Lime Energy (LMEC) 8-K/A Completion of Acquisition or Disposition of Assets

Exhibit 99.1

MAXIMUM PERFORMANCE GROUP, INC.
AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2004 and 2003

MAXIMUM PEFORMANCE GROUP, INC.

AND SUBSIDIARIES

CONTENTS

	Page
INDEPENDENT AUDITORS’ REPORT		1-2
FINANCIAL STATEMENTS
Consolidated Balance Sheets		3-5
Consolidated Statements of Operations and Accumulated Deficit		6
Consolidated Statements of Cash Flows		7-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		9-21

INDEPENDENT AUDITORS’ REPORT

To the Stockholders of
Maximum Performance Group, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Maximum Performance Group, Inc. and Subsidiaries (the “Company”) as of December 31, 2004 and 2003, and the related consolidated statements of operations and accumulated deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Maximum Performance Group, Inc. and Subsidiaries as of December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.

1

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred a net loss during the year ended December 31, 2004 of $2,077,584, has an accumulated deficit of $4,852,559 at December 31, 2004 and cash flows used in operating activities of $1,933,523 during the year ended December 31, 2004. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Marcum & Kliegman LLP

April 25, 2005
Melville, New York

2

MAXIMUM PEFORMANCE GROUP, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

December 31, 2004 and 2003

ASSETS

	2004		2003
CURRENT ASSETS
Cash	$	8,259	$	31,114
Accounts receivable, less allowance for doubtful accounts of $15,300 in 2004 and 2003		455,505		185,669
Inventory		381,198		481,715
Advances to suppliers		349,872		—
Costs and estimated earnings in excess of billings on uncompleted contracts		33,950		131,845
Prepaid expenses and other current assets		23,408		20,162
		1,252,192		850,505
PROPERTY AND EQUIPMENT, Net		784,734		762,584
OTHER ASSETS		19,712		24,628
TOTAL ASSETS	$	2,056,638	$	1,637,717

The accompanying notes are an integral part of these consolidated financial statements

3

MAXIMUM PEFORMANCE GROUP, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

December 31, 2004 and 2003

LIABILITIES AND STOCKHOLDERS’ DEFICIT

	2004		2003
CURRENT LIABILITIES
Current maturities of long-term debt	$	27,710	$	26,861
Current maturities of capital lease obligations		5,522		4,337
Accounts payable		685,069		581,013
Accrued expenses		610,123		323,969
Customer advances		228,742		769,370
Due to stockholders		108,345		237,773
Due to affiliate		28,519		143,882
Deferred revenue, short-term portion		1,329,993		597,610
Total Current Liabilities		3,024,023		2,684,815
OTHER LIABILITIES
Long-term debt, net of current maturities		17,689		45,399
Capital lease obligations, net of current maturities		4,739		8,522
Other liabilities		9,309		8,076
Deferred revenue, long-term portion		1,547,137		1,659,580
Total Other Liabilities		1,578,874		1,721,577
TOTAL LIABILITIES	$	4,602,897	$	4,406,392

The accompanying notes are an integral part of these consolidated financial statements

4

MAXIMUM PEFORMANCE GROUP, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET, Continued

December 31, 2004 and 2003

LIABILITIES AND STOCKHOLDERS’ DEFICIT, Continued

	2004			2003
Mandatorily Redeemable Preferred stock
Series B-1 preferred stock; $.001 par value; 640,000 shares authorized, issued and outstanding (liquidation preference- $800,000)	$	400,000		$	—
Series B preferred stock; $.001 par value; 3,200,000 shares authorized, 1,440,000 issued and outstanding (liquidation preference- $4,500,000)		900,000			—
Series A-1 preferred stock; $.001 par value; 1,000,000 shares authorized, issued and outstanding (liquidation preference- $2,000,000)		1,000,000			—
Series A preferred stock; $.001 par value; 6,300,000 shares authorized, issued and outstanding (liquidation preference- $6,300,000)		6,300			6,300
STOCKHOLDERS DEFICIT
Common stock; $.001 par value; 12,647,508 shares Authorized; none issued and outstanding		—			—
Accumulated deficit		(4,852,559	)		(2,774,975	)
TOTAL STOCKHOLDERS’ DEFICIT		(4,852,559	)		(2,774,975	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	2,056,638		$	1,637,717

The accompanying notes are an integral part of these consolidated financial statements

