##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period endedJune 30, 2006
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 001-16265
 
 ELECTRIC CITY CORP.
  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
 (Former name, former address and former fiscal year, if changed since last report)
  þ o
  o o þ
  o þ




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##### 



ELECTRIC CITY CORP.
FORM 10-Q  For The Quarter Ended June 30, 2006
 INDEX
 PageNumberPart I Financial InformationITEM 1. Financial Statements:Condensed Consolidated Balance Sheets
June 30, 2006 (unaudited) and December 31, 2005
    
    
    1Condensed Consolidated Statement of Operations
Three Months Ended June 30, 2006 and 2005 (unaudited)
    
    
    3Condensed Consolidated Statement of Operations
Six Months Ended June 30, 2006 and 2005 (unaudited)
    
    
    4Condensed Consolidated Statement of Stockholders Equity
Six Months Ended June 30, 2006 (unaudited)
    
    
    5Condensed Consolidated Statement of Cash Flows
Six Months Ended June 30, 2006 and 2005 (unaudited)
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    8ITEM 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 Information:ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    33ITEM 6. Exhibits
    
    
    34Signatures
    
    
    34CertificationCeritificationCertificationCertification




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##### Table of Contents



ELECTRIC CITY CORP.
 
 CONDENSED CONSOLIDATED BALANCE SHEET
 June 30,2006
    
    
    December 31,(unaudited)
    
    
    2005(1)AssetsCurrent AssetsCash and cash equivalents
    
    $
    9,529,429
    
    
    $
    4,229,150Accounts receivable, net
    
    
    2,186,467
    
    
    
    1,747,019Inventories
    
    
    1,426,160
    
    
    
    1,457,789Advances to suppliers
    
    
    208,919
    
    
    
    324,677Costs and estimated earnings in excess of billings on
uncompleted contracts
    
    
    28,462
    
    
    
    28,462Prepaid expenses and other
    
    
    230,838
    
    
    
    207,480Total Current Assets
    
    
    13,610,275
    
    
    
    7,994,577Net Property and Equipment
    
    
    2,412,799
    
    
    
    2,514,196Deferred Financing Costs, net
    
    
    
    
    
    
    299,964Intangibles, net
    
    
    4,887,828
    
    
    
    1,960,835Cost in Excess of Assets Acquired
    
    
    8,689,401
    
    
    
    4,329,402$
    29,600,303
    
    
    $
    17,098,974
 - 1 -




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##### Table of Contents



ELECTRIC CITY CORP.
CONDENSED CONSOLIDATED BALANCE SHEET
 June 30,2006
    
    
    December 31,(unaudited)
    
    
    2005(1)Liabilities and Stockholders EquityCurrent LiabilitiesLine of credit
    
    $
    
    
    
    $
    2,000,000Accounts payable
    
    
    1,225,798
    
    
    
    913,369Current maturities of long-term debt
    
    
    561,504
    
    
    
    651,313Accrued expenses
    
    
    1,239,646
    
    
    
    1,228,765Notes payable
    
    
    150,000
    
    
    
    150,000Deferred revenue
    
    
    1,915,615
    
    
    
    984,728Customer deposits
    
    
    1,319,941
    
    
    
    1,419,919Total Current Liabilities
    
    
    6,412,504
    
    
    
    7,348,094Deferred Revenue
    
    
    198,620
    
    
    
    1,044,524Long-Term Debt, less current maturities, net of unamortized
discount of $0 and $898,409 at June 30, 2006 and
December 31, 2005, respectively
    
    
    35,591
    
    
    
    4,328,719Total Liabilities
    
    
    6,646,715
    
    
    
    12,721,337Stockholders EquityPreferred stock, $.01 par value; 5,000,000 shares authorized
Series E  0 and 236,254 issued and outstanding as of
June 30, 2006 and December 31, 2005,
respectively (liquidation value of $0 and
$47,250,800 at June 30, 2006 and December 31,
2005, respectively)
    
    
    
    
    
    
    2,363Common stock, $.0001 par value; 200,000,000 shares
authorized, 49,286,611 and 3,386,465 issued as of
June 30, 2006 and December 31, 2005, respectively
    
    
    4,929
    
    
    
    339Additional paid-in capital
    
    
    89,963,703
    
    
    
    64,773,556Accumulated deficit
    
    
    (67,015,044
    )
    
    
    (60,398,621
    )Total Stockholders Equity
    
    
    22,953,588
    
    
    
    4,377,637$
    29,600,303
    
    
    $
    17,098,974
 See accompanying notes to condensed consolidated financial statements
 (1)
    
    Derived from audited financial statements in the Companys annual
report onForm 10-Kfor the year ended December 31, 2005
 - 2 -




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##### Table of Contents



ELECTRIC CITY CORP.
 
