10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2009

or

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

Commission file number: 0-52294

AMERICAN DG ENERGY INC.

(Exact name of Registrant as specified in its charter)

Delaware	04-3569304
(State of incorporation or organization)	(IRS Employer Identification No.)
45 First Avenue
Waltham, Massachusetts	02451
(Address of Principal Executive Offices)	(Zip Code)

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

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

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

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

Yes o    No o

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

Large accelerated filer ¨	Accelerated filer ¨
Non –accelerated filer ¨	Smaller reporting company x
(Do not check if a smaller reporting company)

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

           Yes o  No x

Title of each class	Outstanding at March 31, 2009
Common Stock, $0.001 par value	34,034,496

AMERICAN DG ENERGY INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDING MARCH 31, 2009

TABLE OF CONTENTS

	PART I – FINANCIAL INFORMATION
Item 1:	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheet – March 31, 2009 and December 31, 2008	3
	Condensed Consolidated Statement of Operations – Three Months Ended March 31, 2009 and 2008	4
	Condensed Consolidated Statement of Cash Flows – Three Months Ended March 31, 2009 and 2008	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3:	Quantitative and Qualitative Disclosures about Market Risk	13
Item 4T:	Controls and Procedures	13
	PART II - OTHER INFORMATION
Item 1A:	Risk Factors	15
Item 6:	Exhibits	15
Signatures		16

References in this Form 10-Q to “we”, “us”, “our”, the “company” and “American DG Energy” refers to American DG Energy Inc. and its consolidated subsidiaries, unless otherwise noted.

2

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

AMERICAN DG ENERGY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

as of March 31, 2009 and December 31, 2008

	March 31,			December 31,
	2009			2008
	UNAUDITED
ASSETS
Current assets:
Cash and cash equivalents	$	1,502,742		$	1,683,498
Short-term investments		271,133			761,614
Accounts receivable, net		789,143			835,922
Unbilled revenue		129,448			204,750
Due from related party, current		379,538			297,417
Prepaid and other current assets		164,362			163,121
Total current assets		3,236,366			3,946,322
Property, plant and equipment, net		7,230,214			6,983,392
Accounts receivable, long- term		-			5,647
TOTAL ASSETS		10,466,580			10,935,361
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		275,139			270,852
Accrued expenses and other current liabilities		331,814			384,340
Due to related party		195,042			166,560
Capital lease obligations		2,431			2,431
Total current liabilities		804,426			824,183
Long-term liabilities:
Convertible debentures		5,875,000			5,875,000
Capital lease obligations, long-term		13,865			14,394
Total liabilities		6,693,291			6,713,577
Stockholders’ equity:
American DG Energy Inc. shareholders' equity:
Common stock, $0.001 par value; 50,000,000 shares authorized; 34,034,496 issued and outstanding at March 31, 2009 and December 31, 2008, respectively		34,034			34,034
Additional paid- in- capital		12,709,578			12,614,332
Common stock subscription		(10,540	)		(35,040	)
Accumulated deficit		(10,283,858	)		(9,708,545	)
Total American DG Energy Inc. stockholders' equity		2,449,214			2,904,781
Noncontrolling interest		1,324,075			1,317,003
Total stockholders' equity		3,773,289			4,221,784
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	10,466,580		$	10,935,361

See Notes to Condensed Consolidated Financial Statements

3

AMERICAN DG ENERGY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

for the Three Months Ended March 31, 2009 and March 31, 2008

	Three Months Ended
	March 31,			March 31,
	2009			2008
	UNAUDITED			UNAUDITED
Net Sales	$	1,403,529		$	1,516,952
Cost of sales
Fuel, maintenance and installation		1,054,533			1,077,087
Depreciation expense		197,742			115,701
		1,252,275			1,192,788
Gross profit		151,254			324,164
Operating expenses
General and administrative		349,767			348,887
Selling		120,064			114,850
Engineering		118,760			101,847
		588,591			565,584
Loss from operations		(437,337	)		(241,420	)
Other income (expense)
Interest and other income		23,778			47,906
Interest expense		(117,500	)		(120,500	)
		(93,722	)		(72,594	)
Loss from continuing operations, before tax		(531,059	)		(314,014	)
Provision for state income taxes		(2,050	)		(28,613	)
Net loss		(533,109	)		(342,627	)
Less: Income attributable to the noncontrolling interest		(42,204	)		(82,135	)
Net loss attributable to American DG Energy Inc.		(575,313	)		(424,762	)
Net loss per share - basic and diluted	$	(0.02	)	$	(0.01	)
Weighted average shares outstanding - basic and diluted		33,535,306			32,265,813

