the year
    
    
    380
    
    
    
    109
    
    
    
    326Warranty settlements during the year
    
    
    (62
    )
    
    
    (37
    )
    
    
    (30
    )Changes in liability for pre-existing warranties during the year
    
    
    
    
    
    
    
    
    
    
    (20
    )Warranty provision at the end of the year
    
    $
    1,087
    
    
    $
    769
    
    
    $
    697
 Share-Based Compensation
   F - 15




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##### Table of Contents



Impairment
or Disposal of Long-Lived Assets
 Income Taxes
  Subsequent
Events
 Recent Accounting Standards
 Revenue
RecognitionMilestone Method Revenue Recognition  Milestone Method (Topic 605): Milestone
Method of Revenue Recognition
  F - 16




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##### Table of Contents



Improving
Disclosures about Fair Value Measurements Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about
Fair Value Measurements
 Multiple
Deliverable Revenue Arrangements Multiple Deliverable Revenue Arrangements  A Consensus of the FASB Emerging Issues
Task Force (Topic 605) Revenue Recognition
 3.
    
    Earnings per Share
   F - 17




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##### Table of Contents



Year Ended December 31,2010
    
    
    2009
    
    
    2008Income from continuing operations
    
    $
    919
    
    
    $
    1,280
    
    
    $
    7,637Income from discontinued operations
    
    
    2,543
    
    
    
    1,513
    
    
    
    3,021Net income
    
    $
    3,462
    
    
    $
    2,793
    
    
    $
    10,658Basic weighted-average common
shares outstanding in period
    
    
    18,133
    
    
    
    17,177
    
    
    
    16,978Add dilutive effects of stock
options and warrants
    
    
    470
    
    
    
    166
    
    
    
    306Diluted weighted-average common
shares outstanding in period
    
    
    18,603
    
    
    
    17,343
    
    
    
    17,284Basic earnings per common share:Income from continuing operations
    
    $
    0.05
    
    
    $
    0.07
    
    
    $
    0.45Income from discontinued
operations
    
    
    0.14
    
    
    
    0.09
    
    
    
    0.18Basic earnings per common share
    
    $
    0.19
    
    
    $
    0.16
    
    
    $
    0.63Diluted earnings per common share:Income from continuing operations
    
    $
    0.05
    
    
    $
    0.07
    
    
    $
    0.44Income from discontinued
operations
    
    
    0.14
    
    
    
    0.09
    
    
    
    0.18Diluted earnings per common share
    
    $
    0.19
    
    
    $
    0.16
    
    
    $
    0.62
 4.
    
    Acquisitions
 Acquisition of IES
   F - 18




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##### Table of Contents



Accounts receivable
    
    $
    349Inventory
    
    
    282Equipment
    
    
    427Deposits
    
    
    14Intangible rights
    
    
    596Goodwill
    
    
    5,945Accounts payable
    
    
    (977
    )Accrued and other liabilities
    
    
    (35
    )Non-controlling interest
    
    
    (2,188
    )Net assets acquired
    
    $
    4,413
   Acquisition of Noncontrolling Interest in EfficientLights
  F - 19




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##### Table of Contents



PowerPackages
Acquisition
 Inventory
    
    $
    408Equipment
    
    
    392Total assets
    
    $
    800
  5.
    
    Discontinued Operations
    F - 20




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##### Table of Contents



2010
    
    
    2009
    
    
    2008Total revenues
    
    $
    19,380
    
    
    $
    17,113
    
    
    $
    20,732Operating expenses
    
    
    16,771
    
    
    
    14,978
    
    
    
    17,577Income before income taxes
    
    
    2,609
    
    
    
    2,135
    
    
    
    3,155Income tax provision
    
    
    (66
    )
    
    
    (622
    )
    
    
    (92
    )Income from operations
    
    
    2,543
    
    
    
    1,513
    
    
    
    3,063Gain (loss) on disposal
    
    
    
    
    
    
    
    
    
    
    (42
    )Income tax benefit on disposal
    
    
    
    
    
    
    
    
    
    
    Income from discontinued operations
    
    $
    2,543
    
    
    $
    1,513
    
    
    $
    3,021
  December 31,2010Cash and cash equivalents
    
    $
    250Trade receivables, net of allowance for doubtful accounts
    
    
    3,427Inventories
    
    
    2,182Prepaid expenses and other current assets
    
    
    169Property, Plant and equipment, net
    
    
    922Goodwill
    
    
    5,231Other assets
    
    
    2Assets of discontinued operations held for sale
    
    $
    12,183Accounts payable
    
    
    519Accrued and other liabilities
    
    
    871Current income taxes payable
    
    
    19Capital lease obligations
    
    
    2Liabilities of discontinued operations held for sale
    
    $
    1,411
  F - 21




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##### Table of Contents



6.
    
