Lime Energy Co. Files 2012 Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the Period Ended September 30, 2012

  Lime Energy Co. Files 2012 Annual Report on Form 10-K and Quarterly Report
  on Form 10-Q for the Period Ended September 30, 2012

Business Wire

HUNTERSVILLE, N.C. -- July 31, 2013

Lime Energy Co. (NASDAQ: LIME) today will file its Annual Report on Form 10-K
for the year ended December 31, 2012 (the “10-K”), and its Quarterly Report on
Form 10-Q (the “10-Q”) for the period ended September 30, 2012. The 10-K
includes audited financial statements for the year ended December 31, 2012 and
restated audited financial statements for the year ended December 31, 2011, as
well as restated audited financial results for the years ended December 31,
2008, 2009 and 2010. The 10-Q includes unaudited financial statements for the
three-month periods ended March 31, 2011 (restated) and 2012 (restated), the
six-month period ended June 30, 2011 (restated), and 2012, and the nine-month
period ended September 30, 2011 (restated), and 2012.

The restatement resulted in the reversal of approximately $14.2 million of
revenue that was not supported by valid contracts. We also found approximately
$17.4 million of cumulative revenue through March 31, 2012, that had been
recognized earlier than appropriate. All but approximately $500 thousand of
the revenue recognized early was adjusted and properly recognized by the end
of 2012.

“Today Lime Energy took an important first step in becoming current with its
financial reporting and we look forward to completing our other required
filings,” said Lime’s President and Chief Executive Officer John O’Rourke.

Restatement Process Overview

Lime’s restatement process with respect to the 10-K and 10-Q included the
following events and actions:

  *On July 13, 2012, Jeffrey Mistarz, Lime’s Chief Financial Officer,
    concluded that there was preliminary evidence suggesting that there had
    been misreporting of revenue from the Company’s utilities division and he
    and Mr. O’Rourke informed the chairman of the Audit Committee and the
    Company’s outside securities counsel regarding the findings.
  *On July 14, 2012, Messrs. O’Rourke and Mistarz informed the Company’s
    directors of the preliminary results of the internal review.
  *A meeting of the Audit Committee was held on Sunday, July 15, 2012. At
    that meeting, the Audit Committee determined that the Company’s
    consolidated financial statements on Form 10-K for the periods ended
    December 31, 2010, and December 31, 2011, and quarterly report on Form
    10-Q for the period ended March 31, 2012, could no longer be relied upon.
  *On July 16, 2012, attorneys from the Company’s outside law firm began
    interviewing employees of the utilities division.
  *The Company issued a Form 8-K before the market opened on July 17, 2012,
    stating the determination of the Audit Committee regarding the 2010
    through 2012 quarterly and annual financial statements.
  *On July 22, 2012, the Audit Committee met and established a subcommittee
    to conduct an independent investigation of the misreporting of revenue.
    The subcommittee retained its own independent counsel and forensic
    accountants.
  *Mr. Mistarz, internal staff and the forensic accountants reviewed over
    11,000 projects and 36,000 transactions.
  *The review led to the discovery of misreporting of revenues from the
    public sector division, including evidence suggesting that there had been
    misreporting of revenues in the years ended December 31, 2008 and 2009. On
    December 21, 2012, the Audit Committee determined that the Company’s
    financial statements for those years could no longer be relied on.
  *On December 28, 2012, the Company issued a Form 8-K stating the
    determination of the Audit Committee regarding the 2008 and 2009 financial
    statements.
  *Lime terminated employees identified as having been involved in the
    misreporting of revenue.
  *The independent investigation also concluded that Lime had deficiencies in
    its internal control over financial accounting. Consequently, Lime has
    revised its previous evaluation of the effectiveness of its disclosure
    controls and procedures as of December 31, 2008, 2009, 2010, 2011 and as
    of March 31 2012 and concluded that its disclosure controls and procedures
    were ineffective as of those dates because of material weaknesses in
    Lime’s internal control over financial reporting. In addition, Lime has
    concluded that its disclosure controls and procedures were ineffective as
    of June 30, September 30 and December 31, 2012 because of material
    weaknesses in Lime’s internal control over financial reporting.