See Notes to Condensed Consolidated Financial Statements

4

AMERICAN DG ENERGY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

for the Three Months Ended March 31, 2009 and March 31, 2008

	Three Months Ended
	March 31,			March 31,
	2009			2008
	UNAUDITED			UNAUDITED
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(575,313	)	$	(424,762	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		201,076			117,200
Noncontrolling interest in net income of consolidated subsidiaries, net of taxes		42,204			82,135
Provision for losses on accounts receivable		65,259			-
Amortization of deferred financing costs		2,132			2,132
Non cash interest expense		117,500			120,500
Stock-based compensation		84,746			95,640
Changes in operating assets and liabilities
(Increase) decrease in:
Accounts receivable		62,469			130,901
Due from related party		(82,121	)		35,004
Prepaid assets		(3,373	)		(25,488	)
Increase (decrease) in:
Accounts payable		4,287			94,525
Accrued expenses and other current liabilities		(170,026	)		(37,260	)
Due to related party		28,482			72,200
Net cash (used in) provided by operating activities		(222,678	)		262,727
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(447,898	)		(688,478	)
Sale of short-term investments		490,481			(94,231	)
Net cash provided by (used in) investing activities		42,583			(782,709	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrants		35,000			269,500
Payments on capital lease obligations		(529	)		-
Noncontrolling distribution to consolidated subsidiaries		(35,132	)		(53,920	)
Net cash (used in) provided by financing activities		(661	)		215,580
Net (decrease) in cash and cash equivalents		(180,756	)		(304,402	)
Cash and cash equivalents, beginning of the period		1,683,498			5,057,482
Cash and cash equivalents, ending of the period	$	1,502,742		$	4,753,080
Supplemental disclosures of cash flows information:
Cash paid during the period for:
Interest	$	117,500		$	120,500
Income taxes	$	21,960		$	5,847

See Notes to Condensed Consolidated Financial Statements

5

AMERICAN DG ENERGY INC.

Notes to Interim Financial Statements (Unaudited) for the period ending March 31, 2009

Note 1 – Basis of Presentation:

The unaudited condensed consolidated financial statements (the “Unaudited Financial Statements”) presented herein have been prepared by the company, without audit, and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the interim periods presented. The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures required for complete financial statements are not included herein. It is suggested that the Unaudited Financial Statements be read in conjunction with the consolidated financial statements and notes included in the company’s Form 10-K for the year ended December 31, 2008, filed with the Securities and Exchange Commission. The operating results for the three month period ended March 31, 2009 may not be indicative of the results expected for any succeeding interim period or for the entire year ending December 31, 2009.     

The accompanying consolidated financial statements include the accounts of the company, its wholly owned subsidiary American DG Energy and its 51% joint venture, American DG New York, LLC, or ADGNY, (referred to hereafter as “Investee entities”), after elimination of all material intercompany accounts, transactions and profits. Investee entities in which the company owns directly or indirectly 50% or more of the membership interests have been consolidated as a result of the company's control over the Investee entities. Noncontrolling interests in the net assets and earnings or losses of consolidated Investee entities are reflected in the caption “Noncontrolling interest” in the accompanying consolidated financial statements. Noncontrolling interest adjusts the consolidated results of operations to reflect only the company’s shares of the earnings or losses of the consolidated investee entities. Upon dilution of ownership below 50%, the accounting method is adjusted to the equity or cost method of accounting, as appropriate, for subsequent periods.

