As filed with the Securities and Exchange Commission on May 20, 2004

Registration No. 333-115106

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SECURITIES AND EXCHANGE COMMISSION

FORM S-1/A

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

ELECTRIC CITY CORP.

1280 Landmeier Road, Elk Grove Village, Illinois, 60007, (847) 437-1666
(Address, and Telephone Number of Principal Executive Offices)

JEFFREY R. MISTARZ
Chief Financial Officer and Treasurer
Electric City Corp., 1280 Landmeier Road, Elk Grove Village, Illinois, 60007, (847) 437-1666
(Name, Address, and Telephone Number of Agent for Service)

Copies to:
Andrew H. Connor
Schwartz Cooper Greenberger & Krauss, Chtd.
180 N. LaSalle Street, Suite 2700
Chicago, Illinois 60601
(312) 346-1300

Approximate Date of Commencement of Proposed sale to the Public:

From time to time after the effective date of this registration statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. x

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. o

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CALCULATION OF REGISTRATION FEE

(1)		In the event of a stock split, stock dividend or similar transaction involving the common stock of the registrant, in order to prevent dilution, the number of shares of common stock registered hereby shall be automatically adjusted to cover the additional shares of common stock in accordance with Rule 416 under the Securities Act of 1933, as amended.
(2)		Estimated in accordance with Rule 457(c) under the Securities Act of 1933, as amended, solely for the purpose of calculating the registration fee based on the average of the high and low sale prices of the common stock of Electric City Corp. reported on the American Stock Exchange on May 19, 2004.

(3)

Offset by $1,680 previously paid with the S-1 filed on May 3, 2004.

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PROSPECTUS

ELECTRIC CITY CORP.

7,750,000 Shares of Common Stock

     The selling stockholders are offering up to 7,750,000 shares of our Common Stock, par value $0.0001 per share. The selling stockholders can sell these shares on any exchange on which the shares are listed, in the over the counter market, or in privately negotiated transactions, whenever they decide and at the prices they set. We may issue up to 1,750,000 of these shares upon exercise of warrants held by some of the selling stockholders. We will not receive any of the proceeds from the sale of these shares of our Common Stock, but will receive proceeds from the exercise of any of such warrants.

     Our Common Stock is quoted on The American Stock Exchange under the symbol “ELC.” On May 19, 2004, the closing sale price for shares of our Common Stock was $1.72 per share.

     Our principal executive office is located at 1280 Landmeier Road, Elk Grove Village, Illinois, 60007. Our telephone number at that address is (847) 437-1666. Our web site is located at http://www.elccorp.com. The information contained on our web site is not part of this prospectus.

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Investing in our Common Stock involves risks described beginning on page 3.

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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the adequacy
or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus is May 20, 2004.

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TABLE OF CONTENTS

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ABOUT THIS PROSPECTUS

     This prospectus is a part of a registration statement that we have filed with the Securities and Exchange Commission (“SEC” or “Commission”) using a “shelf registration” process. You should rely only on the information provided in this prospectus or any supplement or amendment. We have not authorized anyone else to provide you with additional or different information. You should not assume that the information in this prospectus or any supplement or amendment is accurate as of any date other than the date on the front of this prospectus or any supplement or amendment.

     Unless the context otherwise requires, “Electric City,” the “Company,” “we,” “our,” “us” and similar expressions refers to Electric City Corp. and its subsidiaries, and the term “Common Stock” means Electric City Corp.’s common stock, par value $0.0001 per share.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     This prospectus includes “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that reflect our current expectations and projections about our future results, performance, prospects and opportunities. We have tried to identify these forward-looking statements by using words such as “may,” “will,” “should,” “expect,” “hope,” “anticipate,” “believe,” “intend,” “plan,” “estimate” and similar expressions. These forward-looking statements are based on information currently available to us and are subject to a number of risks, uncertainties and other factors, including the factors set forth under “Risk Factors,” that could cause our actual results, performance, prospects or opportunities in 2004 and beyond to differ materially from those expressed in, or implied by, these forward-looking statements. These factors include, without limitation, our limited operating history, our history of operating losses, our reliance on licensed technologies, customers’ acceptance of our new and existing products, the risk of increased competition, products and technologies, our ability to manage our growth, our commercial scale development of products and technologies to satisfy customers’ demands and requirements, our need for additional financing and the terms and conditions of any financing that is consummated, the possible volatility of our stock price, the concentration of ownership of our stock and the potential fluctuation in our operating results. Although we believe that the expectations reflected in these forward-looking statements are reasonable and achievable, such statements involve risks and uncertainties and no assurance can be given that the actual results will be consistent with these forward-looking statements. Except as otherwise required by Federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason, after the date of this prospectus.

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PROSPECTUS SUMMARY

     The following summary is qualified in its entirety by the more detailed information appearing elsewhere in this prospectus.

Our Company

     We were organized as Electric City LLC, a Delaware limited liability company, on December 5, 1997. On June 5, 1998 we merged Electric City LLC with and into Electric City Corp., a Delaware corporation. On June 10, 1998, we issued approximately six (6%) percent of our issued and outstanding Common Stock to the approximately 330 stockholders of Pice Products Corporation (“Pice”), an inactive, unaffiliated company with minimal assets, pursuant to the merger of Pice with and into Electric City. This merger facilitated the establishment of a public trading market for our Common Stock. Trading in our Common Stock commenced on August 14, 1998 through the OTC Bulletin Board under the trading symbol “ECCC”. Since December 12, 2000, our Common Stock has traded on the American Stock Exchange under the trading symbol “ELC”.

Our Products

     We are a developer, manufacturer and integrator of energy saving technologies and building automation controls as well as an independent developer of scalable, negative power systems. Our premier energy saving product is the EnergySaver system, which reduces energy consumed by lighting, typically by 20% to 30%, with minimal lighting level reduction. This technology has applications in commercial buildings, factories and office structures, as well as street lighting and parking lot lighting. Our GlobalCommander integrates with the EnergySaver allowing us to link multiple EnergySaver units together and to provide remote communications, measurement and verification of energy savings. The combined technology of the EnergySaver and GlobalCommander led to the development of our Virtual “Negawatt” Power Plan (“VNPP”), which is essentially a negative power system which we market primarily to utilities as a demand response system. In addition to our EnergySaver system, we also provide, through our subsidiary, Great Lakes Controlled Energy Corporation (“Great Lakes”), integrated building and environmental control solutions for commercial and industrial facilities. Until June 1, 2003, we also manufactured custom electrical switchgear through Switchboard Apparatus Inc. (“Switchboard”), a wholly owned subsidiary located in Broadview, Illinois. In an effort to refocus our resources and shed the continuing losses from the switchgear business, we sold the operating assets of Switchboard to a group of investors, including the President of Switchboard, effective as of May 31, 2003.

     Our EnergySaver product line is manufactured at our facilities in Elk Grove Village, Illinois, with manufacturing and assembly scaled to order demand. Building and environmental control services and solutions provided by Great Lakes are based out of a separate facility also located in Elk Grove Village, Illinois.

     Giorgio Reverberi has patented in the United States and Italy certain technologies underlying the EnergySaver products. We have entered into a license agreement and series of agreements with Mr. Reverberi and our founder, Mr. Joseph Marino relating to the license of the EnergySaver technology in the United States and certain other markets.

     We are pursuing a multi-channel marketing and sales distribution strategy to bring our energy saving products to market. Our multi-channel approach includes the use of a direct sales force, distributors and manufacturers’ representatives.

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The Offering

RISK FACTORS

     You should carefully consider the risks and uncertainties described below and all of the other information included in this prospectus before you decide whether to purchase shares of our Common Stock. Any of the following risks could materially adversely affect our business, financial condition or operating results and could negatively affect the value of your investment.

Risks Related to Our Business

We have a limited operating history upon which to evaluate our potential for future success.

     We were formed in December 1997. To date, we have only generated limited revenues from the sale of our products and do not expect to generate significant revenues until we sell a significantly larger number of our products. Accordingly, we have only a limited operating history upon which you can base an evaluation of our business and prospects. The likelihood of our success must be considered in light of the risks and uncertainties frequently encountered by early stage companies like ours in an evolving market. If we are unsuccessful in addressing these risks and uncertainties, our business will be materially harmed.

We have incurred significant operating losses since inception and may not achieve or sustain profitability in the future.

     We have incurred substantial net losses in each year since we commenced operations in December 1997. We must overcome significant manufacturing and marketing hurdles to sell large quantities of our products. In addition, we may be required to reduce the prices of our products in order to increase sales. If we reduce product prices, we may not be able to reduce product costs sufficiently to achieve acceptable profit margins. As we strive to grow our business, we expect to spend significant funds (1) for general corporate purposes, including working capital, marketing, recruiting and hiring additional personnel; and (2) for research and development. To the extent that our revenues do not increase as quickly as these costs and expenditures, our results of operations and

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liquidity will be materially adversely affected. If we experience slower than anticipated revenue growth or if our operating expenses exceed our expectations, we may not achieve profitability. Even if we achieve profitability in the future, we may not be able to sustain it.

A decrease in electric retail rates could lessen demand for our EnergySaver products.

     Our principal products, our EnergySaver products, have the greatest profit potential in areas where commercial electric rates are relatively high. However, retail electric rates for commercial establishments in the United States may not remain at their current high levels. Due to a potential overbuilding of power generating stations throughout certain regions of the United States, wholesale power prices may decrease in the future. Because the price of commercial retail electric power is largely attributed to the wholesale cost of power, it is reasonable to expect that commercial retail rates may decrease as well. In addition, much of the wholesale cost of power is directly related to the price of certain fuels, such as natural gas, oil and coal. If the prices of those fuels decrease, the prices of the wholesale cost of power may also decrease. This could result in lower electric retail rates and reduced demand for energy saving devices such as our EnergySaver products.

We have a license under certain patents and our ability to sell our products may be adversely impacted if the license expires or is terminated.

     We have entered into a license agreement with Messrs. Giorgio Reverberi and Joseph Marino. Mr. Reverberi holds a U.S. patent and has applied for several patents in other countries. Pursuant to the terms of the license, we have been granted the exclusive right to manufacture and sell products containing the load reduction technology claimed under Mr. Reverberi’s U.S. patent or any other related patent held by him in the U.S., the remainder of North America, parts of South America and parts of Africa. However, the exclusive rights that we received may not have any value in territories where Mr. Reverberi does not have or does not obtain protectable rights. The term of the license expires when the last of these patents expires. We expect that these patents will expire around November 2017. The license agreement may be terminated if we materially breach its terms and fail to cure the breach within 180 days after we are notified of the breach. If our license is terminated it could impact our ability to manufacture, sell or otherwise commercialize products in those countries where Mr. Reverberi holds valid patents relating to our products, including the United States.

If we are not able to protect our intellectual property rights against infringement or others obtain intellectual property rights relating to energy management technology, we could lose our competitive advantage in the energy management market.

     We regard our intellectual property rights, such as patents, licenses of patents, trademarks, copyrights and trade secrets, as important to our success. Although we entered into confidentiality and rights to inventions agreements with our non-union employees and consultants during March 2001 (and non-union employees hired since March 2001 have also signed these agreements), the steps we have taken to protect our intellectual property rights may not be adequate. Third parties may infringe or misappropriate our intellectual property rights or we may not be able to detect unauthorized use and take appropriate steps to enforce our rights. Failure to take appropriate protective steps could materially adversely affect our competitive advantage in the energy management market. Furthermore, our license to use Mr. Reverberi’s patents may have little or no value to us if Mr. Reverberi’s patents are not valid. In addition, patents held by third parties may limit our ability to manufacture, sell or otherwise commercialize products and could result in the assertion of claims of patent infringement against us. If that were to happen, we could try to modify our products to be non-infringing, but we

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might not be successful or such modifications might not avoid infringing on the intellectual property rights of third parties.

     Claims of patent infringement against us, regardless of merit, could result in the expenditure of significant financial and managerial resources by us. We may be forced to seek to enter license agreements with third parties (other than Mr. Reverberi) to resolve claims of infringement by our products of the intellectual property rights of third parties. These licenses may not be available on acceptable terms or at all. The failure to obtain such licenses on acceptable terms could have a negative effect on our business.

The loss of key personnel may harm our ability to obtain and retain customers, manage our rapid growth and compete effectively.

     Our future success will depend significantly upon the continued contributions of certain members of our senior management, including John P. Mitola, our Chief Executive Officer, because he is critical to obtaining and retaining customers, managing our growth and the future development of our Virtual Negawatt Power Plan (“VNPP”) concept. Our future success will also depend upon our ability to attract and retain highly qualified technical, operating and marketing personnel. We believe that there is intense competition for qualified personnel in the energy management industry. If we cannot hire, train and retain qualified personnel or if a significant number of our current employees depart, we may be unable to successfully manufacture and market our products.

If we are unable to manage our growth, it will adversely affect our business, the quality of our products and our ability to attract and retain key personnel.

     We are subject to the risks inherent in the expansion and growth of a business enterprise. Growth in our business will place a strain on our operational and administrative resources and increase the level of responsibility for our existing and new management personnel. To manage our growth effectively, we will need to:

	•		further develop and improve our operating, information, accounting, financial and other internal systems and controls on a timely basis;
	•		improve our business development, marketing and sales capabilities; and
	•		expand, train, motivate and manage our employee base.

     Our current senior management has limited experience managing a publicly traded company. Our systems currently in place may not be adequate if we continue to grow and may need to be modified and enhanced. The skills of management currently in place may not be adequate if we continue to grow.

If our EnergySaver products do not achieve or sustain market acceptance, our ability to compete will be adversely affected.

     To date, we have not sold our EnergySaver product line in very large quantities and a sufficient market may not develop for it. Significant marketing will be required in order to establish a sufficient market for the EnergySaver products. The technology underlying these products may not become a preferred technology to address the energy management needs of our customers and potential customers. Failure to successfully develop, manufacture and commercialize products on a timely and

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cost-effective basis will have a material adverse effect on our ability to compete in the energy management market.

Failure to meet customers’ expectations or deliver expected technical performance could result in losses and negative publicity.

     Customer engagements involve the installation of energy management equipment that we design to help our clients reduce energy/power consumption. We rely on outside contractors to install our EnergySaver products. Any defects in this equipment and/or its installation or any other failure to meet our customers’ expectations could result in:

	•		delayed or lost revenues due to adverse customer reaction;
	•		requirements to provide additional products and/or services to a customer at no charge;
	•		negative publicity regarding us and our products, which could adversely affect our ability to attract or retain customers; and
	•		claims for substantial damages against us, regardless of our responsibility for such failure.

If sufficient additional funding is not available to us, the commercialization of our products and our ability to grow may be hindered.

     Our operations have not generated positive cash flow since the inception of the Company in 1997. We have funded our operations through the issuance of common and preferred stock and secured debt. Our ability to continue to operate until our cash flow turns positive may depend on our ability to continue to raise funds through the issuance of equity or debt. If we are not successful in raising additional funds, we might have to significantly scale back or delay our growth plans, or possibly cease operations altogether. Any reduction or delay in our growth plans could materially adversely affect our ability to compete in the marketplace, take advantage of business opportunities and develop or enhance our products.

Raising additional capital or consummation of additional acquisitions through the issuance of equity or equity-linked securities could dilute your ownership interest in us.

     We may need to obtain additional funds in the future to grow our product development, manufacturing, marketing and sales activities at the pace that we intend, or to continue to fund operating losses until our cash flow turns positive. If we determine that we do need to raise additional capital in the future and we are not successful in doing so, we might have to significantly scale back or delay our growth plans, reduce staff and delay planned expenditures on research and development and capital expenditures in order to continue as a going concern. Any reduction or delay in our growth plans could materially adversely affect our ability to compete in the marketplace, take advantage of business opportunities and develop or enhance our products.

     If we receive additional funds through the issuance of equity securities or convertible debt securities, our existing stockholders will likely experience dilution of their present equity ownership position and voting rights. Depending on the number of shares issued and the terms and conditions of the issuance, new equity securities could have rights, preferences, or privileges senior to those of our Common Stock.

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Failure to effectively market our energy management products could impair our ability to sell large quantities of these products.

     One of the challenges we face in commercializing our energy management products is demonstrating the advantages of our products over more traditional products and competitive products. As we grow, we will need to further develop our marketing and sales force. In addition to our internal sales force, we rely on third parties to market and sell our products. We currently maintain a number of relationships and have a number of agreements with third parties regarding the marketing and distribution of our EnergySaver products and are dependent upon the efforts of these third parties in marketing and selling these products. Maintenance of these relationships is based primarily on an ongoing mutual business opportunity and a good overall working relationship. The current contracts associated with certain of these relationships allow the distributors to terminate the relationship upon 30 days’ written notice. Without these relationships, our ability to market and sell our EnergySaver products could be harmed and we may need to divert even more resources to increasing our internal sales force. If we are unable to expand our internal sales force and maintain our third party marketing relationships, our ability to generate significant revenues could be seriously harmed.

     The distribution rights we have granted to third parties in specified geographic territories may make it difficult for us to grow our business in such territories if those distributors do not successfully market and support our products in those territories. We have in the past been, are now, and may in the future be, involved in disputes with distributors that have distribution rights in specified geographic territories, but are not achieving our goals. During 2000, we repurchased for cash and stock consideration the distribution rights from three distributors that were not meeting our sales goals. We may have to expend additional funds, incur debt or issue additional securities in the future to repurchase other distribution rights that we have granted or may grant in the future.

If our “Virtual Negawatt Power Plan” concept is unsuccessful, distribution of our EnergySaver product line may be impaired and our growth could suffer.

     During 2001, we announced our “Virtual Negawatt Power Plan” concept. The VNPP is intended to allow a utility to remotely control commercial, industrial and government lighting systems over a managed and secure IP network. It is envisioned that through the use of the EnergySaver/GlobalCommander system, a utility will be able to reduce electric demand requirements during periods of peak demand, providing nearly instantaneous control, measurement and verification of load reduction. The successful implementation of the VNPP concept could significantly increase the sales and profitability of our EnergySaver product line. We recently announced an agreement with Commonwealth Edison to implement a 50-Megawatt VNPP system in northern Illinois. A VNPP agreement was executed with ComEd during the third quarter of 2003 under which ComEd will make quarterly payments for verified load reduction capacity, and we began installing product under the program in late 2003. As of December 31, 2003 we had begun installing EnergySavers but we have not recognized revenue on the shipments. We are currently negotiating to transfer the ComEd VNPP contract to a limited liability company (the “LLC”) being created by a Chicago based investment bank. The LLC would in turn purchase from us all the equipment installed under the ComEd program and receive payment for the curtailment capacity from ComEd over the term of the contract. Under this arrangement the LLC is expected to pay us approximately $17 million to $20 million for equipment and installation as the equipment is installed and accepted. We expect to receive these payments over an 18 to 24 month period.

     While we have made significant progress toward implementing this program with ComEd, we still have a number of hurdles to clear before we can start recognizing revenue related to this program,

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including legal and financing issues, the failure to accomplish any one of which could delay or cancel the program. Also, if we fail to recruit enough customers to participate in the program we may not be able to deliver 50MW of demand curtailment, which would result in less revenue from the program than we expect. If our attempts to advance the VNPP concept are unsuccessful, our plans to significantly increase the distribution of our EnergySaver product line may not develop and our growth may be impaired.

If we do not successfully compete with others in the very competitive energy management market, we may not achieve profitability.

     In the energy management market, we compete with other manufacturers of traditional energy management products that are currently used by our potential customers. Many of these companies have substantially greater financial resources, larger research and development staffs and greater manufacturing and marketing capabilities than us. Our competitors may provide energy management products at lower prices and/or with superior performance. If we are unable to successfully compete with conventional and new technologies our business may be materially harmed.

Product liability claims could result in losses and could divert our management’s time and resources.

     The manufacture and sale of our products creates a risk of product liability claims. Any product liability claims, with or without merit, could result in costly litigation and reduced sales, cause us to incur significant liabilities and divert our management’s time, attention and resources. We do have product liability insurance coverage; however, there is no assurance that such insurance is adequate to cover all potential claims. The successful assertion of any such large claim against us could materially harm our liquidity and operating results.

Our current internal manufacturing capacity is limited and if demand for our products increases significantly and we are unable to increase our capacity quickly and efficiently our business could suffer.

     Our EnergySaver products are manufactured at our facilities. To be financially successful, we must manufacture our products, including our EnergySaver products, in substantial quantities, at acceptable costs and on a timely basis. While we have produced over 1,000 EnergySaver units over the past six years, we have never approached what we believe is our production capacity. To produce larger quantities of our EnergySaver products at competitive prices and on a timely basis, we will have to further develop our processing, production control, assembly, testing and quality assurance capabilities. We will probably have to hire contract manufacturers and outsource the manufacturing of some or all of our products. We have had discussions with several potential contract manufacturers and they have produced units on a trial basis, but their ability to deliver significant quantities of product in a timely manner is still unproven. We may be unable to manufacture our EnergySaver products in sufficient volume and may incur substantial costs and expenses in connection with manufacturing larger quantities of our EnergySaver products. If we are unable to make the transition to large-scale commercial production successfully, our business will be negatively affected. We could encounter substantial difficulties if we decide to outsource the manufacturing of our products, including delays in manufacturing and poor production quality.

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Risks Related to this Offering

Because of the current market price of our Common Stock, in conjunction with the fact that we are a relatively small company with a history of operating losses, the future trading market for our stock may not be active on a consistent basis, which may make it difficult for you to sell your shares.

     The trading volume of our stock in the future will depend in part on our ability to increase our revenue and reduce or eliminate our operating losses, which should increase the attractiveness of our stock as an investment, thereby leading to a more liquid market for our stock on a consistent basis. If an active and liquid trading market does not exist for our Common Stock on AMEX, you may have difficulty selling your shares.