 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
 (Unaudited)
 Three months ended June 30,
    
    2006
    
    
    2005Revenues
    
    $
    1,334,818
    
    
    $
    1,550,089ExpensesCost of sales
    
    
    973,481
    
    
    
    1,445,400Selling, general and administrative
    
    
    2,057,257
    
    
    
    1,578,3153,030,738
    
    
    
    3,023,715Operating loss
    
    
    (1,695,920
    )
    
    
    (1,473,626
    )Other Income (Expense)Interest income
    
    
    8,058
    
    
    
    18,303Interest expense
    
    
    (2,971,956
    )
    
    
    (257,200
    )Total other expense
    
    
    (2,963,898
    )
    
    
    (238,897
    )Loss from continuing operations
    
    
    (4,659,818
    )
    
    
    (1,712,523
    )Discontinued OperationsLoss from discontinued operations
    
    
    
    
    
    
    (112,111
    )Net Loss
    
    
    (4,659,818
    )
    
    
    (1,824,634
    )Plus Preferred Stock Dividends
    
    
    (23,732,435
    )
    
    
    (339,000
    )Net Loss Available to Common Shareholders
    
    $
    (28,392,253
    )
    
    $
    (2,163,634
    )Basic and diluted loss per common share from:Continuing operations
    
    $
    (6.49
    )
    
    $
    (0.64
    )Discontinued operations
    
    
    
    
    
    
    (0.04
    )Basic and Diluted Net Loss Per Common Share
    
    $
    (6.49
    )
    
    $
    (0.68
    )Weighted Average Common Shares Outstanding
    
    
    4,373,236
    
    
    
    3,195,194
 See accompanying notes to condensed consolidated financial statements
 - 3 -




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##### Table of Contents



ELECTRIC CITY CORP.
 
 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
 (Unaudited)
 Six months ended June 30,
    
    2006
    
    
    2005Revenues
    
    $
    2,481,163
    
    
    $
    1,800,802ExpensesCost of sales
    
    
    1,881,883
    
    
    
    1,550,371Selling, general and administrative
    
    
    3,983,172
    
    
    
    2,569,1845,865,055
    
    
    
    4,119,555Operating loss
    
    
    (3,383,892
    )
    
    
    (2,318,753
    )Other Income (Expense)Interest income
    
    
    28,769
    
    
    
    25,287Interest expense
    
    
    (3,239,875
    )
    
    
    (332,015
    )Total other expense
    
    
    (3,211,106
    )
    
    
    (306,728
    )Loss from continuing operations
    
    
    (6,594,998
    )
    
    
    (2,625,481
    )Discontinued Operations(Loss) income from discontinued operations
    
    
    (21,425
    )
    
    
    125,589Net Loss
    
    
    (6,616,423
    )
    
    
    (2,499,892
    )Plus Preferred Stock Dividends
    
    
    (24,347,725
    )
    
    
    (673,800
    )Net Loss Available to Common Shareholders
    
    $
    (30,964,148
    )
    
    $
    (3,173,692
    )Basic and diluted loss per common share from:Continuing operations
    
    $
    (7.94
    )
    
    $
    (1.10
    )Discontinued operations
    
    
    (0.01
    )
    
    
    0.04Basic and Diluted Net Loss Per Common Share
    
    $
    (7.95
    )
    
    $
    (1.06
    )Weighted Average Common Shares Outstanding
    
    
    3,894,505
    
    
    
    2,990,951
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##### Table of Contents



ELECTRIC CITY CORP.
 
 STATEMENT OF CONDENSED CONSOLIDATED STOCKHOLDERS EQUITY
(Unaudited)
 Series E
    
    
    Series E
    
    
    Additional
    
    
    
    
    
    
    TotalCommon
    
    
    Common
    
    
    Preferred
    
    
    Preferred
    
    
    Paid-in
    
    
    Accumulated
    
    
    StockholdersShares(1)
    
    
    Stock(1)
    
    
    Shares
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    EquityBalance,December 31, 2005
    
    
    3,386,465
    
    
    $
    339
    
    
    
    236,254
    
    
    $
    2,363
    
    
    $
    64,773,556
    
    
    $
    (60,398,621
    )
    
    $
    4,377,637Conversion of Series E Preferred Stock
    
    
    21,695,879
    
    
    
    2,170
    
    
    
    (243,234
    )
    
    
    (2,433
    )
    
    
    263
    
    
    
    
    
    
    
    Issuance of common stock (less issuance costs of
$90,079)
    
    
    17,875,000
    
    
    
    1,787
    
    
    
    
    
    
    
    
    
    
    
    17,783,134
    
    
    
    
    
    
    
    17,784,921Shares received for sale of Great Lakes
Controlled Energy Corporation
    
    
    (14,194
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (193,742
    )
    
    
    
    
    
    
    (193,743
    )Acquisition of Parke P.A.N.D.A Corporation
    
    
    5,000,000
    
    
    
    500
    
    
    
    
    
    
    
    
    
    
    
    4,999,500
    
    
    
    
    
    
    
    5,000,000Cumulative dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (698,000
    )
    
    
    
    
    
    
    (698,000
    )Satisfaction of accrued dividends through the
issuance of preferred stock
    
    
    
    
    
    
    
    
    