The company’s operations are comprised of one business segment. Our business is selling energy in the form of electricity, heat, hot water and cooling to our customers under long-term sales agreements. The preparation of financial statements in conformity with generally accepted accounting principles, or GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

Revenue from energy contracts is recognized when electricity, heat, and chilled water is produced by the cogeneration systems on-site. The company bills each month based on various meter readings installed at each site. The amount of energy produced by on-site energy systems is invoiced, as determined by a contractually defined formula. Under certain energy contracts, the customer directly acquires the fuel to power the systems and receives credit for that expense from the company. The credit is recorded as revenue and cost of fuel. We recognize revenue that relates to multiple element contracts in accordance with Emerging Issues Task Force 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables”. Revenue to which this guidance applies includes a contract that consists of the sale of equipment, installation, energy and maintenance. When a sales arrangement contains multiple elements, revenue is allocated to each element based upon its relative fair value. Fair value is determined based on the price of a deliverable sold on a standalone basis.

As a by-product of our energy business, in some cases the customer may choose to have us construct the system for them rather than have it owned by American DG Energy. In this case, we account for revenue and costs using the percentage-of-completion method of accounting. Under the percentage-of-completion method of accounting, revenues are recognized by applying percentages of completion to the total estimated revenues for the respective contracts. Costs are recognized as incurred. The percentages of completion are determined by relating the actual cost of work performed to date to the current estimated total cost at completion of the respective contracts. When the estimate on a contract indicates a loss, the company’s policy is to record the entire expected loss, regardless of the percentage of completion. Costs and estimated earnings in excess of related billings and unbilled revenue represent the excess of contract costs and profit recognized to date on the percentage-of-completion accounting method over billings to date on certain contracts. Billings in excess of related costs and estimated earnings represents the excess of billings to date over the amount of contract costs and profits recognized to date on the percentage-of-completion accounting method for certain contracts. Customers may buy out their long-term obligation under energy contracts and purchase the underlying equipment from the company. Any resulting gain on these transactions is recognized in the consolidated statements of operations. Revenues from operation and maintenance services, including shared savings are recorded when provided and verified.

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AMERICAN DG ENERGY INC.

Note 2 – Loss per Common Share:

We compute basic loss per share by dividing net income (loss) for the period by the weighted average number of shares of common stock outstanding during the period. We compute our diluted earnings per common share using the treasury stock method. For purposes of calculating diluted loss per share, we consider our shares issuable in connection with convertible debentures, stock options and warrants to be dilutive common stock equivalents when the exercise price is less than the average market price of our common stock for the period. For the three months ended March 31, 2009, we excluded 10,375,174 anti-dilutive shares resulting from conversion of debentures and exercise of stock options, warrants and unvested restricted stock, and for the three months ended March 31, 2008, we excluded 11,226,621 anti-dilutive shares resulting from conversion of debentures and exercise of stock options, warrants and unvested restricted stock. All shares issuable for both years were anti-dilutive because of the reported net loss.

	Three Months
	March 31,			March 31,
	2009			2008
Earnings per share
Loss available to stockholders	$	(575,313	)	$	(424,762	)
Weighted average shares outstanding - Basic and diluted		33,535,306			32,265,813
Basic and diluted loss per share	$	(0.02	)	$	(0.01	)

Note 3 – Stock-Based Compensation:

Stock-based compensation expense under Statements of Financial Accounting Standards No. 123 (revised 2004), “Share Based Payment”, or SFAS No. 123(R) was $84,746 for the three months ended March 31, 2009 and $95,640 for the three months ended March 31, 2008. The incremental impact of SFAS No. 123(R) during the three months ended March 31, 2009 represents stock-based compensation expense related to restricted stock and stock options. At March 31, 2009, the total compensation cost related to unvested restricted stock awards and stock option awards not yet recognized is $650,785. This amount will be recognized over the weighted average period of 5.87 years. During the three months ended on March 31, 2009, the company issued 13,000 stock options to three employees with a vesting schedule of 25% per year and expiration in five years. At March 31, 2009, there were 489,125 unvested shares of restricted stock outstanding.