The need to raise additional capital will most likely be dilutive to our current stockholders and could result in new investors receiving rights that are superior to those of existing stockholders.

     Since September 2001, we have issued shares of our preferred stock convertible into 21,703,000 shares of our Common Stock. These shares of preferred stock are accruing dividends at the rate of 6% per year, though prior to March 22, 2004 they were accruing at the rate of 10% per year. To date we have issued shares of convertible preferred stock convertible into 5,967,689 shares of Common Stock in satisfaction of accrued dividends. The preferred stockholders all have rights that are superior to the rights of our Common Stockholders, including:

	•		a liquidation preference of $200 per share (under our Series E Preferred which was issued on March 22, 2004 in a 1 for 10 exchange for the outstanding Series A, C and D Preferred shares. See Liquidity and Capital Resources.);
	•		special approval rights in respect of certain actions by the Company, including any issuance of shares of capital stock by the Company that would have the right to receive dividends or the right to participate in any distribution upon liquidation which was senior to or equal to the rights of the Series E Preferred (other than to pay dividends on the preferred and under certain other limited exceptions such as conversion of outstanding convertible securities) and any acquisition, sale, merger, joint venture, consolidation or reorganization involving the Company or any of its subsidiaries;
	•		a conversion price that may be below the market price of our Common Stock;
	•		the right to elect up to four directors;
	•		the right to vote with the holders of Common Stock on an “as converted” basis on all matters on which holders of our Common Stock are entitled to vote, except with respect to the election of directors or as otherwise provided by law;
	•		a right of first offer on the sale of equity by the Company in a private transaction; and
	•		anti-dilution protection that would adjust the conversion price on their preferred shares and the exercise price on their warrants in the event we issue equity at a price which is less than the conversion price or exercise price of their securities.

     These rights associated with our preferred stock are substantially different than the rights of our common stockholders and may materially decrease the value of our Common Stock.

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Joseph Marino, Richard Kiphart and DYDX may be able to control matters requiring stockholder approval or could cause our stock price to decline through future sales because they beneficially own a large percentage of our Common Stock.

     There are 40,922,021 shares of our Common Stock outstanding as of May 19, 2004, of which Joseph C. Marino beneficially owns approximately 18%, Richard Kiphart beneficially owns approximately 18% and DYDX beneficially owns approximately 8% (each of the aforementioned percentages include stock options that are currently exercisable). As a result of their significant ownership, Mr. Marino, Mr. Kiphart and DYDX may have the ability to exercise a controlling influence over our business and corporate actions requiring stockholder approval, including the election of our directors (other than those directors to be chosen by the holders of our preferred stock), a sale of substantially all of our assets, a merger between us and another entity or an amendment to our certificate of incorporation. This concentration of ownership could delay, defer or prevent a change of control and could adversely affect the price investors might be willing to pay in the future for shares of our Common Stock. Also, in the event of a sale of our business, Mr. Marino and Mr. Kiphart and DYDX could elect to receive a control premium to the exclusion of other stockholders.

     A significant percentage of the outstanding shares of our Common Stock, including the shares beneficially owned by Mr. Marino, Mr. Kiphart or DYDX and the shares offered under this prospectus can be sold in the public market from time to time, subject to limitations imposed by Federal securities laws and by trading agreements entered into with us. The market price of our Common Stock could decline as a result of sales of a large number of our presently outstanding shares of Common Stock by Mr. Marino, Mr. Kiphart, DYDX or other stockholders (including the selling stockholders under this prospectus) in the public market or due to the perception that these sales could occur. This could also make it more difficult for us to raise funds through future offerings of our equity securities.

Provisions of our charter and by-laws, in particular our “blank check” preferred stock, could discourage an acquisition of our company that would benefit our stockholders.

     Provisions of our charter and by-laws may make it more difficult for a third party to acquire control of our company, even if a change in control would benefit our stockholders. In particular, shares of our preferred stock have been issued and may be issued in the future without further stockholder approval and upon those terms and conditions, and having those rights, privileges and preferences, as our Board of Directors may determine and which are acceptable to the holders of our Series E Preferred Stock. The rights of the holders of our Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any of our preferred stock which is currently outstanding or which may be issued in the future. The issuance of our preferred stock, while providing desirable flexibility in pursuing possible additional equity financings and other corporate purposes, could have the effect of making it more difficult for a third party to acquire control of us. This could limit the price that certain investors might be willing to pay in the future for shares of our Common Stock and discourage these investors from acquiring a majority of our Common Stock. In addition, the price that future investors may be willing to pay for our Common Stock may be lower due to the conversion price and exercise price granted to investors in any such private financing.

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USE OF PROCEEDS

     We will not receive any of the proceeds from any sale of the shares offered by this prospectus by the selling stockholders. If and when the selling stockholders exercise their warrants, we will receive up to $4,235,000 from the issuance of shares of Common Stock to the selling stockholders. Under such warrants, the selling stockholders have exercise prices of $2.42 per share. To the extent the selling stockholders exercise their warrants, we intend to use the proceeds we receive for general corporate purposes.

PLAN OF DISTRIBUTION

     We have agreed to register for public resale shares of our Common Stock which have been issued to the selling stockholders or may be issued in the future to selling stockholders upon the exercise of warrants. We have agreed to use our best efforts to keep this registration statement effective until all the shares of the selling stockholders registered under the applicable registration statement have been sold or may be sold without volume restrictions pursuant to Rule 144(k) under the Securities Act. The aggregate proceeds to the selling stockholders from the sale of shares offered pursuant to this prospectus will be the prices at which such securities are sold, less any commissions. The selling stockholders may choose to not sell any or all of the shares of our Common Stock offered pursuant to this prospectus.

     The selling stockholders may, from time to time, sell all or a portion of the shares of our Common Stock at fixed prices, at market prices prevailing at the time of sale, at prices related to such market prices or at negotiated prices. The selling stockholders may offer their shares of our Common Stock at various times in one or more of the following transactions:

	•		on any national securities exchange or market on which our Common Stock may be listed at the time of sale;
	•		in an over-the counter market in which the shares are traded;
	•		through block trades in which the broker or dealer so engaged will attempt to sell the shares as agent, but may purchase and resell a portion of the block as principal to facilitate the transaction;
	•		through purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this prospectus;
	•		in ordinary brokerage transactions and transactions in which the broker solicits purchasers;
	•		through options, swaps or derivatives;
	•		in privately negotiated transactions;
	•		in transactions to cover short sales; and
	•		through a combination of any such methods of sale.

     The selling stockholders may also sell their shares of our Common Stock in accordance with Rule 144 under the Securities Act, rather than pursuant to this prospectus.

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     The selling stockholders may sell their shares of our Common Stock directly to purchasers or may use brokers, dealers, underwriters or agents to sell such shares. In effecting sales, brokers and dealers engaged by the selling stockholders may arrange for other brokers or dealers to participate. Brokers or dealers may receive commissions, discounts or concessions from a selling stockholder or, if any such broker-dealer acts as agent for the purchaser of such shares, from a purchaser, in amounts to be negotiated. Such compensation may, but is not expected to, exceed that which is customary for the types of transactions involved. Broker-dealers may agree with a selling stockholder to sell a specified number of such shares at a stipulated price per share, and, to the extent a broker-dealer is unable to do so acting as agent for a selling stockholder, to purchase as principal any unsold shares at the price required to fulfill the broker-dealer commitment to the selling stockholder. Broker-dealers who acquire shares as principal may thereafter resell such shares from time to time in transactions which may involve block transactions and sales to and through other broker-dealers, including transactions of the nature described above, in the over-the-counter market or otherwise, at prices and on terms then prevailing at the time of sale, at prices then related to the then-current market price or in negotiated transactions. In connection with such resales, broker-dealers may pay to or receive from the purchasers of such shares commissions as described above.

     From time to time the selling stockholders may engage in short sales, short sales against the box, puts, calls and other hedging transactions in our securities, and may sell and deliver their shares of our Common Stock in connection with such transactions or in settlement of securities loans. These transactions may be entered into with broker-dealers or other financial institutions. In addition, from time to time a selling stockholder may pledge its shares pursuant to the margin provisions of its customer agreements with its broker-dealer. Upon default by a selling stockholder, the broker-dealer or financial institution may offer and sell such pledged shares from time to time.

     The selling stockholders and any broker-dealer participating in the distribution of the shares of Common Stock may be deemed to be “underwriters” within the meaning of the Securities Act, and any commissions paid, or any discounts or concessions allowed to any such broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of the shares of Common Stock is made, a prospectus supplement, if required, will be distributed which will set forth the aggregate amount of shares of Common Stock being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the selling stockholders and any discounts, commissions or concessions allowed or reallowed or paid to broker-dealers.

     Under the securities laws of some states, the shares of Common Stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in most states the shares of Common Stock may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.

     There can be no assurance that any selling stockholders will sell any or all of the shares of Common Stock registered pursuant to the registration statement of which this prospectus forms a part.

     The selling stockholders and any other person participating in such distribution will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of Common Stock by the selling stockholders and any other participating person.

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     Regulation M may also restrict the ability of any person engaged in the distribution of the shares of Common Stock to engage in market-making activities with respect to the shares of Common Stock. All of the foregoing may affect the marketability of the shares of Common Stock and the ability of any person or entity to engage in market-making activities with respect to the shares of Common Stock.

     A portion of the shares of Common Stock which are being registered hereunder may be issued upon exercise of warrants which we have issued to the selling stockholders. This prospectus does not cover the sale or transfer of any such warrants. If the selling stockholders transfer any of those warrants prior to exercise thereof, the transferee(s) may not sell the shares of Common Stock issueable upon exercise of such warrants under the terms of this prospectus unless we first amend or supplement this prospectus to cover such shares and such sellers.

     We are required to pay all fees and expenses incident to the registration of the shares of our Common Stock offered hereby (other than broker-dealer discounts and commissions) which we estimate to be $20,073 in total, including, without limitation, Securities and Exchange Commission filing fees, expenses of compliance with state securities or “blue sky” laws, legal fees and transfer agent fees relating to sales pursuant to this prospectus; provided, however, that the selling stockholders will pay all underwriting discounts and selling commissions, if any. We have agreed to indemnify certain of the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act of 1933, as amended.

     Once sold under the registration statement of which this prospectus forms a part, the shares of Common Stock will be freely tradable in the hands of persons other than our affiliates.

LEGAL PROCEEDINGS

     From time to time, the Company has been a party to pending or threaten legal proceedings and arbitrations that are routine and incidental to its business. In early October 2003, the Company notified one of its significant distributors that the Company was terminating the distributorship agreement between the parties due to certain unresolved issues (including breaches by such distributor), such termination to be effective after 60 days. In such notice, the Company indicated that it would be willing to enter into a new agreement with such distributor if the disputed issues could be resolved to the mutual satisfaction of the parties. Subsequent to giving such notice, the Company has received a demand for arbitration from such distributor pursuant to the provisions of the agreement, seeking, among other things, money damages in an unspecified amount and a declaration of the meaning of certain provisions of the distributorship agreement. The Company intends to defend the arbitration, but cannot predict the outcome at this time. The arbitration will be conducted in Chicago, Illinois. Based upon information presently available, and in light of legal and other defenses available to the Company, management does not consider the liability from any threatened or pending litigation (including the foregoing arbitration) to be material to the Company.

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DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

     The table below shows certain information about our directors, executive officers and significant employees:

---

(1)		These directors were elected by a majority of stockholder votes cast during our Annual Meeting of Stockholders held September 24, 2003.
(2)		Messrs. Brace, and Wagner and Ms. Ferguson were appointed by the holders of our Convertible Preferred Stock.
(3)		Member of our Audit Committee.
(4)		Member of our Compensation Committee.
(5)		Member of our Governance and Nominating Committee.

     Our Board of Directors is currently authorized for a membership of twelve directors, up to four of which (depending on the number of shares of Series E Preferred Stock outstanding) are to be elected by the holders of the Series E Preferred Stock. As of May 19, 2004, our Board of Directors had three vacancies, of which one is to be filled by the holders of our Series E Convertible Preferred Stock.

     John P. Mitola has been one of our directors since November 1999 and has been our chief executive officer since January 2000. From August 1993 until joining us, Mr. Mitola was with Unicom Thermal Technologies (now Exelon Thermal Technologies), Unicom (now Exelon) Corporation’s largest unregulated subsidiary, serving most recently as vice president and general manager. Mr. Mitola led the growth of Unicom Thermal through the development of Unicom Thermal’s Northwind™ ice technology and through thermal energy joint ventures between Unicom Thermal and several leading electric utility companies across North America. Prior to his appointment at Unicom Thermal, Mr. Mitola was director of business development for Commonwealth Edison Company, the local electric utility serving Chicago, Illinois and the northern Illinois region. Since April 2003, Mr. Mitola has also served as the chairman of the Illinois State Toll Highway Authority, appointed by the Governor of Illinois.

     Jeffrey R. Mistarz has been our chief financial officer since January 2000, our treasurer since October 2000 and our assistant secretary since February 2003. From January 1994 until joining us, Mr. Mistarz served as chief financial officer for Nucon Corporation, a privately held manufacturer of material handling products and systems, responsible for all areas of finance and accounting, managing capital and shareholder relations. Prior to joining Nucon, Mr. Mistarz was with First Chicago Corporation (now Bank One Corporation) for 12 years where he held positions in corporate lending, investment banking and credit strategy.

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     Denis Enberg has been our Senior Vice President of Engineering since Electric City acquired his company, Great Lakes Controlled Energy Corporation, in June 2001. Mr. Enberg co-founded Great Lakes Controlled Energy Corp in 1985. From 1975 to 1985 he was president of C.E. Electric Incorporated, a Chicago licensed commercial and industrial electrical contracting firm that also specialized in industrial automation and controls. Mr. Enberg is a charter life member of the Association of Energy Engineers and holds certifications as “Certified Energy Manager”, “Certified Lighting Efficiency Professional” and “Certified Demand-Side Management” professional and is considered one of the early pioneers in the building automation industry.

     David R. Asplund was nominated to our board of directors during June 2002. Mr. Asplund is, and has been, the founder and President of Delano Group Securities, LLC since October 1999. From March 1995 through October 1999, Mr. Asplund was employed by Bear, Stearns and Company, Inc., serving as a Senior Managing Director from July 1997 until October 1999.

     John C. Bukovski has been one of our directors since January 2004. From January 1992 until his retirement in January 2002, Mr. Bukovski was the Senior Vice President and Chief Financial Officer of Commonwealth Edison Company, the largest subsidiary of Unicom Corporation (now Exelon). During his thirty-seven year career with Commonwealth Edison Mr. Bukovski held a variety of management positions within the company. During the 1990’s Mr. Bukovski served on the Board of Directors of Northwestern Memorial Hospital in Chicago Illinois.

     Frederic F. Brace has been one of our directors since October 2001 and is an appointee of the holders of our Series E Convertible Preferred Stock. Mr. Brace is, and has been, the Executive Vice President and Chief Financial Officer of UAL Corporation, the parent of United Airlines since July 2002. From September 2001 through July 2002, Mr. Brace was Senior Vice President and Chief Financial Officer of UAL Corporation. From July 1999 through September 2001, Mr. Brace was Senior Vice President and Treasurer of United Airlines and its Vice President of Finance from October 1996 through July 1999.

     Felicia A. Ferguson has been one of our directors since February 2004 and is an appointee of the holders of our Series E Convertible Preferred Stock. Ms. Ferguson is the Managing Director of Cinergy Ventures, LLC, the private equity investment unit of Cinergy Corp. Prior to becoming the Managing Director, Ms. Ferguson was Vice President and Chief Financial Officer of Cinergy’s Power Technology and Infrastructure Services business unit, which was responsible for investments in non-regulated domestic energy infrastructure services businesses. Ms. Ferguson has also held management positions in finance, accounting, information technology, and investor relations at Cinergy Corp. Besides Electric City, Ms. Ferguson is the Chairman of the Board of Reliant Services, Inc.

     Robert J. Manning has been one of our directors since May 2000 and Chairman of our Board of Directors since January 2001. Mr. Manning is a co-founder and a member of Groupe Manning LLC, an energy consulting company. From April 1997 until his retirement in January 2000, Mr. Manning served as executive vice president of Unicom Corporation and its largest subsidiary, Commonwealth Edison Company, where his responsibilities included managing the sale of Commonwealth Edison’s fossil generating fleet. During his thirty-five year career at Exelon, Mr. Manning directed all aspects of electric generation, consumer service and transmission and distribution operations.

     Gerald A. Pientka has been one of our directors since May 2000. Mr. Pientka is currently, and has been since September 2003, a Principal of Verus Partners, a real estate development company located in Chicago, Illinois. Prior to this, from May 1999 through March 2003, Mr. Pientka was

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President of Higgins Development Partners, LLC (the successor to Walsh, Higgins & Company), a national real estate development company controlled by the Pritzker family interest. From May 1992 until May 1999, Mr. Pientka served as President of Walsh, Higgins & Company. Mr. Pientka is also a member of Leaf Mountain Company, LLC, which is an investor in our Series E Convertible Preferred Stock.

     Michael S. Stelter is one of our co-founders and has been one of our directors since our incorporation in June 1998. Currently, Mr. Stelter is employed by and a part owner of Switchboard Apparatus, Inc., which was divested by Electric City effective May 31, 2003. Since our organization as a limited liability company in December 1997, through May 2003, Mr. Stelter served as our Vice President of Switchgear Sales. Mr. Stelter was our Corporate Secretary from June 1998 until October 2000. From 1986 until May 1999, Mr. Stelter served as Vice President of Marino Electric.

     Robert D. Wagner, Jr. has been one of our directors since October 2001 and is an appointee of the holders of our Series E Convertible Preferred Stock. Mr. Wagner is currently a partner of Rivington Capital, which provides advisory services and debt and equity placements for independent oil and gas producers. Mr. Wagner served as Managing Director of the corporate finance group of Arthur Andersen LLP from May 1999 until his retirement in April 2001. From June 1998 through May 1999, Mr. Wagner served as Managing Director of M2 Capital. From April 1989 through June 1998, Mr. Wagner served as Managing Director for Bankers Trust/BT Alex Brown.

SELLING SECURITY HOLDERS

     All of the selling stockholders named below acquired or have the right to acquire upon the exercise of warrants, the shares of our Common Stock being offered under this prospectus directly from us in a private transaction. The following table sets forth information known to us with respect to the beneficial ownership of our Common Stock as of May 19, 2004 as provided by the selling stockholders. In accordance with the rules of the SEC, beneficial ownership includes the shares issuable pursuant to warrants that are exercisable within 60 days of May 19, 2004. Shares issuable pursuant to warrants are considered outstanding for computing the percentage of the person holding the warrants but are not considered outstanding for computing the percentage of any other person.

     The percentage of beneficial ownership for the following table is based on 40,922,021 shares of Common Stock outstanding as of May 19, 2004 (excluding shares issuable on exercise of outstanding options and warrants or pursuant to conversion of outstanding Series E Preferred Stock or convertible debt securities). To our knowledge, except as indicated in the footnotes to this table, each person named in the table has sole voting and investment power with respect to all shares of Common Stock shown in the table to be beneficially owned by such person.

     None of the selling stockholders has had any position, office or other material relationship with us within the past three years. The table assumes that the selling stockholders will sell all of the shares offered by them in this offering. However, we are unable to determine the exact number of shares that will actually be sold or when or if these sales will occur. We will not receive any of the proceeds from the sale of the shares offered under this prospectus.

     The table below lists the selling stockholders and other information regarding the beneficial ownership of the Common Stock by each of the selling stockholders. The first column lists, for each selling stockholder, the number of shares of Common Stock held by such stockholder including shares issuable (pursuant to warrants) to such stockholder. The second column lists the shares of Common

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Stock (including shares issued or issuable upon exercise warrants) being offered by this prospectus by each selling stockholder. The column titled “Ownership After Offering” assumes the sale of all of the shares offered by each selling stockholder, although each selling stockholder may sell all, some or none of its shares in this offering.

(1)		Includes warrants to purchase 442,750 shares of Common Stock.
(2)		Includes warrants to purchase 350,000 shares of Common Stock.
(3)		Includes warrants to purchase 311,500 shares of Common Stock.
(4)		Includes warrants to purchase 645,750 shares of Common Stock.
(5)		The Selling Shareholders purchased 5,000,000 shares of common stock and warrants to purchase an additional 1,750,000 shares of common stock from the Company on March 19, 2004. Also on March 24, 2004, in a separate transaction, the Selling Shareholders purchased a total of 1,000,000 shares of Common stock from Morgan Stanley Dean Witter Equity Funding, Inc., and Originators Investment Plan, L.P.

DESCRIPTION OF SECURITIES

     In the following summary, we describe the material terms of our capital stock by summarizing material provisions of our charter, by-laws and the certificate of designation of our Series E convertible preferred stock. We have incorporated by reference these organizational documents as exhibits to the registration statement of which this prospectus is a part.

General

     As of May 19, 2004, we had 120,000,000 authorized shares of Common Stock of which:

	•		40,922,021 shares are issued and outstanding;
	•		21,703,000 shares of Common Stock are issuable upon conversion of Series E Convertible Preferred Stock
	•		11,119,867 shares of Common Stock are issuable upon exercise of outstanding Common Stock warrants;
	•		375,000 shares of Common Stock are issuable upon exercise of outstanding Series E Convertible Preferred Stock warrants and conversion of the shares of Series E Convertible Preferred Stock which is issuable thereunder;

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•

10,557,181 shares of Common Stock are issuable upon exercise of outstanding stock options,

	•		319,240 shares of Common Stock issuable upon conversion of a secured convertible term note, and
	•		up to 943,396 shares of Common Stock issuable upon conversion of a secured convertible revolving notes which we may issue to Laurus Master Fund, Ltd. (see “Management’s Discussion and Analysis or Plan of Operation — Liquidity and Capital Resources”).

