##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended: December 31, 2008
 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 001-16265
 
 LIME ENERGY CO.
  Delaware
(State or other jurisdiction of incorporation or organization)
    
    36-4197337
(I.R.S. Employer Identification No.)1280 Landmeier Road, Elk Grove Village, IL
(Address of principal executive offices)
    
    60007-2410
(Zip Code)
 (847) 437-1666
  Title of each class
    
    Name of each exchange on which registeredCommon Stock $0.0001 par value
    
    The NASDAQ Stock Market LLC
 None
 o þ
 o þ
 þ o
 o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company þ o þ
   DOCUMENTS INCORPORATED BY REFERENCE




---



##### 



TABLE OF CONTENTS
 Cautionary Statement on Forward-Looking Information
    
    
    1PART I
    
    
    2Item 1.
    
    Business
    
    
    2Item 1A.
    
    Risk Factors
    
    
    9Item 1B.
    
    Unresolved Staff Comments
    
    
    20Item 2.
    
    Properties
    
    
    21Item 3.
    
    Legal Proceedings
    
    
    21Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    22PART II
    
    
    23Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    23Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    45Item 8.
    
    Financial Statements and Supplementary Data
    
    
    45Item 9.
    
    Change in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    45Item 9A.
    
    Controls and Procedures
    
    
    46Item 9B.
    
    Other Information
    
    
    47PART III
    
    
    47Item 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    47Item 11.
    
    Executive Compensation
    
    
    47Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    47Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    48Item 14.
    
    Principal Accountant Fees and Services
    
    
    48PART IV
    
    
    49Item 15.
    
    Exhibits and Financial Statement Schedules
    
    
    49SIGNATURES
    
    
    54EX-10.17.1EX-10.18.2EX-21EX-23EX-31.1EX-31.2EX-32.1EX-32.2




---



##### Table of Contents



Cautionary Statement on Forward-Looking Information
 This annual report contains forward-looking information within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, adopted pursuant to the Private Securities Litigation Reform Act of 1995. Statements that
are not purely historical may be forward-looking. You can identify these forward-looking statements
by the use of words such as anticipate, believe, estimate, expect, hope, intend, may,
project, plan, should, and similar expressions, including when used in the negative.
 Forward-looking statements are subject to various risks and uncertainties. Accordingly, there
are or will be important factors that could cause actual results to differ materially from those
indicated in these statements, including but not limited to those described under Risk Factors,
as well as, among others, the following:
 
    
    implementation of our operating and growth strategy;
    
    the loss, or renewal on less favorable terms, of management contracts;
    
    development of new, competitive energy efficiency services;
    
    changes in federal and state regulations including those affecting energy
efficiency tax credits and the energy efficiency industry;
    
    a significant decrease in the cost of energy leading to a decrease in the
demand for energy efficiency services;
    
    our ability to consummate transactions and integrate newly acquired contracts
into our operations; and
    
    availability, terms and employment of capital.
 Although we believe that the expectations reflected in these forward-looking statements are
reasonable and achievable, such statements involve risks and uncertainties and no assurance can be
given that the actual results will be consistent with these forward-looking statements. Our actual
results could differ materially from those anticipated in forward-looking statements as a result of
various factors, including matters described in this annual report, including the section titled
Managements Discussion and Analysis of Financial Condition and Results of Operations and our
financial statements and notes thereto.
 Except as otherwise required by federal securities laws, we do not undertake any obligation to
publicly update, review or revise any forward-looking statements, whether as a result of new
information, future events, changed circumstances or any other reason.
 1




---



##### Table of Contents



PART I
 
 Item 1. Business.
 Overview
  History and Business Development
        2




---



##### Table of Contents



Products and Services
 Energy Efficiency Services  Engineering and Consulting
  
    
    providing energy bill analysis to target the highest energy cost facilities within a
clients portfolio of buildings;
    
    conducting building energy audits to identify energy cost reduction opportunities within
a clients facility;
    
    providing energy management planning to assist in the development of energy master plans
for both the supply side (energy procurement in deregulated markets) and the demand side
(strategies to improve operating efficiency and reduce greenhouse gas emissions), which
includes utility rate structure analysis, energy impact of future load growth or equipment
replacement, U.S. EPA EnergyStar analysis, benchmarking and energy inflation risk analysis;
    
    undertaking engineering design review to optimize energy efficiency of new construction
and major renovation projects in order to improve a buildings energy efficiency and reduce
long-term operating costs, which includes life-cycle cost analysis and comparison of
different technologies and incremental costs versus savings analysis;
    
    providing project management services for energy-related construction or upgrade
projects, whether designed by us or others, ensuring that upgrade projects are installed
and commissioned per the design specifications;
    
    managing incentive and rebate application processing and procurement; and
    
    providing e-commissioning, a methodical investigation and tune-up process for improving
and optimizing an existing buildings operation by focusing on energy-using equipment such
as heating, cooling, lighting, and their related controls.
 Energy Efficiency Services  Implementation
  
    
    Lighting Upgrade Services. As part of our services, we seek to determine the best
lighting for our client or, in the case where our client is an energy service company, for
their client to achieve targeted financial metrics and technical specifications. These
lighting solutions take into consideration factors such as light and heat level
requirements, building environmental conditions, hours of operation, energy costs,
available utility and tax incentives, as well as
 3




---



##### Table of Contents



installation, operating and maintenance costs of various lighting alternatives. We then
upgrade the existing system with a new system that we custom configure with components from
third-party manufacturers. Our designs often incorporate occupancy sensors, light
harvesting, time clock controllers and IP addressable systems that facilitate control of
individual fixtures for maximum energy savings.
 
    
    Mechanical and Electrical Conservation Services. Our mechanical and electrical
conservation services include the development, design, analysis, implementation and
commissioning of mechanical and electrical efficiency projects at our clients facilities.
Mechanical projects utilize technology to increase the efficiency of HVAC systems. Heating
technologies decrease energy consumption through steel and sectional boilers, more
efficient burners with dual fuel technologies to take advantage of fuel switching
opportunities and economizers to reduce exhaust gas temperatures. Cooling technologies
consist of more efficient water or air cooled chillers, air handling equipment, roof top
units, split systems and packaged equipment. Other mechanical projects consist of heat
recovery, air compressor staging and upgrades along with other applications based on our
clients facilities. Electrical projects consist of motor replacements, variable frequency
drives, automated control systems and power factor correction. Unlike our lighting and
water services, these services require regional installation and technical support. Our
regional based mechanical, electrical and plumbing contracting offices provide local
technical, estimation and construction support for opportunities that exist in their
geographic region. Other benefits of our regional based offices include local vendor and
manufacturing support for the materials and products that we use in our energy conservation
projects. In most cases, mechanical and electrical conservation services development is
performed in partnership with the ESCOs to establish an energy efficiency project which
meets the owners objectives while meeting acceptable profitability and risk minimization
thresholds.
    
    Water Conservation Services. Our water conservation services include the development,
analysis, specification and installation of water reduction technologies into a clients
facility. Technologies include dual flush toilets, waterless urinals, low flow aerators for
sinks and shower heads and water reclamation for reintroduction. Water conservation is a
demonstrated energy efficiency measure that provides significant energy and environmental
cost savings. In addition to the savings associated with the cost of water, other related
opportunities include reductions in sewer costs, domestic hot water expenses and carbon
emissions from reduced fossil fuel fired to heat water. Additionally, reduced contribution
to a citys sewer system means that less waste has to be filtered at a treatment facility
reducing sewer costs and environmental impact. We use our own crews to perform the
installation of water projects throughout the country.
    
    Renewable Project Development and Implementation. Our renewable project development
projects include a biomass gasification plant which incorporates a wood chip storage bunker
and auger wood chip feed system for boiler fuel supply; a solar domestic hot water and
photovoltaic system consisting of parabolic solar dishes, heat exchangers and computerized
solar dish tracking system; and closed loop water/glycol geothermal heat pump systems. We
have developed and implemented these projects over the last three years. In each case we
have worked closely with ESCOs to review the proposed technologies, analyze proposed system
performance, design custom solutions and build to budget.
 4




---



##### Table of Contents



Energy Technology
    
    
    Improvement of HVAC operating efficiency.Since most HVAC systems are designed to
maintain comfortable environmental conditions on both the hottest and coldest days, there
exists substantial excess system capacity on most days of the year. Due to this excess
capacity, a standard HVAC system quickly satisfies a thermostats call for heating or
cooling, and in doing so overshoots the thermostat set point and leaves Btus of heat or
cooling in the heat exchanger, cooling coils and air ducts. The PERC controller acts to
correct this by dynamically matching the HVAC output to any given load condition. PERC
achieves this by periodically turning off the air conditioners compressor and condenser
fan while continuing to run the evaporator fan, thereby continuing to deliver cooling to
the conditioned space utilizing the energy stored in the cooling coils, heat exchanger and
air ducts. In heating applications, PERC periodically closes the gas valve while
continuing to operate the indoor air fan, delivering heated air into the space utilizing
the heat stored in the heat exchanger and air ducts. At the same time, the PERC controller
is monitoring the rate of temperature change in the conditioned space in order to avoid
overshooting the desired temperature setting. The PERC technology can deliver energy
savings of 15% to 20% for our end user clients.
    
    Remote wireless management of HVAC equipment.The eMAC system is comprised of a HVAC
controller with wireless communication capabilities and a central, server-based,
Internet-accessible software that monitors and controls the operation of the connected HVAC
units. A client can log on to our eMAC web site and obtain information regarding the
operation of connected HVAC equipment. A client then may centrally and remotely change
equipment operating parameters, such as hours of operation and temperature.
    
    Remove wireless monitoring of HVAC equipment.The wireless communication capabilities of
the eMAC technology allows us to monitor up to 126 points and remotely manage the operation
of a clients HVAC equipment to preempt and prevent possible failures, and to alert our
clients of any potential equipment failures. This often permits us to react to a potential
equipment problem before the occupants of the space are aware of an equipment malfunction.
We charge our clients for this ability to communicate and remotely monitor and mange their
equipment, though we often include an initial monitoring period with the purchase of the
eMAC so that our clients can become familiar with the benefits of this service.
 5




---



##### Table of Contents



Sales and Marketing
 Commercial and Industrial
     6




---



##### Table of Contents



Public Sector
   Clients
  Competition
 Commercial and Industrial
   7




---



##### Table of Contents



Public Sector
   
    
    client service and support;
    
    quality and scope of services and products;
    
    cost of services;
    
    ability to service clients at a national level;
    
    financial resources; and
    
    experience and a proven track record for services provided on transactions executed.
 Manufacturing
     Compliance with Environmental Laws
  8




---



##### Table of Contents



Research and Development
  Intellectual Property
  Employees
  
 Item 1A. Risk Factors.
 Risks Related to Our Financial Condition
 The current widespread economic downturn and uncertainty and turmoil in the equity and credit
markets could adversely impact our clients, diminish the demand for our services and products, and
harm our operations and financial performance.
   Our indebtedness could adversely affect our financial health and prevent us from fulfilling our
obligations, and we might need to raise capital, which might not be available.
  9




---



##### Table of Contents




    
    increase our vulnerability to the current economic downturn and negative industry
conditions;
    
    require us to dedicate a substantial portion of our cash flow from operations to
payments on our indebtedness, thereby reducing the availability of our cash flow to
fund working capital, capital expenditures, growth initiatives, acquisitions and other
general corporate purposes;
    
    limit our flexibility in planning for, or reacting to, changes in our business and
the industry in which we operate;
    
    limit our ability to borrow additional amounts for working capital, capital
expenditures, acquisitions, debt service requirements, execution of our growth
strategy, research and development costs or other purposes;
    
    place us at a disadvantage compared to our competitors who have less debt; and
    
    limit our ability to continue to offer customer financing in certain situations.
   We have incurred significant operating losses since inception and may not achieve or sustain
profitability in the future.
  If sufficient additional funding is not available to us, the commercialization of our services and
technologies and our ability to grow is likely to be impaired.
  10




---



##### Table of Contents



It is difficult for us to estimate our future quarterly operating results.
  Our ability to use our net operating loss carry forwards may be subject to limitation, which could
potentially result in increased future tax liability.
  Risks Related to Our Business
 We have a limited operating history under our current business model in a rapidly evolving market,
which may make it difficult to evaluate our business and prospects, and may expose us to increased
risks and uncertainties.
  11




---



##### Table of Contents




    
    maintain and expand our current relationships and develop new relationships with
commercial and industrial businesses, property owners and managers and large Energy
Service Companies serving government and educational institutions;
    
    maintain and enhance our existing energy efficiency solutions;
    
    continue to develop new and improved energy efficiency solutions that achieve
significant market acceptance;
    
    integrate Applied Energy Management, Inc. business, acquired in June 2008, into our
current business model;
    
    execute our business and marketing strategies successfully;
    
    respond to competitive developments; and
    
    attract, integrate, retain and motivate qualified personnel.
  We depend upon a limited number of clients in any given period to generate a substantial portion
of our revenue.
  Our public sector business depends on a limited number of ESCOs under contract by government and
other public end-users.
  12




---



##### Table of Contents



We may be unable to obtain sufficient bonding capacity to support certain service offerings.
  Failure of our subcontractors to properly and effectively perform their services in a timely
manner could cause delays in the delivery of our energy efficiency solutions.
  A decrease in electric retail rates could lessen demand for our energy efficiency solutions.
  The failure to effectively maintain, upgrade and sell our proprietary technologies could have a
material adverse effect on our business, results of operations and financial condition.
  13




---



##### Table of Contents



We may not be able to integrate the recent AEM acquisition successfully.
  
    
    integrating acquired operations and products with our existing operations and
products;
    
    meeting operating expectations for the acquisition;
    
    diverting managements attention from other business concerns;
    
    adverse impact on earnings of amortization or write-offs of goodwill and other
intangible assets relating to the acquisition;
    
    retaining key personnel; and
    
    establishing effective internal financial controls over the AEM business.
   If our management fails to acquire companies in the future or to effectively negotiate the terms
of future acquisitions, our growth may be impaired.
   
    
    our inability to interest such companies in a proposed transaction;
    
    our inability to agree on the terms of an acquisition;
    
    our inability to obtain adequate financing;
    
    incompatibility between our management and management of a target company; and
    
    our inability to obtain the approval of the holders of our common stock, if
required.
 14




---



##### Table of Contents



Our growth may be impaired and our current business may suffer if we do not successfully address
risks associated with acquisitions.
   If we are unable to manage our anticipated revenue growth effectively, our operations and
profitability could be adversely affected.
  We operate in a highly competitive industry and if we are unable to compete successfully our
revenue and profitability will be adversely affected.
  15




---



##### Table of Contents



The success of our business depends on the market acceptance of our energy efficiency solutions.
  Our success is largely dependent upon the skills, experience and efforts of our senior management
and our ability to attract and retain highly qualified engineers, sales people and other skilled
personnel, and the loss of their services or our inability to attract and retain such personnel
could have a material adverse effect on our ability to expand our business or to maintain
profitable operations.
   16




---



##### Table of Contents



Any internal or external security breaches involving our eMAC technology could harm our
reputation, and even the perception of security risks regarding internet data transmission,
whether or not valid, could inhibit market acceptance of our energy efficiency solutions and cause
us to lose clients.
  If our information technology systems fail, or if we experience operation interruptions, then our
business, results of operations and financial condition could be materially adversely affected.
  
    
    earthquake, fire, flood and other natural disasters;
    
    employee or other theft;
    
    attacks by computer viruses or hackers;
    
    power outages; and
    
    computer systems, Internet, telecommunications or data network failure.
  Product liability and personal injury claims could have a material adverse effect on our business,
results of operations and financial condition.
  17




---



##### Table of Contents



Our retrofitting process frequently involves responsibility for the removal and disposal of
components containing hazardous materials and at times requires that our contractors or
subcontractors work in hazardous conditions, either of which could give rise to a claim against
us.
  Risks Related to Ownership of our Common Stock
 The future trading market for our common stock may not be active on a consistent basis and the
market price of our common stock could be subject to significant fluctuations.
   
    
    variations in our operating results;
    
    announcements by us, our competitors or others of significant business developments,
changes in client relationships, acquisitions or expansion plans;
    
    analysts earnings estimates, ratings and research reports;
    
    the depth and liquidity of the market for our common stock;
    
    speculation in the press;
 18




---



##### Table of Contents




    
    strategic actions by us or our competitors, such as sales promotions or
acquisitions;
    
    actions by institutional and other stockholders;
    
    recruitment or departure of key personnel; or
    
    domestic and international economic factors and trends, some of which may be
unrelated to our performance.
   Due to the concentration of holdings of our stock, a limited number of investors may be able to
control matters requiring common stockholder approval or could cause our stock price to decline
through future sales because they beneficially own a large percentage of our common stock.
    19




---



##### Table of Contents



Raising additional capital or consummation of additional acquisitions through the issuance of
equity or equity-linked securities could dilute your ownership interest.
  We expect our quarterly revenue 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, and we could become subject to securities litigation.
  If securities analysts do not publish research or reports about our business or if they downgrade
their evaluations of our stock, the price of our stock could decline.
  
