1244937--3/12/2010--ENERNOC

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{acquisition, growth, future}

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{condition, economic, financial}

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Risks Related to Our Business We have incurred net losses since our inception, and we may continue to incur net losses in the future and may never reach profitability. We have a limited operating history in an emerging market, which may make it difficult to evaluate our business and prospects, and may expose us to increased risks and uncertainties. A substantial majority of our revenues are and have been generated from contracts with, and open market program sales to, a small number of grid operator and utility customers, and the modification or termination of these open market programs or sales relationships could materially adversely affect our business. If we fail to obtain favorable prices in the open market programs in which we currently participate or participate in the future, our revenues and profit margins could be negatively impacted. Our results of operations could be adversely affected if our operating expenses and cost of sales do not correspond with the timing of our revenues. We operate in highly competitive markets; if we are unable to compete successfully, we could lose market share and revenues. If we fail to successfully educate existing and potential grid operator and utility customers regarding the benefits of our demand response and energy management solutions or a market otherwise fails to develop for those solutions, our ability to sell our solutions and grow our business could be limited. If the actual amount of demand response capacity that we make available under our capacity commitments is less than required, our committed capacity could be reduced and we could be required to make refunds or pay penalty fees, which could negatively impact our results of operations and financial condition. Our ability to achieve our committed capacity depends on the performance of our commercial, institutional and industrial customers, and the failure of these customers to make the appropriate levels of capacity available when called upon would cause us to make refunds to, or incur penalties imposed by, our grid operator and utility customers. Our business is subject to government regulation, and may become subject to modified or new government regulation, which may negatively impact our ability to sell and market our clean and intelligent energy solutions. We depend on the electric power industry for revenues and, as a result, our operating results have experienced, and may continue to experience, significant variability due to volatility in electric power industry spending and other factors affecting the electric utility industry, such as seasonality of peak demand and overall demand for electricity. The expiration of our existing long-term contracts with utilities and grid operators without obtaining renewal or replacement contracts could negatively impact our business by reducing our revenues and profit margins, thereby having a material adverse effect on our results of operations and financial condition. Failure of third parties to manufacture quality products or provide reliable services in a timely manner could cause delays in the delivery of our solutions, which could damage our reputation, cause us to lose customers and negatively impact our growth. If we lose key personnel upon whom we are dependent, we may not be able to manage our operations and meet our strategic objectives. We expect to continue to expand our sales and marketing, operations, and research and development capabilities, as well as our financial and reporting systems, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations. An oversupply of electric generation capacity and varying regulatory structures, program rules and program designs in certain regional power markets could negatively affect our business and results of operations. We face pricing pressure relating to electric capacity made available to grid operators and utilities and in the percentage or fixed amount paid to commercial, institutional and industrial customers for making capacity available, which could adversely affect our results of operations and financial condition and delay or prevent our future profitability. An inability to protect our intellectual property could negatively affect our business and results of operations. We may be subject to damaging and disruptive intellectual property litigation related to allegations that our demand response or energy management solutions infringe on intellectual property held by others, which could result in the loss of use of those solutions. If our information technology systems fail to adequately gather, assess and protect data used in providing our clean and intelligent energy solutions, or if we experience an interruption in their operation, our business, financial condition and results of operations could be adversely affected. Global economic and credit market conditions, and any associated impact on spending by utilities or grid operators or on the continued operations of our commercial, institutional and industrial customers, could have a material adverse effect on our business, operating results, and financial condition. Electric power industry sales cycles can be lengthy and unpredictable and require significant employee time and financial resources with no assurances that we will realize revenues. An increased rate of terminations by our commercial, institutional and industrial customers, or their failure to renew contracts when they expire, would negatively impact our business by reducing our revenues, delaying or preventing our profitability and requiring us to spend more money to maintain and grow our commercial, institutional and industrial customer base. We may incur significant penalties and fines if found to be in non-compliance with any applicable State or Federal regulation. The success of our business depends in part on our ability to develop new clean and intelligent energy solutions and increase the functionality of our current demand response and energy management solutions. Any internal or external security breaches involving our demand response and energy management solutions, and even the perception of security risks of our solutions or the transmission of data over the Internet, whether or not valid, could harm our reputation and inhibit market acceptance of our solutions and cause us to lose customers. We may require significant additional capital to pursue our growth strategy, but we may not be able to obtain additional financing on acceptable terms or at all. Our SVB credit facility contains financial and operating restrictions that may limit our access to credit. If we fail to comply with covenants in the SVB credit facility, we may be required to repay our indebtedness thereunder, which may have an adverse effect on our liquidity. Our ability to use our net operating loss carryforwards may be subject to limitation. We may not be able to identify suitable acquisition candidates or complete acquisitions successfully, which may inhibit our rate of growth, and acquisitions that we complete may expose us to a number of unanticipated operational and financial risks. Our ability to provide security deposits or letters of credit is limited and could negatively affect our ability to bid on or enter into significant long-term agreements or arrangements with utilities or grid operators. If the software we use in providing our demand response and energy management solutions produces inaccurate information or is incompatible with the systems used by our customers, it could make us unable to provide our solutions, which could lead to a loss of revenues and trigger penalty payments. We may face certain product liability or warranty claims if we disrupt our customers' networks or applications. We face risks related to our potential expansion into international markets. A failure to maintain adequate internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 or prevent or detect material misstatements in our annual or interim consolidated financial statements in the future could materially harm our business and cause our stock price to decline. Risks Related to Our Common Stock We expect our quarterly revenues and operating results to fluctuate. If we fail to meet the expectations of market analysts or investors, the market price of our common stock could decline substantially. Our stock price has been and is likely to continue to be volatile and the market price of our common stock may fluctuate substantially. We do not intend to pay dividends on our common stock. Provisions of our charter, bylaws and Delaware law, and of some of our employment arrangements, may make an acquisition of us or a change in our management more difficult and could discourage acquisition bids or merger proposals, which may adversely affect the market price of our common stock. If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline. The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and NASDAQ, require significant resources, increase our costs and distract our management, and we may be unable to comply with these requirements in a timely or cost-effective manner. Our directors and management may be able to exercise significant control over our company, which will limit your ability to influence corporate matters.

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1244937--3/12/2010--ENERNOC_INC