##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the quarterly period ended March 31, 2009
 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
    
    36-4197337(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 1280 Landmeier Road, Elk Grove Village, Illinois 60007-2410
 (847) 437-1666
 
   þ o
 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




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##### 



LIME ENERGY CO.
FORM 10-Q  For The Quarter Ended March 31, 2009
 INDEX
 PageNumberPart I Financial InformationITEM 1. Financial Statements:Condensed Consolidated Balance Sheets
March 31, 2009 (unaudited) and December 31, 2008
    
    
    1Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2009 and 2008 (unaudited)
    
    
    3Condensed Consolidated Statement of Stockholders Equity
Three months Ended March 31, 2009 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows
Three months Ended March 31, 2009 and 2008 (unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    7ITEM 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    22ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    31ITEM 4. Controls and Procedures
    
    
    31Part II. Other InformationITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32ITEM 6. Exhibits
    
    
    33Signatures
    
    
    33EX-31.1EX-31.2EX-32.1EX-32.2




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##### Table of Contents



Lime Energy Co.
 
 Condensed Consolidated Balance Sheets
 March 312009
    
    
    December 31(unaudited)
    
    
    2008 (1)AssetsCurrent assetsCash and cash equivalents
    
    $
    8,822,548
    
    
    $
    3,733,540Accounts receivable, net
    
    
    16,744,884
    
    
    
    24,226,968Inventories
    
    
    628,003
    
    
    
    665,045Costs and estimated earnings in excess of billings on
uncompleted contracts
    
    
    3,388,678
    
    
    
    4,078,273Prepaid expenses and other
    
    
    1,023,886
    
    
    
    1,417,925Total Current Assets
    
    
    30,607,999
    
    
    
    34,121,751Net Property and Equipment
    
    
    1,975,762
    
    
    
    2,081,311Long Term Receivables
    
    
    1,046,758
    
    
    
    1,030,688Deferred Financing Costs, net
    
    
    3,324
    
    
    
    4,027Intangibles, net
    
    
    6,661,129
    
    
    
    7,136,957Goodwill
    
    
    18,627,363
    
    
    
    18,513,465$
    58,922,335
    
    
    $
    62,888,199
 - 1 -




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##### Table of Contents



Lime Energy Co.
Condensed Consolidated Balance Sheets
 March 312009
    
    
    December 31(unaudited)
    
    
    2008 (1)Liabilities and Stockholders EquityCurrent liabilitiesLines of Credit
    
    $
    2,115,775
    
    
    $
    3,986,708Current portion of long-term debt
    
    
    1,222,296
    
    
    
    187,170Accounts payable
    
    
    8,092,725
    
    
    
    15,452,248Accrued expenses
    
    
    2,617,607
    
    
    
    3,855,213Billings in excess of costs and estimated earnings on
uncompleted contracts
    
    
    1,874,933
    
    
    
    1,957,927Deferred revenue
    
    
    360,556
    
    
    
    357,516Customer deposits
    
    
    908,223
    
    
    
    1,289,224Total Current Liabilities
    
    
    17,192,115
    
    
    
    27,086,006Deferred Revenue
    
    
    69,268
    
    
    
    90,773Long-Term Debt,less current portion
    
    
    4,870,637
    
    
    
    5,716,848Deferred Tax Liability
    
    
    1,034,000
    
    
    
    1,034,000Total Liabilities
    
    
    23,166,020
    
    
    
    33,927,627Stockholders EquityPreferred stock, $0.01 par value; 1,000,000 authorized,
361,520 and 358,710 issued as of March 31, 2009 and
December 31, 2008, respectively (liquidation value of
$14,822,320 and $14,707,110 as of March 31, 2009 and
December 31, 2008, respectively)
    
    
    3,615
    
    
    
    3,587Common stock, $0.0001 par value; 200,000,000 shares
authorized
13,050,817 and 9,555,053 issued as of March 31, 2009
and
December 31, 2008, respectively
    
    
    1,304
    
    
    
    955Additional paid-in capital
    
    
    144,794,088
    
    
    
    134,390,419Accumulated deficit
    
    
    (109,042,692
    )
    
    
    (105,434,389
    )Total Stockholders Equity
    
    
    35,756,315
    
    
    
    28,960,572$
    58,922,335
    
    
    $
    62,888,199
 See accompanying notes to condensed consolidated financial statements
 
 (1)
    
    Derived from audited financial statements in the Companys annual
report on Form 10-K for the year ended December 31, 2008 - 2 -




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##### Table of Contents



Lime Energy Co.
 