    Investment in Unconsolidated Affiliate
  December 31,2010
    
    
    2009Total current assets
    
    $
    3,753
    
    
    $
    2,942Property, plant and equipment, net
    
    
    11,616
    
    
    
    8,879Total other assets
    
    
    4
    
    
    
    6Total assets
    
    $
    15,373
    
    
    $
    11,827Total current liabilities
    
    $
    2,462
    
    
    $
    1,433Long-term note payable
    
    
    4,100
    
    
    
    2,749Total shareholders equity
    
    
    8,811
    
    
    
    7,645Total liabilities and shareholders
equity
    
    $
    15,373
    
    
    $
    11,827
 Year Ended December 31,2010
    
    
    2009
    
    
    2008Total revenues
    
    $
    18,331
    
    
    $
    12,969
    
    
    $
    17,906Total costs and expenses
    
    
    10,464
    
    
    
    7,610
    
    
    
    8,652Net income
    
    $
    7,867
    
    
    $
    5,359
    
    
    $
    9,254
 7.
    
    Deferred Compensation Plan
   F - 22




---



##### Table of Contents



8.
    
    Debt
 Line of Credit
      F - 23




---



##### Table of Contents



Term Credit Facility
 9.
    
    Capital Lease Obligations
   F - 24




---



##### Table of Contents



ScheduledYear Ending December 31:
    
    Payments2011
    
    $
    1,0162012
    
    
    1,0162013
    
    
    1,0152014
    
    
    1,0152015
    
    
    1,015Total minimum lease payments
    
    
    5,077Less: Interest included in the lease payments
    
    
    634Present value of minimum lease payments
    
    $
    4,443
 10.
    
    Commitments and Contingencies
 Other Matters
  F - 25




---



##### Table of Contents



F - 26




---



##### Table of Contents



Operating Leases
 ScheduledYear Ending December 31:
    
    Payments2011
    
    $
    1,5862012
    
    
    1,4812013
    
    
    1,3432014
    
    
    1,1212015 and thereafter
    
    
    2,138Total minimum rental payments
    
    $
    7,669
 Employee Benefit Plan
  F - 27




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##### Table of Contents



Employment Agreements
  Related Party Distributorship and Non-Compete Agreement
   11.
    
    Income Taxes
   F - 28




---



##### Table of Contents



2010
    
    
    2009
    
    
    2008Current:Federal
    
    $
    218
    
    
    $
    (13
    )
    
    $
    (160
    )State
    
    
    (296
    )
    
    
    (548
    )
    
    
    (919
    )Total current
    
    
    (78
    )
    
    
    (561
    )
    
    
    (1,079
    )Deferred:Federal
    
    
    (544
    )
    
    
    (144
    )
    
    
    305State
    
    
    96
    
    
    
    374
    
    
    
    45Total deferred
    
    
    (448
    )
    
    
    230
    
    
    
    350Total benefit (provision)
    
    $
    (526
    )
    
    $
    (331
    )
    
    $
    (729
    )
  2010
    
    
    2009
    
    
    2008Federal taxes at statutory rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State taxes, net of federal benefit
    
    
    13.0
    %
    
    
    5.7
    %
    
    
    7.7
    %Permanent items
    
    
    18.5
    %
    
    
    -8.9
    %
    
    
    1.8
    %Alternative minimum tax
    
    
    0.0
    %
    
    
    3.8
    %
    
    
    1.8
    %Tax benefit for NOL, net of valuation allowance
    
    
    -16.4
    %
    
    
    -27.9
    %
    
    
    -39.4
    %True ups and other adjustments
    
    
    -8.4
    %
    
    
    3.9
    %
    
    
    2.8
    %Effective income tax rate for continuing operations
    
    
    40.7
    %
    
    
    10.6
    %
    
    
    8.7
    %
  F - 29




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##### Table of Contents



2010
    
    
    2009Deferred tax assets:Net operating loss carryforwards
    
    $
    9,340
    
    
    $
    10,164Tax credit carryforwards
    
    
    56
    
    
    
    274Allowance for bad debts
    
    
    150
    
    
    
    103Restructuring charges
    
    
    
    
    
    
    122Equity compensation
    
    
    1,609
    
    
    
    1,288Other
    
    
    2,074
    
    
    