Common Stock

     Holders of our Common Stock are entitled to one vote per share on all matters submitted to a vote of our stockholders, except that the holders of the Series E Preferred have the right to appoint and elect up to four of the members of our board of directors (out of a board of 12) and the holders of Series E Preferred have the right to approve certain other actions by the Company (See “Series E Preferred Stock – Voting Rights”). Subject to the rights of holders of any outstanding preferred stock, the holders of outstanding shares of Common Stock will share ratably on a per share basis on any dividends. Except pursuant to agreements entered into with our preferred stockholders applicable to certain shares of Common Stock held or hereafter acquired by such preferred stockholders, holders of our Common Stock have no preemptive, subscription, redemption or conversion rights. Subject to the rights of holders of any outstanding preferred stock, upon our liquidation, dissolution or winding up and after payment of all prior claims, the holders of shares of Common Stock will share ratably on a per share basis in all of our assets. All shares of Common Stock currently outstanding are fully paid and nonassessable. Any shares of Common Stock which the selling stockholders acquire through exercise of their warrants will also be fully paid and nonassessable.

Series E Preferred Stock

     On March 19, 2004, we entered into a Redemption and Exchange Agreement with the holders of our outstanding Series A Convertible Preferred Stock, Series C Convertible Preferred Stock and Series D Convertible Preferred Stock (collectively, the “Existing Preferred Stock”) under which we agreed to redeem 538,462 shares of Existing Preferred Stock at a price of $13 per share (the “Redemption”) and to exchange shares of our newly authorized Series E Convertible Preferred Stock (the “Series E Preferred”) for all remaining outstanding shares of Existing Preferred Stock (the “Exchange”) on a 1 for 10 basis (one share of Series E Preferred exchanged for 10 shares of Existing Preferred Stock). We used $7 million of the proceeds from an issuance on March 19, 2004 of our Common Stock and warrants to the selling stockholders under this prospectus to accomplish the Redemption, which closed on March 22, 2004.

     Under the Redemption and Exchange transaction, the Company redeemed 538,462 shares of our outstanding Existing Preferred Stock which were convertible into 5,384,620 shares of Common Stock, at a price equivalent to $1.30 per common share, and exchanged 210,451 shares of the new Series E Preferred for the remaining 2,104,509 outstanding shares of the Existing Preferred Stock. All of the Existing Preferred Stock has been cancelled.

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Terms of the Series E Convertible Preferred Stock

     Conversion

     Each share of Series E Convertible Preferred Stock is convertible at the option of the holder into a number of shares of our Common Stock as determined by dividing $100.00 by the conversion price, which was initially and is currently $1.00.

     All outstanding shares of Series E Convertible Preferred Stock will be automatically converted if either of the following occurs:

	•		at such time as the closing price of our Common Stock exceeds $12.00 per share (as adjusted for stock splits, stock combinations and the like) as reported on the American Stock Exchange (or, if not traded on the American Stock Exchange, any national security exchange or automated quotation services on which our shares of Common Stock are listed for trading) for twenty consecutive trading days and the average trading volume for the same 20-day period exceeds 500,000 shares; or
	•		we complete a firmly underwritten primary public offering of our Common Stock at a price of $5.00 per share or more (as adjusted for stock splits, stock combinations and the like) in which we raise aggregate gross proceeds of at least $35 million (a “Qualified Primary Offering”).

     Shares of Series E Convertible Preferred Stock have, subject to certain exceptions, anti-dilution protection that will automatically adjust the conversion price of the Series E Convertible Preferred Stock to the price per share of any Common Stock we issue, or are deemed to have issued, if that price per share is less than the then existing conversion price for the Series E Convertible Preferred Stock. For example, if we issue shares of Common Stock at $0.50 per share, the conversion price of the Series E Convertible Preferred Stock will automatically be adjusted from $1.00 to $0.50. The Series E Convertible Preferred Stock is also subject to other customary anti-dilution provisions with respect to stock splits, stock dividends, stock combinations, reorganizations, mergers, consolidations, special distributions, sales of all or substantially all of the Company’s assets and similar events.

     Dividends

     Each outstanding share of Series E Convertible Preferred Stock is entitled to cumulative quarterly dividends at a rate of 6% per annum of its stated value, which is $100.00. Dividends on the Series E Convertible Preferred Stock are payable and compounded quarterly. The Series E Convertible Preferred Stock dividends are payable, at our option, in cash or additional shares of Series E Convertible Preferred Stock.

     Liquidation

     Upon a liquidation, dissolution or winding up of the affairs of the Company, the holder of Series E Convertible Preferred Stock will be entitled to receive for each share of Series E Convertible Preferred Stock it holds, before any other security holder of the Company, the higher of:

•

$200 plus accrued and unpaid dividends; or

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•

an amount equal to the “Market Price” of our Common Stock into which one share of Series E Convertible Preferred Stock is then convertible. “Market Price” means the average closing price of our Common Stock as reported on the American Stock Exchange (or, if not traded on the American Stock Exchange, any national security exchange or automated quotation services on which our shares of Common Stock are listed for trading) over a period of ten consecutive days ending two days prior to the date as of which “Market Price” is being determined.

     Redemption

     Outstanding shares of the Series E Convertible Preferred Stock are not subject to mandatory redemption. At any time, we have the option to redeem all outstanding shares of Series E Convertible Preferred Stock if the following two conditions are satisfied:

	•		the closing price of our Common Stock as reported on the American Stock Exchange (or, if not traded on the American Stock Exchange, any national securities exchange or automated quotation services on which our shares of Common Stock are listed for trading) exceeds $7.50 per share (as adjusted for stock splits, stock combinations and the like) for at least 20 consecutive trading days immediately preceding the date we send a notice or redemption to all holders of Series E Convertible Preferred Stock; and
	•		the average daily trading volume of our Common Stock for the same period exceeds 500,000 shares.

     We also have a right to redeem in connection with a sale or merger of the Company which the holders of the Series E Preferred do not approve if less than 45,000 shares of Series E Preferred Stock are then outstanding. See “Special Approval Rights” below.

     The redemption price will be:

	1.		cash in the amount of $100.00 per share plus accrued but unpaid dividends; and
	2.		that number of shares of Common Stock having a value equal to 70% of the excess of (i) the closing price of our Common Stock as reported on the American Stock Exchange (or, if not traded on the American Stock Exchange, any national securities exchange or automated quotation services on which our shares of Common Stock are listed for trading) on the day before the redemption date multiplied by the number of shares of Common Stock into which a share of Series E Convertible Preferred Stock is then convertible, over (ii) $10.00.

     Voting Rights

     The Series E Convertible Preferred Stock has the right to elect up to four directors depending on the number of shares of Series E Convertible Preferred Stock outstanding at any time (as adjusted for stock splits, stock combinations and the like) as follows:

•

for so long as at least 90,000 shares of Series E Convertible Preferred Stock remain issued and outstanding, holders of Series E Convertible Preferred Stock, voting as a single class, will be entitled to elect four directors;

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	•		for so long as at least 65,000 but less than 90,000 shares of Series E Convertible Preferred Stock remain issued and outstanding, holders of Series E Convertible Preferred Stock, voting as a single class, will be entitled to elect three directors;
	•		for so long as at least 45,000 but less than 65,000 shares of Series E Convertible Preferred Stock remain issued and outstanding, the holders of Series E Convertible Preferred Stock, voting as a single class, will be entitled to elect two directors; and
	•		for so long as at least 20,000 but less than 45,000 shares of Series E Convertible Preferred Stock remain issued and outstanding, the holders of Series E Convertible Preferred Stock, voting as a single class, shall be entitled to elect one director.

     Except for the election of directors and as to any special approvals or as otherwise provided by law, the Series E Convertible Preferred Stock is entitled to vote with the holders of our Common Stock on an as-converted basis on all matters on which our holders of Common Stock are entitled to vote. However, if less than 20,000 shares of Series E Convertible Preferred Stock remain issued and outstanding, unless otherwise provided by law, each holder of record of Series E Convertible Preferred Stock has the right to vote on an as-converted basis together with the holders of Common Stock on all matters on which holders of Common Stock are entitled to vote, including the election of directors.

     Special Approval Rights

     The holder of Series E Convertible Preferred Stock also has the following approval rights with respect to certain actions of the Company:

•

For so long as any shares of Series E Convertible Preferred Stock remain issued and outstanding we cannot, without approval of at least 75% of the shares of Series E Convertible Preferred Stock then outstanding:

	•		enter into any agreement that would restrict our ability to perform under the Redemption and Exchange Agreement;
	•		amend our Certificate of Incorporation or bylaws in any way that could adversely affect, alter or change the rights, powers or preferences of the Series E Convertible Preferred Stock;
	•		engage in any transaction that would impair or reduce the rights, powers or preferences of the Series E Convertible Preferred Stock as a class;
	•		sell control of the Company or sell all or substantially all of the assets of the Company or merge with or into another company, or liquidate the Company (provided that if less than 45,000 shares of the Series E Convertible Preferred Stock are then outstanding and the then holders of Series E Convertible Preferred Stock refused to consent to such a transaction, we may at our option, in connection with consummating such transactions, redeem all, but not less than all, of such Series E Convertible Preferred Stock at a redemption price per share equal to the amount the Series E Convertible Preferred Stock would receive upon a liquidation); or

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•

change the authorized number of directors of our Board of Directors.

•

For so long as at least 90,000 shares in the aggregate of Series E Convertible Preferred Stock remain issued and outstanding we cannot, without the approval of at least 66-2/3% of the aggregate shares of Series E Convertible Preferred Stock then outstanding:

	•		amend or alter any outstanding options, rights or warrants in a manner that reduces or that has the effect of reducing the per share exercise price for any outstanding options, rights or warrants;
	•		authorize or issue any debt securities of the Company or any of its subsidiaries, other than debt under the existing revolving lines of credit as of March 19, 2004 or the replacement thereof on substantially similar terms, except that we may issue additional debt up to $1,000,000 in the aggregate in the ordinary course of business and may incur trade payables in the ordinary course of business;
	•		purchase, redeem, or otherwise acquire any of the Company’s capital stock, other than the redemption of the Series E Convertible Preferred Stock;
	•		enter into an acquisition, sale, merger, joint venture, consolidation or reorganization involving the Company or any of its subsidiaries;
	•		sell or lease assets of the Company or any of its subsidiaries, except in the ordinary course of business;
	•		declare or pay any cash dividends or make any distributions on any of our capital stock, other than on the Series E Convertible Preferred Stock;
	•		authorize the payment of, or pay to any individual employee of the Company, cash compensation in excess of $500,000 per annum; or
	•		enter into any transaction (or series of transactions), including loans, with any employee, officer or director of the Company or to or with his, her or its affiliates or family members (other than with respect to payment of compensation to actual full-time employees in the ordinary course of business) involving $50,000 or more per year individually or $250,000 or more per year in the aggregate.

•

For so long as at least 130,000 shares of Series E Convertible Preferred Stock remain issued and outstanding we cannot, without the approval of the holders representing 66-2/3% of the shares of Series E Convertible Preferred Stock then outstanding:

	•		terminate or newly appoint the chief executive officer or president of the Company;
	•		approve any annual capital expense budget if such budget provides for annual capital expenditures by the Company and its subsidiaries in excess of $1,000,000 in the aggregate in any year; or
	•		approve the incurrence of any single capital expenditure (or series of related capital expenditures) in excess of $500,000.

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     Violation of Special Approval Rights

     In the event we violate any of these special approval rights and do not cure the violation within the prescribed cure period, which is 30 days for the first such violation and 10 days for any subsequent violation, following notice of that violation from any holder of Series E Convertible Preferred Stock, the holders of the Series E Convertible Preferred Stock have the right to elect that number of additional directors to our board of directors necessary for them to elect a majority of the Board of Directors.

     Ancillary Agreements

     In addition to the Redemption and Exchange Agreement, the holders of our Series E Convertible Preferred Stock, CIT Capital Securities, Inc. (which acquired certain Common Stock warrants in connection with the initial issuance of our Series A Preferred Stock in 2001) and the Company entered into three ancillary agreements, each of which is described below. These three agreements amended and restated certain existing agreements entered into in connection with the original issuances of Existing Preferred Stock.

     Amended and Restated Investor Rights Agreement

     Under the Amended and Restated Investor Rights Agreement, the holders of our Series E Convertible Preferred Stock and CIT Capital Securities, Inc. may require the Company to register “Eligible Securities” as defined therein. The holders of Eligible Securities, as a group, may require an aggregate of four such registrations provided that each such registration is of an amount of shares representing at least $5 million of market value.

     The holders of Eligible Securities are also entitled to customary “piggy-back” registration rights in the event that the Company proposes to register shares of its Common Stock for sale to the public (excluding shares being registered hereunder and excluding any registration statements on Forms S-4 or S-8), whether for its own account or for the account of other security holders (or both). If such registration is, in whole or in part, an underwritten public offering and the underwriters institute customary cut-back procedures, then such piggy-back registration rights shall be subject to cut-back pro rata with any other shares proposed to be registered and sold in such offering, other than shares to be sold by the Company. In the event that underwriters institute customary cut-back procedures in respect of a registration requested by the holders of Eligible Securities, however, any shares registered pursuant to a registration requested by the holders of Eligible Securities will have priority over the shares sought to be included therein by any other selling stockholder.

     Under the Amended and Restated Investor Rights Agreement, each investor and CIT Capital Securities, Inc., subject to certain exceptions, have a right of first offer with respect to future sales by the Company of shares of its capital stock, in order to maintain their respective percentage ownership interests, and also have the right to acquire any shares that the other parties within this group decline to purchase.

     Amended and Restated Stockholders Agreement

     The holders of our Series E Convertible Preferred Stock (other than SF Capital Partners, Ltd.) and the Company also entered into an Amended and Restated Stockholders Agreement (the

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“Stockholders Agreement”). Under the Stockholders Agreement, the Company and such holders (the “Holders”) agree:

	•		For so long as the aggregate number of issued and outstanding shares of Series E Preferred Stock is at least 90,000 shares, the four Holders holding the greatest number of shares of Series E Preferred Stock, for so long as each such Holder and its Affiliates hold in the aggregate at least 12.5% of the aggregate number of issued and outstanding shares of Series E Preferred Stock as of March 22, 2004, shall each be entitled to designate for nomination by the Board one nominee for election to the Board by the holders of the Series E Preferred Stock each time Directors of the Company are to be elected.
	•		For so long as the aggregate number of issued and outstanding shares of Series E Preferred Stock is at least 65,000 shares but less than 90,000 shares, the three Holders holding the greatest number of shares of Series E Preferred Stock, for so long as each such Holder and its Affiliates hold in the aggregate at least 9.375% of the aggregate issued and outstanding shares of Series E Preferred Stock as of March 22, 2004 shall each be entitled to designate for nomination by the Board one nominee for election to the Board by the holders of the Series E Preferred Stock each time Directors of the Company are to be elected.
	•		For so long as the aggregate number of issued and outstanding shares of Series E Preferred Stock is at least 45,000 shares but less than 65,000 shares, a majority-in-interest of the outstanding shares of Series E Preferred Stock shall be entitled to designate for nomination by the Board two nominees for election to the Board by the holders of the Series E Preferred Stock each time Directors of the Company are to be elected.
	•		For so long as the aggregate number of issued and outstanding shares of Series E Preferred Stock is at least 20,000 shares but less than 45,000 shares a majority-in-interest of the outstanding shares of Series E Preferred Stock shall be entitled to designate for nomination by the Board one nominee for election to the Board by the holders of the Series E Preferred Stock each time Directors of the Company are to be elected.

     If a Holder possesses the right to designate for nomination to the Board its nominee, or no longer possesses a right to designate for nomination to the Board a nominee, but such Holder and its Affiliates hold at least an aggregate of 2,000,000 shares of the Common Stock (calculated assuming the exercise of all rights, options and warrants to purchase Common Stock or securities convertible or exchangable for shares of Common Stock, and the exchange or conversion of all securities convertible or exchangeable for Common Stock), then such Holder shall be entitled to designate one individual to serve as a Board Observer, provided that, notwithstanding the foregoing, (i) while Leaf Mountain Company LLC holds 10,000 or more shares of Series E Preferred Stock (as adjusted for stock splits, stock combinations and the like), Leaf Mountain shall be entitled to designate one individual to serve as a Board Observer , and (ii) while Morgan Stanley Dean Witter Equity Funding, Inc. and Originators Investment Plan, L.P. collectively hold 7,500 or more shares of Series E Preferred Stock (as adjusted for stock splits, stock combinations and the like), Morgan Stanley Dean Witter Equity Funding, Inc. shall be entitled to designate one individual to serve as a Board Observer.

     Each Holder also agrees that if it converts more than 50% of the Series E Convertible Preferred Stock received by it upon closing under the Redemption and Exchange Agreement, it will, at the request of the Company, convert the remainder of its Series E Convertible Preferred Stock into shares of Common Stock.

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     Amended and Restated Stock Trading Agreement

     Each holders of our Series E Convertible Preferred Stock, CIT Capital Securities, Inc. and certain officers of the Company entered into an Amended and Restated Stock Trading Agreement that provides for restrictions on their sale of Common Stock into the public market. Under such Amended and Restated Stock Trading Agreement, the terms of the prior Stock Trading Agreements (the “Prior Agreements”) continue to be effective through September 7, 2004. As part of the Prior Agreements the parties agree not to sell their respective shares of Common Stock into the public market except that the parties may sell their respective shares subject to the following restrictions:

	•		the closing price of our Common Stock as reported on the American Stock Exchange (or, if not traded on the American Stock Exchange, any national securities exchange or automated quotation services on which the Common Stock is then listed for trading) must exceed $4.00 per share (as adjusted for stock splits, stock combinations and the like) for each of the twenty (20) consecutive trading days immediately prior to the date of sale;
	•		the number of shares of Common Stock sold by a party on any trading day may not exceed five percent of the average daily trading volume of the Common Stock as reported on the American Stock Exchange (or, if not traded on the American Stock Exchange, any national securities exchange or automated quotation services on which the Common Stock is then listed for trading) for the twenty (20) consecutive trading days (as adjusted to exclude the highest and the lowest volume trading days for such twenty (20) consecutive trading day period) ending on the date immediately prior to such trading day;
	•		the average daily trading volume of the Common Stock as reported on the American Stock Exchange (or, if not traded on the American Stock Exchange, any national securities exchange or automated quotation services on which the Common Stock is then listed for trading) for the twenty (20) consecutive trading days (as adjusted to exclude the highest and the lowest volume trading days for such twenty (20) consecutive trading day period) ending on the date immediately prior to such trading day must exceed 150,000 shares;
	•		the number of shares of Common Stock sold by a party into the public market in any three-month period may not exceed fifteen percent of that party’s total holdings of Common Stock (calculated assuming the exercise of all rights, options and warrants to purchase Common Stock or securities convertible or exchangeable for shares of Common Stock, and the conversion or exchange of all securities convertible or exchangeable for Common Stock) on the date of the closing of the transactions contemplated by the securities purchase agreement pursuant to which such party executed the applicable Prior Agreement (as adjusted for stock splits, stock combinations and the like); and
	•		sales of 10,000 shares or more of Common Stock must be executed at a minimum price of 90% of the ask price as reported on the American Stock Exchange (or, if not traded on the American Stock Exchange, any national security exchange or automated quotation service on which our shares of Common Stock are listed for trading).

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     Also under the Prior Agreements, subject to the expiration of any “lock-up period” related to a qualified primary offering, each party may sell shares of Common Stock into the public market following a “Qualified Primary Offering” (a firmly underwritten primary public offering of our Common Stock at a price of $5.00 per share or more in which we raise gross proceeds of at least $35 million) subject to the following restrictions:

	•		the number of shares of Common Stock sold by a party on any trading day may not exceed five percent of the average daily trading volume of the Common Stock as reported on the American Stock Exchange (or, if not traded on the American Stock Exchange, any national securities exchange or automated quotation services on which the Common Stock is then listed for trading) for the twenty (20) consecutive trading days (as adjusted to exclude the highest and the lowest volume trading days for such twenty (20) consecutive trading day period) ending on the date immediately prior to such trading day,
	•		the number of shares of Common Stock sold by a party into the public market in any three-month period may not exceed twenty percent of that party’s total holdings of Common Stock (calculated assuming the exercise of all rights, options and warrants to purchase Common Stock or securities convertible or exchangeable for shares of Common Stock, and the conversion or exchange of all securities convertible or exchangeable for Common Stock) on the date of the closing of the transactions contemplated by the securities purchase agreement pursuant to which such party executed the applicable Prior Agreement (as adjusted for stock splits, stock combinations and the like), and
	•		sales of at least 10,000 shares of Common Stock must be executed at a minimum price of 90% of the ask price as reported on the American Stock Exchange (or, if not traded on the American Stock Exchange, any national security exchange or automated quotation services on which our shares of Common Stock are listed for trading).

     Each party to a Prior Agreement has a right of first offer if any other party to such Prior Agreement intends to sell its shares in a private transaction. The Prior Agreements were scheduled to terminate September 7, 2004. However, if a Qualified Primary Offering is completed prior to September 7, 2004, two of the Prior Agreements would instead terminate 18 months after the completion of the Qualified Primary Offering.