Restricted stock activity for the three months ended March 31, 2009 was as follows:

	Number of			Grant Date
	Restricted Stock			Fair Value
Unvested, December 31, 2008		720,000		$	0.70
Granted		-			-
Vested		(230,875	)		0.70
Forfeited		-			-
Unvested, March 31, 2009		489,125		$	0.70

Note 4 – Warrants:

During the quarter ended March 31, 2009, the company sold a warrant to purchase shares of common stock to an accredited investor for a purchase price of $10,500. The warrant, which expires on February 24, 2012, gives the investor the right but not the obligation to purchase 50,000 shares of the company’s common stock at an exercise price per share of $3.00. At March 31, 2009, the company had 500,000 warrants outstanding at an exercise price of $0.70 per share that expire on April 5, 2010, and 50,000 warrants outstanding at an exercise price of $3.00 per share that expire on February 24, 2012.

Note 5 – Related party:

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

7

AMERICAN DG ENERGY INC.

In January 2006, the company entered into the 2006 Facilities, Support Services and Business Agreement, or the Agreement, with Tecogen, to provide the company with certain office and business support services for a period of one year, renewable annually by mutual agreement. In January and May 2008, we amended the Agreement with Tecogen. Under the amendments, Tecogen provides the company with office space and utilities at a monthly rate of $2,053 and $2,780, respectively. In January 2009, the company assumed additional space and amended the office space and utilities to a monthly rate of $4,838.

On February 15, 2007, the company loaned the noncontrolling interest partner in ADGNY $20,000 by signing a two year loan agreement earning interest at 12% per annum. On April 1, 2007, the company loaned an additional $75,000 to the same noncontrolling interest partner by signing a two year note agreement earning interest at 12% per annum, and on May 16, 2007, the company loaned an additional $55,000 to the same partner by signing a note agreement under the same terms. All notes are classified in the “Due from related party” account in the accompanying balance sheet and are secured by the partner’s noncontrolling interest. On October 11, 2007, we extended to our noncontrolling interest partner a line of credit of $500,000. At March 31, 2009, $362,123 was outstanding and due to the company under the combination of the above agreements.

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

Note 6 – Commitments and Contingencies:

In November 2008, the company received from Georgia King Village, an On-Site Utility energy customer, a notice to terminate operations at their location. The company notified the management of Georgia King Village that the termination notice violated the terms of the agreement between the company and Georgia King Village and that termination charges would apply. The company proceeded to remove five energy systems and other supporting equipment from the Georgia King Village site and placed them in inventory. The aforementioned dispute is scheduled for an arbitration hearing in the second quarter of 2009. The company does not expect the outcome of this arbitration to have a material impact on its results of operations and financial condition.

Note 7 – Fair Value Measurements:

SFAS 157 defines and establishes a framework for measuring fair value and expands disclosures about fair value measurements. In accordance with SFAS 157, we have categorized our financial assets and liabilities, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below. If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. The three levels of the hierarchy are defined as follows:

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

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

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

During the three months ended on March 31, 2009, the company had $271,133 in short-term investments that are comprised of Certificates of Deposits which are categorized as Level 2. The Company determines the fair value of certificates of deposits using information provided by the issuing bank which includes discounted expected cash flow estimates using current market rates offered for deposits with similar remaining maturities.

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AMERICAN DG ENERGY INC.

Note 8 – Recent Accounting Pronouncements:

In December 2007, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards No. 141(R) “Business Combinations”, or SFAS No. 141(R), which requires changes in the accounting and reporting of business acquisitions. The statement requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in purchased entities, measured at their fair values at the date of acquisition based upon the definition of fair value outlined in Statement of Financial Accounting Standards No. 157, or SFAS No. 157. SFAS No. 141(R) is effective for the company for acquisitions that occur beginning in 2009. The effects of SFAS No. 141(R) on our financial statements will depend on the extent that the company makes business acquisitions in the future.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements an Amendment of ARB No. 51”, or SFAS No. 160, which requires changes in the accounting and reporting of noncontrolling interests in a subsidiary, also known as minority interest. The statement clarifies that a minority interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 was effective for the company beginning January 1, 2009, and resulted in a change in presentation of minority interests in the consolidated financial statements consistent with the new standard.