    
    6,980
    
    
    
    70
    
    
    
    697,930
    
    
    
    
    
    
    
    698,000Conversion of revolver
    
    
    950,865
    
    
    
    95
    
    
    
    
    
    
    
    
    
    
    
    951,882
    
    
    
    
    
    
    
    951,977Beneficial value of adjustment in conversion
price of revolver
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    950,865
    
    
    
    
    
    
    
    950,865Term loan liquidated damages satisfied through
the issuance of common stock
    
    
    161,096
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    185,244
    
    
    
    
    
    
    
    185,260Termination of post repayment interest obligation
    
    
    231,500
    
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    266,202
    
    
    
    
    
    
    
    266,225Share based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    246,869
    
    
    
    246,869Net loss for the six months ended June 30, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,616,423
    )
    
    
    (6,616,423
    )Balance,June 30, 2006
    
    
    49,286,611
    
    
    $
    4,929
    
    
    
    
    
    
    $
    
    
    
    $
    89,963,703
    
    
    $
    (67,015,044
    )
    
    $
    22,953,588
 
 (1)
    
    Adjusted for 1 for 15 reverse split of common stock effected on June 15, 2006 See accompanying notes to condensed consolidated financial statements.
 - 5 -




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##### Table of Contents



ELECTRIC CITY CORP.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Six months ended June 30
    
    2006
    
    
    2005Cash Flow from Operating ActivitiesNet loss
    
    $
    (6,616,423
    )
    
    $
    (2,499,892
    )Adjustments to reconcile net loss to net cash used in
operating activities, net of acquisitions and dispositionsDepreciation and amortization
    
    
    406,532
    
    
    
    159,500Warrants issued in exchange for services received
    
    
    
    
    
    
    319,800Liquidated damages satisfied through issuance of common stock
    
    
    185,260
    
    
    
    Amortization of deferred financing costs
    
    
    299,964
    
    
    
    50,996Amortization
of original issue discount
    
    
    898,409
    
    
    
    25,547Termination
of post repayment interest and interest converted to common stock
    
    
    274,747
    
    
    
    Beneficial
value of revolver adjustment in conversion price
    
    
    950,865
    
    
    
    Share based compensation
    
    
    246,869
    
    
    
    Loss on disposal of fixed assets
    
    
    93,861
    
    
    
    Changes in assets and liabilities, net of acquisitions
and dispositionsAccounts receivable
    
    
    (23,869
    )
    
    
    634,168Inventories
    
    
    164,418
    
    
    
    (285,318
    )Advances to suppliers
    
    
    115,758
    
    
    
    21,276Other current assets
    
    
    (30,197
    )
    
    
    (189,094
    )Accounts payable
    
    
    178,822
    
    
    
    (880,886
    )Accrued expenses
    
    
    (2,513
    )
    
    
    (272,545
    )Deferred revenue
    
    
    201,499
    
    
    
    (218,480
    )Other current liabilities
    
    
    (100,346
    )
    
    
    (78,398
    )Net cash used in operating activities
    
    
    (2,756,344
    )
    
    
    (3,213,326
    )Cash Flows Used In Investing ActivitiesAcquisition (including acquisition costs), net of cash acquired
    
    
    (2,849,762
    )
    
    
    (1,644,419
    )Sale of discontinued operations
    
    
    (83,586
    )
    
    
    Purchase of property and equipment
    
    
    (12,544
    )
    
    
    (201,814
    )Net cash used in investing activities
    
    
    (2,945,892
    )
    
    
    (1,846,233
    )Cash Flows Provided by Financing Activities(Payments) borrowings on lines of credit
    
    
    (1,456,545
    )
    
    
    2,000,000Payment on long-term debt
    
    
    (5,325,861
    )
    
    
    (212,404
    )Proceeds from issuance of common stock
    
    
    17,875,000
    
    
    
    5,625,000Issuance costs related to stock issuances
    
    
    (90,079
    )
    
    
    (216,787
    )Net cash provided by financing activities
    
    
    11,002,515
    
    
    
    7,195,809Net Increase in Cash and Cash Equivalents
    
    
    5,300,279
    
    
    
    2,136,250Cash and Cash Equivalents, at beginning of period
    
    
    4,229,150
    
    
    
    1,789,808Cash and Cash Equivalents, at end of period
    
    $
    9,529,429
    
    
    $
    3,926,058Supplemental Disclosure of Cash Flow InformationCash paid during the periods for interest  continuing operations
    
    $
    370,927
    
    
    $
    80,818Cash paid during the periods for interest  discontinued operations
    
    
    42
    
    
    
    221
 - 6 -




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##### Table of Contents



Cash
    
    $
    1,710Accounts receivable
    
    
    710,465Inventory
    
    
    142,789Other current assets
    
    
    7,088Property and equipment
    
    
    79,917Identifiable intangible assets
    
    
    3,250,000Cost in excess of assets acquired
    
    
    4,533,741Total assets acquired
    
    
    8,725,710Line of credit
    
    
    (400,000
    )Accounts payable
    
    
    (338,536
    )Accrued expenses
    
    
    (89,571
    )Notes payable
    
    
    (45,763
    )Other current liabilities
    
    
    (368
    )Total liabilities assumed
    
    
    (874,238
    )Net assets acquired
    
    
    7,851,472Less valuation of shares issued for acquisition
    
    
    (5,000,000
    )Acquisition costs
    
    
    (131,472
    )Total cash paid
    
    $
    2,720,000
 See accompanying notes to condensed consolidated financial statements
 - 7 -




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##### Table of Contents



Electric City Corp.
 