 Item 1B.
    
    Unresolved Staff Comments.
  20




---



##### Table of Contents



Item 2.
    
    Properties.
   Location:
    
    Business Segment
    
    Square Feet
    
    Lease ExpirationAustin, TX
    
    Energy Efficiency Services
    
    
    4,000
    
    
    June 2011Bronx, NY
    
    Energy Efficiency Services
    
    
    2,500
    
    
    Month-to-monthGlendora, CA
    
    Energy Efficiency Services
    
    
    14,700
    
    
    December 2009Greensboro, NC
    
    Energy Efficiency Services
    
    
    3,000
    
    
    March 2011Huntersville, NC
    
    Energy Efficiency Services
    
    
    6,560
    
    
    March 2013Lee, MA
    
    Energy Efficiency Services
    
    
    7,600
    
    
    April 2010Locust, NC
    
    Energy Efficiency Services
    
    
    4,000
    
    
    March 2011New York, NY
    
    Energy Technology
    
    
    2,800
    
    
    September 2010N. Miami Beach, FL
    
    Energy Efficiency Services
    
    
    5,510
    
    
    May 2010Riverton, UT
    
    Energy Efficiency Services
    
    
    600
    
    
    December 2009San Diego, CA
    
    Energy Technology
    
    
    8,200
    
    
    September 2012Saddle Brook, NJ
    
    Energy Efficiency Services
    
    
    2,288
    
    
    January 2010South Plainfield, NJ
    
    Energy Efficiency Services
    
    
    2,093
    
    
    November 2009Redmond, WA
    
    Energy Efficiency Services
    
    
    1,877
    
    
    December 2009Ventura, CA
    
    Energy Efficiency Services
    
    
    1,776
    
    
    November 2010
  
 Item 3.
    
    Legal Proceedings.
  21




---



##### Table of Contents



Item 4.
    
    Submission of Matters to a Vote of Security Holders.
  
    
    a private placement transaction under which we issued 1,787,893 units, each comprised of
one share of our common stock and a warrant to purchase an additional quarter share of our
common stock, to 15 investors, including our officers and directors, for gross proceeds of
$6.275 million;
    
    the issuance of 358,710 shares of Series A-1 convertible preferred stock, to Mr.
Kiphart, the Chairman of the Board of Directors and our largest shareholder, in return for
him cancelling a revolving line of credit note under which we then owed $14.7 million to
him; and
    
    the adoption of and amendment to our 2008 Employee Stock Purchase Plan.
  
    
    the amendment to the our 2008 Long-Term Incentive Plan increasing the maximum number of shares authorized and raising the automatic annual increase in shares available for awards;
and
    
    the implementation of a stock option exchange offer to employees, officers and directors
holding underwater options issued under our long-term incentive plans.
   22




---



##### Table of Contents



PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
   Common StockHigh
    
    LowFiscal Year Ended December 31, 2007:Fiscal Quarter Ended March 31, 2007
    
    $
    7.70
    
    
    $
    6.30Fiscal Quarter Ended June 30, 2007
    
    $
    15.05
    
    
    $
    5.81Fiscal Quarter Ended September 30, 2007
    
    $
    14.21
    
    
    $
    9.45Fiscal Quarter Ended December 31, 2007
    
    $
    15.75
    
    
    $
    5.60Fiscal Year Ended December 31, 2008:Fiscal Quarter Ended March 31, 2008
    
    $
    12.00
    
    
    $
    6.30Fiscal Quarter Ended June 30, 2008
    
    $
    10.50
    
    
    $
    5.70Fiscal Quarter Ended September 30, 2008
    
    $
    7.25
    
    
    $
    5.00Fiscal Quarter Ended December 31, 2008
    
    $
    6.31
    
    
    $
    3.26
 Holders
  Dividends
   23




---



##### Table of Contents



Recent Sales of Unregistered Securities
    
 Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Overview
     
    
    Energy Efficiency Services. Our Energy Efficiency Services segment
represented approximately 96% of our revenue during the 2008. Our Energy Efficiency
Services segment includes:
 
    
    Engineering and consulting: We apply our engineering expertise
to analyze each clients energy consumption and operational needs and develop
customized energy
 24




---



##### Table of Contents



efficiency solutions. Our energy engineering and consulting
services include project development services, energy management planning,
energy bill analysis, building energy audits and e-commissioning. We also
provide design review and analysis of new construction projects to maximize
energy efficiency and sustainability, project management of energy-related
construction, and processing and procurement of incentive and rebate
applications.
 
    
    Implementation: We provide a range of energy efficiency and
conservation services, including energy efficient lighting upgrade services,
mechanical and electrical conservation services, water conservation, services
building envelope weatherization services and renewable energy solutions. Our
objective is to improve the quality of our clients physical space, maximize
their operational savings, capitalize on rebates available to them and reduce
their maintenance costs. We take into consideration factors such as
infrastructure requirements, best available technologies, building
environmental conditions, hours of operation, energy costs, available utility
rebates and tax incentives, and installation, operation and maintenance costs
of various efficiency alternatives.
 
    
    Energy Technology. Our Energy Technology segment, which represented
approximately 4% of our 2008 revenue, offers our patented line of heating, ventilation
and air conditioning and lighting controllers under the eMAC and uMAC brand names. The
eMAC technology provides remote monitoring, management and control of commercial
rooftop HVAC units. Our uMAC technology is a version of the eMAC that remotely controls
the operation of a facilitys lights via wireless communications.
    
    Financial Services. Our Financial Services segment began operations in late
2007 to enable our commercial and industrial clients to pay for our energy efficiency
solutions over time. We record the extended payment receivables from our clients as
long-term receivables and consolidate them within a subsidiary for purposes of optimal
receivables management and in anticipation of potentially financing them in order to
reduce our cost of capital. Since its inception through December 31, 2008, we have
provided extended payment terms on approximately $3 million of our sales, and as of
December 31, 2008 we had approximately $2.5 million of receivables in this portfolio.
 General Business Trends and Recent Developments
  Recent Establishment and Expansion of Energy Efficiency Services Business
  25




---



##### Table of Contents



AEM Transaction
   Uncertainty Regarding our Energy Technology Segment
    26




---



##### Table of Contents



Private Placement
  Recapitalization
  ADVB Acquisition
  Critical Accounting Policies and Estimates
  27




---



##### Table of Contents



Use of Estimates
  Revenue and Profit Recognition
 Revenue Recognition
    28




---



##### Table of Contents



Allowance for Doubtful Accounts
  Amortization of Intangibles
 Business Combinations Goodwill and Other Intangible Assets
  Impairment Loss
 Accounting for the
Impairment or Disposal of Long-Lived Assets
 29




---



##### Table of Contents



Goodwill
      Stock-Based Compensation
 Share-Based Payment
 30




---



##### Table of Contents



Results of Operations
 Revenue
  Energy Efficiency Services Segment
  Energy Technology Segment
  Financial Services Segment
  31




---



##### Table of Contents



Gross Profit
   Selling, General and Administrative Expenses
  
    
    direct labor and commission costs related to our employee sales force;
    
    costs of our non-production management, supervisory and staff salaries and employee
benefits, including the costs of stock-based compensation;
    
    costs related to insurance, travel and entertainment, office supplies and utilities;
    
    costs related to marketing and advertising our products;
    
    legal and accounting expenses;
    
    research and development expenses; and
    
    costs related to administrative functions that serve to support our existing
businesses, as well as to provide the infrastructure for future growth.
 Amortization of Intangibles
  Other Expense
  Dividend Expense
  32




---



##### Table of Contents



Twelve-Month Period Ended December 31, 2008
Compared With the
Twelve-Month Period Ended December 31, 2007
 Consolidated Results
 Twelve Months Ended
    
    
    ChangeDecember 31, 2008
    
    
    December 31, 2007
    
    
    $
    
    
    %Revenue
    
    $
    57,221,924
    
    
    $
    19,481,130
    
    
    $
    37,740,794
    
    
    
    193.7
    %Cost of sales
    
    
    45,183,102
    
    
    
    15,082,400
    
    
    
    30,100,702
    
    
    
    199.6Gross profit
    
    
    12,038,822
    
    
    
    4,398,730
    
    
    
    7,640,092
    
    
    
    173.7Selling, general and administrative
    
    
    20,391,137
    
    
    
    13,072,381
    
    
    
    7,318,756
    
    
    
    56.0Amortization of intangibles
    
    
    2,092,095
    
    
    
    2,011,878
    
    
    
    80,217
    
    
    
    4.0Impairment loss
    
    
    
    
    
    
    4,181,969
    
    
    
    (4,181,969
    )
    
    
    (100.0
    )Operating loss
    
    
    (10,444,410
    )
    
    
    (14,867,498
    )
    
    
    4,423,088
    
    
    
    (29.8
    )Total other income (expense)
    
    
    (2,591,116
    )
    
    
    (685,230
    )
    
    
    (1,905,886
    )
    
    
    278.1Net Loss
    
    
    (13,035,526
    )
    
    
    (15,552,728
    )
    
    
    2,517,202
    
    
    
    (16.2
    )Preferred Stock Dividends
    
    
    (288,014
    )
    
    
    
    
    
    
    (288,014
    )
    
    
    Net Loss Available to Common
Shareholders
    
    $
    (13,323,540
    )
    
    $
    (15,552,728
    )
    
    $
    2,229,188
    
    
    
    (14.3
    )%
  Twelve Months EndedDecember 31, 2008
    
    
    December 31, 2007Revenue
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    79.0
    
    
    
    77.4Gross profit
    
    
    21.0
    
    
    
    22.6Selling, general and administrative
    
    
    35.6
    
    
    
    67.1Amortization of intangibles
    
    
    3.7
    
    
    
    10.3Impairment loss
    
    
    
    
    
    
    21.5Operating loss
    
    
    (18.3
    )
    
    
    (76.3
    )Total other income (expense)
    
    
    (4.5
    )
    
    
    (3.5
    )Net Loss
    
    
    (22.8
    )
    
    
    (79.8
    )Preferred Stock Dividends
    
    
    (0.5
    )
    
    
    Net Loss Available to Common
Shareholders
    
    
    (23.3
    )%
    
    
    (79.8
    )%
 Revenue.
 33




---



##### Table of Contents



Gross Profit.
 SG&A Expense.
 Amortization of Intangibles.
 34




---



##### Table of Contents



Other Non-Operating Income (Expense).
 Year ended December 31
    
    2008
    
    
    2007Line of credit
    
    $
    953,045
    
    
    $
    Note payable
    
    
    73,626
    
    
    
    16,547Mortgage
    
    
    26,809
    
    
    
    43,931Subordinated convertible notes
    
    
    500,000
    
    
    
    293,683Other
    
    
    120,836
    
    
    
    5,476Total contractual interest
    
    
    1,674,317
    
    
    
    359,637Amortization of deferred issuance
costs and debt discount
    
    
    1,003,883
    
    
    
    592,456Total Interest Expense
    
    $
    2,678,200
    
    
    $
    952,093
   Dividend Expense.
 35




---



##### Table of Contents



Twelve-Month Period Ended December 31, 2007
Compared With the
Twelve-Month Period Ended December 31, 2006
 Consolidated Results
 Twelve Months Ended
    
    
    ChangeDecember 31,
    
    
    December 31,2007
    
    
    2006
    
    
    $
    
    
    %Revenue
    
    $
    19,481,130
    
    
    $
    8,143,624
    
    
    $
    11,337,506
    
    
    
    139.2
    %Cost of sales
    
    
    15,082,400
    
    
    
    6,931,294
    
    
    
    8,151,106
    
    
    
    117.6Gross profit
    
    
    4,398,730
    
    
    
    1,212,330
    
    
    
    3,186,400
    
    
    
    262.8Selling, general and administrative
    
    
    13,072,381
    
    
    
    12,165,700
    
    
    
    906,681
    
    
    
    7.5Amortization of intangibles
    
    
    2,011,878
    
    
    
    1,210,006
    
    
    
    801,872
    
    
    
    66.3Impairment loss
    
    
    4,181,969
    
    
    
    1,183,525
    
    
    
    2,998,444
    
    
    
    253.3Operating loss
    
    
    (14,867,498
    )
    
    
    (13,346,901
    )
    
    
    (1,520,597
    )
    
    
    11.4Total other income (expense)
    
    
    (685,230
    )
    
    
    (3,079,188
    )
    
    
    2,393,958
    
    
    
    (77.7
    )Loss from continuing operations before
discontinued operations
    
    
    (15,552,728
    )
    
    
    (16,426,089
    )
    
    
    873,361
    
    
    
    (5.3
    )Loss from operation of discontinued business
    
    
    
    
    
    
    (21,425
    )
    
    
    21,425
    
    
    
    (100.0
    )Net Loss
    
    
    (15,552,728
    )
    
    
    (16,447,514
    )
    
    
    894,786
    
    
    
    (5.4
    )Preferred Stock Dividends
    
    
    
    
    
    
    (24,347,725
    )
    
    
    24,347,725
    
    
    
    (100.0
    )Net Loss Available to Common
Shareholders
    
    $
    (15,552,728
    )
    
    $
    (40,795,239
    )
    
    $
    25,242,511
    
    
    
    (61.9)
    %
  Twelve Months EndedDecember 31,
    
    December 31,2007
    
    2006Revenue
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    77.4
    
    
    
    85.1Gross profit
    
    
    22.6
    
    
    
    14.9Selling, general and administrative
    
    
    67.1
    
    
    
    149.4Amortization of intangibles
    
    
    10.3
    
    
    
    14.9Impairment loss
    
    
    21.5
    
    
    
    14.5Operating loss
    
    
    (76.3
    )
    
    
    (163.9
    )Total other income (expense)
    
    
    (3.5
    )
    
    
    (37.8
    )Net Loss
    
    
    (79.8
    )
    
    
    (202.0
    )Preferred Stock Dividends
    
    
    
    
    
    
    (299.0
    )Net Loss Available to Common
Shareholders
    
    
    (79.8
    )%
    
    
    (500.9
    )%
 Revenue.
 36




---



##### Table of Contents



Gross Profit.
 SG&A Expense.
 Amortization of Intangibles.
 Impairment Loss.
 37




---



##### Table of Contents



Other Non-Operating Income (Expense).
 Year ended December 31
    
    2007
    
    
    2006Line of credit
    
    $
    
    
    
    $
    50,344Note payable
    
    
    16,547
    
    
    
    16,563Mortgage
    
    
    43,931
    
    
    
    46,495Subordinated convertible notes
    
    
    293,683
    
    
    
    -Convertible term loans
    
    
    
    
    
    
    249,065Other
    
    
    5,476
    
    
    
    1,772Total contractual interest
    
    
    359,637
    
    
    
    364,239Amortization of deferred issuance
costs and debt discount
    
    
    592,456
    
    
    
    1,175,970Prepayment penalty
    
    
    
    
    
    
    516,071Value of adjustment in conversion
Price
    
    
    
    
    
    
    950,865Termination of post re-payment
interest obligation
    
    
    
    
    
    
    266,225Total Interest Expense
    
    $
    952,093
    
    
    $
    3,273,370
   38




---



##### Table of Contents



Liquidity and Capital Resources
 Overview
    Year ended December 31
    
    2008
    
    
    
    
    
    
    2007
    
    
    
    
    
    
    2006Net cash used in operating activities
    
    $
    (13,444,029
    )
    
    
    
    
    
    $
    (6,774,805
    )
    
    
    
    
    
    $
    (6,248,085
    )Net cash used in investing activities
    
    
    (4,203,382
    )
    
    
    
    
    
    
    (1,217,834
    )
    
    
    
    
    
    
    (4,264,930
    )Net cash provided by financing activities
    
    
    16,600,250
    
    
    
    
    
    
    
    8,109,722
    
    
    
    
    
    
    
    10,947,483Net (Decease) Increase in Cash and Cash Equivalents
    
    
    (1,047,161
    )
    
    
    
    
    
    
    117,083
    
    
    
    
    
    
    
    434,468Cash and Cash Equivalents, at beginning of period
    
    
    4,780,701
    
    
    
    
    
    
    
    4,663,618
    
    
    
    
    
    
    
    4,229,150Cash and Cash Equivalents, at end of period
    
    $
    3,733,540
    
    
    
    
    
    
    $
    4,780,701
    
    
    
    
    
    
    $
    4,663,618
 2008 Compared to 2007
  Operating Activities
    39




---



##### Table of Contents



Investing Activities
  Financing Activities
   2007 Compared to 2006
  Operating Activities
  40




---



##### Table of Contents



Investing Activities
  Financing Activities
  Sources of Liquidity
     41




---



##### Table of Contents




    
    Focus on increasing the sales and profitability of our products and services.
We believe that to a great degree our ability to generate positive cash flows is dependent
on our ability to increase sales while holding or improving our margins. Our revenue in
the fourth quarter of 2008 was $29 million, exceeding the amount earned in any prior
quarterly period. It was also the first quarter in our history in which our cash earnings
(earnings excluding depreciation, amortization and share based compensation) exceeded our
interest and dividend expense. We believe that our current infrastructure can support a
sales level that will generate positive cash earnings on a full year basis. We also
believe there are opportunities to improve our margins, which will help to reduce the level
of sales at which we will begin to generate positive cash flows before changes in working
capital.
 
