World Energy Solutions, Inc. (NASDAQ: XWES)
Price ............................................................................................... $4.25 52-Week Range ................................................................. $2.21 - $5.10 Market Capitalization ($M) ......................................................... $50.6 Enterprise Value ($M).................................................................. $44.1 Shares Outstanding (M) ................................................................. 11.9 Float (Shares; M) .............................................................................. 7.8 Insider Ownership (%) .................................................................. 23% Institutional Ownership (%) .......................................................... 53% Daily Volume (3-Month Avg.) ................................................... 21,000 Industry ...................................................................... Business Services Corporate Headquarters ............................................... Worcester, MA
Condensed Income Statements (000s) FY Dec Revs Net Inc EPS P/E 2010 A $ 17,985 $ (99) $ (0.01) nm 2011 E $ 21,855 $ 1,879 $ 0.18 24.1x 2012 E $ 32,798 $ 4,487 $ 0.37 11.5x 2013 E $ 38,232 $ 5,605 $ 0.45 9.4x Source: Company reports, Stonegate estimates Rev Grw 23% 22% 50% 17%

February 6, 2012
$6.00 $4.00 $2.00 $0.00 Feb-11





Cash & Cash Equivs Cash/Share Equity (book value) Equity/Share

Condensed Balance Sheet (09/30/11) (000s) 6,516 Working Capital $0.55 Current Ratio 18,380 Total Debt/Equity $1.54 Total Debt/Capital

(000s) $7,602 3.5x 0% 0%

Company Description World Energy Solutions, Inc. (“World Energy”) provides a range of energy management solutions to commercial and industrial businesses, institutions, utilities, and governments to reduce their overall energy costs. The Company comes to market with a holistic approach to energy management helping customers a) contract for the lowest price for energy, b) engage in energy efficiency projects to minimize quantity used, and c) maximize available rebate and incentive programs. The Company comes offers an innovative approach to procurement via its state-of-the-art online auction platforms, the World Energy Exchange®, the World Green Exchange® and the World DR Exchange®. And with recent investments and acquisitions, World Energy is building out its energy efficiency practice, offering technology enabled solutions (such as online audits of facilities) and project management services. Initiation of coverage: XWES: Technologically Advancing the Energy Management Space  Significant potential to continue capturing market share - Per management, there currently are over 500 aggregators, brokers and consultants as potential candidates for acquistion, and the Company has recently completed three key acquistions. In addition to significant roll-up opportunities in this highly fragmented yet sizable energy brokerage space, World Energy has the ability to continue adding to its customer base while simultaneously growing through channel partnerships. XWES is also expanding its footprint in the efficiency space through additional service offerings that will assist customers in reducing overall energy costs.  Offering state-of-the-art auction platforms for increased cost efficiency and transparency – The Company has developed an online auction environment that drives competition among bidders while providing heightened transparency for all participants. These state-of-the-art platforms are drawing attention within the energy management services marketplace as a superior approach to transacting business over traditional pen and paper methodologies.  XWES has an attractive business model with scalability and current backlog - To date, the Company is reporting in excess of 2,000 customers, more than 30,000 sites (facilities being serviced), and over 500 suppliers to service those consumers. Since 2008, the Company has successfully grown its top line with minimal additions to both headcount (increased from 55 to 65 employees) and capital expenditures, and we believe that there will be no significant additions required over the next few years.  Deregulation in the industry is a near-term driver – While both federal and state laws govern the sales of electricity and natural gas, there is an overall trend in the industry towards deregulation. While the sale of natural gas is almost 100% deregulated in the U.S., deregulation in the electricity marketplace has been passed in 23 states plus D.C. (although some states are phasing in these regulatory changes). The opportunity for increased competition in these markets is significant for World Energy.  Valuation – With an ability to offer customers advanced technology and tools to maximize their cost savings, significant opportunity to continue gaining market share, and a compelling value proposition for investors, World Energy appears well positioned. Our discounted cash flow model results in a value range of about $5.93 - $7.24/share. See Important Disclosures and Disclaimer on Page 20

Investment Factors
Investment Positives
Significant potential to continue capturing market share – Per management, there currently are over 500 aggregators, brokers and consultants as potential candidates for acquistion. XWES has recently completed three key acquisitions; these acquisitions add to the Company’s capabilities in the energy efficiency arena in addition to providing World Energy access into a small to mediumsize customer base. In addition to significant roll-up opportunities in this highly fragmented yet sizable energy brokerage space, World Energy can expand its participant base both through its internal sales team as well as through channel partnerships - the Company has grown its number of channel partners from 29 to 172 over the last five years. And as part of the expansion of its efficiency practice, XWES continues to develop the technology and know-how in this segment in order to help customers implement equipment upgrades and retrofit projects with the goal of reducing a company’s total quantity of energy used. The energy efficiency market is a key area where management expects significant growth and the creation of cross-sell opportunities in the near-term. Online auctions offering advanced technology and supporting services attract new participants – The Company’s technology, principally internally developed, creates a highly sophisticated and automated environment where suppliers and consumers come together within the energy management space. Significantly advanced as compared to the historical use of pen and paper methodologies, the three online auction platforms are designed to drive competition among participants while at the same time providing transparency (management estimates that customers save approximately 7 – 15% by joining the auction platform). The exchanges are built upon a series of software modules that facilitate the deal flow for both World Energy and the exchange participants. The Company details the technology architecture as very scalable for processing as the business grows, and diligent steps have been taken to secure all client transactions. While there are no patents protecting the architecture, the true differentiator behind the platforms is the vast amount of data on market rules and industry know-how incorporated into the technology. We believe the advanced functionality of the exchanges enables the Company to outperform the more traditional competitors and should help World Energy continue to capture market share. Scalable business model with current backlog driving expanding margins – To date, the Company is reporting in excess of 2,000 customers, more than 30,000 sites, and over 500 suppliers to service those consumers. Management details the most recent contractual backlog and receivables number to be in excess of $23 million. Having executed upon long-term strategic plan of investing in infrastructure for future growth, the Company today realizes gross margins in excess of 80% and has reported positive net income for five consecutive quarters. World Energy has generated positive adjusted EBITDA for nine of the last eleven quarters as well. Since 2008, the Company has successfully grown its top line with minimal additions to both headcount (increased from 55 to 65 employees) and capital expenditures, and we believe that there will be no significant additions required in over the next few years. As the Company continues to gain market share, this scalable business model drives attractive margins. Deregulation is a near-term catalyst in the energy marketplace – As more and more federal and state legislatures allow for deregulation within the U.S. energy markets, new areas of opportunity open for World Energy to attract these consumers looking to take part in competitive bidding environments. Historically there has been intense vertical integration in the States, so much that utility providers kept near monopolies over the generation, transmission and distribution of electricity to retail consumers, now many of those end-users can select their electricity supplier themselves. Just recently, California, Michigan and Ohio have come into play through partial to full deregulation on the sale of electricity, and Oregon is expected in the near-term, among others. While only a fraction of the states in the U.S. are fully deregulated with regards to electricity transactions, the natural gas industry is significantly farther along in allowing true competition among suppliers.




