According to the Center for Smart Energy, the electric utility market is one of the largest industries in North America with estimated sales of $275 billion in 2005. Investment in generation, transmission and distribution assets required to meet electricity demand is expected to be $10 trillion between 2005 and 2030, according to the Energy Information Administration, or EIA.

Under-investment in new transmission and distribution assets and increased demand for energy have resulted in an over-burdened electric grid, periodically preventing the movement of power to needed areas during peak times. In 2003, the Pacific Northwest National Laboratory, or PNNL, reviewed the increasing gap between the growth of the transmission and distribution network and the growth of electricity demand across North America, forecasting growth in electricity demand of 20% from 1999 to 2009, but less than 5% growth in transmission capacity expansion during that same period.

According to the EPRI, there has not been any material capital investment in electricity transmission assets (power lines, transformers, etc.) in the past decade, and at least 60% of the current infrastructure needs to be replaced. The EPRI estimates that $100 billion to $150 billion will be required over the next 10 years to enhance the North American transmission and distribution grid to the levels required by the Energy Policy Act of 2005. According to the EIA, 281 gigawatts of new power-generating capacity will be needed by 2025 to meet the growing demand for electricity in the U.S. This is equivalent to 937 new power plants, each capable of producing 300 megawatts of electricity.

Electric utilities generally use natural gas-fired peaking plants to meet peak energy demand needs. According to the American Gas Foundation, a decrease in the overall natural gas supply has resulted in considerable price volatility. Natural gas prices have ranged from a high of $13.00 per million British thermal units, or mmBtu, to a low of $5.00 per mmBtu since 2004.

Load Management Solutions offered to residential customers who are typically on a fixed rate from the utility. Digital Control Unit is an intelligent, microprocessor-driven solution for load management control; installed on large energy-consuming devices and controls the cycling and operation of the device according to the needs of the electric utility. SuperStat is an advanced, programmable thermostat solution with embedded communications to control the air conditioning and heating load. PowerCAMP Load Management Software is a software application used to manage, operate and maintain the load management devices.

AMR Systems is offered to residential and small commercial customers that are on a time-of-use rate system and also used for frequent meter reading by large commercial and industrial customers. Maingate Home is integrated AMR and load management solution developed for the growing need of AMI. Maingate Commercial and Industrial is embedded and retrofit AMR solution using digital cellular communications installed on high-revenue accounts (commercial & industrial) for electric utility billing and load analysis. PowerCAMP Metering Software is a metering and analysis software package used to collect, manage and analyze the use of energy; interfaces with billing and other backoffice applications as needed by the electric utility.

Virtual SCADA Systems is offered to customers on real-time rates that vary as their usage of energy varies and also used to monitor and manage grid automation equipment for utilities and their customers in real-time. Digital Capacitor Control is designed to remotely operate capacitors located on an electric utility’s distribution grid as and when the electric utility needs them operated for power factor correction and voltage stabilization, thereby increasing the efficiency of energy delivery to the end consumers.

The Company’s Alternative Energy Resources Group offers VPC programs to electric utilities pursuant to which it provides capacity, on a pay-for-performance basis, through long-term contracts.

General and administrative expenses were $7.0 million for the six months ended June 30, 2006 compared to $5.4 million for the six months ended June 30, 2005, an increase of $1.6 million, or 30%.

Marketing and selling expenses were $4.4 million for the six months ended June 30, 2006 compared to $3.6 million for the six months ended June 30, 2005, an increase of $0.8 million, or 22%.

Research and development expenses were $0.6 million and $0.5 million for the six months ended June 30, 2005 and 2006, respectively.

Net interest expense (income) decreased from income of $56,000 for the six months ended June 30, 2005 to an expense of $135,000 for the six months ended June 30, 2006.