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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K/A**

**Amendment No. 1**

 

**(Mark One)**

 

**x****      ANNUAL REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the fiscal year ended June 30, 2009**

 

**OR**

 

**o****         TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934**

 

**For the transition period from             to              **

 

**Commission File Number 333-138425**

 

**MXENERGY HOLDINGS INC.**

(Exact Name of Registrant as Specified in Its Charter)

 

| **Delaware**                             | ** ** | **20-2930908**                       |
|------------------------------------------|------------|--------------------------------------|
| (State or Other Jurisdiction of          |       | (I.R.S. Employer Identification No.) |
| Incorporation or Organization)           |       |                                 |
|                                     |       |                                 |
| **595 Summer Street, Suite 300**    |       |                                 |
| **Stamford, Connecticut**                | ** ** | **06901**                            |
| (Address of Principal Executive Offices) |       | (Zip Code)                           |

 

**(203) 356-1318**

(Registrant’s telephone number, including area code)

 

----

 

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined inRule 405 under the Securities Act.  Yes o No x

 

Indicateby check mark if the registrant is not required to file reports pursuant toSection 13 or Section 15(d) of the Securities Act.  Yes o No x

 

Indicateby check mark whether the registrant: (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.  Yes x No o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  Yes o No o

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K (§229.405 of this chapter) is not contained herein, and will not becontained, the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K.  x

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer or a smaller reportingcompany.  See definition of “accelerated filer, large accelerated filer,and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Checkone):

 

| Large accelerated filer o                |   | Accelerated filer o         |
|-----------------------------------------------|--------|----------------------------------|
|                                          |   |                             |
| Non-accelerated filer x                  |   | Smaller reporting company o |
| (Do not check if a smaller reporting company) |   |                             |

 

Indicateby check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Act).  Yes o No x

 

Aggregatemarket value of voting and non-voting common equity held by non-affiliates ofthe registrant:  Not applicable.  The registrant has no publicly traded equitysecurities.

 

Asof June 30, 2010, there were 33,710,902 shares of the Registrant’sClass A Common Stock (par value $0.01 per share), 4,002,290 shares of theRegistrant’s Class B Common Stock (par value $0.01 per share) and16,413,159 shares of the Registrant’s Class C Common Stock (par value$0.01 per share) outstanding.

 

Documents incorporated by reference: **None**

 

 

 

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**Explanatory Note**

 

This Amendment No. 1 to Annual Report onForm 10-K/A (this “Amendment”) amends the Company’s Annual Reporton Form 10-K for the year ended June 30, 2009, that was originallyfiled on October 13, 2009 (the “Original Form 10-K”). ThisAmendment corrects the typographical omission of the signature from the Reportof Independent Registered Public Accounting Firm on the consolidated financialstatements included in the Original Form 10-K.  The properly executed Report of IndependentRegistered Public Accounting Firm from the Company’s independent registeredpublic accounting firm, Ernst & Young LLP, is included in thisAmendment.  No information in theOriginal Form 10-K other than as set forth above is amended hereby. As aresult, this Form 10-K/A does not reflect events occurring after thefiling of the Original Form 10-K and does not modify or update thedisclosures therein in any way other than as required to reflect the amendmentdescribed herein.  The filing of thisForm 10-K/A should not be understood to mean that any statements containedin this document are true or complete as of any date subsequent to October 13,2009. Currently dated certifications from our President and Chief ExecutiveOfficer and our Chief Financial Officer have been included as exhibits to thisAmendment.

 

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**MXENERGY HOLDINGS INC.**

**ANNUAL REPORT ON FORM 10-K/A**

**FOR THE FISCAL YEAR ENDED JUNE 30,2009**

 

**TABLE OF CONTENTS**

 

**ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

 

**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM AND CONSOLIDATEDFINANCIAL STATEMENTS**

 
| ** **                                                                                                   | **Page** |
|--------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                         |     |
| Report  of Independent Registered Public Accounting Firm                                                     | 2        |
| Consolidated  Balance Sheets at June 30, 2009 and 2008                                                  | 3        |
| Consolidated  Statements of Operations for the years ended June 30, 2009, 2008 and  2007                | 4        |
| Consolidated  Statements of Stockholders’ Equity for the years ended June 30, 2009,  2008 and 2007 | 5        |
| Consolidated Statements of Cash Flows for the years  ended June 30, 2009, 2008 and 2007                 | 6        |
| Notes to Consolidated Financial Statements                                                                   | 7        |

 

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**Report of Independent RegisteredPublic Accounting Firm**

 

The Board of Directorsand StockholdersMXenergy Holdings Inc.

 

We have audited theaccompanying consolidated balance sheets of MXenergy Holdings Inc. as of June 30,2009 and 2008, and the related consolidated statements of operations,stockholders’ equity, and cash flows for each of the three years in the periodended June 30, 2009. These financial statements are the responsibility ofthe Company’s management. Our responsibility is to express an opinion on thesefinancial statements based on our audits.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. We were not engaged to perform an audit of theCompany’s internal control over financial reporting. Our audits includedconsideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of the Company’sinternal control over financial reporting. Accordingly, we express no suchopinion. An audit also includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

 

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the consolidated financial position of MXenergy Holdings Inc. at June 30,2009, and 2008, and the consolidated results of its operations and its cashflows for each of the three years in the period ended June 30, 2009, inconformity with U.S. generally accepted accounting principles.

 

 

/s/Ernst & Young LLP

Stamford, Connecticut

October 13, 2009

 

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**MXENERGY HOLDINGS INC.**

**Consolidated Balance Sheets**

**(dollars in thousands)**

 
| ** **                                                                                                                         | ** ** | **Balance at June 30,** | ** **  |
|------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|-------------|
| ** **                                                                                                                         | ** ** | **2009**                     | ** **  | **2008** | ** ** |
|                                                                                                                               |       |                         |        |   |   |
| **Assets**                                                                                                                         |       |                         |        |   |   |
| Current assets:                                                                                                                    |       |                         |        |   |   |
| Cash and cash equivalents                                                                                                          | ** ** | **$**                        | **23,266**  |   | $ | 71,958 |   |
| Restricted cash                                                                                                                    | ** ** | **75,368**                   |        | 587 |   |
| Accounts receivable, net (Note 6)                                                                                                  | ** ** | **47,598**                   |        | 87,673 |   |
| Natural gas inventories (Note 7)                                                                                                   | ** ** | **29,415**                   |        | 65,006 |   |
| Current portion of unrealized gains from risk management  activities (Note 13)                                                     | ** ** | **294**                      |        | 35,864 |   |
| Income taxes receivable                                                                                                            | ** ** | **6,461**                    |        | 7,524 |   |
| Deferred income taxes (Note 11)                                                                                                    | ** ** | **9,020**                    |        | — |   |
| Other current assets                                                                                                               | ** ** | **12,084**                   |        | 3,361 |   |
| Total current assets                                                                                                               | ** ** | **203,506**                  |        | 271,973 |   |
| Unrealized gains from risk management activities (Note  13)                                                                        |       | —                       |        | 13,221 |   |
| Goodwill (Note 8)                                                                                                                  | ** ** | **3,810**                    |        | 3,810 |   |
| Customer acquisition costs, net (Note 9)                                                                                           | ** ** | **27,950**                   |        | 41,693 |   |
| Fixed assets, net (Note 10)                                                                                                        | ** ** | **3,728**                    |        | 10,525 |   |
| Deferred income taxes (Note 11)                                                                                                    | ** ** | **15,089**                   |        | 10,503 |   |
| Other assets                                                                                                                       | ** ** | **4,988**                    |        | 4,027 |   |
| Total assets                                                                                                                       | ** ** | **$**                        | **259,071** |   | $ | 355,752 |   |
|                                                                                                                               |       |                         |        |   |   |
| **Liabilities and stockholders’ equity**                                                                                      |       |                         |        |   |   |
| Current liabilities:                                                                                                               |       |                         |        |   |   |
| Accounts payable and accrued liabilities (Note 12)                                                                                 | ** ** | **$**                        | **33,300**  |   | $ | 36,602 |   |
| Accrued commodity purchases                                                                                                        | ** ** | **9,847**                    |        | 51,461 |   |
| Current portion of unrealized losses from risk  management activities (Note 13)                                                    | ** ** | **34,224**                   |        | 2,978 |   |
| Deferred revenue                                                                                                                   | ** ** | **4,271**                    |        | 7,435 |   |
| Bridge Financing loans payable (Note 19)                                                                                           | ** ** | **5,400**                    | ** **  | **—** | ** ** |
| Denham Credit Facility (Note 19)                                                                                                   | ** ** | **12,000**                   | ** **  | **—** | ** ** |
| Deferred income taxes (Note 11)                                                                                                    |       | —                       |        | 9,800 |   |
| Total current liabilities                                                                                                          | ** ** | **99,042**                   |        | 108,276 |   |
| Unrealized losses from risk management activities  (Note 13)                                                                       | ** ** | **14,071**                   |        | 2,839 |   |
| Long-term debt:                                                                                                                    |       |                         |        |   |   |
| Floating Rate Notes due 2011 (Note 16)                                                                                             | ** ** | **163,476**                  |        | 162,648 |   |
| Total long-term debt                                                                                                               | ** ** | **163,476**                  |        | 162,648 |   |
| Total liabilities                                                                                                                  | ** ** | **276,589**                  |        | 273,763 |   |
|                                                                                                                               | ** ** | ** **                   |        |   |   |
| Redeemable Convertible Preferred Stock (Note 17)                                                                                   | ** ** | **54,632**                   |        | 48,779 |   |
|                                                                                                                               |       |                         |        |   |   |
| Commitments and contingencies (Note 21)                                                                                            | ** ** | **—**                   |        | — |   |
|                                                                                                                               |       |                         |        |   |   |
| Stockholders’ equity:                                                                                                         |       |                         |        |   |   |
| Common stock, par value $0.01, 10,000,000 shares  authorized; 4,681,219 and 3,604,788 shares issued and outstanding,  respectively | ** ** | **47**                       |        | 36 |   |
| Additional paid-in capital                                                                                                         | ** ** | **18,275**                   |        | 23,635 |   |
| Unearned stock compensation                                                                                                        | ** ** | **—**                   |        | (4 | ) |
| Accumulated other comprehensive loss                                                                                               | ** ** | **(3**                       | **)**       | (189 | ) |
| (Accumulated deficit) retained earnings                                                                                            | ** ** | **(90,469**                  | **)**       | 9,732 |   |
| Total stockholders’ equity                                                                                                    | ** ** | **(72,150**                  | **)**       | 33,210 |   |
| Total liabilities and stockholders’ equity                                                                                    | ** ** | **$**                        | **259,071** |   | $ | 355,752 |   |

 

*Theaccompanying notes are an integral part of these consolidated financialstatements.*

 

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**MXENERGY HOLDINGS INC.**

**Consolidated Statements of Operations**

**(dollars in thousands)**

 
| ** **                                                                          | ** ** | **Fiscal Years  Ended June 30,** | ** **   |
|-------------------------------------------------------------------------------------|------------|--------------------------------------------|--------------|
| ** **                                                                          | ** ** | **2009**                                   | ** **   | **2008** | ** ** | **2007** | ** ** |
|                                                                                |       |                                       |         |   |   |   |   |
| Sales of natural gas and electricity                                                | ** ** | **$**                                      | **789,780**  |   | $ | 752,283 |   | $ | 703,926 |   |
| Cost of goods sold (excluding depreciation and  amortization):                      |       |                                       |         |   |   |   |   |
| Cost of natural gas and electricity sold                                            | ** ** | **596,747**                                |         | 630,006 |   | 552,028 |   |
| Realized losses from risk management activities, net                                | ** ** | **72,824**                                 |         | 6,747 |   | 33,039 |   |
| Unrealized losses (gains) from risk management  activities, net                     | ** ** | **87,575**                                 |         | (67,168 | ) | 17,079 |   |
| ** **                                                                          | ** ** | **757,146**                                |         | 569,585 |   | 602,146 |   |
| Gross profit                                                                        | ** ** | **32,634**                                 |         | 182,698 |   | 101,780 |   |
|                                                                                |       |                                       |         |   |   |   |   |
| Operating expenses:                                                                 |       |                                       |         |   |   |   |   |
| General and administrative expenses                                                 | ** ** | **59,957**                                 |         | 62,271 |   | 54,516 |   |
| Advertising and marketing expenses                                                  | ** ** | **2,117**                                  |         | 4,546 |   | 4,044 |   |
| Reserves and discounts                                                              | ** ** | **15,130**                                 |         | 7,130 |   | 4,725 |   |
| Depreciation and amortization                                                       | ** ** | **37,575**                                 |         | 32,698 |   | 27,730 |   |
| Total operating expenses                                                            | ** ** | **114,779**                                |         | 106,645 |   | 91,015 |   |
|                                                                                |       |                                       |         |   |   |   |   |
| Operating (loss) profit                                                             | ** ** | **(82,145**                                | **)**        | 76,053 |   | 10,765 |   |
| Interest expense (net of interest income of $430,  $3,806 and $4,258, respectively) | ** ** | **45,305**                                 |         | 34,105 |   | 33,058 |   |
| (Loss) income before income tax benefit (expense)                                   | ** ** | **(127,450**                               | **)**        | 41,948 |   | (22,293 | ) |
| Income tax benefit (expense)                                                        | ** ** | **27,249**                                 |         | (17,155 | ) | 8,495 |   |
| Net (loss) income                                                                   | ** ** | **$**                                      | **(100,201** | **)** | $ | 24,793 |   | $ | (13,798 | ) |

 

*Theaccompanying notes are an integral part of these consolidated financialstatements.*

 

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**MXENERGY HOLDINGS INC.**

**Consolidated Statements ofStockholders’ Equity**

**(dollars in thousands)**

 
| ** **                                             | ** ** | **Common  Stock  (Par Value)** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Unearned  Stock  Compensation** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** ** | **(Accumulated  Deficit)  Retained  Earnings** | ** ** | **Total  Stockholders’  Equity** | ** ** |
|--------------------------------------------------------|------------|-------------------------------------|------------|----------------------------------|------------|-----------------------------------|------------|---------------------------------------------|------------|------------------------------------------------|------------|---------------------------------------|------------|
|                                                   |       |                                |       |                             |       |                              |       |                                        |       |                                           |       |                                  |       |
| Balance at June 30, 2006                          |       | $                                   | 34         |                             | $          | 17,355                            |       | $                                           | (115       | )                                              | $          | (40                                   | )          | $ | 18,159 |   | $ | 35,393 |   |
| Issuance of common stock                               |       | —                              |       | 22                               |       | —                            |       | —                                      |       | —                                         |       | 22                                    |       |
| Unamortized stock compensation                         |       | —                              |       | 2,219                            |       | (2,219                            | )          | —                                      |       | —                                         |       | —                                |       |
| Purchase and cancellation of treasury shares           |       | —                              |       | (654                             | )          | —                            |       | —                                      |       | —                                         |       | (654                                  | )          |
| Stock compensation expense                             |       | —                              |       | 2,227                            |       | —                            |       | —                                      |       | —                                         |       | 2,227                                 |       |
| Tax benefit on issuance of common stock from options   |       | —                              |       | 198                              |       | —                            |       | —                                      |       | —                                         |       | 198                                   |       |
| Amortization of stock compensation                     |       | —                              |       | —                           |       | 2,312                             |       | —                                      |       | —                                         |       | 2,312                                 |       |
| Comprehensive income (loss):                           |       |                                |       |                             |       |                              |       |                                        |       |                                           |       |                                  |       |
| Net loss                                               |       | —                              |       | —                           |       | —                            |       | —                                      |       | (13,798                                        | )          | (13,798                               | )          |
| Foreign currency translation                           |       | —                              |       | —                           |       | —                            |       | (89                                         | )          | —                                         |       | (89                                   | )          |
| Comprehensive loss                                     |       |                                |       |                             |       |                              |       |                                        |       |                                           |       | (13,887                               | )          |
|                                                   |       |                                |       |                             |       |                              |       |                                        |       |                                           |       |                                  |       |
| Balance at June 30, 2007                          |       | 34                                  |       | 21,367                           |       | (22                               | )          | (129                                        | )          | 4,361                                          |       | 25,611                                |       |
| Issuance of common stock                               |       | 2                                   |       | 1,337                            |       | —                            |       | —                                      |       | —                                         |       | 1,339                                 |       |
| Revaluation of Redeemable Convertible Preferred  Stock |       | —                              |       | —                           |       | —                            |       | —                                      |       | (19,422                                        | )          | (19,422                               | )          |
| Unamortized stock compensation                         |       | —                              |       | (558                             | )          | 558                               |       | —                                      |       | —                                         |       | —                                |       |
| Purchase and cancellation of treasury shares           |       | —                              |       | (1,559                           | )          | —                            |       | —                                      |       | —                                         |       | (1,559                                | )          |
| Stock compensation expense                             |       | —                              |       | 2,244                            |       | —                            |       | —                                      |       | —                                         |       | 2,244                                 |       |
| Tax benefit on issuance of common stock from options   |       | —                              |       | 804                              |       | —                            |       | —                                      |       | —                                         |       | 804                                   |       |
| Amortization of stock compensation                     |       | —                              |       | —                           |       | (540                              | )          | —                                      |       | —                                         |       | (540                                  | )          |
| Comprehensive income (loss):                           |       |                                |       |                             |       |                              |       |                                        |       |                                           |       |                                  |       |
| Net income                                             |       | —                              |       | —                           |       | —                            |       | —                                      |       | 24,793                                         |       | 24,793                                |       |
| Foreign currency translation                           |       | —                              |       | —                           |       | —                            |       | (60                                         | )          | —                                         |       | (60                                   | )          |
| Comprehensive income                                   |       |                                |       |                             |       |                              |       |                                        |       |                                           |       | 24,733                                |       |
| ** **                                             | ** ** | ** **                          | ** ** | ** **                       |       |                              | ** ** | ** **                                  | ** ** | ** **                                     | ** ** | ** **                            | ** ** |
| Balance at June 30, 2008                          | ** ** | **36**                              | ** ** | **23,635**                       | ** ** | **(4**                            | **)**      | **(189**                                    | **)**      | **9,732**                                      | ** ** | **33,210**                            | ** ** |
| Issuance of common stock                               | ** ** | **11**                              | ** ** | **(11**                          | **)**      | —                            |       | —                                      |       | —                                         |       | —                                |       |
| Revaluation of Redeemable Convertible Preferred  Stock | ** ** | **—**                          | ** ** | **(5,853**                       | **)**      | —                            |       | —                                      |       | —                                         | ** ** | **(5,853**                            | **)**      |
| Unamortized stock compensation                         |       | —                              | ** ** | **(584**                         | **)**      | **584**                           |       | —                                      |       | —                                         |       | —                                |       |
| Purchase and cancellation of treasury shares           |       | —                              | ** ** | **(11**                          | **)**      | —                            |       | —                                      |       | —                                         | ** ** | **(11**                               | **)**      |
| Stock compensation expense                             |       | —                              | ** ** | **1,099**                        |       | —                            |       | —                                      |       | —                                         | ** ** | **1,099**                             | ** ** |
| Amortization of stock compensation                     |       | —                              |       | —                           | ** ** | **(580**                          | **)**      | —                                      |       | —                                         | ** ** | **(580**                              | **)**      |
| Comprehensive income (loss):                           | ** ** | ** **                          | ** ** | ** **                       | ** ** | ** **                        | ** ** | ** **                                  | ** ** | ** **                                     | ** ** | ** **                            | ** ** |
| Net loss                                               |       | —                              |       | —                           |       | —                            |       | —                                      | ** ** | **(100,201**                                   | **)**      | **(100,201**                          | **)**      |
| Foreign currency translation                           |       | —                              |       | —                           |       | —                            | ** ** | **186**                                     |       | —                                         | ** ** | **186**                               | ** ** |
| Comprehensive loss                                     |       | —                              |       | —                           |       | —                            |       | —                                      |       | —                                         | ** ** | **(100,015**                          | **)**      |
| Balance at June 30, 2009                          | ** ** | **$**                               | **47**     | ** **                       | **$**      | **18,275**                        | ** ** | **$**                                       | —     | ** **                                     | **$**      | **(3**                                | **)**      | **$** | **(90,469** | **)** | **$** | **(72,150** | **)** |

 

*The accompanying notes are an integral part of theseconsolidated financial statements.*

 