 Condensed Consolidated Statements of Operations
 (Unaudited)
 Three Months Ended March 31
    
    2009
    
    
    2008Revenue
    
    $
    13,724,758
    
    
    $
    2,246,836Cost of sales
    
    
    10,919,922
    
    
    
    2,213,255Gross Profit
    
    
    2,804,836
    
    
    
    33,581Selling, general and administrative
    
    
    5,232,638
    
    
    
    2,989,920Amortization of intangibles
    
    
    344,913
    
    
    
    106,850Operating Loss
    
    
    (2,772,715
    )
    
    
    (3,063,189
    )Other Income (Expense)Interest income
    
    
    32,682
    
    
    
    43,900Interest expense
    
    
    (475,941
    )
    
    
    (383,716
    )Total other income (expense)
    
    
    (443,259
    )
    
    
    (339,816
    )Loss from continuing operations before discontinued operations
    
    
    (3,215,974
    )
    
    
    (3,403,005
    )Discontinued Operations:Loss from operation of discontinued business
    
    
    (392,329
    )
    
    
    (830,368
    )Net Loss
    
    
    (3,608,303
    )
    
    
    (4,233,373
    )Preferred Stock Dividends
    
    
    (555,789
    )
    
    
    Net Loss Available to Common Stockholders
    
    $
    (4,164,092
    )
    
    $
    (4,233,373
    )Basic and diluted loss per common share from
Continuing operations
    
    $
    (0.34
    )
    
    $
    (0.44
    )Discontinued operations
    
    
    (0.04
    )
    
    
    (0.11
    )Basic and Diluted Loss Per Common Share
    
    $
    (0.38
    )
    
    $
    (0.55
    )Weighted Average Common Shares Outstanding
    
    
    11,018,022
    
    
    
    7,731,735
 See accompanying notes to condensed consolidated financial statements
 - 3 -




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##### Table of Contents



Lime Energy Co.
 
 Condensed Consolidated Statement of Stockholders Equity
 (Unaudited)
 Series A-1
    
    
    Series A-1
    
    
    Additional
    
    
    
    
    
    
    TotalCommon
    
    
    Common
    
    
    Preferred
    
    
    Preferred
    
    
    Paid-in
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Stock
    
    
    Shares
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    Equity (Deficit)Balance,December 31, 2008
    
    
    9,555,053
    
    
    $
    955
    
    
    
    358,710
    
    
    $
    3,587
    
    
    
    134,390,419
    
    
    $
    (105,434,389
    )
    
    $
    28,960,572Issuance of common stock (less issuance costs of $24,954
    
    
    933,049
    
    
    
    93
    
    
    
    
    
    
    
    
    
    
    
    3,249,953
    
    
    
    
    
    
    
    3,250,046Acquisition of Advanced Biotherapy, Inc. (less transaction
costs of $744,800)
    
    
    2,486,149
    
    
    
    249
    
    
    
    
    
    
    
    
    
    
    
    6,763,787
    
    
    
    
    
    
    
    6,764,036Earn-out shares paid to former owners of Applied Energy
Management, Inc.
    
    
    63,052
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    293,186
    
    
    
    
    
    
    
    293,192Preferred dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (555,789
    )
    
    
    
    
    
    
    (555,789
    )Satisfaction of accrued dividends through the issuance of
preferred stock
    
    
    
    
    
    
    
    
    
    
    2,810
    
    
    
    28
    
    
    
    115,178
    
    
    
    
    
    
    
    115,206Satisfaction of interest obligation through issuance of
common stock
    
    
    13,514
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    62,839
    
    
    
    
    
    
    
    62,840Share based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    474,515
    
    
    
    
    
    
    
    474,515Net loss for the three months ended March 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,608,303
    )
    
    
    (3,608,303
    )Balance,March 31, 2009
    
    
    13,050,817
    
    
    $
    1,304
    
    
    
    361,520
    
    
    $
    3,615
    
    
    
    144,794,088
    
    
    $
    (109,042,692
    )
    
    $
    35,756,315
 See accompanying notes to condensed consolidated financial statements.
 - 4 -




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##### Table of Contents



Lime Energy Co.
 