     Under the Amended and Restated Stock Trading Agreement, effective September 8, 2004, the foregoing restrictions will end and thereafter no party may sell any of its Common Stock into the public market except in accordance with the following trading restrictions:

	(a)		At any time the Closing Price on the then prior trading day is $4.00 per share or more, no trading restrictions shall apply.
	(b)		Until September 8, 2007, at any time the Closing Price on the prior trading day is at least $2.00 per share but less than $4.00 per share, such party may sell any of its Common Stock into the public market, subject to the following conditions:

(i)

the number of shares of Common Stock sold by such party on any trading day may not exceed fifteen percent (15%) of the average daily trading volume; and

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(ii)

sales of 10,000 shares or more by such party must be executed at a minimum price per share of 90% of the ask price as reported on the American Stock Exchange (or, if not traded on the American Stock Exchange, any national securities exchange or automated quotation services on which the Common Stock is then listed for trading).

(c)

Until September 8, 2007, at any time the Closing Price on the prior trading day is at least $1.00 per share but less than $2.00 per share, such party may sell any of its Common Stock into the public market, subject to the following conditions:

	(i)		the number of shares of Common Stock sold by such party on any trading day may not exceed ten percent (10%) of the average daily trading volume; and
	(ii)		sales by such party of 10,000 shares or more must be executed at a minimum price per share of 90% of the ask price as reported on the American Stock Exchange (or, if not traded on the American Stock Exchange, any national securities exchange or automated quotation services on which the Common Stock is then listed for trading).

(d)

Until September 8, 2007, at any time the Closing Price on the prior trading day is less than $1.00 per share, such Party may sell any of its Common Stock into the public market, subject to the following conditions:

	(i)		the number of shares of Common Stock sold by such party on any trading day may not exceed five percent (5%) of the average daily trading volume; and
	(ii)		sales by such party of 10,000 shares of more must be executed at a minimum price per share of 90% of the ask price as reported on the American Stock Exchange (or, if not traded on the American Stock Exchange, any national securities exchange or automated quotation services on which the Common Stock is then listed for trading).

     Certain shares held by Leaf Mountain Company, LLC, SF Capital Partners, Ltd., and Richard Kiphart are not subject to the Amended and Restated Trading Agreement.

Other Preferred Stock

     Our board of directors, without further stockholder approval (other than the approval of the holders of the Series E Convertible Preferred Stock described above under “Special Approval Rights”), may issue additional preferred stock in one or more series from time to time and fix or alter the designations, relative rights, priorities, preferences, qualifications, limitations and restrictions of the shares of each series. The rights, preferences, limitations and restrictions of different series of preferred stock may differ with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions and other matters. Subject, in each case, to obtaining any required approval of the holders of the Series E Convertible Preferred

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Stock, our board of directors (1) may authorize the issuance of preferred stock that ranks senior to our Common Stock for the payment of dividends and the distribution of assets on liquidation, (2) can fix limitations and restrictions upon the payment of dividends on our Common Stock to be effective while any shares of preferred stock are outstanding, and (3) can also issue preferred stock with voting and conversion rights that could adversely affect the voting power of the holders of Common Stock.

Delaware Anti-Takeover Law

     We are subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, this section prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years after the date of the transaction in which the person becomes an interested stockholder, unless:

	•		before the date on which the stockholder became an interested stockholder, the corporation’s board of directors approved either the business combination or the transaction in which the person became an interested stockholder;
	•		the stockholder acquires more than 85% of the outstanding voting stock of the corporation, excluding shares held by directors who are officers or held in certain employee stock plans, upon consummation of the transaction in which the stockholder becomes an interested stockholder; or
	•		the business combination is approved by the board of directors and by two-thirds of the outstanding voting stock of the corporation that is not held by the interested stockholder, at a meeting of the stockholders held on or after the date of the business combination.

     An interested stockholder is a person who, together with affiliates and associates, owns, or at any time within the prior three years did own, 15% or more of the corporation’s voting stock. Business combinations include, without limitation, mergers, consolidations, stock sales, asset sales or other transactions resulting in a financial benefit to interested stockholders.

Anti-Takeover Effects of Certain Charter and By-Law Provisions

     Our charter and by-laws contain provisions relating to corporate governance and to the rights of stockholders. Our by-laws provide that special meetings of stockholders may only be called by our Board of Directors, our Chairman of the Board or our President and shall be called by our Chairman, President or Secretary at the request in writing of stockholders owning at least one-fifth of the outstanding shares of capital stock entitled to vote. In addition, our charter provides that our Board of Directors may issue preferred stock without further stockholder approval (other than approval of the holders of Series E Convertible Preferred Stock described above under “Special Approval Rights”) and upon those terms and conditions, and having those rights, privileges and preferences, as our Board of Directors may determine.

Transfer Agent and Registrar

     The transfer agent and registrar for our Common Stock is LaSalle Bank N.A.

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EXPERTS

     The financial statements included in this Prospectus and in the Registration Statement have been audited by BDO Seidman, LLP, independent certified public accountants to the extent and for the periods set forth in their report appearing elsewhere herein and in the Registration Statement, and are included in reliance upon such report given upon said authority of said firm as experts in auditing and accounting.

COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITY

     Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to our charter, bylaws or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim of indemnification against such liabilities (other than the payment by us of expenses incurred or paid by one of our directors, officers or controlling persons in the successful defense of any action, suit or proceeding) is asserted by one of our directors, officers or controlling persons in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

DESCRIPTION OF BUSINESS

Overview/History

     On December 5, 1997, we were initially formed as Electric City LLC, a Delaware limited liability company, by Joseph C. Marino, one of our principal stockholders, and NCVC, LLC, an entity controlled by Victor Conant, Kevin McEneely and DYDX Consulting LLC, an entity that is controlled by Nikolas Konstant. We were formed in order to make and sell products under the EnergySaver technology licensed from Georgio Reverberi, which we began doing in 1998. In May 1998, Mr. Marino assigned his membership interest in us to Pino Manufacturing, LLC, an entity controlled by Mr. Marino.

     On June 5, 1998, we changed from a limited liability company into a corporation by merging Electric City LLC into Electric City Corp., a Delaware corporation. In connection with our merger, NCVC, LLC and Pino Manufacturing, LLC received shares of Common Stock in Electric City Corp. in exchange for their membership interests in Electric City LLC.

     On June 10, 1998, Electric City issued 1,200,272 shares of its Common Stock with a fair market value of $1,200,272 representing approximately six (6%) percent of Electric City’s issued and outstanding Common Stock, to the approximately 330 shareholders of Pice Products Corporation (“Pice”), an inactive, unaffiliated company with minimal assets, pursuant to merger agreement under which Pice was merged with and into Electric City. The number of shares issued to Pice was determined and negotiated with the principals of Pice by the Company’s Board of Directors as a whole and was concluded by the Board to be an “arm’s length transaction” in that none of the Board of Directors was in any way affiliated with, or related to the principals of Pice. The purpose of the merger

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was to substantially increase the number of our shareholders to facilitate the establishment of a public trading market for our Common Stock. Trading in our Common Stock commenced on August 14, 1998 through the OTC Bulletin Board under the trading symbol “ECCC”.

     In May 1999, we purchased most of the assets of Marino Electric, Inc., an entity controlled by Mr. Marino, for $1,792,000 in cash and 1,600,000 shares of our Common Stock. Marino Electric was engaged in the business of designing and manufacturing custom electrical switchgear and distribution panels. Under the terms of the purchase agreement, we were obligated to pay the cash portion of the purchase price upon the closing of our private issuance of Common Stock that commenced in July 1999. In May 2000, Mr. Marino waived this requirement and instead received a payment of $820,000 in cash and a subordinated secured term note for the principal amount of $972,000 at an interest rate of 10% per annum, payable in equal installments over 24 months. This note was repaid in full in May 2002.

     On August 31, 2000, pursuant to an Agreement and Plan of Merger among us, Switchboard Apparatus, Inc. and Switchboard Apparatus’s stockholders, Dale Hoppensteadt, George Miller and Helmut Hoppe, we acquired Switchboard Apparatus in a transaction in which Switchboard Apparatus was merged into our wholly-owned subsidiary, with our subsidiary continuing as the surviving corporation under the name Switchboard Apparatus, Inc. The aggregate purchase price of $1,941,750 was paid in the form of 551,226 shares of our Common Stock. Switchboard Apparatus was engaged in designing and manufacturing custom electrical switchgear and distribution panels.

     Effective December 4, 2000, Joseph P. Marino, one of our founders and former Chairman of the Board of Directors, resigned his position as Chairman and terminated his employment with us. Concurrent with his resignation, Mr. Marino became a distributor for our EnergySaver products in the states of California, Arizona and Nevada (See, “Certain Relationships and Related Transactions”).

     On June 7, 2001, pursuant to an Agreement and Plan of Merger by and among us, Electric City Great Lakes Acquisition Corporation, Great Lakes Controlled Energy Corporation (“Great Lakes”) and Great Lakes’ stockholders, Eugene Borucki and Denis Enberg, we acquired Great Lakes. Great Lakes is an independent systems integrator and facilities support specialist and focuses on building automation controls for lighting and HVAC systems for commercial applications. Great Lakes is also a national representative and distributor of select energy metering and control systems. In connection with the acquisition, Great Lakes was merged into our wholly-owned subsidiary Electric City Great Lakes Acquisition Corporation, with our subsidiary continuing as the surviving corporation under the name Great Lakes Controlled Energy Corporation. The aggregate purchase price of $678,500 was paid to the Sellers in the form of 212,904 shares of our Common Stock.

     On June 3, 2003, we entered into an Asset Purchase Agreement with Hoppensteadt Acquisition Corp. (“Hoppensteadt”), whereby Hoppensteadt acquired all of the assets, except for certain receivables and cash, and assumed all of the liabilities, except for bank debt, of Switchboard Apparatus, Inc., as of May 31, 2003 in exchange for $929,032 in cash. In addition, Electric City agreed to allow Hoppensteadt to assume the name “Switchboard Apparatus, Inc.” after completion of the sale. Hoppensteadt is controlled by Dale Hoppensteadt, who was president of Switchboard from September 1, 2000 until the sale was consummated on June 3, 2003. As part of the transaction both parties entered into a Strategic Alliance, Co-Marketing and License Agreement under which Electric City will continue to market Switchboard products and Switchboard will continue to manufacture Electric City’s TP3 line of switchgear.

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     An analysis and reconciliation of the Company’s business segment information to the respective information in the consolidated financial statements is as follows:

(1)

2002 operating loss includes a $108,000 impairment loss

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Products And Services

     The Company currently manufactures products or provides services under two distinct business segments; the energy technology segment and the building control and automation segment. The energy technology segment includes the EnergySaver and GlobalCommander product lines manufactured and sold by Electric City Corp. In addition, this segment markets the Virtual “Negawatt” Power Plan (“VNPP”), which is essentially a negative power system which is designed for utilities as a demand response system. The building control and automation segment is served by Great Lakes Controlled Energy Corporation, a wholly owned subsidiary of Electric City Corp., which specializes in the installation and maintenance of building control and automation systems. Until June 1, 2003, we also manufactured custom electrical switchgear through Switchboard Apparatus Inc., a wholly owned subsidiary located in Broadview Illinois. In an effort to refocus our resources and shed the continuing losses from the switchgear business, we sold the operating assets of Switchboard to a group of investors, including the President of Switchboard, effective as of May 31, 2003.

EnergySaver

     The EnergySaver system is a state-of-the-art lighting control system that reduces energy consumption in indoor and outdoor commercial, institutional and industrial ballasted lighting systems, while maintaining appropriate lighting levels. The EnergySaver is a freestanding enclosure that contains control panels with electrical parts and is connected between the incoming power line and the building’s electrical lighting circuits. The EnergySaver also contains a computer with software that allows the customer to control the amount of energy savings desired which, depending on the application, can be as high as 50%, and provides self-diagnosis and self-correction. The customer can access the EnergySaver’s computer directly or remotely via modem, network or two-way radio.

     The EnergySaver is manufactured to varying sizes and capacities to address differing lighting situations. We can interface our EnergySaver products with new and existing lighting panels, ballasts and lamps without modification. In addition, the EnergySaver system reduces the power consumed by lamps and ballasts and reduces power spikes, drops and surges inherent in any power supply, resulting in a reduction of heat generated within the lighting system, which enhances ballast and lamp life and reduces the amount of air conditioning necessary to cool the building.

GlobalCommander

     The GlobalCommander system is an advanced lighting controller capable of providing large-scale demand side management and savings measurement and verification without turning off the user’s lights. The GlobalCommander bundles the EnergySaver technology with an area-wide communication package to allow for maximum energy reductions across entire systems in response to the guidelines of a customer’s facility manager. In addition, the GlobalCommander has the ability to measure and store information about the actual savings generated from the use of the EnergySaver. This information, which can be viewed in a tabular or graphical format and can be downloaded to a user’s computer, is often required for a customer to qualify for utility incentives for energy savings and curtailment. The GlobalCommander also allows customers to control their facilities’ loads and lighting requirements from a single control point. This single-point control is available for a virtually unlimited number of remote facilities and can be accessed through the Internet, intranet or over standard telephone lines through dial-up modems.

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Virtual Negawatt Power Plan

     The combined technology of the EnergySaver and GlobalCommander led to the development of our Virtual “Negawatt” Power Plan (“VNPP”), which is essentially a negative power system which we market primarily to utilities as a demand response system. The VNPP allows a utility to remotely control commercial, industrial and government lighting systems over a managed and secure IP network. Through the use of the EnergySaver/GlobalCommander system, the utility is able to reduce electric demand requirements during periods of peak demand, providing instantaneous control, measurement and verification of load reduction. The demand reduction can be specifically placed across a utility grid targeting potential “hot spots” such as particular substations, etc. We believe that the Electric City VNPP will be the first demand response system to provide this level of control to a utility without requiring active customer participation and without impacting a customer’s operations or ability to do business.

     Our first VNPP system is under development for ComEd in Chicago. The 50 MW system will represent one of the largest deployments of demand control technology in the United States. The system will cost approximately $17 million to $20 million and is expected to incorporate approximately 1,500 EnergySaver systems (the actual cost and number of units installed will depend on many factors including the mix of EnergySaver models installed and the cost of installation which will vary by site). We expect that the cost of the system will be financed by third party investors, supported through a long-term agreement with ComEd. In exchange for hosting the system and allowing remote control over peak demand, ComEd customers will receive the technology for free and will receive free steady state energy savings. For additional information regarding the VNPP please see the discussion under the section entitled “Risks Related to Our Business.”

Building Control and Automation

     Through our wholly owned subsidiary, Great Lakes Controlled Energy Corporation, we provide integration of building and automation control systems for commercial and industrial customers. Great Lakes has been providing building automation services for over 20 years and is an authorized distributor for Delta Controls, WattStopper and Power Measurement Ltd., and is a dealer for Novar Controls and ABB Drives.

Marketing, Sales And Distribution

     We have established relationships with distributors (also referred to as “State Representatives”) to market and distribute our EnergySaver products to end-users. As of March 31, 2004, we had eight distributor/state representative agreements covering Arizona, California, Illinois, Indiana, Nevada, New Jersey, Pennsylvania, and Texas. Each distributor is responsible for developing and managing a sales network within its respective territory. Typically the distributor does this by establishing direct relationships with end-users or through dealerships within the territory and overseeing the sales, installation and maintenance of our products by those dealerships. If a distributor sells any of our products outside its territory, such distributor operates as a dealer, meaning it manages end-user sales only. The distributor earns a commission on any sale of our products in its territory whether initiated by the distributor itself, a dealer, or by us.

     Our standard distribution agreement gives the distributor certain exclusive rights of distribution in a particular territory, includes sales quotas that increase periodically throughout the term of the agreement, and requires the distributor to make payment to us within 30 to 60 days of product shipment. The agreement contains penalties for failure to meet quotas or make payments, including the

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loss of certain exclusive rights of distribution. Currently, a number of our distributors have violated the terms of their agreements for failing to meet their quotas and are delinquent in payments due Electric City. We are working with our distributors to address these issues. In addition, the standard distribution agreement has a term of 10 years after which it is renewable at our discretion. The standard distribution agreement can be terminated at our discretion if the distributor fails to meet the terms of the distribution agreement.

     National accounts (such as chain stores, and large multi-site corporations), municipalities and other large campus customers are managed by our corporate sales engineering group. This group concentrates its sales efforts on the energy engineering staffs of these types of entities, which analyze and recommend the purchase of products like ours for their multiple sites. The sales force also supports, coordinates and manages multiple sales channels. Substantially all of our sales of EnergySavers and GlobalCommander products have been to U.S. customers

     Our Utility Development area is responsible for marketing the VNPP to utilities. Once a utility signs a VNPP agreement we work jointly with the utility to sign up energy users to participate in the curtailment program by agreeing to permit the installation of the EnergySaver in their facilities at no cost to the user.

     Great Lakes sells its building automation control systems either directly to end-users (typically commercial or industrial building owners) or by bidding on contracts let by general contractors for new construction or building renovation projects. All of our sales of Great Lakes’ products have been to U.S. customers.

Customers

     During 2003, sales to our top five EnergySaver customers accounted for 90% of total EnergySaver sales. The top five customers for 2003 were Cal State University, Electric City of Pennsylvania, M&A Railroad and Electric Supply, the New York Power Authority and Sports Chalet, two of which were dealers or distributors of the Company’s products. End user customers for the EnergySaver during 2003 included, but were not limited to, A&P, Federal Express, Gillette, Raley’s, Telmex, PetSmart and U.S. Foodservice. During 2002, sales to our top five EnergySaver customers accounted for 79% of total EnergySaver sales. The top five customers for 2002 were Electric City of Pennsylvania, The Illinois Department of Central Management Services, LGI Energy Solutions, M&A Railroad and Electric Supply and PSEG Energy Technologies, all but one of which are dealers or distributors of the Company’s products. The end user customers of these dealers and distributors include Toyota Motors, and Lifetime Fitness. Other end user customers for the EnergySaver during 2002 included, but were not limited to Bunzl Distribution, Gillette, Reckitt Benckiser, Sage Products, the U.S. Post Office and Union Pacific. During 2001, sales to our top five EnergySaver customers comprised 59% of total EnergySaver sales. Four of these top five EnergySaver customers included Electric City of Southern California, Electric City of Illinois, Electric City of Indiana and Electric City of Pennsylvania, who are our distributors. Electric City of Southern California is owned by Joseph Marino, our former Chairman and Director (See, “Certain Relationships and Related Transactions”).

     During 2003, sales to the top five customers of Great Lakes Controlled Energy accounted for 85% of Great Lakes’ sales. Great Lakes’ top five customers were Claire’s Stores, Discover Card Financial, Hill Mechanical, Jacobsen-Power and Teschky, Inc. During 2002, sales to the top five customers of Great Lakes Controlled Energy accounted for 88% of Great Lakes’ sales. Great Lakes’ top five customers for 2002 were 5445 Edgewater Plaza Condo Association, BBM Engineering, Golub & Company, Jacobson-Power, and Teschky, Inc. For the period beginning June 2001, following our

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acquisition of Great Lakes Controlled Energy Corporation, through December 31, 2001, the top five customers of Great Lakes comprised 78% of its sales, which customers included 2800 Lake Shore Drive Condominium Association, College of Pathologists, Hill Mechanical Corp., National Heat & Power Corp. and U.S. Power Corp.

Competition

     There are a number of products on the market that directly or indirectly compete with the EnergySaver products. These competing products can be categorized into three general types:

	•		those that convert AC to DC at a central location,
	•		those that pulsate the power to the lighting system; and
	•		other control products similar to the EnergySaver system.

     Products that fall into the first category convert AC to DC at a central location and do so more efficiently than it is done by the standard electronic ballast in each light fixture. The main drawback to this technology is that the transmission of DC power over any distance is generally less efficient and more dangerous than transmitting AC power. This technology also requires the rewiring of every light fixture on the circuit.

     Products that pulsate the power in the lighting system turn the power off and on so quickly (120 times/second) that the lights remain on. This process, which is generally known as “wave chopping,” distorts the AC waveform and thereby produces harmonics in a building’s electrical system that can damage other electrical components such as electric motors and electronic devices. The process also contributes to the reduction of life of lamps and ballasts in lighting fixtures.

     Control products control power consumption at the lights, at the lighting circuit or at the control panel. Products that control the power at the lights or at the lighting circuit must be wired to each fixture or to each circuit, resulting in high installation cost, which makes these products less competitive from an economic perspective. The EnergySaver controls power consumption at the lighting panel, making it much simpler and less expensive to install and maintain. There are other products on the market that also control power consumption at the lighting panel, but the EnergySaver is the only product that we are aware of that offers total real time variability of savings levels, remote communications and savings measurement and verification capabilities. We also believe that the EnergySaver has the largest installed base of any lighting control power reduction system of its type. Electric City differentiates its products from its competitors based on the product’s features, installed cost and performance.

     Great Lakes Controlled Energy competes against both large national controls companies and smaller regional distributors of building controls. Two of the large national controls companies that Great Lakes competes with are Siemens and Johnson Controls, both of whom have significantly greater financial and operating resources than Great Lakes. Great Lakes sells its products and services based on system capabilities, experience, service and price.

Manufacturing

     Our EnergySaver and GlobalCommander product lines are manufactured at our facilities in Elk Grove Village, Illinois, with manufacturing and assembly scaled to order demand. We believe that our facility can support sales of $15 to $20 million without significant additional investment in fixed assets. Rather than adding significantly to our manufacturing overhead to meet anticipated increases

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in demand, we plan to leverage a new outsourcing relationship recently established with GE Industrial to provide major system components and outsourced production for our EnergySaver product line. The three-year non-binding agreement includes reciprocal purchasing, VNPP participation, joint product development and additional joint efforts.