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**MXENERGY HOLDINGS INC.**

**Consolidated Statements of Cash Flows**

**(dollars in thousands)**

 
| ** **                                                                                                                 | ** ** | **Fiscal Years Ended June 30,** | ** **   |
|----------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|--------------|
| ** **                                                                                                                 | ** ** | **2009**                                            | ** **   | **2008** | ** ** | **2007** | ** ** |
| **Operating activities:**                                                                                                  |       |                                                |         |   |   |   |   |
| Net (loss) income                                                                                                          | ** ** | **$**                                               | **(100,201** | **)** | $ | 24,793 |   | $ | (13,798 | ) |
| Adjustments to reconcile net (loss) income to net  cash (used in) provided by operating activities:                        |       |                                                |         |   |   |   |   |
| Unrealized losses (gains) from risk management  activities                                                                 | ** ** | **87,575**                                          |         | (67,168 | ) | 17,079 |   |
| Stock compensation expense                                                                                                 | ** ** | **519**                                             |         | 1,704 |   | 4,539 |   |
| Depreciation and amortization                                                                                              | ** ** | **37,575**                                          |         | 32,698 |   | 27,730 |   |
| Deferred income tax (benefit) expense                                                                                      | ** ** | **(23,406**                                         | **)**        | 18,187 |   | (14,449 | ) |
| Non-cash interest expense, primarily unrealized  losses on interest rate swaps and amortization of deferred financing fees | ** ** | **16,233**                                          |         | 10,836 |   | 7,906 |   |
| Amortization of customer contracts acquired                                                                                | ** ** | **(634**                                            | **)**        | (762 | ) | 11,891 |   |
| Changes in assets and liabilities, net of effects of  acquisitions:                                                        |       |                                                |         |   |   |   |   |
| Restricted cash                                                                                                            | ** ** | **(74,781**                                         | **)**        | 463 |   | (623 | ) |
| Accounts receivable                                                                                                        | ** ** | **40,075**                                          |         | (30,181 | ) | 3,453 |   |
| Natural gas inventories                                                                                                    | ** ** | **36,509**                                          |         | (7,308 | ) | (1,712 | ) |
| Income taxes receivable                                                                                                    | ** ** | **1,063**                                           |         | (7,173 | ) | 5,184 |   |
| Option premiums                                                                                                            | ** ** | **1,571**                                           |         | 1,191 |   | 1,835 |   |
| Other assets                                                                                                               | ** ** | **(20,509**                                         | **)**        | 609 |   | (993 | ) |
| Accounts payable, accrued commodity purchases and  other accrued liabilities                                               | ** ** | **(46,553**                                         | **)**        | 17,882 |   | 31,555 |   |
| Deferred revenue                                                                                                           | ** ** | **(3,164**                                          | **)**        | (4,352 | ) | 9,384 |   |
| Net cash (used in) provided by operating activities                                                                        | ** ** | **(48,128**                                         | **)**        | (8,581 | ) | 88,981 |   |
|                                                                                                                       |       |                                                |         |   |   |   |   |
| **Investing activities:**                                                                                                  |       |                                                |         |   |   |   |   |
| Purchase of Catalyst assets                                                                                                | ** ** | **(1,609**                                          | **)**        | — |   | — |   |
| Loan to PS Energy Group, Inc. related to  purchase of GasKey assets                                                   |       | —                                              |         | (8,983 | ) | — |   |
| Cash received from PS Energy Group, Inc. for  repayment of loan.                                                      |       | —                                              |         | 8,983 |   | — |   |
| Purchase of GasKey assets                                                                                                  |       | —                                              |         | (12,427 | ) | — |   |
| Purchase of SESCo assets                                                                                                   | ** ** | **—**                                          |         | — |   | (126,044 | ) |
| Return of deposit related to purchase of SESCo  assets                                                                     | ** ** | **—**                                          |         | — |   | 3,348 |   |
| Purchase of Vantage assets                                                                                                 | ** ** | **—**                                          |         | — |   | (732 | ) |
| Customer acquisition costs                                                                                                 | ** ** | **(15,343**                                         | **)**        | (19,555 | ) | (7,610 | ) |
| Purchases of fixed assets                                                                                                  | ** ** | **(1,001**                                          | **)**        | (1,959 | ) | (1,882 | ) |
| Net cash used in investing activities                                                                                      | ** ** | **(17,953**                                         | **)**        | (33,941 | ) | (132,920 | ) |
|                                                                                                                       |       |                                                |         |   |   |   |   |
| **Financing activities:**                                                                                                  |       |                                                |         |   |   |   |   |
| Proceeds from Denham Credit Facility                                                                                       | ** ** | **12,000**                                          |         | — |   | 23,040 |   |
| Repayments of Denham Credit Facility                                                                                       |       | —                                              |         | (11,040 | ) | (12,000 | ) |
| Proceeds from cash advanced under the Revolving Credit  Facility                                                           | ** ** | **30,000**                                          |         | — |   | — |   |
| Repayment of cash advances under the Revolving  Credit Facility                                                            | ** ** | **(30,000**                                         | **)**        | — |   | — |   |
| Proceeds from Bridge Financing under the Revolving  Credit Facility                                                        | ** ** | **10,400**                                          |         | — |   | — |   |
| Repayment of Bridge Financing under the Revolving  Credit Facility                                                         | ** ** | **(5,000**                                          | **)**        | — |   | — |   |
| Proceeds from other loans                                                                                                  | ** ** | **—**                                          |         | — |   | 6,000 |   |
| Repayments of other loans                                                                                                  | ** ** | **—**                                          |         | — |   | (6,000 | ) |
| Debt financing costs                                                                                                       | ** ** | **—**                                          |         | — |   | (9,345 | ) |
| Proceeds from bridge loan                                                                                                  | ** ** | **—**                                          |         | — |   | 190,000 |   |
| Repayment of bridge loan                                                                                                   | ** ** | **—**                                          |         | — |   | (190,000 | ) |
| Proceeds from Floating Rate Notes due 2011                                                                                 | ** ** | **—**                                          |         | — |   | 185,250 |   |
| Repurchase of Floating Rate Notes due 2011                                                                                 | ** ** | **—**                                          |         | (12,006 | ) | (11,723 | ) |
| Issuance of common stock from exercise of warrants  and options                                                            | ** ** | **—**                                          |         | 387 |   | 22 |   |
| Issuance of common stock from other executive  compensation                                                                | ** ** | **—**                                          |         | 952 |   | — |   |
| Purchase and cancellation of treasury shares, net of  tax benefit                                                          | ** ** | **(11**                                             | **)**        | (755 | ) | (456 | ) |
| Net cash provided by (used in) financing activities                                                                        | ** ** | **17,389**                                          |         | (22,462 | ) | 174,788 |   |
| Net (decrease) increase in cash                                                                                            | ** ** | **(48,692**                                         | **)**        | (64,984 | ) | 130,849 |   |
| Cash and cash equivalents at beginning of year                                                                             | ** ** | **71,958**                                          |         | 136,942 |   | 6,093 |   |
| Cash and cash equivalents at end of year                                                                                   | ** ** | **$**                                               | **23,266**   |   | $ | 71,958 |   | $ | 136,942 |   |
|                                                                                                                       |       |                                                |         |   |   |   |   |
| **Supplemental cash flow information:**                                                                                    |       |                                                |         |   |   |   |   |
| Income taxes paid                                                                                                          | ** ** | **$**                                               | **431**      |   | $ | 5,405 |   | $ | 753 |   |
| Interest paid                                                                                                              | ** ** | **$**                                               | **31,616**   |   | $ | 29,426 |   | $ | 17,345 |   |

 

*Theaccompanying notes are an integral part of these consolidated financialstatements.*

 

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**MXENERGY HOLDINGS INC.**

**Notes to Consolidated Financial Statements**

 

***Note 1.****** ******Organization***

 

MXenergy Holdings Inc. (“Holdings”),originally founded in 1999 as a retail energy marketer, was incorporated as aDelaware corporation on January 24, 2005 as part of a corporate reorganization.  The two principal operating subsidiaries ofHoldings, MXenergy Inc. and MXenergy Electric Inc., are engaged in themarketing and supply of natural gas and electricity, respectively.  Holdings and its subsidiaries (collectively,the “Company”) operate in 39 market areas located in 14 states in the UnitedStates (the “U.S.”) and two Canadian provinces.

 

***Note 2.****** ******SignificantAccounting Policies***

 

**Basisof Presentation**

 

The accounting andreporting policies of the Company conform to accounting principles generallyaccepted in the United States of America (“U.S. GAAP”).  Certain reclassifications have been made toprior year amounts to conform to the current year’s presentation.

 

**Principlesof Consolidation**

 

The Company owns 100% ofall of its subsidiaries.  Accordingly,the consolidated financial statements include the accounts of Holdings and allof its subsidiaries.  Intercompanyaccounts and transactions have been eliminated in consolidation.

 

**Useof Estimates and Assumptions**

 

The preparation of financialstatements in accordance with U.S. GAAP requires management to make estimatesand assumptions that affect amounts reported in the consolidated financialstatements and accompanying notes. Estimates used in connection with revenue recognition, fair valuemeasurements, allowance for doubtful accounts, valuation of goodwill and otherintangible assets, tax-related reserves and share-based compensation are oftencomplex and may significantly impact the amounts reported for those items.  Although management uses its best judgmentbased on information available at the time such judgments are made, actualresults could differ from estimated amounts.

 

**RevenueRecognition**

 

*Sales ofNatural Gas and Electricity*

 

Revenues from the sale ofnatural gas and electricity are recognized in the period in which the commodityis consumed by customers.  Sales ofnatural gas and electricity are generally billed by the local distributioncompanies (“LDCs”), acting as the Company’s agent, on a monthly cycle basis,although the Company performs its own billing for certain of its marketareas.  The billing cycles for customersdo not coincide with the accounting periods used for financial reportingpurposes.  The Company follows theaccrual method of accounting for revenues whereby revenues applicable tonatural gas and electricity consumed by customers, but not yet billed under thecycle billing method, are estimated and accrued along with the related costs,and included in operations.  Suchestimates are refined in subsequent periods upon obtaining final informationfrom the LDC.  Changes in these estimatesare reflected in operations in the period in which they are refined.

 

*PassthroughRevenues*

 

Revenues also includecertain “passthrough” revenues, which represent transportation charges billedto customers by certain LDCs.  Theserevenues are offset by corresponding amounts in cost of goods sold for amountsbilled to the Company by the LDC.

 

*FeesCharged to Customers*

 

Various fees charged tocustomers, such as late payment fees, early contract termination fees, serviceshut-off fees and fees charged to customers for providing copies of bills, aregenerally recorded as revenue when collection is deemed to be reasonablyassured.  Late payment fees charged inall markets, and various other fees charged in certain markets are recorded asrevenue when billed to the customer. Certain other fees are recorded as revenue when actually collected fromthe customer.

 

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*DeferredRevenue*

 

Customers who are onbudget-billed plans pay for their natural gas or electricity at ratable monthlyamounts, based on estimated annual usage, while the Company records revenuewhen the commodity is consumed by the customer. The cumulative difference between actual usage for these customers andthe budget-billed amount actually invoiced, net of cash payments made by thecustomers, is equal to the net budget-billed variance.  If the net budget-billed variance is areceivable from the customer at the balance sheet date, indicating that thecustomer’s actual usage has exceeded amounts billed to the customer, the amountis reported as accounts receivable in the consolidated balance sheets.  If the net budget-billed variance is aliability to the customer, indicating that amounts billed have exceeded actualusage, the amount is reported as deferred revenue in the consolidated balance sheets.

 

*SalesIncentives*

 

Cash rebates paid tocustomers under the terms of certain product agreements are recorded as areduction of sales revenue.  Non-cashincentives, such as free products or services, are recorded as marketingexpenses.

 

*Collections of Sales Tax*

 

Sales tax is added tocustomer bills for many of the markets served by the Company.  Sales tax collected from customers on behalfof governmental entities is recorded in accounts payable and accruedliabilities on the consolidated balance sheets.

 

**FairValue of Financial Instruments**

 

The fair value of afinancial instrument is the amount at which the instrument could be exchangedin a current transaction between willing parties, other than in a forced orliquidation sale.  Where available, theCompany uses quoted market prices as estimates of the fair value of financialinstruments.  For financial instrumentswithout quoted market prices, fair value represents management’s best estimatebased on a range of methods and assumptions, which are described below.  The use of different assumptions couldsignificantly affect the estimates of fair value.  Accordingly, the net values realized uponliquidation of the financial instruments could be materially different from theestimated fair values presented.

 

*Short-term Financial Assets and Liabilities*

 

The carrying value ofcertain financial assets and liabilities carried at cost is considered toapproximate fair value because they are short-term in nature, bear interestrates that approximate market rates and generally have minimal credit risk.  These items include cash and cashequivalents, restricted cash, accounts receivable, accounts payable and accruedliabilities, accrued commodity purchases, deferred revenue and short-termfinancing arrangements.

 

The Company had $22.1million and $68.5 million invested in money market funds at June 30, 2009and 2008, respectively.  Each share ofthe money market funds was valued at $1.00 at June 30, 2009 and 2008.

 

*Derivatives*

 

Derivatives are recordedat fair value.  Since the Company has notelected to designate any derivatives as accounting hedges, any changes in fairvalue are adjusted through unrealized losses (gains) from risk managementactivities, net (for commodity derivatives) or interest expense, net ofinterest income (for interest rate swaps) in the consolidated statements ofoperations, with related outstanding settlement amounts recorded in unrealizedgains asset accounts and unrealized losses liability accounts in theconsolidated balance sheets.

 

As of June 30, 2009,natural gas derivative instruments are generally with a single counterpartyunder the Company’s primary hedge facility and the Company uses variouscounterparties for electricity derivative instruments.  The Company generally enters into masternetting agreements with hedge counterparties****forsettlement of derivative fair value assets and liabilities.  The Company records such fair value assetsand liabilities net on the consolidated balance sheets.

 

The recorded fair valuesof derivative instruments reflect management’s best estimate of market value,which takes into account various factors including closing exchange andover-the-counter quotations, parity differentials and volatility factorsunderlying the commitments.  In addition,the recorded fair values are discounted to reflect counterparty credit risk andtime value of settlement.

 

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*Long-term Debt*

 

At June 30, 2009,long-term debt includes the aggregate outstanding principal amount of FloatingRate Notes due 2011.  The carrying valuesof long-term debt instruments are not necessarily indicative of fair value dueto changing market conditions and terms for similar unsecured instruments.  The Company has elected not to record thesefinancial instruments at fair value at June 30, 2009.

 

**ForeignCurrency Translation**

 

The Company has Canadianoperations that are measured using Canadian dollars as the functionalcurrency.  Assets and liabilities aretranslated into U.S. dollars at the rate of exchange in effect on the balancesheet date.  Income and expenses aretranslated at the average daily exchange rate for the month of activity.  Net exchange gains or losses resulting fromsuch translation are included in common stockholders’ equity as a component ofaccumulated other comprehensive loss.

 

**Cashand Cash Equivalents**

 

The Company’s cash andcash equivalents consist primarily of cash on deposit and money marketaccounts.

 

**RestrictedCash**

 

Restricted cash consistsof: (1) cash and money market funds required as security for letters ofcredit issued under the Company’s Revolving Credit Facility; (2) cash andmoney market funds required as security for surety bonds required by LDCs,utility commissions and pipeline tariffs and regulations; (3) money marketfunds held in escrow as contingent consideration related to acquisitions; and (4) cashdeposits received from customers.

 

**AccountsReceivable and Allowance for Doubtful Accounts**

 

The Company deliversnatural gas and electricity to its customers through LDCs, many of whichguarantee amounts due from customers for consumed natural gas andelectricity.  Accounts receivable, netprimarily represents amounts due for commodity consumed by customers, net of anallowance for estimated amounts that will not be collected from customers. Forthose markets where accounts receivable are guaranteed by LDCs, the Companypays guarantee discounts that average approximately 1% of billed accountsreceivable, which are charged to reserves and discounts in the consolidatedstatements of operations as revenue is billed. The Company does not maintain an allowance for doubtful accounts relatedto accounts receivable in these guaranteed markets, as it does not expect to incurmaterial credit losses from any of the respective LDC’s.

 

In markets where no LDCguarantees exist, the Company calculates and records an allowance for doubtfulaccounts based on aging of accounts receivable balances, collections history,past loss experience and other current economic or other trends.  Charge offs of accounts receivable balancesare recorded as reductions of the allowance for doubtful accounts during themonth when the accounts are transferred to outside collection agencies.  Delinquency status for customer accounts isbased on the number of days an account balance is outstanding past an invoicedue date.  Accounts are generallyreviewed for transfer to collection agencies by 120 days from the initialinvoice date.  Recoveries of accountsreceivable balances previously charged off are recorded when received asreductions from reserves and discounts in the consolidated statements ofoperations.  Adjustments to record theallowance for doubtful accounts at calculated month-end balances are recordedin reserves and discounts in the consolidated statements of operations.

 

Accounts receivable alsoincludes cash imbalance settlements that represent the value of excess naturalgas delivered to LDCs for consumption by our customers and actual customerusage.   Such imbalances are expected tobe settled in cash in accordance with contractual payment arrangements.  The Company bears credit risk related toimbalance settlement receivables to the extent that such LDCs are unable tocollect imbalance settlements payable to them by other retail marketers.  The Company records an allowance for doubtfulaccounts during the month that full collection of any such imbalance receivablebalance becomes doubtful, with a corresponding charge to reserves and discounts.

 

**NaturalGas Inventories**

 

Natural gas inventoriesinclude natural gas held in storage by third parties on the Company’s behalf,which are valued at the lower of cost or market value on a weighted-averagecost basis.  The weighted-average cost ofinventory includes related transportation and storage costs.

 

Natural gas inventoriesalso include estimated commodity delivery/usage imbalance settlement amountsthat represent natural gas to be transferred to the Company from various thirdparties within the upcoming twelve-month period.

 

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Adjustments to the valueof natural gas inventories on the consolidated balance sheets result incorresponding adjustments to cost of goods sold on the consolidated statementsof operations.  Such adjustments resultfrom changes in inventory storage levels as natural gas is delivered to customersas well as changes in the weighted average cost of natural gas in storage.

 

**OtherCurrent Assets**

 

Other current assetsprimarily include: (1) security deposits placed with commodity and othersuppliers as collateral for future purchases in lieu of letters of credit orother credit enhancements; and (2) prepaid expenses and deferred charges,which include costs incurred that pertain to future benefit periods notexceeding twelve months.  These costs areamortized to appropriate expense lines on the consolidated statement ofoperations over their estimated benefit period.

 

**BusinessCombinations and Goodwill**

 

Since its organization in1999, the Company has acquired natural gas and electricity operations ofnumerous energy companies, each of which was recorded as a purchase businesscombination.  For all purchase businesscombinations recorded through June 30, 2009, the purchase price wasallocated to the net assets acquired based on their estimated fair values atthe acquisition date.  Costs incurred toeffect the purchase business combination transaction (e.g., legal, accounting,valuation and other professional or consulting fees) were added to the costs ofthe acquisition and allocated accordingly to the net assets acquired.  Certain intangible assets, such as customeracquisition costs and goodwill, were recorded as a result of purchase businesscombinations to the extent that the purchase price exceeded the values assignedto identifiable net assets.  The initialpurchase price allocation was reviewed and adjusted for a period of twelvemonths subsequent to the acquisition date as new or revised information becameavailable.

 

Effective July 1,2009, the Company adopted the provisions of Financial Accounting StandardsBoard (“FASB”) Statement of Financial Accounting Standards No. 141(R), “BusinessCombinations” (“SFAS No. 141(R)”), which establishes principles andrequirements for an acquiring company to recognize and measure in its financialstatements the identifiable assets acquired, liabilities assumed, goodwillacquired, any gain from a bargain purchase, and any noncontrolling interest inan acquired company.  Under SFAS No. 141(R),assets acquired and liabilities assumed for purchase business combinationsafter June 30, 2009, if any, will to be recorded at their estimated fairvalues, regardless of their cost. Additionally, costs incurred to effect such transactions will berecognized separately from the acquisition transaction and generally beexpensed during the periods in which the costs are incurred and the servicesare received.  Finally, restructuringcosts that the Company was not obligated to incur will also be recognizedseparately from the purchase business combination transaction.

 

The Company hasdetermined that its natural gas and electricity reporting units correspond withits business segments for management and financial reporting purposes.

 

As of June 30, 2009,goodwill of $3.8 million represents the excess of purchase price over the fairvalue of identifiable natural gas net assets acquired from Shell EnergyServices Company L.L.C. (“SESCo”) in August 2006.   The Company has assigned this goodwill toits natural gas business segment. Goodwill is not amortized, but rather is reviewed for impairment atleast annually or more frequently if events or changes in circumstances indicatethat the carrying amount may not be recoverable.  Goodwill is tested for impairment annually atJune 30.  The Company utilizes adiscounted cash flow methodology for its impairment testing, which givesconsideration to significant and long-term changes in industry and economicconditions as primary indicators of potential impairment.

 

**CustomerAcquisition Costs, Net**

 

Customer acquisitioncosts are comprised of: (1) customer contracts acquired through bulkacquisitions and business combinations; and (2) direct sales andadvertising costs, which consist primarily of direct-response hourlytelemarketing, non-hourly telemarketing and door-to-door marketing costsincurred through independent third parties, and which are associated withproven customer generation.

 

For customer contractsacquired through bulk acquisitions and business combinations, acquisition costsare recorded at their fair value on the acquisition date and amortized on astraight-line basis over the estimated life of the customers acquired.  Non-hourly telemarketing and door-to-doorcosts represent incremental direct costs related to arrangements withthird-party contractors.  The Companycurrently estimates a three-year life for these assets.

 

Direct-responsetelemarketing costs are capitalized to the extent that: (1) their purposewas to elicit sales to customers; (2) customers have respondedspecifically to the advertising; and (3) probable future economic benefitresults from the activity.  Such costsare amortized over the period during which the future economic benefits areexpected to be realized.

 

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The Company currentlyestimates a three-year benefit period for these assets.  Periodic amortization expense is calculatedon a cost-pool-by-cost-pool basis, and is based on the current revenuesgenerated for a cost-pool in relation to the total current and future estimatedrevenues for that cost-pool.

 

Amortization of customeracquisition costs is recorded in depreciation and amortization on theconsolidated statements of operations. Advertising and marketing costs not recorded as customer acquisitioncosts are expensed as incurred by the Company and recorded as advertising andmarketing expenses on the consolidated statements of operations.

 

Customer acquisitioncosts are reviewed for recoverability on a quarterly basis, or whenever eventsor changes in circumstances indicate that their carrying amount may not berecoverable.  In the event thatrecoverability of the entire carrying amount of the recorded asset becomesdoubtful, the non-discounted future cash flows expected to result from the useof the asset and its eventual disposition will be estimated.  If the sum of the expected cash flows to begenerated by the asset is less than the carrying amount, the Company wouldrecognize an impairment loss and adjust the carrying value accordingly.  The adjusted carrying amount of the assetwould then become its new cost basis, and would be amortized over the remaininguseful life of that asset.

 

**FixedAssets, Net**

 

Fixed assets consistprimarily of computer hardware and software, office equipment andfurniture.  Fixed assets are stated atcost on the consolidated balance sheets, less accumulated depreciation.  Depreciation is recorded on a straight-linebasis over the estimated useful lives of the related assets, which generallyrange from three to five years. Depreciation expense is reported in depreciation and amortization on theconsolidated statements of operations. Costs of maintenance and repairs to fixed assets are generally expensedas incurred, and reported in general and administrative expenses on theconsolidated statements of operations.

 

**CapitalizedSoftware Costs**

 

The Company capitalizescosts of software acquisition and development projects, including costs relatedto software design, configuration, coding, installation, testing and parallelprocessing.  Capitalized software costsare recorded in fixed assets, net of accumulated amortization, on theconsolidated balance sheets.  Capitalizedsoftware development costs generally include:

 

·      external direct costs of materials andservices consumed to obtain or develop software for internal use;

·      payroll and payroll-related costs foremployees who are directly associated with and who devote time to the project,to the extent of time spent directly on the project;

·      costs to obtain or develop software thatallows for access or conversion of old data by new systems;

·      costs of upgrades and/or enhancementsthat result in additional functionality for existing software; and

·      interest costs incurred while developinginternal-use software that could have been avoided if the expenditures had notbeen made.

 

The followingsoftware-related costs are generally expensed as incurred and recorded ingeneral and administrative expenses on the consolidated statements ofoperations:

 

·      research costs, such as costs related tothe determination of needed technology and the formulation, evaluation andselection of alternatives;

·      costs to determine system performancerequirements for a proposed software project;

·      costs of selecting a vendor for acquiredsoftware;

·      costs of selecting a consultant to assistin the development or installation of new software;

·      internal or external training costsrelated to software;

·      internal or external maintenance costsrelated to software;

·      costs associated with the process ofconverting data from old to new systems, including purging or cleansingexisting data, reconciling or balancing of data in the old and new systems andcreation of new data;

·      updates and minor modifications; and

·      fees paid for general systems consultingand overall control reviews that are not directly associated with thedevelopment of software.