In February 2008, the FASB issued FASB Staff Position No. 157-2, or FSP No. 157-2,  which delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). SFAS No. 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements. FSP No. 157-2 partially defers the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of this FSP No. 157-2. On January 1, 2009, the company adopted without material impact on its condensed consolidated financial statements the provisions of SFAS No. 157 related to nonfinancial assets and nonfinancial liabilities that are not required or permitted to be measured at fair value on a recurring basis including nonfinancial long-lived assets measured at fair value for impairment assessment.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of Statement of Financial Accounting Standards No. 133”, or SFAS No. 161. SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. This standard requires enhanced disclosures about how and why an entity uses derivative instruments, how instruments are accounted for under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and how derivatives and hedging activities affect an entity’s financial position, financial performance and cash flows. This standard is effective for fiscal years beginning after November 15, 2008. The company does not expect SFAS No. 161 to have a material impact on its results of operations and financial condition.

Note 9 – Subsequent Event

On April 23, 2009, the company entered into a subscription agreement with certain investors, to sell 1,076,190 shares of restricted common stock. The purchase price per share was $2.10 and the aggregate purchase price for the shares was approximately $2,260,000. The closing of the transaction took place on April 27, 2009. Investors participating in the private placement are Nettlestone Enterprises Limited, the John Hatsopoulos 1989 Family Trust for the benefit of his adult children, Charles T. Maxwell, a director of the company, and others. The proceeds of the private placement will be used to fund additional installations of the company’s On-Site Utility energy systems and for general corporate and working capital purposes.

9

AMERICAN DG ENERGY INC.

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

Forward-looking statements are made throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates” and similar expressions are intended to identify forward-looking statements. While the company may elect to update forward-looking statements in the future, it specifically disclaims any obligation to do so, even if the company's estimates change and readers should not rely on those forward-looking statements as representing the company's views as of any date subsequent to the date of the filing of this Quarterly Report on Form 10-Q. There are a number of important factors that could cause the actual results of the company to differ materially from those indicated by such forward-looking statements, including those detailed under the heading “Risk Factors” in this Quarterly Report on Form 10-Q.

The company distributes and operates on-site cogeneration systems that produce both electricity and heat. The company’s primary business is to own the equipment that it installs at customers’ facilities and to sell the energy produced by these systems to its customers on a long-term contractual basis. We call this business the American DG Energy “On-Site Utility”.

First Quarter 2009 Compared to First Quarter 2008

Revenues

Revenues in the first quarter of 2009 were $1,403,529 as compared to $1,516,952 for the same period in 2008, a decrease of $113,423 or 7.5%. The decrease in revenues was primarily due to the decrease in our non-core turn-key installation projects revenues offset by an increase in our core On-Site Utility energy revenues that increased to $1,394,521 as compared to $1,234,909 for the same period in 2008, an increase of 12.9%. Our On-Site Utility energy revenues were also affected by lower energy prices (electricity, natural gas and oil) in the greater New York metropolitan area.

During the first quarter of 2009, we were operating 58 energy systems at 33 locations in the Northeast, representing 4,075 kW of installed electricity plus thermal energy, compared to 52 energy systems at 28 locations, representing 3,945 kW of installed electricity plus thermal energy for the same period in 2008. Our revenues per customer on a monthly basis is based on the sum of the amount of energy produced by our energy systems and the published price of energy (electricity, natural gas or oil) from our customers’ local energy utility that month less the discounts we provide our customers. Our revenues commence as new energy systems become operational.

Cost of Sales

Cost of sales, including depreciation, in the first quarter of 2009 were $1,252,275 as compared to $1,192,788 for the same period in 2008, an increase of $59,487 or 5.0%. Included in the cost of sales was depreciation expense of $197,742 in the first quarter of 2009, compared to $115,701 in 2008. Our cost of sales for our core On-Site Utility business consists of fuel required to operate our energy systems, the cost of maintenance, and minimal communications costs. During the first quarter of 2009, our gross margins were 10.8% compared to 21.4% in 2008, primarily due to lower energy prices (electricity, natural gas and oil) in the greater New York metropolitan area. Our On-Site Utility energy margins excluding depreciation were 23.9% in the first quarter of 2009 as compared to 27.5% during the same period in 2008.