     The primary components for the EnergySaver are sourced from multiple manufacturers. We are in continuous discussion with additional parts suppliers, seeking to ensure lowest cost pricing and reliability of supply.

     Approximately 40% and 17% of our consolidated material purchases were made from Delta Controls during the years ended December 31, 2003 and 2002. Great Lakes is a distributor of Delta Controls products and uses Delta’s products extensively in its building control projects. Delta components are also used in our EnergySaver product line. No other single supplier accounted for more than 10% of our total material purchases during 2003, but one supplier represented 14% of our purchases in 2002. During the year ended December 31, 2001, one supplier represented approximately 26% of our total material purchases.

Compliance With Environmental Laws

     Neither the Company’s production nor sales of its products in any material way generate activities or materials that require compliance with federal, state or local environmental laws.

Research and Development

     The Company, through the day-to-day use of the EnergySaver and its components, and use at various testing sites around the country, develops modifications and improvements to its products. Total research and development costs charged to operations were approximately $70,000, $65,000, and $289,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

Intellectual Property

     Certain technologies underlying the EnergySaver products have been patented in the U.S. and Italy by Giorgio Reverberi. A U.S. patent application was filed by Mr. Reverbveri in November 1997, and a patent was issued in June 2000.

     Since January 1, 1998, we, along with Mr. Reverberi and Mr. Marino, have entered into a number of agreements relating to the license of the EnergySaver technology, which grant us the exclusive license rights of Mr. Reverberi’s patent of the EnergySaver technology in all of North America, Central America, South America (excluding the countries of Argentina, Brazil, Chile, Paraguay and Uruguay) and the Caribbean (except Cuba), as well as Africa (excluding the countries of Algeria, Libya, Morocco and Tunisia). Our license expires upon the expiration of Mr. Reverberi’s last expiring patent, which we expect to be on or around November 2017. If either party materially breaches the license and fails to cure the breach within 180 days after notice by the other party of the breach, the other party can terminate the license. We pay Mr. Reverberi a royalty of $200 and Mr. Marino a royalty of $100 for each EnergySaver product we make or sell in territories in which Mr. Reverberi holds a valid patent.

     We have applied for several patents on improvements we have made to the core technology developed by Mr. Reverberi. On April 6, 2004 we received a 20-year patent on the core technology

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utilized by the GlobalCommander. We have other patents that are pending before the U.S. Patent and Trademark Office, as well as foreign patent offices.

     We have applied for registration of the name EnergySaver pursuant to a U.S. trademark application filed September 15, 2000. In addition, we filed with the U.S. Patent and Trademark Office an intent-to-use trademark application for each of GlobalCommander, Virtual Negawatt Power Plant and VNPP on November 13, 2000. During January 2002, we were notified that the application for the name GlobalCommander and VNPP had been approved. We abandoned efforts to register the name Virtual Negawatt Power Plant because of existing trademarks that included similar terms. The registration of the name EnergySaver is still pending with the U.S. Patent and Trademark Office.

     During March 2001, we established a new policy that requires all non-union employees to sign an Employee Innovations and Proprietary Rights Assignment Agreement. This agreement is intended to ensure that any intellectual property or know-how developed as part of an employee’s work for the Company is and remains the property of the Company. All current non-union employees have signed such an agreement.

     On April 12, 2001, Denis Enberg assigned his rights to any technology developed by him for, or on behalf of the Company or Switchboard Apparatus to the Company. Mr. Enberg had been working for the Company on the GlobalCommander Technology. Mr. Enberg was also a shareholder and director of Great Lakes, which we acquired on June 7, 2001.

Employees

     As of May 19, 2004, we had 27 full time employees, of which five were management and corporate staff, three were engineers, six were engaged in sales and marketing, six were engaged in field service and seven were engaged in manufacturing. Of those employees engaged in manufacturing, five are covered by collective bargaining agreements between Electric City and the International Brotherhood of Electrical Workers (“IBEW”), which is affiliated with the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO). In May of 2002 we renewed the collective bargaining agreement covering all union employees. The new agreement will expire on May 31, 2005.

SELECTED CONSOLIDATED FINANCIAL DATA

     The selected financial data set forth below as of December 31, 2003 and 2002 and for each of the three years in the period ended December 31, 2003 are derived from our audited financial statements included with this prospectus. The selected financial data set forth below for the year ended December 31, 2000, and the balance sheet data as of December 31, 2001 and December 31, 1999 has been derived from our audited financial statements and is not included with this prospectus. This selected financial data for the year ended December 31, 2000 has been revised from the original presentation in the audited financial statements to reflect the Company’s Power Management segment as a discontinued operation (consistent with the years ended December 31, 2001, 2002 and 2003). The selected financial data set forth below for the eight months ended December 31, 1999 is derived from our audited financial statements which are not included in this prospectus. The financial statements for the eight months ended December 31, 1999 do not reflect discontinued operations as the Company did not acquire Switchboard Apparatus until fiscal 2000. The selected financial data for the three month periods ended March 31, 2003 and 2004 has been derived from our unaudited financial statements; however, such information reflects all adjustments (consisting solely of normal recurring adjustments),

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which, in the opinion of management, are necessary for a fair statement of results for the interim periods. Copies of these interim statements are included with this prospectus.

     In the year ended December 31, 2002, we adopted FAS 142 “Goodwill and Other Intangible Assets”, which among other things, provides that goodwill no longer be amortized. As a result, the Company recorded no good will amortization during 2002, 2003 or 2004, where as it recorded approximately $555,000 and $397,000 during 2001 and 2000, respectively and $196,000 during the eight month period ended December 31, 1999. For a detailed discussion on the application of these and other accounting policies, see Note 2 in the notes to the consolidated financial statements.

     The historical results presented below are not necessarily indicative of the results to be expected for any future period. The data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our financial statements, including the notes thereto, included elsewhere in this prospectus.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

     The following discussion regarding us and our business and operations contains “forward looking statements” within the meaning of the Private Securities Litigation Act of 1995. Such statements consist of any statement other than a recitation of historical fact and can be identified by the use of forward-looking terminology such as “may,” “expect,” “anticipate,” “estimate” or “continue” or the negative of such terms or other variations of such terms or comparable terminology. You are cautioned that all forward-looking statements are necessarily speculative and there are certain risks and uncertainties that could cause actual events or results to differ materially from those referred to in such forward-looking statements. We discuss many of these risks in greater detail under the heading “Risk Factors.” Except as required by law, we do not have a policy of updating or revising forward-looking statements and, therefore, you should not assume that our silence over time means that actual events are bearing out as estimated in such forward-looking statements.

     We have operating history of only a few years. All risks inherent in a new and inexperienced enterprise are inherent in our business.

Critical Accounting Policies

     The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. We believe that our critical accounting policies are limited to those described below. For a detailed discussion on the application of these and other accounting policies, see Note 2 in the notes to the consolidated financial statements.

     Use of Estimates

     Preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenues and expenses and related contingent liabilities. On an on-going basis, the Company evaluates its estimates, including those related to revenues, bad debts, income taxes and contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

     Revenue Recognition

     The Company recognizes revenue when all four of the following criteria are met: (i) persuasive evidence has been received that an arrangement exists; (ii) delivery of the products and/or services has occurred; (iii) the selling price is fixed or determinable; and (iv) collectibility is reasonably assured. In addition, the Company follows the provisions of the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104, Revenue Recognition, which sets forth guidelines in the timing of revenue recognition based upon factors such as passage of title, installation, payments and customer

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acceptance. Any amounts received or invoiced prior to satisfying the Company’s revenue recognition criteria is recorded as deferred revenue in the accompanying balance sheet. The most common source of deferred revenue for the Company is building automation projects in which the customer is billed in advance for some portion of the work to be performed. The Company also records the purchase price for certain distributor territories as deferred revenue, recognizing the purchase price as revenue over the term of the underlying distribution agreement.

     Profit Recognition on Long-Term Contracts

     We account for long-term contracts under the percentage of completion method. Effective January 1, 2003, due to our limited experience in estimating the profitability on long-term building automation control contracts, we elected to begin to defer profit on all long-term building automation control contracts until completion of the job, at which time the actual profit on the job will be known and recognized.

     Allowance for Doubtful Accounts

     We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. The allowance is largely based upon specific knowledge of customers from whom collection is determined to be doubtful and the Company’s historical collection experience with such customers. If the financial condition of our customers or the economic environment in which they operate were to deteriorate, resulting in an inability to make payments, or if our estimates of certain customer’s ability to pay are incorrect, additional allowances may be required. During 2003, the Company recovered $66,632 on receivables that it had previously reserved for as doubtful. As of December 31, 2003, the Company’s allowance for doubtful accounts was approximately $326,000, or 18.3% of the outstanding accounts receivable.

     Impairment of Long-Lived Assets.

     We record impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those items. Our cash flow estimates are based on historical results adjusted to reflect our best estimate of future market and operating conditions. The net carrying value of assets not recoverable is reduced to fair value. Our estimates of fair value represent our best estimate based on industry trends and reference to market rates and transactions.

     Goodwill

     The Company made acquisitions in the past that included a significant amount of goodwill and other intangible assets. Under generally accepted accounting principles in effect through December 31, 2001, these assets were amortized over their estimated useful lives, and were tested periodically to determine if they were recoverable from operating earnings on an undiscounted basis over their useful lives. Effective in 2002, goodwill is no longer amortized but is subject to an annual (or under certain circumstances more frequent) impairment test based on its estimated fair value. Estimated fair value is less than values based on undiscounted operating earnings because fair value estimates include a discount factor in valuing future cash flows. There are many assumptions and estimates underlying the determination of an impairment loss, including economic and competitive conditions, operating costs and efficiencies. Another estimate using different, but still reasonable, assumptions could produce a significantly different result. During the year ended December 31, 2002, the Company determined that the estimated fair value of goodwill associated with its power management business exceeded the carrying value and as a result recognized an impairment loss of $4,103,872, which was recorded as a cumulative effect of a change in an accounting principle. As part of our 2002 year-end assessment of the fair value of our goodwill we determined that the carrying value of the goodwill associated with

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the building automation and control business exceeded the fair value by $108,000. This difference between the carrying value and the estimated fair value of the goodwill was recorded as an impairment loss in 2002. As part of our 2003 year-end assessment, we updated our long-term projections for the building automation and controls business and estimated the fair value based on the discounted current value of the expected future cash flows. We then compared the implied fair value of the goodwill to its carrying value and determined that the value of the goodwill was not impaired. It is possible that upon completion of future impairment tests, as the result of changes in facts or circumstances, we may have to take additional charges in future periods to recognize a further write-down of the value of the goodwill attributed to our acquisitions to their estimated fair values.

Results of Operations

     Our revenues reflect the sale of our products and services, net of allowances for returns and other adjustments. Electric City’s sales are generated from the sale of products and services, primarily in the U.S. Four customers individually accounted for more than 10% of our consolidated sales during the years ended December 31, 2003, and December 31, 2002, though only one of these customers individually accounted for more than 10% of our consolidated sales in both years. Only one customer accounted for more than 10% of our consolidated sales in the year ended December 31, 2001.

     Our cost of goods sold consists primarily of materials and labor. Also included in our cost of goods sold are freight, the costs of operating our manufacturing facility, charges from outside contractors used to install our product in our customers’ facilities, charges for potential future warranty claims and royalty costs related to EnergySaver sales.

     Sales and gross profits depend in part on the volume and mix of products sold during any given period. Generally, products that we manufacture have a higher gross profit margin than products and services that we purchase and resell.

     A portion of our operating expense is relatively fixed, such as the cost of our facilities. Accordingly, an increase in the volume of sales will generally result in an increase to our gross margins since these fixed expenses do not increase proportionately with sales. We have never fully utilized the manufacturing capacity of our facilities and, therefore, believe that the fixed nature of some of our expenses would contribute to an increase in our gross margin in future periods if sales volumes increase. In particular we believe that our facility in Elk Grove Village can support a sales level of EnergySavers of approximately $15 million to $20 million per year without a significant investment in fixed assets. It is our intent to outsource manufacturing to third party contract manufacturers once we approach the capacity of our current facility. As is discussed under “Risk Factors”, we have no history of outsourcing.

     Selling, general and administrative (“SG&A”) expenses include the following components:

•		direct labor and commission costs related to our employee sales force;
•		expenses related to our non-manufacturing management, supervisory and staff salaries and employee benefits;
•		commission costs related to our independent sales representatives and our distributors;
•		costs related to insurance, travel and entertainment and office supplies and the cost of non-manufacturing utilities;
•		costs related to marketing and advertising our products;
•		research and development expenses;

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•

costs related to administrative functions that serve to support the existing businesses of the Company, as well as to provide the infrastructure for future growth.

     Interest expense for continuing operations includes the costs and expenses associated with working capital indebtedness, the mortgage on our headquarters building, a convertible term loan, and various auto loans, all as reflected on our current and prior financial statements. Also included in interest expense for 2003 is amortization of the debt discount which includes the fair value of the warrants issued to Laurus Master Funds, as well as the value of beneficial conversion feature attributed to the Convertible Term Loan. Also reported as interest expense is the amortization of deferred financing costs related to the credit facility with Laurus Master Funds.

     Three Months Ended March 31, 2004 Compared to Three Months Ended March 31, 2003.

     Revenue. Our total revenue for the three-month period ended March 31, 2004 declined $334,510 or 29.1% to $816,242 as compared to $1,150,752 for the quarter ended March 31, 2003. Revenue related to EnergySaver sales declined approximately $141,000, or 32%, to approximately $300,000 for the three months ended March 31, 2004 as compared to approximately $441,000 for the same period in 2003. EnergySavers unit sales decreased 28% to 33 units during the first quarter of 2004 from 46 units sold during the first quarter of 2003. We believe the decline in EnergySaver revenue is primarily the result of to management’s decision to shift resources to focus on the Company’s new utility initiative, and in particular the ComEd VNPP. This shift created a lag in revenue due to the startup of our ComEd VNPP. The ComEd VNPP agreement was finalized during the third quarter of 2003 and as a result the Company’s in house sales resources have been actively seeking customers to participate in the newly created program. We began shipment of EnergySavers as part of the ComEd program late in 2003 with continued shipments during the first quarter of 2004, but we have not recognized revenue on any of these shipments.

     We are currently negotiating to transfer the ComEd contract to a limited liability company (the “LLC”) being created by a Chicago based investment bank. The LLC will in turn purchase all the equipment installed under the ComEd program from us and effectively rent the curtailment capacity to ComEd. Under this arrangement ComEd secures a long-term source of curtailment, which among other things reduces its requirements for peak generating capacity and provides a hedge against rising fuel costs, the LLC holds a long-term contract for curtailment capacity payments from Commonwealth Edison and we receive payment for the equipment at the time of customer acceptance, thereby reducing our working capital requirements. We are currently in the process of negotiating and structuring this transaction and as a result have not yet received a firm commitment from the investment bank. We are also reviewing revenue recognition methodologies related to this transaction to determine if we will be able to recognize revenue at the time we transfer equipment to the LLC, or if we will be required to recognize revenue as service revenue over a longer period. We have targeted the second quarter of 2004 for the closing date of this transaction, at which time if we close we will transfer the first batch of installed units to the LLC and receive payment on the installed units. After the first transfer to the LLC, we anticipate transferring newly installed equipment and receiving payment on a regular basis. The ComEd agreement is expected to result in sales of approximately 1,500 units over the next 18 to 24 months. If for some reason we are not able to consummate a transaction of the type described above, and we retain the ComEd agreement, recognition of revenue for the EnergySavers installed thereunder will likely be spread over many years. EnergySaver shipments are expected to increase significantly, beginning in the second quarter 2004, primarily as a result of the ComEd program in combination with continuing and new sales to large scalable commercial customers including among others, the Chicago Public Schools, and Xcel Energy.

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     Revenue from the sale of building automation products and services decreased approximately $178,000, or 27% to $493,000 during the three month period ended March 31, 2004, from approximately $671,000 recorded in the same period of 2003. Revenue in this segment is recognized as work is completed and material is delivered to the job site, thus will vary based on the level of activity during a particular period. This segment completed two of the five long-term projects it was working on during the fourth quarter of 2003 and anticipates starting a new project during the second quarter of 2004. We expect the revenue for this segment to remain largely unchanged in future periods from the level realized in the most recent quarterly reporting period.

     Other revenue decreased by approximately $16,000 or 41% to $23,000 during the three-month period ended March 31, 2004 as compared to the $39,000 recorded during the same period in 2003. Other revenue includes revenue from the installation of EnergySavers, freight, and the pro-rata recognition of a one time payment received for the right to certain EnergySaver distributorships.

     Cost of Sales. Cost of sales for the three-month period ended March 31, 2004 declined $330,495, or 29.6% to $786,009 from $1,116,504 for the three-month period ended March 31, 2003. Gross profit for the first quarter of 2004 declined $4,015 or 11.7% to $30,233 from $34,248 in the first quarter of 2003, but the gross margin earned on sales increased to 3.7% during 2004 from 3.0% in 2003. The decline in gross profit is primarily due to the decline in revenue. In addition, the Building Automation and Controls segment defers recognition of all job related profits until the completion of the associated project and did not complete any long-term projects during the first quarter of 2004. This segment anticipates completing one of its long-term projects during the second quarter of 2004, at which time it will recognize any profit associated with the project. Profits in the EnergySaver business are in part influenced by sales volume due to the fixed nature of our manufacturing overhead. As sales begin to increase due to the ComEd project, this fixed overhead will be spread over more sales, which should contribute to an improvement in the gross margin in this business segment.

     SG&A Expenses. Selling, general and administrative expense (“SG&A”) for the three-month period ended March 31, 2004 increased $6,313, or 0.6% to $1,027,639, from $1,021,326 for the three-month period ended March 31, 2003. A $134,000 reduction in salary expense was more than offset by increases in legal and insurance costs. We expect our SG&A expense to increase slightly over the balance of the year as we add additional headcount to ensure proper execution of the contracts we recently won.

     Other Expense. Other expense for the three-month period ending March 31, 2004 increased $347,882, to $360,322 from $12,440 for the three-month period ended March 31, 2003. Interest expense for the three-month period ended March 31, 2004 includes amortization of the deferred issuance costs and debt discount related to the Laurus convertible term loan totaling $347,052. Interest income of $4,364 for the first quarter of 2004 was $2,697 higher than that recorded in the first quarter of 2003 due to higher invested cash balances.

     Preferred Stock Dividends. Our dividend expense for the first quarter of 2004 increased $2,330,029 to $3,164,021 from $833,992 for the same period in 2003. We accrued dividends of $657,900 and $595,709 on our Convertible Preferred Stock during the three-month periods ended March 31, 2004 and 2003 respectively. The increase in the dividend accrual was due primarily to an increase in the total shares outstanding as a result of the issuance of shares of the Series D Convertible Preferred in June 2003 and the issuance of shares of preferred stock in satisfaction of accrued dividends. The dividends accrued during the first quarters of 2004 and 2003 were satisfied through the issuance of 6,579 and 59,571 additional shares of our preferred stock, respectively. We were required to recognize non-

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cash deemed dividends of $638,163 and $238,283 on March 31, 2004 and 2003, respectively due to the fact that the conversion price on these shares was lower than the market price of our common stock on the date of issue. The increase in this deemed dividend is primarily the result of the increased difference in the market price of our common stock relative to the conversion price of the dividend shares. The closing market price of our stock on March 31, 2004 was $1.97 as compared to $1.40 on March 31, 2003. In addition, despite the fact that the redemption and exchange transaction was favorable for the Company and its common stockholders (see note 9 to the financial statements), we were required to record a non-cash deemed dividend on the transaction of $1,860,458. For accounting purposes the transaction, which closed in March 2004, was viewed as a redemption for cash and shares of Series E Preferred stock. The non-cash deemed dividend was determined by comparing the fair value of the consideration given (the cash and the market value of the Series E Preferred) to the carrying value of the preferred stock that was redeemed. The fair value of the consideration given exceeded the carrying value of the existing preferred primarily due to the fact that the market price of our common stock was higher on the day the redemption and exchange transaction closed than it was when the existing preferred stock was originally issued. During the first quarter of 2004 we also incurred a $7,500 deemed dividend when we agreed to extend the expiration date on warrants to purchase shares of our Series E Convertible Preferred stock from June 30, 2004 to October 31, 2004. We agreed to extend these warrants to permit holders who participated in the redemption and exchange to exercise their warrants without violating the short swing trading rules of section 16(b) of the Securities Act of 1934.

     Dividends are comprised of the following:

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     As is more fully described in Note 9 to our financial statements, we completed a redemption and exchange private offering on March 22, 2004 in which we redeemed 538,462 shares of our outstanding Series A, Series C and Series D Convertible Preferred Stock (the “Existing Preferred”), and exchanged the remaining 2,104,509 shares of Existing Preferred for 210,451 shares of a new Series E Convertible Preferred Stock at the rate of 1 share of Series E Convertible Preferred Stock for 10 shares of Existing Preferred. The Existing Preferred Stock carried a dividend rate of 10% payable at the Company’s election in cash or in additional shares of preferred stock during the first three years following issuance. After the third anniversary of issuance we would have been required to pay all dividends in cash and the dividend rate would have increased by -1/2% every six months until it reached 15%, where it would have remained until the shares were converted or redeemed. The Series E Preferred carries a 6% dividend that is payable at the Company’s election in cash or additional shares of Series E Preferred for as long as the shares remain outstanding. The reduction in the number of outstanding shares of preferred stock, in combination with the reduction in the dividend rate, will significantly reduce the dilutive effect of the payment-in-kind dividend on the preferred stock in future periods.