 Notes to Financial Statements
 Note 1  Basis of Presentation
     Note 2  Stock-based Compensation
  -8-




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##### Table of Contents



Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2005
    
    
    2005Net Loss, as reported
    
    $
    (1,825,000
    )
    
    $
    (2,500,000
    )Deduct: Stock-based employee compensation
expense included in reported net loss
    
    
    
    
    
    
    Add: Total stock-based employee compensation
expense determined under fair value
based method for awards
    
    
    (345,000
    )
    
    
    (504,000
    )Net Loss, pro-forma
    
    
    (2,170,000
    )
    
    
    (3,004,000
    )Preferred stock dividends
    
    
    (339,000
    )
    
    
    (674,000
    )Net Loss Available to Common Shareholders
    
    $
    (2,509,000
    )
    
    $
    (3,678,000
    )Net loss per share:Basic and diluted  as reported
    
    $
    (0.68
    )
    
    $
    (1.06
    )Basic and diluted  pro forma
    
    $
    (0.79
    )
    
    $
    (1.23
    )
  Three Months Ended
    
    Six Months EndedJune 30
    
    June 302006
    
    2005
    
    2006
    
    2005Significant assumptions (weighted
average):Risk-free rate
    
    
    4.90
    %
    
    
    2.93
    %
    
    
    4.47
    %
    
    
    2.81
    %Dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Expected volatility
    
    
    85.3
    %
    
    
    43.7
    %
    
    
    77.7
    %
    
    
    44.2
    %Expected life (years)
    
    
    5.2
    
    
    
    5.7
    
    
    
    5.5
    
    
    
    5.7
   -9-




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##### Table of Contents



WeightedExercise
    
    
    AveragePrice Per
    
    
    ExerciseThree months ended June 30, 2006
    
    Shares
    
    
    Share
    
    
    PriceOutstanding at March 31, 2006
    
    
    849,735
    
    
    $
    9.30-$194.85
    
    
    $
    44.36Granted
    
    
    316,668
    
    
    $
    1.10-$15.00
    
    
    $
    6.18Forfeited
    
    
    (80,887
    )
    
    $
    12.60-$105.00
    
    
    $
    43.53Outstanding at June 30, 2006
    
    
    1,085,516
    
    
    $
    1.10-$194.85
    
    
    $
    39.40Options exercisable at June 30, 2006
    
    
    694,074
    
    
    $
    15.00-$194.85
    
    
    $
    47.81
  WeightedExercise
    
    
    AveragePrice Per
    
    
    ExerciseSix months ended June 30, 2006
    
    Shares
    
    
    Share
    
    
    PriceOutstanding at December 31, 2005
    
    
    801,652
    
    
    $
    12.60-$194.85
    
    
    $
    46.47Granted
    
    
    373,335
    
    
    $
    1.10-$15.00
    
    
    $
    7.01Forfeited
    
    
    (89,471
    )
    
    $
    12.60-$105.00
    
    
    $
    41.27Outstanding at June 30, 2006
    
    
    1,085,516
    
    
    $
    1.10-$194.85
    
    
    $
    39.40Options exercisable at June 30, 2006
    
    
    694,074
    
    
    $
    15.00-$194.85
    
    
    $
    47.81
 -10-




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##### Table of Contents



Options Outstanding(1)
    
    
    
    
    
    
    Options Exercisable(1)WeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedNumber
    
    
    Remaining
    
    
    Average
    
    
    Number
    
    
    AverageOutstanding at
    
    
    Contractual
    
    
    Exercise
    
    
    Exercisable at
    
    
    ExerciseExercise Price (1)
    
    June 30, 2006
    
    
    Life
    
    
    Price ($)
    
    
    June 30, 2006
    
    
    Price ($)TBD (2)
    
    
    200,000
    
    
    9.6 years
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )$1.10 - $2.00
    
    
    46,667
    
    
    10.0 years
    
    
    1.10
    
    
    
    
    
    
    
    $2.01 - $10.00
    
    
    100,000
    
    
    9.6 years
    
    
    9.30
    
    
    
    
    
    
    
    $10.01 - $20.00
    
    
    396,114
    
    
    4.4 years
    
    
    16.20
    
    
    
    354,227
    
    
    
    16.33$20.01 - $30.00
    
    
    79,443
    
    
    4.2 years
    
    
    25.75
    
    
    
    78,888
    
    
    