 Condensed Consolidated Statements of Cash Flows
 (Unaudited)
 Three Months Ended March 31
    
    2009
    
    
    2008Cash Flows from Operating ActivitiesNet Loss
    
    $
    (3,608,303
    )
    
    $
    (4,233,373
    )Adjustments to reconcile net loss to net cash used in operating activities, net of assets acquiredProvision for (recovery of) bad debt
    
    
    46,350
    
    
    
    (24,306
    )Share based compensation
    
    
    474,515
    
    
    
    955,248Depreciation and amortization
    
    
    603,057
    
    
    
    313,878Amortization of deferred financing costs
    
    
    703
    
    
    
    711Amortization of issuance discount
    
    
    246,154
    
    
    
    248,889Issuance of warrants in exchange for services received
    
    
    
    
    
    
    162,300Accrued dividend satisfied through the issuance of preferred stock
    
    
    115,206
    
    
    
    Accrued interest satisfied through the issuance of common stock
    
    
    62,840
    
    
    
    63,017PIK notes issued for interest
    
    
    21,095
    
    
    
    Gain on disposition of fixed assets
    
    
    (438
    )
    
    
    Changes in assets and liabilitiesAccounts receivable
    
    
    7,449,911
    
    
    
    2,207,334Inventories
    
    
    37,042
    
    
    
    32,600Costs and estimated earnings in excess of billings on
uncompleted contracts
    
    
    689,595
    
    
    
    Other current assets
    
    
    394,039
    
    
    
    (222,130
    )Accounts payable
    
    
    (7,375,884
    )
    
    
    (1,259,198
    )Accrued expenses
    
    
    (948,405
    )
    
    
    (351,601
    )Billings in excess of costs and estimated earnings on
uncompleted contracts
    
    
    (82,994
    )
    
    
    Deferred revenue
    
    
    (18,465
    )
    
    
    (314,788
    )Customer deposits
    
    
    (381,001
    )
    
    
    (13,073
    )Net cash used in operating activities
    
    
    (2,274,983
    )
    
    
    (2,434,492
    )Cash Flows Used in Investing ActivitiesAcquisition costs
    
    
    (613,898
    )
    
    
    (12,060
    )Proceeds from sale of fixed assets
    
    
    11,172
    
    
    
    Purchase of property and equipment
    
    
    (32,415
    )
    
    
    (80,887
    )Net cash used in investing activities
    
    
    (635,141
    )
    
    
    (92,947
    )Cash Flows Provided by Financing ActivitiesNet payments on line of credit
    
    
    (1,850,000
    )
    
    
    Payments of long-term debt
    
    
    (57,239
    )
    
    
    (20,828
    )Proceeds from issuance of common stock
    
    
    10,676,125
    
    
    
    Costs related to stock issuances
    
    
    (769,754
    )
    
    
    Proceeds from exercise of options and warrants
    
    
    
    
    
    
    87,085Net cash provided by financing activities
    
    
    7,999,132
    
    
    
    66,257Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    5,089,008
    
    
    
    (2,461,182
    )Cash and Cash Equivalents, at beginning of period
    
    
    3,733,540
    
    
    
    4,780,701Cash and Cash Equivalents, at end of period
    
    $
    8,822,548
    
    
    $
    2,319,519
 See accompanying notes to condensed consolidated financial statements.
 - 5 -




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##### Table of Contents



As of March 31
    
    2009
    
    
    2008Supplemental Disclosure of Cash Flow InformationCash paid during the period for interest
- continuing operations
    
    $
    166,643
    
    
    $
    135,725Cash paid during the period for interest
- discontinued operations
    
    
    575
    
    
    
    847Interest obligation satisfied through the
issuance of common stock
    
    
    62,840
    
    
    
    63,017Accrued earn-out satisfied through the
issuance of common stock
    
    
    293,192
    
    
    
    Satisfaction of accrued dividend through the
issuance of 2,810 shares of Series A-1
preferred stock
    
    
    115,206
    
    
    
    Extinguishment of line of credit
    
    
    20,933
    
    
    