5

MAXIMUM PEFORMANCE GROUP, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

AND ACCUMULATED DEFICIT

For the Year Ended December 31, 2004 and 2003

	2004			2003
NET SALES	$	2,312,315		$	2,341,441
COST OF SALES		1,610,880			2,315,675
GROSS PROFIT		701,435			25,766
OPERATING EXEPNSES
Product Support		419,098			405,210
Research and development		125,841			160,796
Depreciation and amortization		92,932			61,337
Impairment charge		—			392,152
Selling expenses		769,290			537,000
General and administrative expenses		1,330,197			1,201,080
TOTAL OPERATING EXPENSES		2,737,358			2,757,575
OPERATING LOSS		(2,035,923	)		(2,731,809	)
OTHER EXPENSE
Interest expense, net		37,457			31,407
Other expenses		4,204			—
TOTAL OTHER EXPENSE		41,661			31,407
NET LOSS		(2,077,584	)		(2,763,216	)
ACCUMULATED DEFICIT – Beginning		(2,774,975	)		—
Recapitalization		—			(11,759	)
ACCUMULATED DEFICIT — Ending	$	(4,852,559	)	$	(2,774,975	)

The accompanying notes are an integral part of these consolidated financial statements

6

MAXIMUM PEFORMANCE GROUP, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Year Ended December 31, 2004 and 2003

	2004			2003
CASH FLOWS FROM OPERATING ACTITIVIES
Net loss	$	(2,077,584	)	$	(2,763,216	)
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		92,932			61,337
Provision for doubtful accounts		—			15,300
Impairment charge		—			392,152
Changes in operating assets and liabilities:
Accounts receivable		(269,836	)		(195,511	)
Inventory		100,517			(333,449	)
Costs and estimated earnings in excess of billings on uncompleted contracts		97,895			(131,845	)
Advances to suppliers		(349,872	)		—
Prepaid expenses and other current assets		(3,246	)		(12,421	)
Accounts payable		104,056			581,013
Accrued expenses		286,154			(185,384	)
Deferred revenue		619,940			1,881,807
Customer advances		(540,628	)		769,370
Other liabilities		1,233			8,076
Other assets		4,916			(24,628	)
TOTAL ADJUSTMENTS		144,061			2,825,817
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES		(1,933,523	)		62,601
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition costs		—			(133,288	)
Purchases of property and equipment		(115,082	)		(268,766	)
NET CASH USED IN INVESTING ACTIVITIES	$	(115,082	)	$	(402,054	)

The accompanying notes are an integral part of these consolidated financial statements

7

MAXIMUM PEFORMANCE GROUP, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS, Continued

For the Year Ended December 31, 2004 and 2003

	2004			2003
CASH FLOWS FROM FINANCING ACTITIVIES
Proceeds of loans from stockholders	$	270,572		$	237,773
Principal repayments of long-term debt		(26,861	)		(9,304	)
Repayments of capital lease obligations		(2,598	)		(1,784	)
Proceeds of loans from affiliate		—			143,882
Repayment of loans to affiliate		(115,363	)		—
Proceeds from the Issuance of Series A-1 preferred stock		1,000,000			—
Proceeds from the Issuance of Series B preferred stock		900,000			—
NET CASH PROVIDED BY FINANCING ACTIVITIES		2,025,750			370,567
NET (DECREASE) INCREASE IN CASH		(22,855	)		31,114
CASH — Beginning		31,114			—
CASH — Ending	$	8,259		$	31,114
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the years for:
Interest	$	38,054		$	31,410
Non-cash investing and financing activities:
Net assets and liabilities in the following amounts were exchanged for the issuance of Series A Mandatorily Redeemable Preferred Stock:
Accounts receivable	$	—		$	5,458
Inventory	$	—		$	148,265
Prepaid expense and other current assets	$	—		$	7,741
Goodwill	$	—		$	258,864
Accrued expenses	$	—		$	(509,352	)
Deferred revenue	$	—		$	(375,383	)
Fixed assets	$	—		$	458,948
Recapitalization	$	—		$	11,759
Preferred stock	$	—		$	(6,300	)
Issuance of Series B-1 preferred stock issued for repayment of stockholders’ loans	$	400,000		$	—
Equipment acquired under capital leases and debt obligations	$	—		$	96,207

The accompanying notes are an integral part of these consolidated financial statements

8

MAXIMUM PEFORMANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 —Organization and Business

Maximum Performance Group, Inc. (“MPG”) or “(the Company)” is a Delaware corporation, formed on December 10, 2002 for the purpose of acquiring certain assets and liabilities of Maximum Energy Services, Inc. (“MES”) and Pentech Solutions, Inc. (“Pentech”). On February 13, 2003, the Company completed the acquisition of the MES assets through a merger with its wholly owned subsidiary, Maximum LLC (“The LLC”) and simultaneously acquired all of the outstanding stock of Pentech. Prior to this date, MPG was inactive.