     Audited Twelve-Month Period Ended December 31, 2003 Compared With the Audited Twelve-Month Period Ended December 31, 2002

     Revenue. Our revenue declined $902,689 or 16.3% to $4,631,833 during the twelve months ended December 31, 2003 from $5,534,522 for the year earlier period. Revenue from the sale of the EnergySaver and GlobalCommanders decreased 32% or $888,000, to $1.83 million in 2003 from $2.72 million in 2002. EnergySaver unit sales decreased 34% from 327 units in 2002 to 217 units in 2003. The average selling price per EnergySaver unit increased slightly from $8,300 in 2002 to $8,400 in 2003. This increase in the average selling price is a reflection of change in the mix of models sold.

     We believe the decline in EnergySaver revenue in 2003 is the result of (1) our customers’ continued deferral of discretionary expenditures until economic conditions improve, and (2) to management’s decision to shift resources to focus on the Company’s new utility initiative, and in particular the Commonwealth Edison (ComEd) VNPP. This shift created a lag in revenue experienced in the latter part of 2003 due to the startup of our ComEd VNPP. The ComEd VNPP agreement was finalized during the third quarter of 2003 and as a result the Company’s in house sales resources have been actively seeking customers to participate in the newly created program. As of December 31, 2003 we had begun shipment of EnergySavers as part of the ComEd program, but we have not recognized revenue on the shipments.

     Revenue from building controls and automation increased $123,000 or 5%, to $2.60 million in 2003 from $2.48 million in 2002. Great Lakes’ 2003 revenue was derived primarily from five major building automation projects, two of which were begun during 2002 and completed in 2003. One of the projects begun in 2002 and completed in 2003 was the expansion of the Discover Card headquarters in Riverwoods, Illinois. While the amount earned on this contract will not cover all of Great Lakes’ fully allocated costs, we believe it was a strategically important contract for Great Lakes because we believe the building automation system installed by Great Lakes is one of the most sophisticated systems ever completed. The success of this project has resulted in Great Lakes receiving opportunities to bid on other projects of similar size, but with better projected profit margins. Due to constraints on Great Lakes’ capacity to handle additional business, we expect revenue to remain relatively unchanged for 2004, but it is our hope that we can increase the capacity of this division in order to realize increased revenue in future periods.

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     Other revenue decreased by $133,000 or 36% to $232,000 in 2003 compared to $365,000 recorded in 2002. Other revenue includes revenue from the installation of EnergySavers, freight, and the pro-rata recognition of a one time payment received for the right to certain EnergySaver distributorships.

     Gross Profit. Our consolidated gross profit decreased $5,024, or 2.6%, to $190,146 for 2003 compared to $195,170 for 2002. Our gross profit as a percentage of sales increased to 4.1% during 2003 compared to 3.5% during 2002. The gross margin earned on EnergySaver sales, including ancillary products and services, increased from 10.8% in 2002 to 14.3% in 2003. The improvement in the EnergySaver margin was primarily the result of increased labor efficiency and a shift in the mix of products sold. We expect to see continued improvement in the gross margin as our capacity utilization increases due to higher volumes resulting from sales under the ComEd program.

     Our building automation and controls business reported a loss at the gross profit line during 2003 and 2002 of approximately $106,000 and $115,000, respectively. We account for long-term building automation control contracts under the percentage of completion method. Effective January 1, 2003, due to our limited experience in estimating the profitability on long-term contracts, we elected to begin to defer profit on all long-term contracts until completion of the job, at which time the actual profit on the job will be known and recognized. We estimate that had we not made this change, this segment of our business would have reported a gross profit for 2003 of $193,000, an improvement of $308,000 from the prior year. Due to the change in our accounting policy, most of this anticipated deferred profit is expected to be recognized in 2004 when we complete the associated project and the actual profit is known. We expect a continued improvement in the gross margin earned by this segment as its mix of business shifts from projects where it aggressively bid in order to establish itself in a new market segment to more profitable jobs.

     SG&A Expenses. SG&A expense declined 29.0% or $1,753,507 to $4,290,078 for the year ended December 31, 2003 from $6,043,585 during the year ended December 31, 2002. Labor expense was reduced by $837,000, or 30% as a result of the annualization of layoffs implemented in 2002 and further reductions in labor during 2003. Bad debt expense declined $410,000 during 2003 and sales commissions declined $271,000, the result of fewer sales by third party dealers and reduced sales into territories owned by state distributors. We expect consolidated SG&A expense to increase moderately in 2004, as we hire additional salespeople and field support technicians to support the increase in expected business activity resulting primarily from the ComEd VNPP program.

     Impairment Loss. The Company reported an impairment loss of $108,000 during 2002 related to the reduction in the carrying value of the goodwill associated with the acquisition of Great Lakes Controlled Energy to its estimated fair value. Under SFAS 142 we are required to assess our goodwill for impairment at least annually. We used a discounted cash flow valuation to determine the estimated fair value of the goodwill utilizing assumptions based on known facts and circumstances and estimates of future revenues and profits for the business. As a result of the losses incurred by the building automation and controls segment of our business during 2002, we adjusted our estimates for future profitability, which led to the reduction in the estimated fair value of the goodwill.

     Other Non-Operating Income (Expense). Other non-operating expense is comprised of interest expense and interest income. Interest expense increased $308,798 to $365,688 during 2003 as compared to $56,890 for the year ended December 31, 2002. As is more fully explained in note 9 to the consolidated financial statements, included in the 2003 interest expense is amortization of the deferred issuance costs and debt discount related to the Laurus convertible term loan totaling

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$305,621. The other components of 2003 interest expense included $32,000 on our mortgage, $18,000 on our convertible term loan and $9,500 on our revolving line of credit.

     Interest income earned during the year ended December 31, 2003 decreased $12,946 or 56% to $10,329 from $23,275 earned during the same period in 2002. The decline in interest income was the result of lower average cash balances during 2003 as compared to 2002 and lower interest rates paid on invested balances.

     Discontinued Operations. During 2003 we agreed to sell substantially all of the assets and to transfer most of the liabilities of our Power Management segment (the business conducted by Switchboard Apparatus) to a group of investors that included members of the segment’s management. The sale closed on June 3, 2003, effective as of May 31, 2003. As required by SFAS 144 we have presented the operating results as well as the loss on disposal for this segment as discontinued operations. During the twelve-month period ended December 31, 2003 the Power Management segment’s operating loss was $262,503 as compared to an operating loss of $1,017,897 for the year earlier period. We also recorded a $764,148 loss on the disposal of the segment during 2003.

     Cumulative Effect of Accounting Change. On January 1, 2002, we adopted Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets” effective for fiscal years beginning after December 15, 2001. In accordance with SFAS No. 142, we completed our transitional impairment testing of intangible assets during the second quarter of fiscal 2002. Subsequent to the first quarter of fiscal 2002, with the assistance of a third-party valuation firm, we finalized the testing of goodwill subject to SFAS 142. The testing resulted in a write-down of recorded goodwill related to our Power Management segment in the amount of $4,103,872, which was recorded as a cumulative effect of a change in an accounting principle.

     Preferred Stock Dividends. There were three series of our convertible preferred stock issued and outstanding at various times during 2002 and 2003, up to March 22, 2004, including: our Series A Convertible Preferred Stock (“Series A Preferred Stock”), which was first issued during September 2001, our Series C Convertible Preferred Stock (“Series C Preferred Stock”), which was first issued during June 2002 and our Series D Convertible Preferred Stock (“Series D Preferred Stock”), which was first issued in June 2003.

     The Series A Preferred Stock accrued a dividend at the rate of 10%, which was payable during the first three years following initial issuance at our option in cash or additional shares of Series A Preferred Stock (the dividend rate was scheduled to increase by 1/2% each six months, beginning on October 1, 2004 until the dividend rate equaled 15%). We accrued dividends on the shares of Series A Preferred Stock totaling $2,041,992 and $2,253,978 during 2002 and 2003, respectively, which we elected to pay by issuing additional shares of Series A Preferred Stock. We were required to recognize non-cash deemed dividends of $495,589 and $1,627,985 during 2002 and 2003, respectively, due to the fact that the conversion price on these dividend shares was lower than the market price of our Common Stock on the dates of issuance. The increase in this deemed dividend is primarily the result of the increased difference in the market price of our Common Stock relative to the conversion price of the dividend shares on the dates we issued the dividend shares.

     On June 4, 2002, we raised $2.0 million in gross proceeds through the issuance of a package of securities that included shares of our Series C Convertible Preferred Stock, shares of our Common Stock, warrants to purchase additional shares of our Series C Convertible Preferred Stock (which have expired unexercised) and warrants to purchase additional shares of our Common Stock. For accounting purposes, proceeds from this transaction were allocated to the Series C Convertible

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Preferred Stock, the Common Stock and warrants issued as part of the transaction based on their relative fair values. The difference between the value allocated to the Series C Convertible Preferred Stock and the market price of our Common Stock on the date of issue, in addition to the value of the stock and warrants issued as part of the transaction, were deemed to be equivalent to a non-cash preferred stock dividend. We recorded the deemed dividend on the date of issuance by offsetting charges and credits to additional paid-in capital in the amount of $1,444,697, without any effect on total stockholders equity.

     The Series C Preferred Stock accrued a dividend at the rate of 10%, which was payable during the first three years following initial issuance at our option in cash or additional shares of Series C Preferred Stock (the dividend rate was scheduled to increase by 1/2% each six months, beginning on July 1, 2005 until the dividend rate equaled 15%). We accrued dividends on the shares of Series C Preferred Stock totaling $116,426 and $219,712 during 2002 and 2003, respectively, which we elected to pay by issuing additional shares of Series C Preferred Stock. We were required to recognize non-cash deemed dividends of $12,403 and $158,691 during 2002 and 2003, respectively, due to the fact that the conversion price on these dividend shares was lower than the market price of our Common Stock on the dates of issuance. The increase in this deemed dividend is related to the fact that the Series C was outstanding for the entire twelve month period during 2003, where as it was only outstanding for slightly more than six months during 2002. Also contributing to the increase in the deemed dividend was the increased difference in the market price of our Common Stock relative to the conversion price of the dividend shares on the dates we issued the dividend shares.

     On June 27, 2003, we raised $1.5 million in gross proceeds through the issuance of a package of securities that included shares of our Series D Convertible Preferred Stock, shares of our Common Stock, warrants to purchase additional shares of our Series D Convertible Preferred Stock and warrants to purchase additional shares of our Common Stock. For accounting purposes, proceeds from this transaction were allocated to the Series D Convertible Preferred Stock, the Common Stock and warrants issued as part of the transaction based on their relative fair values. The difference between the value allocated to the Series D Convertible Preferred Stock and the market price of our Common Stock on the date of issue, in addition to the value of the stock and the warrants issued as part of the transaction, were deemed to be equivalent to a non-cash preferred stock dividend. We recorded the deemed dividend on the date of issuance by offsetting charges and credits to additional paid-in capital in the amount of $386,984, without any effect on total stockholders equity.

     The Series D Preferred Stock accrued a dividend at the rate of 10%, which was payable during the first three years following initial issuance at our option in cash or additional shares of Series D Preferred Stock (the dividend rate was scheduled to increase by 1/2% each six months, beginning on July 1, 2006 until the dividend rate equaled 15%). We accrued dividends on the shares of Series D Preferred Stock totaling $77,689 during 2003, which we elected to pay by issuing additional shares of Series D Preferred Stock. We were required to recognize non-cash deemed dividends of $92,878 during 2003, due to the fact that the conversion price on these dividend shares was lower than the market price of our Common Stock on the dates of issuance.

     All outstanding shares of Series A, Series C and Series D Preferred stock were redeemed or exchanged for shares of Series E Convertible Preferred stock on March 22, 2004. See “Description of Securities — Series E Preferred Stock” above, and “Liquidity and Capital Resources” below, for additional information on this transaction.

     The dividend expense recognized during 2003 and 2002 is comprised of the following:

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     Audited Twelve-Month Period Ended December 31, 2002 Compared With the Audited Twelve-Month Period Ended December 31, 2001

     Revenue. Our revenue increased $3,366,862, or 155.3%, to $5,534,522 for the year ended December 31, 2002 as compared to $2,167,660 for the year ended December 31, 2001. Revenue from the sale of the EnergySaver and GlobalCommanders increased 54% or $945 thousand, to $2.69 million in 2002 from $1.74 million in 2001. EnergySaver unit sales increased 87% from 175 units in 2001 to 328 units in 2002. The average selling price per EnergySaver unit sold declined from $8,600 in 2001 to $8,000 in 2002. This reduction in the average selling price is a reflection of change in the mix of models sold, as well as discounts on larger orders.

     Revenue from building controls and automation increased $2.20 million, to $2.48 million in 2002 from $281,000 in 2001. We acquired Great Lakes Controlled Energy Corporation in June 2001, as a result the 2001 results only included seven months results for this segment. The bulk of the increase in 2002 revenue was the result of a contract to install building automation controls in new buildings being constructed as part of the expansion of the Discover Card headquarters in Riverwoods, Illinois.

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     Other revenue increased by $222,000 or 157% to $363,000 in 2002 compared to $141,000 recorded in 2001. Other revenue includes revenue from the installation of EnergySavers, freight, and the pro-rata recognition of a one-time payment received for the right to certain distributorships.

     Gross Profit. Our consolidated gross profit decreased $28,546, or 12.8%, to $195,169 for 2002 compared to $223,765 for 2001. Our gross profit as a percentage of sales decreased to 3.5% during 2002 compared to 7.5% during 2001. The gross margin earned on EnergySaver sales, including ancillary products and service, increased from 6.2% in 2001 to 10.8% in 2002. The increase in the EnergySaver gross margin was primarily the result of better capacity utilization of our manufacturing facility. The division achieved an 87% increase in EnergySaver unit sales with only a 20% increase in EnergySaver manufacturing expense. The benefit of improved capacity utilization was partially offset by a shift in sales to smaller less profitable units and discounts given on larger orders. The shift in product mix to smaller units was mostly the result of one large order.

     Our building automation and controls business incurred a loss at the gross profit line during 2002 and 2001 of approximately $159,000 and $46,000, respectively. The division was very aggressive in bidding for some strategically important projects that were largely responsible for the 2002 loss. The loss in 2001 was primarily due to an underutilization of Great Lake’s capacity.

     SG&A Expenses. SG&A expense declined 26.0% or $2,126,766 to $6,043,585 for the year ended December 31, 2002 from $8,170,351 during the year ended December 31, 2001. Labor expense was reduced by $1.1 million as a result of the annualization of layoffs implemented in 2001 and further reductions in labor during 2002. Travel expense and utility expenses declined approximately $450,000, primarily as a result in the reductions in headcount. Outside services, which include legal, engineering, accounting and investor relation declined approximately $800,000. The reduction in engineering expense is the result of the acquisition of Great Lakes Controlled Energy in June of 2001, from whom we previously purchased engineering services. The higher legal and accounting fees in 2001 were due primarily to the costs associated with the acquisition of Great Lakes Controlled Energy and the issuance of the Series A Preferred during 2001. Investor relation costs in 2001 included a $336,000 non-cash charge related to the extension of a warrant issued to one of our investor relations firms. This same warrant was extended again in 2002 and resulted in a non-cash charge of $80,000. These reductions in SG&A were partially offset by an increase in sales commissions of $308,000. The increase in sales commissions was the result of increased sales of EnergySavers by third party dealers and sales by the Company into territories owned by state distributors.

     Impairment Loss. The Company reported an impairment loss of $108,000 during 2002 related to the reduction in the carrying value of the goodwill associated with the acquisition of Great Lakes Controlled Energy to its estimated fair value. Under SFAS 142 we are required to assess our goodwill for impairment at least annually. We used a discounted cash flow valuation to determine the estimated fair value of the goodwill utilizing assumptions based on known facts and circumstances and estimates of future revenues and profits for the business. As a result of the losses incurred by the building automation and controls segment of our business during 2002, we adjusted our estimates for future profitability, which led to the reduction in the estimated fair value of the goodwill.

     Discontinued Operations. During the first half of 2003 we agreed to sell substantially all of the assets and to transfer most of the liabilities of our Power Management segment (the business conducted by Switchboard Apparatus) to a group of investors that included members of the segment’s management. The sale closed on June 3, 2003, effective as of May 31, 2003. As required by SFAS 144 we have presented the operating results for this segment as discontinued operations. During the

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year ended December 31, 2002 the Power Management segment’s operating loss was $1,017,896 as compared to an operating loss of $1,622,997 for the year ended December 31, 2001.

     Cumulative Effect of Accounting Change. On January 1, 2002, we adopted Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets” effective for fiscal years beginning after December 15, 2001. In accordance with SFAS No. 142, we completed our transitional impairment testing of intangible assets during the second quarter of fiscal 2002. Subsequent to the first quarter of fiscal 2002, with the assistance of a third-party valuation firm, we finalized the testing of goodwill subject to SFAS 142. The testing resulted in a write-down of recorded goodwill in the amount of $4,103,872, which was recorded as a cumulative effect of a change in an accounting principle.

     Other Non-Operating Income (Expense). Other non-operating expense is comprised of interest expense and interest income. Interest expense declined $3,415,926 to $56,890 during 2002 as compared to $3,472,816 for the year ended December 31, 2001. Included in the 2001 interest expense was the cost of issuance and the value of the warrants issued in connections with the Senior Subordinated Promissory Notes which we issued to New Court Capital USA, Inc. and repaid in 2001. The costs of issuance were $187,000 and the value ascribed to the warrants was $2,917,000. The actual 2001 cash interest on the senior subordinated promissory notes was $76,000. Other components of 2001 interest expense included $108,000 on a note we issued in connection with repurchase of a distributorship and have since repaid, $79,000 on our lines of credit, $54,000 on our mortgage, $67,000 on notes payable to the sellers of Marino Electric and Great Lakes Controlled Energy and $1,000 on various auto loans. During 2002, we recorded interest expense of $48,000 on our mortgage, $5,500 on the Marino term note, $3,000 on our working capital line and approximately $1,000 on other miscellaneous notes.

     Interest income earned during the year ended December 31, 2002 decreased $48,047 or 67% to $23,275 from $71,322 earned during the same period in 2001. The decline in interest income was the result in lower average cash balances during 2002 as compared to 2001.

     Preferred Stock Dividends. There were three series of our convertible preferred stock issued and outstanding at various times during 2001 and 2002, including our Series B Convertible Preferred Stock (“Series B Preferred Stock”) issued during October 2000 and converted to Common Stock in June 2001, our Series A Convertible Preferred Stock (“Series A Preferred Stock”), which was initially issued during September 2001 and November 2001, and our Series C Convertible Preferred Stock (“Series C Preferred Stock”), which was initially issued during June 2002.

     On October 17, 2000, we raised $2 million through the issuance of our Series B Preferred Stock. On June 15, 2001 the holder of the Series B Preferred Stock elected to convert all of the shares Series B Preferred Stock into Common Stock. The dividend accrued on the Series B Preferred Stock from the issuance date of October 17, 2000 through the conversion date of June 15, 2001, totaled $106,082, of which $73,206 was attributable to 2001. We elected to pay the accrued dividend through the issuance of additional shares of Series B Preferred Stock, which the holder converted to Common Stock on the conversion date. The shares of Series B Preferred Stock received as payment of the accrued dividend were considered to have a beneficial conversion feature because they were convertible into shares of Common Stock at a price below the market price on the date of issuance, which was deemed to be equivalent to a non-cash preferred dividend. As a result, we recorded a deemed dividend of $92,024 on the date of issuance of the dividend shares.

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     On September 7, 2001 we received $16 million of gross proceeds through the issuance of our Series A Preferred Stock. On November 29, 2001, we received an additional $3 million of gross proceeds through the sale of additional shares of Series A Preferred Stock. The Series A Preferred Stock was considered to have a beneficial conversion feature because it permitted the holders to convert their shares of Series A Preferred Stock into shares of Common Stock at a price, which on the dates of initial issuance, was lower than the market price for the Common Stock. The value of this beneficial conversion feature, along with the value of the Common Stock and warrants issued as part of these transactions, was considered to be a non-cash deemed dividend, the value of which was capped at the $19 million of gross proceeds.

     The Series A Preferred Stock accrued a dividend at the rate of 10%, which was payable during the first three years following initial issuance at our option in cash or additional shares of Series A Preferred Stock (the dividend rate was scheduled to increase by 1/2% each six months, beginning on October 1, 2004, until the dividend reached 15% per annum). We accrued dividends on the shares of Series A Preferred Stock totaling $669,933 and $2,041,992 during 2001 and 2002, respectively, which we elected to pay by issuing additional shares of Series A Preferred Stock. We recognized a deemed dividend of $283,776 in 2001 and $495,589 in 2002, due to the beneficial conversion feature associated with the additional shares of Series A Convertible Preferred Stock that we issued in satisfaction of the accrued dividends.

     The Series C Preferred Stock accrued a dividend at the rate of 10%, which was payable during the first three years following initial issuance at our option in cash or additional shares of Series C Preferred Stock (the dividend rate was scheduled to increase by 1/2% each six months, beginning on Junly 1, 2005, until the dividend reached 15% per annum). During 2002 we accrued dividends on the shares of Series C Preferred Stock of $116,426, which we elected to pay by issuing additional shares of Series C Preferred Stock. We recognized a deemed dividend of $12,403 in 2002, due to the beneficial conversion feature associated with the additional shares of Series C Convertible Preferred Stock that we issued in satisfaction of the accrued dividends.