Outcome of Restatement Process

Following the restatement process Lime has completed the following actions:

  *Instituted a remediation plan for its internal control over financial
    reporting
  *Discontinued certain operations with lower margin and/or growth outlook
  *Focused the business on our core competency of delivering energy
    efficiency cost-effectively and at scale across utility service
    territories
  *Significantly reduced headcount and related SG&A expenditures to position
    Lime for enhanced margins
  *Begun an extensive business improvement process focused on financial,
    operational and day-to-day business performance visibility
  *Instituted an extensive employee training and feedback process to drive
    employee satisfaction and efficiency
  *Met with our entire supply chain partner network to ensure the consistent
    delivery of our services.

“Our employees are still with us and striving collectively to push the company
forward, our major suppliers have stuck with us throughout the entire
restatement process, and our clients continue to work with us and in some
cases expand their existing engagements,” stated Mr. O’Rourke. “We had eight
utility program clients coming into the process; we now have nine. This speaks
volumes to the strength of the business solution we provide and the continuing
confidence all of our stakeholders have in the future of the business.”

Business Outlook

Lime is focused primarily on designing and implementing energy efficiency
programs that enable our utility clients to reach their underserved markets
and achieve their energy reduction goals. To date, Lime has nine utility
contracts and our clients include two of the five largest investor-owned
utilities in the country. We focus on deploying direct install energy
efficiency solutions for small and mid-size commercial and industrial business
programs that improve energy efficiency, reduce energy-related expenditures,
and lessen the impact of energy use on the environment. Our small business
direct install (SBDI) programs provide a cost-effective avenue for our utility
clients to offer products and services to a hard-to-reach customer base, while
satisfying aggressive state-mandated energy reduction goals. Our direct
install model is a turnkey solution under which we contract with our utility
clients to design and market their small and mid-size energy efficiency
programs within a defined territory, perform the technical audits, sell the
solution to the end-use customer and oversee the implementation of the energy
efficiency measures.

Lime competes in the current $6.9 billion rate-payer funded energy efficiency
market, which is comprised of programs promoting energy efficiency, load
management/demand response and evaluation, measurement, and verification. This
market is forecasted to grow to between $9.5 and $14.3 billion by 2025. Our
research into this segment indicates that current spending on direct install
programs for small to mid-sized commercial customers is approximately 5% of
all U.S. energy efficiency programs. Given the increasing emphasis on
targeting these customers for energy efficiency resource acquisition and the
associated benefits of customer engagement for our utility clients, we believe
that this market could grow to 10% of all customer funded spending by 2020.

Our momentum in this market is evidenced by the following metrics:

  *At the beginning of 2012, we managed 5 utility programs. Today we manage 9
    programs.
  *In 2012 we completed energy efficiency projects for 4,312 utility small
    and medium-sized customers. Year-to-date in 2013 we have completed 3,059
    such projects. It is important to note that there is not a direct
    correlation between the number of customer deployments and revenue.

As utilities look to utilize the direct install delivery model for other
customer segments, and Lime continues to add services to our utility
offerings, we believe that we will increase our market opportunity across the
customer-funded energy efficiency market.

We plan to achieve this growth in both market and market share by:

  *Developing and deploying direct install programs in states that are
    driving energy efficiency programs and regulations
  *Expanding existing programs into new territories with affiliates of
    existing utility clients
  *Expanding product and service sets within existing programs and new
    program opportunities

Discontinued Operations

On February 28, 2013, we sold all of the public sector business, except for
the FRR contract with the Army Corps of Engineers and our regional HVAC
service business located in Bethlehem, Pennsylvania. The portion of the
business that was sold is commonly referred to as the ESCO business because it
is the portion whose primary customers were the large energy service
companies. This business represented about half of our 2012 revenue. Compared
to the utility business that we have retained, the ESCO business was growing
at a slower rate, was less profitable and required higher levels of working
capital. The ESCO business has been reported as discontinued operations in the
accompanying financial statements.