Operating Expenses

Our general and administrative expenses consist of executive staff, accounting and legal expenses, office space, general insurance and other administrative expenses. Our general and administrative expenses in the first quarter of 2009 remained relatively flat at $349,767 compared to $348,887 in 2008, an increase of $880 or 0.3%. Our general and administrative expenses include non-cash compensation expense, in accordance with SFAS No. 123(R), related to the issuance of restricted stock and option awards to our employees.

Our selling expenses consist of sales staff, commissions, marketing, travel and other selling related expenses including provisions for bad debt write-offs. We sell energy using both direct sales and commissioned agents. Our marketing efforts consisted of trade shows, print literature, media relations and event driven direct mail. Our selling expenses in the first quarter of 2009 were $120,064 compared to $114,850 in 2008, an increase of $5,214 or 4.5%. The increase in our selling expenses was primarily due to additional sales expenses.

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AMERICAN DG ENERGY INC.

Our engineering expenses consisted of technical staff and other engineering related expenses. The role of engineering is to evaluate potential customer sites based on technical and economic feasibility, manage the installed base of energy systems and oversee each new installation project. Our engineering expenses in the first quarter of 2009 were $118,760 compared to $101,847 in 2008, an increase of $16,913 or 16.6%. The increase in our engineering expenses was primarily due to increased travel expenses of our personnel.

Operating Income

Operating income in the first quarter of 2009 was a loss of $437,337 compared to a loss of $241,420 in 2008. The increase in the operating loss was primarily due to lower revenue and lower margins primarily in the greater New York metropolitan area. Our non-cash compensation expense in accordance with SFAS No. 123(R) related to the issuance of restricted stock and option awards to our employees was $84,746 in the first quarter of 2009, compared to $95,640 in 2008.

Other Income (Expense), Net

Our other income (expense), net, in the first quarter of 2009 was $93,722 compared to $72,594 in 2008. Other income (expense), net, includes interest income, interest expense and other items. Interest and other income was $23,778 in the first quarter of 2009 compared to $47,906 in 2008. The decrease was primarily due to a lower cash balance and lower yields on our invested funds. Interest expense was $117,500 in the first quarter of 2009 compared to $120,500 in 2008, due to interest on our convertible debenture issued in 2006.

Provision for Income Taxes

Our provision for state income taxes in the first quarter of 2009 was $2,050 compared to $28,613 in 2008, due to the profitability of our joint venture ADG NY. No benefit to the company’s losses has been provided in either period.

Noncontrolling Interest

In 2002, the company and AES-NJ Cogen Inc. of New Jersey created ADG NY to develop projects in the New York and New Jersey area. The company owns 51% of ADGNY. Both partners in ADGNY share in the profits of the business. The percentage share of the profit is based on the partner’s investment in each individual project. The company’s investments in ADGNY projects have ranged from 51% to 80%. The noncontrolling interest represents our partner’s share of profits in the entity. On our balance sheet, noncontrolling interest represents our partner’s investment in the entity, plus its share of after tax profits less any cash distributions. The noncontrolling interest share in the profits in the entity was $42,204 in the first quarter of 2009 and $82,135 in 2008. The decrease in noncontrolling interest is due to the overall decrease in joint venture volume and profits. In the first quarter of 2009, the company made a distribution of $35,131 to the noncontrolling interest partner.

Liquidity and Capital Resources

Consolidated working capital in the first quarter of 2009 was $2,431,940, compared to $3,122,139 at December 31, 2008. Included in working capital were cash, cash equivalents and short-term investments of $1,773,875 in the first quarter of 2009, compared to $2,445,112 at December 31, 2008. The decrease in working capital was a result of cash needed to fund operations.