    1,615Gross deferred tax assets
    
    
    13,229
    
    
    
    13,566Deferred tax liabilities:Differences between book and tax basis of
property and equipment and intangible assets
    
    
    4,280
    
    
    
    5,172Investment in MM 1995-2
    
    
    390
    
    
    
    244Other
    
    
    874
    
    
    
    631Gross deferred tax liabilities
    
    
    5,544
    
    
    
    6,047Net deferred tax asset
    
    
    7,685
    
    
    
    7,519Valuation allowance and other
    
    
    (4,710
    )
    
    
    (4,806
    )Deferred tax assets, net
    
    $
    2,975
    
    
    $
    2,713
      F - 30




---



##### Table of Contents



UnrecognizedTaxBenefitBalance at January 1, 2008
    
    $
    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
    
    
    1,496Current year increase (decrease) as a result of
tax positions taken during the year
    
    
    331Reductions as a result of a lapse of
the applicable statute of limitations
    
    
    (124
    )Balance at December 31, 2010
    
    $
    1,703
    F - 31




---



##### Table of Contents



12.
    
    Capital Stock
 Stockholder Rights Plan
 Stock Warrants
 13.
    
    Share-Based Compensation
  Stock Plans
   F - 32




---



##### Table of Contents



Stock Options
  WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Term (years)
    
    
    ValueBalance, December 31, 2009
    
    
    1,627
    
    
    $
    5.18Granted-Directors
    
    
    
    
    
    
    Granted-Employees
    
    
    81
    
    
    
    9.51Exercised
    
    
    (435
    )
    
    
    3.35Expired
    
    
    (5
    )
    
    
    17.38Forfeited
    
    
    (21
    )
    
    
    9.28Balance, December 31, 2010
    
    
    1,247
    
    
    $
    5.98
    
    
    
    4.92
    
    
    $
    1.80Exercisable, December 31,
2010
    
    
    997
    
    
    $
    5.75
    
    
    
    4.07
    
    
    $
    2.03
  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
  F - 33




---



##### 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
    )
  2010
    
    
    2009
    
    
    2008Expected stock price volatilility
    
    49.6%
    
    
    57.4%
    
    
    65.0%Risk Free interest rate
    
    2.00%
    
    
    2.39%
    
    
    1.84%Annual dividends
    
    $ 
    
    
    $ 
    
    
    $ Expected life  employees
    
    5 years
    
    
    5 years
    
    
    5 yearsExpected life  directors
    
    na
    
    
    na
    
    
    na
     F - 34




---



##### Table of Contents



Restricted Stock Awards
 WeightedUnvested
    
    
    AverageRestricted
    
    
    Grant DateShares
    
    
    Fair ValueBalance, January 1, 2008
    
    
    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
    
    
    $
    10.36Granted-Directors
    
    
    21
    
    
    
    9.56Granted-Officers
    
    
    
    
    
    
    Granted-Employees
    
    
    
    
    
    
    Vested
    
    
    (104
    )
    
    
    7.25Forfeited
    
    
    
    
    
    
    Balance, December 31, 2010
    
    
    478
    
    
    $
    11.00
   F - 35




---



##### Table of Contents



14.
    
    Segment and Related Information
  Energy and Smart Grid Solutions ®
 Energy Services
   F - 36




---



##### Table of Contents



Year Ended December 31, 2010Energy and
    
    
    
    
    
    
    UnallocatedSmartgrid
    
    
    Energy
    
    
    CorporateSolutions
    
    
    Services
    
    
    Costs
    
    
    TotalRevenues
    
    $
    97,514
    
    
    $
    
    
    
    $
    
    
    
    $
    97,514Cost of sales
    
    
    62,220
    
    
    
    
    
    
    
    
    
    
    
    62,220Gross profit
    
    
    35,294
    
    
    
    
    
    
    
    
    
    
    
    35,294Operating expenses:General and administrative
    
    
    23,984
    
    
    
    
    
    
    
    5,355
    
    
    
    29,339Selling, marketing and service
    
    
    5,154
    
    
    
    
    
    
    
    
    
    
    
    5,154Depreciation and amortization
    
    
    2,675
    
    
    
    73
    
    
    
    6
    
    
    
    2,754Total operating expenses
    
    
    31,813
    
    
    
    73
    
    
    
    5,361
    
    
    
    37,247Operating income (loss)
    
    
    3,481
    
    
    
    (73
    )
    
    
    (5,361
    )
    
    
    (1,953
    )Other income and (expenses):Equity income
    
    
    
    
    
    
    3,182
    
    
    