even in states technically deregulated. Alternatively. Management may not be as effective in identifying future acquisition candidates and may not be able to quickly integrate and manage these newer business operations. There is nothing contractual to prevent bidders from taking their resources to the competition. The auction platform is newer technology – World Energy is operating auction platforms designed with state-of-the-art technology. the technology itself has been both developed internally as well a licensed from third-parties.. Additionally. World Energy also depends on a small number of key bidders to participate within its auction platforms. two bidders made up over 22% of the Company’s revenues (and two bidders made up over 24% for the nine months ending 9/30/11). Often. And while the government contracts typically last multiple years. for the year ending December 31. the majority of states permit consumers to choose their own natural gas supplier. Government regulation can significantly affect future results – While the trend in the electricity industry is migrating towards deregulation and increased competition. Listers have no commitment to make additional purchases beyond a specific auction event. One government entity made up more than 10% of the Company’s revenue for the year ended 2009. Acquisitions must be successfully integrated – Part of World Energy’s growth strategy is dependent on successful acquisitions. This approach differs significantly from the more traditional pen and paper methodologies and thus might meet with resistance from many market participants. in some cases. and legislation has been passed in 23 states plus D. only a little more than half of those offer truly competitive environments today as deregulation is being phased in over a period of years.Investment Challenges/Risks Lister and bidder concentration – A small number of significant listers (government entities) make up a substantial portion of World Energy’s revenues. which could negatively affect financial results. in the natural gas market. The Company quickly made one acquisition in September 2011 and then two in October 2011. the Company may face challenges in the future regarding technological rights (World Energy has no patents) as well as the threat of more advanced technologies. STONEGATE SECURITIES 3 . they are subject to cancellation clauses.C. the local utility will be able to provide electricity at subsidized rates that are too low to drive meaningful competition into the market in that area. 2010. but none represented above 10% for the year ended 2010 (and none for the nine months ending 9/30/11). Disruptions and security breaches are also legitimate concerns in this operating environment.

84 $5.88 $6.72 $5.4% 13.26 $7.9% 13.S.93 $6. See page 16 for more details to our DCF.18 $6..………………………2012 and beyond Expansion of energy efficiency business opportunities………….………2012 and beyond Additional deregulation across U. and/or other favorable legislation……2012 and beyond Increasing adoption of the online energy auction approach.27 $5. and GSE Consulting LP).72 $7.24 $6.47 Te rminal Growth Rate s 1% 2% 3% $6. Exhibit 1: Sensitivity Analysis 0% $6..70 $6.25 $7.S.98 $5.2012 and beyond STONEGATE WACC SECURITIES 4 .. and World Energy’s significant opportunities for organic growth going forward. the U. Our DCF model shows a valuation range of approximately $5. market sizes.50. we rely on a discounted cash flow analysis. And we note that no acquisition activity has been included other than the three recently announced acquisitions (Co-eXprise.50 $6.47 $5.22 $6.9% Source: Stonegate Securities We outline the following catalysts for World Energy.14 4% $8.89 $7.86 $7.Valuation Summary World Energy is a recognized leader in the industry.4% 12.46 11.54 $6. We believe that there are no truly comparable publicly traded companies at this time for direct analysis.……………….83 $6.58 $6.9% 12. Therefore.24/share with the mid-point of the range at approximately $6. Northeast Energy Solutions. We believe the long-term growth rates are reasonable given the Company’s historical rates.25 $6.93 . each with the potential to add significant upside to our model:      Full integration of 3 recent acquisitions completed…………………………………1H 2012 Additional acquisitions of brokerage competitors….66 $5.$7. operating technologically advanced auction platforms for the brokerage of energy and offering a range of services through its energy efficiency practice.

the World Energy Exchange®. including incentives such as “demand response”. was incorporated. provides energy management services utilizing state-of-the-art technology and the experience of a seasoned management team to bring lower energy costs to its customers. World Energy can more efficiently broker energy contracts than historically has been possible via traditional paper RFP and phone methods. World Energy dual listed on the NASDAQ under the symbol “XWES”. where energy suppliers and consumers come together in an auction environment to negotiate for the purchase or sale of:      electricity natural gas other energy resources environmental commodities demand response revenue share In late Q311 and early Q411. Northeast Energy Solutions and GSE Consulting. In June 1999. And ultimately. Following an IPO in November 2006. Through Q311. the Company’s business was focused on its retail and wholesale energy clients transacting via the Company’s three online platforms. In April 2009 following a 1:10 reverse stock split. XWES acquired two companies. and then the Company voluntarily delisted from the TSX in December 2010. By analyzing energy management with this simplified approach. and employed a headcount of approximately 65 as of October 31. The Company is headquartered in Worchester. better pricing and higher incentives will result in reduced energy costs for World Energy customers.Company Overview Company Background World Energy Solutions. Here. Inc. World Energy Solutions. expanding its capabilities and profile. MA. as well as the book of business of Co-eXprise. the Company traded on the Toronto Stock Exchange for approximately 4 years. and was subsequently dissolved. Service Offerings World Energy has historically operated as a leading online broker of energy in the U.S. E=P*Q–i Total energy costs (E) is a function of energy price (P) times quantity of energy consumed (Q) minus any rebates or incentives (i) that the customer can earn. These acquisitions add to the Company’s capabilities in the energy efficiency arena in addition to providing World Energy access into a small to medium-size customer base. the World Green Exchange® and the World DR Exchange®. Inc. in an online exchange. Inc.. Inc. an energy procurement business. STONEGATE SECURITIES 5 . we estimate headcount as of the end of 2011 at approximately 90. bringing together buyers and sellers of energy and related commodities. 2011. and later that October. World Energy believes that customers can more clearly see the relationships within the dynamic and complex issue of total energy management. Oceanside became a wholly-owned subsidiary of World Energy Solutions. The Company uses the following equation to help customers understand the holistic nature of the energy management problem. With the acquisitions referenced above. The Company was founded in September 1996 under the name Oceanside Energy.