 

The costs of computersoftware obtained or developed for internal use is amortized on a straight-linebasis over the estimated useful life of the software.  Amortization begins when the software and allrelated software modules on which it is functionally dependant are ready fortheir intended use.  Amortization expenseis recorded in depreciation and amortization in

 

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the consolidatedstatements of operations.  The Company’samortization period does not exceed five years for any capitalized softwareproject.

 

Capitalized softwarecosts are evaluated for recoverability whenever events or changes incircumstances indicate that its carrying amount may not be recoverable,including when:

 

·      existing software is not expected toprovide future service potential;

·      it is no longer probable that softwareunder development will be completed and placed in service; and

·      costs of developing or modifyinginternal-use software significantly exceed expected development costs or costsof comparable third-party software.

 

**IncomeTaxes**

 

The Company files aconsolidated federal U.S. income tax return that includes all of itsconsolidated subsidiaries, as well as various U.S. state returns.  For operations in Canada, a Canadian federaltax return is filed, as well as an Ontario provincial return.

 

Deferred income taxesreflect the net tax effects of temporary differences between the carryingamount of assets and liabilities for financial reporting purposes and theamounts used for income tax purposes using enacted tax rates expected to be ineffect for the year in which the temporary differences are expected toreverse.  The Company records a valuationallowance if it is “more likely than not” that the related tax benefits willnot be realized.

 

**Derivativesand Hedging Activities**

 

*Commodity Derivatives*

 

The Company utilizesderivative financial instruments to reduce its exposure to fluctuations in theprice of natural gas and electricity. Commodity derivatives utilized typically include, swaps forwards andoptions that are bilateral contracts with counterparties.  In addition, certain contracts with customersare also accounted for as derivatives. The Company has not elected to designate any derivative instruments ashedges under U.S. GAAP guidelines. Accordingly, any changes in fair value during the term of a derivativecontract are adjusted through unrealized losses (gains) from risk managementactivities in the consolidated statements of operations with offsettingadjustments to unrealized gains or unrealized losses from risk managementactivities in the consolidated balance sheets. Unrealized gains from risk management activities on the consolidatedbalance sheets represent receivables from various derivative counterparties,net of amounts due to the same counterparties when master netting agreementsexist.  Unrealized losses from riskmanagement activities represent liabilities to various derivativecounterparties, net of receivables from the same counterparties when masternetting agreements exist.  Settlements onthe derivative instruments are realized monthly and are generally based uponthe difference between the contract price and the closing price as quoted onthe New York Mercantile Exchange (“NYMEX”) or other published index.

 

The recorded fair valuesof derivative instruments reflect management’s best estimate of market value,which takes into account various factors including closing exchange andover-the-counter quotations, parity differentials and volatility factorsunderlying the commitments.  In addition,the recorded fair values are discounted to reflect counterparty credit risk andtime value of settlement.

 

The Company also utilizescertain physical forward commodity purchase and sale contracts to reduceexposure to fluctuations in the price of natural gas and electricity, which aredeemed to be “normal purchases and normal sales” under U.S. GAAPguidelines.  Accordingly, such contractsare not carried on the balance sheet at fair value.  All contracts documented for the “normalpurchases and normal sales” exception are accounted for as executory contractswith the corresponding purchase and sale recorded for accounting purposes atthe settlement date.

 

*Interest Rate Swaps*

 

The Company utilizesinterest rate swaps to reduce its exposure to interest rate fluctuationsrelated to its Floating Rate Notes due 2011. The swaps are fixed-for-floating and settle against the six month LIBORrate.  None of the interest rate swapshas been designated as a hedge, and accordingly, these instruments are carriedat fair value on the consolidated balance sheets with changes in fair valuerecorded as adjustments to interest expense.

 

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**Debt**

 

Debt instruments arerecorded at their face amounts on the consolidated balance sheets, less anydiscount or plus any premium.  Debtintended to be repaid within one year is classified as a current liability.

 

*Debt Issue Discounts and Debt Issue Costs*

 

Debt issue discounts arerecorded as decreases to recorded debt balances and are amortized to interestexpense over the remaining life of the related debt instrument.  Certain costs that are directly related tothe issuance of debt, such as financing transaction fees, underwriting fees,legal fees and other professional services, are deferred and recorded in otherassets on the Company’s consolidated balance sheets and amortized to interestexpense over the remaining life of the related debt instrument.  In the event that debt instruments arepartially or entirely repaid by the Company, a pro rata portion of relateddiscount and debt issue costs are recorded as an adjustment to interest expense.

 

*Early Extinguishment of Debt*

 

During the period from August 2006through June 30, 2009, the Company purchased approximately $24.8 millionin aggregate principal amount of Floating Rate Notes due 2011 from the holdersof the notes.  These transactions wererecorded as early extinguishments of debt. Gains from these transactions, which result from the discounts paid bythe Company for outstanding Floating Rate Notes due 2011, are recorded asadjustments to interest expense.

 

*Interest Expense*

 

Interest expense includesinterest accrued for various debt instruments, certain fees paid for issuanceof letters of credit and other transactions related to the Company’s creditagreements, amortization of debt issue discount and amortization of deferreddebt issue costs.   Interest expense onthe consolidated statements of operations is presented net of interest incomeearned from cash and cash equivalents and restricted investments.

 

**RedeemableConvertible Preferred Stock**

 

Redeemable convertiblepreferred stock (the “Preferred Stock”) is recorded outside of stockholders’equity on the consolidated balance sheets since it is deemed to be redeemableat the option of the holders of the Preferred Stock.  Since the Company has determined that it isprobable that the Preferred Stock became redeemable at June 30, 2009, thePreferred Stock is recorded at its estimated redemption value as of June 30,2009.

 

The agreement thatgoverns the Preferred Stock contains various provisions for redemption of thePreferred Stock, for conversion of the Preferred Stock to common stock and forpreferences of the holders of the Preferred Stock should the Company beliquidated.  Should any of these eventsoccur, the holders of the Preferred Stock are guaranteed a minimum return of12% per annum, compounded annually, from the June 30, 2004 issue datethrough the date of the redemption, conversion or liquidation event.  Adjustments to the carrying value of thePreferred Stock as a result of any of these events are recorded as a chargeagainst retained earnings or, in the absence of retained earnings, by chargesagainst additional paid-in capital.  On September 22,2009, the Preferred Stock was converted into the newly authorized Class CCommon Stock.  As of September 22,2009, no Preferred Stock is outstanding.

 

**StockBased Compensation**

 

As of June 30, 2009,the Company had three stock-based compensation plans in effect, under whichstock options to acquire the Company’s common stock have been granted toemployees, directors and other non-employees of the Company.  In addition, the Company has issued warrantsto purchase its common stock to certain employees and non-employees that werenot issued under any of its three approved stock-based compensation plans.  Refer to Note 18 for additional informationregarding the Company’s stock based compensation plans and its grants ofoptions and warrants.

 

Compensation expenserelated to all awards of options and warrants is recorded in general andadministrative expenses in the consolidated statements of operations.

 

*Awards of Stock Options to Acquire the Company’s CommonStock*

 

For stock option awardsgranted after June 30, 2006, the Company recognizes compensation expenseprospectively over the vesting period. Compensation expense for option awards subject to graded vesting isrecognized based on the accelerated attribution method as specified under U.S.GAAP guidelines.  The fair value of eachoption award granted subsequent to

 

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June 30, 2006 isestimated on the grant date using a Black-Scholes-Merton option valuationmodel.  Certain key assumptions used inthe model included share price volatility, expected term, risk-free interestrate and expected forfeiture rate.  Totalcompensation expense to be recognized over the vesting period is based on: (1) thefair value of the Company’s common stock at the quarterly reporting date (e.g.,September 30, December 31, March 31 and June 30)immediately prior to the grant date, as determined by an independent valuationof the Company’s common stock or internally developed valuation models; and (2) thetotal number of options expected to be exercised, net of expected forfeitures.  The cumulative effect on current and priorperiods of a change in the number of options expected to be exercised, net offorfeitures, is recognized in compensation expense in the period of the change.

 

The Company has electedto follow APB No. 25, and related interpretations, in accounting for stockoption awards granted to employees prior to June 30, 2006, rather than thealternative fair value method allowed under SFAS No. 123.  APB No. 25 provides that compensationexpense relative to the Company’s employee stock and stock option grants bemeasured based on the intrinsic value of the stock or stock option at the grantdate.  Pursuant to APB No. 25, foroptions granted to employees prior to June 30, 2006, the Company was notrequired to recognize compensation expense during the fiscal years ended June 30,2009, 2008 or 2007 because the exercise price for all such awards equaled orexceeded the estimated fair value of the Company’s common stock at the grantdate.

 

*Awards of Warrants to Acquire the Company’s Common Stock*

 

Prior to June 30,2006, the Company issued warrants to certain employees and non-employees thatpermit the warrant holder the option to: (1) exercise such warrant forcash; or (2) exercise by withholding that number of common shares having atotal fair value equal to the warrant exercise amount from the total number ofcommon shares that would otherwise have been issued upon exercise of thewarrant (a “cashless exercise”). Compensation cost is accrued as a charge to expense over the vestingperiod of such warrants using the accelerated expense attribution method underFASB Interpretation No. 28 “Accounting for Stock Appreciation Rights andOther Variable Stock Option or Award Plans.” For these awards, it is presumed that the employee will elect thecashless exercise and compensation expense is adjusted periodically to reflectthe amount by which the estimated current fair value of the Company’s commonshares exceeds the exercise price of the warrant (known as “variable planaccounting”).  Increases or decreases inthe estimated fair value of the Company’s common stock between the grant dateand the exercise date result in corresponding increases or decreases,respectively, in compensation expense in the period in which the change in estimatedfair value of common stock occurs. Accrued compensation for an award that is subsequently forfeited orcancelled is adjusted by decreasing compensation expense in the period offorfeiture or cancellation.

 

Certain warrants issuedby the Company prior to June 30, 2006 are not subject to variable planaccounting because there is no requirement to provide any future service to theCompany in order to exercise the warrants. Therefore, the Company does not record any compensation expense relatedto these warrants.

 

**Transactionswith Related Parties**

 

In the normal course ofbusiness, the Company enters into transactions with various non-employeerelated parties for financing arrangements, legal services, financial advisoryservices and management services.  TheCompany utilizes accounting practices for these transactions that areconsistent with similar transactions with unrelated third parties.  Refer to Note 19 of the consolidatedfinancial statements for a summary of the Company’s related party transactions.

 

***Note 3.****** ******NewAccounting Pronouncements***

 

**Accounting Pronouncements Adopted During the FiscalYear Ended June 30, 2009**

 

In September 2006,the Financial Accounting Standard Board (“FASB”) issued Statement of FinancialAccounting Standards No. 157, “Fair Value Measurements” (“SFAS No. 157”).  SFAS No. 157 defines fair value,establishes a framework for measuring fair value, and requires additionaldisclosures regarding fair value measurements. In addition, SFAS No. 157 requires that entities consider their owncredit risk when measuring the fair value of liabilities including, but notlimited to, liabilities related to derivative contracts.  The Company adopted the provisions of SFAS No. 157,effective July 1, 2008.  Theadoption of SFAS No. 157 did not have a material impact on the Company’sfinancial position or results of operations. ** **Refer to Note 14 for fair valuedisclosures required under SFAS No. 157.

 

In February 2008,the FASB issued Statement of Financial Accounting Standards No. 159, “TheFair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”),which permits, but does not require, entities to elect fair value measurementfor both the initial and subsequent measurements of certain financial assetsand liabilities that were not previously measured at fair value, generally onan instrument-by-instrument basis. Changes in fair value subsequent to initial

 

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measurement are to berecognized in earnings during the periods when those changes occur.  SFAS No. 159 also requires additionaldisclosures to compensate for the lack of comparability that will arise fromthe election of the fair value option for those financial instruments.  The Company did not adopt the provisions ofSFAS No. 159 for any financial assets or liabilities as of the effectivedate of July 1, 2008.

 

In September 2008,the FASB ratified the consensus on Emerging Issues Task Force Issue No. 08-5,“Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-PartyCredit Enhancement” (“EITF No. 08-5”). EITF No. 08-5 requires that the measurement of liabilities withinseparable, third-party credit enhancements carried or disclosed at fair valueon a recurring basis exclude the effect of the credit enhancement.  EITF No. 08-5 also requires debtors toconsider their own credit standing, and not that of the third-party guarantor,in measuring the fair value of a liability with a third-party guarantee.  EITF No. 08-5 is effective on aprospective basis for the first reporting period on or after December 15,2008, with earlier application permitted. The Company adopted the provisions of EITF No. 08-5 effective January 1,2009.  Adoption of EITF No. 08-5 didnot have any impact on the Company’s financial position or results ofoperations.

 

In March 2008, theFASB issued Statement of Financial Accounting Standards No. 161, “Disclosuresabout Derivative Instruments and Hedging Activities” (“SFAS No. 161”).  SFAS No. 161 requires companies withderivative instruments to disclose information that would enable readers offinancial statements to understand: (1) how and why a company usesderivative instruments; (2) how derivative instruments and related hedgeditems are accounted for under U.S. GAAP; and (3) how derivativeinstruments and related hedged items affect a company’s financial position,financial performance and cash flows. SFAS No. 161 must be applied prospectively for fiscal years andinterim periods beginning after November 15, 2008.  The Company adopted the provisions of SFAS No. 161effective January 1, 2009.  Refer toNote 13 for disclosures required under SFAS No. 161.

 

In April 2009, theFASB issued FASB Staff Position No. FAS 157-4, “Determining Fair ValueWhen the Volume and Level of Activity for the Asset or Liability HaveSignificantly Decreased and Identifying Transactions That Are Not Orderly” (“FSPNo. 157-4”).  FSP No. 157-4provides additional guidance for estimating fair value in accordance with SFAS No. 157when the volume and level of activity for the asset or liability havesignificantly decreased.  It alsoprovides guidance on identifying circumstances that indicate a transaction isnot orderly.  FSP No. 157-4 iseffective for interim and annual reporting periods ending after June 15,2009.  The Company adopted the provisionsof FSP No. 157-4 effective for its fiscal quarter ending June 30,2009.  The adoption of FSP No. 157-4did not have any impact on the Company’s financial position or results ofoperations.

 

In May 2008, theFASB issued Statement of Financial Accounting Standards No. 162, “TheHierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”).  SFAS No. 162 identifies the sources ofaccounting principles and the framework for selecting the principles used inthe preparation of financial statements that are presented in conformity withU.S. GAAP.  SFAS No. 162 was adoptedby the Company effective January 1, 2009. The adoption of SFAS No. 162 did not have any impact on the Company’sfinancial position or results of operations.

 

In May 2009, FASBissued Statement of Financial Accounting Standards No. 165, “SubsequentEvents” (“SFAS No. 165”).  SFAS No. 165establishes principles and requirements for subsequent events, including: (1) theperiod after the balance sheet date during which management of a reportingentity shall evaluate events or transactions that may occur for potentialrecognition or disclosure in the financial statements; (2) thecircumstances under which an entity shall recognize events or transactionsoccurring after the balance sheet date in its financial statements; and (3) thedisclosures that an entity shall make about events or transactions thatoccurred after the balance sheet date. SFAS No. 165 is effective for interim or annual financial periodsending after June 15, 2009.  TheCompany adopted the provisions of SFAS No 165 effective with its financialstatements prepared for the fiscal year ended June 30, 2009.  The adoption of SFAS No. 165 did nothave any impact on the Company’s financial position or results ofoperations.  Refer to Note 4 fordisclosures related to subsequent events.

 

**AccountingPronouncements Not Yet Adopted as of June 30, 2009**

 

In March 2008, theFASB issued Statement of Financial Accounting Standards No. 141(R), “BusinessCombinations” (“SFAS No. 141(R)”). SFAS No. 141(R) establishes principles and requirements for anacquiring company to recognize and measure in its financial statements theidentifiable assets acquired, liabilities assumed, goodwill acquired, any gainfrom a bargain purchase, and any noncontrolling interest in an acquired company.  In addition, SFAS No. 141(R) providesguidance for disclosures relating to business combinations.  SFAS No. 141(R) appliesprospectively to business combinations for which the acquisition date is on orafter the beginning of the first annual reporting period beginning on or after December 15,2008.  The Company intends to adopt theprovisions of SFAS No. 141(R) for acquisitions occurring on or after July 1,2009.  The Company is currentlyevaluating the provisions of SFAS No. 141(R) to determine their likelyimpact on the accounting and reporting for future acquisitions, if any.

 

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Also in March 2008,the FASB issued Statement of Financial Accounting Standards No. 160, “NoncontrollingInterests in Consolidated Financial Statements — An Amendment of ARB No. 51”(“SFAS No. 160”).  SFAS No. 160establishes accounting and reporting standards for ownership interests insubsidiaries held by parties other than the parent, for changes in a parent’sownership interest while the parent retains its controlling financial interestin a subsidiary, and for any retained noncontrolling equity investment by aparent when a subsidiary is deconsolidated. SFAS No. 160 is effective for fiscal years, and interim periodswithin those fiscal years, beginning on or after December 15, 2008.  The Company intends to adopt the provisionsof SFAS No. 160 for acquisitions occurring on or after July 1,2009.  The Company is currentlyevaluating the provisions of SFAS No. 160 to determine their likely impacton the accounting and reporting for future acquisitions, if any.

 

In April 2009, theFASB issued FASB Staff Position No. FAS 141(R)-1, “Accounting for AssetsAcquired and Liabilities Assumed in a Business Combination That Arise fromContingencies” (“FSP No. FAS 141(R)-1”). FSP No. FAS 141(R)-1 amends and clarifies SFAS No. 141(R) toaddress application issues relating to accounting and disclosures for assetsand liabilities arising from contingencies in a business combination.  FSP No. FAS 141(R)-1 appliesprospectively to business combinations for which the acquisition date is on orafter the beginning of the first annual reporting period beginning on or after December 15,2008.  The Company intends to adopt theprovisions of FSP No. FAS 141(R)-1 for acquisitions occurring on or after July 1,2009.  The Company is currentlyevaluating the provisions of FSP No. FAS 141(R)-1 for their likely impacton the accounting and reporting for future acquisitions, if any.

 

In April 2009, theFASB issued FASB Staff Position No. FAS 107-1 and APB 28-1, “InterimDisclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and APB28-1”).  FSP FAS 107-1 and APB 28-1amends FASB Statement No. 107, “Disclosures about Fair Value of FinancialInstruments,” to require disclosures about financial instruments for interimreporting periods of publicly traded companies as well as in annual financialstatements.  It also amends APB Opinion No. 28,“Interim Financial Reporting,” to require those disclosures in summarizedfinancial information at interim reporting periods.  FSP FAS 107-1 and APB 28-1 is effective forinterim reporting periods ending after June 15, 2009, with early adoptionpermitted for periods ending after March 15, 2009.  The Company intends to adopt the provisionsof FSP FAS 107-1 and APB 28-1 effective with its reporting period ending September 30,2009, which represents the first interim reporting period of its 2010 fiscalyear.

 

In June 2009, theFASB issued Statement of Financial Accounting Standards No. 168, “The FASBAccounting Standards CodificationTM and the Hierarchy of Generally AcceptedAccounting Principles” (“SFAS No. 168”). SFAS No. 168 identifies the sources of accounting principles andthe framework for selecting the principles used in the preparation of financialstatements of nongovernmental entities that are presented in conformity withgenerally accepted accounting principles in the United States.  SFAS No 168 replaces SFAS No. 162.   SFAS No. 168 is effective for financialstatements issued for interim and annual periods ending after September 15,2009.  The Company intends to adopt theprovisions of SFAS No. 168 effective July 1, 2009.  The adoption of SFAS No. 168 is notexpected to have any impact on the Company’s financial position or results ofoperations.

 

***Note 4.****** ******SubsequentEvents***

 

The Company has evaluatedsubsequent events through October 13, 2009, which is the date that theseconsolidated financial statements were issued. Other than the consummation of the Restructuring described below, therewere no material events or transactions during the period July 1, 2009through October 13, 2009 that required recognition or disclosure in theseconsolidated financial statements.

 

**Debt and Equity Restructuring**

 

A sharp drop in naturalgas market prices during the six months ended December 31, 2008 resultedin a significant reduction in the natural gas inventory component of theavailable borrowing base under the Company’s revolving credit facility with asyndicate of banks (the “Revolving Credit Facility”).  The reduced borrowing base strained theCompany’s ability to post letters of credit as collateral with suppliers andhedge providers, caused defaults of certain financial covenants included in theagreement that governs the Revolving Credit Facility, prompted downgrades inthe Company’s credit ratings from Standard & Poor’s and Moody’s andultimately resulted in the Company seeking and obtaining material waivers ofdebt covenants and defaults and amendments to the agreement that governs theRevolving Credit Facility and the Company’s principal commodity hedge facility(the “Hedge Facility”). Such amendments had the following material directimpacts on the Company’s liquidity position:

 

·      The maturity dates of the RevolvingCredit Facility and Hedge Facility were extended to September 2009.

·      The maximum amount that could be borrowedunder the Revolving Credit Facility was reduced from $280.0 million at June 30,2008 to $115.0 million at June 30, 2009, and $94.0 million effective July 31,2009.

 

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·      The Company was required to actively seeka new facility to replace the Revolving Credit Facility and Hedge Facility.

·      Through June 30, 2009 the Companypaid approximately $8.7 million of fees related to all amendments andextensions, which were deferred on the consolidated balance sheet and are beingamortized as an increase to interest expense over the remaining terms of theRevolving Credit Facility and Hedge Facility. During fiscal year 2009, the Company recorded approximately $7.5 millionof incremental interest expense resulting from amortization of these deferredcosts.

 

The Company explored anumber of potential liquidity events, including the potential sale of itsbusiness.  Given the currently negativeconditions in the economy generally and the credit markets in particular, therewas substantial uncertainty that the Company would be able to effect arefinancing of the Revolving Credit Facility without a material restructuringof its debt and equity position.

 

On September 22,2009, the Company consummated an equity and debt restructuring (the “Restructuring”),which was intended to reduce its debt exposure and interest expense, improveits liquidity and improve its financial and operational flexibility in order toallow it to compete more effectively. The Restructuring included, among other things, the transactionsdescribed below.