    
    
    
    
    3,182Management fees
    
    
    
    
    
    
    583
    
    
    
    
    
    
    
    583Interest income and other income
    
    
    
    
    
    
    
    
    
    
    99
    
    
    
    99Interest expense
    
    
    (341
    )
    
    
    
    
    
    
    (278
    )
    
    
    (619
    )Income (loss) before income taxes
    
    $
    3,140
    
    
    $
    3,692
    
    
    $
    (5,540
    )
    
    $
    1,292Total capital expenditures
    
    $
    6,131
    
    
    $
    
    
    
    $
    1
    
    
    $
    6,132Total investment in
unconsolidated affiliate
    
    $
    
    
    
    $
    4,346
    
    
    $
    
    
    
    $
    4,346Total assets
    
    $
    93,553
    
    
    $
    4,497
    
    
    $
    22,479
    
    
    $
    120,529
 Year Ended December 31, 2009Energy and
    
    
    
    
    
    
    UnallocatedSmartgrid
    
    
    Energy
    
    
    CorporateSolutions
    
    
    Services
    
    
    Costs
    
    
    TotalRevenues
    
    $
    85,426
    
    
    $
    
    
    
    $
    
    
    
    $
    85,426Cost of sales
    
    
    54,231
    
    
    
    
    
    
    
    
    
    
    
    54,231Gross profit
    
    
    31,195
    
    
    
    
    
    
    
    
    
    
    
    31,195Operating expenses:General and administrative
    
    
    19,127
    
    
    
    
    
    
    
    5,042
    
    
    
    24,169Selling, marketing and service
    
    
    3,927
    
    
    
    
    
    
    
    
    
    
    
    3,927Depreciation and amortization
    
    
    2,065
    
    
    
    74
    
    
    
    5
    
    
    
    2,144Total operating expenses
    
    
    25,119
    
    
    
    74
    
    
    
    5,047
    
    
    
    30,240Operating income (loss)
    
    
    6,076
    
    
    
    (74
    )
    
    
    (5,047
    )
    
    
    955Other 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
    
    
    $
    2,540
    
    
    $
    (5,162
    )
    
    $
    3,123Total capital expenditures
    
    $
    2,591
    
    
    $
    
    
    
    $
    2
    
    
    $
    2,593Total investment in
unconsolidated affiliate
    
    $
    
    
    
    $
    3,974
    
    
    $
    
    
    
    $
    3,974Total assets
    
    $
    78,818
    
    
    $
    16,749
    
    
    $
    15,910
    
    
    $
    111,477
  F - 37




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##### Table of Contents



Year Ended December 31, 2008Energy and
    
    
    
    
    
    
    UnallocatedSmartgrid
    
    
    Energy
    
    
    CorporateSolutions
    
    
    Services
    
    
    Costs
    
    
    TotalRevenues
    
    $
    115,993
    
    
    $
    
    
    
    $
    
    
    
    $
    115,993Cost of sales
    
    
    77,550
    
    
    
    
    
    
    
    
    
    
    
    77,550Gross profit
    
    
    38,443
    
    
    
    
    
    
    
    
    
    
    
    38,443Operating expenses:General and administrative
    
    
    22,113
    
    
    
    7
    
    
    
    5,008
    
    
    
    27,128Selling, marketing and service
    
    
    5,325
    
    
    
    
    
    
    
    
    
    
    
    5,325Depreciation and amortization
    
    
    1,774
    
    
    
    67
    
    
    
    6
    
    
    
    1,847Total operating expenses
    
    
    29,212
    
    
    
    74
    
    
    
    5,014
    
    
    
    34,300Operating income (loss)
    
    
    9,231
    
    
    
    (74
    )
    
    
    (5,014
    )
    
    
    4,143Other income and (expenses):Equity income
    
    
    
    
    
    
    3,490
    
    
    
    
    
    
    
    3,490Management fees
    
    
    
    
    
    
    556
    
    
    
    
    
    
    
    556Interest income and other income
    
    
    82
    
    
    
    
    
    
    
    382
    
    
    
    464Interest expense
    
    
    (140
    )
    
    
    
    
    
    
    (147
    )
    
    
    (287
    )Income (loss) before income taxes
    
    $
    9,173
    
    
    $
    3,972
    
    
    $
    (4,779
    )
    
    $
    8,366Total capital expenditures
    
    $
    17,896
    
    
    $
    710
    
    
    $
    
    
    
    $
    18,606
  15.
    