or “bidders”. for their business. bidders interested in participating in an auction must first sign an agreement consenting to pay the Company a fee should the auction result in a signed contract with the customer. the Company recognizes this revenue based on actual usage figures typically provided by the supplier on a monthly basis. STONEGATE SECURITIES 6 . For example. Certified Emissions Reductions (CERs). Verified Emissions Reductions (VERs). such as Renewable Energy Certificates (RECs). These highly sophisticated and automated environments offered within its online auction platforms succeed in driving competition for business and ultimately improving the process flow for participants. and Regional Greenhouse Gas Initiative (RGGI) allowances. In this auction environment. World Energy Exchange® – As the Company’s first exchange and World Energy’s primary source of revenue. World Energy has spent years internally developing the state-of-the-art technology required for its online exchanges where suppliers and consumers come together within the energy management space. However. the fees to World Energy can be forecasted as the total amount of the commodity to be supplied multiplied by the contractual commission rate.To achieve this. the Company has developed three online auction platforms to date. World DR Exchange® – Brought online in January 2010. “listers” are the retail and wholesale energy participants looking for the lowest bid from the energy suppliers. The current technology architecture is scalable for transaction processing as the business grows and has a web-based user interface. The amount paid to World energy for its services is based upon a commission rate and is built into the price of the commodity that the customer receives within the auction. electricity generated by renewable resources) and wholesale electricity. For the majority of transactions on World Energy exchanges. this exchange forum allows bidders and listers to negotiate for the purchase or sale of environmental commodities. this platform not only facilitates the brokering of electricity and natural gas but also allows the brokering of green power (for example. World Green Exchange® – Launched in 2007. energy consumers prepared to provide a ready source of curtailment in usage are brought together with demand response providers (DRPs) in sophisticated auctions designed specifically to increase price transparency and heighten competition. when a contract is finalized between a bidder and a consumer following an auction for electricity. Technology Review With the exception of a few licensed components. the World DR (demand response) Exchange® was the first of its kind. Here. or lister.

the Company had both organic hires in Q311 as well as additions through the acquisition of Northeast Energy Solutions. The technology and knowhow in this segment help customers implement equipment upgrades and retrofit projects with the goal of reducing a company’s total quantity of energy used. Expansion in the energy efficiency market is a key area where management expects significant growth and the creation of cross-sell opportunities. The technology includes the following functionality:           A database of suppliers assists with sourcing management Lead management data tracks customers throughout the sales process One module enables deal and task management throughout procurement The market intelligence database details market rules and pricing trends RFPs (request for proposal) can be created with varying terms and parameters Online auctions manage bidding. triggering and messaging tools have been incorporated to minimize risk Forecasted and actual commissions due to channel partners are reported and analyzed A receivables management system uploads data from suppliers and tracks payments As part of the expansion of its efficiency practice. accounts and usage allows for portfolio management Monitoring. and display of results for participants A database of contracts in place. timing.Online Auction Platform Source: Company Reports The exchanges are built upon a series of software modules that facilitate the deal flow for both World Energy and the exchange participants. sites. STONEGATE SECURITIES 7 .Exhibit 2 .

channel partners significantly increase transaction volume for the Company. Exhibit 4: Selection of World Energy Customers General Services Administration* State of Connecticut State of Delaware State of Rhode Island Commonwealth of Massachusetts General Dynamics SAIC Whirlpool Corporation CenterPoint Energy Consolidated Edison Detroit Edison *World Energy's largest customer Source: Company Reports STONEGATE SECURITIES 8 . Stonegate Securities Management estimates that approximately 25% of new sales are generated by its internal sales team. The Company offers online efficiency audits at customer facilities and will prioritize and execute retrofit options as part of the deliverables.Sales and Marketing World Energy currently services four major markets. To date.15% Demand Response Environmental Commodities <5% <5% Source: Company Reports. management began acquiring the resources to enter a fifth market – efficiency – and has rolled out an energy efficiency practice in to further reduce its customers’ energy costs.85% Wholesale Energy 10 . wholesale energy. more than 30. including retail energy. Channel partners are compensated with a percentage of the revenue that World Energy receives from winning auction bidders. the Company is reporting in excess of 2. By bringing their customers to the World Energy auction platform or by offering a private label version of the platform.Major Markets Market Retail Energy Consumers Listers Commercial Industrial Government Utilities Electricity Retailers Intermediaries Curtailment Ready Customers Regulating Entities % of XWES Revenues 80 . They are meanwhile enhancing their own service offerings to their customers via the automated functionality and market intelligence accessed through the exchanges. channel partners frequently assist in bringing potential customers to the Company’s energy management platforms. In addition to having a regionally-structured salesforce courting customers to the online auction environment and conducting educational webinars for prospects. and over 500 suppliers to service consumers. Exhibit 3 . In 2011.000 customers. demand response and environmental commodities.000 sites.

And while approximately 20 – 30 have been added to the salesforce headcount as a result of the recent acquisition activity. Acquisition Growth In 2007. XWES also provides auction software and services for the Regional Greenhouse Gas Initiative (RGGI) carbon cap and trade program. STONEGATE SECURITIES 9 . the Company has been awarded a 5-year contract from the Massachusetts Department of Energy Resources to design. all while cutting costs and implementing efficiencies. With its available cash as well as access to an untapped line of credit. growing from 29 at the end of 2006 to 172 as of September 30. management remains mindful of costs in order to balance any additional overhead being considered against the receipts of payments over time as recognized under its business model. The Company anticipates continuing to add to its top line in the near-term from both organic as well as non-organic growth. Organic Growth The Company is showing significant growth from its current lines of business. On the environmental commodities front. Additionally. rapidly adding auction participants to its current platforms. 2011. World Energy has continued looking for accretive acquisition opportunities within the highly fragmented yet sizable energy brokerage space that it serves. World Energy has been able to consistently add to its list of channel partners over the last five fiscal years.Increase in Channel Partnerships 200 150 100 NUMBER OF PARTNERS 50 0 FY06 FY07 FY08 FY09 FY10 Q311 Source: Company Reports While capitalizing on the significant opportunities in the retail electricity brokerage segment. implement and manage the solar REC auction program for the State of Massachusetts. the Company continues to help customers “green” their portfolios through the purchase of renewable energy. Management is focusing on two key areas: rolling up brokers and their current books of business while also looking to expand into new areas that can further improve energy efficiency and related business operations for its customers.Growth Strategy World Energy currently transacts more volume on its platform than all its online competitors combined. where RGGI cites that more than $950M in carbon allowances have been sold to date over the course of 14 quarterly auctions. World Energy additionally has initiatives in place to gain further share in the natural gas market as well as to increase its customer base in the wholesale market. In addition to revenue driven by its internal sales team. the Company acquired Energy Gateway and has since grown the book of business approximately 65% per World Energy figures. Exhibit 5 . according to management’s disclosure.

