American DG Energy 10Q/A 2010 Q1 Quarterly report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q/A

Amendment No. 1

R		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended March 31, 2010

		or

¨		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-34493

AMERICAN DG ENERGY INC.

(Exact name of Registrant as specified in its charter)

Delaware		04-3569304
(State of incorporation or organization)		(IRS Employer Identification No.)

45 First Avenue
Waltham, Massachusetts		02451
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (781) 622-1120

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every

Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨	Accelerated filer ¨

Non –accelerated filer ¨	Smaller reporting company x

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

Title of each class		Outstanding at March 31, 2010
Common Stock, $0.001 par value		44,579,779

EXPLANATORY NOTE

This Amendment No. 1, or this Amendment, to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, or the Quarterly Report, is being filed in response to certain comments made by the staff of the Securities and Exchange Commission, or the SEC. In response to such comments, we have amended the following items:

Our Consolidated Financial Statements and all notes thereto are being amended and restated in their entirety;

Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—First Quarter 2010 Compared to First Quarter 2009—Cost of Sales” is being amended and restated in its entirety;

Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” is being amended and restated in its entirety; and

Item 4T. “Controls and Procedures—Management’s Evaluation of Disclosure Controls and Procedures” is being amended and restated in its entirety.

Unless otherwise stated, all financial data and other information presented in this Amendment is as of March 31, 2010 and has not been updated.

Except as stated herein, this Amendment does not reflect events occurring after the filing of the Form 10-Q on May 13, 2010, or the Original Filing, and no attempt has been made in this Amendment to modify or update other disclosures as presented in the Original Filing. Accordingly, this Amendment should be read in conjunction with our filings with the SEC subsequent to the filing of the Original Filing.

In addition, we are filing or furnishing, as indicated in this Amendment, as exhibits certain currently dated certifications.

This Amendment is limited in scope to the items described above and does not amend, update, or change any other items or disclosures contained in the Quarterly Report. Accordingly, all other items and sections that remain unaffected are omitted in this filing. As used herein and in our other documents filed with the SEC, all references to our Quarterly Report are deemed to include this Amendment.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

AMERICAN DG ENERGY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

as of March 31, 2010 and December 31, 2009

(Unaudited)

	March 31,			December 31,
	2010			2009
ASSETS
Current assets:
Cash and cash equivalents	$	1,746,672		$	3,149,222
Short-term investments		788,186			678,921
Accounts receivable, net		582,960			518,379
Unbilled revenue		186,604			146,940
Due from related party		243,922			370,400
Inventory		962,934			379,303
Prepaid and other current assets		117,644			104,119
Total current assets		4,628,922			5,347,284

Property, plant and equipment, net		9,967,710			9,502,346

TOTAL ASSETS		14,596,632			14,849,630

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		511,696			740,474
Accrued expenses and other current liabilities		245,425			453,536
Due to related party		659,412			17,531
Capital lease obligations		3,365			3,365
Total current liabilities		1,419,898			1,214,906

Long-term liabilities:
Convertible debentures		-			5,320,000
Capital lease obligations, long-term		9,254			10,095
Total liabilities		1,429,152			6,545,001

Stockholders’ equity:
American DG Energy Inc. shareholders' equity:
Common stock, $0.001 par value; 100,000,000 shares authorized; 44,579,779 and 37,676,817 issued and outstanding at March 31, 2010 and December 31, 2009, respectively		44,580			37,677
Additional paid-in capital		25,479,124			19,725,793
Accumulated deficit		(13,015,088	)		(12,239,110	)
Total American DG Energy Inc. stockholders' equity		12,508,616			7,524,360
Noncontrolling interest		658,864			780,269
Total stockholders' equity		13,167,480			8,304,629

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	14,596,632		$	14,849,630

See Notes to Condensed Consolidated Financial Statements

AMERICAN DG ENERGY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

for the Three Months Ended March 31, 2010 and March 31, 2009

(Unaudited)

	Three Months Ended
	March 31,			March 31,
	2010			2009

Revenues
Energy revenues	$	1,265,990		$	1,394,521
Turnkey & other revenues		183,983			9,008
		1,449,973			1,403,529
Cost of sales
Fuel, maintenance and installation		1,148,224			1,054,533
Depreciation expense		197,697			197,742
		1,345,921			1,252,275
Gross profit		104,052			151,254

Operating expenses
General and administrative		335,351			349,767
Selling		180,529			120,064
Engineering		256,755			118,760
		772,635			588,591
Loss from operations		(668,583	)		(437,337	)

Other income (expense)
Interest and other income		14,691			23,778
Interest expense		(70,624	)		(117,500	)
		(55,933	)		(93,722	)

Loss before income taxes		(724,516	)		(531,059	)
Provision for state income taxes		(3,550	)		(2,050	)
Consolidated net loss		(728,066	)		(533,109	)