 Cash used by operating activities was $222,678 in the first quarter of 2009 compared to cash provided of $262,727 in the first quarter of 2008. The company's short and long-term receivables balance, including unbilled revenue, decreased to $918,591, in the first quarter of 2009 compared to $1,046,319 at December 31, 2008, due to decreased sales volume, resulting in an increase in cash of $127,728. Amount due to the company from related parties, short and long-term, increased to $379,538 in the first quarter of 2009 compared to $297,417 at December 31, 2008, using $82,121 of cash due to an additional loan to our noncontrolling interest partner. Our prepaid and other current assets increased to $164,362 in the first quarter of 2009 compared to $163,121 at December 31, 2008, using $1,241 of cash.

Accounts payable increased to $275,139 in the first quarter of 2009, compared to $270,852 at December 31, 2008, providing $4,287 of cash to the company. Our accrued expenses and other current liabilities including accrued interest expense decreased to $331,814 in the first quarter of 2009 compared to $384,340 at December 31, 2008, using $52,526 of the company’s cash, offset by an accrual of $117,500 for future interest payments. Our due to related party increased to $195,042 in the first quarter of 2009, compared to $166,560 at December 31, 2008 due to maintenance invoices received late in the period.

During the first quarter of 2009, the primary investing activities of the company's operations were expenditures for the purchase of property, plant and equipment for the company's energy system installations. The company used $447,898 for purchases and installation of energy systems. The company’s short-term investments provided $490,481 of cash as our funds invested in certificates of deposits matured and converted into cash. The company's financing activities used $661 of cash in the first quarter of 2009 from the exercise of common stock warrants, offset by distributions to our noncontrolling interest partner and payments on capital lease obligations.

11

AMERICAN DG ENERGY INC.

The company’s On-Site Utility energy program allows customers to reduce both their energy costs and site carbon production by deploying CHP technology on its customers’ premises at no cost. Therefore the company is capital intensive. The company believes that its existing resources, including cash and cash equivalents and future cash flow from operations, are sufficient to meet the working capital requirements of its existing business for the foreseeable future, including the next 12 months. We believe that our cash and cash equivalents and our ability to control certain costs, including those related to general and administrative expenses, will enable us to meet our anticipated cash expenditures through the end of 2009. Beyond January 1, 2010, as we continue to grow our business by adding more energy systems, our cash requirements will increase. We may need to raise additional capital through a debt financing or an equity offering to meet our operating and capital needs for future growth.

In April 2009, the company entered into a subscription agreement with certain investors, to sell 1,076,190 shares of restricted common stock. The purchase price per share was $2.10 and the aggregate purchase price for the shares was approximately $2,260,000. The proceeds of the private placement will be used to fund additional installations of the company’s On-Site Utility energy systems and for general corporate and working capital purposes.

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

Significant Accounting Policies and Critical Estimates

The company’s significant accounting policies are discussed in the Notes to the Consolidated Financial Statements that are incorporated in the 2008 Annual Report on Form 10-K that is filed with the Securities and Exchange Commission. The accounting policies and estimates that can have a significant impact upon the operating results, financial position and footnote disclosures of the company are described in the Financial Review in the company’s 2008 Annual Report on Form 10-K.

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AMERICAN DG ENERGY INC.

Item 3: Quantitative and Qualitative Disclosures about Market Risk

Not applicable

Item 4T: Controls and Procedures

Management’s evaluation of disclosure controls and procedures:

Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”)  Rules 13a-15(e) and 15d-15(e); collectively, “Disclosure Controls”) as of the end of the period covered by this report (the “Evaluation Date”) have concluded that as of the Evaluation Date, our Disclosure Controls were not effective to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission, and that material information relating to our company and any consolidated subsidiaries is made known to management, including our Chief Executive Officer and Chief Financial Officer, particularly during the period when our periodic reports are being prepared to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting:

In connection with the evaluation referred to in the foregoing paragraph, we have identified no change in our internal control over financial reporting that occurred during the period ended March 31, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Report of Management on Internal Control over Financial Reporting:

The management of the company is responsible for establishing and maintaining adequate internal control over financial reporting in accordance with Exchange Act Rules 13a-15(f) and 15d-15(f).  Management conducted an evaluation of our internal control over financial reporting based on the framework and criteria established in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion of this evaluation. Based on this evaluation, management concluded that the company’s internal control over financial reporting was not effective as of March 31, 2009.