In the wholesale markets. and traditional brokers.  The maximum payouts are $2M at 1/31/12. $1.5M earn-out provision. LLC (NES) for a purchase price of $4.5M at 1/15/13.000 customers. and in excess of 2. Terms of the agreement included an additional earn-out of up to $4. NES is a regional provider of energy efficiency services with key relationships in place and expertise in the industry. management discloses that World Energy paid less than 6x EBITDA for the recent acquisitions but expects that these additions will help XWES grow revenues in excess of historical levels (15 – 20%) to upwards of 40 – 60% in 2012. Co-eXprise is a provider of enterprise sourcing software solutions for discrete manufacturers and was a leading competitor in the energy auctions space.6M. and 1M shares of World Energy’s common stock. signed a $3M promissory note. Inc. aggregators. 2011 that it had acquired essentially all of the assets and certain liabilities of Northeast Energy Solutions. principally in the midmarket range. in July 2010. Per a press release dated 11/3/2011.9M in cash. Pennsylvania. World Energy announced on October 13. brokers or consultants (ABCs).). Environmental commodities are more traditionally sold through brokers or financial exchanges. 2011.. the Company purchased all of CoeXprise’s energy business contracts and assumed certain obligations with respect to the business.8M. World Energy can lose retail business to competitive energy suppliers. The most recent acquisition closed on October 31. an energy procurement firm with 3 offices in Texas (largest deregulated market in the U.000. The Company paid $1M in cash. a company that has developed software that can be utilized to perform efficiency audits of facilities at a significantly lower cost than the traditional manual methodologies. where XWES acquired GSE Consulting. over 25 professionals on staff. As a result of these acquisitions. Subsequent to quarter-end. For $4M in cash. and online brokers. the Company competes with generators. And there are demand response providers that will negotiate directly with customers for their participation in demand response programs. The earn-out provisions are as follows:  The earn-outs will be based on GSE achieving a certain level of new bookings (annualized) as well as renewal rates.209 shares of common stock. World Energy provided funding to Retroficiency in three equal installments totaling an investment of $650. Based in Cromwell. traders on financial exchanges.5M in cash over a two-year period through October 2013. the Company made a strategic investment in Retroficiency. $1. over 90% of the brokerage market still uses manual systems to transact their business.Hence. STONEGATE SECURITIES 10 . 2011. and $1M at 1/15/14. particularly in the government sector. World Energy enters 2012 positioned to continue growing its base business while also advancing its energy procurement service offerings. LP (GSE). Connecticut.S. and issued 83. Competition Per management. While their advanced technology offers a significant competitive advantage through increased efficiency and transparency.5M paid to retire a GSE note payable. The Company paid approximately $8. XWES closed on its acquisition of Co-eXprise’s energy procurement business based out of Wexford. comprised of $3. On September 13. The deal also includes up to a $0.

5 million on revenues of $4. Revenue recognized is based on actual usage data (when available) from the supplier. Also in the retail space. (Nasdaq: COMV) and EnerNOC. the 2010 Annual Report details earnings of approximately $1. So. Per the press release dated 3/24/11. we believe that the Company has developed a unique set of assets that would be hard to replicate at this point given the resources behind them. World Energy’s chief retail competitor. the Company’s revenue stream is fairly predictable based on contracts in place. so service levels and retention levels can vary. Inc. or approximately 4 times its expected 2011 revenue. Fees are typically 1 to 2% from the supplier. Stonegate Securities Natural Gas Transaction Fees Management Fees Transaction Fees Other Brokerage Commisions Transaction Fees Transaction Fees Transaction Fees Transaction Fees STONEGATE SECURITIES 11 .6 million (33%). With many channel partners. World Energy states that direct retail customers renew greater than 90% of the time. while results can vary due to a number of factors (weather. which is a very small portion of World Energy’s business (less than 5% of revenues). Usource is an energy services company that provides customized energy management and procurement services but rolls up under the parent company Unitil (NYSE: UTL). etc.Under the current management team. a $400 million energy company. the natural gas supplier is invoiced by World Energy for the estimated energy volume over the entire award term multiplied by its fee. revenue calculations will be based on the estimated amount of electricity delivered to the consumer for that month and later reconciled with payments received.). If actuals are not available. Two publicly traded competitors. In the wholesale arena. Summit Energy (a privately-held company operating under the pen and paper approach to brokering energy). Exhibit 6 . was bought in 2011 by Schneider Electric for $268 million. the Company recognizes revenue on transaction fees from certain natural gas suppliers upon completion of the procurement. (Nasdaq: ENOC). access to the auction platforms is an add-on service for their customers. Financial Model Review REVENUE The majority of monthly revenue comes from retail electricity transactions. and occasionally up to five year terms.Customer Fees Electricity Retail Wholesale Demand Response Environmental Commodities Efficiency Source: Company Reports. Inc. As part of its limited public disclosure for this segment. Additionally. while contracts through channel partners generally renew greater than 70% of the time. focus principally upon the demand response markets. Additional public comparables are limited. One year contracts are typical for commercial and industrial consumers. World Energy receives monthly management fees for energy and auction administration services from certain natural gas customers. while government contracts can have two to three year terms. Once awarded a contract as the result of an auction. total transaction fees are invoiced and recognized upon completion of the auction event based on a fixed fee (typically 1/10 of 1%) and are not tied to future energy usage. These natural gas transaction fees are typically paid within 30 days of invoice date and are not tied to future energy usage. Summit employed approximately 6 times more personnel than World Energy and only generated approximately 3 times the revenue. Comverge.

0 $6. but has had minimal capex requirements since that time. we believe that World Energy has truly passed through an inflection point within its business operations.0 $0. We note that World Energy made significant investment in infrastructure in FY07 and prior.Annual Backlog $16.0 $10. applicable facility and overhead costs are included in this line item as well as the amortization of certain capitalized technological costs. Exhibit 7 . credit-worthy energy suppliers. STONEGATE SECURITIES 12 . consisting mainly of personnel costs associated with the auction services and the related technology and support services. should World Energy have stopped adding any new business as of 9/30/11. which is tied to historical usage.The following chart details the Company’s annual backlog.2 million in revenue to recognize over the next twelve months.0 FY07 FY08 FY09 FY10 Q311 REVENUES (in millions) Source: Company Reports COST OF REVENUE AND OPERATING EXPENSES The Company’s cost of revenue is fairly predictable.0 $2. For example. the Company still would have approximately $14.3 million in total contract revenue going forward for contracts already in place (total backlog). the Company today realizes gross margins in excess of 80% and has reported positive net income for five consecutive quarters.0 $14. General and administrative costs are generally a fixed component of operating expenses while the sales and marketing line item has more variable components associated with sales commissions and commissions paid to channel partners.0 $12. Additionally. actual energy usage tends to increase over time resulting in the Company collecting more than the backlog number. World Energy cites that its historical collection rate is 100% as the Company is paid by large. and having $6.0 $8. positive cash flow from operations.5M on its balance sheet as of 9/30/11 (although 2 acquisitions subsequent to quarter-end). and approximately $23.0 $4. In addition. With no debt. World Energy has generated positive adjusted EBITDA for nine of the last eleven quarters as well. or revenue that will be recognized following a given date (shows year-end 2007 through 9/30/11) for a one year period after the reporting date of all retail electricity contracts in place at that time. Having executed upon a long-term strategic plan to reach profitability.