Less: Income attributable to the noncontrolling interest		(47,912	)		(42,204	)
Net loss attributable to American DG Energy Inc.		(775,978	)		(575,313	)

Net loss per share - basic and diluted	$	(0.02	)	$	(0.02	)

Weighted average shares outstanding - basic and diluted		39,846,998			33,535,306

See Notes to Condensed Consolidated Financial Statements

AMERICAN DG ENERGY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

for the Three Months Ended March 31, 2010 and March 31, 2009

(Unaudited)

	Three Months Ended
	March 31,			March 31,
	2010			2009

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(775,978	)	$	(575,313	)
Income attributable to noncontrolling interest		47,912			42,204
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		205,390			201,076
Provision for losses on accounts receivable		-			13,500
Amortization of deferred financing costs		2,132			2,132
Stock-based compensation		50,013			84,746

Changes in operating assets and liabilities
(Increase) decrease in:
Accounts receivable and unbilled revenue		(104,245	)		114,228
Due from related party		(42,839	)		(82,121	)
Inventory		(583,631	)		(209,003	)
Prepaid assets		(15,657	)		(3,373	)
Increase (decrease) in:
Accounts payable		(228,778	)		4,287
Accrued expenses and other current liabilities		(149,623	)		(52,526	)
Due to related party		641,881			28,482
Net cash used in operating activities		(953,423	)		(431,681	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(828,636	)		(320,339	)
Sale (purchases) of short-term investments		(109,265	)		490,481
Rebates and incentives		157,882			81,444
Net cash (used in) provided by investing activities		(780,019	)		251,586

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrants		350,000			35,000
Convertible debenture issuance costs		(18,267	)		-
Principal payments on capital lease obligations		(841	)		(529	)
Distributions to noncontrolling interest		-			(35,132	)
Net cash provided by (used in) financing activities		330,892			(661	)

Net decrease in cash and cash equivalents		(1,402,550	)		(180,756	)
Cash and cash equivalents, beginning of the period		3,149,222			1,683,498
Cash and cash equivalents, ending of the period	$	1,746,672		$	1,502,742

Supplemental disclosures of cash flows information:
Cash paid during the period for:
Interest	$	12,136		$	117,500
Income taxes	$	4,750		$	21,960

Non-cash investing and financing activities:
Conversion of convertible debentures to common stock	$	5,320,000		$	-

See Notes to Condensed Consolidated Financial Statements

AMERICAN DG ENERGY INC.

Notes to Interim Financial Statements (Unaudited) for the period ending March 31, 2010

Note 1 – Summary of Significant Accounting Policies:

Basis of Presentation

The unaudited condensed consolidated financial statements, or the Unaudited Financial Statements, presented herein have been prepared by the company, without audit, and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the interim periods presented. The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC, for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures required for complete financial statements are not included herein. It is suggested that the Unaudited Financial Statements be read in conjunction with the consolidated financial statements and notes included in the company’s Form 10-K for the year ended December 31, 2009, as amended, filed with the SEC. The operating results for the three month period ended March 31, 2010, may not be indicative of the results expected for any succeeding interim period or for the entire year ending December 31, 2010.

The accompanying consolidated financial statements include the accounts of the company, its wholly-owned subsidiary American DG Energy and its 51% joint venture, American DG New York, LLC, or ADGNY. The company’s owns 51% of ADGNY, after elimination of all material intercompany accounts, transactions and profits. The interest in underlying energy system projects in the joint venture varies between the company and its joint venture partner. As the controlling partner, all major decisions in ADGNY are made by the company according to the joint venture agreement. Distributions, however, are made based on the economic ownership and profitability of the joint venture and underlying energy projects. The economic ownership is calculated by the amount invested by the company and the noncontrolling partner in each site. Each quarter the company calculates a year-to-date profit/loss for each site that is part of ADGNY and the noncontrolling interest percent ownership in each site is applied to determine the noncontrolling interest share in the profit/loss. The company follows the same calculation regarding available cash and a cash distribution is made to the noncontrolling interest partner, Peter Westerhoff, each quarter. On the company’s balance sheet, noncontrolling interest represents the partner’s investment in the entity, plus its share of after tax profits less any cash distributions. The company owned a controlling 51% legal interest and a 57% economic interest in ADGNY as of December 31, 2009.

The company evaluates the applicability of the Financial Accounting Standards Board, or FASB, guidance on variable interest entities to partnerships and joint ventures at the inception of its participation to ensure its accounting is in accordance with the appropriate standards. The company has contractual interests in Tecogen Inc., or Tecogen, an affiliate company sharing similar ownership, and determined that Tecogen was a Variable Interest Entity, as defined by the applicable guidance; however, the company was not considered the primary beneficiary and does not have any exposure to loss as a result of its involvement with Tecogen. Therefore, Tecogen was not consolidated in the company’s consolidated financial statements through December 31, 2009. See “Note 6 - Related Party” for further discussion. The company’s operations are comprised of one business segment. The company’s business is selling energy in the form of electricity, heat, hot water and cooling to its customers under long-term sales agreements.