In connection with the transactions, MPG issued 6,300,000 shares of its Series A Preferred stock (“Series A Stock”), of which 3,675,000 shares were issued to the former shareholders of MES and 2,625,000 shares were issued to the former stockholders of Pentech. In accordance with the provisions of SFAS No. 141, “Business Combinations”, The LLC was determined to be the acquiring entity, and as such, its net liabilities were recorded at their carryover basis of $8,084. The purchase price of Pentech was $135,913 and was composed of the mandatorily redeemable preferred stock with an estimated value of $2,625 and acquisition costs associated with the transaction of $133,288. The acquisition cost of Pentech was allocated to the following assets and liabilities:

Assets:
Inventory	$	143,967
Fixed assets		107,300
Prepaid expenses and other current assets		13,199
Goodwill		392,152
			$	656,618
Liabilities:
Accounts payable, and accrued expenses		509,353
Deferred income		11,352
			$	520,705
Purchase Price			$	135,913

The 6,300,000 shares of Series A Stock have a liquidation preference of $1 per share, aggregating $6,300,000.

MPG is a technology based, energy and asset management provider. Through the application of the Company’s web-based software and enabling hardware, it ensures the customer’s energy consuming assets are performing at their most efficient level. This optimal performance is accomplished through the Company’s unique methods of continuous commissioning, asset monitoring and intelligence-based performance algorithms.

9

MAXIMUM PEFORMANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 —Organization and Business, continued

MPG delivers technologies to provide mechanical system intelligence. These technologies become an enabling tool in which the Company’s clients achieve documented energy savings, reduction in maintenance expenditures, increased asset life and improve management process. The specific technologies include:

• eMAC™ HVAC and lighting applications-this is a monitoring, communication and control device designed specifically for natural gas and electric heat, direct expansion cooling, and HVAC systems.

• Maximum Performance Software-ensures customer’s facility systems are continually commissioned through three specific modules-(a) monitoring and verification, (b) scheduling optimization, and (c) real time optimal control.

MPG also performs special projects. These projects encompass lighting system and mechanical upgrades.

NOTE 2 —Summary of Significant Accounting Policies

Management’s Liquidity Plans

The Company had a net loss of $2,077,584 for the year ended December 31, 2004 and cash flows used in operating activities during the year ended December 31, 2004 of $1,933,523.

Management estimates that it will require additional resources during 2005, based upon its current operating plan and condition. The Company is currently investigating additional financing alternatives, including equity financing. There is no assurance that capital in any form would be available to the Company, and if available, on terms and conditions that are acceptable. The success of the Company depends upon many factors, including securing increased sales for its products and obtaining adequate additional financing on acceptable terms. The uncertainties regarding the availability of continued financing and adequate revenues raise substantial doubt about the Company’s ability to continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability of the recorded assets or the classification of liabilities that may be necessary should the Company be unable to continue as a going concern.

In September 2004, the Company engaged a consultant to investigate financing and merger alternatives. This has lead to the possible sale of the Company (see Note 12).

Principles of Consolidation

The financial statements include the accounts of MPG and its subsidiaries (The LLC and Pentech). All intercompany balances and transactions have been eliminated in consolidation.

10

MAXIMUM PEFORMANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 —Summary of Significant Accounting Policies, continued

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash

The Company considers all highly liquid instruments with maturities of three months or less to be cash equivalents. At December 31, 2004 and 2003, the Company did not have any cash equivalents. The Company at times has cash deposits in excess of the maximum amounts insured by the FDIC.

Inventory

The Company maintains a finished goods inventory consisting of monitoring units (eMAC™ units) purchased from a contract manufacturer and spare components. Inventory is stated at the lower of cost (first-in, first-out) or market value. Advances to supplier represent amounts paid to a supplier for future purchases of inventory.