50. and we anticipate some additional staffing in this area to continue driving top line growth in the near-term. We note that in Q411. and FY2013.128 51.18.4% FY 2012 E FY 2013 E $31.5% $983 -7.3% 2.2% $921 -6. While sales and marketing and general and administrative expense levels do increase year-over-year.8M and $38.5% Q1 E Mar-12 $7. we expect that management fees will continue to slowly decline as they have since 2008 (business gained through acquisition of Gateway Energy in 2007 and not being pursued). we have also factored in organic growth potential in both 2012 and 2013 as World Energy continues to add new auction participants.3% 4.644 63.3% Q3 Sep-11 $ 5.8M. however. respectively.0% We have modeled gross margins of 80.1% 97.2% Q3 E Sep-12 $8.5% and 76.8% 2.5%. organic growth plus buying books of business could enable World Energy to exceed our DCF growth range of 10 – 15% year-over-year to the top line. Because these are one-time costs affecting the last quarter of FY2011.8% 2. The significant increase in FY12 revenues is driven first by the recent acquisition activity.EARNINGS MODEL ASSUMPTIONS We have modeled revenues for FY11. World Energy has added approximately 20 – 30 to its sales team as a result of the recent acquisitions.107 61.5M. EPS for 2011.7% 97.9% 96. FY12 and FY13.3% 4.997 39. respectively. and $5. respectively (lower margins resulting from growth in the energy efficiency business).389 16. respectively. these line items decrease as a percentage of sales over time.6% growth rates. and increases its number of channel partnerships.6M for FY11.8% $849 -7.4% $242 -9.6% 5.0% $247 -1. they have been excluded from our model.3% 97.6% 94. but longer-term. respectively.6% $247 -16.9M.7% $247 0. FY2012. STONEGATE SECURITIES 13 .3% $228 -7.37.9% 3.Revenue Assumptions Q1 Mar-11 Brokerage commissions and transaction fees $ 4. These numbers represent 21. we expect significant transaction costs related to recent acquisition activity. Stonegate Securities Q2 Jun-11 $ 4.6% $20.8% 2. Our assumptions lead to net income of $1.8% 97.7% 97.5% for FY2011.0% $237 -4.4% Q4 E Dec-11 FY 2011 E $ 6.878 52.671 Growth rates Y/Y Brokerage commissions and transaction fees As a % of total revenue Brokerage commissions and transaction fees Management fees Growth rates Y/Y Management fees As a % of total revenue Management fees Source: Company Reports.6% $223 -7. sees renewal business close at high rates.3% 3.434 38.0% 3.0% Q2 E Jun-12 $7.0% 5. and 16.8% $232 -5. $32.2M. and $0. FY12 and FY13 of $21. It is key to also point out that we have not specifically incorporated additional acquisitions into our model.383 17.7% Q4 E Dec-12 $8.4% 96.3% 95.45.0%.2% 12. 77.5% 95.1%.872 23.4% 95. We believe that current facilities and technology have real scalability to support healthy revenue growth over the next 3 to 5 years. 2012 and 2013 are $0.8% $37. $0.378 23. Exhibit 8 . Within our total revenue numbers. $4.

364.deregulatedelectricitynow. when combined. industrial and government entities. STONEGATE SECURITIES 14 . and 31% from 2009 – 2035 by the EIA’s Annual Energy Outlook 2011.S. (MWh) 1. total electricity consumption in the US as of 2008 could be broken down as follows: Exhibit 9 .so much so that utility providers kept near monopolies over the generation. The majority of World Energy’s revenue comes from the sale of retail electricity (58% in FY10). many states continue to be involved in rate regulation where the functions of transmission and distribution remain as monopoly services provided by local utility incumbents. in competitive deregulated regions end-users can select their electricity supplier themselves (or engage ABCs to assist in the process). is projected to increase over the next 10 years by approximately 19% by the North American Electric Reliability Corporation. Since the mid-1990s.C.417 7. Whereas there use to be intense vertical integration -. the average retail price per kilowatt hour from 1998 – 2009 was $ restructuring of the electricity industry across the U.Industry Background Both federal and state laws govern the electricity industry.063 1. allowing for increased competition among suppliers across the U.000 kWh = 1 MWh) per the Energy Information Administration (EIA).813 917.307.S. Per www.S.442.0983 (1. Demand for electricity in the U. and the listers that comprise this segment are commercial. these customers consume the majority of the electrical power in the U. And while prices for energy can vary greatly from state to state and year to year. with only a little more than half of those offering truly competitive environments today. the natural gas markets have seen deregulation in most states. There is federal jurisdiction over the sale and transmission of electricity at the wholesale level via interstate commerce. and the respective states have jurisdiction over the sale and distribution at the retail level.474.Consumption of Electricity in the U.S. transmission and distribution of electricity to retail consumers -.780. Federal and state governance within the natural gas industry is similar. however. electricity deregulation has been passed in 23 states plus D. According to research from the International Energy Agency.S.573 Industry Transport Residential Commercial and Public Services Source: International Energy Agency 2009 Statistics And as the chart details. has taken place under certain state legislatures with the goal of creating more competitive markets.167. as deregulation is being phased in over a period of years in some locations.

It is important to note that this increase in demand for natural gas could exceed expectations as climate change legislation grows demand for low-carbon fuels such as clean natural gas. And as with electricity. we believe several factors will contribute to the migration towards the online auction environment and away from the more traditional RFP methodologies for the procurement of this vast amount of energy. the biggest consumers of natural gas are from the commercial. Technological resources as well as the Company’s established relationships have reduced the historically lengthy timeframe true of the pen and paper approach in bringing consumers and suppliers together.36 Tcf by the year 2030 (average price per cubic foot from 1998 .2009 was $0. That is an increase in demand of 6% over 2007 levels. All participants can watch the bidding real-time as an auction takes place. profitability and customer satisfaction.The business automation platform is attractive to channel partners as a means to enhance their growth. Auctions can be tailored to a customer’s specific needs – The Company’s technologically advanced platforms can create auctions incorporating various terms. Human discretion as well as deals negotiated on the side are also removed from the cost equation (lowest cost wins on the World Energy Exchange). Access to advanced technology attracts channel partners .S. and green power requirements. Both the trend in the U. And results are immediate following the close of each auction.S. STONEGATE SECURITIES 15 . as compared to an expected total energy consumption increase from all sources of 12%. could be 24. quantities.The EIA estimates that total natural gas demand in the U. towards deregulation and the expected increases in electricity and natural gas consumption across the country long-term offer great opportunity for World Energy to broker this business and add commissions and transaction fees to the Company’s top line. industrial and governemnt sectors.71). load factors. The auction environment drives competition and heightens transparency within the procurement process – Numerous qualified bidders are brought to the auction through a structured brokerage process. As more and more consumers are allowed to seek competitive bids for their energy needs. The number of World Energy’s channel partners has more than quadrupled since 2006.