    Unaudited Quarterly Consolidated Financial Data
   F - 38




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##### Table of Contents



Quarter in 2010First
    
    
    Second
    
    
    Third
    
    
    FourthTotal revenues
    
    $
    20,460
    
    
    $
    29,733
    
    
    $
    26,316
    
    
    $
    21,005Operating income (loss)
    
    
    17
    
    
    
    388
    
    
    
    (958
    )
    
    
    (1,400
    )Other income (expense), net
    
    
    43
    
    
    
    26
    
    
    
    (17
    )
    
    
    11Equity income
    
    
    1,030
    
    
    
    807
    
    
    
    598
    
    
    
    747Income taxes
    
    
    (205
    )
    
    
    (228
    )
    
    
    (42
    )
    
    
    (51
    )Income (loss) from continuing operations
    
    
    885
    
    
    
    993
    
    
    
    (419
    )
    
    
    (693
    )Discontinued operations:Income from operations
    
    
    519
    
    
    
    291
    
    
    
    777
    
    
    
    956Net income
    
    
    1,404
    
    
    
    1,284
    
    
    
    358
    
    
    
    263Less: Income attributable to noncontrolling
interest
    
    
    (187
    )
    
    
    40
    
    
    
    132
    
    
    
    168Income attributable to PowerSecure International
    
    $
    1,217
    
    
    $
    1,324
    
    
    $
    490
    
    
    $
    431Basic earnings per common share:Income (loss) from continuing operations
    
    $
    0.04
    
    
    $
    0.06
    
    
    $
    (0.01
    )
    
    $
    (0.03
    )Income from discontinued operations
    
    
    0.03
    
    
    
    0.01
    
    
    
    0.04
    
    
    
    0.05Basic earnings per common share
    
    $
    0.07
    
    
    $
    0.07
    
    
    $
    0.03
    
    
    $
    0.02Diluted earnings per common share:Income (loss) from continuing operations
    
    $
    0.04
    
    
    $
    0.06
    
    
    $
    (0.01
    )
    
    $
    (0.03
    )Income from discontinued operations
    
    
    0.03
    
    
    
    0.01
    
    
    
    0.04
    
    
    
    0.05Diluted earnings per common share
    
    $
    0.07
    
    
    $
    0.07
    
    
    $
    0.03
    
    
    $
    0.02
 Quarter in 2009First
    
    
    Second
    
    
    Third
    
    
    FourthTotal revenues
    
    $
    15,215
    
    
    $
    20,671
    
    
    $
    23,579
    
    
    $
    25,961Operating income (loss)
    
    
    (2,058
    )
    
    
    16
    
    
    
    1,753
    
    
    
    1,244Other income (expense), net
    
    
    (17
    )
    
    
    (8
    )
    
    
    (2
    )
    
    
    28Equity income
    
    
    477
    
    
    
    401
    
    
    
    429
    
    
    
    860Income taxes
    
    
    
    
    
    
    (2
    )
    
    
    (407
    )
    
    
    78Income (loss) from continuing operations
    
    
    (1,598
    )
    
    
    407
    
    
    
    1,773
    
    
    
    2,210Discontinued operations:Income (loss) from operations
    
    
    496
    
    
    
    610
    
    
    
    430
    
    
    
    (23
    )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
    
    $
    (0.10
    )
    
    $
    
    
    
    $
    0.07
    
    
    $
    0.09Income from discontinued operations
    
    
    0.03
    
    
    
    0.04
    
    
    
    0.03
    
    
    
    Basic earnings per common share
    
    $
    (0.07
    )
    
    $
    0.04
    
    
    $
    0.10
    
    
    $
    0.09Diluted earnings per common share:Income (loss) from continuing operations
    
    $
    (0.10
    )
    
    $
    
    
    
    $
    0.07
    
    
    $
    0.09Income from discontinued operations
    
    
    0.03
    
    
    
    0.04
    
    
    
    0.02
    
    
    
    Diluted earnings per common share
    
    $
    (0.07
    )
    
    $
    0.04
    
    
    $
    0.09
    
    
    $
    0.09
   F - 39




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##### Table of Contents



SCHEDULE II
 POWERSECURE INTERNATIONAL, INC.
 VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2010, 2009 and 2008
(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, 2010
    
    $
    299
    
    
    $
    177
    
    
    $
    (61
    )(1)
    
    $
    415Year ended December 31, 2009
    
    
    276
    
    
    
    53
    
    
    
    (30
    )(1)
    
    
    299Year ended December 31, 2008
    
    
    262
    
    
    
    216
    
    
    
    (202
    )(1)
    
    
    276Inventory reserve:Year ended December 31, 2010
    
    $
    1,777
    
    
    $
    269
    
    
    $
    (254
    )(2)
    
    $
    1,792Year ended December 31, 2009
    
    
    211
    
    
    
    1,618
    
    
    
    (52
    )(2)
    
    
    1,777Year ended December 31, 2008
    
    
    128
    
    
    
    122
    
    
    
    (39
    )(2)
    
    
    211
 
 (1)
    
    Represents amounts written off as uncollectible, less recoveries.(2)
    
    Represents amounts written off against reserve, less recoveries.