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     The dividend expense recognized during 2002 and 2001 is comprised of the following:

     Liquidity and Capital Resources

     As of March 31, 2004, we had cash and cash equivalents of $4,518,221 compared to $2,467,023 on December 31, 2003. Our debt obligations as of March 31, 2004 consisted of a convertible secured term note of $676,790, a mortgage of $625,000 on our facility in Elk Grove Village Illinois, and a vehicle loan of approximately $8,000.

     Our principal cash requirements are for operating expenses, including employee costs, the costs related to research and development, advertising costs, the cost of outside services including those providing accounting, legal, engineering and electrical contracting services, and the funding of inventory and accounts receivable, and capital expenditures. We have financed our operations since inception primarily through the private placement of our common and preferred stock, as well as through various forms of secured debt.

     Net cash increased $2,051,198 during the first three months of 2004 as compared to decreasing $329,453 during the same period in 2003. Cash consumed by operating activities declined 5.3% to $1,133,795 during the first three months of 2004 as compared to $1,196,885 during the same period in

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2003. Cash used to fund the net loss before changes in working capital, declined $143,596 or 12.7%, to $991,492 during the first three months of 2004 from $1,135,088 during the same period in 2003. This improvement was primarily the result of the elimination of discontinued operations.

     Net cash increased $911,119 during the year ended December 31, 2003 while net cash decreased $3,930,169 during the year ended December 31, 2002 and increased $4,856,637 during the year ended December 31, 2001. The cash consumed by operating activities declined $4,050,394 or 58.9% to $2,830,117 during the twelve-month period ended December 31, 2003 as compared to $6,880,511 consumed during the twelve-month period ended December 31, 2002. The cash consumed by operating activities declined $2,959,064 or 30.1% in 2002 from $9,839,575 in 2001. Cash used to fund the net loss, calculated at the net loss less non-cash charges declined $2,262,673 or 36.5% in 2003 to $3,928,847 from $6,191,520 in 2002. The improvement in cash used to fund the net loss is primarily due to a $1.753 million reduction in SG&A expense, and the $755,394 reduction in the loss from discontinued operations. Cash used to fund the net loss declined $2,113,774 in 2002 from $8,305,294 in 2001. The improvement in cash used to fund the net loss during 2002 was primarily due to a $2.1 million reduction in SG&A expense, and a $246,000 reduction in cash interest expense.

     Changes in working capital consumed $142,303 during the first three months of 2004 and $61,797 during the same period of 2003. Declines in accounts receivable generated $70,624 during the first three months of 2003, while increases in inventory and other current assets consumed $74,041 and $52,428, respectively during the same period. The decline in accounts receivable resulted from receipt of amounts held as retention until completion of larger Building Automation and Controls projects as well as improved collections and the slowdown in sales during the quarter. The increases in inventory and other current assets were both related to the ramp-up in the ComEd program. Included in inventory are EnergySaver units installed at customer host locations for the ComEd program for which we have not yet recognized revenue. Other current assets include installation and shipping costs related to these EnergySaver units. Declines in accounts payable and deferred revenue and other current liabilities consumed cash of $167,010, $5,873 and $11,167, respectively during the three-month period ended March 31, 2004. The decline in accounts payable is primarily the result of payments by Great Lakes to subcontractors who worked on projects that were completed in the fourth quarter of 2003. The decline in accounts payable was partially offset by an increase in accrued expenses during the quarter, which was related to the accrual of amounts due contractors for work completed on Building Automation and Controls projects during the three-month period ended March 31, 2004. An increase in accounts receivable and other assets of $139,419 during the first quarter of 2003 was offset by a decline in inventory of $139,996. The increase in accounts receivable was mostly due to the increase in sales in the Building Automation and Controls segment while the decline in inventory came primarily from the Energy Technology segment where we intentionally worked to reduce inventories. The net effect of changes in accounts payable and accrued expenses during the first quarter of 2003 was a $49,876 use of cash primarily due to the payment by Switchboard Apparatus of a large vendor invoice with extended terms for materials related to a government contract which it was working on.

     Changes in net working capital generated $1,098,730 in cash during 2003 as compared to consuming $688,991 during 2002 and $1,534,281 in 2001. Increases in accounts receivable consumed cash of $67,222 during 2003 as compared to consuming $244,483 during 2002 and $168,724 in 2001. The increase in accounts receivable during 2003 is the result of project retainage in the Building Automation and Control segment. For large building construction projects it is typical for the building owner to retain 5% to 10% of the contractor’s billing until the end of the project to ensure that all the final punchlist items are completed. Since a greater portion of Great Lakes’ projects are larger, longer-term projects, it has experienced a significant increase in the amount of retainage withheld by

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its customers. We expect to collect a significant portion of this retainage during 2004. Reductions in inventory generated $713,689 during 2003 as we continued to focus on reducing inventory in the Energy Technology segment by doing a better job of forecasting our requirements for raw material and finished goods. Increases in inventory consumed $941,584 during 2002, most of which was related to product shipped to three large EnergySaver customers for whom all of our revenue recognition requirements had not been satisfied. In situations such as this, we carry the product as outside inventory until the revenue recognition requirements are met, then we record the revenue and move the product from inventory to cost of goods sold. Changes in inventory generated cash of $370,719 in 2001. Inventory declined in 2001 as we shifted to a “make to order” rather than a “make to inventory” process in the manufacture of our EnergySaver products. Changes in other current assets consumed $87,660 during 2003 as compared to generating $12,639 during 2002 and $171,771 during 2001. The 2003 increase was largely the result of increases in prepaid insurance premiums and deferred expenses related to the ComEd program. These deferred expenses are the costs of installing EnergySaver at various ComEd customer sites, which will be recognized concurrently with recognition of the revenue from the sale of the units. The decline in other current assets during 2001 was primarily due to a reduction in prepaid expenses.

     Increases in accounts payable generated $74,346 during 2003 as compared to generating $416,867 during 2002 and consuming $1,419,703 during 2001. The increase in accounts payable during 2003 was primarily related to the various building automation control projects that Great Lakes was working on as of the end of the year. In order to better manage our working capital requirements related to these jobs, we have agreements with our larger subcontractors that their payments are contingent on us receiving payment from our customers. This has resulted in a large increase in the accounts payable at Great Lakes. The increase in accounts payable during 2002 was generally the result of increased business activity in both the Energy Technology and Building Automation Controls segments. During 2001, we used some of the cash raised through the issuance of our preferred stock to pay overdue payables and to satisfy a portion of our accrued expenses. Changes in accrued expenses consumed cash of $328,898 during 2003 as compared to generating cash of $555,167 during 2002 and consuming 875,940 during 2001. Most of the increase in the accrued expenses during 2002 was related to these accrued contractor fees. At the end of 2002 we had accrued $350,000 in contractors fees for work related to various building automation projects underway at the time. Subsequent to the end of 2003 we received invoices from these contractors and moved the expense from accrued expense to accounts payable. Deferred revenue increased $283,308 during 2003 as compared to decreasing $487,597 in 2002 and increasing $387,596 during 2001. The increase in deferred revenue during 2003 is attributable to situations where the Building Automation Controls segment invoiced its customers in advance of completing the work for which it had invoiced, a practice which is typical for its industry. During 2001, we invoiced several customers for product and services for which we had not satisfied all of our revenue recognition criteria, accordingly we did not recognize the amounts invoiced as revenue, but instead recorded them as deferred revenue. During 2002, we completed everything necessary for us to recognize the revenue on these invoices. Changes in customer deposits generated $511,167 during 2003, largely the result of a $500,000 prepayment received from ComEd pursuant to the VNPP contract.

     Investing activities consumed cash of $8,875 during the three-month period ending March 31, 2004, the result of purchases of property and equipment. Investing activities generated cash of $896,728 during the twelve-month period ended December 31, 2003 as compared to consuming cash of $6,987 during 2002 and consuming $69,487 during 2001. In June 2003, we sold certain assets and transferred certain liabilities of our Power Management business, generating cash proceeds of $929,032. This source of cash was partially offset by the purchase of equipment during 2003 totaling $32,304. During 2002 we spent $17,487 on new equipment, but this use of cash was partially offset

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by $10,500 generated through the sale of equipment we no longer used. During 2001 we spent $121,586 on new equipment, but generated $52,099 through the sale of equipment that we no longer needed.

     Financing activities generated cash of $3,193,868 and $867,432 during the three-month periods ended March 31, 2004 and 2003 respectively. During 2004, we raised $11,000,000 through the issuance of a package of securities that included shares of our common stock and 5 year warrants to purchase additional shares of common stock. We used $7,000,006 of the net proceeds from this issuance to effectuate a redemption and exchange offer for our Series A, Series C and Series D Convertible Preferred Stock. We incurred expenses related to these transactions of $796,363. During the quarter we also made scheduled principal payments on our mortgage and auto loan of $9,763. During the first quarter of 2003, we issued a package of securities that included shares of our common stock and common stock warrants for gross proceeds of $1,000,000. We incurred issuance costs of $95,690 associated with this private placement. During the quarter we also made scheduled principal payments of $37,676 on our long term debt and received a payment from a shareholder of $798, which represented the short-swing profit inadvertently earned when he purchased shares of our stock within six months of selling shares, which is a violation of section 16(b) of the Securities Act of 1934.

     Financing activities generated cash of $2,845,162, $2,957,329 and $14,765,699 during 2003, 2002 and 2001, respectively. In September 2003 we raised $1,000,000 in gross proceeds through the issuance of a convertible term loan to Laurus Funds. These proceeds were partially offset by issuance costs totaling $308,228. In November 2003 Laurus converted $52,346 in principal into shares of our Common Stock. We also raised gross proceeds of $1.5 million from the issuance of our Series D Convertible Preferred Stock and $1,669,914 from the issuance of shares of our Common Stock in three separate private placements during 2003. The proceeds from these private placements of our Common Stock were partially offset by issuance costs of $297,462. During 2003, various holders of warrants exercised their rights under the warrants to purchase 197,000 shares of Common Stock for $197,000 in cash. We used a portion of the proceeds generated from the sale of our Power Management segment to repay $298,000 in equipment loans and to pay down the outstanding balance on our revolving line of credit of $500,000. We also prepaid $47,000 on our mortgage as an inducement for the lender to refinance the mortgage and extend the maturity until February 1, 2005. During 2003 we made scheduled payments of $33,000 on our mortgage, $51,500 on our equipment loan, and $7,014 on various auto loans. During 2003 we also received a payment of $798 from a board member that represented the short-swing profit inadvertently earned when he purchased shares of our stock within six months of selling shares, which is a violation of section 16(b) of the Securities Exchange Act of 1934.

     During 2002 we issued preferred and Common Stock which generated net proceeds of $2,800,257. We also refinanced the mortgage on our building and our equipment loan, generating $22,000 after the repayment of the existing loans, and borrowed $500,000 on our line of credit. Offsetting these sources of cash were scheduled payments of $147,000 on our long-term debt and $219,067 on the Marino Sellers note. During 2002 we also received $1,300 from one of our 10% stockholders, which represented the short-swing profit inadvertently earned when he purchased shares of our stock within six months of selling shares, which is a violation of section 16(b) of the Securities Exchange Act of 1934.

     During 2001, we raised $18.2 million in gross proceeds through the issuance of our Series A Convertible Preferred Stock, of which $3.2 million was raised through the issuance of three Senior Subordinated Promissory Notes (which Notes were subsequently converted into shares of our Series A Convertible Preferred Stock) and $15 million through the issuance of our Series A Convertible

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Preferred Stock. We also refinanced some equipment loans, raising an additional $551,414. A portion of these funds was used to pay costs associated with raising the funds and to repay existing obligations. The costs of issuance attributable to the Senior Subordinated Convertible Promissory Notes and the Series A Convertible Preferred Stock totaled $546,511. Funds used to retire or repay existing debt included $1,356,660 for the note payable to distributors, $852,200 to pay down our lines of credit, $449,628 to retire an outstanding equipment loan with Oxford Bank, $489,647 to pay down amounts owed the sellers of Marino Electric, $75,000 for scheduled payments on a new equipment loan with American National Bank, $19,962 for scheduled mortgage payments on our Elk Grove Village facilities, and $9,454 of scheduled payments on various auto loans.

     Our working capital line of credit with American Chartered Bank expired on September 30, 2003. We entered into new a financing arrangement with Laurus Master Fund, Ltd. (“Laurus”) as of September 11, 2003, providing for a $1,000,000 term loan (the “Term Loan”) and a revolving credit facility of up to $2,000,000. The Term Loan has a term of two years and accrues interest at the greater of prime (currently 4.00%) plus 1.75%, or 6%. Interest on the Term Loan is due monthly in arrears and the loan amortizes at the rate of $50,000 per month beginning February 1, 2004. We have the option of paying scheduled interest and principal or prepaying all or a portion of the Term Loan with shares of our Common Stock at the fixed conversion price of $2.12 per share (which was equal to 103% of the recent market price of our Common Stock on September 11, 2003), provided that the closing price of the Common Stock is greater than $2.43 per share for the 11 trading days immediately preceding the payment date and that the shares are registered with Securities and Exchange Commission. We have filed a registration statement with respect to these shares which is currently effective. Laurus also has the option to convert all or a portion of the Term Loan into shares of our Common Stock at any time, subject to certain limitations, at a fixed conversion price of $2.12 per share. The Term Loan is secured by a blanket lien on all our assets, except for our real estate. In conjunction with the Term Loan, Laurus was paid a fee of $50,000 and received a five year warrant to purchase up to 140,000 shares of our Common Stock at prices ranging from $2.44 per share to $3.07 per share. The revolving credit facility provides for borrowings of up to the lesser of (i) $2 million or (ii) 90% of our eligible accounts receivable. We have not borrowed under the facility, thus it remains fully available to the extent we have eligible receivables to support borrowings. As of March 31, 2004 eligible receivables would support borrowings of approximately $500,000 under the facility. The revolving credit facility also has a term of two years and accrues interest at the rate of prime (currently 4.00%) plus 1.75%. We have the option of paying interest and principal, or prepaying all or a portion of the advances under each Secured Convertible Revolving Note with shares of our Common Stock at the fixed conversion price of $2.12 per share, provided that the closing price of our Common Stock is greater than $2.43 per share for the 11 trading days immediately preceding the payment date and that the shares are registered with the Securities and Exchange Commission. In addition, Laurus has the option to convert all or a portion of the advances under any Secured Convertible Revolving Note into shares of our Common Stock at any time, subject to certain limitations, at a fixed conversion price of $2.12 per share. The revolving credit facility is also secured by a blanket lien on all of our assets, except for our real estate. In conjunction with the revolving credit facility, Laurus was paid a fee of $100,000 and received a five year warrant to purchase up to 280,000 shares of our Common Stock at prices ranging from $2.54 per share to $3.18 per share. On November 26, 2003, Laurus converted $52,346 of principal and $664 of accrued interest on the Term Loan into 25,000 shares of our Common Stock. The conversion was offset against the scheduled principal payments for February and March of 2004. During January 2004, Laurus converted $270,864 of principal and $4,736 of accrued interest on the Term Loan into 130,000 shares of our Common Stock. The January conversions were offset against principal payments scheduled for March through August 2004.

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     Our mortgage with American Chartered Bank matures on February 1, 2005, at which time we will owe a balloon payment of $595,000, unless we refinance or extend the mortgage prior to the maturity. It is our intent to attempt to refinance the mortgage with American Chartered Bank or another lender prior to the end of 2004.

     Our ability to continue the development, manufacturing and expansion of sales of our products, including the EnergySaver, the GlobalCommander and VNPP will require the continued commitment of significant funds. The actual timing and amount of our future funding requirements will depend on many factors, including the amount and timing of future revenues, the level and amount of product marketing and sales efforts, the magnitude of research and development, and our ability to improve margins on our products.

     In an attempt to move the Company to a position where it can start to generate positive cash flow our management has set the following key objectives for cash flow improvement in 2004:

•

Successfully execute on the ComEd contract. We believe that this is important from several different perspectives. First we anticipate that it will have an immediate positive impact on our cash flow. Secondly, we believe it will establish Electric City as a leader in negative power development, thereby supporting VNPP opportunities with other utilities. And finally we believe it will lead to increased commercial sales of the EnergySaver as customers who participate in the ComEd VNPP with operations outside the ComEd territory gain exposure to the technology. This project is under contract, therefore we are focusing a great deal of our resources on this project and will be hiring additional personnel as part of our efforts to keep this project on schedule.

•

Increase the profitability of EnergySaver sales. Increasing the margins earned on EnergySaver sales will also have an immediate and positive impact on our cash flow. We have seen improvements in EnergySaver margins over the past two years, but believe that the product has the potential for significantly higher margins. We believe that increased volumes that will result from the ComEd program will lead to higher margins as a result of increased capacity utilization. In addition, a price increase that we implemented effective January 1, 2004 should also lead to improved profitability of the EnergySaver.

•

Build on the recent project successes at Great Lakes Controlled Energy to make the Building Controls and Automation business become profitable. Great Lakes has recently been awarded new business and is currently working on existing projects that we believe will result in this segment turning profitable during 2004. This segment must execute effectively in order to realize the profitability potential of these projects.

•

Continue to aggressively manage our costs in order to conserve cash. While we made significant progress in reducing our costs during the last two years, we must continue to effectively manage all of our costs so that they do not negate the anticipated improvement in profitability in our Energy Technology and Building Automation and Control segments.

•

Be prepared to raise additional capital in limited amounts if necessary to continue to fund operations until the business turns cash flow positive. Our ability to raise additional capital in the future will depend a great deal on our ability to make progress toward the goals outline above.

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     We believe that if we are successful in achieving these priorities we should have sufficient liquidity to allow us to operate until our operations turn cash flow positive, hopefully sometime during 2004. Our projections contain certain key assumptions which may or may not occur. If any of the key assumptions contained in our projections are proven wrong, we may begin to experience a liquidity shortage sometime within the next 12 to 18 months which could force us to scale back our growth plans, or, in the worst case, cease operations.

     If in the future we find that we need to raise additional capital (which would require approval from the holders of our Series E Convertible Preferred Stock and may require approval of the holders of our Common Stock), our existing stockholders will likely experience dilution of their present equity ownership position and voting rights, depending upon the number of shares issued and the terms and conditions of the issuance. Any new equity securities will likely have rights, preferences or privileges senior to those of our common stock.

     Contractual Obligations

     Our contractual obligations consist of long-term debt, which includes a mortgage, a term loan and an auto loan, and an operating lease, which includes the lease on the building occupied by Great Lakes. As of December 31, 2003 our contractual obligations were as follows:

     Recent Accounting Pronouncements

     In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”). In general, a variable interest entity is a corporation, partnership, trust or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003. The Company adopted the provisions of FIN 46 effective February 1, 2003 and such adoption did not have a material impact on its consolidated financial statements since it currently has no variable interest entities. In December 2003, the FASB issued FIN 46R with respect to variable interest entities created before January 31, 2003, which among other things, revised the implementation date to the first fiscal year or interim period ending after March 15, 2004, with the exception of Special Purpose Entities (“SPE). The consolidation requirements apply to all SPE’s in the

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first fiscal year or interim period ending after December 15, 2003. The Company adopted the provisions of FIN 46R effective December 29, 2003 and such adoption did not have a material impact on its consolidated financial statements since it currently has no SPE’s.

     In April 2003, FASB issued Statement of Financial Accounting Standards No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (“SFAS No. 149”). SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts and hedging relationships entered into or modified after June 30, 2003. The Company adopted the provisions of SFAS No. 149 effective June 30, 2003 and such adoption did not have a material impact on its consolidated financial statements since the Company has not entered into any derivative or hedging transactions.

     In May 2003, FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (“SFAS 150”). SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both debt and equity and requires an issuer to classify the following instruments as liabilities in its balance sheet:

•		a financial instrument issued in the form of shares that is mandatorily redeemable and embodies an unconditional obligation that requires the issuer to redeem it by transferring its assets at a specified or determinable date or upon an event that is certain to occur;
•		a financial instrument, other than an outstanding share, that embodies an obligation to repurchase the issuer’s equity shares, or is indexed to such an obligation, and requires the issuer to settle the obligation by transferring assets; and
•		a financial instrument that embodies an unconditional obligation that the issuer must settle by issuing a variable number of its equity shares if the monetary value of the obligation is based solely or predominantly on (1) a fixed monetary amount, (2) variations in something other than the fair value of the issuer’s equity shares, or (3) variations inversely related to changes in the fair value of the issuer’s equity shares.

     In November 2003, FASB issued FASB Staff Position No. 150-3 (“FSS 150-3”) which deferred the effective dates for applying certain provisions of SFAS 150 related to mandatorily redeemable financial instruments of certain non-public entities and certain mandatorily redeemable non-controlling interests for public and non-public companies. For public entities, SFAS 150 is effective for mandatorily redeemable financial instruments entered into or modified after May 31, 2003 and is effective for all other financial instruments as of the first interim period beginning after June 15, 2003. For mandatorily redeemable non-controlling interests that would not have to be classified as liabilities by a subsidiary under the exception in paragraph 9 of SFAS 150, but would be classified as liabilities by the parent, the classification and measurement provisions of SFAS 150 are deferred indefinitely. The measurement provisions of SFAS 150 are also deferred indefinitely for other mandatorily redeemable non-controlling interests that were issued before November 4, 2003. For those instruments, the measurement guidance for redeemable shares and non-controlling interests in other literature shall apply during the deferral period.