 

***Amendment and Restatement of Corporate Documents***

 

On the consummation dateof the of the Restructuring, the Company’s Certificate of Incorporation andBylaws were amended and restated, and the Company entered into new stockholderagreements with holders of various classes of newly authorized commonstock.  These documents contain customaryprovisions, including provisions relating to certain approval rights,preemptive rights, share transfer restrictions, rights of first refusal,tag-along rights and drag-along rights.

 

Additionally, the amendedand restated Certificate of Incorporation authorized issuance of 200,000,000shares of Common Stock, consisting of 50,000,000 shares of Class A CommonStock, 10,000,000 shares of Class B Common Stock, 40,000,000 shares of Class CCommon Stock and 100,000,000 shares of Class D Common Stock.  Prior to the consummation of theRestructuring, the Company had 4,681,219 shares of common stock issued andoutstanding.  Those shares of commonstock were exchanged for 4,499,588 shares of newly authorized Class CCommon Stock, which represented 8.29% of the aggregate shares of common stockoutstanding as of the consummation date of the Restructuring.  Additional shares of Class A CommonStock, Class B Common Stock and Class C Common Stock were issued tovarious parties as a result of the Restructuring, as described below.

 

As a result of amendmentsand restatements to the Company’s corporate documents, effective September 22,2009, the Company’s authorized board of directors increased to nine membersfrom eight members prior to the consummation of Restructuring.  The initial composition of the new board ofdirectors (the “Board of Directors”) is described below

 

·      Holders of the Class A Common Stockare entitled to nominate and elect five directors (the “Class A Directors”),at least two of whom shall be independent and qualify as a “financial expert”.

·      The holders of Class B Common Stockis entitled to nominate and elect one director (the “Class B Director”).

·      Holders of Class C Common Stock areentitled to nominate and elect two directors (the “Class C Directors”).

·      The ninth Director is Holdings’ presidentand chief executive officer.

 

***Exchange of Floating Rate Notes due 2011 for Cash, Fixed Rate Notes due2014 and Class A Common Stock***

 

As of June 30, 2009,the Company had $165.2 million aggregate principal amount of Floating RateNotes due 2011 outstanding (the “Floating Rate Notes due 2011”).  On September 22, 2009, the Companyconsummated an exchange offer of $158.8 million aggregate principal amount ofoutstanding Floating Rate Notes due 2011 for $26.7 million of cash, $67.8million aggregate principal amount of Fixed Rate Notes due 2014 and 33,940,683shares of newly authorized Class A Common Stock.  The shares of Class A Common Stockissued to the holders of the Fixed Rate Notes due 2014 represented 62.5% of theaggregate shares of common stock outstanding as of the consummation date.  The Fixed Rate Notes due 2014 were issued ata discount, which will be recorded as a reduction from the Fixed Rate Notes due2014 on the Company’s consolidated balance sheets during the first quarter offiscal year 2009, and which will be amortized as an increase to interest expenseover the remaining life of the Fixed Rate Notes due 2014.

 

Refer to Note 16 foradditional information regarding the Floating Rate Notes due 2011 and FixedRate Notes due 2014.

 

***New Master Credit, Hedge and Supply Agreement***

 

As of June 30, 2009,the Company relied on the following credit, commodity hedging and commoditysupply arrangements

 

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for operation of itsnatural gas and electricity businesses:

 

·      TheRevolving Credit Facility was used primarily to post letters of credit requiredto effectively operate within the markets that the Company serves;

·      TheHedge Facility was used as the Company’s primary facility to economically hedgevariability in the cost of natural gas;

·      Commodityderivative arrangements with various counterparties were used to economicallyhedge variability in the cost of electricity; and

·      Arrangementswith numerous commodity suppliers to supply natural gas and electricitynecessary for customer consumption in the markets that the Company serves.

 

Effective September 22,2009 the Revolving Credit Facility and Hedge Facility were replaced by a newexclusive credit, supply and commodity hedging agreement (the “Commodity SupplyFacility”) with Sempra Energy Trading LLC (“RBS Sempra”), which effectivelyreplaced the separate credit, hedging and supply arrangements outlinedabove.  As a condition for entry into theagreements governing the Commodity Supply Facility, the Company also issued4,002,290 shares of newly authorized Class B Common Stock to RBS Sempra,which represented 7.37% of the Company’s aggregate shares of common stockoutstanding on the consummation date of the Restructuring.  The aggregate fair value of the common stockissued to RBS Sempra was recorded as deferred financing costs in other assetson the consolidated balance sheets and will be amortized over the remainingterm of the Commodity Supply Facility.

 

Refer to Note 15 foradditional information regarding the Commodity Supply Facility.

 

***Conversion of Redeemable Convertible Preferred Stock to Class CCommon Stock***

 

As of June 30, 2009,the Company had 1,451,310 shares of Preferred Stock outstanding, which wasrecorded at its estimated redemption value of $54.6 million on the consolidatedbalance sheets.  On September 22,2009, all outstanding shares of Preferred Stock were exchanged for 11,862,551shares of newly authorized Class C common stock, which represented 21.84%of the aggregate shares of the Company’s common stock outstanding afterconsummation of the Restructuring.  Theexcess of the redemption value over the aggregate fair value of common stockissued to the holders of Preferred Stock was reclassified to stockholders’equity on the consolidated balance sheets during the first quarter of fiscalyear 2010.

 

Refer to Note 17 foradditional information regarding the Company’s redeemable convertible preferredstock.

 

***Termination of the Credit Agreement with Denham Commodity Partners LP (“Denham”)***

 

As of June 30, 2009,the Company had a $12.0 million outstanding balance under a credit agreementwith Denham Commodity Partners LP (the “Denham Credit Facility”).  On September 22, 2009, all amountspreviously borrowed were repaid and the Denham Credit Facility was terminated.

 

Refer to Note 19 foradditional information regarding the Denham Credit Facility.

 

***NewManagement Incentive Plan and Bonuses***

 

In connection with theRestructuring, it is anticipated that the Company’s board of directors willauthorize the creation of a new management incentive plan (the “ManagementIncentive Plan”), pursuant to which they may issue Class C Common Stocknot to exceed 10% of the Company’s aggregate outstanding common stock (on afully diluted basis) after giving effect to the Restructuring.  The Company expects that the ManagementIncentive Plan will provide the board of directors the flexibility to makeawards to employees, officers, directors, consultants and advisors and willpermit, among other things, the grant of options to purchase shares of commonstock that are intended to qualify as incentive stock options under Section 422of the Internal Revenue Code, grants of options to purchase shares of commonstock that will not so qualify, grants of stock appreciation rights, and grantsof common stock at incentive prices or for free.

 

In addition, thecompensation committee of the board of directors approved a total bonus poolequal to $750,000, which was paid to 19 of the Company’s executive officers andemployees, including the Company’s chief executive officer and chief financialofficer, upon the consummation of the Restructuring.

 

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***Settlementand Cancellation of Existing Options and Warrants***

 

As of June 30, 2008,the Company had options and warrants outstanding which were, or may be,exercisable for 1,008,770 shares of common stock.  The vast majority of these options and all ofthe warrants were “out of the money” as of the consummation date of theRestructuring (e.g., the agreed-upon price for which the option/warrant holdermay purchase the Company’s common stock exceeded the current fair value of thecommon stock).  Pursuant to theRestructuring, the Company terminated its existing share-based compensationplans and offered a cash settlement to holders of options and warrants tocancel and terminate such options and warrants. As a result, all outstanding options and warrants were cancelled andterminated.  The total amount requiredfor such cash settlement payments was approximately $0.2 million, which wasrecorded as general and administrative expense during the first quarter offiscal year 2010.

 

***Note 5****** ******Seasonalityof Operations***

 

For the fiscal year endedJune 30, 2009, natural gas and electricity sales accounted forapproximately 85% and 15%, respectively, of the Company’s total sales.  Weather conditions have a significant impacton customer demand for natural gas and electricity consumption.  In addition, weather can have an impact onthe price of natural gas and electricity. Customer demand exposes the Company to a high degree of seasonality insales, cost of sales, billing and collection of customer accounts receivable,inventory requirements and cash flows. In addition, budget billing programs and LDC payment terms can causetiming differences between the billing and collection of accounts receivableand the recording of revenues.

 

The Company utilizes aconsiderable amount of cash from operations to meet working capitalrequirements during the months of November through April of eachfiscal year.  In addition, the Companyutilizes cash to purchase natural gas inventories during the months of April throughOctober.  The majority of natural gascustomer consumption and gross profit occurs during the months of November throughMarch with collections on accounts receivable peaking in the spring.  By contrast, electricity customer consumptionand gross profit peaks during the summer months of June through September withcollections on accounts receivable peaking in late summer and early fall.

 

The impact of rapidlyrising or falling commodity prices also varies greatly depending on the period oftime in which they occur during the Company’s fiscal year.  Although commodity price movements can havematerial short-term impacts on monthly and quarterly operating results,operating results for a full fiscal year may not be materially impacted by suchtrends due to the Company’s economic hedging and contract pricingstrategies,.  Therefore, the short-termimpacts of changing commodity prices should be considered in the context of theCompany’s entire annual operating cycle.

 

***Note 6.****** ******AccountsReceivable, Net***

 

Accounts receivable, netis summarized in the following table.

 
| ** **                                                | ** ** | **Balances at June 30,** | ** ** |
|-----------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                | ** ** | **2009**                      | ** ** | **2008** | ** ** |
| ** **                                                | ** ** | **(in thousands)**            | ** ** |
| Billed  customer accounts receivable:                     | ** ** | ** **                    |       |   |   |
| Guaranteed  by LDCs                                       | ** ** | **$**                         | **7,768**  |   | $ | 17,085 |   |
| Non-guaranteed  by LDCs                                   | ** ** | **26,679**                    |       | 32,966 |   |
|                                                      | ** ** | **34,447**                    |       | 50,051 |   |
| Unbilled  customer accounts receivable (1):               | ** ** | ** **                    |       |   |   |
| Guaranteed  by LDCs                                       | ** ** | **5,737**                     |       | 9,803 |   |
| Non-guaranteed  by LDCs                                   | ** ** | **10,547**                    |       | 19,905 |   |
|                                                      | ** ** | **16,284**                    |       | 29,708 |   |
| Total  customer accounts receivable                       | ** ** | **50,731**                    |       | 79,759 |   |
| Less:  Allowance for doubtful accounts                    | ** ** | **(7,344**                    | **)**      | (5,154 | ) |
| Customer  accounts receivable, net                        | ** ** | **43,387**                    |       | 74,605 |   |
| Cash  imbalance settlements and other receivables, net(2) | ** ** | **4,211**                     |       | 13,068 |   |
| Accounts  receivable, net                                 | ** ** | **$**                         | **47,598** |   | $ | 87,673 |   |

 

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| (1)    |   | Unbilled customer  accounts receivable represents estimated revenues associated with natural gas  and electricity consumed by customers but not yet billed under the LDC’s  monthly cycle billing method.                                                                                                        |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                  |
| (2)    |   | Cash imbalance  settlements represent differences between natural gas delivered to LDCs for  consumption by the Company’s customers and actual customer usage. Such  imbalances are expected to be settled in cash within the next 12 months in  accordance with contractual payment arrangements with the LDCs. |

 

The Company operates in39 market areas located in 14 U.S. states and two Canadian provinces.  The Company’s diversified geographic coveragemitigates the credit exposure which could result from concentrations in asingle LDC territory or a single regulatory jurisdiction, from extreme localweather patterns or from an economic downturn in any single geographic

 

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region.  In addition, the Company has limited exposureto risk associated with high concentrations of sales volumes with individualcustomers.  The Company’s largestcustomer accounted for approximately 2% of natural gas sales during each of thefiscal years ended June 30, 2009, 2008 and 2007.

 

The allowance for doubtfulaccounts represents the Company’s estimate of potential credit lossesassociated with customer accounts receivable in markets where such receivablesare not guaranteed by LDCs.  The Companyassesses the adequacy of its allowance for doubtful accounts through review ofthe aging of customer accounts receivable and general economic conditions inthe markets that it serves.  Based uponthis review as of June 30, 2009, and for the fiscal year then ended, theCompany believes that its allowance for doubtful accounts is adequate to coverpotential credit losses related to customer accounts receivable.  An analysis of the allowance for doubtfulaccounts is provided in the following table.

 
| ** **                                                                                                          | ** ** | **Fiscal Year Ended June 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                                                          | ** ** | **2009**                                           | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                                                                                          | ** ** | **(in thousands)**                            | ** ** |
|                                                                                                                |       |                                               |       |   |   |   |   |
| Balance  at beginning of period                                                                                     | ** ** | **$**                                              | **5,154**  |   | $ | 5,259 |   | $ | 3,285 |   |
| Add:  Provision for doubtful accounts                                                                               | ** ** | **12,009**                                         |       | 5,050 |   | 3,018 |   |
| Less:  Net charge offs of customer accounts receivable                                                              | ** ** | **(9,819**                                         | **)**      | (5,155 | ) | (1,044 | ) |
| Balance  at end of period                                                                                           | ** ** | **$**                                              | **7,344**  |   | $ | 5,154 |   | $ | 5,259 |   |
|                                                                                                                | ** ** | ** **                                         |       |   |   |   |   |
| Provision  for doubtful accounts as a percentage of sales of natural gas and electricity  in non-guaranteed markets | ** ** | **2.79**                                           | **%**      | 1.19 | % | 0.82 | % |

 

Reserves and discounts inthe consolidated statements of operations includes the provision for doubtfulaccounts related to customer accounts receivable within markets where suchreceivables are not guaranteed by LDCs as well as discounts related to customeraccounts receivable that are guaranteed by LDCs.  For the fiscal year ended June 30, 2009,approximately 55% of the Company’s total sales of natural gas and electricitywere within markets where LDCs do not guarantee customer accounts receivablewhile 45% of total sales were within markets where LDCs guarantee customeraccounts receivable at a weighted average discount rate of approximately1%.  Such discount is the cost toguarantee the customer accounts receivable. In cases where customer accounts receivable are guaranteed by the LDC,the Company is exposed to the credit risk of the LDC, rather than that of itscustomers.  The Company monitors thecredit ratings of LDCs and the parent companies of LDCs that guarantee customeraccounts receivable.  The Company alsoperiodically reviews payment history and financial information for LDCs toensure that it identifies and responds to any deteriorating trends.  As of June 30, 2009, all of the Company’scustomer accounts receivable in LDC-guaranteed markets were with LDCs withinvestment grade credit ratings.

 

The higher provision fordoubtful accounts for fiscal year 2009, as compared with the prior fiscal year,primarily relates to the Company’s largest non-guaranteed natural gas market inGeorgia and its non-guaranteed electricity market in Texas.  Total sales of natural gas and electricityfor these markets increased a combined 7% during the fiscal year 2009.  In addition, the Company experienceddeterioration of the aging of billed customer accounts receivable within theseand other markets during fiscal year 2009. As expected, charge offs of customer accounts receivable related to thecustomer accounts acquired in the Company’s acquisition of Catalyst NaturalGas, LLC were also experienced during the final six months of fiscal year2009.  The Company will continue toclosely monitor economic conditions and actual collections data within theseand other markets for signs of any negative long-term trends which could resultin higher allowance requirements.

 

***Note 7.****** ******NaturalGas Inventories***

 

Natural gas inventoriesare summarized in the following table.

 
| ** **                                   | ** ** | **Balances at June 30,** | ** ** |
|----------------------------------------------|------------|-------------------------------|------------|
| ** **                                   | ** ** | **2009**                      | ** ** | **2008** | ** ** |
| ** **                                   | ** ** | **(in thousands)**            | ** ** |
| ** **                                   | ** ** | ** **                    | ** ** |
| Storage  inventory for delivery to customers | ** ** | **$**                         | **24,457** | ** ** | **$** | 52,807 | ** ** |
| Imbalance  settlements in-kind (1)           | ** ** | **4,958**                     |       | 12,195 |   |
| Other                                        | ** ** | **—**                    |       | 4 |   |
| Total                                        | ** ** | **$**                         | **29,415** |   | $ | 65,006 |   |

 

----

| (1) |   | Represents inventory to  be transferred to the Company or its customers from LDCs as a result of an  excess of natural gas deliveries over amounts used by customers in prior  periods. These inventories are expected to be transferred to the Company or  its customers within the upcoming twelve-month period. |
|-----|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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After reaching recordhighs during the three months ended June 30, 2008, natural gas marketprices dropped sharply during fiscal year 2009, which resulted in a 60%decrease in the Company’s weighted-average average cost per MMBtu of naturalgas included in natural gas storage inventory from June 30, 2008 to June 30,2009.  The resulting decrease in naturalgas inventories was partially offset by a 14% increase in MMBtus held instorage over the same period.

 

Adjustments to the valueof natural gas inventories on the consolidated balance sheets result incorresponding adjustments to cost of goods sold on the consolidated statementsof operations.  Such adjustments resultfrom changes in inventory storage levels as natural gas is delivered tocustomers as well as changes in the weighted average cost of natural gas instorage.

 

***Note 8.****** ******Goodwill***

 

All of the Company’sgoodwill, which resulted from its acquisition of Shell Energy Services CompanyL.L.C. (“SESCo”) in August 2006, is assigned to the natural gas businesssegment.  The Company completed itsannual impairment test of goodwill as of June 30, 2009.  At the testing date, the Company determinedthat the fair value of the natural gas reporting unit exceeded its carryingvalue.  As a result, no impairment losswas required to be recognized.  Since thetesting date, there were no material events, transactions or changes incircumstances which warranted consideration for their impact on the recordedcarrying value assigned to goodwill.

 

***Note 9.****** ******CustomerAcquisition Costs, Net***

 

Customer acquisitioncosts and related accumulated amortization are summarized in the followingtables.

 
| ** **                          | ** ** | **Balance at June 30, 2009** | ** ** |
|-------------------------------------|------------|--------------------------------------------------|------------|
| ** **                          | ** ** | **Gross********Book Value**                 | ** ** | **Accumulated  Amortization** | ** ** | **Net Book Value** | ** ** |
| ** **                          | ** ** | **(in thousands)**                          | ** ** |
| ** **                          | ** ** | ** **                                       | ** ** |
| Customer  contracts acquired        | ** ** | **$**                                            | **48,832** | ** ** | **$** | **42,553** | ** ** | **$** | **6,279** | ** ** |
| Direct  sales and advertising costs | ** ** | **40,744**                                       | ** ** | **19,073** | ** ** | **21,671** | ** ** |
| Total  customer acquisition costs   | ** ** | **$**                                            | **89,576** | ** ** | **$** | **61,626** | ** ** | **$** | **27,950** | ** ** |

 
| ** **                          | ** ** | **Balance at June 30, 2008** | ** ** |
|-------------------------------------|------------|--------------------------------------------------|------------|
| ** **                          | ** ** | **Gross********Book Value**                 | ** ** | **Accumulated  Amortization** | ** ** | **Net Book Value** | ** ** |
| ** **                          | ** ** | **(in thousands)**                          | ** ** |
| ** **                          | ** ** | ** **                                       | ** ** |
| Customer  contracts acquired        | ** ** | **$**                                            | **47,515** | ** ** | **$** | **26,395** | ** ** | **$** | **21,120** | ** ** |
| Direct  sales and advertising costs | ** ** | **32,287**                                       | ** ** | **11,714** | ** ** | **20,573** | ** ** |
| Total  customer acquisition costs   | ** ** | **$**                                            | **79,802** | ** ** | **$** | **38,109** | ** ** | **$** | **41,693** | ** ** |

 

Amortization expenserelating to capitalized customer acquisition costs was approximately $29.8million, $23.4 million and $19.5 million for the fiscal years ended June 30,2009, 2008 and 2007, respectively. Amortization expense associated with customer acquisition costscapitalized as of June 30, 2009 is expected to approximate $16.7 million,$9.3 million and $1.9 million for the fiscal years ending June 30, 2010,2011 and 2012, respectively.

 

The value andrecoverability of customer acquisition costs are evaluated quarterly bycomparing their carrying value to their projected future cash flows on anundiscounted basis.  During the fiscalyear ended June 30, 2009, no impairment was indicated as a result of thesecomparisons, and there were no material events or transactions which warrantedconsideration for their impact on the recorded book value assigned to customeracquisition costs.

 

As of June 30, 2009,the weighted-average remaining amortization period for customer acquisitioncosts is approximately 1.47 years.

 

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***Note 10.****** ******FixedAssets, Net***

 

Fixed assets, net aresummarized in the following table.

 
| ** **                                       | ** ** | ** **                             | ** ** | ** ** | ** ** | **Estimated** | ** ** |
|--------------------------------------------------|------------|----------------------------------------|------------|------------|------------|---------------|------------|
| ** **                                       | ** ** | **Balance at June 30,** | ** ** | **Useful** | ** ** |
| **Fixed Asset Category**                         | ** ** | **2009**                               | ** ** | **2008**   | ** ** | **Lives**     | ** ** |
| ** **                                       | ** ** | **(in thousands)**                | ** ** | ** ** | ** ** |
|                                             |       | ** **                             |       |
| Computer  equipment                              | ** ** | **$**                                  | **6,080**  |       | $          | 5,126         |       | 3 years |   |
| Computer  software and development               | ** ** | **25,607**                             |       | 25,583     |       | 3-5 years     |       |
| Office  furniture and equipment                  | ** ** | **1,502**                              |       | 1,479      |       | 3-5 years     |       |
| ** **                                       | ** ** | **33,189**                             |       | 32,188     |       |          |       |
| Less:  accumulated depreciation and amortization | ** ** | **(29,461**                            | **)**      | (21,663    | )          |          |       |
| Net                                              | ** ** | **$**                                  | **3,728**  |       | $          | 10,525        |       |   |   |

 

During each of the fiscalyears ended June 30, 2009 and 2008, the Company capitalized approximately$1.0 million of software development costs related to a project designed toreduce the number of software systems utilized to service customer accounts andto enhance the overall capabilities of existing software.  Amortization expense relating to capitalizedcomputer software costs was approximately $6.4 million, $7.7 million and $6.4million for the fiscal years ended June 30, 2009, 2008 and 2007,respectively.

 

Depreciation expenserelating to computer equipment, office furniture and other equipment wasapproximately $1.4 million, $1.6 million and $1.7 million for the fiscal yearsended June 30, 2009, 2008 and 2007, respectively.