There is a lack of segregation of duties at the company due to the small number of employees dealing with general administrative and financial matters and general controls over information technology security and user access. This constitutes a material weakness in financial reporting. Furthermore, the company did not have personnel with an appropriate level of accounting knowledge, experience and training in the selection, application and implementation of generally acceptable accounting principles as it relates to complex transactions and financial reporting requirements. At this time, management has decided that considering the employees involved and the control procedures in place, there are risks associated with such lack of segregation, but the potential benefits of adding additional employees to clearly segregate duties do not justify the expenses associated with such increases. Management will continue to evaluate this segregation of duties.

The company had 13 employees as of March 31, 2009. Other than the Chief Financial Officer, only two individuals are in the finance function, one of which is part-time. These individuals are responsible for receiving and distributing cash, billing, processing transactions, recording journal entries, reconciling accounts and preparing the financial statements and related disclosures. One individual has check signing authority for transactions under $2,000. As a result, there is the potential for that individual to knowingly or unknowingly misappropriate assets or misstate our financial statements. To mitigate these risks, the company has put in place procedures where the Chief Executive Officer, the President and the Chief Financial Officer have check signing authority. In addition, they review and approve all material contracts, transactions and related journal entries. They are also responsible for reviewing and approving monthly financials and related reconciliations, budget to actual comparisons and the information required to be disclosed by the company in all reports filed under the Exchange Act.

13

AMERICAN DG ENERGY INC.

Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our Disclosure Controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

This quarterly report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this quarterly report.

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AMERICAN DG ENERGY INC.

PART II – OTHER INFORMATION

Item 1A:  Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed under “Risk Factors” in our Annual Report on Form 10-K for our fiscal year ended December 31, 2008. The risks discussed in our Annual Report on Form 10-K could materially affect our business, financial condition and future results. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition or operating results.

Item 6:  Exhibits

Exhibit Number		Description of Exhibit
31.1*	–	Rule 13a-14(a) Certification of Chief Executive Officer
31.2*	–	Rule 13a-14(a) Certification of Chief Financial Officer
32.1*	–	Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer

* Filed herewith.

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AMERICAN DG ENERGY INC.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on May 14, 2009.

AMERICAN DG ENERGY INC.

(Registrant)

By: /s/ JOHN N. HATSOPOULOS

Chief Executive Officer

(Principal Executive Officer)

By: /s/ ANTHONY S. LOUMIDIS

Chief Financial Officer

(Principal Financial Officer)

16

EX-31.1

 EXHIBIT 31.1

AMERICAN DG ENERGY INC.

CERTIFICATION REQUIRED BY EXCHANGE ACT RULES 13a-14(a) and 15d-14(a),

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John N. Hatsopoulos, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of American DG Energy Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 14, 2009

/s/ John N. Hatsopoulos

Chief Executive Officer

EX-31.2

 EXHIBIT 31.2

AMERICAN DG ENERGY INC.

CERTIFICATION REQUIRED BY EXCHANGE ACT RULES 13a-14(a) and 15d-14(a),

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Anthony S. Loumidis, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of American DG Energy Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 14, 2009

/s/ Anthony S. Loumidis

Chief Financial Officer

EX-32.1

EXHIBIT 32.1

AMERICAN DG ENERGY INC.

CERTIFICATION REQUIRED BY EXCHANGE ACT RULES 13a-14(b) and 15d-14(b),

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

We, John N. Hatsopoulos, Chief Executive Officer, and Anthony S. Loumidis, Chief Financial Officer, of American DG Energy Inc.  (the “Company”), certify, pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2009 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78 m or 78o(d)); and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 14, 2009

/s/ John N. Hatsopoulos

Chief Executive Officer

/s/ Anthony S. Loumidis

Chief Financial Officer