    
    Sell or shut down our Energy Technology Business. Our Energy Technology
business recorded an operating loss of $2,385,445 during 2008 and $8,234,325 during 2007
(including a $4,181,969 impairment charge). We have invested approximately $2 million in
the upgrade of the eMAC technology over the past three years, completing the project in the
fourth quarter of 2008. Unfortunately banks represent a large portion of the target market
for the eMAC technology and most of our bank eMAC clients are deferring purchase decisions
due to the current turmoil in their industry and the economy in general. While we continue
to believe that there is a long term market for this segments products, we have decided
that focusing our financial resources to our growing Energy Efficiency business is a better
use of our limited capital resources. We have therefore begun the process of searching for
a potential buyer for the business. If we are not able to find a buyer within a reasonable
period of time we will scale back the business to the minimum level required to satisfy our
contractual obligations under our current monitoring contracts until they expire.
 
    
    Aggressively manage our costs in order to conserve cash. The prudent use of the
capital resources available to us remains one of our top priorities. We are constantly
reviewing our operations looking for more efficient ways to achieve our objectives.
   Off-Balance Sheet Arrangements
  42




---



##### Table of Contents



Contractual Obligations
  Payments due by periodLess than
    
    
    1 to 3
    
    
    3 to 5
    
    
    More thanContractual Obligations
    
    Total
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 yearsLong-term debt (1)(2)(3)
    
    $
    8,239,475
    
    
    $
    799,956
    
    
    $
    7,377,986
    
    
    $
    61,533
    
    
    $
    Operating leases
    
    
    2,289,867
    
    
    
    1,052,406
    
    
    
    977,360
    
    
    
    260,101
    
    
    
    Employment agreements
    
    
    3,368,103
    
    
    
    1,606,560
    
    
    
    1,761,543
    
    
    
    
    
    
    
    Total
    
    $
    13,897,445
    
    
    $
    3,458,922
    
    
    $
    10,116,889
    
    
    $
    321,634
    
    
    $
    
 
 (1)
    
    Includes $924,176 of fixed rate interest or the long-term debt, but excludes floating rate interest. Floating rate interest payments required during
2009, based on current interest rates are projected to be $64,000. The interest rate on our
floating rate debt changes with changes in the prime rate. The interest rates on our floating
rate debt vary between prime to prime plus 1/2%. As of December 31, 2008, the prime rate was
3.25%. If the prime rate were to increase 1 percentage point, the aggregate annual interest
cost on the mortgage would increase by approximately $30,000.(2)
    
    Includes $250,000 and $102,740 of interest on subordinated notes payable in shares of common
stock during 2009 and 2010, respectively.(3)
    
    $5,000,000 in subordinated convertible notes will automatically convert to common stock if
the closing price on our common stock is $10.50 or greater for 20 days in a 30 day period at
any time after May 31, 2008. Recent Accounting Pronouncements
     43




---



##### Table of Contents



The Fair Value Option of Financial Assets and Financial Liabilities
 Fair Value Measurements Determining the Fair Value of
a Financial Asset When the Market for That Asset is Not Active
 Pending Accounting Pronouncements
 Business Combinations
 Determination of the
Useful Life of Intangible Assets. Goodwill and Other Intangible Assets.
 Disclosures about Derivative Instruments and
Hedging Activities Accounting for Derivative Instruments and Hedging Activities
 44




---



##### Table of Contents



The Hierarchy of Generally Accepted
Accounting Principles The Meaning of
Present Fairly in Conformity with Generally Accepted Accounting Principles
 Accounting for Convertible Debt
Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement)
 Determining
Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock
 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 8. Financial Statements and Supplementary Data.
  
 Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure.
  45




---



##### Table of Contents



Item 9A. Controls and Procedures.
 Disclosure Controls and Procedures
  Managements Annual Report on Internal Control Over Financial Reporting
  Internal ControlIntegrated Framework
   Changes in Internal Control Over Financial Reporting
  46




---



##### Table of Contents



Item 9B. Other Information.
  
 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.
  47




---



##### Table of Contents



Securities Authorized for Issuance Under Equity Compensation Plans
  Equity Compensation Plan Information(a)
    
    
    (b)
    
    
    (c)Number ofsecuritiesremaining availableNumber of
    
    
    
    
    
    
    for future issuancesecurities to be
    
    
    
    
    
    
    under equityissued upon
    
    
    Weighted-average
    
    
    compensation plansexercise of
    
    
    exercise price of
    
    
    (excludingoutstanding
    
    
    outstanding
    
    
    securitiesoptions, warrants
    
    
    options, warrants
    
    
    reflected in columnPlan Category
    
    and rights
    
    
    and rights
    
    
    (a))Equity compensation plans approved
by security holders
    
    
    573,815
    
    
    $
    7.97
    
    
    
    306,185Equity compensation plans not
approved by security holders (1)
    
    
    1,914,842
    
    
    $
    21.79
    
    
    
    Total
    
    
    2,488,657
    
    
    $
    18.61
    
    
    
    306,185
 
 (1)
    
    We grant stock options to our non-employee directors pursuant to a Directors Stock
Option Plan (See Compensation of Directors), which grants are included in this category. 
 Item 13. Certain Relationships and Related Transactions, and Director Independence.
  
 Item 14. Principal Accountant Fees and Services.
  48




---



##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
 (a)(1) Financial Statements
  F-2   F-3
    
    Consolidated Balance Sheets as of December 31, 2008 and December 31, 2007F-4
    
    Consolidated Statements of Operations for the years ended December 31, 2008,
2007 and 2006F-5
    
    Statements of Stockholders Equity for the years ended December 31, 2008, 2007
and 2006F-6   F-7
    
    Statements of Consolidated Cash Flows for the years ended December 31,
2008, 2007 and 2006F-8  F-50
    
    Notes to Consolidated Financial StatementsF  51
    
    Schedule II  Valuation and Qualifying Accounts
 (a)(2) Financial Statement Schedule
  (a)(3) Exhibits
 ExhibitNumber
    
    Description of Exhibit2.1
    
    Stock Purchase Agreement dated June 11, 2008, by and
among Lime, the stockholders of Applied Energy
Management, Inc. and Stephen Glick, as Stockholder
Representative (Incorporated herein by reference to
Exhibit 10.4 of our Current Report on Form 8-K filed on
June 11, 2008) (We will furnish supplementally a copy
of any omitted schedule to the Commission upon request)2.2
    
    Stock Purchase Agreement dated November 18, 2008 by and
among Lime and controlling stockholders of Advanced
Biotherapy, Inc. (Incorporated herein by reference to
Exhibit 2.1.1 of our Registration Statement on Form S-4
filed on January 23, 2009 (File No. 333-156924)) (We
will furnish supplementally a copy of any omitted
schedule to the Commission upon request)3.1.1
    
    Certificate of Incorporation (Incorporated herein by
reference to Exhibit 3.01 of Limes Amendment No. 4 to
Form S-1 filed on February 14, 2007 (File No.
333-136992))
 49




---



##### Table of Contents



ExhibitNumber
    
    Description of Exhibit3.1.2
    
    Certificate of Amendment to Certificate of
Incorporation dated August 30, 2001 (Incorporated
herein by reference to Exhibit 3.02 of Limes Amendment
No. 4 to Form S-1 filed on February 14, 2007 (File No.
333-136992))3.1.3
    
    Certificate of Amendment to Certificate of
Incorporation dated July 31, 2002 (Incorporated herein
by reference to Exhibit 3.03 of Limes Amendment No. 4
to Form S-1 filed on February 14, 2007 (File No.
333-136992))3.1.4
    
    Certificate of Amendment to Certificate of
Incorporation dated May 4, 2005 (Incorporated herein by
reference to Exhibit 3.04 of Limes Amendment No. 4 to
Form S-1 on February 14, 2007 (File No. 333-136992))3.1.5
    
    Certificate of Amendment to Certificate of
Incorporation dated January 23, 2007 (Incorporated
herein by reference to Exhibit 3.05 of Limes Amendment
No. 4 to Form S-1 filed on February 14, 2007 (File No.
333-136992))3.2
    
    Amended and Restated Bylaws, as amended (Incorporated
herein by reference to Exhibit 3.1 of our Current
Report on Form 8-K filed June 11, 2007)4.1
    
    Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of
Preferred Stock and Qualifications, Limitations and
Restrictions Thereof of Series A Convertible Preferred
Stock of Lime dated November 14, 2008 ((Incorporated
herein by reference to Exhibit 4.1 of our Current
Report on Form 8-K filed November 18, 2008)10.1
    
    Loan Agreement between Lime and various lenders,
including Richard P. Kiphart, dated May 29, 2007
(Incorporated herein by reference to Exhibit 10.1 of
our Current Report on Form 8-K filed on May 30, 2007)10.2
    
    Warrant to Purchase Common Stock, issued May 29, 2007
by Lime to Richard P. Kiphart (Incorporated herein by
reference to Exhibit 4.1 of our Current Report on Form
8-K filed on May 30, 2007)10.3
    
    Investor Rights Agreement between Lime and various
investors, including Richard P. Kiphart, dated May 29,
2007 (Incorporated herein by reference to Exhibit 10.2
of our Current Report on Form 8-K filed on May 30,
2007)10.4.1
    
    Revolving Line of Credit Note dated March 12, 2008 by
and among Lime and Advanced Biotherapy, Inc. and
Richard P. Kiphart (Incorporated herein by reference to
Exhibit 10.1 of our Current Report on Form 8-K filed on
March 14, 2008)10.4.2
    
    Amended and Restated Revolving Line of Credit Note
dated June 6, 2008 between Lime and Richard P. Kiphart
(Incorporated herein by reference to Exhibit 10.1 of
our Current Report on Form 8-K filed on June 11, 2008)10.4.3
    
    Amended and Restated Revolving Line of Credit Note
dated June 6, 2008 between Lime and Advanced
Biotherapy, Inc. (Incorporated herein by reference to
Exhibit 10.2 of our Current Report on Form 8-K filed on
June 11, 2008)10.4.4
    
    Second Amended and Restated Revolving Line of Credit
Note dated August 14, 2008 between Lime and Richard P.
Kiphart (Incorporated herein by reference to Exhibit
10.1 of our Current Report on Form 8-K filed on August
19, 2008)10.4.5
    
    Second Amended and Restated Revolving Line of Credit
Note dated August 14, 2008 between Lime and Advanced
Biotherapy, Inc. (Incorporated herein by reference to
Exhibit 10.2 of our Current Report on Form 8-K filed on
August 19, 2008)10.4.6
    
    Third Amended and Restated Revolving Line of Credit
Note dated October 31, 2008 between Lime and Advanced
Biotherapy, Inc. (Incorporated herein by reference to
Exhibit 10.1 of our Current Report on Form 8-K filed on
October 31, 2008)
 50




---



##### Table of Contents



ExhibitNumber
    
    Description of Exhibit10.5.1
    
    Note Issuance Agreement dated March 12, 2008 by and
among Lime and Advanced Biotherapy, Inc. and Richard P.
Kiphart (Incorporated herein by reference to Exhibit
10.2 of our Current Report on Form 8-K filed on March
14, 2008)10.5.2
    
    Amended and Restated Note Issuance Agreement dated June
6, 2008 by and among Lime and Advanced Biotherapy, Inc.
and Richard P. Kiphart (Incorporated herein by
reference to Exhibit 10.3 of our Current Report on Form
8-K filed on June 11, 2008)10.6
    
    Registration Rights Agreement dated June 11, 2008 by
and among Lime and the stockholders of Applied Energy
Management, Inc. (Incorporated herein by reference to
Exhibit 10.5 of our Current Report on Form 8-K filed on
June 11, 2008)10.7
    
    Letter of Credit Agreement dated July 11, 2008 between
Lime and Richard P. Kiphart (Incorporated herein by
reference to Exhibit 10.1 of our Current Report on Form
8-K filed on July 15, 2008)10.8
    
    Equity Purchase Agreement dated July 10, 2010 between
Lime and Duke Ventures, LLC (Incorporated herein by
reference to Exhibit 10.1 of our Current Report on Form
8-K filed on July 15, 2008)10.9.1
    
    Note Issuance Agreement dated August 14, 2008 by and
among Lime and Advanced Biotherapy, Inc. and Richard P.
Kiphart (Incorporated herein by reference to Exhibit
10.3 of our Current Report on Form 8-K filed on August
19, 2008)10.9.2
    
    Amended and Restated Note Issuance Agreement dated
October 31, 2008 by and among Lime and Advanced
Biotherapy, Inc. and Richard P. Kiphart (Incorporated
herein by reference to Exhibit 10.2 of our Current
Report on Form 8-K filed on October 31, 2008)10.10.1
    
    Security Agreement dated August 14, 2008 by and among
Lime and Advanced Biotherapy, Inc. and Richard P.
Kiphart (Incorporated herein by reference to Exhibit
10.4 of our Current Report on Form 8-K filed on August
19, 2008)10.10.2
    
    Amendment No. 1 to Security Agreement dated August 14,
2008 by and among Lime and Advanced Biotherapy, Inc.
and Richard P. Kiphart (Incorporated herein by
reference to Exhibit 10.3 of our Current Report on Form
8-K filed on October 31, 2008)10.11
    
    Promissory Note between dated October 31, 2008 between
Applied Energy Management, Inc. and Wachovia Bank,
National Association in the principal amount of
$2,115,775 (Incorporated herein by reference to Exhibit
10.1 of our Current Report on Form 8-K filed on
November 5, 2008)10.12.1
    
    Form of Tranche A Subscription Agreement for Common
Stock and Warrants effective as of November 13, 2008 by
and among Line and various investors, including Lime
officers and directors (Incorporated herein by
reference to Exhibit 10.1 of our Current Report on Form
8-K filed on November 18, 2008)10.12.2
    