 

***Note 11.****** ******IncomeTaxes***

 

Income tax benefit(expense) is summarized in the following table:

 
| ** **                          | ** ** | **Fiscal Years ended June 30** | ** ** |
|-------------------------------------|------------|----------------------------------------------------|------------|
| ** **                          | ** ** | **2009**                                           | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                          | ** ** | **(in thousands)**                            | ** ** |
| Current:                            |       |                                               |       |   |   |   |   |
| Federal                             | ** ** | **$**                                              | **4,666**  |   | $ | 599 |   | $ | (4,750 | ) |
| State                               | ** ** | **(823**                                           | **)**      | 434 |   | (1,204 | ) |
| ** **                          | ** ** | **3,843**                                          |       | 1,033 |   | (5,954 | ) |
| Deferred:                           |       |                                               |       |   |   |   |   |
| Federal                             | ** ** | **18,892**                                         |       | (15,000 | ) | 13,249 |   |
| State                               | ** ** | **4,514**                                          |       | (3,188 | ) | 1,200 |   |
| ** **                          | ** ** | **23,406**                                         |       | (18,188 | ) | 14,449 |   |
| Total  income tax benefit (expense) | ** ** | **$**                                              | **27,249** |   | $ | (17,155 | ) | $ | 8,495 |   |

 

As of June 30, 2009,the Company has net operating loss carryforwards of approximately $2.0 millionand $0.7 million related to its U.S. and Canadian operations,respectively.  The net operating losscarryforwards related to U.S. operations will expire in fiscal year 2029.  The net operating loss carryforwards relatedto Canadian operations will expire during fiscal years 2014 through 2029.

 

The provision for incometaxes varied from income taxes computed at the statutory U.S. federal incometax rate as a result of the following:

 
| ** **                                                             | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
|                                                                   |       |       |       |       |       |       |       |
| Federal  statutory rate                                                | ** ** | **35.0**   | **%**      | 35.0       | %          | 35.0       | %          |
| State  statutory rate, net of federal benefit                          | ** ** | **3.9**    |       | 4.5        |       | 5.4        |       |
| Total  statutory rate                                                  | ** ** | **38.9**   |       | 39.5       |       | 40.4       |       |
| Impact  of prior year adjustments on current and deferred income taxes | ** ** | **—** | ** ** | (0.6       | )          | **—** |       |
| Impact  of changing tax rates on prior year deferred balances          | ** ** | **—** |       | 1.0        |       | (0.1       | )          |
| Impact  of permanent differences                                       | ** ** | **(0.2**   | **)**      | 1.0        |       | (2.2       | )          |
| Impact  of recording valuation allowance                               | ** ** | **(17.3**  | **)**      | **—** |       | **—** |       |
| Effective  tax rate                                                    | ** ** | **21.4**   | **%**      | 40.9       | %          | 38.1       | %          |

 

The effective tax rateapplied to income tax benefits for fiscal years 2009 and 2007 and income taxexpense for fiscal year 2008.  The lowereffective tax rate for fiscal year 2009 was primarily due to recognition of avaluation allowance for deferred income tax assets at June 30, 2009.  The state statutory tax rate decreased to3.9% for the fiscal year ended June 30, 2009 as a result of incomeapportionment for the states in which the Company does business.

 

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Major taxingjurisdictions for the Company and tax years for each that remain subject toexamination are as follows:

 
| **Taxing Jurisdiction** | ** ** | **Open Years** | ** ** |
|------------------------------|------------|---------------------|------------|
|                         |       |                |       |
| U.S.  Federal                |       | 2005 and later      |       |
| U.S.  states and cities      |       | 2005 and later      |       |
| Canada                       |       | 2005 and later      |       |

 

The significantcomponents of the Company’s deferred tax assets and liabilities are summarizedin the following table.

 
| ** **                                             | ** ** | **Balance at June 30,** | ** ** |
|--------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                             | ** ** | **2009**                               | ** ** | **2008** | ** ** |
| ** **                                             | ** ** | **(in thousands)**                | ** ** |
| **Deferred tax assets:**                               | ** ** | ** **                             |       |   |   |
| Depreciation  and amortization                         | ** ** | **$**                                  | **18,982** |   | $ | 12,877 |   |
| Net  unrealized losses from risk management activities | ** ** | **18,693**                             |       | — |   |
| Allowance  for doubtful accounts                       | ** ** | **2,860**                              |       | 2,035 |   |
| Tax  loss carryforwards                                | ** ** | **2,724**                              |       | — |   |
| Accrued  bonuses                                       | ** ** | **1,707**                              |       | 1,090 |   |
| Stock  compensation expense                            | ** ** | **1,642**                              |       | 1,664 |   |
| Other  reserves                                        | ** ** | **165**                                |       | 122 |   |
| Valuation  allowance                                   | ** ** | **(22,664**                            | **)**      | — |   |
| Total  deferred tax assets                             | ** ** | **24,109**                             |       | 17,788 |   |
| **Deferred tax liabilities:**                          |       |                                   |       |   |   |
| Net  unrealized gains from risk management activities  |       | —                                 |       | (17,085 | ) |
| Total  deferred tax liabilities                        |       | —                                 |       | (17,085 | ) |
| Net  deferred tax asset                                | ** ** | **$**                                  | **24,109** |   | $ | 703 |   |
|                                                   |       |                                   |       |   |   |
| **Balance sheet classification:**                      |       |                                   |       |   |   |
| Current  deferred tax asset                            | ** ** | **$**                                  | **9,020**  |   | $ | — |   |
| Long-term  deferred tax asset                          | ** ** | **15,089**                             |       | 10,503 |   |
| Current  deferred tax liability                        |       | —                                 |       | (9,800 | ) |
| Net  deferred tax asset                                | ** ** | **$**                                  | **24,109** |   | $ | 703 |   |

 

Deferred income taxesreflect the net tax effects of temporary differences between the carryingamount of assets and liabilities for financial reporting purposes and theamounts used for income tax purposes. The Company’s policy is to establish a valuation allowance if it is “morelikely than not” that the related tax benefits will not be realized.  At June 30, 2009, the Company determinedthat it was “more likely than not” that a portion of its deferred tax assetswould not be realized.

 

The Company has deferredtax assets related to unrealized losses from risk management activities.  The Company anticipates that these deferredtax assets will be realized in future periods when sales of fixed pricecommodities, to which the unrealized losses from risk management activitiesrelate, occur.  Therefore, the Companydid not establish a valuation allowance for these deferred tax assets.

 

For the remainingdeferred tax assets reflected in the table above, the Company determined basedon available evidence, including historical financial results for the lastthree years, that it is “more likely than not” that a portion of these itemsmay not be recoverable in the future. Accordingly, the Company recorded valuation allowances of approximately$22.0 million and $0.7 million related to its U.S. and Canadian operations,respectively, as a reduction of tax benefit recorded for fiscal year 2009.

 

Activity related touncertain tax positions for the fiscal year ended June 30, 2009 issummarized in the following table.

 
| ** **                                      | ** ** | **Amount**             | ** ** |
|-------------------------------------------------|------------|------------------------|------------|
| ** **                                      | ** ** | **(in millions)** | ** ** |
|                                            |       |                   |       |
| Unrecognized  tax benefit at July 1, 2008  |       | $                      | 0.9        |   |
| Decreases  from payments during the fiscal year |       | —                 |       |
| Unrecognized  tax benefit at June 30, 2009 |       | $                      | 0.9        |   |

 

At June 30, 2009,the Company had an uncertain tax position of $0.9 million for a timing issuerelated to compensation expense.  Therewas no change to this amount during the fiscal year ended June 30, 2009,and the Company does not expect this item to be settled within the next twelvemonths.  There is no change in the effectivetax rate as a result of this item.

 

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The Company recognizes accrued interest and penaltiesrelated to income tax liabilities in accrued liabilities in the consolidatedbalance sheet and interest expense in the consolidated statement ofoperations.  As of June 30, 2009,the Company had accrued approximately $0.2 million for potential interest andpenalties for the compensation-related timing issue described above.  There was no material change in this amountduring the fiscal year ended June 30, 2009.

 

***Note 12.***  ***Accounts Payable and AccruedLiabilities***

 

Accounts payable andaccrued liabilities are summarized in the following table.

 
| ** **                                            | ** ** | **Balance at June 30,** | ** ** |
|-------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                            | ** ** | **2009**                               | ** ** | **2008** | ** ** |
| ** **                                            | ** ** | **(in thousands)**                | ** ** |
| ** **                                            | ** ** | ** **                             | ** ** |
| Interest  payable (1)                                 | ** ** | **$**                                  | **8,946**  |   | $ | 11,662 |   |
| Trade  accounts payable and accrued liabilities (2)   | ** ** | **13,952**                             |       | 14,427 |   |
| Accrued  payroll and related liabilities              | ** ** | **4,761**                              |       | 3,824 |   |
| Sales  and other taxes                                | ** ** | **2,193**                              |       | 1,291 |   |
| Customer  contracts acquired in business combinations | ** ** | **47**                                 |       | 699 |   |
| Other                                                 | ** ** | **3,401**                              |       | 4,699 |   |
| Total  accounts payable and accrued liabilities       | ** ** | **$**                                  | **33,300** |   | $ | 36,602 |   |

 

----

| (1) |   | Includes $1.0  million of accrued interest at June 30, 2009 related to bridge loans  from Charter Mx LLC, Denham and certain members of the Company’s senior  management team. Refer to Note 19 for additional information regarding  related party transactions. |
|-----|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Includes $1.9  million and $0.3 million due to related parties at June 30, 2009 and  2008, respectively, for legal services, financial advisory services and  management fees. Refer to Note 19 for additional information regarding  related party transactions.      |

 

Interest payable relatesprimarily to accrued interest on the Floating Rate Notes due 2011.  Trade accounts payable and accrued expensesrelate primarily to transportation and distribution charges, imbalances andother utility-related expenses.

 

***Note 13.****** ******Derivativesand Hedging Activities***

 

The Company is exposed tocertain risks relating to its ongoing business operations.  The primary risks managed by using derivativeinstruments are commodity price risk and interest rate risk.  The Company has a risk management policy thatis intended to reduce its financial exposure related to changes in the price ofnatural gas and electricity and to changes in the interest rate associated withits Floating Rate Notes due 2011.  TheCompany’s risk management policy defines various risk management controls andlimits designed to monitor the Company’s commodity price risk position andensure that hedging performance is in line with objectives established by itsBoard of Directors and management. Speculative trading activities are explicitly prohibited under theCompany’s risk management policy.

 

The Company has electednot to designate any of the derivative instruments as accounting hedges underU.S. GAAP.  Accordingly, all changes inthe fair value of outstanding commodity derivative contracts are adjusted directlythrough unrealized gains or losses from risk management activities, net on theconsolidated statements of operations, while changes in the fair value ofoutstanding interest rate derivative contracts are adjusted directly throughinterest expense, net.  Unrealized gainsand losses on the consolidated balance sheets reflect the current market valuesfor all of the Company’s derivative instruments.

 

Outstanding derivativeinstruments, which extend through December 2011, are summarized in thefollowing table.

 
| ** **                                             | ** ** | **Open Contracts********As of********June 30, 2009** | ** ** |
|--------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| **Natural gas (primarily under the Hedge  Facility):** | ** ** | ** **                                                | ** ** |
| NYMEX  referenced over the counter swaps (MMBtus(1))   | ** ** | **10,158,000**                                            | ** ** |
| Basis  swaps (MMBtus)                                  | ** ** | **11,712,000**                                            | ** ** |
| Options  (MMBtus)                                      | ** ** | **1,015,000**                                             | ** ** |
|                                                   | ** ** | ** **                                                | ** ** |
| **Electricity:**                                       | ** ** | ** **                                                | ** ** |
| Swaps  and fixed price contracts (MWhrs) (2)           | ** ** | **168,000**                                               | ** ** |

 

----

(1)  MillionBritish thermal units

(2)  Millionwatt hours

 

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The fair values ofderivative instruments recorded on the Company’s consolidated balance sheetsare summarized in the following table.

 
| ** **                 | ** ** | ** **                                        | ** ** | **Fair Value as of June 30, 2009** | ** ** |
|----------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|
| **Type of Derivative**     | ** ** | **Location on the Consolidated Balance Sheet**    | ** ** | **Prior to  Netting**                             | ** ** | **Impact of  Master  Netting  Agreements** | ** ** | **After Netting** | ** ** |
| ** **                 | ** ** | ** **                                        | ** ** | **(in thousands)**                           | ** ** |
|                       |       |                                              |       | ** **                                        |       |
| **Asset derivatives:**     |       |                                              |       |                                              |       |   |   |   |   |
| Commodity  derivatives     |       | Unrealized gains from  risk management activities | ** ** | **$**                                             | **24,649** | ** ** | **(24,355** | **)** | **294** |   |
| Interest  rate derivatives |       | Unrealized gains from  risk management activities | ** ** | **—**                                        | ** ** | **—** | ** ** | **—** | ** ** |
| Total                      | ** ** | ** **                                        | ** ** | **$**                                             | **24,649** |   | **$** | **(24,355** | **)** | **$** | **294** |   |
|                       | ** ** | ** **                                        | ** ** | ** **                                        |       | ** ** | ** ** | ** ** |   |
| **Liability Derivatives:** |       |                                              |       |                                              |       |   |   |   |   |
| Commodity  derivatives     |       | Unrealized gains from  risk management activities | ** ** | **$**                                             | **64,347** | ** ** | **(24,355** | **)** | **$** | **39,992** |   |
| Interest  rate derivatives |       | Unrealized gains from  risk management activities | ** ** | **8,303**                                         | ** ** | **—** | ** ** | **8,303** | ** ** |
| Total                      | ** ** |                                              | ** ** | **$**                                             | **72,650** |   | **$** | **(24,355** | **)** | **$** | **48,295** |   |

 

The effect of derivativeinstruments on the Company’s consolidated statements of operations for thefiscal year ended June 30, 2009 is summarized in the following table.

 
| ** **                                | ** ** | **Location of (Gains) Losses Recognized on the********Consolidated Statement of Operations** | ** ** | **Amount of  (Gains)  Losses  Recognized** | ** **  |
|-------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|--------------------------------------------|-------------|
| ** **                                | ** ** | ** **                                                                                   | ** ** | **(in thousands)**                         | ** **  |
| **Fiscal year ended June 30, 2009:** |       |                                                                                         |       |                                       |        |
| Commodity  derivatives                    |       | Cost of goods sold –  realized losses (gains) from risk management activities, net      | ** ** | **$**                                      | **72,824**  | ** ** |
| Commodity  derivatives                    |       | Cost of goods sold –  unrealized losses (gains) from risk management activities, net    | ** ** | **87,575**                                 | ** **  |
| Interest  rate derivatives                |       | Interest expense, net  of interest income                                                    | ** ** | **3,693**                                  | ** **  |
| Total                                     | ** ** |                                                                                         |       | **$**                                      | **164,092** |   |

 

**Commodity Price Risk ManagementActivities**

 

The Company utilizes swapinstruments and, to a lesser extent, option instruments to economically hedgethe anticipated natural gas and electricity commodity purchases required tomeet expected customer demand for all accounts served under fixed pricecontracts (up to 110% in the winter months with respect to customer demand incertain natural gas utility service areas with daily balancing requirements andup to 110% in the summer months with respect to customer demand in certainelectricity utility service areas).

 

***NaturalGas Hedging Activities***

 

Although the Companyengages in economic hedging activities with various counterparties forelectricity, it utilizes one particular hedge facility to economically hedgethe variability in the cost of natural gas. The Hedge Facility, which was governed by a master transaction agreement(the “Master Transaction Agreement”), had an initial term of two years withsubsequent one-year renewal terms.

 

The Hedge Facility wasreplaced by the Commodity Supply Facility effective September 22, 2009(refer to Note 15).

 

Under the Hedge Facility,the Company utilized NYMEX referenced over-the-counter swaps, basis swaps andoptions to hedge the risk of variability in the cost of natural gas.  Until the termination date of the HedgeFacility, the Company had the ability to enter into NYMEX and basis swapsthrough June 2010. Fees under the Hedge Facility include an annualmanagement fee, a volumetric fee based on the tenor of the swap and other feeswhich allow the hedge provider to mitigate the potential risks arising frommaterial declines of natural gas market prices based on the Company’s overallhedge position with the provider.

 

During fiscal year 2009,the Master Transaction Agreement was amended several times to conform toprovisions of various amendments to the Revolving Credit Facility, includingthose relating to milestone events and dates associated with a Liquidity Event.

 

Other material amendmentsto the Hedge Facility during fiscal year 2009 included:

 

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·      Thematurity date of the Hedge Facility was extended to September 21, 2009from December 19, 2008.

·      EffectiveMay 29, 2009, counterparties for any new natural gas transactions requiredthe approval of the hedge provider at its sole discretion.

·      EffectiveMay 29, 2009, the limitation on the maximum total outstanding hedgingpositions was reduced from a maximum of 25.0 million MMBtus in the originalagreement that governs the Hedge Facility to 12.0 million MMBtus effective May 29,2009, to 11.0 million MMBtus effective July 31, 2009, and to 10.0 millionMMBtus effective August 31, 2009.

 

The Hedge Facility wassecured by a first lien on customer contracts and a second lien onsubstantially all other assets of the Company, primarily unrestricted cash,customer accounts receivable and natural gas inventory.  Collateral available to satisfy the secondlien represents the sum of: (1) the excess of calculated net asset valuesover calculated availability under the Revolving Credit Facility; plus (2) thecarrying value of customer acquisition costs.  At June 30, 2009, total collateral available to satisfy natural gasderivative liabilities was approximately $43.7 million, which exceeded suchliabilities by approximately $7.8 million.

 

As of June 30, 2008,the Company was required to post a $25.0 million letter of credit as collateralfor any potential negative mark-to-market changes in the value of its forwardhedge position.  As a result of theamendment to the Master Transaction Agreement that was finalized in July 2008,the Company was required to increase the collateral required to be posted asmargin to $35.0 million in the event that the negative mark-to-market value ofits forward hedge position exceeds $25.0 million.  The Company has the flexibility to posteither cash collateral or issue a letter of credit as margin for the HedgeFacility.  As of June 30, 2009, theCompany had increased the letter of credit posted as collateral to $35.0million because its mark-to-market exposure under the Hedge Facility exceeded$25.0 million.

 

As of June 30, 2009,all of the Company’s natural gas economic hedge positions were with acounterparty that has an investment grade credit rating.

 

***Electricity Hedging Activities***

 

The Company utilizesswaps and fixed price contracts with various counterparties to economicallyhedge the variability in the cost of electricity.  As of June 30, 2009, the Company did nothave an exclusive agreement with any single hedge provider forelectricity.  The Company manages itsexposure to risk associated with any single electricity hedge provider througha formal credit risk management process and through daily review of exposuresfrom open positions.  As of June 30,2009, all of the Company’s electricity hedge positions were with counterpartieswith investment grade credit ratings.

 

The Company is generallyrequired to post letters of credit to cover its liability positions withvarious counterparties in accordance with electricity hedging agreements.  Such counterparties periodically review theirexposure with us and adjust the required amounts of letters of credit asnecessary.

 

The Commodity SupplyFacility requires the Company to novate or unwind certain electricity swapssubsequent to closing of the Commodity Supply Facility, with RBS Sempraproviding any necessary credit support to liquidate those positions.

 

**InterestRate Risk Management Activities**

 

Effective August 4,2006, the Company became exposed to fluctuations in interest rates under theFloating Rate Notes due 2011.  As of June 30,2009, $165.2 million aggregate principal of the Floating Rate Notes due 2011was outstanding, before original issue discount.  We entered into interest rate swap agreementsduring fiscal 2007, which are utilized to manage our exposure to interest ratefluctuations on the Floating Rate Notes due 2011.  These agreements effectively convert interestrate exposure from a variable rate to a fixed rate of interest.  As of June 30, 2009, the followinginterest rate swaps were outstanding:

 

·      A$30.0 million swap that expires on August 2, 2010 and bears interest at10.33% per annum; and

·      An$80.0 million swap that expires on August 1, 2011 that bears interest at13.24% per annum.

 

The $30.0 million swapthat was due to expire on August 2, 2010 was terminated in September 2009.  A $50.0 million swap expired on August 1,2008 and was not replaced.

 

All swaps arefixed-for-floating and settle against the six-month LIBOR rate.  None of the interest rate swaps have beendesignated as a hedge and, accordingly, changes in the market value of theinterest rate swaps are charged directly to interest expense.  The additional interest expense associatedwith changes in the market value of interest rate swaps was $3.7 million, $3.3million and $0.9 million for the fiscal years ended June 30, 2009, 2008and 2007, respectively.

 

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As of June 30, 2009,the Company was not specifically required to provide any collateral or lettersof credit in support of its interest rate derivative liabilities.  However, coverage for interest ratederivative liabilities is included in the calculation of borrowing availabilityunder the Revolving Credit Facility.

 

The Commodity SupplyFacility requires the Company to novate or unwind the remaining $80.0 millionswap subsequent to closing of the Commodity Supply Facility, with RBS Sempraproviding any necessary credit support to liquidate that position.

 

**CreditRisk Associated with Derivative Financial Instruments**

 

The Company is exposed tocredit risk associated with its economic hedging program and derivative financialinstruments.  Credit risk relates to theloss resulting from the nonperformance of a contractual obligation by aderivative counterparty.  Historically,the Company has executed its fixed price derivative positions to include amaster netting agreement that mitigates the outstanding credit exposure.  Under the Hedge Facility, the Company’s riskmanagement activities are with a financial institution that has an investmentgrade credit rating.  To the extent thatfinancial hedges or physical commodities are acquired from othercounterparties, the Company’s risk management policy sets forth guidelines formonitoring, managing and mitigating credit risk exposures.  The risk management policy also establishescredit limits and requires ongoing financial reviews of counterparties.

 

***Note 14.  Fair Value of Financial Instruments***

 

As described in Note 3 ofthese consolidated financial statements, in September 2006, the FASBissued SFAS No. 157, which defines fair value for financial assets andliabilities, establishes a framework for measuring fair value, and requiresadditional disclosures regarding fair value measurements.  SFAS No. 157 established a fair valuehierarchy that prioritizes the assumptions, or “inputs,” used in applyingvaluation techniques.  The three levelsof inputs within fair value hierarchy include:

 

·      **Level 1 –**Observable inputs that reflect unadjusted quoted prices for identical assetsand liabilities in active markets as of the reporting date.

·      **Level 2 –**Inputs other than quoted prices included in Level 1 that represent observablemarket-based inputs, such as quoted market prices for similar assets****or liabilities in active markets.   Level 2 also includes unobservable inputsthat are corroborated by market data.

·      **Level 3** –Inputs that are not observable from objective sources and therefore cannot becorroborated by market data.

 

The Company generallyutilizes a market approach, as defined in SFAS No. 157, for its recurringfair value measurements.  In forming itsfair value estimates, the Company utilizes the most observable inputs availablefor the respective valuation technique. If a fair value measurement reflects inputs from different levels withinthe fair value hierarchy, the measurement is classified based on the lowestlevel of input that is significant to the fair value measurement.