Accounts Receivable

The Company provides credit, in the normal course of business, to its customers. The Company maintains an allowance for doubtful customer accounts for estimated losses that may result from the inability of the Company’s customers to make required payments. Management determines the allowances based on historical collection experience, current economic and market conditions, and a review of the current status of each customer’s trade accounts receivable.

Revenue Recognition

The Company derives its revenues principally from the sale of its web-based software and enabling hardware (eMAC™ units) and from monitoring and energy management support maintenance services. The Company recognizes revenue when persuasive evidence of an arrangement exists, the product has been delivered, the price is fixed or determinable and collectibility is probable.

Many of the Company’s contracts contain multiple element arrangements which include undelivered services essential to the functionality of delivered products. Accordingly, revenue from such arrangements is recognized ratably over the maintenance term, provided all other revenue criteria have been met.

11

MAXIMUM PEFORMANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 —Summary of Significant Accounting Policies, continued

Revenue Recognition, continued

Amounts billed in advance from customers related to services not yet provided are recorded as deferred revenue.

Revenue Recognition (Percentage of Completion)

MPG accounts for long-term construction contracts and recognizes revenue for financial statement purposes under the percentage of completion method. MPG performs projects that encompass lighting system upgrades and mechanical system upgrades.

The amount of revenue recognized at the financial statement date is the portion of the total contract price that the costs expended to date bears to the anticipated total costs, based on current estimates of costs to complete. Contract costs include materials unique to or installed in the project and subcontract costs.

In accordance with normal construction industry practice, the Company includes in current assets and current liabilities, amounts relating to construction contracts realizable and payable over a period in excess of one year. The length of the company’s contacts varies, but is typically between three months to two years. Revisions in estimates of costs and earnings during the life of the contracts are reflected in the accounting period in which such revisions become known. At the time a material loss on a contract becomes known, the entire amount of the estimated loss is recognized in the financial statements.

The asset “Costs and estimated earnings in excess of billings on uncompleted contracts” in the accompanying combined financial statements represents revenues earned in excess of amounts billed.

Fixed Assets

Fixed assets are recorded at cost. Depreciation is calculated on the straight-line basis in amounts sufficient to amortize the cost of the assets over their estimated useful lives (generally three to five years) beginning when the asset is put into use. Leasehold improvements are amortized over shorter of the estimated life or the related lease term. Expenditures for maintenance and repairs are charged to operations as incurred.

Software Development Costs

In accordance with Statement of Financial Account Standards (“SFAS”) No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,” the Company capitalizes costs incurred to develop new software products upon determination that technological feasibility has been established upon completion of the working model. Costs incurred by the Company prior to establishment of technological feasibility are charged to expense.

12

MAXIMUM PEFORMANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 —Summary of Significant Accounting Policies, continued

Software Development Costs, continued

Approximately $632,000 and $521,000 of software costs are not being amortized as of December 31, 2004 and 2003, respectively, as they have not yet been placed in service.

Goodwill

The Financial Accounting Standards Board (“FASB”) issued Statement on Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 provides guidance on how to account for goodwill. The most substantive change is that goodwill will no longer be amortized, but instead will be tested for impairment periodically. In 2003, the Company completed its annual impairment testing of goodwill, which indicated that the carrying value of goodwill associated with the Pentech acquisition exceeded its fair value and required an adjustment for this impairment. This was due primarily to significant losses incurred by the Company since the acquisition of Pentech. The Company recorded an impairment charge of $392,152 for the year ended December 31, 2003.

Income Taxes

The Company provides for income taxes utilizing the liability method whereby deferred items are based on differences between the financial reporting and tax bases of assets and liabilities and are measured based on the tax rates expected to be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred income tax assets and the amounts expected to be realized.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset is not recoverable. At such time as impairment in value of a long-lived asset is identified, the impairment will be measured in accordance with SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets,” as the amount by which the carrying amount of a long-lived asset exceeds its fair value. To determine fair value, the Company employs an expected present value technique, which utilizes multiple cash flow scenarios that reflect the range of possible outcomes and an appropriate discount rate.

13

MAXIMUM PEFORMANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 —Summary of Significant Accounting Policies, continued

Fair Value of Financial Instruments

The Company calculates the fair value of financial instruments and includes this additional information in the notes to financial statements when the fair value is different than the book value of those financial instruments. When the fair value approximates book value, no additional disclosure is made. As of December 31, 2004 and 2003, the carrying value of all financial instruments approximated fair value.