    Issuance of revolving credit note in satisfaction
of interest payable
    
    
    21,095
    
    
    
    
 - 6 -




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##### Table of Contents



Note 1  Basis of Presentation
     Note 2  Stock-Based Compensation
 Stock Options
  Three months ended March 31, 2009
    
    Three months ended March 31, 2008Cost of
    
    
    
    
    
    
    
    
    
    Cost ofSales
    
    SG&A
    
    Total
    
    Sales
    
    SG&A
    
    TotalEnergy efficiency services
    
    $
    30,078
    
    
    $
    195,291
    
    
    $
    225,369
    
    
    $
    42,253
    
    
    $
    256,250
    
    
    $
    298,503Corporate overhead
    
    
    
    
    
    
    231,806
    
    
    
    231,806
    
    
    
    
    
    
    
    599,103
    
    
    
    599,103Discontinued operations
    
    
    3,626
    
    
    
    1,014
    
    
    
    4,640
    
    
    
    45,762
    
    
    
    11,880
    
    
    
    57,642$
    33,704
    
    
    $
    428,111
    
    
    $
    461,815
    
    
    $
    88,015
    
    
    $
    867,233
    
    
    $
    955,248
 - 7 -




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##### Table of Contents



Three months ended March 31
    
    2009
    
    
    2008Weighted average fair value
per option granted
    
    $
    2.26
    
    
    $
    6.77Significant assumptions
(weighted average):Risk-free rate
    
    
    0.10
    %
    
    
    3.18
    %Dividend yield
    
    
    0.00
    %
    
    
    0.00
    %Expected volatility
    
    
    84.7
    %
    
    
    89.2
    %Expected life (years)
    
    
    4.6
    
    
    
    5.4
    - 8 -




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##### Table of Contents



Exercise Price Per
    
    
    Weighted AverageShares
    
    
    Share
    
    
    Exercise PriceOutstanding at December 31, 2008
    
    
    2,488,657
    
    
    $
    3.50 - $1,363.95
    
    
    $
    18.61Granted
    
    
    222,606
    
    
    $
    3.30 - $196.88
    
    
    $
    3.86Exercised
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (18,545
    )
    
    $
    3.50-$13.30
    
    
    $
    8.74Tendered for exchange
    
    
    (238,697
    )
    
    $
    8.26 -$215.25
    
    
    $
    18.76Replacements issued
    
    
    109,073
    
    
    $
    3.66
    
    
    $
    3.66Outstanding at March 31, 2009
    
    
    2,563,094
    
    
    $
    3.30 - $1,363.95
    
    
    $
    16.75Options exercisable at March 31, 2009
    
    
    1,782,141
    
    
    $
    3.30 - $1,363.95
    
    
    $
    21.20
  Options Outstanding
    
    
    Options ExercisableWeightedNumber
    
    
    Average
    
    
    
    
    
    
    NumberOutstanding
    
    
    Remaining
    
    
    Weighted
    
    
    Exercisable at
    
    
    Weightedat March 31,
    
    
    Contractual
    
    
    Average
    
    
    March 31,
    
    
    AverageExercise Price
    
    2009
    
    
    Life
    
    
    Exercise Price
    
    
    2009
    
    
    Exercise Price$3.30 - $4.00
    
    
    630,002
    
    
    8.4 years
    
    $
    3.47
    
    
    
    229,894
    
    
    $
    3.37$4.01 - $6.00
    
    
    35,715
    
    
    9.8 years
    
    $
    4.65
    
    
    
    17,860
    
    
    $
    4.65$6.01 - $8.00
    
    
    1,464,436
    
    
    6.9 years
    
    $
    7.08
    
    
    
    1,351,818
    
    
    $
    7.01$8.01 - $10.00
    
    
    22,369
    
    
    8.9 years
    
    $
    9.07
    
    
    
    13,890
    
    
    $
    9.20$10.01 -$20.00
    
    
    368,793
    
    
    8.5 years
    
    $
    11.15
    
    
    
    126,900
    
    
    $
    11.16$20.01 -$1,363.95
    
    
    41,779
    
    
    1.4 years
    
    $
    619.80
    
    
    
    41,779
    
    
    $
    619.80$3.30 - $1,363.95
    
    
    2,563,094
    
    
    7.4 years
    
    $
    16.75
    
    
    