We have also included our Asset Development group in discontinued operations.
Lime Energy Asset Development LLC (“LEAD”) was established in 2010 to develop,
construct and operate renewable and alternative energy projects. This group
was focused on leveraging the existing engineering and construction expertise
contained in our public sector business to secure design-build contracts for
projects ranging in size from $1 million to $20 million. While LEAD found many
opportunities to develop projects of the type it was targeting, it was unable
to find a source of capital to finance the projects. After having completed an
extensive search for a source of capital, and given the decision to sell the
public sector business, we decided to shut down the Asset Development business
in the fourth quarter of 2012. Lime still owns, operates and maintains a 2.8
MW landfill gas-to-energy project in Punta Gorda, Florida, that was developed
by LEAD.

A summary of the consolidated results of operation for the twelve months ended
December 31, 2012 and 2011 (restated) is as follows:

                 Twelve Months Ended                                        
                   December 31
                                2011          Change                    % of Revenue
                   2012          (Restated)    $             %           2012      2011
                                                                                   
Revenue            $ 43,412      $ 41,928      $ 1,484       3.5     %   100.0 %   100.0 %
Cost of sales       35,516      35,221      295        0.8     %   81.8  %   84.0  %
Gross profit         7,896         6,707         1,189       17.7    %   18.2  %   16.0  %
                                                                                   
Selling,
general and          24,257        14,607        9,650       66.1    %   55.9  %   34.8  %
administrative
Amortization         257           196           61          31.1    %   0.6   %   0.5   %
of intangibles
Restructuring        -             1,281         (1,281  )   -100.0  %   0.0   %   3.1   %
charge
Impairment          3,547       -           3,547      -          8.2   %   0.0   %
loss
Operating loss       (20,165 )     (9,377  )     (10,788 )   115.0   %   -46.5 %   -22.4 %
                                                                                   
Total other         (408    )    18          (426    )   -2366.7 %   -0.9  %   0.0   %
income
                                                                                   
Loss from
continuing           (20,573 )     (9,359  )     (11,214 )   119.8   %   -47.4 %   -22.3 %
operations
                                                                                   
Loss from
operation of        (11,239 )    (9,574  )    (1,665  )   0.0     %   -25.9 %   -22.8 %
discontinued
business
                                                                                   
                                                                                   
Net Loss           $ (31,812 )   $ (18,933 )   $ (12,879 )   68.0    %   -73.3 %   -45.2 %
                                                                                   
Adjusted           $ (13,013 )   $ (4,580  )   $ (8,433  )   184.1   %   -30.0 %   -10.9 %
EBITDA
                                                                                   
Basic and Diluted Loss Per
Common Share From
Continuing         $ (0.84   )   $ (0.39   )
operations
Discontinued       $ (0.46   )   $ (0.40   )
operations
Weighted
Average Common
Shares
Outstanding          24,636        23,824
                                                                                   

A summary of the consolidated results of operation for the nine months ended
September 30, 2012 and 2011 (restated) is as follows:

                     Nine Months Ended                                   
                           September 30,
                                            2011               Change
                           2012                Restated           $                  %
                                                                                       
Revenue                    $  65,673          $  73,049         $  (7,376 )         -10.1  %
Cost of sales                53,784           60,536          (6,752 )        -11.2  %
Gross profit                   11,889              12,513             (624   )         -5.0   %
                                                                                       
Selling,
general and                    26,614              20,274             6,340            31.3   %
administrative
expenses
Amortization                   545                 460                85               18.5   %
of intangibles
Restructuring                -                1,281           (1,281 )        100.0  %
charge
Operating loss                 (15,270 )           (9,502 )           (5,768 )         60.7   %
                                                                                       
Other
(expense)                    (177    )         60              (237   )        -395.0 %
income
Net loss                   $  (15,447 )       $  (9,442 )       $  (6,005 )        63.6   %
                                                                                              

Reconciliation of Non-GAAP Financial Measures and Regulation G Disclosure

We report our financial results in accordance with generally accepted
accounting principles (“GAAP”). However, we believe that certain non-GAAP
financial measures that we use to manage the company’s business fall within
the meaning of Regulation G (Disclosure of Non-GAAP Financial Measures) by the
Securities and Exchange Commission. We have included these non-GAAP measures
in the press release because we believe they may provide readers with
additional meaningful comparisons to prior reported results.