Concentration of Credit Risk

Certain financial instruments potentially subject the Company to concentrations of credit risk. These financial instruments consist primarily of cash and accounts receivable. The Company places its cash with a high-credit quality financial institution to limit its credit exposure. During 2004, two customers accounted for 36%, and 15% of revenue, respectively. Accounts receivable from these customers at December 31, 2004 totaled approximately $7,000 and $187,000, respectively. During 2003, three customers accounted for 37%, 27% and 16% of revenue, respectively. Accounts receivable from these customers at December 31, 2003 totaled approximately $33,000, $22,000 and $12,000, respectively. The Company retains a security interest in hardware until the full purchase price, including taxes and additional charges have been paid. The Company maintains ongoing credit evaluations of its customers.

NOTE 3 —Costs, Estimated Profits and Billing on Uncompleted Contracts

Summarized as follows:

	2004		2003
Costs incurred on uncompleted contracts	$	103,856	$	442,135
Estimated profits		155,693		68,644
Total		259,549		510,779
Less: billings to date		225,599		378,934
Net	$	33,950	$	131,845

These amounts are included in the accompanying consolidated balance sheet under the following captions:

Costs and estimated profit in excess of billings on uncompleted contracts $ 33,950 $ 131,845

14

MAXIMUM PEFORMANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 —Fixed Assets

Fixed assets consist of the following components at December 31, 2004 and 2003:

	2004		2003
Machinery and equipment	$	63,280	$	61,511
Vehicles		81,564		81,564
Computer equipment		113,299		111,173
Software		657,982		546,795
Leasehold improvements		22,878		22,878
		939,003		823,921
Less accumulated depreciation		154,269		61,337
Fixed assets, net	$	784,734	$	762,584

NOTE 5 —Related Party Transactions

Amounts due to stockholders and affiliate represent unsecured demand obligations bearing interest at an annual rate of 6%.

NOTE 6 —Long-Term Debt

Long-term debt at December 31, 2004 and 2003 consist of the following:

	2004		2003
Vehicle note due in thirty-six (36) monthly installments of $556, including principal and interest at the prime rate (was 5.07% at December 31, 2004) per annum through March 2006, collateralized by the underlying vehicle.	$	7,899	$	14,566
Vehicle note due in thirty-six (36) monthly installments of $612, including principal and interest at 3.84% per annum through July 2006, collateralized by the underlying vehicle.		11,262		18,030
(Sub-total forward)	$	19,161	$	32,596

15

MAXIMUM PEFORMANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 —Long-Term Debt, continued

	2004		2003
(Sub-total forward)	$	19,161	$	32,596
Vehicle note due in thirty-six (36) monthly installments of $596, including principal and interest at 4.14% per annum through August 2006, collateralized by the underlying vehicle.		11,491		18,015
Vehicle note due in thirty-six (36) monthly installments of $643, including principal and interest at 4.41% per annum through December 2006, collateralized by the underlying vehicle.		14,747		21,649
Total Long-Term Debt		45,399		72,260
Less: Current Maturities		27,710		26,861
Total Long-Term Debt, Net of Current Maturities	$	17,689	$	45,399

Annual maturities of long-term debt are as follows:

For the Year Ending
December 31,	Amount
2005	$	27,710
2006		17,689
Total	$	45,399

NOTE 7 —Capitalized Lease Obligations

During 2003, the Company obtained various equipment under capital leases expiring at various dates through February 2007 with effective interest rates varying from 9.94% to 27.68% per annum. Assets and liabilities under capital leases are recorded at the lower of the present values of the minimum lease payments or the fair values of the assets. The leased equipment is included in property and equipment and is being depreciated over its estimated useful life.

16

MAXIMUM PEFORMANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 —Capitalized Lease Obligations, continued

Future annual minimum lease payments under these capital leases are:

For the Year Ending
December 31,	Amount
2005	$	6,759
2006		4,795
2007		373
Total minimum lease payments		11,927
Less: amounts representing interest		1,666
Total capital lease obligation		10,261
Less: current portion		5,522
Capital lease obligation, less current portion	$	4,739

The capitalized lease obligations are collateralized by equipment which has a cost of approximately $14,643 and accumulated depreciation of approximately $6,409 and $1,647 at December 31, 2004 and 2003, respectively. Equipment depreciation of $4,762 and $1,647 respectively, has been included in depreciation expense for the years ended December 31, 2004 and 2003.

