EGR » Topics » Note 1. Basis of Presentation

This excerpt taken from the EGR 10-Q filed Jun 2, 2009.

Note 1. Basis of Presentation

 

The information set forth in this Form 10-Q for the Quarterly Period Ended April 30, 2009, or the April 2009 Form 10-Q, relates primarily to periods during which the Company had an operating business, which periods were prior to the consensual foreclosure on December 11, 2008, or the Consensual Foreclosure, summarized below and previously disclosed in the Company’s Current Report on Form 8-K/A (Amendment No. 1) dated December 12, 2008 and filed with the Securities and Exchange Commission on December 15, 2008, or the December 2008 Form 8-K. As a result of the Consensual Foreclosure, the Company no longer has an operating business and the Board of Directors of the Company has recommended that the Company be dissolved. The April 2009 Form 10-Q is being filed to comply with a requirement under the Securities Exchange Act of 1934, as amended.  As used herein and unless the context requires otherwise, references to the “Company,” “we,” “us” and “our” refer specifically to Commerce Energy Group, Inc. and its subsidiaries.  “Commerce” refers to Commerce Energy, Inc., our former principal operating subsidiary.

 

On December 11, 2008, AP Finance, LLC and Commerce Gas and Electric Corp., collectively, the Lenders, notified the Company in writing that an event of default existed under the Discretionary Line of Credit Demand Note executed by the Company and Commerce in favor of AP Finance, LLC, or the Secured Debt. On December 11, 2008, the Lenders proposed under Section 9-620 of the Uniform Commercial Code, or the UCC, as in effect in the State of New York and subject to obtaining the Company’s consent, to accept all shares of stock in Commerce in satisfaction of the Company’s liabilities and obligations with respect to the Secured Debt pursuant to the terms and conditions of an acceptance agreement or the Acceptance Agreement, between the Company and the Lenders.

 

In connection with the Consensual Foreclosure, to induce the Company to consent rather than exercising its statutory rights to delay the foreclosure, and pursuant to the terms of the Acceptance Agreement, the Lenders: (i) consented to the payment of a divided from Commerce to the Company in the amount of $3.1 million immediately prior to the delivery of the Acceptance Agreement; (ii) consented to Commerce’s assumption of certain liabilities and obligations of the Company identified in an assumption letter dated December 11, 2008 between the Company and Commerce, or the Assumption Letter, including, but not limited to, all liabilities and obligations of the Company under the employment agreements between the Company and its executive officers (including any severance obligations thereunder); (iii) agreed to assume responsibility for the sponsorship and administration of the Company’s employee benefit plans covering Commerce’s employees (other than the equity incentive and employee stock purchase plans); (iv) agreed to indemnify the Company and its officers, directors, employees, agents and representatives from liabilities arising from any breach by Commerce of its obligations under the Assumption Letter; (v) released the Company from any and all liabilities and obligations with respect to the Secured Debt; and (vi) cancelled all warrants to acquire shares of common stock of the Company held by AP Finance, LLC.

 

The Company consented to the Consensual Foreclosure and executed and delivered the Acceptance Agreement and the other documents related thereto on December 11, 2008.

 

As a result of the Consensual Foreclosure, the Company ceased all operations. Additionally, following the Consensual Foreclosure and after providing for all known and reasonably foreseeable liabilities and obligations of the Company, the Company decided to make a distribution in the amount of $2,614,780. This distribution was comprised of a cash dividend on shares of the Company’s common stock in the amount of $0.084 per share to be paid to the Company’s stockholders of record as of December 11, 2008. In addition to the dividend payment, such stockholders received a payment of $0.001 per right in connection with the redemption of all the outstanding Rights under the Company’s Shareholders Rights Plan dated July 1, 2004. The distribution date was December 17, 2008.  After the dividend and the redemption payment, the Company continues as a shell company, as defined in Section 12b-2 of the Securities Exchange Act of 1934, as amended, with no operating business and no material assets.  It is the recommendation of the Board of Directors to wind up and dissolve the Company.

 

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As a result, the Company changed its basis of accounting effective October 31, 2008 (and for the periods ending subsequent to that date) from the going concern basis to a liquidation basis in accordance with generally accepted accounting principals in the United States (“GAAP”).  The valuation of assets and liabilities in liquidation is based on management’s estimate of their net realizable value or settlement amounts at April 30, 2009. Such values could differ materially from amounts ultimately realized in the future as the Company completes its liquidation. Differences between the estimated revalued amounts of assets and liabilities and actual cash transactions after April 30, 2009 will be recognized in the period in which they are subject to reasonable estimation in accordance with GAAP.

 

The accompanying condensed statement of net assets in liquidation at April 30, 2009, the condensed statements of operations for the three and nine month periods ended April 30, 2009 and 2008, and the statements of cash flows for the nine month periods ended April 30, 2009 and 2008 are unaudited. Except for the statement of net assets in liquidation, these financial statements have been prepared on the same basis as the Company’s audited financial statements and, in the opinion of management, reflect all adjustments which (except as described in these notes to unaudited condensed financial statements) are only of a normal recurring nature and which are necessary for a fair presentation of the net assets in liquidation, cash flows, and results of operations for such periods. Except for the statement of net assets in liquidation, these unaudited condensed financial statements should be read in conjunction with the audited financial statements included in the Company’s Form 10-K/A (Amendment No. 1) for the Fiscal Year Ended July 31, 2008, filed with the Securities and Exchange Commission on November 13, 2008.