    1,782,141
    
    
    $
    21.20
   - 9 -




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##### Table of Contents



Employee Stock Purchase Plan
  Note 3  Acquisition of Advanced Biotherapy, Inc.
      - 10 -




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##### Table of Contents



Note 4  Acquisition of Applied Energy Management, Inc.
  Note 5  Discontinued Operations
  - 11 -




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##### Table of Contents



As of
    
    March 31, 2009
    
    
    December 31, 2008Accounts receivable
    
    $
    393,961
    
    
    $
    413,494Other current assets
    
    
    722,296
    
    
    
    773,962Total current assets
    
    
    1,116,257
    
    
    
    1,187,456Net property, plant & equipment
    
    
    102,836
    
    
    
    117,434Other assets
    
    
    196,182
    
    
    
    327,097Total assets
    
    $
    1,415,275
    
    
    $
    1,631,987Accounts payable
    
    $
    51,655
    
    
    $
    107,110Other current liabilities
    
    
    536,680
    
    
    
    611,647Total current liabilities
    
    
    588,335
    
    
    
    718,757Long term liabilities
    
    
    68,714
    
    
    
    103,114Total liabilities
    
    $
    657,049
    
    
    $
    821,871The revenue and loss related to the discontinued operations were as follows:Three months ended March 31
    
    2009
    
    
    2008Revenue
    
    $
    399,893
    
    
    $
    660,643Net Loss
    
    
    (392,329
    )
    
    
    (830,368
    )
 Note 6  Recent Accounting Pronouncements
 Business Combinations
 Determination of the Useful
Life of Intangible Assets
 - 12 -




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##### Table of Contents



Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51
 The Hierarchy of Generally Accepted Accounting
Principles
   - 13 -




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##### Table of Contents



Note 7  Net Loss Per Share
  - 14 -




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##### Table of Contents



Three months ended March 31
    
    2009
    
    
    2008Weighted average shares issuable
upon exercise of outstanding options
    
    
    2,524,669
    
    
    
    2,146,285Weighted average shares issuable
upon exercise of outstanding warrants
    
    
    707,118
    
    
    
    431,366Weighted average shares issuable
upon conversion of preferred stock (1)
    
    
    
    
    
    
    Weighted average shares issuable
upon conversion of convertible debt
    
    
    714,286
    
    
    
    714,286Total
    
    
    3,946,073
    
    
    
    3,291,937
 
 (1)
    
    Excludes Series A-1 Preferred Stock which will become
convertible if not redeemed prior to January 1, 2010 Note 8  Warranty Obligations
   2009
    
    
    2008Balance at the beginning of the period
    
    $
    208,863
    
    
    $
    377,902Warranties issued
    
    
    1,400
    
    
    
    19,100Settlements
    
    
    (85,900
    )
    
    
    (64,906
    )Balance, as of March 31
    
    $
    124,363
    
    
    $
    332,096
 - 15 -




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##### Table of Contents



Note 9  Inventories
  As of
    
    March 31, 2009
    
    
    December 31, 2008Raw materials
    
    $
    628,003
    
    
    $
    666,883Reserve for obsolescence
    
    
    
    
    
    
    (1,838
    )$
    628,003
    
    
    $
    665,045
 Note 10  Revolving Line of Credit
  Note 11  Subordinated Convertible Term Notes
  - 16 -




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##### Table of Contents



Note 12  The November 2008 PIPE Transaction
   - 17 -




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##### Table of Contents



Note 13  Preferred Stock
  - 18 -




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Note 14  Business Segment Information
  
    
    Energy Efficiency Services. The Energy Efficiency Services segment
includes:
 o
    
    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.o
    
    Implementation:Implementation services includes energy efficiency
lighting upgrade services, mechanical and electrical conservation services, water
conservation services and renewable energy solutions.
 