---



##### 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, 2010 AND 2009
    
    
    G - 3CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
    
    
    G - 4CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
    
    
    G - 5CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
    
    
    G - 6NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    G - 7
  G - 1




---



##### Table of Contents



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




---



##### Table of Contents



MARCUM MIDSTREAM 1995-2 BUSINESS TRUST AND SUBSIDIARY
 
 CONSOLIDATED BALANCE SHEETS
 DECEMBER 31, 2010 AND 2009
 2010
    
    
    2009ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    1,255,950
    
    
    $
    1,058,878Trade receivables (net of allowance for doubtful
accounts of
$9,454 and $9,454, respectively)
    
    
    2,451,447
    
    
    
    1,848,767Prepaid expenses
    
    
    45,432
    
    
    
    34,500Total current assets
    
    
    3,752,829
    
    
    
    2,942,145PROPERTY, PLANT AND EQUIPMENT, AT COST:Wells and storage tanks
    
    
    12,256,854
    
    
    
    9,752,032Equipment
    
    
    5,042,969
    
    
    
    4,446,830Land and improvements
    
    
    3,313,375
    
    
    
    2,231,358Total
    
    
    20,613,198
    
    
    
    16,430,220Less accumulated depletion and depreciation
    
    
    8,997,674
    
    
    
    7,551,067Property, plant and equipment, net
    
    
    11,615,524
    
    
    
    8,879,153INTANGIBLE ASSETS (net of accumulated amortization
of $15,501 and $14,168, respectively)
    
    
    4,499
    
    
    
    5,832TOTAL
    
    $
    15,372,852
    
    
    $
    11,827,130LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Current portion of note payable (Note 3)
    
    $
    1,250,232
    
    
    $
    801,029Accounts payable
    
    
    854,467
    
    
    
    260,840Administration fee
    
    
    14,125
    
    
    
    14,125Management fee
    
    
    238,907
    
    
    
    212,993Operator fee
    
    
    48,444
    
    
    
    47,204Accrued and other liabilities
    
    
    56,097
    
    
    
    96,743Total current liabilities
    
    
    2,462,272
    
    
    
    1,432,934LONG-TERM NOTE PAYABLE, NET OF
CURRENT PORTION (Note 3)
    
    
    4,099,343
    
    
    
    2,749,575COMMITMENTS AND CONTINGENCIES (Note 4)SHAREHOLDERS EQUITY
    
    
    8,811,237
    
    
    
    7,644,621TOTAL
    
    $
    15,372,852
    
    
    $
    11,827,130
 See notes to consolidated financial statements.
  G - 3




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##### Table of Contents



MARCUM MIDSTREAM 1995-2 BUSINESS TRUST AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF INCOME
 FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
 2010
    
    
    2009
    
    
    2008REVENUE:Disposal fees and mineral product sales
    
    $
    18,321,495
    
    
    $
    12,962,073
    
    
    $
    17,874,921Interest and other
    
    
    9,568
    
    
    
    6,770
    
    
    
    31,023Total revenue
    
    
    18,331,063
    
    
    
    12,968,843
    
    
    
    17,905,944COSTS AND EXPENSES:Cost of operations
    
    
    7,348,034
    
    
    
    4,944,942
    
    
    
    5,983,306Depreciation and amortization
    
    
    1,447,940
    
    
    
    1,211,417
    
    
    
    1,087,606General and administrative costs
    
    
    269,386
    
    
    
    286,149
    
    
    
    275,511Administration fee
    
    
    56,500
    
    
    
    56,500
    
    
    
    56,500Management fee
    
    
    916,075
    
    
    
    648,104
    
    
    
    893,746Operator fee
    
    
    193,775
    
    
    
    188,817
    
    
    
    162,150Interest and finance charges
    
    
    232,737
    
    
    
    274,294
    
    
    
    192,784Total costs and expenses
    
    
    10,464,447
    
    
    
    7,610,223
    
    
    