9% 0% $6.1% 22.9% 0.46 STONEGATE WACC SECURITIES 16 .9% 13.60 5.318 2.140) 2010 17.86 $7.174 2017E 7 68.017) (78) 10.0% -2.353 2.9% 14.3 0.72 $7.217 2015E 5 51.3% -4.6% 22.1% 17.9% 8.220 2.0% 2.8% 4.72 $5.6% 0.50 $4.0% -184.70 $6.6% 48.58 $6.043 17.294) (20) 5.1% 18.4% 13.9% -86.0% -5.6% 0.3% -35.315 (875) (1.628 12.9% 0.268 (3.9% 16.4% 3.6% -9.months Discount period .3 0.597 15 1.085 2.809) 2009 14.1% 22.985 (107) 1.8% -3.1% -40.9% 11.0% 13.9% 12.211 2018E 8 78.25 $7.157 2014E 4 44.0% 18.3% 15.5% -141.043 70.891) (990) (99) 11.93 $6.53 4.1% 16.445 (6.0% 17.191 2020E 10 99.8% 21.8% -80.434 (336) (523) 468 2011E 1 21.7% 16.0% 2.67 5.6% 0.7% 12.88 $6.0% 19.0% -1.3 0.4% 0.8% 3.324) (1.3% -35.3% -10.5% 7.0% -2.4% 12.892 63 5.1% 16.0% 11.756 (690) (41) (5.852 Te rminal Value 10 110.836 (6.27 $5.4% -297.8% 0.900 34.0% 0.188 2019E 9 88.746 2.834) 1.618 (2.5% -1916.9% 6.570) (884) (88) 11.0% 11.66 $5.0% 19.833 1.24 $6.8% 14.3% 13.0% 7.9% 13.0% 3.980 (5.1% 21.0% -2.8% -54.0% 50.634) (6.41 4.656 (387) (81) (1.4% 14.5% 0.3 0.724 36.116) (20) 6.349 7.5% 5.5% 151.328) 1.235 14. (NASDAQ: XWES) Estimates: Revenue Operating Income Plus: Depreciation & Amortization Less: T axes Plus: Changes in WC Less: Capex (includes Acquisitions) Free Cash Flow Discount period .106) (51) 9.929) (1.5% 21.944 1.1% 21.594) 3 0.2% 16.98 $5.6% 122.4% 15.306 (732) (1.0% 19.1% Se nsitivity Analysis: Te rminal Growth Rate s 1% 2% 3% $6.3 0.9% 16.324 (499) (1.6% 20.89 $7.1% 16.3% 6.0% -95.84 $5.47 4% $8.25 $6.404 99 8.098) (69) 8.9% 2.913 2.4% 13.1% 161.5% -10.47 $5.0% -2.9% -12.3% -15.Discounted Cash Flow World Energy Solutions.1% -35.0% -1.5% 14.6% -0.5% 3.0% 2.7% 15.50 $6.033 (5.3% 20.0% -1.394 (86) 787 (10.232 6.015 16.5% -1509.54 $6.9% 14.855 1.3% -4.26 $7.798 5.516) 77.14 11.109) (44) 7.127 (4.2% 21.391 2016E 6 59.3 0.029 51 4.97 (6.5% -65.655) (1.315 (623) (1.443 2.76 5.0% 12.676 10.082 2.990 75 6.9% 0.2% 0.104) (60) 7. Inc.832 111 9.33 3.47 4.445 8.0% -35.3% 13.0% -1.4% 23.0% -1.7% -10.5% 0.18 $6.3 0.406 15.397) 2012E 2 32.1% 18.2% 21.6% 8.3 0.793 36.739 39 3.3% 12.0% 14.86 4.3 0.3 0.809 2013E 3 38.352 $6.years Discount factor PV of FCF Growth rate assumptions: Revenue Operating Income EBIT DA Free Cash Flow Margin assumptions: Operating Income Depr/Amort as a % of sales EBIT DA T axes Changes in WC Capex as a % of sales Valuation: Shares outstanding PV of FCF PV of T erminal Value Enterprise Value less: Net Debt Estimated T otal Value: Est Equity Value /share : Current Price 11.0% 0.775 27 2.092 87 7.0% 5.1% 18.6% 15.034 (4.37 4.22 $6.1% 17.6% -35.1% 17.3% 0.25 2008 12.0% 4.83 $6.0% -1.

652 5.0% 0.277 $ 42.0x 12.081) (210) 11.1 0.638 369 0 8.602.298.0% 6.0% 6.398.951 2.638 1 44.727 3.0x 13.502 (22.0 0.0% 0.268 4.020 734 143 140 12 2.008 11.392 $ 1 43.3x $3.730 319 919 1.012 3.724 3.943 161 650 9.136 4.514 1 3.784) (221) 18.0% 6.145 8.190 191 160 0 9 2.7x 0.245 3.885 175 $ 42.714) (221) 28.896.080 $ Q3 Sep-11 6.484 3.553 267 3.012 647 1. net Investment in Retroficiency Note Receivable Intangibles.798.037 339 12.864 256 650 11.010 175 21.0% 6.553 267 3.849 360 650 14.498 294 886 1.565 903 2.110) (221) 34.138 3.2x 4.0x 1.2x 9.174 3.640) (219) 17.0% 0. net of current portion Total Liabilities Stockholders' Equity Preferred stock Common Stock .647 14.0% 7.808 11.6x ($4.885 175 34.422 1 33. Stonegate Securities 263 848 1.986 34.179 192 $ 14.384 (20.0 0.436 855 19.080 $ 1 39.179 185 20.727 $ 1 33.863.0% 5.255 428 0 8.421 1.174 3.921 754 7.730 2.8x STONEGATE SECURITIES 17 .638 13.145 $ 1 39.9x $3.335 2.6x ($4.008 11.912 287 433 3.091.073 $ 36.607 (10.0% 0.4x 1.000 2 11.849 360 650 14.1x 3.844 2.516 3.145 $ Q2 Jun-11 9. net Prepaid Expenses and Other Current Assets Total Current Assets Property and Equipment.0% 0.5x 3.8) 0.392 $ Q4 E Dec-11 3.335 2.Balance Sheets World Energy Solutions.4x 10.729 3.Par Value Additional Paid in Capital Accumulated Deficit T reasury Stock Total Stockholders' Equity (deficit) Total Liabilities and Stockholders' Equity Ratios Liquidity Current Ratio Quick Ratio Working Capital Leverage Debt T o Equity Debt T o Capital Capital Usage -Annualized A/R T urns A/P T urns *Includes earn-outs from acquisitions Source: Company Reports.0% 0.940 11.201) (221) 22.217 3. net Goodwill Other Assets Total Assets LIABILITIES AND STO CKHO LDERS' EQ UITY Current Liabilities Accounts Payable Accrued Commissions Accrued Compensation Accrued Expenses* Deferred Revenue and Customer Advances Note Payable Capital Lease Obligations Total Current Liabilities Capital Lease Obligations.0% 0.498 2.0% 7.6x 2.407 (20.394 257 650 3.614 203 650 4.6x 4.885 175 $ 34.1x 11.608 11.5x $9.940 647 1.0% 7.5x 2.740 5.201) (221) 22.986 34.136 4.940 764 1.091.885 175 $ 36.000 2 11.559 3.8) 0.691 (21.971 187 230 15 3.831) (214) 11.7x 12.350 20.179 181 $ 14.8x 10.3x $11.124 229 6.858 738 11.4x $7.7x 0.0 0.407 (20.7x 0.926 6.4x 2.593 228 650 3.007 (15.565 8.5x 10.212 $ 14.926 2011 E 2012 E 2013 E 3.208 (21.0 0.921 754 7.2x 0.515 449 1.380 21.926 1 44.940 11.688 410 10.332 258 179 0 5 3.6x 1.6x 2. (NASDAQ : XWES) Consolidated Balance Sheets (in thousands $) Fiscal Year: December 2010 ASSETS Current Assets Cash and Cash Equivalents T rade Accounts Receivables.926 $ 1 43.0% 0. Inc.359 306 6.4x $3.422 2.145 Q1 Mar-11 2.6 0.