    25.74$30.01 - $50.00
    
    
    27,553
    
    
    7.3 years
    
    
    34.16
    
    
    
    25,220
    
    
    
    34.17$50.01 - $194.85
    
    
    235,739
    
    
    3.6 years
    
    
    103.95
    
    
    
    235,739
    
    
    
    103.951,085,516
    
    
    6.0 years
    
    $
    39.40
    
    
    
    694,074
    
    
    $
    47.81
 
 (1)
    
    All quantities and exercise prices have been adjusted for a 1 for 15 reverse
stock split effectedon June 15, 2006.(2)
    
    The exercise price on these options will be set on a future date.
The exercise price on 100,000 shares will equal the average closing price of
the Companys stock for the 30 trading days prior to January 22, 2007, and the
exercise price on the remaining 100,000 shares will equal the average closing
price of the Companys stock for the 30 trading days prior to January 22,
2008.   Note 3  Revenue Recognition
    -11-




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Note 4  Discontinued Operations
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June 30,
    
    
    December 31,2006
    
    
    2005Accounts receivable
    
    $
    
    
    
    $
    439,456Other current assets
    
    
    
    
    
    
    45,287Total current assets
    
    
    
    
    
    
    484,743Net property plant and equipment
    
    
    
    
    
    
    16,028Total assets
    
    
    
    
    
    $
    500,771Accounts payable
    
    $
    
    
    
    $
    73,825Accrued expenses
    
    
    
    
    
    
    81,167Current portion of long term debt
    
    
    
    
    
    
    2,160Deferred revenue
    
    
    
    
    
    
    241,154Customer deposits
    
    
    
    
    
    
    50,000Total current liabilities
    
    
    
    
    
    
    448,306Total liabilities
    
    $
    
    
    
    $
    448,306
  Three Months Ended
    
    Six Months EndedJune 30
    
    June 302006
    
    2005
    
    2006
    
    2005Revenue
    
    $
    
    
    
    $
    241,391
    
    
    $
    485,787
    
    
    $
    731,965Net (loss) income
    
    
    
    
    
    
    (112,111
    )
    
    
    (21,425
    )
    
    
    125,589
 Note 5  Acquisition of Parke P.A.N.D.A. Corporation
   -13-




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##### Table of Contents



Accounts receivable
    
    $
    710,465Inventory
    
    
    142,789Other current assets
    
    
    7,088Net property and equipment
    
    
    79,917Identifiable intangible assets
    
    
    3,250,000Goodwill
    
    
    4,533,741Line of credit
    
    
    400,000Accounts payable
    
    
    338,536Accrued expenses
    
    
    89,571Notes payable
    
    
    45,763Other current liabilities
    
    
    368
   Estimated
    
    EstimatedAsset Class
    
    Value
    
    Useful LifeNon-compete agreement
    
    $
    362,000
    
    
    2 YearsCustomer contracts
    
    
    206,000
    
    
    1 monthSales pipeline
    
    
    52,000
    
    
    5 monthsTrade name
    
    
    2,630,000
    
    
    Indefinite
 -14-




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##### Table of Contents



Three Months
    
    Six MonthsEnded
    
    EndedJune 30, 2006
    
    June 30, 2006Revenue:As Reported
    
    $
    1,334,818
    
    
    $
    2,481,163Proforma
    
    
    2,211,728
    
    
    
    4,364,993Net Loss From Continuing Operations:As Reported
    
    
    (4,659,818
    )
    
    
    (6,594,998
    )Pro-forma
    
    
    (5,056,402
    )
    
    
    (6,773,211
    )Basic and Diluted Loss per Share From
Continuing Operations:As Reported
    
    
    (6.49
    )
    
    
    (7.94
    )Pro-forma
    
    
    (2.38
    )
    
    
    (2.68
    )
 Note 6  Cost in Excess of Assets Acquired
  BuildingControl
    
    
    Energy
    
    
    Energyand Automation
    
    
    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
    
    
    
    
    
    
    
    
    
    
    4,533,741
    
    
    
    4,533,741Balance at June 30, 2006
    
    $
    
    
    
    $
    4,155,660
    
    
    $
    4,533,741
    
    
    $
    8,689,401
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##### Table of Contents



Note 7  Net Loss Per Share
   Three Months Ended
    
    Six Months EndedJune 30
    
    June 302006
    
    2005
    
    2006
    
    2005Weighted average shares
issuable upon exercise of
outstanding options
    
    
    870,000
    
    
    
    777,000
    
    
    
    853,000
    
    
    
    762,000Weighted average shares
issuable upon exercise of
outstanding warrants
    
    
    1,074,000
    
    
    
    916,000
    
    
    
    1,076,000
    
    
    
    831,000Weighted average shares
issuable upon conversion
of preferred stock (1)
    
    
    1,517,000
    
    
    
    1,507,000
    
    
    
    1,534,000
    
    
    
    1,497,000Weighted average shares
issuable upon conversion of
convertible debt (2)
    
    
    339,000
    
    
    
    149,000
    
    
    
    357,000
    
    
    