    
    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 its Lime Finance subsidiary for
purposes of optimal receivables management and in anticipation of potentially financing
them in order to reduce its cost of capital.
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Three months ended March 31
    
    2009
    
    
    2008Revenues:Energy Efficiency Services
    
    $
    13,713,150
    
    
    $
    2,241,777Financial Services
    
    
    11,608
    
    
    
    5,059Total
    
    
    13,724,758
    
    
    
    2,246,836Operating Loss:Energy Efficiency Services
    
    
    (1,277,381
    )
    
    
    (1,508,639
    )Financial Services
    
    
    11,012
    
    
    
    5,003Corporate Overhead
    
    
    (1,506,346
    )
    
    
    (1,559,553
    )Total
    
    
    (2,772,715
    )
    
    
    (3,063,189
    )Interest expense, net
    
    
    (443,259
    )
    
    
    (339,816
    )Loss from continuing operations
    
    
    (3,215,974
    )
    
    
    (3,403,005
    )Discontinued operations
    
    
    (392,329
    )
    
    
    (830,368
    )Net Loss
    
    $
    (3,608,303
    )
    
    $
    (4,233,373
    )As of
    
    March 31, 2009
    
    
    December 31, 2008Total Assets:Energy Efficiency Services
    
    $
    46,789,644
    
    
    $
    52,805,874Financial Services
    
    
    2,398,770
    
    
    
    2,263,989Assets Held for Sale (Note 4)
    
    
    1,415,275
    
    
    
    1,631,987Corporate Overhead
    
    
    8,318,646
    
    
    
    6,186,349Total
    
    $
    58,922,335
    
    
    $
    62,888,199
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##### Table of Contents



Note 15  Equity Issuances
 (a)
    
    During the first quarter of 2009, the Company issued 13,514 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.
 (b)
    
    During the first quarter of 2009, the Company issued 2,810 shares of its Series A-1 preferred
stock in partial satisfaction of dividends owed the holder.
 Note 16  Related Party Transactions
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MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
    
    
    Energy Efficiency Services. Our Energy Efficiency Services segment includes:
 o
    
    Engineering and consulting: We apply our engineering expertise
to analyze each clients energy consumption and operational needs and develop
customized energy 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.
 o
    
    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.
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
    
    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 March 31, 2009, we have
provided extended payment terms on approximately $3.5 million of our sales, and as of
March 31, 2009 we had approximately $2.7 million of receivables in this portfolio.
  Results of Operations
 Revenue
  Energy Efficiency Services Segment
  Financial Services Segment
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##### 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
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##### Table of Contents



Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008
 Consolidated Results
 Three Months Ended March 31
    
    
    Change from Historical
    
    
    Change from Pro forma2008
    
    
    20082009
    
    
    Historical
    
    
    Pro forma (1)
    
    
    $
    
    
    %
    
    
    $
    
    
    %Revenue
    
    $
    13,724,758
    
    
    $
    2,246,836
    
    
    $
    8,606,313
    
    
    $
    11,477,922
    
    
    
    510.8
    %
    
    $
    5,118,445
    
    
    
    59.5
    %Cost of sales
    
    
    10,919,922
    
    
    
    2,213,255
    
    
    
    7,303,196
    
    
    
    8,706,667
    
    
    
    393.4
    %
    
    
    3,616,726
    
    
    
    49.5
    %Gross profit
    
    
    2,804,836
    
    
    
    33,581
    
    
    
    1,303,117
    
    
    
    2,771,255
    
    
    
    8252.4
    %
    
    
    1,501,719
    
    
    
    115.2
    %Selling, general and administrative
    
    
    5,232,638
    
    
    
    2,989,920
    
    
    
    5,141,182
    
    
    
    2,242,718
    
    
    
    75.0
    %
    
    
    91,456
    
    
    
    1.8
    %Amortization of intangibles
    
    
    344,913
    
    
    
    106,850
    
    
    
    635,945
    
    
    
    238,063
    
    
    
    222.8
    %
    
    
    (291,032
    )
    
    
    -45.8
    %Operating Loss
    
    
    (2,772,715
    )
    
    
    (3,063,189
    )
    
    
    (4,474,010
    )
    
    
    290,474
    
    
    
    -9.5
    %
    
    
    1,701,295
    
    
    
    -38.0
    %Other income (expense)
    
    
    (443,259
    )
    
    
    (339,816
    )
    
    
    (705,766
    )
    
    
    (103,443
    )
    
    
    30.4
    %
    
    
    262,507
    
    
    
    -37.2
    %Loss from continuing operations
    
    
    (3,215,974
    )
    