NOTE 8 —Lease Commitments

The Company leases its facilities under non-cancelable operating leases. The New York City and San Diego facility leases expire in June 2009 and April 2005, respectively. In addition, the Company has various operating leases for office equipment. Rental expense under all operating leases for the year ended December 31, 2004 and 2003 was $139,148 and $78,626, respectively.

Future minimum rental payments under non-cancelable operating leases are summarized as follows:

For the Year Ending
December 31,	Amount
2005	$	130,518
2006		110,975
2007		103,795
2008		98,831
2009		45,256
Total	$	489,375

17

MAXIMUM PEFORMANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 –Mandatorily Redeemable Preferred Stock

Series A Preferred Stock

The terms of the Series A Stock are as follows:

Dividend Provisions:The holders of the Series A Stock are entitled to receive dividends at the rate of $.08 per share per annum (the “Series A Dividends”). Series A Dividends are payable when, as and if declared by the Board of Directors. As of December 31, 2004, no Series A Dividends were declared by the Company.

Liquidation Preference: The holders of Series A Stock are entitled to receive upon any liquidation or deemed liquidation, prior and in preference to any distribution or payment to the holders of common stock, an amount equal to $1.00 (the “Original Issue Price”) for each share of Series A Stock plus an amount equal to any declared but unpaid dividends on such respective shares.

Redemption:Upon the written request of the holders of at least 50% of the then-outstanding             shares of Preferred Stock (the “Requesting Holders”), the Company shall on February 1, 2008 (the “Redemption Date”) redeem, all of the shares of Series A Stock held by the Requesting Holders for the sum of $1.00 per share and an amount equal to all dividends declared but unpaid thereon up to the Redemption Date.

Conversion:Each share of Series A Stock is convertible, at the option of the holder, at any time after the date of issuance, into such number of fully paid and non-assessable shares of common stock as is determined by dividing the Original Issue Price by the Series A Conversion Price. The initial Series A Conversion Price is $1.00 per share.

Automatic Conversion:Each share of Series A Stock is automatically converted into shares of common stock at the Series A Conversion Price at the time in effect for such shares immediately upon the earlier of the closing of (i) A Qualified Public Offering, as defined or, (ii) the date specified by writing consent or agreement of the holders of at least 75% of the then outstanding shares of Preferred Stock.

Voting Rights:Each share of Series A Stock is entitled to a number of votes equal to the number of shares of common stock into which such shares of Series A Stock held by such holder could then be converted.

Series A-1 Preferred Stock

In January 2004, the Company issued 1,000,000 shares of Series A-1 preferred stock and received proceeds of $1,000,000. The Series A-1 preferred Stock has a par value of $.001 per share.

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MAXIMUM PEFORMANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 –Mandatorily Redeemable Preferred Stock, continued

The terms of the Series A-1 Stock are as follows:

Dividend Provisions:The holders of the Series A-1 Stock are entitled to receive dividends at the rate of $.08 per share per annum (the “Series A-1 Dividends”). Series A-1 Dividends are payable when, and if declared by the Board of Directors.

Liquidation Preference: The holders of Series A-1 Stock are entitled to receive upon any liquidation or deemed liquidation, prior and in preference to any distribution or payment to the holders of common stock and Series A-1 holders, an amount equal to $2.00 (the “Original Issue Price”) for each share of Series A-1 Stock plus an amount equal to any declared but unpaid dividends on such respective shares.

Redemption:Upon the written request of the holders of at least 50% of the then-outstanding             shares of Preferred Stock (the “Requesting Holders”), the Company shall on February 1, 2008 (the “Redemption Date”) redeem, all of the shares of Series A Stock held by the Requesting Holders for the sum of $2.00 per share and an amount equal to all dividends declared but unpaid thereon up to the Redemption Date.

Conversion:Each share of Series A-1 Stock is convertible, at the option of the holder, at any time after the date of issuance, into such number of fully paid and non-assessable shares of common stock as is determined by dividing the Original Issue Price by the Series A-1 Conversion Price. The initial Series A-1 Conversion Price is $1.00 per share.

Automatic Conversion:Each share of Series A-1 Stock is automatically converted into shares of common stock at the Series A-1 Conversion Price at the time in effect for such shares immediately upon the earlier of the closing of (i) A Qualified Public Offering, as defined or, (ii) the date specified by writing consent or agreement of the holders of at least 75% of the then outstanding shares of Preferred Stock.