 

The fair value of theCompany’s financial assets and liabilities that are measured at fair value, bylevel within the fair value hierarchy, is summarized in the following table.

 
| ** **                | ** ** | **Balance at  June 30, 2009** | ** ** |
|---------------------------|------------|------------------------------------|------------|
| ** **                | ** ** | **Level 1**                        | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| ** **                | ** ** | **(in thousands)**                 | ** ** |
| **Assets:**               |       |                               |       |   |   |   |   |   |   |
| Commodity derivatives     |       | $                                  | —     |   | $ | 294 |   | $ | — |   | $ | 294 |   |
| Interest rate derivatives |       | —                             |       | — |   | — |   | — |   |
| Total                     |       | $                                  | —     |   | $ | 294 |   | $ | — |   | $ | 294 |   |
|                      |       |                               |       |   |   |   |   |   |   |
| **Liabilities:**          |       |                               |       |   |   |   |   |   |   |
| Commodity derivatives     |       | $                                  | —     |   | $ | 39,992 |   | $ | — |   | $ | 39,992 |   |
| Interest rate derivatives |       | —                             |       | 8,303 |   | — |   | 8,303 |   |
| Total                     |       | $                                  | —     |   | $ | 48,295 |   | $ | — |   | $ | 48,295 |   |

 

The Company has electednot to record the Floating Rate Notes due 2011 at fair value.  Utilizing observable market data, the fairmarket value of the Floating Rate Notes due 2011 was approximately $65.0million as of June 30, 2009.

 

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***Note 15.  Revolving Credit Facility and CommoditySupply Facility***

 

As of June 30, 2009,and through September 21, 2009, MXenergy Inc. and MXenergyElectric Inc. were borrowers under a revolving credit facility with asyndicate of banks (the “Revolving Credit Facility”).  The maximum amount that could be borrowedunder the Revolving Credit Facility was the lesser of: (1) total bankcommitments under the Revolving Credit Facility; and (2) the amount of theapplicable borrowing base, which represents the aggregate of specific advancerates against cash, customer accounts receivable, natural gas inventory andimbalance receivables. As of June 30, 2008, prior to the fiscal year 2009amendments described below to the agreement that governs the Revolving CreditFacility, the expiration date of the Revolving Credit Facility was December 19,2008, at which time any outstanding principal amounts would have becomedue.  Borrowings under the RevolvingCredit Facility bore interest at a fluctuating rate based upon a base rate or aEurodollar rate plus an applicable margin. As of June 30, 2008, the applicable margin for base rate loans was1.00% per annum and the applicable margin for Eurodollar loans was 2.00% perannum.  As of June 30, 2008, thefees associated with issuing letters of credit under the Revolving CreditFacility were 1.75% per annum.  At June 30,2008, the total availability under the Revolving Credit Facility was $193.9million, of which $147.9 million was utilized in the form of outstandingletters of credit.  There were no cashborrowings under the Revolving Credit Facility during the fiscal year ended June 30,2008.

 

At June 30, 2009,the total availability under the Revolving Credit Facility was $147.8 million,of which of which the maximum the Company could utilize was $115.0 million as aresult of amendments to the Revolving Credit Facility during fiscal year2009.  As of June 30, 2009, $96.3million of availability was utilized in the form of outstanding letters ofcredit.  There were no cash borrowingsoutstanding under the Revolving Credit Facility at June 30, 2009 other thanthe $5.4 million of Bridge Financing loans (as defined below).  During the fiscal year ended June 30,2009, the Company borrowed $30.0 million of cash advances under the RevolvingCredit Facility, all of which was repaid prior to June 30, 2009.  Total interest expense associated with thesecash borrowings was less than $0.1 million for the fiscal year ended June 30,2009.

 

The agreement thatgoverned the Revolving Credit Facility, as revised for the amendments describedbelow, contained customary covenants that restrict certain of the Company’sactivities including, among others, limitation on capital expenditures,disposal of property and equipment, additional indebtedness, issuance ofcapital stock and dividend payments.  Theagreement that governed the Revolving Credit Facility, as amended, alsocontained customary events of default. The Company was in compliance with the covenants under the AmendedRevolving Credit Agreement as of June 30, 2009, including the milestoneevents relating to a Liquidity Event.

 

The sharp drop in naturalgas market prices during the first six months of fiscal year 2009 resulted in asignificant reduction in the available borrowing base under the RevolvingCredit Facility, which strained the Company’s ability to post letters of creditas collateral with suppliers and hedge providers, resulting in waivers obtainedfrom lenders related to certain provisions included in the agreement thatgoverns the Revolving Credit Facility, and ultimately resulting in materialamendments to the agreement that governs the Revolving Credit Facility (the “2009Amendments”).

 

As a result of the 2009Amendments, the Company was required to actively seek a new facility to replacethe Revolving Credit Facility and Hedge Facility.  Various milestone events and dates wereestablished by the 2009 Amendments and were eventually met by the Company, allleading to development and consummation of the Restructuring on September 22,2009.

 

Other material impacts ofthe 2009 Amendments are summarized as follows:

 

·      Thematurity date of the Revolving Credit Facility was extended to September 21,2009 from December 19, 2008.

·      Themaximum amount that the Company could borrow under the Revolving CreditFacility was incrementally reduced from $280.0 million at June 30, 2008 to$115.0 million at June 30, 2009 and to $94 million from July 31, 2009through the termination date.

·      In November 2008,the Company was required to obtain $10.4 million of additional debt financingfrom Denham Commodity Partners Fund LP (“Denham”) and Charter Mx LLC, bothsignificant stockholders of the Company, and four members of the Company’ssenior management team (the “Bridge Financing”; refer to Note 19).

·      TheCompany was required to borrow the $12.0 million available balance under the DenhamCredit Facility by November 7, 2008.

·      Thevolume of natural gas that could be maintained in inventory was limited tomaximum amounts ranging from a maximum of: (a) 4.2 million MMBtus on anydate from May 15, 2009 through May 31, 2009; (b) 5.1 millionMMBtus on any date during the month of June 2009; (c) 5.6 millionMMBtus on any date during the month of July 2009; and 6.1 million MMBtuseffective for the period July 31, 2009 through the termination date.

·      TheCompany’s marketing expenses were limited to $0.2 million per week effective May 15,2009.

·      TheCompany was required to maintain a minimum balance of cash with theadministrative agent as security for all obligations of the Revolving CreditFacility, which increased from $60.0 million effective May 15, 2009, to$65

 

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million effective May 29, 2009, and to $75.0million effective June 15, 2009 until termination of the Revolving CreditFacility and cancellation of all letters of credit issued thereunder.

·      EffectiveNovember 17, 2008, the aggregate outstanding principal amount of cashadvances under the Revolving Credit Facility was limited to $20.0 million.  Effective March 11, 2009, the Company’sability to make cash advances under the Revolving Credit Facility waseliminated.

·      EffectiveSeptember 30, 2008, any plan of the Company to acquire customer portfoliosor operations of other companies required the explicit approval by lendersholding a majority of the commitments under the Revolving Credit Facility.  Effective May 15, 2009, any acquisitionof customer portfolios or operations of other companies were strictlyprohibited.

·      TheCompany was temporarily allowed to exceed the maximum amount that can beborrowed under the Revolving Credit Facility by various amounts that decreasedincrementally from $35.0 million effective in November 2008 to $0effective in March 2009.

·      From November 1,2008 through November 17, 2008, the Company was temporarily allowed torequest issuance of letters of credit of up to $25,360,000 without deductingsuch letters of credit from the available borrowing base.

·      EffectiveMay 15, 2009, the aggregate amount of letters of credit that may be issuedwith an expiration date beyond October 31, 2009 was limited to $40.0million.

·      Themargin added to base rate loans and various letter of credit and other facilityfees were increased.

·      Financialcovenants related to consolidated tangible net worth, consolidated workingcapital, interest coverage and negative allowed consolidated earnings were eachamended.

·      TheCompany was required to have at least $10.0 million in available borrowing baseon and after April 30, 2009.

·      TheCompany was required to have at least $40.0 million in cash and cashequivalents at all times on and after April 30, 2009, excluding any suchcash and cash equivalents acquired from the proceeds of advances under theRevolving Credit Facility.

·      TheCompany paid approximately $8.7 million of amendment fees, legal fees andconsulting fees and other costs directly related to various amendments of theRevolving Credit Facility and the Hedge Facility during the fiscal year ended June 30,2009, which were deferred on the consolidated balance sheet and amortized overthe remaining terms of the facilities. Incremental amortization expense associated with these deferred costswas approximately $7.5 million during fiscal year 2009.

 

As a result of theRestructuring consummated on September 22, 2009, the Revolving CreditFacility, Hedge Facility and various arrangements for the supply of natural gasand electricity were replaced by the Commodity Supply Facility.   Under the Commodity Supply Facility, theprimary obligors are MXenergy Inc., MXenergy Electric Inc. and all obligationsare guaranteed by Holdings and its other domestic subsidiaries.  Obligations under the Commodity SupplyFacility are secured by a first priority lien on substantially all of theHoldings’ and its domestic subsidiaries’ existing and future assets that arenot restricted as to use under bondholder agreements.   The maturity date of the Commodity SupplyFacility is August 31, 2012, provided that RBS Sempra will have the rightto extend such maturity date by one year in its sole discretion, if notice isprovided by RBS Sempra no later than April 30, 2011.

 

The Commodity SupplyFacility provides for the exclusive supply of physical (other than as neededfor balancing) and financial natural gas and electricity, credit support(including letters of credit and guarantees) for certain collateral needs,payment extension financing and/or storage financing as needed, and associatedhedging transactions in order to maintain the Company’s required matchedtrading book.  In addition, the CommoditySupply Facility will provide that the Company will release natural gastransportation and delivery capacity to RBS Sempra and for RBS Sempra toperform certain transportation and storage nominations. The Commodity SupplyFacility also will provide for RBS Sempra to act on the Company’s behalf tosatisfy the requirements of regional transmission operators for capacity rightsand ancillary services.

 

Under the supply terms ofthe Commodity Supply Facility, the Company has the ability to: (1) seekcommodity price quotes from third parties for certain physically or financiallysettled transactions with respect to gas and electricity; and (2) requestthat RBS Sempra enter into such transactions with such third parties at suchprices and to concurrently enter into back-to-back off-setting transactionswith the Company with respect to such third party transactions.  RBS Sempra would not be obligated to enterinto a transaction with any third party unless RBS Sempra is satisfied withsuch transaction and unless the volume of those transactions does not exceedannual limits.  In addition to the actualpurchase price paid by RBS Sempra and certain related costs and expenses, theCompany will be charged an adder for such purchases.

 

The Commodity SupplyFacility also provides for certain volumetric adder fees for all natural gasand electricity purchases, as well as minimum purchase requirements for bothnatural gas and electricity over the initial three-year term and over theoptional one-year extension term.

 

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Under the hedging termsof the Commodity Supply Facility, theaggregate notional exposure amount of fixed price hedges allowed to be enteredinto by the Company will be limited to $260.0 million, without adjustment formark-to-market movements thereafter. Fixed price hedges will be limited to a contract length term of 24months.  In addition, the fixed priceportfolio of hedges will be limited to a weighted-average volumetric tenor notto exceed 14 months in duration.**** With regards to the Company’s fixed pricecustomer mix, the Company may not, during any 12 month period, enter into anynew fixed price contracts with respect to the gas business where theresidential customer equivalents of such contracts are greater than 75% of allresidential customer equivalents of all new contracts entered into during suchperiod and/or maintain a customer portfolio with more than 325,000 residentialcustomer equivalents operating under fixedprice contracts.

 

The maximum amount ofcash borrowings permitted under the storage and/or payment extension financingprovisions of the Commodity Supply Facility will be $45.0 million.  These cash borrowings will accrue interest atthe greater of: (1) RBS Sempra’s cost of funds plus 5%; or (2) Liborplus 5%.  Outstanding credit support(e.g., letters of credit and/or guarantees) provided by RBS Sempra will accrueinterest at Libor plus 3%, but not less than 4%; provided, however, that, if onany date of determination, no termination event has occurred with respect toHoldings and its affiliates and the cash held in certain collateral accountsexceeds all outstanding settlement payments under the Commodity SupplyFacility, interest will accrue at a reduced rate of 1.0% on that portion of thecredit support amount that is in excess of $27.0 million.

 

With regards to theaggregate exposure outstanding under the Commodity Supply Facility, the Companymust maintain a ratio of eligible current working capital assets to outstandingsupply and financing exposure (excluding any exposure related to hedgingactivities) greater than 1.25:1.0 during the months of October throughMarch, and greater then 1.4:1.0 during the months of April throughSeptember; (the “Collateral Coverage Ratio”). In addition, the Company must maintain a consolidated tangible networth, as defined in the agreement that governs the Commodity Supply Facilityof at least $60.0 million.

 

On September 22,2009, certain of the Company’s hedging transactions with under the HedgeFacility were novated or otherwise transferred to RBS Sempra.  In addition, the Commodity Supply Facility requiresthe Company to unwind certain existing physical and financial forward swapssubsequent to closing, with RBS Sempra providing any credit support necessaryto liquidate those positions.

 

In connection withconsummation of the Commodity Supply Facility, RBS Sempra was issued a numberof shares of Holdings’ Class B Common Stock equal to 7.37% of theoutstanding common stock on Restructuring consummation date.

 

The agreements thatgovern the Commodity Supply Facility contain customary covenants that restrictcertain activities including, among other things, the Company’s ability to:

 

·      incuradditional indebtedness;

·      createor incur liens;

·      guaranteeobligations of other parties;

·      engagein mergers, consolidations, liquidations and dissolutions;

·      createsubsidiaries;

·      makeacquisitions;

·      engagein certain asset sales;

·      enterinto leases or sale-leasebacks;

·      makeequity distributions;

·      makecapital expenditures;

·      makeloans and investments;

·      makecertain dividend, debt and other restricted payments;

·      engagein a different line of business;

·      amend,modify or terminate certain material agreements in a manner that is adverse tothe lenders; and

·      engagein certain transactions with affiliates.

 

The Commodity SupplyFacility also contains customary events of default, including:

 

·      paymentdefaults;

·      breachesof representations and warranties;

·      covenantdefaults;

·      crossdefaults to certain other indebtedness (including the Fixed Rate Notes due2014) in excess of specified amounts;

·      certainevents of bankruptcy and insolvency;

·      ERISAdefaults;

·      judgmentsin excess of specified amounts;

 

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·      failureof any guaranty or security document supporting the New Facilities to be infull force and effect;

·      thetermination or cancellation of any material contract which termination orcancellation could reasonably be expected to have a material adverse effect onus; or

·      achange of control.

 

***Note 16.  Long-Term Debt***

 

***FloatingRate Notes due 2011***

 

On August 4, 2006,Holdings issued $190.0 million aggregate principal amount of Floating RateNotes due 2011, which mature on August 1, 2011.  The notes were issued at 97.5% of par valueand bear interest at LIBOR plus 7.5% per annum. Interest is reset and payable semi-annually on February 1 and August 1of each year.

 

The interest rate on theFloating Rate Notes due 2011 was 9.13% and 10.69% at June 30, 2009 and2008, respectively.  The weighted-averageinterest rate was 10.02%, 11.95% and 12.97% for the fiscal years ended June 30,2009, 2008 and 2007, respectively.  Totalinterest expense associated with the Floating Rate Notes due 2011, excludingthe impact of mark-to-market adjustments related to interest rate swaps, was$16.8 million, $21.0 million and $21.2 million for the fiscal years ended June 30,2009, 2008 and 2007, respectively.

 

We have entered intointerest rate swap agreements to economically hedge the floating rate interestexpense on the Floating Rate Notes due 2011. Refer to Note 13 for additional information regarding the Company’s useof interest rate swaps.

 

The original issuediscount of approximately $4.8 million is being amortized to interest expenseratably over the term of the Floating Rate Notes due 2011.  Amortization of original issue discount tointerest expense for the fiscal years ended June 30, 2009, 2008 and 2007was approximately $0.8 million, $1.1 million and $1.0 million,respectively.  These amounts include theimpact of the early extinguishment of Floating Rate Notes due 2011 discussed inthe following paragraphs.

 

On December 13,2006, the Company purchased $12.0 million aggregate principal amount ofFloating Rate Notes due 2011 outstanding, plus accrued interest, from anoteholder for an amount less than face value. The Company utilized the Denham Credit Facility (refer to Note 19) toacquire such Floating Rate Notes due 2011. This transaction resulted in a gain on early extinguishment of debt ofapproximately $1.0 million, which was recorded as a reduction of interest expensefor the fiscal year ended June 30, 2007. The Company also recorded as additional interest expense $0.6 million oforiginal issue discount and debt issuance costs for the fiscal year ended June 30,2007, which represents a pro rata portion of such costs that were deferred atthe issuance date of the Floating Rate Notes due 2011.

 

During the fiscal yearended June 30, 2008, the Company utilized cash and cash equivalents toacquire $12.8 million aggregate principal amount of outstanding Floating Rate Notesdue 2011 from noteholders, in each case, for an amount less than facevalue.  These transactions resulted in$0.8 million of aggregate gains on the early extinguishment of debt that wasrecorded as a reduction of interest expense for the fiscal year ended June 30,2008.  The Company also recorded asadditional interest expense $0.5 million of original issue discount and debtissuance costs for the fiscal year ended June 30, 2008, which represents apro rata portion of such costs that were deferred at the issuance date of theFloating Rate Notes due 2011.

 

As of June 30, 2009,the Company had $165.2 million aggregate principal amount of Floating RateNotes due 2011 outstanding.  On September 22,2009, the Company consummated an exchange offer of $158.8 million aggregateprincipal amount of outstanding Floating Rate Notes due 2011 for $26.7 millionof cash, $67.8 million aggregate principal amount of Fixed Rate Notes due 2014and 33,940,683 shares of newly authorized Class A Common Stock.  The shares of Class A Common Stockissued to the holders of the Fixed Rate Notes due 2014 represented 62.5% of thetotal aggregate shares of common stock outstanding after consummation of theRestructuring.

 

Holders of approximately$6.4 million aggregate principal amount of Floating Rate Notes due 2011 did nottender their notes pursuant to the Restructuring.  These Floating Rate Notes due 2011 willremain on the consolidated balance sheets until their maturity date in August 2011unless acquired by us sooner.  The indenturegoverning the Floating Rate Notes due 2011 was amended to eliminatesubstantially all of the restrictive covenants and certain events of defaultfrom such indenture.

 

***FixedRate Notes due 2014***

 

Pursuant to theRestructuring consummated on September 22, 2009, the Company issued $67.8million aggregate principal amount Fixed Rate Notes due 2014.  Interest on the Fixed Rate Notes due 2014accrues at the rate of 13.25% per annum and is payable semi-annually in cash onFebruary 1 and August 1 of each year, commencing on February 1,2010, to the holders of record of the Fixed Rate Notes due 2014 on theimmediately preceding January 15 and July 15.  The Fixed Rate Notes due

 

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2014 will mature on August 1,2014.  The Fixed Rate Notes due 2014 wereissued at a discount, which will be recorded as a reduction from the Fixed RateNotes due 2014 balance on the Company’s consolidated balance sheets during thefirst quarter of fiscal year 2010, and which will be amortized as an increaseto interest expense over the remaining life of the Fixed Rate Notes due 2014.

 

The Fixed Rate Notes due2014 are senior subordinated securedobligations of the Company, subordinated in right of payment to obligations ofthe Company under the Commodity Supply Facility.  The Fixed Rate Notes due 2014 are senior inpriority to the Company’s unsecured senior obligations, including theFloating Rate Notes due 2011, to the extent of the value of the assets securingthe Fixed Rate Notes due 2014 in excess of the aggregate amount of theoutstanding Commodity Supply Facilityobligations.

 

The Fixed Rate Notes due 2014 are jointly, severally,fully and unconditionally guaranteed by all domestic subsidiaries of Holdings.

 

The Fixed Rate Notes due2014 are secured by a first priority security interest in a cash escrow accountmaintained as security for future payments to holders of the Fixed Rate Notesdue 2014 (the “Notes Escrow Account”) and by a second-priority securityinterest in substantially all other existing and future assets of theCompany.  The Notes Escrow Account wasfunded with approximately $9.0 million, which represents approximate interestpayable by the Company on the Fixed Rate Notes due 2014 for a twelve-monthperiod.

 

At any time, or from timeto time, on or prior to August 1, 2011, the Company may, at its option,use the net cash proceeds of equity offerings, if any, to redeem either: (1) 100%of the principal amount of the Fixed Rate Notes due 2014 issued; or (2) up to 35% of the principal amount of the Fixed Rate Notes due 2014 issued at aredemption price of 113.250% of the principal amount thereof, plus accrued andunpaid interest thereon, if any, to the date of redemption, provided that:

 

·      ifthe Company redeems less than all of the Fixed Rate Notes due 2014, at least65% of the principal amount of the Fixed Rate Notes due 2014 issued under theIndenture remains outstanding immediately after any such redemption; and

·      theCompany makes such redemption not more than 90 days after the consummationof any such equity offering.

 

After August 11,2011, the Company may redeem the Fixed Rate Notes due 2014 at its option, inwhole or in part, upon not less than 30 nor more than 60 days’ notice, at theredemption prices specified in the agreement that governs the Fixed Rate Notesdue 2014.

 

Upon a change of controlof the Company, the Company will be required to make an offer to purchase eachholder’s Fixed Rate Notes due 2014 at a price of 101% of the then outstandingprincipal amount thereof, plus accrued and unpaid interest.

 

Holdings has nosignificant independent operations.  Eachof Holdings’ domestic U.S. subsidiaries jointly and severally, fully andunconditionally guarantees the Floating Rate Notes due 2011 and the Fixed RateNotes due 2014.  Refer to Note 23 forconsolidating financial statements of Holdings and its guarantor andnon-guarantor subsidiaries.

 

The indenture governingthe Fixed Rate Notes due 2014 contains restrictions on Holdings and itsdomestic subsidiaries with regard to declaring or paying any dividend ordistribution on Holdings capital stock. As of June 30, 2009, the Company was in compliance with allprovisions of the indenture governing the Floating Rate Notes due 2011.