The company has experienced total net losses since inception of approximately $13.0 million. For the foreseeable future, the company expects to experience continuing operating losses and negative cash flows from operations as its management executes its current business plan. The company believes that its existing resources, including cash and cash equivalents and future cash flow from operations, are sufficient to meet the working capital requirements of its existing business for the foreseeable future, including the next 12 months; however, as the company continues to grow its business by adding more energy systems, the cash requirements will increase. The company believes that its cash and cash equivalents and its ability to control certain costs, including those related to general and administrative expenses will enable to meet its anticipated cash expenditures through the end of 2010. Beyond January 1, 2011, the company may need to raise additional capital through a debt financing or an equity offering to meet its operating and capital needs for future growth. There can be no assurance, however, that the company will be successful in its fundraising efforts or that additional funds will be available on acceptable terms, if at all.

In 2009, the company raised $6,310,525 through various private placements of common stock, the issuance of warrants and exercise of stock options. If the company is unable to raise additional capital in 2011 it may need to terminate certain of its employees and adjust its current business plan. Financial considerations may cause the company to modify planned deployment of new energy systems and may decide to suspend installations until the company is able to secure additional working capital. The company will evaluate possible acquisitions of, or investments in, businesses, technologies and products that are complementary to its business; however, the company is not currently engaged in such discussions.

AMERICAN DG ENERGY INC.

Use of Estimates

The preparation of financial statements in conformity with Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

Revenue from energy contracts is recognized when electricity, heat, and chilled water is produced by the cogeneration systems on-site. The company bills each month based on various meter readings installed at each site. The amount of energy produced by on-site energy systems is invoiced, as determined by a contractually defined formula. Under certain energy contracts, the customer directly acquires the fuel to power the systems and receives credit for that expense from the company. The credit is recorded as revenue and cost of fuel.

As a by-product of the energy business, in some cases, the customer may choose to have the company construct the system for them rather than have it owned by American DG Energy. In this case, the company accounts for revenue, or turnkey revenue, and costs using the percentage-of-completion method of accounting. Under the percentage-of-completion method of accounting, revenues are recognized by applying percentages of completion to the total estimated revenues for the respective contracts. Costs are recognized as incurred. The percentages of completion are determined by relating the actual cost of work performed to date to the current estimated total cost at completion of the respective contracts. When the estimate on a contract indicates a loss, the company’s policy is to record the entire expected loss, regardless of the percentage of completion. The excess of contract costs and profit recognized to date on the percentage-of-completion accounting method in excess of billings is recorded as unbilled revenue. Billings in excess of related costs and estimated earnings is recorded as deferred revenue.

Customers may buy out their long-term obligation under energy contracts and purchase the underlying equipment from the company. Any resulting gain on these transactions is recognized over the payment period in the accompanying consolidated statements of operations. Revenues from operation, including shared savings are recorded when provided and verified. Maintenance service revenue is recognized over the term of the agreement and is billed on a monthly basis in arrears.

Occasionally the company will enter into a sales arrangement with a customer to construct and sell an energy system and provide energy and maintenance services over the term of the contract. Based on the fact that the company sells each deliverable to other customers on a stand-alone basis, the company has determined that each deliverable has a stand-alone value. Additionally, there are no rights of return relative to the delivered items; therefore, each deliverable is considered a separate unit of accounting. Revenue is allocated to each element based upon its relative fair value which is determined based on the price of the deliverables when sold on a standalone basis. Revenue related to the construction of the energy system is recognized using the percentage-of-completion method as the unit is being constructed. Revenue from the sale of energy is recognized when electricity, heat, and chilled water is produced by the energy system, and revenue from maintenance services is recognized over the term of the maintenance agreement. The company had no such sales arrangements in fiscal year 2009 nor in the three month period ending March 31, 2010.

Other revenue represents various types of ancillary activities for which the company engages from time to time such as demand response incentives, the sale of equipment, and feasibility studies.

Cash and Cash Equivalents

The company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The company has cash balances in certain financial institutions in amounts which occasionally exceed current federal deposit insurance limits. The financial stability of these institutions is continually reviewed by senior management. The company believes it is not exposed to any significant credit risk on cash and cash equivalents.

Short-Term Investments

Short-term investments consist of certificates of deposit with maturities of greater than three months but less than one year. Certificates of deposits are recorded at fair value.

Concentration of Credit Risk

Financial instruments, which potentially subject the company to concentrations of credit risk, consist of highly liquid cash equivalents and trade receivables. The company’s cash equivalents are placed with certain financial institutions and issuers. As of March 31, 2010, the company had a balance of $2,284,858 in cash and cash equivalents and short-term investments that exceeded the Federal Deposit Insurance Corporation limit of $250,000.

AMERICAN DG ENERGY INC.