    Form of Tranche B Subscription Agreement for Common
Stock and Warrants effective as of November 13, 2008 by
and among Line and various investors, including Lime
officers and directors (Incorporated herein by
reference to Exhibit 10.2 of our Current Report on Form
8-K filed on November 18, 2008)10.13
    
    Form of Warrant to Purchase Common Stock, issued
November 13, 2008 by and among Line and various
investors, including Lime officers and directors
(Incorporated herein by reference to Exhibit 4.2 of our
Current Report on Form 8-K filed on November 18, 2008)10.14
    
    Stock Purchase Agreement dated November 14, 2008
between Lime and Richard P. Kiphart (Incorporated
herein by reference to Exhibit 10.3 of our Current
Report on Form 8-K filed on November 18, 2008)
 51




---



##### Table of Contents



ExhibitNumber
    
    Description of Exhibit10.15
    
    Organic Farm Marketing, LLC Convertible Note
(Incorporated herein by reference to Exhibit 10.21 of
Advanced Biotherapy, Inc.s Current Report on Form 8-K
filed on December 31, 2007) (File No. 0-26323)10.16.1
    
    Third Amended and Restated Mortgage, Assignment of
Rents and Security Agreement dated December 13, 2005 by
Lime and American Chartered Bank (Incorporated herein
by reference to Exhibit 10.1 of our Current Report on
Form 8-K filed on December 15, 2005)10.16.2
    
    Fourth Modification to Mortgage, Assignment of Rents
and Security Agreement dated December 28, 2006 by Lime
and American Chartered Bank (Incorporated herein by
reference to Exhibit 10.1 of our Current Report on Form
8-K filed on December 29, 2006)10.16.3
    
    Fifth Modification to Mortgage, Assignment of Rents and
Security Agreement dated December 17, 2007 by Lime and
American Chartered Bank (Incorporated herein by
reference to Exhibit 10.1 of our Current Report on Form
8-K filed on December 18, 2007)10.16.4
    
    Third Amended and Restated Mortgage Note dated December
17, 2007 by Lime and American Chartered Bank
(Incorporated herein by reference to Exhibit 10.2 of
our Current Report on Form 8-K filed on December 18,
2007)10.17.1 *
    
    Commercial Lease Agreement dated December 15, 2005 by
and between P.A..N.D.A. Investments and Parke
Industries.10.17.2
    
    First Amendment to Commercial Lease Agreement dated
June 30, 2006 by and between M&D Investments and Parke
Industries, LLC (Incorporated herein by reference to
Exhibit 10.6 of our Current Report on Form 8-K filed on
July 6, 2006)10.18.1 +
    
    Employment Agreement, dated as of January 23, 2006,
between Lime and David R. Asplund (Incorporated herein
by reference to Exhibit 10.1 of our Current Report on
Form 8-K filed on February 22, 2006)10.18.2 + *
    
    Amendment to Employment Agreement with David R. Asplund
dated January 25, 200710.18.3 +
    
    Second Amendment to Employment Agreement dated October
1, 2007 between Lime and David R. Asplund.
(Incorporated herein by reference to Exhibit 10.1 of
our Current Report on Form 8-K filed on October 2,
2007)10.18.4 +
    
    Employee Stock Option Agreement dated July 11, 2006
between Lime and David R. Asplund (Incorporated herein
by reference to Exhibit 10.1 of our Current Report on
Form 8-K filed on July 17, 2006)10.19.1 +
    
    Employment Agreement dated as of June 30, 2006 between
Parke Acquisition, LLC and Daniel W. Parke
(Incorporated herein by reference to Exhibit 10.3 of
our Current Report on Form 8-K filed on July 6, 2006)10.19.2 +
    
    Amendment to Employment Agreement dated October 1, 2007
between Parke Acquisition, LLC and Daniel W. Parke.
(Incorporated herein by reference to Exhibit 10.2 of
our Current Report on Form 8-K filed on October 2,
2007)10.19.3 +
    
    Employee Stock Option Agreement dated June 30, 2006
between Lime and Daniel W. Parke (Incorporated herein
by reference to Exhibit 10.5 of our Current Report on
Form 8-K filed on July 6, 2006)10.19.4 +
    
    Employee Stock Option Agreement dated July 11, 2006
between Lime and Daniel W. Parke (Incorporated herein
by reference to Exhibit 10.2 of our Current Report on
Form 8-K filed on July 17, 2006)
 52




---



##### Table of Contents



ExhibitNumber
    
    Description of Exhibit10.20.1 +
    
    Employment Agreement, dated as of August 15, 2006,
between Electric City Corp. and Jeffrey R. Mistarz
(Incorporated herein by reference to Exhibit 10.1 of
our Current Report on Form 8-K filed on August 18,
2006)10.20.2 +
    
    Amendment to Employment Agreement dated October 1, 2007
between Lime and Jeffrey R. Mistarz. (Incorporated
herein by reference to Exhibit 10.3 of our Current
Report on Form 8-K filed on October 2, 2007)10.20.3 +
    
    Employee Option Agreement dated August 15, 2006 between
Lime and Jeffrey R. Mistarz (Incorporated herein by
reference to Exhibit 10.2 of our Current Report on Form
8-K filed on August 18, 2006)10.20.4 +
    
    Employee Stock Option Agreement dated July 11, 2006
between Lime and Jeffrey R. Mistarz (Incorporated
herein by reference to Exhibit 10.3 of our Current
Report on Form 8-K filed on July 17, 2006)10.21
    
    Employment Agreement, dated as of June 10, 2008,
between Applied Energy Management, Inc. and John
ORourke (Incorporated herein by reference to Exhibit
10.1 of our Current Report on Form 8-K filed on March
9, 2009)10.22.1 +
    
    Employment Agreement dated May 3, 2005 between Maximum
Performance Group, Inc. and Leonard Pisano
(Incorporated herein by reference to Exhibit 10.31 of
our Annual Report on Form 10-K for the fiscal year
ended December 31, 2005 and filed on March 21, 2006)10.22.2 +
    
    Employee Stock Option Agreement dated July 11, 2006
between Lime and Leonard Pisano (Incorporated herein by
reference to Exhibit 10.4 of our Current Report on Form
8-K filed on July 17, 2006)10.23
    
    Amended and Restated Directors Stock Option Plan
(Incorporated herein by reference to Exhibit 4.3 of our
Quarterly Report on Form 10-Q for the period ended
March 31, 2004 and filed on may 13, 2004)21 *
    
    List of subsidiaries23 *
    
    Consent of BDO Seidman, LLP31.1 *
    
    Certification of the principal executive officer
pursuant to Section 302 of the Sarbanes-Oxley Act of
200231.2 *
    
    Certification of the principal financial officer
pursuant to Section 302 of the Sarbanes-Oxley Act of
200232.1 *
    
    Certification of the principal executive officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 200232.2 *
    
    Certification of the principal financial officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
 
 +
    
    Management contract or compensation plan or arrangement*
    
    Filed herewith 53




---



##### Table of Contents



SIGNATURES
  LIME ENERGY CO.By:
    /s/ David R. AsplundDavid R. AsplundChief Executive OfficerMarch 10, 2009  Signature
    
    Title
    
    Date/s/ David Asplund

David Asplund
    
    Chief Executive Officer & Director(principal executive officer)
    
    March 10, 2009/s/ Daniel Parke

Daniel Parke
    
    President & Director
    
    March 10, 2009/s/ Jeffrey Mistarz

Jeffrey Mistarz
    
    Executive Vice President, Chief
Financial Officer, Treasurer &
Corporate Secretary(principal financial officer and
principal accounting officer)
    
    March 10, 2009/s/ Richard Kiphart

Richard Kiphart
    
    Chairman of the Board
    
    March 10, 2009/s/ Gregory Barnum

Gregory Barnum
    
    Director
    
    March 10, 2009/s/ William Carey

William Carey
    
    Director
    
    March 10, 2009/s/ Joseph Desmond

Joseph Desmond
    
    Director
    
    March 10, 2009/s/ David Valentine

David Valentine
    
    Director
    
    March 10, 2009
 54




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
     Chicago, Illinois
    /s/ BDO SEIDMAN, LLPMarch 10, 2009 F-1




---



##### Table of Contents



Lime Energy Co.
Consolidated Balance Sheets
 December 31,
    
    2008
    
    
    2007AssetsCurrent AssetsCash and cash equivalents
    
    $
    3,733,540
    
    
    $
    4,780,701Accounts receivable, less allowance for doubtful accounts of
$163,000 and $151,000 at December 31, 2008 and 2007,
respectively
    
    
    24,226,968
    
    
    
    6,382,060Inventories (Note 7)
    
    
    665,045
    
    
    
    693,227Costs and estimated earnings in excess of billings on
uncompleted contracts
    
    
    4,078,273
    
    
    
    952,997Prepaid expenses and other
    
    
    1,417,925
    
    
    
    624,882Total Current Assets
    
    
    34,121,751
    
    
    
    13,433,867Net Property and Equipment(Note 8)
    
    
    2,081,311
    
    
    
    1,542,327Long Term Receivables
    
    
    1,030,688
    
    
    
    224,568Deferred Financing Costs,net of amortization of $4,545 and $1,687 at
December 31, 2008 and 2007, respectively (Note 14)
    
    
    4,027
    
    
    
    6,885Intangibles,net of amortization of $5,785,743 and $3,693,648 at
December 31, 2008 and 2007, respectively (Notes 4 and 9)
    
    
    7,136,957
    
    
    
    3,979,052Goodwill(Note 9)
    
    
    18,513,465
    
    
    
    6,757,133$
    62,888,199
    
    
    $
    25,943,832
 F-2




---



##### Table of Contents



Lime Energy Co.
Consolidated Balance Sheets
 December 31,
    
    2008
    
    
    2007Liabilities and Stockholders EquityCurrent LiabilitiesLines of credit (Note 12)
    
    $
    3,986,708
    
    
    $
    Notes payable (Note 13)
    
    
    
    
    
    
    150,000Current maturities of long-term debt (Note 16)
    
    
    187,170
    
    
    
    81,954Accounts payable
    
    
    15,452,248
    
    
    
    3,092,226Accrued expenses (Note 10)
    
    
    3,855,213
    
    
    
    1,571,683Billings in excess of costs and estimated earnings on
uncompleted contracts
    
    
    1,957,927
    
    
    
    636,867Deferred revenue
    
    
    357,516
    
    
    
    894,550Customer deposits
    
    
    1,289,224
    
    
    
    1,180,834Total Current Liabilities
    
    
    27,086,006
    
    
    
    7,608,114Deferred Revenue
    
    
    90,773
    
    
    
    244,792Long-Term Debt,less current maturities net of unamortized
discount of $1,411,281 and $2,412,305 as of December 31, 2008
and 2007, respectively (Notes 13, 15 and 16)
    
    
    5,716,848
    
    
    
    3,187,680Deferred Tax Liability(Note 20)
    
    
    1,034,000
    
    
    
    1,034,000Total Liabilities
    
    
    33,927,627
    
    
    
    12,074,586Commitments(Notes 19 and 21)Stockholders Equity(Notes 22, 23, 24, 25, 26 and 27)Preferred stock, $0.01 par value; 1,000,000 shares authorized,
358,710 and 0 issued as of December 31, 2008 and
December 31, 2007, respectively (liquidation value of
$14,707,110 as of December 31, 2008)
    
    
    3,587
    
    
    
    Common stock, $.0001 par value; 200,000,000 shares authorized,
9,555,053 and 7,720,269 issued as of December 31, 2008
and December 31, 2007, respectively
    
    
    955
    
    
    
    773Additional paid-in capital
    
    
    134,390,419
    
    
    
    106,267,336Accumulated deficit
    
    
    (105,434,389
    )
    
    
    (92,398,863
    )Total Stockholders Equity
    
    
    28,960,572
    
    
    
    13,869,246$
    62,888,199
    
    
    $
    25,943,832
 See accompanying notes to consolidated financial statements.
 F-3




---



##### Table of Contents



Lime Energy Co.
Consolidated Statements of Operations
 Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2006Revenue
    
    $
    57,221,924
    
    
    $
    19,481,130
    
    
    $
    8,143,624Cost of sales
    
    
    45,183,102
    
    
    
    15,082,400
    
    
    
    6,931,294Gross profit
    
    
    12,038,822
    
    
    
    4,398,730
    
    
    
    1,212,330Selling, general and administrative (includes share based
compensation expense of $3,552,182, $3,582,066 and
$4,519,686 for the years ended December 31, 2008, 2007
and 2006, respectively)
    
    
    20,391,137
    
    
    
    13,072,381
    
    
    
    12,165,700Amortization of intangibles (Note 9)
    
    
    2,092,095
    
    
    
    2,011,878
    
    
    
    1,210,006Impairment loss (Note 3)
    
    
    
    
    
    
    4,181,969
    
    
    
    1,183,525Operating loss
    
    
    (10,444,410
    )
    
    
    (14,867,498
    )
    
    
    (13,346,901
    )Other Income (Expense)Interest income
    
    
    87,084
    
    
    
    266,863
    
    
    
    194,182Interest expense (Notes 12, 13, 14, 15 and 16)
    
    
    (2,678,200
    )
    
    
    (952,093
    )
    
    
    (3,273,370
    )Total other income (expense)
    
    
    (2,591,116
    )
    
    
    (685,230
    )
    
    
    (3,079,188
    )Loss from continuing operations before discontinued operations
    
    
    (13,035,526
    )
    
    
    (15,552,728
    )
    
    
    (16,426,089
    )Discontinued Operations:Loss from operation of discontinued business
    
    
    
    
    
    
    
    
    
    
    (21,425
    )Net Loss
    
    
    (13,035,526
    )
    
    
    (15,552,728
    )
    
    
    (16,447,514
    )Preferred Stock Dividends(Note 26)
    
    
    (288,014
    )
    
    
    
    
    
    
    (24,347,725
    )Net Loss Available to Common Shareholders
    
    $
    (13,323,540
    )
    
    $
    (15,552,728
    )
    
    $
    (40,795,239
    )Basic and diluted loss per common share from
continuing operations
    
    $
    (1.59
    )
    
    $
    (2.06
    )
    
    $
    (10.60
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    (0.01
    )Basic and Diluted Loss Per Common Share
    
    $
    (1.59
    )
    
    $
    (2.06
    )
    
    $
    (10.61
    )Weighted Average Common Shares Outstanding (Note 27)
    
    
    8,381,697
    
    
    
    7,541,960
    
    
    
    3,844,087
 See accompanying notes to consolidated financial statements.
 F-4




---



##### Table of Contents



Lime Energy Co.
Consolidated Statements of Stockholders Equity
 Series A-1
    
    
    Series A-1
    
    
    Series E
    
    
    Series E
    
    
    Additional
    
    
    
    
    
    
    TotalCommon
    
    
    Common
    
    
    Preferred
    
    
    Preferred
    
    
    Preferred
    
    
    Preferred
    
    
    Paid-in
    
    
    Accumulated
    
    
    Stock-holdersShares
    
    
    Stock
    
    
    Shares
    
    
    Stock
    
    
    Shares
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    EquityBalance,December 31, 2005
    
    
    483,781
    
    
    $
    48
    
    
    
    
    
    
    $
    
    
    
    
    236,254
    
    
    $
    2,363
    
    
    $
    64,773,847
    
    
    $
    (60,398,621
    )
    
    $
    4,377,637Issuance of common stock (net of offering costs of $115,107)
    
    
    2,553,571
    
    
    
    255
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,759,639
    
    
    
    
    
    
    
    17,759,894Cumulative dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (698,000
    )
    
    
    
    
    
    
    (698,000Satisfaction of accrued dividends through the issuance of preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,980
    
    
    
    70
    
    
    
    697,930
    
    
    
    
    
    
    
    698,000Conversion of preferred stock
    
    
    3,099,411
    
    
    
    310
    
    
    
    
    
    
    
    
    
    
    
    (243,234
    )
    
    
    (2,433
    )
    
    
    2,123
    
    
    
    
    
    
    
    Sale of Great Lakes Controlled Energy Corporation
    
    
    (2,027
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (193,743
    )
    
    
    
    
    
    
    (193,743Acquisition of Parke P.A.N.D.A. Corporation
    
    
    714,286
    
    
    
    72
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,999,928
    
    
    
    
    
    
    
    5,000,000Acquisition of Kapadia Consulting, Inc.
    