    110,000Total
    
    
    3,800,000
    
    
    
    3,349,000
    
    
    
    3,820,000
    
    
    
    3,200,000
 
 (1)
    
    All of the outstanding shares of convertible preferred stock were converted to common
stock on June 29, 2006.(2)
    
    All of the convertible debt was retired or converted into common stock on June 29,
2006.  - 16 -




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Note 8  Warranty Obligations
  Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302006
    
    
    2005
    
    
    2006
    
    
    2005Balance, beginning of period
    
    $
    188,254
    
    
    $
    172,424
    
    
    $
    208,300
    
    
    $
    151,008Warranties issued
    
    
    15,750
    
    
    
    49,750
    
    
    
    29,250
    
    
    
    81,798Settlements
    
    
    (11,423
    )
    
    
    (15,279
    )
    
    
    (44,969
    )
    
    
    (25,911
    )Balance, as of June 30
    
    $
    192,581
    
    
    $
    206,895
    
    
    $
    192,581
    
    
    $
    206,895
 Note 9  Inventories
  June 30,
    
    
    December 31,2006
    
    
    2005Raw materials
    
    $
    917,991
    
    
    $
    919,832Finished goods
    
    
    508,169
    
    
    
    537,957$
    1,426,160
    
    
    $
    1,457,789
 Note 10  Line of Credit
  - 17 -




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Note 11  Term Loan Repayment
  Principal
    
    $
    5,038,030Interest through the date of repayment
    
    
    40,568Prepayment penalties
    
    
    516,071Related fees
    
    
    6,749Total payment
    
    $
    5,601,418
 Note 12  Dividends
  Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302006
    
    
    2005
    
    
    2006
    
    
    2005Accrual of Dividend on Series
E Convertible Preferred
    
    $
    349,100
    
    
    $
    339,000
    
    
    $
    698,000
    
    
    $
    673,800Deemed dividend associated
with change in conversion
price of the Series E
Convertible Preferred Stock
    
    
    23,085,467
    
    
    
    
    
    
    
    23,085,467
    
    
    
    Deemed dividend associated
with change in exercise
price of warrants issued to
the preferred investors
    
    
    297,868
    
    
    
    
    
    
    
    564,258
    
    
    
    Total
    
    $
    23,732,435
    
    
    $
    339,000
    
    
    $
    24,347,725
    
    
    $
    673,800
 Note 13  Business Segment Information
   - 18 -




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##### Table of Contents



Note 14  AMEX Delisting
  Note 15  Reverse Split
  Note 16  Equity Issuances
 a)
    
    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
47,533 shares of common stock (quantity adjusted for the reverse split).b)
    
    Effective March 31, 2006, the Company received 14,194 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 (quantity adjusted for the reverse split).c)
    
    On June 29, 2006, in a private placement pursuant to Regulation D under the Securities Act of
1933, as amended, the Company entered into a Securities Purchase Agreement and issued to 17
investors, including 10 existing holders of the Companys Series E Convertible Stock, for an
aggregate purchase price of $17,875,000, 17,875,000 shares of the Companys common stock (the
PIPE Transaction). The Company used $2.72 million of the proceeds to fund the cash
consideration for the acquisition of Parke; 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 $90,079 for
transaction related costs. The balance of the gross proceeds of approximately $9 million will
be used by the Company for working capital and other general corporate purposes.
 - 19 -




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##### Table of Contents



d)
    
    Concurrently with the closing of the PIPE Transaction pursuant to the Securities Purchase
Agreement described in Note 16(c), the holders of all of the Companys outstanding Series E
Preferred Stock converted such shares into 21,648,346 shares of the Companys common stock,
and agreed that, upon the conversion, all agreements related to the Preferred Stock would be
terminated. The Series E Preferred Stock as originally issued was convertible at $6.67 per
share into 1,574,027 shares of the Companys common stock (adjusted for the reverse stock
split), however, the Series E contained antidilution provisions which automatically reduced
the conversion price of the Series E to the $1.00 per share issuance price of common stock in
the PIPE Transaction. This adjustment in the conversion price resulted in 20,074,319
additional shares being issued upon conversion of the Series E. The value of these additional
            shares of $23,085,467 (valued at the market price of $1.15 per share) was treated as a deemed
dividend which the Company recorded by offsetting a dividend charge to additional paid-in
capital, without any effect on total stockholders equity.e)
    
    A number of the Companys common stock warrants, most of which are held by former holders of
the Companys Series E Convertible Preferred Stock, contain antidilution 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 is less than the exercise price on
the holders warrant. Prior to the PIPE Transaction the exercise price on these warrants
ranged from $13.50 per share to $15.00 per share (adjusted for the reverse split). The
issuance of common stock in the PIPE Transaction caused the exercise price on these warrants
to automatically be reduced to $1.00 per share. The Company compared the value of the
warrants prior to the adjustment to the value of the warrants after the adjustment, using a
modified Black-Scholes Option Pricing Model, and determined that the value had increased
$297,868. The weighted average assumptions used for this analysis were as follows: risk free
rate of 5.04%, expected volatility of 109.4%, expected dividend of $0 and expected life of 2.2
years. This increase in value was treated as a deemed dividend and recorded by offsetting a
dividend charge to additional paid-in-capital, without any effect on total stockholders
equity.f)
    