 

This excerpt taken from the EGR 10-Q filed Mar 17, 2009.

Note 1. Basis of Presentation

 

The information set forth in this Form 10-Q for the Quarterly Period Ended January 31, 2009, or the January 2009 Form 10-Q, relates to periods during which the Company had an operating business, which periods were prior to the consensual foreclosure, or the Consensual Foreclosure, summarized below and previously disclosed in the Company’s Current Report on Form 8-K/A (Amendment No. 1) dated December 12, 2008 and filed with the Securities and Exchange Commission on December 15, 2008, or the December 2008 Form 8-K. As a result of the Consensual Foreclosure, the Company no longer has an operating business and the Board of Directors of the Company has recommended that the Company be dissolved. The January 2009 Form 10-Q is being filed to comply with a requirement under the Securities Exchange Act of 1934, as amended.  As used herein and unless the context requires otherwise, references to the “Company,” “we,” “us,” “us,” and “our” refer specifically to Commerce Energy Group, Inc. and its subsidiaries.  “Commerce” refers to Commerce Energy, Inc., our former principal operating subsidiary.

 

On December 11, 2008, AP Finance, LLC and Commerce Gas and Electric Corp., collectively, the Lenders, notified the Company in writing that an event of default existed under the Discretionary Line of Credit Demand Note executed by the Company and Commerce in favor of AP Finance, LLC, or the Secured Debt. On December 11, 2008, the Lenders proposed under Section 9-620 of the Uniform Commercial Code, or the UCC, as in effect in the State of New York and subject to obtaining the Company’s consent, to accept all shares of stock in Commerce in satisfaction of the Company’s liabilities and obligations with respect to the Secured Debt pursuant to the terms and conditions of an acceptance agreement or the Acceptance Agreement, between the Company and the Lenders.

 

In connection with the Consensual Foreclosure, to induce the Company to consent rather than exercising its statutory rights to delay the foreclosure, and pursuant to the terms of the Acceptance Agreement, the Lenders: (i) consented to the payment of a divided from Commerce to the Company in the amount of $3.1 million immediately prior to the delivery of the Acceptance Agreement; (ii) consented to Commerce’s assumption of certain liabilities and obligations of the Company identified in an assumption letter dated December 11, 2008 between the Company and Commerce, or the Assumption Letter, including, but not limited to, all liabilities and obligations of the Company under the employment agreements between the Company and its executive officers (including any severance obligations thereunder); (iii) agreed to assume responsibility for the sponsorship and administration of the Company’s employee benefit plans covering Commerce’s employees (other than the equity incentive and employee stock purchase plans); (iv) agreed to indemnify the Company and its officers, directors, employees, agents and representatives from liabilities arising from any breach by Commerce of its obligations under the Assumption Letter; (v) released the Company from any and all liabilities and obligations with respect to the Secured Debt; and (vi) cancelled all warrants to acquire shares of common stock of the Company held by AP Finance, LLC.

 

The Company consented to the Consensual Foreclosure and executed and delivered the Acceptance Agreement and the other documents related thereto on December 11, 2008.

 

As a result of the Consensual Foreclosure, the Company ceased all operations. Additionally, following the Consensual Foreclosure and after providing for all known and reasonably foreseeable liabilities and obligations of the Company, the Company decided to make a distribution in the amount of $2,614,780. This distribution was comprised of a cash dividend on shares of the Company’s common stock in the amount of $0.084 per share to be paid to the Company’s stockholders of record as of December 11, 2008. In addition to the dividend payment, such stockholders  also received an additional payment of $0.001 per right in connection with the redemption of all the outstanding Rights under the Company’s Shareholders Rights Plan dated July 1, 2004. The distribution date was December 17, 2008.  After the dividend and the redemption payment, the Company continues as a shell company, as defined in Section 12b-2 of the Securities Exchange Act of 1934, as amended, with no operating business and no material assets.  It is the recommendation of the Board of Directors to wind up and dissolve the Company.

 

As a result, the Company changed its basis of accounting effective October 31, 2008 (and for the periods ending subsequent to that date) from the going concern basis to a liquidation basis in accordance with generally accepted accounting principals in the United States (“GAAP”).  The valuation of assets and liabilities in liquidation is based on management’s estimate of their net realizable value or settlement amounts at January 31, 2009. Such values could differ materially from amounts ultimately realized in the future as the Company completes its liquidation. Differences between the estimated revalued amounts of assets and liabilities and actual cash transactions after January 31, 2009 will be recognized in the period in which they are subject to reasonable estimation in accordance with GAAP.

 

The accompanying condensed statement of net assets in liquidation at January 31, 2009, the condensed statements of operations for the three and six month periods ended January 31, 2009 and 2008, and the statements of cash flows for the six month periods ended January 31, 2009 and 2008 are unaudited. Except for the statement of net assets in

 

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COMMERCE ENERGY GROUP, INC.

 

EXCERPTS ON THIS PAGE:

10-Q
Jun 2, 2009
10-Q
Mar 17, 2009
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