    8,651,603NET INCOME
    
    $
    7,866,616
    
    
    $
    5,358,620
    
    
    $
    9,254,341
 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, 2010, 2009 AND 2008
 ShareholdersEquityBALANCE, JANUARY 1, 2008
    
    $
    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
    
    
    7,644,621Cash distributions paid
    
    
    (6,700,000
    )Net income
    
    
    7,866,616BALANCE, DECEMBER 31, 2010
    
    $
    8,811,237
 See notes to consolidated financial statements.
  G - 5




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##### Table of Contents



MARCUM MIDSTREAM 1995-2 BUSINESS TRUST AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
 2010
    
    
    2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    7,866,616
    
    
    $
    5,358,620
    
    
    $
    9,254,341Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    1,447,940
    
    
    
    1,211,417
    
    
    
    1,087,606Changes in other assets and liabilities:Trade receivables, net
    
    
    (602,680
    )
    
    
    (455,820
    )
    
    
    323,194Accounts payable
    
    
    593,627
    
    
    
    (31,272
    )
    
    
    (186,410
    )Management fee
    
    
    25,914
    
    
    
    55,906
    
    
    
    (27,711
    )Operator fee
    
    
    1,240
    
    
    
    6,666
    
    
    
    5,918Accrued expenses
    
    
    (40,646
    )
    
    
    (42,686
    )
    
    
    38,808Prepaid expenses and other
    
    
    (10,932
    )
    
    
    (2,838
    )
    
    
    (1,025
    )Net cash provided by operating activities
    
    
    9,281,079
    
    
    
    6,099,993
    
    
    
    10,494,721CASH FLOWS FROM INVESTING ACTIVITIES:Well development and enhancement
    
    
    (3,791,246
    )
    
    
    (1,923,201
    )
    
    
    (224,205
    )Other capital expenditures
    
    
    (391,732
    )
    
    
    (98,427
    )
    
    
    (562,931
    )Net cash used in investing activities
    
    
    (4,182,978
    )
    
    
    (2,021,628
    )
    
    
    (787,136
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from note payable
    
    
    2,600,000
    
    
    
    
    
    
    
    4,300,000Payments on note payable
    
    
    (801,029
    )
    
    
    (749,396
    )
    
    
    (2,922,603
    )Distributions to preferred shareholders
    
    
    (6,700,000
    )
    
    
    (5,500,000
    )
    
    
    (9,250,000
    )Net cash used in financing activities
    
    
    (4,901,029
    )
    
    
    (6,249,396
    )
    
    
    (7,872,603
    )NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
    
    
    197,072
    
    
    
    (2,171,031
    )
    
    
    1,834,982CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR
    
    
    1,058,878
    
    
    
    3,229,909
    
    
    
    1,394,927CASH AND CASH EQUIVALENTS AT END OF YEAR
    
    $
    1,255,950
    
    
    $
    1,058,878
    
    
    $
    3,229,909
 See notes to consolidated financial statements.
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##### Table of Contents



MARCUM MIDSTREAM 1995-2 BUSINESS TRUST AND SUBSIDIARY
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
 1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Organization
  Principles of Consolidation
 Revenue Recognition
 Statements of Cash Flows
 2010
    
    
    2009
    
    
    2008Cash paid for interest
    
    $
    232,737
    
    
    $
    264,633
    
    
    $
    186,936
 Statements
of Shareholders Equity
 Receivables and Credit Policies
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##### Table of Contents



Property, Plant and Equipment
 Intangible Assets
 Income Taxes
  Use of Estimates
 Major Customers
 Subsequent Events
 2.
    
    WELL DEVELOPMENT COSTS
    G - 8




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3.
    
    NOTE PAYABLE
      G - 9




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##### Table of Contents



Years Ended
    
    PrincipalDecember 31,
    
    Payments2011
    
    $
    1,250,0002012
    
    
    1,741,0002013
    
    
    1,857,0002014
    
    
    935,0002015 and thereafter
    
    
    1,515,000$
    7,298,000
 4.
    
    COMMITMENTS AND CONTINGENCIES
    G - 10




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5.
    
    TRUST GENERAL AND ADMINISTRATIVE COSTS
   G - 11




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##### Table of Contents



6.
    
    CASH DISTRIBUTIONS AND PROFIT ALLOCATIONS
  7.
    