 

***Note 17.  Redeemable Convertible Preferred Stock***

 

Prior to consummation ofthe Restructuring, Holdings was authorized to issue 5,000,000 shares ofPreferred Stock.  On June 30, 2004,MXenergy Inc. entered into a purchase agreement (the “Preferred Stock PurchaseAgreement”) with affiliates of Charterhouse Group Inc. and Greenhill CapitalPartners LLC (collectively, the “Preferred Investors”) to issue 1,451,310shares of Preferred Stock at a purchase price of $21.36 per share.  During the fiscal year ended June 30,2005, as part of a corporate reorganization, MXenergy Inc. merged with asubsidiary of Holdings to become a wholly owned subsidiary of Holdings andstockholders of MXenergy Inc. became stockholders of Holdings.  Total related offering expenses of approximately$1.6 million were deducted from the carrying value of the Preferred Stock,which resulted in a net carrying value of approximately $29.4 million at June 30,2007.

 

The Company hasdetermined that the Preferred Stock was redeemable at the option of thePreferred Investors as a result of the redemption provisions included in thePreferred Stock Purchase Agreement. Therefore, the Preferred Stock is recorded outside of stockholders’equity on the consolidated balance sheets. As of June 30, 2008, the Company determined that it was probablethat the Preferred Stock would become redeemable at June 30, 2009, whichis the earliest possible date that the Preferred Investors could have causedthe Company to make the redemption election described under the redemption

 

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provisions of thePreferred Stock Purchase Agreement.  Asof June 30, 2009, the Company determined that the Preferred Stock becameredeemable as of that date. Therefore, as of June 30, 2009 and 2008, thecarrying value of the Preferred Stock was adjusted to reflect the estimatedredemption value, which represents the amount that provides the PreferredInvestors with a minimum annual rate of return of 12%, compounded annuallythrough June 30, 2009, as guaranteed to the Preferred Investors under thedividend provisions of the Preferred Stock Purchase Agreement withcorresponding charges of $5.9 million and $19.4 million recorded to retainedearnings or additional paid in capital during the fiscal years ended June 30,2009 and 2008, respectively.

 

The Preferred Investorshad the right at any time to convert their shares of Preferred Stock intoshares of Holdings’ common stock.  Uponconversion, the number of shares of common stock to be issued shall be thenumber of shares of Preferred Stock outstanding; adjusted in accordance withconversion provisions in the Preferred Stock Purchase Agreement that guaranteethe Preferred Investors a minimum annual rate of return equal to 12% per annum,compounded annually.  The conversionprice was subject to certain anti-dilution provisions included in the PreferredStock Purchase Agreement.  As of June 30,2009, 1,451,310 shares of Holdings’ common stock were reserved for issuanceupon conversion of the Preferred Stock.

 

On September 22,2009, all outstanding shares of Preferred Stock were exchanged for 11,862,551shares of newly authorized Class C Common Stock, which represented 21.84%of the aggregate total shares of the Company’s common stock outstanding as ofthe consummation date of the Restructuring. The excess of the redemption value over the aggregate fair value ofcommon stock issued to the preferred shareholders was reclassified tostockholders’ equity on the consolidated balance sheets during the firstquarter of fiscal year 2010.  Inconnection with the Restructuring, Holdings filed an amended and restatedCertificate of Incorporation that does not authorize any Preferred Stock.

 

***Note 18.  Common Stock***

 

**Amendmentand Restatement of Corporate Documents**

 

On the consummation dateof the of the Restructuring, the Company’s Certificate of Incorporation andBylaws were amended and restated, and certain holders of common stock enteredinto a Stockholders Agreement.  Thesedocuments contain customary provisions, including provisions relating tocertain approval rights, preemptive rights, share transfer restrictions, rightsof first refusal, tag-along rights and drag-along rights.

 

Additionally, the amendedand restated Certificate of Incorporation authorized 200,000,000 shares ofCommon Stock, consisting of 50,000,000 shares of Class A Common Stock,10,000,000 shares of Class B Common Stock, 40,000,000 shares of Class CCommon Stock and 100,000,000 shares of Class D Common Stock.  Prior to the consummation of theRestructuring, the Company had 4,681,219 shares of common stock issued andoutstanding.  Those shares of commonstock were exchanged for 4,499,588 shares of newly authorized Class CCommon Stock, which represented 8.29% of the aggregate total shares of commonstock outstanding after the consummation of the Restructuring.  Additional shares of Class A CommonStock, Class B Common Stock and Class C Common Stock were issued tovarious parties as a result of the Restructuring.

 

**Stock-BasedCompensation Plans**

 

The purpose of theCompany’s stock-based compensation plans is to attract and retain qualifiedemployees, consultants and other service providers by providing them withadditional incentives and opportunities to participate in the Company’sownership, and to create interest in the success and increased value of theCompany.  The plans are administered bythe Compensation Committee of the Board of Directors.  The Compensation Committee has the authorityto: (1) interpret the plans and to create or amend its rules; (2) establishaward guidelines under the plans; and (3) determine, or delegate thedetermination to management, the persons to whom awards are to be granted, thetime at which awards will be granted, the number of shares to be represented byeach award, and the consideration to be received, if any.  Option awards under the plans generally aregranted with an exercise price equal to the fair value of Holdings’ commonstock at the grant date, vest ratably based on three years of continuousservice and have ten year contractual terms.

 

As of June 30, 2009,the Company had three active stock-based compensation plans under whichwarrants and options (collectively referred to as “awards”) have been grantedto employees, directors and other non-employees:

 

·      ***2001Incentive Stock Option Plan (the “2001 ISO Plan”)*****–**  The 2001 ISOPlan allows for awards of stock or stock options not to exceed the 366,500shares of Holdings’ common stock reserved as a pool for distribution toemployees and non-employees.  As of June 30,2009, there were no shares available under the 2001 ISO Plan for future award.

 

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·      ***2003Incentive Stock Option Plan (the “2003 ISO Plan”) –*** The 2003 ISO Plan allows for awards ofstock or stock options not to exceed the 400,000 shares of Holdings’ commonstock reserved as a pool for distribution to employees and non-employees.  As of June 30, 2009, there were 68,396****shares available under the 2003 ISO Planfor future award.

 

·      ***2006Equity Incentive Compensation Plan (the “2006 EIC Plan”) –*** The 2006 EIC Plan allows for awards ofoptions, restricted stock, phantom shares, dividend equivalent rightsperformance awards or stock appreciation rights, to employees, members of theBoard of Directors, officers, consultants and other service providers.  Up to 750,000 shares of Holdings’ commonstock have been authorized to be issued for awards under the 2006 EICPlan.  As of June 30, 2009, 328,066shares were available under the 2006 EIC Plan for future award.  The adoption of the 2006 EIC Plan had noimpact on the 2001 ISO Plan or the 2003 ISO Plan.

 

The Company did not grantany other awards of options under any of its stock-based compensation plansduring the fiscal year ended June 30, 2009.

 

As of June 30, 2009,981,270 options to purchase common stock were outstanding under the Company’sthree approved stock-based compensation plans. The Company recorded approximately $1.1 million, $2.2 million and $2.2million of compensation expense in general and administrative expenses duringthe fiscal years ended June 30, 2009, 2008 and 2007, respectively, relatedto these outstanding awards.  Since alloutstanding options and warrants have been cancelled pursuant to theRestructuring, the Company does not expect to record any expense related tooptions and warrants during fiscal year 2010.

 

As of June 30, 2009,34,600 options to purchase common stock have been issued to two non-employeedirectors of the Company.  These optionshave a weighted average exercise price of $12.75 per share and are fully-vestedas of June 30, 2009.

 

As of June 30, 2009,the Company had options and warrants outstanding which were, or may be,exercisable for 1,008,770 shares of common stock.  The vast majority of these options and all ofthe warrants were “out of the money” as of the consummation date of theRestructuring (e.g., the agreed-upon price for which the option/warrant holdermay purchase the Company’s common stock exceeded the current fair value of thecommon stock) .  Pursuant to theRestructuring, the Company announced its intention to terminate the 2001 ISOPlan, the 2003 ISO Plan and the 2006 EIC Plan and offered a cash settlement toholders of options and warrants in exchange for their agreement to cancel andterminate such options and warrants.  Thetotal amount required for such cash settlement payments was approximately $0.2million, which was recorded as general and administrative expense during thefirst quarter of fiscal year 2010.

** **

**WarrantsIssued to Employees and Related Parties**

 

The Company has issuedwarrants to purchase common stock to certain employees and related parties thatwere not issued under any of the Company’s three approved stock-basedcompensation plans.  As of June 30,2009, the Company had 27,500 warrants to purchase common stock outstanding thatwere granted to employees prior to June 30, 2006 and are accounted forusing variable plan accounting.  Forthese warrants, changes in the estimated fair value of the Company’s commonstock between the grant date and the exercise date result in correspondingadjustments to compensation expense during the period in which the change inthe estimated fair value of common stock occurs.  Total compensation expense (reduction ofcompensation expense) related to these warrants was ($0.6) million (($0.4)million net of tax), ($0.5) million (($0.3) million net of tax) and $2.3million ($1.4 million net of tax) during the fiscal years ended June 30,2009, 2008 and 2007, respectively.

 

As of June 30, 2008,Denham held 1,544,736 fully-vested warrants to purchase common stockoutstanding, with a weighted average exercise price of $9.79 per share.  In September 2008, Denham exercisedthese warrants in a cashless transaction, resulting in the issuance of1,054,982 shares of Holdings’ common stock. Denham forfeited the right to acquire 489,754 shares of Holdings’ commonstock under the warrants as consideration for the cashless exercise.  These warrants were not subject to variableplan accounting because there was no future requirement to provide any servicesto the Company in order for Denham to exercise the warrants.  Therefore, the Company did not record anyexpense related to these warrants during the fiscal years ended June 30,2009, 2008 or 2007.

 

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Outstanding awards of alloptions and warrants to purchase common stock are summarized in the followingtables.

 
| ** **                                                                       | ** ** | **Awards Outstanding at June 30,** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                                       | ** ** | **2009**                                               | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                                                       | ** ** | **Number of  Awards**                             | ** ** | **Weighted-  Average  Exercise  Price** | ** ** | **Number of  Awards** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** | **Number of  Awards** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** |
|                                                                             |       |                                                   |       |   |   |   |   |   |   |   |   |   |   |
| Outstanding at beginning of year                                                 | ** ** | **2,666,056**                                          | ** ** | **$** | **17.16** |   | 2,931,406 |   | $ | 16.35 |   | 2,538,106 |   | $ | 10.87 |   |
| Granted                                                                          | ** ** | **—**                                             |       | — |   | 7,500 |   | 50.10 |   | 508,000 |   | 42.90 |   |
| Exercised                                                                        | ** ** | **(1,591,436**                                         | **)**      | **9.78** |   | (224,417 | ) | 4.18 |   | (29,000 | ) | 3.08 |   |
| Forfeited                                                                        | ** ** | **(49,300**                                            | **)**      | **11.09** |   | (48,433 | ) | 33.57 |   | (40,700 | ) | 28.73 |   |
| Expired                                                                          | ** ** | **(16,550**                                            | **)**      | **8.80** |   | — |   | — |   | (45,000 | ) | 4.40 |   |
| Outstanding at end of year                                                       | ** ** | **1,008,770**                                          | ** ** | **29.24** |   | 2,666,056 |   | 17.16 |   | 2,931,406 |   | 16.35 |   |
| Weighted average fair value of grants during the  year                           | ** ** | ** **                                             | ** ** | **$** | — |   |   |   | $ | 13.70 |   |   |   | $ | 12.31 |   |
| Total intrinsic value of awards exercised during  fiscal year 2009 (in millions) | ** ** | **$**                                                  | **33.0**   |   |   |   |   |   |   |   |   |   |   |   |
| Total intrinsic value of awards outstanding at  June 30, 2009 (in millions) | ** ** | **$**                                                  | **0.1**    |   |   |   |   |   |   |   |   |   |   |   |

 
| ** **           | ** ** | **Awards Outstanding at June 30,** | ** ** |
|----------------------|------------|--------------------------------------------------------|------------|
| ** **           | ** ** | **2009**                                               | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Exercise  Price**  | ** ** | **Number of  Awards  Outstanding**                | ** ** | **Number of  Awards  Exercisable** | ** ** | **Weighted-  Average  Contractual  Life  Remaining** | ** ** | **Number of  Awards  Outstanding** | ** ** | **Number of  Awards  Exercisable** | ** ** | **Number of  Awards  Outstanding** | ** ** | **Number of  Awards  Exercisable** | ** ** |
|                 |       |                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| $1.00                | ** ** | **72,500**                                             | ** ** | **72,500** | ** ** | **2.7 Years** |   | 100,000 |   | 100,000 |   | 110,000 |   | 110,000 |   |
| $2.16                |       | —                                                 |       | — |   | — |   | — |   | — |   | 132,450 |   | 132,450 |   |
| $3.72 – $5.35   | ** ** | **10,000**                                             | ** ** | **10,000** | ** ** | **2.7 Years** |   | 10,000 |   | 10,000 |   | 47,500 |   | 47,500 |   |
| $6.99 – $9.12   | ** ** | **115,350**                                            | ** ** | **115,350** | ** ** | **4.1 Years** |   | 1,163,263 |   | 1,163,263 |   | 1,215,863 |   | 1,215,863 |   |
| $11.64 – $15.00 |       | —                                                 |       | — |   | — |   | 562,573 |   | 562,573 |   | 562,573 |   | 562,573 |   |
| $21.50 – $25.00 | ** ** | **220,920**                                            | ** ** | **220,920** | ** ** | **3.7 Years** |   | 233,820 |   | 233,820 |   | 234,420 |   | 162,947 |   |
| $27.50 – $33.67 | ** ** | **124,000**                                            | ** ** | **124,000** | ** ** | **5.1 Years** |   | 128,500 |   | 128,500 |   | 136,300 |   | 91,200 |   |
| $42.57 – $50.10 | ** ** | **466,000**                                            | ** ** | **309,833** | ** ** | **7.0 Years** |   | 467,900 |   | 157,067 |   | 492,300 |   | 5,000 |   |
| ** **           | ** ** | **1,008,770**                                          | ** ** | **852,603** |   |   |   | 2,666,056 |   | 2,355,223 |   | 2,931,406 |   | 2,327,533 |   |

 

The weighted-averageremaining term for all outstanding awards as of June 30, 2009 wasapproximately 5.3 years.  Theweighted-average remaining term for all exercisable awards as of June 30,2009 was approximately 5.0 years.  Theweighted average exercise price of awards exercisable as of June 30, 2009was $26.69 per share.

 

The aggregate proceedsfrom exercises of options and warrants were $15.6 million, $0.4 million, andless than $0.1 million for the fiscal years ended June 30, 2009, 2008 and2007, respectively.   The tax benefit forthe Company from the exercise of options and warrants was less than $0.1million, $0.8 million and $0.2 million for the fiscal years ended June 30,2009, 2008 and 2007, respectively, which was recorded as a reduction of currenttax liability and an increase to additional paid-in capital.

 

**CommonStock Issued to Senior Executives**

 

In March 2008, theCompensation Committee of the Company’s Board of Directors approved theissuance of a combined total of 19,000 fully vested shares of Holdings’ commonstock to the Company’s Chief Executive Officer and Executive VicePresident.  Total compensation expenserelated to issuance of these shares was approximately $1.7 million, whichincluded the fair value of the common stock issued and additional compensationto offset the taxable nature of the shares to the employees.

 

**NewManagement Incentive Plan**

 

In connection with theRestructuring, it is anticipated that the Company’s board of directors willauthorize the creation of a new management incentive plan (the “Management IncentivePlan”) to issue Class C Common Stock not to exceed 10% of the Company’soutstanding common stock (on a fully diluted basis) after giving effect to theRestructuring.  The Company expects thatthe Management Incentive Plan will provide the board of directors theflexibility to make awards to employees, officers, directors, consultants andadvisors and will permit, among other things, the grant of options to purchaseshares of common stock that are intended to qualify as incentive stock optionsunder Section 422 of the Internal Revenue Code, grants

 

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of options to purchaseshares of common stock that will not so qualify, grants of stock appreciationrights, and grants of common stock at incentive prices or for free.

 

***Note 19.  Related Party Transactions***

 

**CreditAgreement with Denham Commodity Partners Fund LP**

 

Denham Commodity PartnersFund LP is a significant stockholder of the Company.  Denham has extended a $12.0 million line ofcredit to the Company, which bears interest at 9% per annum.  The termination date for the Denham CreditFacility is May 19, 2010, at which time any outstanding principal balancebecomes due.  In accordance with the September 30,2008 amendment and restatement of the agreement that governs the RevolvingCredit Facility (refer to Note 15), the Company was required to borrow anyavailable balance under the Denham Credit Facility prior to November 7,2008, and to maintain such balance outstanding until the Revolving CreditFacility expires.  In September 2008,the Company borrowed the entire $12.0 million available line under the DenhamCredit Facility.  The entire outstanding balance under the Denham Credit Facility wasrepaid, including accrued and unpaid interest, and the facility was terminatedon September 22, 2009.

 

Interest expense relatedto the Denham Credit Facility was approximately $0.8 million, $0.5 million and$0.5 million for the fiscal years ended June 30, 2009, 2008 and 2007,respectively.

 

**LegalServices**

 

A former director andsignificant current stockholder of the Company is senior counsel to Paul,Hastings, Janofsky & Walker LLP (“Paul Hastings”), a law firm thatprovides legal services to the Company. During the fiscal years ended June 30, 2009, 2008 and 2007, PaulHastings provided the Company with legal services totaling $1.9 million, $0.6million and $1.2 million, respectively, of which $1.2 million, $0.6 million and$0.8 million, respectively, were for general legal services recorded as generaland administrative expenses.  Theremaining $0.7 million and $0.4 million of fees for the fiscal years ended June 30,2009 and 2007, respectively, primarily related to issuance of debt andacquisitions and were deferred on the consolidated balance sheets, to beamortized over the estimated useful lives associated with the relatedtransactions.  The Company expects thatPaul Hastings will continue to provide legal services to the Company in futureperiods.

 

**FinancialAdvisory Services**

 

The Company has afinancial advisory services agreement with Greenhill & Co., LLC (“Greenhill”),an affiliate of Greenhill Capital Partners, a significant stockholder of theCompany (the “Greenhill Agreement”).  In April 2008,the Company entered into an engagement letter with Greenhill that amends theGreenhill Agreement by: (1) expanding the definition of the potentialtransaction specified in the Greenhill Agreement; and (2) outlining feesassociated with the occurrence of such a transaction.  In November 2008, the April 2008engagement letter was amended to: (1) extend the engagement; (2) furtherexpand the definition of the potential transaction; and (3) revise thepotential fees associated with such a transaction.  Greenhill provided services to the Companytotaling approximately $0.3 million related to the Restructuring, which wererecorded as general and administrative expenses during the first quarter offiscal year 2010.

 

**ManagementFees**

 

The Company has agreed topay Denham, Daniel Bergstein and Charter Mx LLC, another significant stockholderof the Company, an aggregate annual fee of $0.9 million, payable in equalquarterly amounts, for management consulting services provided to theCompany.  These fees are recorded asgeneral and administrative expenses on the Company’s consolidated statements ofoperations.

 

In accordance with theterms of the Revolving Credit Agreement, payments to the shareholders for thesemanagement fees were deferred until consummation of the Restructuring on September 22,2009.

 

**WarrantsExercised by Denham**

 

As of June 30, 2008,Denham held 1,544,736 fully-vested warrants to purchase an equivalent number ofshares of Holdings’ common stock with a weighted average exercise price of$9.79 per share.  These warrants wereissued in connection with various previous debt financings and accordingly,were not subject to variable plan accounting. Therefore, the Company did not record any expense related to thesewarrants during fiscal years 2009 or 2008. In September 2008, Denham exercised these warrants in a cashlesstransaction, resulting in the issuance of 1,054,982 shares of Holdings’ commonstock.  Denham forfeited the right toacquire 489,754 shares of Holdings’ common stock under the warrants asconsideration for the cashless exercise.

 

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**BridgeFinancing Related to the Revolving Credit Agreement**

 

Pursuant to the AmendedRevolving Credit Agreement, on November 17, 2008, Charter Mx LLC, Denhamand four members of the Company’s senior management team agreed to provideBridge Financing in an aggregate amount of $10.4 million by becoming lenders ina new bridge loan tranche under the Amended Revolving Credit Agreement.  Bridge Financing loan amounts were asfollows: (1) $5.0 million each from Charter Mx LLC and Denham; and (2) $0.1million each from Jeffrey A. Mayer, Chief Executive Officer; Steven Murray,Chief Operating Officer; Carole R. Artman-Hodge, Executive Vice President; andChaitu Parikh, Chief Financial Officer. An upfront fee of 2% of the respective loan amount was paid to eachBridge Financing lender upon closing.

 

The Bridge Financing loanfrom Charter Mx LLC was repaid, with accrued interest, in April 2009.  The remaining Bridge Financing loans from allother lenders were repaid, with accrued interest, on the expiration date of theRevolving Credit Facility in September 2009.

 

Interest accrued to eachBridge Financing lender as follows: (1) 16% per annum from the closingdate through April 6, 2009; (2) 18% per annum from April 7, 2009through July 6, 2009; (3) 20% per annum from July 7, 2009through October 6, 2009; and (4) 22% per annum thereafter until theBridge Financing is repaid.  Charter MxLLC was guaranteed a minimum of $1.25 million of interest over the life of itsloan.  The remaining lenders areguaranteed an aggregate minimum of $1.62 million of interest, shared ratably inproportion to their outstanding loan balances over the lives of theiroutstanding loans.  During the fiscalyear ended June 30, 2009, the Company recorded approximately $2.7 millionof interest expense associated with the Bridge Financing.

 

***Note 20.  Employee Benefits***

 

The Company sponsors anemployee savings plan under Section 401(k) of the Internal RevenueCode for all full-time employees and part-time employees (who work at least1,000 hours annually) with at least three months of continuous service.  Eligible employees may make pre-taxcontributions up to 20% of their annual compensation, not to exceed the annuallimitation set forth in Section 402 (g) for any plan year.  The Company makes a matching contribution ofup to 10% of each participating employee’s compensation up to the maximumallowable under the plan.  Employeeswhose employment date is prior to July 1, 2007, are immediately 100%vested in all contributions.  Employercontributions for employees whose employment date is on or after July 1,2007 vest in increments of 25% per year. The Company made contributions of $1.4 million, $1.3 million and $1.0million for the fiscal years ended June 30, 2009, 2008 and 2007,respectively.