A reconciliation of the non-GAAP financial measures to the most directly
comparable GAAP financial measure is as follows (in thousands):

                                              Twelve Months Ended
                                               December 31
                                                           2011
                                               2012         (Restated)
                                                            
Net Income (Loss)                              (31,812)     (18,933)
                                                            
Interest expense, net                          408          (18)
Depreciation and amortization                  1,821        1,325
                                                            
EBITDA                                         (29,583)     (17,626)
                                                            
Share based compensation                       1,784        2,191
Restructuring charge (1)                       -            1,281
Impairment loss                                3,547        -
Loss from operation of discontinued business   11,239       9,574
                                                            
Adjusted EBITDA                                $ (13,013)   $ (4,580)
                                                            
                                                            
                                                            
(1) Excludes share-based compensation expense
                                                            

About Lime Energy Co.

Lime Energy is building a new energy future. As a leading national provider of
energy efficiency for small business customers, Lime designs and implements
direct install programs for our utility clients which have consistently
exceeded program savings goals. Our award-winning, integrated services
programs provide utilities with reliable energy efficiency resources while
delivering the highest levels of customer satisfaction. This next generation
approach is helping utilities across the country to go deeper and broader with
the cheapest, cleanest and fastest energy resource that we have – energy
efficiency.

Conference Call Information

The company will hold a conference call with investors on Wednesday, July 31st
at 4:30 pm ET to discuss these results.

Investors can access the call by dialing toll free 1-877-703-6108 and entering
passcode 20634288. International callers can dial 1-857-244-7307 and use the
same passcode.

The call will be available for replay immediately following completion of the
call through October 31, 2013 by dialing toll free 1-888-286-8010 or
1-617-801-6888. The replay will require use of passcode 86679689. Copies of
the scripts from the call will also be posted to the Investor Relations
section of Lime website following the call.

The call can also be accessed through Lime Energy's Investor Relations section
of its website at http://www.lime-energy.com. This call is being webcast by
Thomson/CCBN and is being distributed through the Thomson StreetEvents Network
to both institutional and individual investors. Individual investors can
listen to the call at http://www.fulldisclosure.com, Thomson/CCBN's individual
investor portal, powered by StreetEvents. Institutional investors can access
the call via Thomson's password-protected event management site, StreetEvents
(http://www.streetevents.com).

FORWARD-LOOKING STATEMENTS

This news release includes forward-looking statements within the meaning of
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995 including statements that reflect Lime Energy’s current expectations
about its future results, performance, prospects and opportunities. Lime
Energy has tried to identify these forward-looking statements by using words
and phrases such as “may,” “expects,” “anticipates,” “believes,” “intends,”
“estimates,” “plan,” “should,” “typical,” “preliminary,” “hope,” or similar
expressions. These forward-looking statements are based on information
currently available to Lime Energy and are subject to a number of risks,
uncertainties and other factors that could cause Lime Energy’s actual results,
performance, prospects or opportunities in the remainder of 2013 and beyond to
differ materially from those expressed in, or implied by, these
forward-looking statements. These risks and uncertainties are described in
Lime Energy’s most recent Annual Report on Form 10-K or as may be described
from time to time in Lime Energy’s subsequent SEC filings; such factors are
incorporated herein by reference.

Additional Information

A full analysis of the results for the twelve-month period are available in
the Company’s Form 10-K for the period ended December 31, 2012, and the
Company’s Form 10-Q contains a full analysis of the three-month periods ended
March 31, 2011 and 2012, the six-month period ended June 30, 2011 and 2012,
and the nine-month period ended September 30, 2011 and 2012. Both documents
will be made available on the Company’s website at www.lime-energy.com and on
EDGAR.

Contact:

Lime Energy Investor Relations
Ashley Conger, 704-892-4442
aconger@lime-energy.com
 
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