Accounts Receivable

The company maintains receivable balances primarily with customers located throughout New York and New Jersey. The company reviews its customers’ credit history before extending credit and generally does not require collateral. An allowance for doubtful accounts is established based upon factors surrounding the credit risk of specific customers, historical trends and other information. Generally, such losses have been within management’s expectations. Bad debt is written off when identified.

Inventory

Inventories are stated at the lower of cost or market, valued on a first-in, first-out basis. Inventory is reviewed periodically for slow-moving and obsolete items and consists primarily of finished units and service parts. As of March 31, 2010 and December 31, 2009, there were no reserves or write-downs recorded against inventory.

Supply Concentrations

All of the company’s cogeneration unit purchases as of March 31, 2010 and December 31, 2009, were from one vendor (see “Note 6 - Related Party”). The company believes there are sufficient alternative vendors available to ensure a constant supply of cogeneration units on comparable terms. However, in the event of a change in suppliers, there could be a delay in obtaining units which could result in a temporary slowdown of installing additional income producing sites. In addition, the majority of the company’s units are installed and maintained by the noncontrolling interest holder or maintained by Tecogen. The company believes there are sufficient alternative vendors available to ensure a constant supply of maintenance and installation services on comparable terms. However, in the event of a change of vendor, there could be a delay in installation or maintenance services.

Property and Equipment and Depreciation and Amortization

Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method at rates sufficient to write off the cost of the applicable assets over their estimated useful lives. Repairs and maintenance are expensed as incurred.

The company evaluates the recoverability of its long-lived assets by comparing the net book value of the assets to the estimated future undiscounted cash flows attributable to such assets. The useful life of the company’s energy systems is lesser of the economic life of the asset or the term of the underlying contract with the customer, typically 12 to 15 years. The company reviews the useful life of its energy systems on a quarterly basis or whenever events or changes in business circumstances indicate that the carrying value of the assets may not be fully recoverable or that the useful lives of the assets are no longer appropriate. If impairment is indicated, the asset is written down to its estimated fair value based on a discounted cash flow analysis. There have been no revisions to the useful lives of the company’s assets at March 31, 2010 and December 31, 2009, respectively, and the company has determined that its long-lived assets for those periods are recoverable.

The company receives rebates and incentives from various utility companies which are accounted for as a reduction in the book value of the assets. The rebates are payable from the utility to the company and are applied against the cost of construction, therefore reducing the book value of the installation. As a reduction of the facility construction costs, these rebates are treated as an investing activity in the statement of cash flows. When the rebates are a function of production of the distributed generation unit, they are recorded as income over the period of production and treated in the statement of cash flows as an operating activity. The rebates the company receives from the utilities that apply to the cost of construction are one time rebates based on the installed cost, capacity and thermal efficiency of installed unit and are earned upon the installation and inspection by the utility and not related to or subject to adjustment based on the future operating performance of the installed unit. The rebate agreements with utilities are based on standard terms and conditions, the most significant being customer eligibility and post-installation work verification by a specific date. The only rebates that the company has recognized historically on the income statement are related to the company’s participation in demand response programs and are recognized only upon the occurrence of curtailed events of the applicable units. The cumulative amount of rebates applied to the cost of construction was $534,308 and $319,655 for the years ended December 31, 2009 and 2008, respectively. The revenue recognized from demand response activity was $17,830 and $11,176 for the years ended December 31, 2009 and 2008, respectively.

The company operates on-site energy systems that produce electricity, hot water, heat and cooling. The energy systems are capable of meeting the demands of commercial users and can be connected to the existing utility grid. There is not always enough power generation available from the utilities to meet peak demand, and existing transmission lines cannot carry all of the electricity needed by consumers. The utility companies recognize that the energy systems we install lessen the demand on the grid. Therefore, they offer a one-time rebate/incentive payment to the company based on the kW size or the unit installed. That rebate/incentive is payable from the utility to the company upon commencement of operation at the facility and is applied against the cost of construction, therefore reducing the book value of the installation. As a reduction of our facility construction costs, this type of rebate is treated as an investing activity in the statement of cash flows. When the rebate/incentive is a function of production of the DG unit, it is recorded as income over the period of production and treated in the statement of cash flows as an operating activity.

AMERICAN DG ENERGY INC.

Commitments and Contingencies

At December 31, 2009, the company’s commitments included a lease for a plotter with a remaining balance of $22,348 and a rental commitment. The source of funds to fulfill those commitments will be provided from either the company’s existing line of credit agreement or through debt or equity financings.

Stock Based Compensation

Stock based compensation cost is measured at the grant date based on the estimated fair value of the award and is recognized as an expense in the consolidated statement of operations over the requisite service period. The fair value of stock options granted is estimated using the Black-Scholes option pricing valuation model. The company recognizes compensation on a straight-line basis for each separately vesting portion of the option award. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Expected volatility is calculated based on the average volatility of 20 companies in the same industry as the company. The average expected life is estimated using the simplified method for “plain vanilla” options. The expected life in years is based on the “simplified” method. The simplified method determines the expected life in years based on the vesting period and contractual terms as set forth when the award is made. The company uses the simplified method for awards of stock-based compensation since it does not have the necessary historical exercise and forfeiture data to determine an expected life for stock options. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term which approximates the expected life assumed at the date of grant. When options are exercised the company normally issues new shares.

