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 OverviewLime’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.
- 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.
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