Voting Rights:Each share of Series A-1 Stock is entitled to a number of votes equal to the number of shares of common stock into which such shares of Series A-1 Stock held by such holder could then be converted.

Series B and B-1 Preferred Stock

At various dates from August 2004 through October 2004, the Company issued 1,440,000 shares of Series B preferred stock. The Series B preferred stock has a par value of $.001 per share. The Company received proceeds of $900,000 or $.625 per share in connection with this issuance.

In August 2005, the Company issued 640,000 shares of Series B-1 preferred stock for two $200,000 promissory notes due to shareholders or $.625 per share. The par value of the Series B-1 preferred stock is $.001 per share.

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MAXIMUM PEFORMANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 –Mandatorily Redeemable Preferred Stock, continued

The terms of the Series B and B-1 Stock are as follows:

Dividend Provisions:The holders of the Series B and B-1 Stock are entitled to receive dividends at the rate of $.08 per share per annum (the “Series B and B-1 Dividends”). Series B and B-1 Dividends are payable when, as and if declared by the Board of Directors.

Liquidation Preference: The holders of Series B and B-1 Stock are entitled to receive upon any liquidation or deemed liquidation, prior and in preference to any distribution or payment to the holders of common stock, an amount equal to $3.125 and $1.25, respectively (the “Original Issue Price”) for each share of Series B and B-1 Stock plus an amount equal to any declared but unpaid dividends on such respective shares.

Redemption:Upon the written request of the holders of at least 50% of the then-outstanding             shares of Preferred Stock (the “Requesting Holders”), the Company shall on February 1, 2008 (the “Redemption Date”) redeem, all of the shares of Series B and B-1 Stock held by the Requesting Holders for the sum of $3.125 and $1.25 per share respectively and an amount equal to all dividends declared but unpaid thereon up to the Redemption Date.

Conversion:Each share of Series B and B-1 Stock is convertible, at the option of the holder, at any time after the date of issuance, into such number of fully paid and non-assessable             shares of common stock as is determined by dividing the Original Issue Price by the Series B and B-1 Conversion Price. The initial Series B and B-1 Conversion Price is $.625 per share.

Automatic Conversion:Each share of Series B and B-1 Stock is automatically converted into             shares of common stock at the Series A Conversion Price at the time in effect for such shares immediately upon the earlier of the closing of (i) A Qualified Public Offering, as defined or, (ii) the date specified by writing consent or agreement of the holders of at least 75% of the then outstanding shares of Preferred Stock.

Voting Rights:Each share of Series B and B-1 Stock is entitled to a number of votes equal to the number of shares of common stock into which such shares of Series B and B-1 Stock held by such holder could then be converted.

NOTE 10 —Income Taxes

For the years ended December 31, 2004 and 2003, no income tax provision was recorded as a result of the Company incurring losses and the net deferred tax asset being fully offset by a valuation allowance due to the uncertainty of the realization of these accounts. At December 31, 2004 and 2003, the Company has net operating loss carryforwards of approximately $5,130,000 and $3,233,000, respectively, which can be utilized against future profits until 2024.

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MAXIMUM PEFORMANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 —Income Taxes, continued

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company’s gross deferred tax assets at December 31, 2004 of approximately $2,781,000 relate primarily to net operating loss carryforwards, deferred revenues, and depreciation and amortization. At December 31, 2004 and 2003, a valuation allowance was recorded to fully offset the net deferred tax assets.

NOTE 11 —Retirement Plan

MPG adopted and implemented a Safe Harbor 401(k) Plan for the plan year that begins January 1, 2003. For the 2003 plan year, the Company provided a matching contribution for eligible participants. The matching contribution was a dollar-for-dollar matching contribution on salary deferrals up to 3% of compensation and then fifty-cents on the dollar matching contribution on salary deferrals from 4% to 5% of compensation. The Company made contributions to the plan of $62,681 and $27,062 for the years ended December 31, 2004 and 2003, respectively. Participants are 100% vested in this matching contribution.

NOTE 12 –Subsequent Event

On March 1, 2005, the Company entered into a letter of intent to sell all of its outstanding capital stock to Electric City Corp. (“ELC”), a publicly held company which is in a similar line of business as MPG. The estimated purchase price of up to $7.5 million, is composed of cash and common stock of ELC. Closing of the sale is subject to various conditions contained in the letter agreement.

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