    Immediately following completion of the PIPE Transaction 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 950,865 shares of the Companys common
stock. In addition, in consideration of the issuance by the Company of 392,596 shares of
common stock, Laurus agreed to a) 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 b) 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.g)
    
    During the first six months of 2006, the 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. These Series E shares were
converted into common stock on June 29, 2006.
 Note 17  Related Party Transactions
  - 20 -




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- 21 -




---



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MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
  Results of Operations
     - 22 -




---



##### Table of Contents




    
    direct labor and commission costs related to our employee sales force;
    
    expenses related to our non-manufacturing management, supervisory and staff salaries and
employee benefits;
    
    commission costs related to our independent sales representatives and our distributors;
    
    costs related to insurance, travel and customer entertainment and office supplies costs
and the cost of non-manufacturing utilities;
    
    costs related to marketing and advertising our products;
    
    costs of outside professionals such as lawyers, accountants, and investor relations
professionals;
    
    research and development expenses;
    
    costs related to administrative functions that serve to support the existing businesses
of the Company, as well as to provide the infrastructure for future growth.
   Three Months Ended June 30, 2006 Compared to Three Months Ended June 30, 2005.
   - 23 -




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##### Table of Contents



Three Months EndedJune 302006
    
    
    2005Contractual interest
    
    $
    164,181
    
    
    $
    62,129Amortization of deferred issuance costs
and debt discount
    
    
    1,074,614
    
    
    
    35,071Value of warrant
    
    
    
    
    
    
    160,000Value of adjustment in conversion price
    
    
    950,865
    
    
    
    Prepayment penalties
    
    
    516,071
    
    
    
    Termination of post re-payment interest
obligation
    
    
    266,225
    
    
    
    Total Interest Expense
    
    $
    2,971,956
    
    
    $
    257,200
   - 24 -




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##### Table of Contents



Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005.
  - 25 -




---



##### Table of Contents



Six Months Ended June 302006
    
    
    2005Contractual interest
    
    $
    330,744
    
    
    $
    95,472Amortization of deferred issuance costs
and debt discount
    
    
    1,175,970
    
    
    
    76,543Value of warrant
    
    
    
    
    
    
    160,000Value of adjustment in conversion price
    
    
    950,865
    
    
    
    Prepayment penalties
    
    
    516,071
    
    
    
    Termination of post re-payment interest
obligation
    
    
    266,225
    
    
    
    Total Interest Expense
    
    $
    3,239,875
    
    
    $
    332,015
  - 26 -




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---



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Liquidity and Capital Resources
     Six months ended June 30,
    
    2006
    
    2005Net cash used in operating activities
    
    $
    (2,756,344
    )
    
    $
    (3,213,326
    )Net cash used in investing activities
    
    
    (2,945,892
    )
    
    
    (1,846,233
    )Net cash provided by financing activities
    
    
    11,002,515
    
    
    
    7,195,809Net Increase in Cash and Cash Equivalents
    
    
    5,300,279
    
    
    
    2,136,250Cash and Cash Equivalents, at beginning of period
    
    
    4,229,150
    
    
    
    1,789,808Cash and Cash Equivalents, at end of period
    
    $
    9,529,429
    
    
    $
    3,926,058
 Six months Ended June 30, 2006 Compared to Six months Ended June 30, 2005.
  Operating Activities
  - 28 -




---



##### Table of Contents



Investing Activities
  Financing Activities
   LIQUIDITY
    - 29 -




---



##### Table of Contents




    
    Focus on increasing the commercial sales of our products. Key to this strategy
is the integration of the Electric City, MPG and Parke sales forces with the intent that
the integrated sales force will sell all of our products to current, prior and future
customers. We believe that this change will increase our base of commercial opportunities
and allow us to offer a broader array of energy solutions to our customers thereby
increasing the value of each customer relationship. The recent acquisition of Parke will
increase the number of sales people selling our products and provide us the opportunity to
cross sell our products to each others existing customers. Also the addition of Dan Parke
as our President and Chief Operating Officer gives us an executive with a track record of
successful sales management.
    
    Expand and improve the product line through internal development or acquisition.
An expanded product line would allow us to offer additional solutions to our customers,
thereby increasing the value of each customer relationship. We have recently begun an
internal R&D process to improve our existing products in order to expand their markets,
reduce their costs and extend their useful lives. We are also constantly evaluating
acquisition opportunities with the view toward adding new products and services to our
product line.
    
    Aggressively manage our costs in order to conserve cash. We have made some
progress in reducing our costs during the last several years, but we plan to focus on
eliminating redundant operations and leveraging the synergies available as a result of the
acquisition of MPG and Parke to further reduce our costs.
    