    
    71,429
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    479,993
    
    
    
    
    
    
    
    480,000Conversion of revolver
    
    
    135,838
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    951,963
    
    
    
    
    
    
    
    951,977Beneficial value of adjustment in revolver conversion price
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    950,865
    
    
    
    
    
    
    
    950,865Term loan liquidated damages satisfied through the issuance of
common stock
    
    
    23,014
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185,258
    
    
    
    
    
    
    
    185,260Termination of post repayment interest obligation
    
    
    33,071
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    266,222
    
    
    
    
    
    
    
    266,225Warrants issued for services received
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,200
    
    
    
    
    
    
    
    25,200Share based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,828,955
    
    
    
    
    
    
    
    4,828,955Net loss for the year ended December 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,447,514
    )
    
    
    (16,447,514
    )Balance,December 31, 2006
    
    
    7,112,374
    
    
    $
    711
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    95,030,180
    
    
    $
    (76,846,135
    )
    
    $
    18,184,756Issuance of common stock (less issuance costs of $202,932)
    
    
    428,519
    
    
    
    43
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,796,657
    
    
    
    
    
    
    
    2,796,700Offering costs for 2006 issuance of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (45,361
    )
    
    
    
    
    
    
    (45,361
    )Acquisition of Texas Energy Products, Inc.
    
    
    28,571
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    213,997
    
    
    
    
    
    
    
    214,000Acquisition of Preferred Lighting, Inc.
    
    
    15,069
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    384,920
    
    
    
    
    
    
    
    384,922Release of escrow shares to former owners of Maximum Performance
Group, Inc.
    
    
    2,959
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,309
    
    
    
    
    
    
    
    26,309Satisfaction of liquidated damages through the issuance of common stock
    
    
    87,673
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    613,699
    
    
    
    
    
    
    
    613,708Share based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,726,731
    
    
    
    
    
    
    
    3,726,731Warrants issued in connection with Subordinated Convertible Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,136,537
    
    
    
    
    
    
    
    1,136,537Value of beneficial conversion feature on Subordinated Convertible
Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,866,537
    
    
    
    
    
    
    
    1,866,537Satisfaction of interest obligation through issuance of common stock
    
    
    7,088
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83,826
    
    
    
    
    
    
    
    83,827Warrants issued for services received
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    162,000
    
    
    
    
    
    
    
    162,000Exercise of options and warrants
    
    
    38,016
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    252,100
    
    
    
    
    
    
    
    252,104Warrant repricing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,204
    
    
    
    
    
    
    
    19,204Net loss for the year ended December 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,552,728
    )
    
    
    (15,552,728
    )Balance,December 31, 2007
    
    
    7,720,269
    
    
    $
    773
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    106,267,336
    
    
    $
    (92,398,863
    )
    
    $
    13,869,246Issuance of common stock (less issuance costs of $711,192)
    
    
    854,844
    
    
    
    85
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,289,223
    
    
    
    
    
    
    
    2,289,308Acquisition of Applied Energy Management, Inc.
    
    
    882,725
    
    
    
    88
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,999,912
    
    
    
    
    
    
    
    7,000,000Conversion of revolving line of credit note (less transaction costs
of $48,595)
    
    
    
    
    
    
    
    
    
    
    358,710
    
    
    
    3,587
    
    
    
    
    
    
    
    
    
    
    
    14,654,921
    
    
    
    
    
    
    
    14,658,508Conversion of note payable
    
    
    32,848
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,370
    
    
    
    
    
    
    
    200,373Cumulative dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (288,014
    )
    
    
    
    
    
    
    (288,014
    )Satisfaction of interest obligation through issuance of common stock
    
    
    32,581
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,167
    
    
    
    
    
    
    
    250,170Share based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,783,525
    
    
    
    
    
    
    
    3,783,525Warrants issued for services received
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    112,850
    
    
    
    
    
    
    
    112,850Exercise of options and warrants
    
    
    31,786
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120,129
    
    
    
    
    
    
    
    120,132Net loss for the year ended December 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,035,526
    )
    
    
    (13,035,526
    )Balance,December 31, 2008
    
    
    9,555,053
    
    
    
    955
    
    
    
    358,710
    
    
    
    3,587
    
    
    
    
    
    
    
    
    
    
    
    134,390,419
    
    
    
    (105,434,389
    )
    
    
    28,960,572
 See accompanying notes to consolidated financial statements.
 F-5




---



##### Table of Contents



Lime Energy Co.
Statements of Cash Flows
 Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2006Cash Flows From Operating ActivitiesNet loss
    
    $
    (13,035,526
    )
    
    $
    (15,552,728
    )
    
    $
    (16,447,514
    )Adjustments to reconcile net loss to net cash used in
operating activities, net of assets acquired and disposed of:Provision for bad debts
    
    
    127,537
    
    
    
    126,241
    
    
    
    105,442Share based compensation
    
    
    3,783,525
    
    
    
    3,726,731
    
    
    
    4,828,955Depreciation and amortization
    
    
    2,539,604
    
    
    
    2,200,444
    
    
    
    1,386,597Amortization of deferred financing costs
    
    
    2,858
    
    
    
    1,687
    
    
    
    299,964Amortization of issuance discount
    
    
    1,001,025
    
    
    
    590,769
    
    
    
    898,409Liquidated damages satisfied through issuance of common stock
    
    
    
    
    
    
    613,708
    
    
    
    185,260Termination of post repayment interest and interest
converted to common stock
    
    
    
    
    
    
    
    
    
    
    274,747Beneficial value of adjustment in revolver conversion price
    
    
    
    
    
    
    
    
    
    
    950,865Issuance of warrants in exchange for services received
    
    
    112,850
    
    
    
    162,000
    
    
    
    25,200PIK notes issued for interest
    
    
    228,037
    
    
    
    
    
    
    
    Accrued interest converted to common stock
    
    
    250,170
    
    
    
    83,827
    
    
    
    Accrued interest converted to preferred stock
    
    
    207,104
    
    
    
    
    
    
    
    Loss on disposal of fixed assets
    
    
    2,171
    
    
    
    
    
    
    
    115,914Warrant repricing
    
    
    
    
    
    
    19,204
    
    
    
    Asset impairment
    
    
    
    
    
    
    
    
    
    
    1,183,525Provision for inventory obsolescence
    
    
    
    
    
    
    
    
    
    
    568,558Goodwill impairment
    
    
    
    
    
    
    4,181,969
    
    
    
    Changes in assets and liabilities, net of dispositionsAccounts receivable
    
    
    (13,301,902
    )
    
    
    (3,701,117
    )
    
    
    (279,822
    )Inventories
    
    
    28,182
    
    
    
    42,397
    
    
    
    519,491Costs and estimated earnings in excess of billings on
uncompleted contracts
    
    
    (2,285,906
    )
    
    
    (952,997
    )
    
    
    Other current assets
    
    
    (542,258
    )
    
    
    (192,247
    )
    
    
    265,131Accounts payable
    
    
    7,054,315
    
    
    
    1,646,123
    
    
    
    (359,331
    )Accrued liabilities
    
    
    167,036
    
    
    
    280,501
    
    
    
    (300,017
    )Billings in excess of costs and estimated earnings on
uncompleted contracts
    
    
    799,812
    
    
    
    571,867
    
    
    
    Deferred revenue
    
    
    (691,053
    )
    
    
    (547,868
    )
    
    
    (196,310
    )Customer deposits
    
    
    108,390
    
    
    
    (75,316
    )
    
    
    (273,149
    )Net cash used in operating activities
    
    
    (13,444,029
    )
    
    
    (6,774,805
    )
    
    
    (6,248,085
    )Cash Flows From Investing ActivitiesAcquisitions (including acquisition costs), net of cash acquired
    
    
    (3,803,641
    )
    
    
    (703,539
    )
    
    
    (4,098,377
    )Sale of discontinued operations
    
    
    
    
    
    
    
    
    
    
    (83,586
    )Proceeds from sale of fixed assets
    
    
    3,000
    
    
    
    
    
    
    
    Purchase of property and equipment
    
    
    (402,741
    )
    
    
    (514,295
    )
    
    
    (82,967
    )Net cash used in investing activities
    
    
    (4,203,382
    )
    
    
    (1,217,834
    )
    
    
    (4,264,930
    )Cash Flows From Financing ActivitiesBorrowings (payments) on line of credit
    
    
    14,725,730
    
    
    
    
    
    
    
    (1,456,545
    )Proceeds from long-term debt
    
    
    133,553
    
    
    
    5,171,440
    
    
    
    Payments on long-term debt
    
    
    (619,878
    )
    
    
    (56,592
    )
    
    
    (5,355,865
    )Proceeds from issuance of common stock
    
    
    3,000,500
    
    
    
    2,999,632
    
    
    
    17,875,000Costs related to stock issuances
    
    
    (759,787
    )
    
    
    (248,293
    )
    
    
    (115,107
    )Cash paid for deferred financing costs
    
    
    
    
    
    
    (8,572
    )
    
    
    Proceeds from exercise of options and warrants
    
    
    120,132
    
    
    
    252,107
    
    
    
    Net cash provided by financing activities
    
    
    16,600,250
    
    
    
    8,109,722
    
    
    
    10,947,483Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (1,047,161
    )
    
    
    117,083
    
    
    
    434,468Cash and Cash Equivalents, at beginning of period
    
    
    4,780,701
    
    
    
    4,663,618
    
    
    
    4,229,150Cash and Cash Equivalents, at end of period
    
    $
    3,733,540
    
    
    $
    4,780,701
    
    
    $
    4,663,618
 F-6




---



##### Table of Contents



Lime Energy Co.
Statements of Cash Flows
 Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2006Supplemental Disclosures of Cash Flow InformationCash paid during the period for interest  continuing
operations (including prepayment penalties)
    
    $
    1,126,579
    
    
    $
    133,894
    
    
    $
    910,944Cash paid during the period for interest  discontinued
operations
    
    
    
    
    
    
    
    
    
    
    42Interest obligation satisfied through the issuance of
common stock
    
    
    250,170
    
    
    
    83,827
    
    
    
    Stock, warrants and options issued in
exchange for services received
    
    
    112,850
    
    
    
    17,143
    
    
    
    3,600Accrual satisfied through the issuance of
common stock
    
    
    
    
    
    
    345,583
    
    
    
    7,410Satisfaction of accrued dividends on Series E Preferred
Stock through the issuance of 6,980 shares of Series E
Preferred stock during the year ended December 31, 2006
    
    
    
    
    
    
    
    
    
    
    698,000Issuance of revolving credit note in satisfaction of
interest payable
    
    
    228,037
    
    
    
    
    
    
    
    Conversion of convertible debt to common stock
    
    $
    
    
    
    $
    
    
    
    $
    943,455
        See accompanying notes to consolidated financial statements.
 F-7




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements
 Note 1  Description of Business
  Energy Efficiency Services:
 Energy Technology:
 Financial Services:
  Note 2  Basis of Presentation
  Note 3  Summary of Significant Accounting Policies
 Principles of Consolidation
  Use of Estimates
  F-8




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
 Cash and Cash Equivalents
  Concentration of Risk
    Allowance for Doubtful Accounts
  Inventories
  Properties & Equipment
  Buildings
    
    39 yearsOffice equipment
    
    3 - 5 yearsFurniture
    
    5 - 10 yearsEquipment
    
    3 - 5 yearsTransportation equipment
    
    3 - 5 years
 F-9




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
 Goodwill
    Deferred Financing Costs
   Impairment of Long-Lived Assets
  F-10




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
  Revenue Recognition
     Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts
  F-11




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
 Shipping and Handling Costs
  Research and Development Costs
  Advertising, Marketing and Promotional Costs
  Income Taxes
  Net Loss Per Share
   December 31,
    
    2008
    
    
    2007
    
    
    2006Weighted average shares issuable
upon exercise of outstanding
options
    
    
    2,162,516
    
    
    
    1,744,873
    
    
    
    778,310Weighted average shares issuable
upon exercise of outstanding
warrants
    
    
    416,428
    
    
    
    332,560
    
    
    
    156,783Weighted average shares issuable
upon conversion of preferred stock
(1)
    
    
    
    
    
    
    
    
    
    
    108,663Weighted average shares issuable
upon conversion of convertible
debt
    
    
    419,276
    
    
    
    419,276
    
    
    
    25,272Total
    
    
    2,998,220
    
    
    
    2,496,709
    
    
    
    1,069,028
 (1)
    
    Excludes Series A-1 Preferred Stock which will become convertible if not redeemed
prior to January 1, 2010
 F-12




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
 Fair Value of Financial Instruments
  Stock-based Compensation
  Warranty Obligations
  Insurance Reserves
  Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109
 F-13




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
    The Fair Value Option of Financial Assets and Financial Liabilities
 Fair Value Measurements Determining the Fair Value of
a Financial Asset When the Market for That Asset is Not Active
 Pending Accounting Pronouncements
 Business Combinations
 F-14




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
 Determination of the
Useful Life of Intangible Assets. Goodwill and Other Intangible Assets.
 Disclosures about Derivative Instruments and
Hedging Activities Accounting for Derivative Instruments and Hedging Activities
 The Hierarchy of Generally Accepted
Accounting Principles The Meaning of
Present Fairly in Conformity with Generally Accepted Accounting Principles
 Accounting for Convertible Debt
Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement)
 Determining
Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock
 F-15




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
 Note 4  Acquisitions
 Applied Energy Management, Inc.
   Cash
    
    $
    2,091Accounts receivable
    
    
    5,476,663Costs and estimated profits in excess of billings
on uncompleted contracts
    
    
    839,370Other current assets
    
    
    250,785Property and equipment
    
    
    588,925Identifiable intangible assets
    
    
    5,250,000Goodwill
    
    
    11,744,273Total Assets Acquired
    
    
    24,152,107Line of credit
    
    
    (3,760,978
    )Accounts payable
    
    
    (5,305,707
    )Billings in excess of costs and estimated earnings on
uncompleted contracts
    
    
    (521,248
    )Accrued expenses
    
    
    (857,624
    )Long term debt
    
    
    (2,119,685
    )Total liabilities assumed
    
    
    (12,565,242
    )Net assets acquired
    
    
    11,586,865Less valuation of shares issued
for acquisition
    
    
    (7,293,192
    )Acquisition costs
    
    
    (293,673
    )Total cash paid
    
    $
    4,000,000
 F-16




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
  Estimated
    
    
    EstimatedAsset Class
    
    Value
    
    
    Useful LifeContract backlog
    
    $
    252,000
    
    
    12 monthsSales pipeline
    
    
    1,862,000
    
    
    18 monthsCustomer list
    
    
    3,011,000
    
    
    
    5 to 15 yearsTechnology
    
    
    125,000
    
    
    5 years
  Parke P.A.N.D.A. Corporation
    F-17




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
  Cash
    
    $
    1,710Accounts receivable
    
    
    710,465Inventory
    
    
    142,789Other current assets
    
    
    7,088Net property and equipment
    
    
    79,917Identifiable intangible assets
    
    
    3,247,000Goodwill (non-deductible)
    
    
    5,584,874Total assets acquired
    
    
    9,773,843Line of credit
    
    
    (400,000
    )Accounts payable
    
    
    (338,536
    )Accrued expenses
    
    
    (89,571
    )Notes payable
    
    
    (45,763
    )Other current liabilities
    
    
    (368
    )Deferred tax liability
    
    
    (1,034,000
    )Total liabilities assumed
    
    
    (1,908,238
    )Net assets acquired
    
    
    7,865,605Less valuation of shares issued
for acquisition
    
    
    (5,000,000
    )Acqusition costs
    
    
    (145,605
    )Total cash paid
    
    $
    2,720,000
  Estimated
    
    
    EstimatedAsset Class
    
    Value
    
    
    Useful LifeNon-compete agreement
    
    $
    336,000
    
    
    2 YearsCustomer contracts
    
    
    206,000
    
    
    1 monthSales pipeline
    
    
    53,000
    
    
    5 monthsTrade name
    
    
    2,652,000
    
    
    Indefinite
 Kapadia Consulting, Inc.
  F-18




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
    Cash
    
    $
    47,329Accounts receivable
    
    
    574,160Inventory
    
    
    111,962Other current assets
    
    
    122,451Long term receivables
    
    
    17,713Property and equipment
    
    
    16,430Identifiable intangible assets
    
    
    1,129,000Goodwill (non-deductible)
    