     On December 17, 2003, the Staff of the SEC issued Staff Accounting Bulletin No. 104 (SAB 104), Revenue Recognition, which supercedes SAB 101, Revenue Recognition in Financial

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Statements. SAB 104’s primary purpose is to rescind accounting guidance contained in SAB 101 related to multiple element revenue arrangements, superceded as a result of the issuance of EITF 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” Additionally, SAB 104 rescinds the SEC’s Revenue Recognition in Financial Statements Frequently Asked Questions and Answers (the FAQ) issued with SAB 101 that had been codified in SEC Topic 13, Revenue Recognition. Selected portions of the FAQ have been incorporated into SAB 104. While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain largely unchanged by the issuance of SAB 104. The adoption of SAB 104 did not materially affect our revenue recognition policies, nor our results of operations, financial position or cash flows.

     In March, 2004, the FASB issued an exposure document entitled Share-Based Payment — an amendment of Statements No. 123 and 95 (Proposed Statement of Financial Accounting Standards). The proposed Statement would eliminate the ability to account for share-based compensation transactions using APB Opinion No. 25 and generally require instead that such transactions be accounted for using a fair-value-based method. This accounting, if approved, will result in compensation expense charges to our future results of operations. The proposed Statement, if adopted, would be applied to public entities prospectively for fiscal years beginning after December 15, 2004, as if all share-based compensation awards granted, modified, or settled after December 15, 1994, had been accounted for using the fair-value method of accounting. Retrospective application of the proposed Statement is not permitted.

     Quantitative and Qualitative Disclosures About Market Risk

     The only significant exposure the Company has to market risk is the risk of changes in market interest rates. The interest rates on the Company’s debt facilities are variable and change with changes in the prime rate. The interest rate on the Company’s convertible term loan is equal to the prime rate plus 1.75% or 6%, which ever is greater. The interest rate on the Company’s mortgage is equal to the prime rate plus 1/2%. If the prime rate were to increase 1 percentage point, the annual interest cost on the term loan and the mortgage would increase by approximately $11,000.

DESCRIPTION OF PROPERTY

     Our headquarters and the EnergySaver system and GlobalCommander production facility are located at 1280 Landmeier Road in Elk Grove Village, Illinois. This facility is approximately 13,000 square feet and houses the corporate headquarters, manufacturing operations and warehouse. We acquired this facility in August 1998 for a purchase price of $1,140,000, $800,000 of which we financed through a mortgage and $340,000 of which we paid by issuing to the sellers 340,000 shares of our Common Stock. The mortgage was refinanced in May 2002, bears interest at the rate of prime (currently 4.0%) plus 0.5%, and is payable in monthly installments of $3,000 plus interest, until a final balloon payment which is due on February 1, 2005. There is no penalty for prepayment of the mortgage. As of May 1, 2004, the outstanding principal amount of the mortgage was $619,000.

     On June 7, 2001, we acquired Great Lakes Controlled Energy Corporation. Great Lakes currently operates its business from a facility located in Elk Grove Village, Illinois, which is approximately 10,000 square feet. In connection with our acquisition of Great Lakes, we entered into a three-year lease beginning on the date of the acquisition at a monthly rate of $10,000, with an option

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to purchase the facility. The building is owned by the former shareholders of Great Lakes, Eugene Borucki and Denis Enberg, both of whom are currently employed by the Company.

     We believe that the space and location of our current facilities in combination with the planned outsourcing of a portion of our manufacturing will be sufficient to reach a level of production projected for the current year. See “Manufacturing” under “Description of Our Business”.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     On June 3, 2003, the Company entered into an asset purchase agreement with Hoppensteadt Acquisition Corp., whereby Hoppensteadt acquired all of the assets, except for certain receivables and cash, and assumed all of the liabilities, except for bank debt, of the Company’ Power Management segment as of May 31, 2003, in exchange for $929,032 in cash. Hoppensteadt Acquisition Corp. is owned by a group of investors that includes Michael Stelter, one of our directors. Mr. Stelter holds a minority position in Hoppensteadt Acquisition Corp.

     Our wholly-owned subsidiary, Great Lakes Controlled Energy Corporation (“Great Lakes”), leases its office and warehouse facility in Elk Grove Village, Illinois from Eugene Borucki and Denis Enberg, the former owners of Great Lakes who are currently officers of our Company. We paid or accrued $70,000, $120,000 and $120,000 during 2001, 2002 and 2003, respectively, in lease payments. The lease commenced with the purchase of Great Lakes in June 2001 and expires in June 2004.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Our Common Stock has traded since December 12, 2000 on The American Stock Exchange under the symbol “ELC.”

     The closing price of our Common Stock on May 19, 2004 was $1.72. The following table sets forth the quarterly high and low closing prices for our Common Stock as reported on The American Stock Exchange since January 1, 2002.

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Holders

     As of April 20, 2004 we had approximately 6,500 holders of record of our Common Stock and 40,922,021 shares of Common Stock outstanding.

Dividends

     For the three months ended March 31, 2004, we declared and paid the following dividends on our preferred stock:

•

On April 7, 2004, the Board of Directors declared dividends payable on our Series E Convertible Preferred Stock for the calendar quarter ending March 31, 2004 to shareholders of record of our Series E Convertible Preferred Stock as of March 31, 2004. The dividends were paid with 6,579 additional shares of Series E Convertible Preferred Stock. Each share of Series E Convertible Preferred Stock is convertible into 100 shares of our common stock.

     As the result of a redemption and exchange offering completed March 22, 2004, the dilutive effect of the payment-in-kind dividend on the preferred stock will be reduced significantly in the future due to a reduction in the number of shares of preferred stock outstanding and a reduction in the dividend rate on the preferred stock. We project that without this redemption and exchange we would have issued shares of preferred stock as dividends over the next three years that would have been convertible into 10,306,790 shares of Common Stock. As a result of the redemption and exchange we only expect to issue preferred stock as dividends over the same period that will be convertible into 4,473,919 shares of Common Stock, a reduction of 5,832,871 shares or 56.6%. For a further discussion of this transaction please see “Item 6 — Management’s Discussion and Analysis or Plan of Operations — Liquidity and Capital Resources,” or Note 20 to the Consolidated Financial Statements.

     For a further discussion regarding preferred stock dividends, see “Item 6 - Management’s Discussion and Analysis or Plan of Operations — Preferred Stock Dividends.”

     We may not pay dividends on our Common Stock without the consent of the holders of our Series E Preferred Stock. See “Special Approval Rights” under the heading “Description of Securities”. We have never declared or paid any cash dividends on our Common Stock and we do not anticipate paying any cash dividends in the foreseeable future. See “Management’s Discussion and Analysis or Plan of Operation — Liquidity and Capital Resources”, and Note 16 to the Consolidated Financial Statements.

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EXECUTIVE COMPENSATION

Summary Compensation Table

     The following table summarizes the total compensation paid or awarded to each of our executive officers and to other officers whose total compensation exceeded $100,000 during the fiscal year ended December 31, 2003.

---

(1)

Messrs. Karambelas and Enberg are not executive officers of the Company but are included for purposes of compensation disclosure. Mr. Karambelas’ position with the Company was eliminated as part of a restructuring April 1, 2004.

(2)

Certain employees of the Company, including Messrs. Mitola, Mistarz and Enberg voluntarily reduced their salaries for all of 2003.

(3)

This represents a monthly auto allowance of $550 for Mr. Mitola.

(4)

Amounts of All Other Compensation are the amounts paid for long-term disability insurance for the Named Officers and the cost of life insurance for Messrs. Mitola and Mistarz.

Employment Agreements

     Effective January 1, 2003, we entered into a new employment agreement with John Mitola for a three-year period ending on December 31, 2005. The new agreement, which is structured to place more emphasis on achieving important corporate milestones, reduced Mr. Mitola’s base salary to $250,000 per year, but provides for a discretionary bonus of up to one hundred percent of his annual salary payable if he meets or exceeds certain annual goals as established by the Board of Directors, and a guaranteed bonus of $250,000 upon the achievement of two consecutive calendar quarters of positive net income by the Company (such net income to be that as reflected in the Company’s quarterly reports filed with the Securities and Exchange Commission). The agreement also provides for a monthly automobile allowance of $550.00 and the reimbursement of Mr. Mitola’s business-related expenses.

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     Under the employment agreement, we granted to Mr. Mitola an option to purchase 750,000 shares of our Common Stock at a price per share of $0.845, which is equal to the average closing price of the Company’s Common Stock as measured over the thirty trading day period prior to the effective date of the contract. The option, which was granted under the 2001 Stock Incentive Plan, vests in amounts of 250,000 shares on each December 31st of 2003, 2004 and 2005, except on a change of control in which case all the options will immediately vest.

     The employment agreement imposes on Mr. Mitola non-competition, non-solicitation and confidentiality obligations.

     Effective January 1, 2003, we entered into a new employment agreement with Mr. Mistarz for a three-year period ending on December 31, 2005. The new agreement provides for an annual base salary of $175,000 through December 31, 2003, increasing to $210,000 effective January 1, 2004 through December 31, 2005. In addition, Mr. Mistarz is eligible to participate in an annual bonus plan with certain other management employees. The new agreement provides Mr. Mistarz with options to purchase 400,000 shares of our Common Stock at a price of $1.00 per share, which options vest 133,334 shares on December 31, 2003 and 133,333 shares each on December 31, 2004 and 2005, except on a change of control in which case all the options will immediately vest. These options were granted under the 2001 Stock Incentive Plan.

     The employment agreement imposes on Mr. Mistarz non-competition, non-solicitation and confidentiality obligations.

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2003 Option Grants

     The following table sets forth information regarding stock option grants made to each of the above named executive and principal officers during the fiscal year ended December 31, 2003.

Option Values

     The following table sets forth information regarding the number and value of unexercised options held by each of the above named executive and principal officers as of December 31, 2003. None of our named executive or principal officers hold any stock appreciation rights and none of them exercised any options during the fiscal year ended December 31, 2003.

Stock Options and Incentive Compensation

     During the Company’s annual meeting of shareholders held on August 30, 2001, our shareholders approved the adoption of the 2001 Stock Incentive Plan (the “Plan”), which provides that up to 800,000 shares of the Company’s Common Stock may be issued under the Plan to certain employees of the Company or any of its subsidiaries and to consultants and directors who are not employees. In addition, the Plan provides for an additional number of shares of Common Stock to be reserved for issuance under the Plan on January 1 of each succeeding year, beginning January 1, 2002, in an amount equal to the lesser of (i) 5% of the number of outstanding shares of Common Stock, or (ii) 500,000 shares. The awards to be granted under the Plan may be incentive stock options eligible for favored treatment under Section 422 of the Internal Revenue code of 1986, as amended from time to time, or non-qualified options that are not eligible for such treatment or stock of the Company, which may be subject to contingencies or restrictions, as well as grants of stock appreciation rights or grants of shares of Common Stock. Approximately 27 employees, officers and directors of the Company are currently eligible to participate in the Plan.

     The exercise price for any incentive stock option (“ISO”) may not be less than 100% of the fair market value of the stock on the date the option is granted, except that with respect to a participant who

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owns more than 10% of the Common Stock the exercise price must be not less than 110% of fair market value. The exercise price of any non-qualified option shall be in the sole discretion of the Committee or Board. The aggregate fair market value of the shares that may be subject to any ISO granted to any participant may not exceed $100,000 on the date of grant. There is no comparable limitation with respect to non-qualified stock options.

     The term of all options granted under the Plan shall be determined by the Compensation Committee or Board in their sole discretion, provided, however, that the term of each ISO shall not exceed 10 years from the date of grant thereof and, further provided, that if, at the time an ISO is granted, the optionee owns (or is deemed to own under Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, of any of its Subsidiaries or of a Parent, the term of the ISO shall not exceed five years from the date of grant. The right of exercise will be cumulative, so that shares that are not purchased in one year may be purchased in a subsequent year. The options may not be assigned. Upon exercise of any option, in whole or in part, payment in full is required (unless the applicable award contract permits installment payments or cashless exercise) for the number of shares purchased. Payment may be made in cash, by delivery of shares of the Common Stock of equivalent fair market value or by any other form of legal consideration that is acceptable to the Board.

     In addition to the ISOs and non-qualified options, the Plan permits the Compensation Committee, consistent with the purposes of the Plan, to grant shares of Common Stock and/or stock appreciation rights to non-employee directors and such employees (including officers and directors who are employees) of, or consultants to, the Company or any of its subsidiaries, as the Committee may determine, in its sole discretion. The grant may require the holder to pay such price per share therefore, if any, as the Compensation Committee may determine. Such shares may be subject to such contingencies and restrictions as the Compensation Committee may determine.

     If an employee’s employment is terminated by reason of death, disability or retirement, either the employee or his or her beneficiary will have the right for eighteen months to exercise the option to the extent the option was exercisable on the date of death or disability, but in no event after the date the award would otherwise have expired. If a Plan participant’s relationship with the Company is terminated for any reason other than death, disability or retirement and other than for cause or without the Company’s consent (in which case the option shall terminate immediately), he or she may, for a period of one year, exercise the option to the extent that it was exercisable on the date of termination, but in no event after the date the award would otherwise have expired.

     The Plan is administered by the Board, which is authorized to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan and to determine the employees to whom, and the time, terms and conditions under which, options are to be granted. The Board is also authorized to adjust the number of shares available under the Plan, the number of shares subject to outstanding options and the option prices to take into account the Company’s capitalization by reason of a stock dividend, recapitalization, merger, consolidation, stock split, combination or exchange of shares or other similar event.

     The Board may amend, suspend or terminate the Plan in any respect at any time. However, no amendment may (i) adversely affect the rights of a participant under an award theretofore granted without the consent of such participant, (ii) increase the number of shares reserved for option under the Plan, (iii) modify the requirements for participation in the Plan, or (iv) modify the Plan in any way that would require stockholder approval under the rules and regulations under the Exchange Act or the rules of any stock exchange or market on which the Common Stock is listed.

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     Under current Federal law, no taxable income will be recognized by the recipient of an incentive stock option within the meaning of Section 422 of the Code upon either the grant or exercise of the incentive stock option (provided the exercise occurs while the participant is an employee of the Company or within three months after termination of employment), nor will a deduction be allowed the Company by reason of the grant or exercise, provided the employee does not dispose of the shares issued upon exercise within two years from the date the option was granted and within one year from the date the shares were issued. If the recipient fails to satisfy these holding period requirements, the difference between the amounts realized upon disposition of the shares and the adjusted basis of the shares is includible as compensation in the recipient’s gross income and the Company will be entitled to a deduction in that amount.

     Under current law, the holder of a non-qualified stock option is taxed at the time of exercise on the difference between the exercise price and the fair market value of the shares on the date of exercise. Upon disposition of the stock, the stockholder is taxed upon the difference between the basis of the stock (which is equal to the fair market value at the time the option was exercised) and the amount realized upon the disposition.

     A grant of shares of Common Stock that is subject to no vesting restrictions will result in taxable income for federal income tax purposes to the recipient at the time of grant in an amount equal to the fair market value of the shares awarded. The Company would be entitled to a corresponding deduction at that time for the amount included in the recipient’s income.

     Generally, a grant of shares of Common Stock under the Plan subject to vesting and transfer restrictions will not result in taxable income to the recipient for federal income tax purposes or a tax deduction to the Company in the year of the grant. The value of the shares will generally be taxable to the recipient as compensation income in the years in which the restriction on the shares lapse. Such value will be the fair market value of the shares on the dates the restrictions terminate. Any recipient, however, may elect pursuant to Section 83(b) of the Code to treat the fair market value of the shares on the date of such grant as compensation income in the year of the grant of restricted shares, provided the recipient makes the election within 30 days after the date of the grant. In any case, the Company will receive a deduction for federal income tax purposes corresponding in amount to the amount of compensation included in the recipient’s income in the year in which that amount is so included.

     As of December 31, 2003, there were 1,800,000 shares of Common Stock reserved under the Plan. The Company granted options to purchase 1,150,000 under the plan during 2003, and options to purchase 1,150,000 shares were outstanding under the Plan as of December 31, 2003. Only the directors’ options described below were granted outside of the plan during 2002 or 2003. No grants of shares or stock appreciation rights have been made under the Plan.

Director Compensation

     Effective April 1, 2000, the Company adopted a stock option plan for all independent directors, which is separate and distinct from the 2001 Stock Incentive Plan described above. The director’s stock option plan provides that eligible directors receive an initial option grant upon being appointed to our Board of Directors to purchase 75,000 shares of our Common Stock at a price equal to the greater of the closing price of our Common Stock on the grant date, or $1.00. These options have a term of ten years and vest in three equal amounts, beginning on the grant date and on each of the next two anniversaries of the grant date, assuming the individual is still a member of the Board of Directors

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on such anniversary date. Mr. Kushman received options pursuant to this provision of our directors’ option plan, which he assigned to Cinergy Ventures II, LLC.

     Eligible directors are also granted additional options to purchase 25,000 shares of our Common Stock on the anniversary of their appointment to the Board if they are still a member of the Board of Directors on such anniversary date. These options have an exercise price equal to the greater of the closing price of our Common Stock on the grant date, or $1.00. These options also have a term of ten years and vest in three equal amounts, beginning on the grant date and on the next two anniversaries of the grant date, assuming the individual is still a member of the Board of Directors on such anniversary date. Messrs. Asplund, Brace, Manning, Pientka and Wagner received options pursuant to this provision of our directors’ option plan.

     The Company granted options to purchase 200,000 shares and 75,000 shares under the director’s stock option plan during 2003 and the first quarter of 2004, respectively, and options to purchase 1,058,335 shares were outstanding under this plan as of March 31, 2004.

     Directors who are also employees of the Company receive no additional compensation for their services as directors. Directors who are not employees of the Company, in addition to stock options, are reimbursed for travel expenses and other out-of-pocket costs incurred in connection with their attendance at such meetings.

Securities Under Equity Compensation Plans

     The following information reflects certain information about our equity compensation plans as of December 31, 2003:

(1)		The 2001 Employee Stock Incentive Plan (“Plan”) was approved by the Company’s stockholders at the 2001 Annual Meeting of Stockholders. The Plan called for 800,000 shares of the Company’s Common Stock to be reserved for issuance upon approval of the Plan by the Company stockholders and additional reserves of 500,000 shares of the Company’s Common Stock on each January 1, beginning January 1, 2002.
(2)		Prior to the adoption of the 2001 Employee Stock Incentive Plan, the Company had granted to certain of its employees stock options on a discretionary basis. These grants were not made pursuant to any formal plan. Grants made to employees pursuant to this method were discontinued following adoption of the Plan.
(3)		The Company grants stock options to its non-employee directors pursuant to a Directors Stock Option Plan (See “Compensation of Directors”), which grants are included in this category.

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SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT

     The following tables list certain information, as of May 19, 2004, regarding the beneficial ownership of our outstanding Common Stock by (1) each of our directors and named executive officers, the persons known to us to beneficially own greater than 5% of each class of our voting securities and our directors and executive officers, as a group. Beneficial ownership is determined in accordance with the rules of the SEC. Except as otherwise noted, (1) the persons or entities named have sole voting and investment power with respect to all shares shown as beneficially owned by them and (2) the address of each person listed in the following table (unless otherwise noted) is c/o Electric City Corp., 1280 Landmeier Road, Elk Grove Village, Illinois 60007-2410.

Common Stock

						Common
						Shares				Common				Common
						Issuable Upon				Shares				Shares
		Common				Conversion of				Issuable Upon				Issuable Upon
		Shares				Preferred				Exercise of				Exercise of
Name		Directly Held				Stock (1)				Warrants				Options (2)				Total				%
Directors, Executive Officers and 5% Holders
David Asplund			4,574				300,500				52,173	(3)			91,667				448,914				1.085	%
Frederic F. Brace			—				—				—				116,667				116,667				*
John Bukovski			—				—				—				25,000				25,000				*
Cinergy Ventures II (4)			73,199				3,119,400				834,375	(5)			50,000	(6)			4,076,974				9.075	%
DYDX Consulting LLC (7)			2,491,954	(8)			—				—				947,546	(9)			3,439,500				8.215	%
Felicia Ferguson (22)			—				—				—				—				—				*
Richard P. Kiphart (10)			563,594				7,261,500				1,259,128	(11)			—				9,084,222				18.373	%
Nikolas Konstant			2,491,954	(8)			—				—				947,546	(9)			3,439,500				8.215	%
Kevin Kushman (22)			—				—				—				—	(6)			—				*
Leaf Mountain Company, LLC (12)			315,122				2,156,200				421,875				—				2,893,197				6,651	%
Robert J. Manning			2,000				—				—				150,001				152,001				*
Joseph C. Marino			5,777,516	(13)			—				—				2,150,000	(14)			7,927,516				18.405	%
Jeffrey R. Mistarz			9,200				—				—				311,112				320,312				*
John P. Mitola			9,750	(15)			—				—				1,250,000				1,259,750				2.987	%
CIT Capital Securities, Inc. (16)			80,217				3,347,300				4,064,830	(17)			—				7,492,347				15.501	%
Newcourt Capital USA, Inc. (16)			80,217				3,347,300				4,064,830	(17)			—				7,492,347				15.501	%
Gerald A. Pientka (18)			22,000				—				—				150,001				172,001				*
Pino Manufacturing, LLC (13)			5,386,852				—				—				1,700,000				7,086,852				16.627	%
SBL Fund Series J (23)			2,214,000				—				645,750				—				2,859,750				6.880	%
Security Benefit Group (23)			6,000,000				—				1,750,000				—				7,750,000				18.162	%
SF Capital Partners Ltd. (19)			471,276				2,404,200				—	(20)			—				2,875,476				6.637	%
Michael S. Stelter			1,034,952				—				—				—				1,034,952				2.529	%
Robert D. Wagner, Jr.			—				—				—				116,667				116,667				*
All directors and executive officers as a group (10 persons)**			1,082,476				300,500				52,173				2,211,115				3,646,264				8.385	%