    Sell our Building Automation Controls business. This sale, which was completed
effective March 31, 2006 will allow us to focus exclusively on the sale of our Energy
Technology products and services and is expected to reduce the cash consumed in future
periods.
    
    Secure additional capital to continue to fund operations until the business turns
cash flow positive. The recently complete PIPE Transaction satisfied this objective.
We hope that the capital raised will be sufficient to carry us to the point that our
business begins to generate positive cash flow, thereby alleviating the need to raise
additional capital in the future.
   Cautionary Note Regarding Forward-Looking Statements
  - 30 -




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##### Table of Contents



Quantitative and Qualitative Disclosures About Market Risk
 1 2
 
 Controls and Procedures
 a.
    
    Disclosure Controls and Procedures.Our management, including our chief executive officer and our chief financial officer,
maintains our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) and
has evaluated the effectiveness of our disclosure controls and procedures as of the end of
the period covered by this report. Based on such evaluation, our chief executive officer
and chief financial officer have concluded that, as of June 30, 2006, such disclosure
controls and procedures are effective for the purpose of ensuring that material information
required to be in the reports that we submit, file, furnish or otherwise provide to the
Securities and Exchange Commission is accumulated and communicated to our management,
including our chief executive officer and chief financial officer, as appropriate to allow
timely decisions regarding required disclosure.b.
    
    Changes in Internal Controls.There have not been any changes in our internal control over financial reporting (as defined
in Rule 13a-15(f) under the Exchange Act) during the quarter ended June 30, 2006 that have
materially affected or are reasonably likely to materially affect our internal control over
financial reporting.
 - 31 -




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Unregistered Sales of Equity Securities and Use of Proceeds
 1.)
    
    On June 29, 2006 we entered into a Securities Purchase Agreement and issued to 17 investors,
including 10 existing holders of our Series E Convertible Stock, for an aggregate purchase
price of $17,875,000, 17,875,000 shares of our common stock (the PIPE Transaction). We used
$2.72 million of the proceeds to fund the cash consideration for the acquisition of Parke;
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 $90,079 for transaction related costs. The balance of the gross proceeds
of approximately $9 million will be used for working capital and other general corporate
purposes.
 2.)
    
    Concurrently with the closing of the PIPE Transaction pursuant to the Securities Purchase
Agreement described above, the holders of all of our outstanding Series E Preferred Stock
converted such shares into 21,648,346 shares of our common stock, and agreed that, upon the
conversion, all agreements related to the Series E Preferred Stock would be terminated. The
Series E Preferred Stock as originally issued was convertible at $6.67 per share into
1,574,027 shares of our common stock (adjusted for the reverse stock split), however, the
Series E contained antidilution provisions which automatically reduced the conversion price of
the Series E to the $1.00 per share issuance price of common stock in the PIPE Transaction.
This adjustment in the conversion price resulted in 20,074,319 additional shares being issued
upon conversion of the Series E.
 3.)
    
    A number of our common stock warrants, most of which are held by former holders of our Series
E Convertible Preferred Stock, contain antidilution provisions that automatically adjust the
exercise price on the warrants to the issuance price of any security convertible into our
common stock if the price is less than the exercise price on the holders warrant. Prior to
the PIPE Transaction the exercise price on these warrants ranged from $13.50 per share to
$15.00 per share (adjusted for the reverse split). The issuance of common stock in the PIPE
Transaction caused the exercise price on these warrants to automatically be reduced to $1.00
per share.
 4.)
    
    Immediately following completion of the PIPE Transaction 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 950,865 shares of our common stock. In
addition, in consideration of our issuance of 392,596 shares of common stock, Laurus agreed to
a) waive the payment of liquidated damages due as a result of our failure to register shares
of common stock into which the November 2005 $5 million term loan was convertible, and b)
terminate the requirement that we 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.
 5.)
    
    Effective June 29, 2006, our Board of Directors declared dividends payable on our Series E
Convertible Preferred Stock of $349,100. The dividends were paid with 3,491 additional shares
of Series E Convertible Preferred Stock. As described above, these Series E shares were
converted into common stock on June 29, 2006.
  - 32 -




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Submission of Matters to a Vote of Security Holders
     Director
    
    For
    
    WithheldDavid R. Asplund
    
    
    41,601,980
    
    
    
    905,517Gregory T. Barnum
    
    
    41,601,980
    
    
    
    905,517William R. Carey
    
    
    41,594,817
    
    
    
    912,680Richard P. Kiphart
    
    
    41,593,777
    
    
    
    913,720Daniel W. Parke
    
    
    40,559,570
    
    
    
    1,947,927Gerald A. Pientka
    
    
    41,577,627
    
    
    
    929,870
   - 33 -




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##### Table of Contents



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
  ELECTRIC CITY CORP.:Dated: August 14, 2006
    By:
    /s/ David AsplundDavid AsplundChief Executive Officer (principal
executive officer) Dated: August 14, 2006
    By:
    /s/ Jeffrey MistarzJeffrey MistarzChief Financial Officer (principal
financial and accounting officer) - 34 -