Loss per Common Share

The company computes basic loss per share by dividing net income (loss) for the period by the weighted average number of shares of common stock outstanding during the period. The company computes its diluted earnings per common share using the treasury stock method. For purposes of calculating diluted earnings per share, the company considers its shares issuable in connection with convertible debentures, stock options and warrants to be dilutive common stock equivalents when the exercise price is less than the average market price of its common stock for the period.

Other Comprehensive Net Loss

The comprehensive net loss at March 31, 2010 and December 31, 2009 does not differ from the reported loss.

Income Taxes

As part of the process of preparing its consolidated financial statements, the company is required to estimate its income taxes in each of the jurisdictions in which it operates. This process involves us estimating the actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as depreciation and certain accrued liabilities for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the company’s consolidated balance sheet. The company must then assess the likelihood that its deferred tax assets will be recovered from future taxable income and to the extent the company believes that recovery is not likely, the company must establish a valuation allowance.

The tax years 2005 through 2008 remain open to examination by major taxing jurisdictions to which the company is subject, which are primarily in the United States, as carry forward attributes generated in years past may still be adjusted upon examination by the Internal Revenue Service or state tax authorities if they are or will be used in a future period. The company is currently not under examination by the Internal Revenue Service or any other jurisdiction for any tax years. The company did not recognize any interest and penalties associated with unrecognized tax benefits in the accompanying financial statements. The company would record any such interest and penalties as a component of interest expense. The company does not expect any material changes to the unrecognized benefits within 12 months of the reporting date.

AMERICAN DG ENERGY INC.

Fair Value of Financial Instruments

The company’s financial instruments are cash and cash equivalents, short-term investments, accounts receivable, accounts payable and amounts due (to) from related parties. The recorded values of cash and cash equivalents, accounts receivable, accounts payable and amounts due (to) from related parties approximate their fair values based on their short-term nature. Short-term investments are recorded at fair value.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current year presentation.

Note 2 – Loss per Common Share:

We compute basic loss per share by dividing net income (loss) for the period by the weighted average number of shares of common stock outstanding during the period. We compute our diluted earnings per common share using the treasury stock method. For purposes of calculating diluted loss per share, we consider our shares issuable in connection with convertible debentures, stock options and warrants to be dilutive common stock equivalents when the exercise price is less than the average market price of our common stock for the period. For the three months ended March 31, 2010, we excluded 2,599,250 anti-dilutive shares resulting from exercise of stock options, warrants and unvested restricted stock, and for the three months ended March 31, 2009, we excluded 10,375,174 anti-dilutive shares resulting from conversion of debentures, exercise of stock options, warrants and unvested restricted stock. All shares issuable for both periods were anti-dilutive because of the reported net loss.

	Three Months
	March 31,			March 31,
	2010			2009
Earnings per share
Loss available to stockholders	$	(775,978	)	$	(575,313	)

Weighted average shares outstanding - Basic and diluted		39,846,998			33,535,306
Basic and diluted loss per share	$	(0.02	)	$	(0.02	)

Note 3 – Convertible Debentures:

In April and June of 2006, the company issued convertible debentures, or the debentures, totaling $6,075,000 to certain investors. The debentures accrued interest at a rate of 8% per annum and were due five years from the issuance date. The debentures were convertible, at the option of the holder, into a number of shares of common stock as determined by dividing the original outstanding amount of the respective debenture by the conversion price in effect at the time. The initial conversion price of the debenture was $0.84 and was subject to adjustment in accordance with the agreement. As of December 31, 2009 the conversion price of the debenture had not been adjusted.

On February 9, 2010, the company issued a Notice of Redemption to all holders of its outstanding debentures to announce redemption as of February 26, 2010, of all of its outstanding debentures that had not been converted into common stock. The aggregate principal amount of all debentures outstanding on February 26, 2010 was $5,320,000 and accrued interest was $66,204. All holders of the debentures elected to convert their outstanding principal amount into shares of common stock at a conversion price of $0.84. In connection with this transaction, the company issued to the holders of the debentures an aggregate of 6,402,962 shares of common stock and paid $7,716 of accrued interest in cash. The closing price of the company’s common stock on the NYSE Amex on February 8, 2010 was $2.82.

Note 4 – Warrants:

During the three months ended March 31, 2010, certain investors, including George N. Hatsopoulos and John N. Hatsopoulos which are related parties, exercised a total of 500,000 warrants with an expiration date of April 5, 2010, for gross proceeds to the company of $350,000. At March 31, 2010, the company had 50,000 warrants outstanding at an exercise price of $3.00 per share that expire on February 24, 2012, and 8,000 warrants outstanding at an exercise price of $2.98 per share that expire on May 30, 2013.