    
    (3,403,005
    )
    
    
    (5,179,776
    )
    
    
    187,031
    
    
    
    -5.5
    %
    
    
    1,963,802
    
    
    
    -37.9
    %Loss from discontinued operations
    
    
    (392,329
    )
    
    
    (830,368
    )
    
    
    (830,368
    )
    
    
    438,039
    
    
    
    -52.8
    %
    
    
    438,039
    
    
    
    -52.8
    %Net loss
    
    $
    (3,608,303
    )
    
    $
    (4,233,373
    )
    
    $
    (6,010,144
    )
    
    $
    625,070
    
    
    
    -14.8
    %
    
    $
    2,401,841
    
    
    
    -40.0
    %Preferred stock dividends
    
    
    (555,789
    )
    
    
    
    
    
    
    
    
    
    
    (555,789
    )
    
    
    
    
    
    
    (555,789
    )
    
    
    Net loss available to common
stockholders
    
    $
    (4,164,092
    )
    
    $
    (4,233,373
    )
    
    $
    (6,010,144
    )
    
    $
    69,281
    
    
    
    -1.6
    %
    
    $
    1,846,052
    
    
    
    -30.7
    %
 
 (1)
    
    Assuming the acquisition of Applied Energy Management, Inc. had taken place on January 1,
2008  Three Months Ended March 312008
    
    
    20082009
    
    
    Historical
    
    
    Pro forma (1)Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    79.6
    %
    
    
    98.5
    %
    
    
    84.9
    %Gross profit
    
    
    20.4
    %
    
    
    1.5
    %
    
    
    15.1
    %Selling, general and administrative
    
    
    38.1
    %
    
    
    133.1
    %
    
    
    59.7
    %Amortization of intangibles
    
    
    2.5
    %
    
    
    4.8
    %
    
    
    7.4
    %Operating Loss
    
    
    -20.2
    %
    
    
    -136.3
    %
    
    
    -52.0
    %Other income (expense)
    
    
    -3.2
    %
    
    
    -15.1
    %
    
    
    -8.2
    %Loss from continuing operations
    
    
    -23.4
    %
    
    
    -151.5
    %
    
    
    -60.2
    %Loss from discontinued operations
    
    
    -2.9
    %
    
    
    -37.0
    %
    
    
    -9.6
    %Net loss
    
    
    -26.3
    %
    
    
    -188.4
    %
    
    
    -69.8
    %Preferred stock dividends
    
    
    -4.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Net loss available to common
stockholders
    
    
    -30.3
    %
    
    
    -188.4
    %
    
    
    -69.8
    %
 
 (1)
    
    Assuming the acquisition of
Applied Energy Management, Inc. had taken place on
January 1, 2008 - 25 -




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Revenue.
 Gross Profit.
 Selling, General and Administrative Expense.
 Amortization of Intangibles.
 Other Non-Operating (Expense) Income.
 - 26 -




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2008
    
    
    2008Three months ended March 31
    
    2009
    
    
    Historical
    
    
    Pro formaLines of credit
    
    $
    52,668
    
    
    $
    
    
    
    $
    287,686Note payable
    
    
    26,767
    
    
    
    
    
    
    
    73,816Mortgage
    
    
    4,201
    
    
    
    8,223
    
    
    
    8,223Subordinated convertible notes
    
    
    123,287
    
    
    
    124,317
    
    
    
    124,317Other
    
    
    22,161
    
    
    
    1,577
    
    
    
    6,025Total contractual interest
    
    $
    229,084
    
    
    $
    134,117
    
    
    $
    500,067Amortization of deferred issuance costs
and debt discount
    
    
    246,857
    
    
    
    249,599
    
    
    
    249,599Total interest expense
    
    $
    475,941
    
    
    $
    383,716
    
    
    $
    749,666
   Discontinued Operations.
 Liquidity and Capital Resources
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Three months ended March 31
    
    2009
    
    
    2008Net cash used in operating activities
    
    $
    (2,274,983
    )
    
    $
    (2,434,492
    )Net cash used in investing activities
    
    
    (635,141
    )
    
    
    (92,947
    )Net cash provided by financing activities
    
    
    7,999,132
    
    
    