    OTHER RELATED PARTY TRANSACTIONS
      G - 12




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##### Table of Contents



SIGNATURES
  POWERSECURE INTERNATIONAL, INC.By:
    
    /s/ SIDNEY HINTON

Sidney HintonPresident and Chief Executive OfficerDate: March 10, 2011
 POWER OF ATTORNEY
   Signature
    
    Title
    
    Date/s/ SIDNEY HINTON

Sidney Hinton
    
    President, Chief Executive Officer and
Director

(Principal Executive Officer)
    
    March 10, 2011/s/ CHRISTOPHER T. HUTTER

Christopher T. Hutter
    
    Executive Vice President, Chief Financial Officer, 
Treasurer
and Assistant Secretary

(Principal Financial Officer)
    
    March 10, 2011/s/ GARY J. ZUIDERVEEN

Gary J. Zuiderveen
    
    Vice President of Financial Reporting, Controller,
Principal Accounting Officer,
Assistant Treasurer and Secretary
(Principal Accounting Officer)
    
    March 10, 2011/s/ ANTHONY D. PELL

Anthony D. Pell
    
    Director
    
    March 10, 2011/s/ KEVIN P. COLLINS

Kevin P. Collins
    
    Director
    
    March 10, 2011/s/ JOHN A. (ANDY) MILLER

John A. (Andy) Miller
    
    Director
    
    March 10, 2011/s/ THOMAS J. MADDEN III

Thomas J. Madden III
    
    Director
    
    March 10, 2011
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##### Table of Contents



POWERSECURE INTERNATIONAL, INC.
Form 10-K
For the Year Ended December 31, 2010
 
 EXHIBIT INDEX
 Number
    
    Description(2.1
    )
    
    Purchase and Sale Agreement, dated as of December 30, 2010,
among PowerSecure International, Inc., Southern Flow Companies, Inc., Zedi USA
Inc. and Zedi Inc. (Incorporated by reference to Exhibit 2.1 to Registrants
Current Report on Form 8-K, filed January 18, 2011)(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 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
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).(10.1
    )
    
    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.)*(10.2
    )
    
    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)*(10.3
    )
    
    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)*(10.4
    )
    
    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)*
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##### Table of Contents



Number
    
    Description(10.5
    )
    
    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.)(10.6
    )
    
    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.)(10.7
    )
    
    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.)(10.8
    )
    
    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.)(10.9
    )
    
    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.)(10.10
    )
    
    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.)*(10.11
    )
    
    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.)*(10.12
    )
    
    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)*(10.13
    )
    
    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)*(10.14
    )
    
    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)*(10.15
    )
    
    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)*(10.16
    )
    
    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)*(10.17
    )
    
    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)*(10.18
    )
    
    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)*(10.19
    )
    
    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)*
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##### Table of Contents



Number
    
    Description(10.20
    )
    
    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)*(10.21
    )
    
    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)*(10.22
    )
    
    PowerSecure International, Inc. 2010 Executive Incentive
Compensation Plan (Incorporated by reference to Exhibit 10.1 to Registrants
Current Report on Form 8-K, filed April 19, 2010)*(10.23
    )
    
    Summary Sheet of Compensation of Non-Employee Directors. (Filed
herewith.)*(10.24
    )
    
    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. (Incorporated by reference to Exhibit
10.25 to Registrants Annual Report on Form 10-K for the year ended December
31, 2009.)(10.25
    )
    
    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.)(10.26
    )
    
    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.)(10.27
    )
    
    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.)(10.28
    )
    
    Fourth Amendment to Credit Agreement, dated as of November 9,
2010, 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 10.7 to
Registrants Current Report on Form 8-K, filed November 16, 2010.)(10.29
    )
    
    Fifth Amendment to Credit Agreement, dated as of January 14, 2011,
among PowerSecure International, Inc., as borrower, Citibank, N.A., as
administrative agent and lender, and Branch Banking and Trust Company, as
lender. (Incorporated by reference to Exhibit 10.8 to Registrants Current
Report on Form 8-K/A, Amendment No. 1, filed March 4, 2011.)(10.30
    )
    
    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.)(10.31
    )
    
    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.)
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##### Table of Contents



Number
    
    Description(10.32
    )
    
    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.)(10.33
    )
    
    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. (Incorporated by
reference to Exhibit 10.32 to Registrants Annual Report on Form 10-K for the
year ended December 31, 2009.)(10.34
    )
    
    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.)(10.35
    )
    
    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.)(10.36
    )
    
    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.)(10.37
    )
    
    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.)(10.38
    )
    
    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.)(10.39
    )
    
    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.)(10.40
    )
    
    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.)(10.41
    )
    
    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.)(10.42
    )
    
    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.)*(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.)
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##### Table of Contents



Number
    
    Description(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. 
  X-5