Note 5 – Stock-Based Compensation:

Stock-based compensation expense for the periods ending March 31, 2010, and March 31, 2009 was $50,013 and $84,746, respectively. At March 31, 2010, the total compensation cost related to unvested restricted stock awards and stock option awards not yet recognized is $373,594. This amount will be recognized over the weighted average period of 5.90 years. There were no stock option awards issued during the three month period ended on March 31, 2010. At March 31, 2010, there were 1,424,250 vested and exercisable stock options outstanding. Stock option activity for the three months ended March 31, 2010 was as follows:

AMERICAN DG ENERGY INC.

			Exercise		Weighted		Weighted
			Price		Average		Average	Aggregate
	Number of		Per		Exercise		Remaining	Intrinsic
	Options		Share		Price		Life	Value

Outstanding, December 31, 2009		2,308,000	$	0.07-$2.95	$	0.70	5.94 years	$	5,203,740
Granted		-		-		-
Exercised		-		-		-
Canceled		-		-		-
Expired		-		-		-
Outstanding, March 31, 2010		2,308,000	$	0.07-$2.95	$	0.70	5.69 years	$	5,296,060
Exercisable, March 31, 2010		1,424,250			$	0.50		$	3,549,043
Vested or expected to vest, March 31, 2010		2,308,000			$	0.70		$	5,296,060

At March 31, 2010, there were 233,250 unvested shares of restricted stock outstanding. Restricted stock activity for the three months ended March 31, 2010 was as follows:

				Weighted
	Number of			Average
	Restricted			Grant Date
	Stock			Fair Value

Unvested, December 31, 2009		440,125		$	0.79
Granted		-			-
Vested		(206,875	)		0.70
Forfeited		-			-
Unvested, March 31, 2010		233,250		$	0.86

Note 6 – Related Party:

The company purchases the majority of its cogeneration units from Tecogen Inc., or Tecogen, an affiliate company sharing similar ownership. In addition, Tecogen pays certain operating expenses, including benefits and payroll, on behalf of the company and the company leases office space from Tecogen. These costs were reimbursed by the company. Tecogen has a sublease agreement for the office building, which expires on March 31, 2014.

In January 2006, the company entered into the 2006 Facilities, Support Services and Business Agreement with Tecogen, to provide the company with certain office and business support services for a period of one year, renewable annually by mutual agreement. Under the current amendment to that agreement, Tecogen provides the company with office space and utilities at a monthly rate of $5,526.

The company has sales representation rights to Tecogen’s products and services. In New England, the company has exclusive sales representation rights to Tecogen’s cogeneration products. The company has granted Tecogen sales representation rights to its On-Site Utility energy service in California.

AMERICAN DG ENERGY INC.

On October 22, 2009, the company signed a five-year exclusive distribution agreement with Ilios Dynamics, a subsidiary of Tecogen. Under terms of the agreement, the company has exclusive rights to incorporate Ilios Dynamics’ ultra high-efficiency heating products in its energy systems throughout the European Union and New England. The company also has non-exclusive rights to distribute Ilios Dynamics’ product in the remaining parts of the United States and the world in cases where the company retains ownership of the equipment for its On-Site Utility business.

On December 17, 2009, the company entered into a revolving line of credit agreement, or the agreement, with John N. Hatsopoulos, the company’s Chief Executive Officer. Under the terms of the agreement, during the period extending to December 31, 2012, Mr. Hatsopoulos will lend to the company on a revolving line of credit basis a principal amount up to $5,000,000. All sums advanced pursuant to this agreement shall bear interest from the date each advance is made until paid in full at the Bank Prime Rate as quoted from time to time in the Wall Street Journal plus 1.5% per year. Interest shall be due and payable quarterly in arrears and prepayment of principal, together with accrued interest, may be made at any time without penalty. Also, under the terms of the agreement, the credit line from Mr. Hatsopoulos will be used solely in connection with the development and installation of current and new energy systems such as cogeneration systems and chillers and not for general corporate purposes including operational expenses such as payroll, maintenance, travel, entertainment, or sales and marketing. As of March 31, 2010, the company has not drawn funds on this line of credit.

The company’s Chief Financial Officer devotes approximately half of his business time to the affairs of GlenRose Instruments Inc., and 50% of his salary is reimbursed by GlenRose Instruments Inc. Also, the company’s Chief Executive Officer is the Chairman of the Board and a significant investor in GlenRose and does not receive a salary, bonus or any other compensation from GlenRose.

Note 7 – Commitments and Contingencies:

In November 2008, the company received from Georgia King Village, an On-Site Utility energy customer, a notice to terminate operations at their location. The company notified the management of Georgia King Village that the termination notice violated the terms of the agreement between the company and Georgia King Village and that termination charges would apply. The company proceeded to remove five energy systems and other supporting equipment from the Georgia King Village site and placed them in inventory. The customer has recently proposed a settlement regarding the aforementioned dispute and as a result the company has postponed the arbitration hearing. The company does not expect the outcome to have a material impact on its results of operations and financial condition.