    66,257Net Increase (Decrease) in Cash and
Cash Equivalents
    
    $
    5,089,008
    
    
    $
    (2,461,182
    )Cash and Cash Equivalents, at beginning
of period
    
    
    3,733,540
    
    
    
    4,780,701Cash and Cash Equivalents, at end of period
    
    $
    8,822,548
    
    
    $
    2,319,519
 Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008
  Operating Activities
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Investing Activities
  Financing Activities
  SOURCES OF LIQUIDITY
    
    
    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
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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. We made the decision in early
2009 to sell this business segment to eliminate this source of losses and allow us to focus
on our growing Energy Efficiency business. We began the process of seeking a buyer for
this business during the first quarter of 2009 and have received preliminary expressions of
interest from potential buyers. We believe that there is a reasonable likelihood that we
will be able to come to agreement to sell MPG before the end of the third quarter of this
year. If we are not able to consummate a sale 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 and shut the business down once the
contracts 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.
   Cautionary Note Regarding Forward-Looking Statements
   
    
    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;
 - 30 -




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##### Table of Contents




    
    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.
   
 Quantitative and Qualitative Disclosures About Market Risk
  
 Controls and Procedures
 Disclosure Controls and Procedures.
  Changes in Internal Controls.
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Limitations of the Effectiveness of Internal Control
  
 PART II. OTHER INFORMATION
 
 Unregistered Sales of Equity Securities and Use of Proceeds
 (1)
    
    On January 30, 2009, we issued 933,049 unregistered shares of our common stock along
with warrants to purchase an additional 233,263 shares of our common stock at $4.10 per
share to seven affiliated investors in exchange for gross proceeds of $3,275,000. Proceeds
from this offering will be used for general corporate purposes.(2)
    
    On March 3, 2009, we exchanged 2,252,341 unregistered shares of our common stock for
1,060,421,884 shares of Advanced Biotherapy, Inc. (ADVB) held by stockholders of ADVB
(the Sellers) representing approximately 90.8% of ADVBs issued and outstanding shares
pursuant to a Stock Purchase Agreement dated November 18, 2008. We then completed a
short-form merger in which we merged ADVB with and into a newly formed merger subsidiary,
with the merger subsidiary remaining as the surviving entity. Upon the closing of the
merger we obtained access to ADVBs assets, including approximately $7.4 million of cash
and a Revolving Credit Note we issued that had an outstanding balance of approximately
$42,000. We cancelled the Revolving Credit Note and do not plan to continue to operate
ADVB as a going concern after the closing. We plan to use the cash obtained in the
acquisition for general corporate purposes.(3)
    
    During the first quarter of 2009 we issued 63,052 unregistered shares of our common
stock to the former owners of Applied Energy Management, Inc. following determination of
the amounts owed under an earn-out provision of the AEM purchase agreement.(4)
    
    During the first quarter of 2009, we issued 13,514 unregistered shares of our common
stock to the holders of our subordinated convertible term notes in satisfaction of 50% of
the interest owed to them.No underwriters were involved in the transaction described above. All of the securities
issued in these transactions were issued by us in reliance upon the exemption from
registration available under Section 4(2) of the Securities Act, including Regulation D
promulgated thereunder, in that the transactions involved the issuance and sale of our
securities to financially sophisticated individuals or entities that were aware of our
activities and business and financial condition and took the securities for investment
purposes and understood the ramifications of their actions. Certain of the purchasers also
represented that they were accredited investors as defined in Regulation D and were
acquiring such securities for investment for their own account and not for distribution.
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Exhibits
 31.1
    
    Certificate of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)
and 15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certificate of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)
and 15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of the Chief Executive Officer of the Corporation Pursuant to Section 1350 of
Chapter 63 of Title 18 of the United States Code Pursuant to Section 906 of the Sarbanes-Oxley
Act of 200232.2
    
    Certification of the Chief Financial Officer of the Corporation Pursuant to Section 1350 of
Chapter 63 of Title 18 of the United States Code Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
 
 SIGNATURES
  LIME ENERGY CO.:Dated: May 12, 2009
    By:
    /s/ David AsplundDavid AsplundChief Executive Officer (principal
executive officer)Dated: May 12, 2009
    By:
    /s/ Jeffrey MistarzJeffrey MistarzChief Financial Officer (principal
financial and accounting officer) - 33 -