8% 96.3% 15.890 20.0% 21.2% 5.2% 256.118 1.985 499 $ 4.551 1.6% 5.6% -0.0% 10.983 2.1% 33.2% 15.266 4.0% 84.030 $ 0.03 9.394 8.407 14.3% 3.5% 2.5% 13.3% 73.08 12.0% 128.7% 10.228 623 $ 5.4% 41.6% 4.4% 481.469 4.768 1.228 123 $ 1.7% 13.8% 15.9% 22.136 114 $ 1.2% 47.11 12.8% 17.4% -1.6% 2.0% 95.7% 13.5% 216.389 $ 5.5% 0.6% 7.922 6.5% 33.8% 52.4% 297.483 4.8% 109.199 9.053 2.01) 9.014 6.0% 123.172 1.456 5.376 17.487 $ 0.376 (107) 8 (99) (99) $ $ Q1 Mar-11 $ 4.965 86 $ 1.6% 17.0% 22.0% 22.3% 15.977 $ 7.0% 44.650 492 669 $ $ 971 4.806 848 14 862 7 855 0.3% 52.3% 292.1% 44.134 $ 4.946 11.2% 10.6% 78.9% 24.fully diluted Share count .3% 9.0% 46.6% 394.5% 15.469 5.676 21.383 849 38.220 8 6.944 21 1.116 1.6% 20.584 10.7% 121.240 2.734 6.5% 2084.09 12.1% 23.0% 18.3% 5.0% 11.060 17.0% 44.basic and dilute d Average shares outstanding .2% -0.0% 23.762 10.7% 8.879 $ 0.8% 345.294 3.8% 473.000 3. net Pre -tax income (loss) Income tax expense (benefit) Ne t income (loss) Ne t income (loss) pe r share .0% 16.4% 14.479 10.9% 6.0% 44.6% 4.234 16.7% 78.0% 161.126 12.0% 35.0% 0.187 12.0% Source: Company Reports.798 1.0% 48.225 558 699 $ $ Q2 Jun-11 Q3 Se p-11 Q4 E De c-11 FY 2011 E Q1 E Mar-12 Q2 E Jun-12 Q3 E Se p-12 Q4 E De c-12 FY 2012 E FY 2013 E $ 37.0% 23.121 7.071 1.918 1.534 9.1% 68.4% 32.3% 80.0% 58.882 7.7% 49.5% 13.2% 78.8% 56.568 5.8% 23.3% 16.096 12.8% 12.8% 295. Stonegate Securities estim ates STONEGATE SECURITIES 18 .8% 12.8% 10.985 3.7% 4.700 2.09 12.322 5.0% 18.3% 290.0% 15.9% 435.5% 79.1% 2.023 $ 0.5% 44.2% 13.8% 20.7% 78.8% 56.391 25.106 $ 0.0% 15.0% 77.378 $ 6.431 5.3% 16.232 8.0% 15.7% 23.906 1.295 23.5% 95.0% 16.7% 16.918 1.107 $ 8.8% 1712.9% 15.fully diluted 79.338 3.5% 17.605 $ 0.997 $ 31.269 9.4% 300.9% 15.4% -0.540 668 (20) 648 65 583 0.343 $ $ 1.068 1.893 14.0% 6.476 148 $ 1.1% 6.6% 488.9% 46.1% 111.7% 44.2% 538.636 5.625 1.3% 14.4% 10.1% 10.725 3.5% 43.6% 21.654 2.615 5.6% 97.497 4.3% 14.7% 10.0% 14.5% -7.5% 139.0% 60.181 1.diluted EBITDA Adjuste d EBITDA $ $ 16.4% 42.434 $ 20.0% 18.5% 82.925 1.671 247 4.6% 15.855 936 3.5% 16.009 $ (0.006 12.4% 2.9% 6.0% 16.504 5.0% 128.5% 59.4% 39.340 8.9% 24.409 8.128 $ 8.5% 29.1% 30.468 1.2% 0.0% 153.2% -2.998 Margin Analysis Gross margin Sales and marketing General and administrative Operating margin EBIT DA margin Pre-tax margin Net income margin T ax rate Growth Rate Analysis Y/Y T otal revenue Cost of revenues Sales and marketing General and administrative Operating income (loss) EBIT DA Pre-tax income Net income EPS .0% 16.6% 13.998 1.207 3.7% 9.0% 19.3% 79.0% 10.512 1.644 $ 7.203 7.148 3.5% 151.100 4.149 7.340 12.0% 17.625 6.329 $ 0.9% 38.623 10.Income Statements W orld Ene rgy Solutions.670 3.3% 4.0% 22.6% 122.2% 22.080 15.221 32.253 (25) 1.7% 27.716 14.9% 215.0% 8.677 1.3% 22.099 3. (NASDAQ : XWES) C onsolidate d State me nts of Income (in thousands $.2% 8.218 3.809 1.2% 24.8% 77.3% 132.0% 22.2% 311.7% 136.2% 70.basic Average shares outstanding .057 1.327 1.1% 20.08 10.058 1.18 10.0% 16.0% 38.356 9.4% 21.434 3.174 (38) 1.8% 138.9% 76.182 (38) 1.7% 138.4% 16.417 1.965 1.3% 28.7% 486.5% 22.3% 72.516 184 14 198 7 191 0.1% 3.756 1.0% 53.674 244 13 257 7 250 0.7% 15.9% 14.085 (100) 4.8% 1916. e xce pt pe r share amounts) Fiscal Ye ar: De ce mbe r FY 2010 Re ve nue Brokerage commissions and transaction fees Management fees Total re ve nue Cost of revenues Gross profit (loss) Operating expenses Sales and marketing General and administrative Total ope rating e xpe nse s O pe rating income (loss) Interest income (expense).9% 384.720 6.0% 44.02 10.8% 95.878 237 232 228 223 921 7.456 1.066 12.179 1.7% 10.872 247 247 242 983 4.0% 47.230 1.321 4.9% 520.9% 144.8% 5.536 1.475 1 1.9% 10.0% 15.068 9.0% 50.0% 16.998 29.45 12.7% 77.6% 0.7% 11.9% 22.5% 370.05 11.3% -8.144 114 $ 1.5% 1997.37 12.833 1. Inc.9% 2.5% 17.918 2.