    
    710,433Total assets acquired
    
    
    2,729,478Accounts payable
    
    
    (657,079
    )Accrued expenses
    
    
    (299,316
    )Other current liabilities
    
    
    (11,272
    )Total liabilities assumed
    
    
    (967,667
    )Net assets acquired
    
    
    1,761,811Less valuation of shares issued
for acquisition
    
    
    (480,000
    )Acquisition costs
    
    
    (31,811
    )Total cash paid
    
    $
    1,250,000
  Estimated
    
    
    EstimatedAsset Class
    
    Value
    
    
    Useful LifeSales backlog
    
    $
    187,000
    
    
    6 MonthsSales pipeline
    
    
    708,000
    
    
    12 MonthsNon-compete agreement
    
    
    87,000
    
    
    2 YearsCustomer list
    
    
    147,000
    
    
    10 Years
 F-19




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
 Texas Energy Products and Preferred Lighting, Inc.
    Texas Energy
    
    
    Preferred LightingCash
    
    $
    17,899
    
    
    $
    31,127Accounts receivable
    
    
    78,410
    
    
    
    24,491Inventory
    
    
    67,634
    
    
    
    53,499Other current assets
    
    
    4,800
    
    
    
    16,735Property and equipment
    
    
    7,000
    
    
    
    8,593Identifiable intangible assets
    
    
    496,000
    
    
    
    368,100Goodwill (deductible)
    
    
    34,810
    
    
    
    439,075Total assets acquired
    
    
    706,553
    
    
    
    941,620Accounts payable
    
    
    (101,356
    )
    
    
    (22
    )Accrued expenses
    
    
    (19,241
    )
    
    
    (20,164
    )Other current liabilities
    
    
    (35,784
    )
    
    
    (108,059
    )Total liabilities assumed
    
    
    (156,381
    )
    
    
    (128,245
    )Net assets acquired
    
    
    544,172
    
    
    
    807,375Less valuation of shares and
warrants issued for acquisition
    
    
    (214,000
    )
    
    
    (384,922
    )Acquisition costs
    
    
    (16,848
    )
    
    
    (18,500
    )Total cash paid
    
    $
    319,324
    
    
    $
    409,953
 F-20




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
  Estimated
    
    
    EstimatedAsset Class
    
    Value
    
    
    Useful LifeTexas Energy ProductsSales backlog
    
    $
    223,000
    
    
    3 MonthsSales pipeline
    
    
    273,000
    
    
    6 MonthsPreferred LightingSales backlog
    
    $
    15,400
    
    
    4 monthsSales pipeline
    
    
    335,000
    
    
    16 monthsCustomer list
    
    
    17,700
    
    
    3 years
    Year ended December 31,
    
    2008
    
    
    2007
    
    
    2006Revenue:As Reported
    
    $
    57,221,924
    
    
    $
    19,481,130
    
    
    $
    8,143,624Pro-forma
    
    
    67,358,596
    
    
    
    60,380,996
    
    
    
    10,027,454Net Loss from Continuing Operations:As Reported
    
    $
    (13,035,526
    )
    
    $
    (15,552,728
    )
    
    $
    (16,426,089
    )Pro-forma
    
    
    (15,880,768
    )
    
    
    (19,375,104
    )
    
    
    (16,056,887
    )Basic and Diluted Loss per Share
from Continuing Operations:As Reported
    
    $
    (1.59
    )
    
    $
    (2.06
    )
    
    $
    (10.61
    )Pro-forma
    
    
    (1.84
    )
    
    
    (2.28
    )
    
    
    (8.84
    )
  F-21




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
 Note 5  Acquisition of Advanced Biotherapy, Inc.
      Note 6  Discontinued Operations
  F-22




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
    Year ended December 31
    
    2006Revenue
    
    $
    485,787Net Loss
    
    
    (21,425
    )
 Note 7  Inventories
  December 31,
    
    2008
    
    
    2007Raw materials
    
    $
    666,883
    
    
    $
    681,602Finished goods
    
    
    
    
    
    
    13,463Reserve for obsolescence
    
    
    (1,838
    )
    
    
    (1,838
    )$
    665,045
    
    
    $
    693,227
 Note 8  Property and Equipment
  December 31,
    
    2008
    
    
    2007Land
    
    $
    205,000
    
    
    $
    205,000Building
    
    
    1,084,877
    
    
    
    1,011,723Furniture
    
    
    193,859
    
    
    
    120,609Equipment
    
    
    297,287
    
    
    
    121,622Office equipment
    
    
    904,335
    
    
    
    561,785Transportation equipment
    
    
    613,504
    
    
    
    303,2123,297,862
    
    
    
    2,323,951Less accumulated depreciation
    
    
    (1,216,551
    )
    
    
    (781,624
    )$
    2,081,311
    
    
    $
    1,542,327
  F-23




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
 Note 9  Goodwill and Other Intangible Assets
 Goodwill and
Other Intangible Assets
 Building
    
    
    
    
    
    
    EnergyControl and
    
    
    Energy
    
    
    EfficiencyAutomation
    
    
    Technology
    
    
    Services
    
    
    TotalBalance at December 31, 2005
    
    $
    173,742
    
    
    $
    4,155,660
    
    
    $
    
    
    
    $
    4,329,402Sale of Great Lakes Controlled
Energy Corporation
    
    
    (173,742
    )
    
    
    
    
    
    
    
    
    
    
    (173,742
    )Acquisition of Parke P.A.N.D.A.
Corporation
    
    
    
    
    
    
    
    
    
    
    5,584,874
    
    
    
    5,584,874Acquisition of Kapadia Consulting,
Inc.
    
    
    
    
    
    
    
    
    
    
    710,433
    
    
    
    710,433Balance at December 31, 2006
    
    $
    
    
    
    $
    4,155,660
    
    
    $
    6,295,307
    
    
    $
    10,450,967Release of escrow shares to
former owners of Maximum
Performance Group, Inc.
    
    
    
    
    
    
    26,309
    
    
    
    
    
    
    
    26,309Acquisition of Texas Energy
Products, Inc.
    
    
    
    
    
    
    
    
    
    
    28,780
    
    
    
    28,780Acquisition of Preferred
Lighting, Inc.
    
    
    
    
    
    
    
    
    
    
    433,045
    
    
    
    433,045Impairment charge
    
    
    
    
    
    
    (4,181,969
    )
    
    
    
    
    
    
    (4,181,969
    )Balance at December 31, 2007
    
    $
    
    
    
    $
    
    
    
    $
    6,757,132
    
    
    $
    6,757,132Additional costs incurred in
connection with the acquisitions
of Texas Energy Products, Inc.
and Preferred Lighting, Inc.
    
    
    
    
    
    
    
    
    
    
    12,060
    
    
    
    12,060Acquisition of Applied Energy
Management, Inc.
    
    
    
    
    
    
    
    
    
    
    11,744,273
    
    
    
    11,744,273Balance at December 31, 2008
    
    $
    
    
    
    $
    
    
    
    $
    18,513,465
    
    
    $
    18,513,465
  F-24




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
  WeightedAverageRemainingLife
    
    
    Gross Book
    
    
    Accumulated
    
    
    Net Book(months)
    
    
    Value
    
    
    Amortization
    
    
    ValueAs of December 31, 2008Indefinite-lived assets
    
    
    
    
    
    $
    2,652,000
    
    
    $
    
    
    
    $
    2,652,000Amortized intangible assets:Technology and software
    
    
    12.3
    
    
    
    2,104,900
    
    
    
    1,829,519
    
    
    
    275,408Customer relationships
    
    
    56.3
    
    
    
    3,443,500
    
    
    
    262,303
    
    
    
    3,181,197Customer contracts
    
    
    3.0
    
    
    
    1,068,300
    
    
    
    926,925
    
    
    
    141,375Non-compete agreements
    
    
    0.0
    
    
    
    423,000
    
    
    
    423,000
    
    
    
    -Sales pipe-line
    
    
    7.8
    
    
    
    3,231,000
    
    
    
    2,343,996
    
    
    
    887,004Total
    
    
    
    
    
    
    12,922,700
    
    
    
    5,785,743
    
    
    
    7,136,984As of December 31, 2007Indefinite-lived assets
    
    
    
    
    
    $
    2,652,000
    
    
    $
    
    
    
    $
    2,652,000Amortized intangible assets:Technology and software
    
    
    8.5
    
    
    
    1,979,900
    
    
    
    1,319,933
    
    
    
    659,967Customer relationships
    
    
    57.1
    
    
    
    432,500
    
    
    
    86,390
    
    
    
    346,110Customer contracts
    
    
    0.0
    
    
    
    816,300
    
    
    
    816,300
    
    
    
    -Non-compete agreements
    
    
    3.9
    
    
    
    423,000
    
    
    
    306,375
    
    
    
    116,625Sales pipe-line
    
    
    6.6
    
    
    
    1,369,000
    
    
    
    1,164,650
    
    
    
    204,350Total
    
    
    
    
    
    $
    7,672,700
    
    
    $
    3,693,648
    
    
    $
    3,979,052
  AmortizationExpense2009
    
    $
    1,365,3552010
    
    
    468,3392011
    
    
    491,8132012
    
    
    486,4402013
    
    
    428,124$
    3,240,071
 F-25




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
 Note
10  Accrued Expenses
  December 31,
    
    2008
    
    
    2007Commissions
    
    $
    
    
    
    $
    30,222Compensation
    
    
    1,245,308
    
    
    
    302,922Dividends
    
    
    288,014
    
    
    
    Earn-out payable
    
    
    793,192
    
    
    
    Insurance
    
    
    31,268
    
    
    
    137,531Interest
    
    
    226,195
    
    
    
    172,975Job costs
    
    
    325,460
    
    
    
    230,665Lease expense
    
    
    40,542
    
    
    
    36,840Professional fees
    
    
    199,261
    
    
    
    10,386Real estate taxes
    
    
    41,545
    
    
    
    42,012Sales tax payable
    
    
    243,235
    
    
    
    211,549Warranty reserve
    
    
    208,863
    
    
    
    377,902Other
    
    
    212,330
    
    
    
    18,679$
    3,855,213
    
    
    $
    1,571,683
 Note 11  Warranty Liability
  December 31,
    
    2008
    
    
    2007Balance, beginning of year
    
    $
    377,902
    
    
    $
    196,783Warranties issued
    
    
    56,921
    
    
    
    231,737Settlements
    
    
    (225,960
    )
    
    
    (50,618
    )Balance, end of year
    
    $
    208,863
    
    
    $
    377,902
 Note 12  Lines of Credit
  F-26




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
         F-27




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
 Note 13  Notes Payable
   Note 14  Subordinated Convertible Term Notes
     F-28




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
  Value Allocated to Term Notes:Proceeds from issuance
    
    $
    5,000,000Less value allocated to warrants
    
    
    (1,136,537
    )Value allocated to Term Notes
    
    $
    3,863,463Market Value of Shares Issuable Upon Conversion:Shares issuable upon conversion of the Term Notes
    
    
    714,286Closing market value of stock on Term Note issuance date
    
    $
    8.022Market value of shares issuable upon conversion
    
    
    5,730,000Beneficial Conversion Value:Market value of shares issuable upon conversion
    
    $
    5,730,000Less value allocated to Term Notes
    
    
    (3,863,463
    )Value of beneficial conversion feature
    
    $
    1,866,537
   Note 15  Convertible Term Loans
   F-29




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
   Note 16  Long Term Debt
  December 31,
    
    2008
    
    
    2007Mortgage note to American Chartered Bank, prime (3.25% as of
December 31, 2008) plus 1/2%, payable in monthly installments of
$3,000, plus interest until January 2010. A final payment of
$415,000 is due in February 2010. This note is collateralized
by the building and land in Elk Grove Village, Illinois.
    
    $
    454,000
    
    
    $
    490,000Subordinated convertible term note (less debt discount
of $1,411,281 and $2,412,305, as of December 31, 2008 and
December 31, 2007, respectively), 10%.
    
    
    3,588,719
    
    
    
    2,587,695Notes payable, interest rates of between prime and 9.25%, amortizing
over 24 months beginning January 1, 2010 and payable in full
upon completion of an underwritten offering of at least $20
million.
    
    
    1,422,390
    
    
    
    Various other notes with monthly payments totaling $15,044 and
interest rates between 0.9% and 9.25%
    
    
    438,909
    
    
    
    191,939Total debt
    
    
    5,904,018
    
    
    
    3,269,634Less current portion
    
    
    187,170
    
    
    
    81,954Total long-term debt
    
    $
    5,716,848
    
    
    $
    3,187,680
 F-30




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
  Aggregate Maturities2009
    
    
    187,1702010
    
    
    6,275,3562011
    
    
    792,5422012
    
    
    57,8352113
    
    
    2,396$
    7,315,299
 Note 17  Preferred Stock
  F-31




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
 Note 18  Interest Expense
  Year ended December 31
    
    2008
    
    
    2007
    
    
    2006Line of credit (Note 12)
    
    $
    953,045
    
    
    $
    
    
    
    $
    50,344Note payable (Note 13)
    
    
    73,626
    
    
    
    16,547
    
    
    
    16,563Mortgage (Note 16)
    
    
    26,809
    
    
    
    43,931
    
    
    
    46,495Subordinated convertible notes
(Note 14)
    
    
    500,000
    
    
    
    293,683
    
    
    
    Convertible term loans (Note 15)
    
    
    
    
    
    
    
    
    
    
    249,065Other
    
    
    120,836
    
    
    
    5,476
    
    
    
    1,772Amortization of deferred issuance
costs and debt discount
(Notes 14 and 15)
    
    
    1,003,883
    
    
    
    592,456
    
    
    
    1,175,970Prepayment penalty (Note 15)
    
    
    
    
    
    
    
    
    
    
    516,071Value of adjustment in conversion
price (Note 12)
    
    
    
    
    
    
    
    
    
    
    950,865Termination of post re-payment
interest obligation (Note 15)
    
    
    
    
    
    
    
    
    
    
    266,225Total Interest Expense
    
    $
    2,678,200
    
    
    $
    952,093
    
    
    $
    3,273,370
 Note 19  Lease Commitments
   Related
    
    
    UnrelatedYear ending December 31,
    
    Party
    
    
    Party
    
    
    Total2009
    
    $
    134,291
    
    
    $
    918,115
    
    
    $
    1,052,4062010
    
    
    
    
    
    
    635,991
    
    
    
    635,9912011
    
    
    
    
    
    
    341,369
    
    
    
    341,3692012
    
    
    
    
    
    
    227,301
    
    
    
    227,3012013
    
    
    
    
    
    
    32,800
    
    
    
    32,800Total
    
    $
    134,291
    
    
    $
    2,155,576
    
    
    $
    2,289,867
 F-32




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
 Note 20  Income Taxes
  Year ended December 31
    
    2008
    
    
    2007
    
    
    2006DeferredFederal
    
    $
    (4,432,000
    )
    
    $
    (3,866,000
    )
    
    $
    (5,453,000
    )State
    
    
    (652,000
    )
    
    
    (569,000
    )
    
    
    (962,000
    )Change in valuation allowance
    
    
    5,084,000
    
    
    
    4,435,000
    
    
    
    6,415,000Benefit for income taxes
    
    $
    
    
    
    $
    
    
    
    $
    
  December 31
    
    2008
    
    
    2007Deferred tax asset consisting principally of net operating losses
    
    $
    31,630,000
    
    
    $
    27,353,000Deferred tax liabilities, principally related to non-deductible
identifiable intangible assets
    