Note 8 – Fair Value Measurements:

The fair value topic of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The accounting guidance also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:

Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities. We currently do not have any Level 1 financial assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1. Level 2 inputs include quoted prices for identical assets or liabilities in non-active markets, quoted prices for similar assets or liabilities in active markets and inputs other than quoted prices that are observable for substantially the full term of the asset or liability.

Level 3 — Unobservable inputs reflecting management’s own assumptions about the input used in pricing the asset or liability. We currently do not have any Level 3 financial assets or liabilities.

At March 31, 2010, the company had $788,186 in short-term investments that are comprised of certificates of deposits which are categorized as Level 2. The company determines the fair value of certificates of deposits using information provided by the issuing bank which includes discounted expected cash flow estimates using current market rates offered for deposits with similar remaining maturities.

AMERICAN DG ENERGY INC.

Note 9 – Recent Accounting Pronouncements:

In June 2009, the FASB updated existing guidance to improve financial reporting by enterprises involved with variable interest entities. The new guidance requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest(s) give it a controlling financial interest in a variable interest entity. This guidance is effective for the company beginning in January 2010. The adoption of this guidance did not have a material effect on our consolidated financial statements.

In September 2009, the Emerging Issues Task Force issued new rules pertaining to the accounting for revenue arrangements with multiple deliverables. The new rules provide an alternative method for establishing fair value of a deliverable when vendor specific objective evidence cannot be determined. The guidance provides for the determination of the best estimate of selling price to separate deliverables and allows the allocation of arrangement consideration using this relative selling price model. The guidance supersedes the prior multiple element revenue arrangement accounting rules that are currently used by the company. This guidance is effective for us January 1, 2011 and is not expected to have a material effect on our consolidated financial position or results of operations.

In January 2010, the FASB issued an amendment to the accounting for fair value measurements and disclosures. This amendment details additional disclosures on fair value measurements, requires a gross presentation of activities within a Level 3 rollforward, and adds a new requirement to the disclosure of transfers in and out of Level 1 and Level 2 measurements. The new disclosures are required of all entities that are required to provide disclosures about recurring and nonrecurring fair value measurements. This amendment was effective as of January 1, 2010, with an exception for the gross presentation of Level 3 rollforward information, which is required for annual reporting periods beginning after December 15, 2010, and for interim reporting periods within those years. The adoption of the remaining provisions of this amendment is not expected to have a material impact on our financial statement disclosures.

In March 2010, the FASB reached a consensus to issue an amendment to the accounting for revenue arrangements under which a vendor satisfies its performance obligations to a customer over a period of time, when the deliverable or unit of accounting is not within the scope of other authoritative literature, and when the arrangement consideration is contingent upon the achievement of a milestone. The amendment defines a milestone and clarifies whether an entity may recognize consideration earned from the achievement of a milestone in the period in which the milestone is achieved. This amendment is effective for fiscal years beginning on or after June 15, 2010, with early adoption permitted. The amendment may be applied retrospectively to all arrangements or prospectively for milestones achieved after the effective date. The company has not adopted this guidance early and adoption of this amendment is not expected to have a material impact on our results of operation or financial condition.

Note 10 – Subsequent Event

In preparing these interim consolidated financial statements, the company has evaluated, for the potential recognition or disclosure, events or transactions subsequent to the end of the most recent quarterly period through the date of issuance of these financial statements. No material subsequent events were identified that require recognition or disclosure in these financial statements.

AMERICAN DG ENERGY INC.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

First Quarter 2010 Compared to First Quarter 2009

Cost of Sales

Cost of sales, including depreciation, in the first quarter of 2010 were $1,345,921 compared to $1,252,275 for the same period in 2009, an increase of $93,646 or 7.5%. The increase in cost of sales was primarily due to turn-key installation projects. Included in the cost of sales was depreciation expense of $197,697 in the first quarter of 2010, compared to $197,742 for the same period in 2009. The cost of sales for our core On-Site Utility business consists of fuel required to operate our energy systems, the cost of maintenance, and minimal communications costs.

Our cost of sales for our core On-Site Utility business consists primarily of fuel required to operate our energy systems that decreased by 1% as a percentage of revenue in the first quarter of 2010, compared to the same period in 2009. Our cost of sales also includes the cost of maintenance of our systems which increased by 2% as a percentage of revenue in the first quarter of 2010, compared to the same period in 2009.

During the first quarter of 2010, our gross margins were 7.2% compared to 10.8% for the same period in 2009, primarily due to maintenance and service on our equipment. Our On-Site Utility energy margins excluding depreciation were relatively unchanged at 23.3% in the first quarter of 2010 compared to 23.9% for the same period in 2009.