002) 3.915) 102 $ 6.383 5.000) (261) $ (384) (305) 383 487 166 402 38 4.095 2.957 3.559 9.605 2.315 600 - (215) (16) (22) 13 690 (142) (644) 1.512 2. (NASDAQ : XWES) Consolidated State me nts of Cash Flows .047 3. end of period Source: Company Reports.860 (13) (4.372 5.394 639 (44) 2012 E 4.559 2.(in thousands $.324 600 2013 E 5.999 13.559 STONEGATE SECURITIES 19 .905 5.400) (261) $ (937) 16 117 509 814 (1. Stonegate Securities $ $ $ Q1 Mar-11 250 314 141 Q2 Jun-11 441 622 318 (29) Q3 Sep-11 1.382) 59 $ 7.559 6.216 $ $ (151) (181) 55 71 (638) 66 (50) 1. net Net cash provided by (used in) financing activitie s Net increase (decrease) in cash Cash and cash equivalents.304 5.670 $ (234) (77) 185 172 (1. cumulative) Fiscal Year: Dece mbe r 2010 Cash Flow from O pe rations Net income (loss) (99) Adjustments to reconcile net income (loss) to net cash : Depreciation and amortization 1.729 $ 88 (110) 30 38 (781) 4 (69) 552 (8) (259) (267) $ 85 (9) (8) 5.368 (654) 3.383 (467) (56) (523) (4.000) (2) $ (3.297 946 489 (44) 2011 E 1. beginning of year Cash and cash equivalents. Inc.274) $ (10.905 44 1 (18) (16) 354 365 1.999 $ $ (578) (118) 140 294 470 (1.304 5.371 2.516 $ 89 (11) (14) 5.657 (18) (10.403 (20) (20) 7.679) 89 (11) (11) 5.880 1.487 2.117 (20) (20) (3.Cash Flow Statements World Energy Solutions.559 2.236) (44) (89) (618) $ (5) (247) $ (252) $ 48 (4) (4) $ 40 (830) 3.434 Share-based compensation 671 Loss on disposal of property and equipment Interest on note receivable Deferred taxes Changes in assets and liabilities: T rade accounts receivable Prepaid expenses and other assets Accounts payable Accrued commissions Accrued compensation Accrued expenses Deferred revenue and customer advances Net cash provided by (used in) operating activitie s Cash Flow from Inve sting Cost incurred in software development Purchases of property and equipment Cash received in sale of property and equipment Net cash paid in acquisition Advances and changes in other assets Net cash provided by (used in) investing activities Cash Flow from Financing Proceeds from exercise of stock options Proceeds from exercise of stock warrants Purchase of treasury stock Repayment of Note Payable Principal payments on capital lease obligations Proceeds from sale of common stock.304 5.657 3.

material conflicts of interest in the securities of the Company.500 per month for 3 months and thereafter. Laura Engel. (l) Stonegate or its affiliates do not beneficially own 1% or more of an equity security of the Company. (h) A Research Analyst and/or a member of the Analyst’s household do not own shares of this security. (d) Within the last twelve months. Because the objectives of individual clients may vary. (k) This security is subject to the Securities and Exchange Commission’s Penny Stock Rules. Inc. a rating for any securities of the Company. Engel. CPA 214-987-4121 Laura@stonegateinc. compliance. Stonegate receives $7. director. (m) Stonegate does not have other actual. this report is not to be construed as an offer or the solicitation of an offer to sell or buy the securities herein mentioned. I also certify that no part of my compensation was.Stonegate does not have a price target for any securities of the Company. 2011. (i) A Research Analyst and/or a member of the Analyst’s household do not serve as an officer. Price Chart . Stonegate has not managed or co-managed a public offering for the Company. All opinions are subject to change without notice. at the Company’s discretion. officers. Stonegate’s investment banking revenues. but is not necessarily complete and its accuracy cannot be guaranteed. directors and owners do not own options. (c) Within the last twelve months.Stonegate does not rate the securities covered in its information memorandums. may make or recommend purchases and/or sales for their own accounts or for the accounts of other customers of the firm from time to time in the open market or otherwise. among other things. any issuing companies of the securities mentioned herein. Meaning of Ratings . The firm and/or its employees and/or its individual shareholders and/or members of their families and/or its managed funds may have positions or warrants in the securities mentioned and. nor has previously had. Recipients who are not market professional or institutional investor customers of Stonegate should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its Please note that this report was originally prepared and issued by Stonegate for distribution to their market professional and institutional investor customers. Additional information on any securities mentioned is available on request. (g) No employee of Stonegate serves on the Company’s Board of Directors.Stonegate does not have. The information contained herein is based on sources which we believe to be reliable. is. (“Stonegate”) expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months. Additionally. As compensation. hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. STONEGATE SECURITIES 20 . (e) Stonegate and/or its employees. (f) Stonegate does not make a market in this security. While we endeavor to update the information contained herein on a reasonable basis. no subsequent publication or distribution of this report shall mean or imply that any such opinions or information remains current at any time after the date of this report. (b) The Research Analyst principally responsible for the preparation of this report has received compensation that is based upon. Laura S. or other reasons that prevent us from doing so. and we do not undertake to advise you of any such changes. (j) This security is eligible for sale in one or more states. Regulation Analyst Certification: I. This report is the independent work of Stonegate Securities and is not to be construed as having been issued by. Price Targets .Important Disclosures and Disclaimer (a) Stonegate Securities. before or after your receipt of this report. or will be directly or indirectly related to the specific recommendations or views expressed in this report. Reproduction or redistribution of this report without the expressed written consent of Stonegate Securities is prohibited. For Additional Information Contact: Stonegate Securities. or advisory board member of the Company. The opinions or information expressed are believed to be accurate as of the date of this report. Stonegate is currently engaged to provide research and institutional investor awareness for the Company (agreement dated 12/1/11). Stonegate has received compensation for investment banking services from the Company as the sole manager in a registered direct public offering to institutional investors in April 11. rights or warrants to purchase this security.Stonegate does not rate the securities covered in its information memorandums. there may be regulatory. Distribution of Ratings . which may set forth sales practice requirements for certain low-priced securities. Inc. or in any way endorsed or guaranteed by.

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