    
    (2,463,000
    )
    
    
    (1,231,000
    )Less valuation allowance
    
    
    (30,201,000
    )
    
    
    (27,156,000
    )Total net deferred tax liability
    
    $
    (1,034,000
    )
    
    $
    (1,034,000
    )
   Year ended December 31,
    
    2008
    
    
    2007
    
    
    2006Income tax (benefit) at federal statutory rate
    
    $
    (4,431,000
    )
    
    $
    (5,288,000
    )
    
    $
    (5,592,000
    )State taxes (net of federal tax benefit)
    
    
    (653,000
    )
    
    
    (569,000
    )
    
    
    (823,000
    )Non-deductible goodwill impairment
    
    
    
    
    
    
    1,422,000
    
    
    
    Increase in valuation allowance
    
    
    5,084,000
    
    
    
    4,435,000
    
    
    
    6,415,000Income tax expense (benefit)
    
    $
    
    
    
    $
    
    
    
    $
    
 F-33




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
  Note 21  Commitments and Contingencies
 a)
    
    The Company entered into employment agreements with certain officers and employees expiring
in 2010. Total future commitments under these agreements are as follows:
 Year ending December 31,2009
    
    $
    1,606,5602010
    
    
    1,462,5602011
    
    
    298,983Total
    
    $
    3,368,103
 b)
    
    The Company is involved in certain litigation in the normal course of its business.
Management intends to vigorously defend these cases. In the opinion of management, the
litigation now pending will not have a material adverse affect on the consolidated financial
statements of the Company.
 Note 22  The June 2006 PIPE Transaction
   F-34




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
  Note 23  The Series E Conversion
   Note 24  The November 2008 PIPE Transaction
    F-35




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
   Note 25  Equity Transactions
 2006 Transactions
 a)
    
    In January 2006 the Company issued stock options at the then current
market price of $65.10 per share, which was less than the $96.60
exercise price on a warrant held by one of its former Series E
Preferred stock holders. Adjusting the exercise price of this warrant
resulted in a non-cash deemed dividend of $266,390.b)
    
    During the first three months of 2006, two holders of the Companys
Series E Convertible Preferred Stock converted a total of 7,130 shares
of Series E Convertible Preferred Stock into 6,790 shares of common
stock.c)
    
    Effective March 31, 2006, the Company received 2,027 shares of its
common stock as part of the sale of its Great Lakes Controlled Energy
Corporation subsidiary to Messrs. Eugene Borucki and Denis Enberg.
These shares have been returned to the status of authorized, unissued
shares of common stock.d)
    
    During the first six months of 2006, the Companys Board of Directors declared dividends
payable on the Companys Series E Convertible Preferred Stock of $698,000. The dividends were
paid with 6,980 additional shares of Series E Convertible Preferred Stock.e)
    
    On June 29, 2006 the Company entered into a Securities Purchase
Agreement and issued to 17 investors, including 10 existing holders of
its Series E Convertible Stock, 2,553,571 shares of its common stock
for an aggregate purchase price of $17,875,000 (the PIPE
Transaction). The Company used $2.72 million of the proceeds to fund
the cash consideration for the acquisition of Parke P.A.N.D.A.
Corporation, approximately $5.6 million to prepay two convertible
secured term loans and related prepayment penalties and accrued
interest owed to Laurus Master Fund Ltd., $400,000 to pay off Parkes
line of credit, and $115,107 for transaction related costs.
$1,250,000 of the proceeds were used to pay the cash portion of the
acquisition price for Kapadia Consulting, Inc. as described under i)
below, and the balance of the proceeds were used for working capital
and other general corporate purposes.f)
    
    A number of the Companys common stock warrants contain anti-dilution
provisions that automatically adjust the exercise price on the
warrants to the issuance price of any security convertible into the
Companys common stock if the price of the newly issued security is
less than the exercise price on the holders warrant. Prior to the
PIPE Transaction described in e) above, the exercise price on these
warrants ranged from $94.50 per share to $105.00 per share. The
issuance of common stock in the PIPE Transaction caused the exercise
price on these warrants to automatically be reduced to $7.00 per
share. Utilizing a modified Black-Scholes option pricing model, the
Company determined that the increase in value of these warrants that
resulted from this adjustment was $297,868, which the Company recorded
as a non-cash deemed dividend on June 29, 2006. The Company used the
following assumptions when determining the change in value of these
warrants:
risk free rate of 5.036%; expected volatility of between 97.8% and 154.7; expected dividend of
$0; and expected lives of between 0.4 years and 2.7 years.
 F-36




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
 
 g)
    
    Immediately following completion of the PIPE Transaction
described in Note 22 above, and prepayment of the Laurus term
loans, Laurus elected to convert the entire outstanding balance
on its revolving line of credit, along with accrued interest
thereon, into 135,838 shares of the Companys common stock. In
addition, in consideration of the issuance of 56,085 shares of
common stock, Laurus agreed to (i) waive the payment of
liquidated damages due as a result of the Companys failure to
register shares of common stock into which the November 2005 $5
million term loan was convertible, and (ii) terminate the
requirement that the Company pay it a portion of the cash flows
generated by VNPP projects for a period of 5 years following the
repayment of the November 2005 $5 million convertible term loan.h)
    
    On June 30, 2006, the Company issued 714,286 shares to the Parke
Family Trust as part of the consideration in the acquisition of
Parke P.A.N.D.A. Corporation. Please refer to Note 4 for
additional information regarding this transaction.i)
    
    On September 26, 2006, the Company issued 71,429 shares of its
common stock to Pradeep and Susan Kapadia as part of the
consideration in the acquisition of Kapadia Consulting, Inc.
Please refer to Note 4 for additional information regarding this
transaction.j)
    
    During 2006, the Company issued a three year warrant to purchase
8,571 shares of its common stock at $7.00 per share to a
consultant as partial consideration for its services. This
warrant was valued at $25,200 using a modified Black-Scholes
option pricing model utilizing the following assumptions: risk
free rate of 5.108%; expected volatility of 91.4%; expected
dividend of $0; and expected life of 3 years. The value of this
warrant was charged to operations during the period.
 2007 Transactions
 k)
    
    In January 2007, pursuant to the Directors Option Plan the
Company granted options to certain outside directors with an
exercise price of $6.30 per share, which was the market price on
the date of issuance. Warrants held by 12 investors, including
Messrs. Asplund and Kiphart, contained anti-dilution provisions
that automatically adjust the exercise price on the warrants to
the issuance price of any security convertible into the
Companys common stock if the price of the newly issued security
is less than the exercise price on the holders warrant. Prior
to granting of the director options, the exercise price on these
warrants was $7.00 per share. The grant of the director options
caused the exercise price on these warrants to automatically be
reduced to $6.30 per share. Utilizing a modified Black-Scholes
option pricing model, the Company determined that the increase
in value of these warrants that resulted from this adjustment
was $19,204, which the Company recorded as an expense in January
2007. The Company used the following assumptions when
determining the change in value of these warrants: risk free
rate of 5.026%; expected volatility of between 73.5% and 127.7%
expected dividend of $0; and expected lives of between 0.5 years
and 1.7 years.l)
    
    During January 2007, the Company issued consultants warrants
with terms of between two and three years to purchase 38,571
shares of its common stock at prices of $7.00 to $7.56 per share
as partial consideration for services provided the Company.
These warrants were valued at $162,000 using a modified
Black-Scholes option pricing model utilizing the following
assumptions: risk free rate of 5.129%; expected volatility of
88.9%; expected dividend of $0; and expected life of two to
three years. The value of the warrants was charged to
operations during 2007.m)
    
    A provision of the June 2006 PIPE transaction required the
Company to file and have declared effective by no later than
November 3, 2006, a registration statement registering the
shares issued as part of the transaction. To the extent that it
failed to have the registration statement declared effective by
this date, it was required to pay penalties to the PIPE
investors at the rate of 1% per month of the
 F-37




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
 
 purchase price paid by the investors. Largely as a result of the questions regarding the need
to amend its Certificate of Incorporation to effect the 2006 reverse split of its stock, the
Company was not able to have the registration statement declared effective until February 14,
2007. All of the investors in the PIPE transaction agreed to accept shares of the Companys
common stock as payment of this registration penalty. As of December 31, 2006, the Company had
accrued $345,583 in penalties related to its failure to register these shares. The accrued
penalties, along with $268,125 of penalties for the period from January 1, 2007 through February
14, 2007, were satisfied through the issuance of 87,673 shares of common stock in January and
February 2007.n)
    
    On February 23, 2007, the Company commenced a rights offering to
stockholders in which it distributed to each holder of record as of
February 23, 2007 (other than the former Series E Preferred
stockholders and Daniel Parke, who waived their rights to
participate), non-transferable subscription rights to purchase shares
of the Companys common stock at $7.00 per share. Stockholders that
participated in the rights offering were also able to subscribe for
any shares that were not purchased by other stockholders pursuant to
their subscription rights. The rights offering closed on March 30,
2007 and raised $2,796,700 (net of issuance costs of $202,932) through
the issuance of 428,519 shares of common stock to 260 of the Companys
existing stockholders. The Company received the proceeds from the
offering and issued the common stock to the participants during the
first week of April 2007.o)
    
    In connection with the placement of the subordinated convertible term
notes during the second quarter of 2007 the Company issued four-year
warrants to eight investors, including Richard Kiphart, the Companys
chairman and largest individual stockholder, to purchase 206,044
shares of its common stock at $7.28 per share. These warrants were
valued at $1,136,537 using a modified Black-Scholes option pricing
model utilizing the following assumptions: risk free rate of 4.846%;
expected volatility of 93.3%; expected dividend of $0; and expected
life of four years. The value of the warrants was recorded as a
discount to the subordinated convertible term notes and are being
amortized over the life of the notes using the effective interest
method.p)
    
    As part of the MPG acquisition, 23,735 shares of common stock were
deposited in escrow for the benefit of the selling stockholders of MPG
to be released over the two-year period following the April 30, 2005
purchase of MPG if it achieved certain revenue targets during the
period. During May 2007 the Company issued 2,818 shares to the
former MPG stockholders which it determined it owed them pursuant to
the MPG merger agreement. These shares were valued at $8.89 per
share, the market value on the date of their release, and recorded as
an increase in the goodwill associated with the MPG acquisition. The
remaining 20,917 shares that were in escrow were returned to the
Company and retired and became authorized but un-issued shares.q)
    
    Delano Group Securities LLC acted as an advisor on the acquisition of
MPG in 2005. Part of Delanos compensation for its services was tied
to the purchase price paid for MPG. Mr. David Asplund owned and
operated Delano prior to joining Lime Energy as its CEO in January
2006. Since the release of the escrow shares was considered a payment
of additional consideration to the former stockholders of MPG, the
Company issued Mr. Asplund 141 shares of its common stock in May 2007
in satisfaction of the commission owed Delano. These shares were
valued at $1,252, based on the market value on the date of their
issuance, and recorded as an increase in the goodwill associated with
the MPG acquisition.r)
    
    On June 6, 2007, the Company acquired the assets and assumed certain
liabilities of George Bradley Boyett dba Texas Energy Products. The
purchase consideration consisted of 28,571 shares of Lime Energy
common stock and cash of $312,787. For accounting purposes the stock
was valued at $7.49
 F-38




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
 
 per share, the average closing price of the stock for the 20 trading days immediately prior to
the closing. Please refer to Note 4 for additional information regarding this transaction.s)
    
    On August 6, 2007, the Company acquired the assets and assumed
certain liabilities of Preferred Lighting, Inc. for 15,069
shares of Lime Energy common stock and cash of $409,953
(including $109,953 paid in 2008 pursuant to an earn-out based
on 2007 earnings). The company also issued five year warrants
to the former owners of Preferred Lighting to purchase 21,429
shares of the Companys common stock at $13.23 per share. These
warrants were valued at $184,500 using a modified Black-Scholes
option pricing model utilizing the following assumptions: risk
free rate of 4.909%; expected volatility of 75.0%; expected
dividend of $0; and expected life of four years. The value of
the warrants were considered part of the purchase consideration.
Please refer to Note 4 for additional information regarding
this transaction.t)
    
    During 2007, the Company issued 7,088 shares of its common stock
to the holders of its subordinated convertible term notes in
satisfaction of 50% of the interest owed on the note.u)
    
    During 2007 certain employees and a former director exercised
options to purchase 33,005 shares of the Companys common stock
as exercise prices ranging from $6.30 to $7.14 per share.v)
    
    During 2007 six investors exercised their warrants to purchase
5,001 shares of the Companys common stock at $6.30 per share.
One of these investors elected to exercise its warrant on a
cashless basis, surrendering 569 shares it would have otherwise
be entitled to receive on exercise to cover the exercise price.
 2008 Transactions
 w)
    
    During 2008, the Company issued consultants warrants with terms
of between three and four years to purchase 22,143 shares of its
common stock at prices of $5.00 to $9.45 per share as partial
consideration for services provided the Company. These warrants
were valued at $112,850 using a modified Black-Sholes option
pricing model utilizing the following assumptions: risk free
rates of 0.7% to 3.259%, expected volatility of 91.6% to 92.4%,
expected dividend of $0 and expected life of three to four
years. The value of the warrants was charged to operations
during 2008.x)
    
    During the 2008, the Company issued 32,581 shares of its common
stock to the holders of its subordinated convertible term notes
in satisfaction of 50% of the interest owed on the notes.y)
    
    During 2008, holders of certain options and warrants exercised
their rights to purchase 31,786 shares of the Companys common
stock at prices between $6.30 and $7.35 per share. Some of the
warrants were exercised on a cashless basis with the holders
surrendering 41,453 shares they would have otherwise been
entitled to receive on exercise to cover the cost of exercise.z)
    
    In June 2008, the Company issued 882,725 shares of its common
stock to the former stockholders of Applied Energy Management,
Inc. as partial consideration for the purchase of the company.
Please refer to Note 4 for additional information regarding this
transaction.aa)
    
    In July 2008, the holder of a $150,000 demand note elected to
convert the note, along with $50,373 of accrued interest, into
32,848 shares of the Companys common stock.bb)
    
    In November 2008 the Company issued 854,844 shares of its common
stock along with three year warrants to purchase 213,713
addition shares of common stock at $4.10 per share to nine
investors in
 F-39




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
 
 exchange for $3,000,500. The net proceeds from this offering will be used for general corporate
purposes.cc)
    
    The Company had outstanding warrants to purchase 551,425 and 417,907 shares of its common
stock as of December 31, 2008 and 2007, respectively, at an exercise price of between $3.51
per share and $688.80 per share. These warrants can be exercised at any time prior to their
expiration dates which range between March 2009 and May 2015. The following table summarizes
information about warrants outstanding as of December 31, 2008:
 Warrants OutstandingWeightedNumber
    
    
    Average
    
    
    WeightedOutstanding at
    
    
    Remaining
    
    
    AverageDecember 31,
    
    
    Contractual
    
    
    ExerciseExercise Price
    
    2008
    
    
    Life
    
    
    Price$3.51 - $5.00
    
    
    230,380
    
    
    2.7 years
    
    $
    4.06$5.01 - $7.00
    
    
    30,714
    
    
    1.4 years
    
    
    6.67$7.01 - $10.00
    
    
    244,616
    
    
    2.3 years
    
    
    7.42$10.01 - $15.00
    
    
    21,429
    
    
    3.6 years
    
    
    13.23$15.01 - $100.0
    
    
    
    
    
    
    
    
    
    
    $100.01 - $688.80
    
    
    24,286
    
    
    3.4 years
    
    
    123.38551,425
    
    
    2.5 years
    
    $
    11.30
 Note 26  Dividends
  Year ended December 31,
    
    2008
    
    
    2007
    
    
    2006Accrual of Series A-1 Preferred
dividend
    
    
    288,014
    
    
    
    
    
    
    
    Accrual of Series E Preferred dividend
    
    
    
    
    
    
    
    
    