Liquidity and Capital Resources

Consolidated working capital at March 31, 2010 was $3,209,024, compared to $4,132,378 at December 31, 2009. Included in working capital were cash, cash equivalents and short-term investments of $2,534,858 at March 31, 2010, compared to $3,828,143 at December 31, 2009. The decrease in working capital was a result of cash needed to fund operations.

Cash used by operating activities was $953,423 in the first three months of 2010 compared to $431,681 for the same period in 2009. The company's short and long-term receivables balance, including unbilled revenue, increased to $769,564, in the first three months of 2010 compared to $665,319 at December 31, 2009, using $104,245 of cash due to timing of collections. Amount due to the company from related parties, short and long-term, decreased to $243,922 in the first three months of 2010 compared to $370,400 at December 31, 2009, providing $126,478 of cash due to reduction of debt by our noncontrolling interest partner as a result of selling his controlling interest in an asset. Our inventory increased to $962,934 in the first three months of 2010 compared to 379,303 at December 31, 2009, using $583,631 of cash due to the purchase of five new energy units for a future installation for Tecogen. Our prepaid and other current assets increased to $117,644 in the first three months of 2010 compared to $104,119 at December 31, 2009, using $13,525 of cash.

Accounts payable decreased to $511,696 in the first three months of 2010, compared to $740,474 at December 31, 2009, using $228,778 of cash. Our accrued expenses and other current liabilities including accrued interest expenses decreased to $245,425 in the first three months of 2010 compared to $453,536 at December 31, 2009, using $208,111 of cash. Our due to related party increased to $659,412 in the first three months of 2010, compared to $17,531 at December 31, 2009, providing $641,881 of cash due to the timing of payments.

During the first three months of 2010, the investing activities of the company's operations were expenditures for the purchase of property, plant and equipment for energy system installations. The company used $828,636 for purchases and installation of energy systems. The company’s short-term investments used $109,265 of cash as the company invested in additional certificates of deposits. The company's financing activities provided $330,892 of cash in the first three months of 2010 from the exercise of common stock warrants, offset by issuance costs for our convertible debentures and by payments on capital lease obligations.

AMERICAN DG ENERGY INC.

The company’s On-Site Utility energy program allows customers to reduce both their energy costs and site carbon production by deploying combined heat and power technology on its customers’ premises at no cost. Therefore the company is capital intensive. The company believes that its existing resources, including cash and cash equivalents and future cash flow from operations, are sufficient to meet the working capital requirements of its existing business for the foreseeable future, including the next 12 months; however, as the company continues to grow its business by adding more energy systems, the cash requirements will increase. The company believes that its cash and cash equivalents and its ability to control certain costs, including those related to general and administrative expenses, will enable to meet its anticipated cash expenditures through the end of 2010. Beyond January 1, 2011, the company may need to raise additional capital through a debt financing or an equity offering to meet its operating and capital needs for future growth. There can be no assurance, however, that the company will be successful in its fundraising efforts or that additional funds will be available on acceptable terms, if at all.

Our ability to continue to access capital could be impacted by various factors including general market conditions and the continuing slowdown in the economy, interest rates, the perception of our potential future earnings and cash distributions, any unwillingness on the part of lenders to make loans to us and any deterioration in the financial position of lenders that might make them unable to meet their obligations to us. If these conditions continue and we cannot raise funds through a public or private debt financing, or an equity offering, our ability to grow our business may be negatively affected. In such case, the company may need to suspend any new installation of energy systems and significantly reduce its operating costs until market conditions improve.

Item 4T. Controls and Procedures.

Management’s evaluation of disclosure controls and procedures:

Our disclosure controls and procedures are designed to provide reasonable assurance that the control system’s objectives will be met. Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, or the Evaluation Date, have concluded that as of the Evaluation Date, our disclosure controls and procedures were not effective due to material weakness in financial reporting relating to lack of personnel with a sufficient level of accounting knowledge and a small number of employees dealing with general controls over information technology.

For these purposes, the term disclosure controls and procedures of an issuer means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

AMERICAN DG ENERGY INC.

PART II – OTHER INFORMATION

Item 6. Exhibits.

Exhibit Number		Description of Exhibit

31.1*	–	Rule 13a-14(a) Certification of Chief Executive Officer

31.2*	–	Rule 13a-14(a) Certification of Chief Financial Officer

32.1**	–	Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer

* Filed herewith.

** Furnished herewith.

AMERICAN DG ENERGY INC.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on September 17, 2010.

	AMERICAN DG ENERGY INC.
	(Registrant)

	By: /s/ JOHN N. HATSOPOULOS
	Chief Executive Officer
	(Principal Executive Officer)

	By: /s/ ANTHONY S. LOUMIDIS
	Chief Financial Officer
	(Principal Financial Officer)

American DG Energy (ADGE) Inactive 10-Q/A2010 Q1 Quarterly report (amended)