    
    698,000Deemed dividend associated with change
in conversion price of the Series E
Convertible Preferred Stock
    
    
    
    
    
    
    
    
    
    
    23,085,467Deemed dividend associated with change
in the exercise price of warrants to
purchase shares of common stock
    
    
    
    
    
    
    
    
    
    
    564,258Total
    
    $
    288,014
    
    
    $
    
    
    
    $
    24,347,725
 F-40




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
 Note 27  Reverse Splits
  Note 28  Stock Options
     F-41




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
      F-42




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
  WeightedExercise
    
    
    AveragePrice Per
    
    
    ExerciseShares
    
    
    Share
    
    
    PriceOutstanding at December 31, 2005
    
    
    114,286
    
    
    $
    88.20 - $1,363.95
    
    
    $
    325.50Granted
    
    
    1,446,903
    
    
    $
    6.72 - $105.00
    
    
    $
    7.84Forfeited
    
    
    (31,626
    )
    
    $
    7.14 - $735.00
    
    
    $
    137.76Outstanding at December 31, 2006
    
    
    1,529,563
    
    
    $
    6.72 - $1,363.95
    
    
    $
    33.25Granted
    
    
    701,723
    
    
    $
    6.30 - $13.30
    
    
    $
    10.58Exercised
    
    
    (35,086
    )
    
    $
    6.30 - $7.14
    
    
    $
    7.05Forfeited
    
    
    (25,852
    )
    
    $
    6.30 - $247.80
    
    
    $
    31.55Outstanding at December 31, 2007
    
    
    2,170,348
    
    
    $
    6.30 - $1,363.95
    
    
    $
    23.31Granted
    
    
    516,424
    
    
    $
    3.50 - $11.69
    
    
    $
    5.11Exercised
    
    
    (13,414
    )
    
    $
    7.14 - $7.35
    
    
    $
    7.18Forfeited
    
    
    (184,701
    )
    
    $
    6.13 - $183.75
    
    
    $
    36.94Outstanding at December 31, 2008
    
    
    2,488,657
    
    
    $
    3.50 - $1,363.95
    
    
    $
    18.61Options exercisable at
December 31, 2008
    
    
    1,618,415
    
    
    $
    6.30 - 1,363.95
    
    
    $
    24.55Options exercisable at
December 31, 2007
    
    
    1,095,512
    
    
    $
    6.30-$1,363.95
    
    
    $
    36.86Options exercisable at
December 31, 2006
    
    
    663,636
    
    
    $
    6.72-$1,363.95
    
    
    $
    7.95
  F-43




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
  Year ended December 31,
    
    2008
    
    2007
    
    2006Weighted average fair value per options granted
    
    $
    3.75
    
    
    $
    8.12
    
    
    $
    7.35Significant assumptions (weighted average):Risk-free interest rate at grant date
    
    
    1.44
    %
    
    
    4.06
    %
    
    
    5.02
    %Expected stock price volatility
    
    
    86
    %
    
    
    88
    %
    
    
    90
    %Expected dividend payout
    
    
    
    
    
    
    
    
    
    
    Expected option life (years)
    
    
    5.8
    
    
    
    6.1
    
    
    
    5.6
   2008
    
    2007
    
    2006Cost of
    
    
    
    
    
    
    
    
    
    Cost of
    
    
    
    
    
    
    
    
    
    Cost ofSales
    
    SG&A
    
    Total
    
    Sales
    
    SG&A
    
    Total
    
    Sales
    
    SG&A
    
    TotalEnergy efficiency
services
    
    $
    184,222
    
    
    $
    1,249,804
    
    
    $
    1,434,026
    
    
    $
    129,716
    
    
    $
    591,560
    
    
    $
    721,276
    
    
    $
    217,271
    
    
    $
    623,277
    
    
    $
    840,548Energy technology
    
    
    47,122
    
    
    
    49,287
    
    
    
    96,409
    
    
    
    14,949
    
    
    
    529,112
    
    
    
    544,061
    
    
    
    79,663
    
    
    
    817,287
    
    
    
    896,950Corporate overhead
    
    
    
    
    
    
    2,253,091
    
    
    
    2,253,091
    
    
    
    
    
    
    
    2,461,394
    
    
    
    2,461,394
    
    
    
    
    
    
    
    3,079,122
    
    
    
    3,079,122Discontinued
operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,335Total
    
    $
    231,344
    
    
    $
    3,552,182
    
    
    $
    3,783,525
    
    
    $
    144,665
    
    
    $
    3,582,066
    
    
    $
    3,726,731
    
    
    $
    296,934
    
    
    $
    4,519,686
    
    
    $
    4,828,955
  F-44




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
  Options Outstanding
    
    
    Options ExercisableNumber
    
    
    Weighted AverageOutstanding at
    
    
    Remaining
    
    
    Weighted Average
    
    
    Number Exercisable
    
    
    Weighted AverageDecember 31,
    
    
    Contractual
    
    
    Exercise
    
    
    at December 31,
    
    
    ExerciseExercise Price
    
    2008
    
    
    Life
    
    
    Price
    
    
    2008
    
    
    Price$3.50 - $5.00
    
    
    342,000
    
    
    9.9 years
    
    $
    3.50
    
    
    
    
    
    
    
    $5.01 - $7.00
    
    
    547,142
    
    
    7.4 years
    
    $
    6.74
    
    
    
    518,570
    
    
    
    6.74$7.01 - $8.50
    
    
    935,864
    
    
    7.0 years
    
    
    7.29
    
    
    
    829,675
    
    
    
    7.20$8.51 - $11.00
    
    
    41,567
    
    
    9,0 years
    
    
    9.35
    
    
    
    15,752
    
    
    
    9.41$11.01 - $12.00
    
    
    552,396
    
    
    8.8 years
    
    
    11.14
    
    
    
    186,515
    
    
    
    11.15$12.01 - $13.50
    
    
    3,570
    
    
    8.5 years
    
    
    12.88
    
    
    
    1,785
    
    
    
    12.88$13.51 - 100.00
    
    
    14,286
    
    
    7.1 years
    
    
    65.10
    
    
    
    14,286
    
    
    
    65.10$100.01-$1,363.95
    
    
    51,832
    
    
    2.4 years
    
    
    522.34
    
    
    
    51,832
    
    
    
    522.342,488,657
    
    
    7.8 years
    
    $
    18.61
    
    
    
    1,618,415
    
    
    $
    36.86
   Year ending December 31,2009
    
    $
    1,694,8472010
    
    
    673,6442011
    
    
    54,985Total
    
    $
    2,423,476
  Weighted AverageGrant Date FairNumber of Options
    
    
    ValueNonvested at December 31, 2007
    
    
    1,074,836
    
    
    $
    8.30Granted
    
    
    516,428
    
    
    
    3.74Vested
    
    
    (600,465
    )
    
    
    7.18Forfeited
    
    
    (120,553
    )
    
    
    9.79Nonvested at December 31, 2008
    
    
    870,246
    
    
    $
    6.90
 F-45




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
 Note 29  Related Parties
       F-46




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
   Shares
    
    
    CommonIssued
    
    
    Shares
    
    
    AggregateUpon
    
    
    Issued
    
    
    Price PaidConversion
    
    
    Pursuant to
    
    
    for PIPEof Series E
    
    
    PIPE
    
    
    SharesDavid R. Asplund
    
    
    50,600
    
    
    
    214,286
    
    
    $
    1,500,000Richard P. Kiphart
    
    
    1,271,915
    
    
    
    814,286
    
    
    
    5,700,000David Valentine
    
    
    20,814
    
    
    
    28,571
    
    
    
    200,000Total
    
    
    1,343,329
    
    
    
    1,057,143
    
    
    $
    7,400,000
      F-47




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
 Note 30  Business Segment Information
  
    
    Energy Efficiency Services. The Energy Efficiency Services segment
includes:
 
    
    Engineering and consulting: Energy engineering and consulting services
include project development services, energy management planning, energy bill
analysis, building energy audits, e-commissioning, design review and analysis of
new construction projects to maximize energy efficiency and sustainability, project
management of energy-related construction, and processing and procurement of
incentive and rebate applications.
    
    Implementation:Implementation services includes energy efficiency
lighting upgrade services, mechanical and electrical conservation services, water
conservation services and renewable energy solutions.
 
    
    Energy Technology. The Energy Technology segment markets a patented line of
HVAC and lighting controllers under the eMAC and uMAC brand names. The technology
provides remote monitoring, management and control of commercial rooftop HVAC units and
facility lighting via wireless communication.
    
    Financial Services. The Financial Services segment began operations in late
2007 to enable the Companys commercial and industrial clients to pay for its energy
efficiency solutions over time. The Company records these extended term receivables as
long-term receivables and consolidates them within Lime Finance for purposes of optimal
receivables management and in anticipation of potentially financing them in order to
reduce its cost of capital.
  F-48




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
  Year ended December 31,
    
    2008
    
    
    2007
    
    
    2006Revenues:Energy Efficiency Services
    
    $
    54,761,315
    
    
    $
    16,182,172
    
    
    $
    3,302,014Energy Technology
    
    
    2,404,179
    
    
    
    3,609,816
    
    
    
    4,841,610Financial Services
    
    
    56,430
    
    
    
    8,292
    
    
    
    Intercompany sales
    
    
    
    
    
    
    (319,150
    )
    
    
    Total
    
    
    57,221,924
    
    
    
    19,481,130
    
    
    
    8,143,624Operating Income (Loss):Energy Efficiency Services
    
    
    (2,306,215
    )
    
    
    (1,239,361
    )
    
    
    (1,175,253
    )Energy Technology
    
    
    (2,385,445
    )
    
    
    (8,234,325
    )
    
    
    (6,692,648
    )Financial Services
    
    
    45,548
    
    
    
    8,292
    
    
    
    Corporate
    
    
    (5,798,298
    )
    
    
    (5,402,104
    )
    
    
    (5,479,000
    )Total
    
    
    (10,444,410
    )
    
    
    (14,867,498
    )
    
    
    (13,346,901
    )Interest Expense, net
    
    
    (2,591,116
    )
    
    
    (685,230
    )
    
    
    (3,079,188
    )Loss from continuing operations
    
    
    (13,035,526
    )
    
    
    (15,552,728
    )
    
    
    (16,426,089
    )Depreciation and Amortization:Energy Efficiency Services
    
    
    1,855,243
    
    
    
    1,559,850
    
    
    
    641,870Energy Technology
    
    
    601,227
    
    
    
    578,853
    
    
    
    742,706Financial Services
    
    
    
    
    
    
    
    
    
    
    Building Control and Automation
    
    
    
    
    
    
    
    
    
    
    2,021Corporate
    
    
    83,134
    
    
    
    61,741
    
    
    
    Total
    
    
    2,539,604
    
    
    
    2,200,444
    
    
    
    1,386,597Capital Additions:Energy Efficiency Services
    
    
    333,619
    
    
    
    261,943
    
    
    
    12,096Energy Technology
    
    
    57,314
    
    
    
    122,884
    
    
    
    68,406Financial Services
    
    
    
    
    
    
    
    
    
    
    Building Control and Automation
    
    
    
    
    
    
    
    
    
    
    2,465Corporate
    
    
    11,808
    
    
    
    129,468
    
    
    
    Total
    
    
    402,741
    
    
    
    514,295
    
    
    
    82,967Total Assets:Energy Efficiency Services
    
    
    52,081,347
    
    
    
    16,493,666
    
    
    
    12,490,117Energy Technology
    
    
    2,356,514
    
    
    
    3,166,073
    
    
    
    7,486,535Financial Services
    
    
    2,263,989
    
    
    
    351,297
    
    
    
    Building Control and Automation
    
    
    
    
    
    
    
    
    
    
    Corporate
    
    
    6,186,349
    
    
    
    5,932,796
    
    
    
    5,420,213Total
    
    $
    62,888,199
    
    
    $
    25,943,832
    
    
    $
    25,396,865
 F-49




---



##### Table of Contents



Lime Energy Co.
Notes to Financial Statements  Continued
 Note 31  Selected Quarterly Financial Data (unaudited)
  Fiscal 2008 Quarters EndedMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 31
    
    
    TotalRevenue
    
    $
    2,907,479
    
    
    $
    6,933,769
    
    
    $
    18,332,079
    
    
    $
    29,048,597
    
    
    $
    57,221,924Gross profit
    
    
    149,078
    
    
    
    909,326
    
    
    
    4,528,431
    
    
    
    6,451,987
    
    
    
    12,038,822Net loss
    
    
    (4,233,373
    )
    
    
    (4,530,589
    )
    
    
    (3,138,703
    )
    
    
    (1,132,861
    )
    
    
    (13,035,526
    )Preferred dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (288,014
    )
    
    
    (288,014
    )Net loss available to common shareholders
    
    
    (4,233,373
    )
    
    
    (4,530,589
    )
    
    
    (3,138,703
    )
    
    
    (1,420,875
    )
    
    
    (13,323,540
    )Basic and Diluted Loss Per Common Share
    
    
    (0.55
    )
    
    
    (0.57
    )
    
    
    (0.36
    )
    
    
    (0.16
    )
    
    
    (1.59
    )Weighted averages shares
    
    
    7,716,491
    
    
    
    7,943,116
    
    
    
    8,683,978
    
    
    
    9,146,215
    
    
    
    8,381,697
 Fiscal 2007 Quarters EndedMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 31
    
    
    TotalRevenue
    
    $
    2,528,547
    
    
    $
    4,102,693
    
    
    $
    5,461,090
    
    
    $
    7,388,800
    
    
    $
    19,481,130Gross profit
    
    
    372,067
    
    
    
    1,157,969
    
    
    
    1,434,435
    
    
    
    1,434,259
    
    
    
    4,398,730Net loss
    
    
    (3,310,939
    )
    
    
    (2,043,553
    )
    
    
    (2,565,425
    )
    
    
    (7,632,811
    )
    
    
    (15,552,728
    )Preferred dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss available to common shareholders
    
    
    (3,310,939
    )
    
    
    (2,043,553
    )
    
    
    (2,565,425
    )
    
    
    (7,632,811
    )
    
    
    (15,552,728
    )Basic and Diluted Loss Per Common Share
    
    
    (0.47
    )
    
    
    (0.27
    )
    
    
    (0.33
    )
    
    
    (0.99
    )
    
    
    (2.06
    )Weighted averages shares
    
    
    7,172,382
    
    
    
    7,632,656
    
    
    
    7,664,534
    
    
    
    7,691,220
    
    
    
    7,541,960
 F-50




---



##### Table of Contents



Additions/(recoveries)Balance at
    
    
    charged to
    
    
    Deductionsbeginning of
    
    
    costs and
    
    
    Amounts
    
    
    Other
    
    
    Balance at endperiod
    
    
    expenses
    
    
    written-off
    
    
    adjustments
    
    
    of periodAllowance for doubtful
accounts:Year ended December 31, 2006
    
    $
    325,000
    
    
    $
    105,000
    
    
    $
    (62,000
    )
    
    $
    (3,000
    )
    
    $
    366,000Year ended December 31, 2007
    
    $
    366,000
    
    
    $
    126,000
    
    
    $
    (341,000
    )
    
    $
    
    
    
    $
    151,000Year ended December 31, 2008
    
    $
    151,000
    
    
    $
    128,000
    
    
    $
    (502,000
    )
    
    $
    386,000
    
    
    $
    163,000
   Additions/(recoveries)Balance at
    
    
    charged to
    
    
    Deductionsbeginning of
    
    
    costs and
    
    
    Amounts
    
    
    Other
    
    
    Balance at endperiod
    
    
    expenses
    
    
    written-off
    
    
    adjustments
    
    
    of periodReserve for obsolete inventory:Year ended December 31, 2006
    
    $
    28,200
    
    
    $
    578,400
    
    
    $
    (9,800
    )
    
    $
    
    
    
    $
    596,800Year ended December 31, 2007
    
    $
    596,800
    
    
    $
    
    
    
    $
    (596,800
    )
    
    $
    1,800
    
    
    $
    1,800Year ended December 31, 2008
    
    $
    1,800
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,800
  F-51