 

***Note 21.  Commitments and Contingencies***

 

**OperatingLeases**

 

The Company leases officespace under non-cancelable operating leases, which contain escalation clauses,have terms that expire between July 2009 and October 2017 and aresubject to extension at the option of the Company.  The Company takes into account all escalationclauses when determining the amount of future minimum lease payments.  All future minimum lease payments arerecognized on a straight-line basis over the minimum lease term.  Rental expense related to the above leasedspaces was $1.3 million, $1.6 million and $0.5 million for the fiscal years endedJune 30, 2009, 2008 and 2007, respectively.  Future annual minimum lease payments underoperating leases are summarized in the following table.

 
| **Fiscal year** | ** ** | **Amount**              | ** ** |
|----------------------|------------|-------------------------|------------|
| ** **           | ** ** | **(in thousands)** | ** ** |
|                 |       |                    |       |
| 2010                 |       | $                       | 760        |   |
| 2011                 |       | 232                     |       |
| 2012                 |       | 208                     |       |
| 2013                 |       | 234                     |       |
| 2014                 |       | 234                     |       |
| Thereafter           |       | 844                     |       |
| Total                |       | $                       | 2,512      |   |

 

**CapacityCharge Commitments**

 

The Company enters intoagreements to transport and store natural gas. Since the demand for natural gas in the winter is high, the Companyagrees to pay for certain capacity for the transportation systems utilized forup to a twelve-month period.  Theseagreements are take-or-pay in that the Company must pay for the capacitycommitted even if it does not use the 

 

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capacity.  For contracts outstanding, as of June 30,2009, the total committed capacity charges were approximately $6.6million.  These agreements generally willexpire during various months during the fiscal year ending June 30, 2010,and will be replaced with new contracts as necessary.

 

**PhysicalCommodity Purchase Commitments**

 

The Company has forwardphysical contracts to acquire natural gas and electricity in specified futureperiods.   The contracts to acquirenatural gas generally have a fixed basis component and a variable componentdetermined based on market prices at purchase date.  Contracts to acquire electricity generallyare on a fixed basis.  All such contractsare considered to be “normal purchases” under U.S. GAAP, and therefore are notreported on the consolidated balance sheets.

 

As of June 30, 2009,the Company had forward physical contracts to purchase a total of 3,603,000MMBtus of natural gas beginning in July 2009 and ending in November 2010.  The amount of the fixed basis and variablecomponents of these contracts were $0.2 million and $14.7 million,respectively, at June 30, 2009.

 

As of June 30, 2009,the Company had forward physical contracts to purchase a total of 228,000 MWhrsof electricity beginning in July 2009 and ending in September 2011.  These contracts, which are all on a fixedbasis, amounted to $14.5 million at June 30, 2008.

 

As of June 30, 2009,total forward commitments to purchase natural gas and electricity were $25.2million for fiscal year 2010, $3.9 million for fiscal year 2011 and $0.3million for fiscal year 2012.

 

**Litigation**

 

From time to time, theCompany is a party to claims and legal proceedings that arise in the ordinarycourse of business, including investigations of product pricing and billingpractices by various governmental or other regulatory agencies.  Management does not believe that any suchproceedings to which the Company is currently a party will have a materialimpact on the Company’s results of operations or financial position.

 

The Company does not havephysical custody or control of any of the natural gas that is ultimatelyprovided to its customers, and does not have physical custody or control overany facilities used to transport natural gas to its customers.  Title to the natural gas sold to the Company’scustomers is passed at the same point at which the Company accepts title fromits natural gas suppliers.  Therefore,management does not believe that the Company has significant exposure to legalclaims or other liabilities associated with environmental concerns.

 

***Note 22.  Business Segments***

 

The Company’s corebusiness is the retail sale of natural gas and electricity to end-use customersin deregulated markets.  Accordingly, theCompany’s business is classified into two business segments: natural gas andelectricity.  Through these businesssegments, natural gas and electricity are sold at fixed and variable contractedprices based on the demand or usage of customers.

 

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Financial information forthe Company’s business segments is summarized in the following tables.

 
| **Fiscal year ended June 30,**                                                 | ** ** | **Natural Gas** | ** **  | **Electricity** | ** ** | **Total**     | ** **   |
|----------------------------------------------------------------------------------------------------|------------|----------------------|-------------|-----------------|------------|---------------|--------------|
| ** **                                                                                         | ** ** | **(in thousands)**   | ** **  |
| **2009:**                                                                                          |       |                 |        |            |       |          |         |
| Sales                                                                                              | ** ** | **$**                | **670,584** | ** **      | **$**      | **119,196**   | ** **   | **$** | **789,780** | ** ** |
| Cost of goods sold (excluding unrealized gains  (losses) from risk management activities, net) (1) | ** ** | **(572,616**         | **)**       | **(96,955**     | **)**      | **(669, 571** | **)**        |
| Gross profit (excluding unrealized gains (losses)  from risk management activities, net) (1)       | ** ** | **$**                | **97,968**  | ** **      | **$**      | **22,241**    | ** **   | **120,209** | ** ** |
| ** **                                                                                         | ** ** | ** **           | ** **  | ** **      | ** ** | ** **    | ** **   |
| Items to reconcile total segment gross profit to  income before income tax expense:                | ** ** | ** **           | ** **  | ** **      | ** ** | ** **    | ** **   |
| Unrealized gains (losses) from risk management  activities, net                                    | ** ** | ** **           | ** **  | ** **      | ** ** | **(87,575**   | **)**        |
| Operating expenses                                                                                 | ** ** | ** **           | ** **  | ** **      | ** ** | **(114,779**  | **)**        |
| Interest expense, net of interest income                                                           | ** ** | ** **           | ** **  | ** **      | ** ** | **(45,305**   | **)**        |
| ** **                                                                                         | ** ** | ** **           | ** **  | ** **      | ** ** | ** **    | ** **   |
| Loss before income tax benefit                                                                     | ** ** | ** **           | ** **  | ** **      | ** ** | **$**         | **(127,450** | **)** |
| ** **                                                                                         | ** ** | ** **           | ** **  | ** **      | ** ** | ** **    | ** **   |
| Assets and liabilities allocated to business  segments at period end:                              | ** ** | ** **           | ** **  | ** **      | ** ** | ** **    | ** **   |
| Accounts receivable, net                                                                           | ** ** | **$**                | **36,006**  | ** **      | **$**      | **11,592**    | ** **   | **$** | **47,598** | ** ** |
| Natural gas inventories                                                                            | ** ** | **29,415**           | ** **  | **—**      | ** ** | **29,415**    | ** **   |
| Goodwill                                                                                           | ** ** | **3,810**            | ** **  | **—**      | ** ** | **3,810**     | ** **   |
| Customer acquisition costs, net                                                                    | ** ** | **20,882**           | ** **  | **7,068**       | ** ** | **27,950**    | ** **   |
| Total assets allocated to business segments                                                        | ** ** | **$**                | **90,113**  | ** **      | **$**      | **18,660**    | ** **   | **$** | **108,773** | ** ** |
| ** **                                                                                         | ** ** | ** **           | ** **  | ** **      | ** ** | ** **    | ** **   |
| **2008:**                                                                                          |       |                 |        |            |       |          |         |
| Sales                                                                                              |       | $                    | 669,522     |            | $          | 82,761        |         | $ | 752,283 |   |
| Cost of goods sold (excluding unrealized gains  (losses) from risk management activities, net) (1) |       | (564,219             | )           | (72,534         | )          | (636,753      | )            |
| Gross profit (excluding unrealized gains (losses)  from risk management activities, net) (1)       |       | $                    | 105,303     |            | $          | 10,227        |         | 115,530 |   |
|                                                                                               |       |                 |        |            |       |          |         |
| Items to reconcile total segment gross profit to  income before income tax expense:                |       |                 |        |            |       |          |         |
| Unrealized gains (losses) from risk management  activities, net                                    |       |                 |        |            |       | 67,168        |         |
| Operating expenses                                                                                 |       |                 |        |            |       | (106,645      | )            |
| Interest expense, net of interest income                                                           |       |                 |        |            |       | (34,105       | )            |
|                                                                                               |       |                 |        |            |       |          |         |
| Income before income tax expense                                                                   |       |                 |        |            |       | $             | 41,948       |   |
|                                                                                               |       |                 |        |            |       |          |         |
| Assets and liabilities allocated to business  segments at period end:                              |       |                 |        |            |       |          |         |
| Accounts receivable                                                                                |       | $                    | 65,897      |            | $          | 21,776        |         | $ | 87,673 |   |
| Natural gas inventories                                                                            |       | 65,006               |        | —          |       | 65,006        |         |
| Goodwill                                                                                           |       | 3,810                |        | —          |       | 3,810         |         |
| Customer acquisition costs, net                                                                    |       | 34,439               |        | 7,254           |       | 41,693        |         |
| Total assets allocated to business segments                                                        |       | $                    | 169,152     |            | $          | 29,030        |         | $ | 198,182 |   |
|                                                                                               |       |                 |        |            |       |          |         |
| **2007:**                                                                                          |       |                 |        |            |       |          |         |
| Sales                                                                                              |       | $                    | 680,811     |            | $          | 23,115        |         | $ | 703,926 |   |
| Cost of goods sold (excluding unrealized gains  (losses) from risk management activities, net) (1) |       | (565,531             | )           | (19,536         | )          | (585,067      | )            |
| Gross profit (excluding unrealized gains (losses)  from risk management activities, net) (1)       |       | $                    | 115,280     |            | $          | 3,579         |         | 118,859 |   |
|                                                                                               |       |                 |        |            |       |          |         |
| Items to reconcile total segment gross profit to  loss before income tax benefit:                  |       |                 |        |            |       |          |         |
| Unrealized gains (losses) from risk management  activities, net                                    |       |                 |        |            |       | (17,079       | )            |
| Operating expenses                                                                                 |       |                 |        |            |       | (91,015       | )            |
| Interest expense, net of interest income                                                           |       |                 |        |            |       | (33,058       | )            |
|                                                                                               |       |                 |        |            |       |          |         |
| Loss before income tax benefit                                                                     |       |                 |        |            |       | $             | (22,293      | ) |

 

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| (1) | Includes  realized losses from risk management activities, but excludes unrealized  gains (losses) from risk management activities. As the underlying customer contracts  are not marked to market, the unrealized gains (losses) from risk management  activities do not offer an accurate indication of the ultimate cash impact to  the business, as the ultimate cash impact to the business is not determinable  until delivery of natural gas under the customer contracts and the associated  gain (loss) on risk management activity is realized. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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***Note 23.  Condensed Consolidating Financial Information***

 

The Floating Rate Notesdue 2011 were issued by Holdings in August 2006.  Each of the following wholly owned domesticsubsidiaries of Holdings (the “Guarantor Subsidiaries”) jointly, severally andunconditionally guarantees the Floating Rate Notes due 2011 on a seniorunsecured basis:

 

·                  MXenergy Capital Holdings Corp.

·                  MXenergy Capital Corp.

·                  Online Choice Inc.

·                  MXenergy Gas Capital Holdings Corp.

·                  MXenergy Gas Capital Corp.

·                  MXenergy Inc.

·                  MXenergy Electric Capital Holdings Corp.

·                  MXenergy Electric Capital Corp.

·                  MXenergy Electric Inc.

·                  Total Gas & Electric, Inc. (effective in August 2006,Total Gas & Electric, Inc. was merged with and intoMXenergy Inc.)

·                  Total Gas & Electricity (PA) Inc., d/b/a/ MXenergyElectric (PA) (effective in May 2007, Total Gas & Electricity(PA) Inc. was merged with and into MXenergy Electric Inc.)

·                  MXenergy Services Inc.

·                  Infometer.com Inc.

 

The only wholly ownedsubsidiary that is not a guarantor for the Floating Rate Notes due 2011 (the “Non-guarantorSubsidiary”) is MXenergy (Canada) Ltd.

 

Consolidating balancesheets, consolidating statements of operations and consolidating statements ofcash flows for Holdings, the combined Guarantor Subsidiaries and theNon-guarantor Subsidiary are provided in the following tables.  Elimination entries necessary to consolidatethe entities are also presented.

 

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** **

**MXENERGYHOLDINGS INC.**

**ConsolidatingBalance Sheet**

**June30, 2009**

**(inthousands)**

 
|                                                                  |       | ** **        |       | **Non-**       |       | ** **       |       |             |       |             |       |
|-----------------------------------------------------------------------|------------|-------------------|------------|----------------|------------|------------------|------------|------------------|------------|------------------|------------|
|                                                                  |       | **MXenergy**      |       | **Guarantor**  |       | **Guarantor**    |       |             |       |             |       |
| ** **                                                            | ** ** | **Holdings Inc.** | ** ** | **Subsidiary** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ** **                                                            | ** ** | ** **        | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
| **Assets**                                                            | ** ** | ** **        | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
| Current  assets:                                                      | ** ** | ** **        | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
| Cash  and cash equivalents                                            |       | $                 | —     |           | $          | 262              |       | $                | 23,004     |             | $          | — |   | $ | 23,266 |   |
| Restricted  cash                                                      |       | —            |       | —         |       | 75,368           |       | —           |       | 75,368           |       |
| Intercompany  receivable                                              |       | 191,399           |       | —         |       | —           |       | (191,399         | )          | —           |       |
| Accounts  receivable, net                                             |       | —            |       | 56             |       | 47,542           |       | —           |       | 47,598           |       |
| Natural  gas inventories                                              |       | —            |       | —         |       | 29,415           |       | —           |       | 29,415           |       |
| Current  portion of unrealized gains from risk management activities  |       | —            |       | —         |       | 294              |       | —           |       | 294              |       |
| Income  taxes receivable                                              |       | 6,461             |       | —         |       | —           |       | —           |       | 6,461            |       |
| Deferred  income taxes                                                |       | —            |       | —         |       | 9,020            |       | —           |       | 9,020            |       |
| Other  current assets                                                 |       | —            |       | 87             |       | 11,997           |       | —           |       | 12,084           |       |
| Total  current assets                                                 |       | 197,860           |       | 405            |       | 196,640          |       | (191,399         | )          | 203,506          |       |
| Unrealized  gains from risk management activities                     |       | —            |       | —         |       | —           |       | —           |       | —           |       |
| Goodwill                                                              |       | —            |       | —         |       | 3,810            |       | —           |       | 3,810            |       |
| Customer  acquisition costs, net                                      |       | —            |       | 28             |       | 27,922           |       | —           |       | 27,950           |       |
| Fixed  assets, net                                                    |       | —            |       | 1              |       | 3,727            |       | —           |       | 3,728            |       |
| Deferred  income taxes                                                |       | —            |       | —         |       | 15,089           |       | —           |       | 15,089           |       |
| Long-term  investments                                                |       | (40,169           | )          | —         |       | —           |       | 40,169           |       | —           |       |
| Other  assets                                                         |       | 4,412             |       | —         |       | 576              |       | —           |       | 4,988            |       |
| Total  assets                                                         |       | $                 | 162,103    |           | $          | 434              |       | $                | 247,764    |             | $          | (151,230 | ) | $ | 259,071 |   |
|                                                                  |       |              |       |           |       |             |       |             |       |             |       |
| **Liabilities and stockholders’ equity**                         |       |              |       |           |       |             |       |             |       |             |       |
| Current  liabilities:                                                 |       |              |       |           |       |             |       |             |       |             |       |
| Accounts  payable and accrued liabilities                             |       | $                 | 7,842      |           | $          | 120              |       | $                | 25,338     |             | $          | — |   | $ | 33,300 |   |
| Accrued  commodity purchases                                          |       | —            |       | 40             |       | 9,807            |       | —           |       | 9,847            |       |
| Intercompany  payable                                                 |       | —            |       | 1,845          |       | 189,554          |       | (191,399         | )          | —           |       |
| Current  portion of unrealized losses from risk management activities |       | 4,176             |       | —         |       | 30,048           |       | —           |       | 34,224           |       |
| Deferred  revenue                                                     |       | —            |       | —         |       | 4,271            |       | —           |       | 4,271            |       |
| Bridge  Financing loans payable                                       |       | —            |       | —         |       | 5,400            |       | —           |       | 5,400            |       |
| Denham  Credit Facility                                               |       | —            |       | —         |       | 12,000           |       | —           |       | 12,000           |       |
| Total  current liabilities                                            |       | 12,018            |       | 2,005          |       | 276,418          |       | (191,399         | )          | 99,042           |       |
| Unrealized  losses from risk management activities                    |       | 4,127             |       | —         |       | 9,944            |       | —           |       | 14,071           |       |
| Long-term  debt:                                                      |       |              |       |           |       |             |       |             |       |             |       |
| Floating  Rate Notes due 2011                                         |       | 163,476           |       | —         |       | —           |       | —           |       | 163,476          |       |
| Total  long-term debt                                                 |       | 163,476           |       | —         |       | —           |       | —           |       | 163,476          |       |
| Total  liabilities                                                    |       | 179,621           |       | 2,005          |       | 286,362          |       | (191,399         | )          | 276,589          |       |
|                                                                  |       |              |       |           |       |             |       |             |       |             |       |
| Commitments  and contingencies                                        |       | —            |       | —         |       | —           |       | —           |       | —           |       |
|                                                                  |       |              |       |           |       |             |       |             |       |             |       |
| Redeemable  convertible preferred stock                               |       | 54,632            |       | —         |       | —           |       | —           |       | 54,632           |       |
|                                                                  |       |              |       |           |       |             |       |             |       |             |       |
| Stockholders’  equity:                                           |       |              |       |           |       |             |       |             |       |             |       |
| Common  stock                                                         |       | 47                |       | 1              |       | —           |       | (1               | )          | 47               |       |
| Additional  paid-in-capital                                           |       | 18,275            |       | —         |       | —           |       | —           |       | 18,275           |       |
| Contributed  capital                                                  |       | —            |       | (1             | )          | 24,386           |       | (24,385          | )          | —           |       |
| Unearned  stock compensation                                          |       | —            |       | —         |       | —           |       | —           |       | —           |       |
| Accumulated  other comprehensive loss                                 |       | (3                | )          | (3             | )          | —           |       | 3                |       | (3               | )          |
| (Accumulated  deficit) retained earnings                              |       | (90,469           | )          | (1,568         | )          | (62,984          | )          | 64,552           |       | (90,469          | )          |
| Total  stockholders’ equity                                      |       | (72,150           | )          | (1,571         | )          | (38,598          | )          | 40,169           |       | (72,150          | )          |
| Total  liabilities and stockholders’ equity                      |       | $                 | 162,103    |           | $          | 434              |       | $                | 247,764    |             | $          | (151,230 | ) | $ | 259,071 |   |

 

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**MXENERGYHOLDINGS INC.**

**ConsolidatingBalance Sheet**

**June 30,2008**

**(dollarsin thousands)**

 
| ** **                                                            | ** ** | **MXenergy  Holdings Inc.** | ** ** | **Non-  Guarantor  Subsidiary** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|-----------------------------|------------|------------------|------------|------------------|------------|
| **Assets**                                                            | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **                  | ** ** | ** **       | ** ** | ** **       | ** ** |
| Current  assets:                                                      | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **                  | ** ** | ** **       | ** ** | ** **       | ** ** |
| Cash  and cash equivalents                                            |       | $                           | —     |                            | $          | 970                         |       | $                | 70,988     |             | $          | — |   | $ | 71,958 |   |
| Restricted  cash                                                      |       | —                      |       | —                          |       | 587                         |       | —           |       | 587              |       |
| Intercompany  receivable                                              |       | 172,455                     |       | —                          |       | —                      |       | (172,455         | )          | —           |       |
| Accounts  receivable, net                                             |       | —                      |       | 28                              |       | 87,645                      |       | —           |       | 87,673           |       |
| Natural  gas inventories                                              |       | —                      |       | —                          |       | 65,006                      |       | —           |       | 65,006           |       |
| Current  portion of unrealized gains from risk management activities  |       | 183                         |       | —                          |       | 35,681                      |       | —           |       | 35,864           |       |
| Income  taxes receivable                                              |       | 7,524                       |       | —                          |       | —                      |       | —           |       | 7,524            |       |
| Other  current assets                                                 |       | —                      |       | 302                             |       | 3,059                       |       | —           |       | 3,361            |       |
| Total  current assets                                                 |       | 180,162                     |       | 1,300                           |       | 262,966                     |       | (172,455         | )          | 271,973          |       |
| Unrealized  gains from risk management activities                     |       | 234                         |       | —                          |       | 12,987                      |       | —           |       | 13,221           |       |
| Goodwill                                                              |       | —                      |       | —                          |       | 3,810                       |       | —           |       | 3,810            |       |
| Customer  acquisition costs, net                                      |       | —                      |       | 68                              |       | 41,625                      |       | —           |       | 41,693           |       |
| Fixed  assets, net                                                    |       | —                      |       | —                          |       | 10,525                      |       | —           |       | 10,525           |       |
| Deferred  income taxes                                                |       | —                      |       | —                          |       | 10,503                      |       | —           |       | 10,503           |       |
| Long-term  investments                                                |       | 74,949                      |       | —                          |       | —                      |       | (74,949          | )          | —           |       |
| Other  assets                                                         |       | 3,134                       |       | —                          |       | 893                         |       | —           |       | 4,027            |       |
| Total  assets                                                         |       | $                           | 258,479    |                            | $          | 1,368                       |       | $                | 343,309    |             | $          | (247,404 | ) | $ | 355,752 |   |
|                                                                  |       |                        |       |                            |       |                        |       |             |       |             |       |
| **Liabilities and stockholders’ equity**                         |       |                        |       |                            |       |                        |       |             |       |             |       |
| Current  liabilities:                                                 |       |                        |       |                            |       |                        |       |             |       |             |       |
| Accounts  payable and accrued liabilities                             |       | $                           | 8,816      |                            | $          | 305                         |       | $                | 27,481     |             | $          | — |   | $ | 36,602 |   |
| Accrued  commodity purchases                                          |       | —                      |       | 612                             |       | 50,849                      |       | —           |       | 51,461           |       |
| Intercompany  payable                                                 |       | —                      |       | 1,912                           |       | 170,543                     |       | (172,455         | )          | —           |       |
| Current  portion of unrealized losses from risk management activities |       | 2,187                       |       | —                          |       | 791                         |       | —           |       | 2,978            |       |
| Deferred  revenue                                                     |       | —                      |       | —                          |       | 7,435                       |       | —           |       | 7,435            |       |
| Deferred  income taxes                                                |       | —                      |       | —                          |       | 9,800                       |       | —           |       | 9,800            |       |
| Total  current liabilities                                            |       | 11,003                      |       | 2,829                           |       | 266,899                     |       | (172,455         | )          | 108,276          |       |
| Unrealized  losses from risk management activities                    |       | 2,839                       |       | —                          |       | —                      |       | —           |       | 2,839            |       |
| Long-term  debt:                                                      |       |                        |       |                            |       |                        |       |             |       |             |       |
| Floating  Rate Notes Due 2011                                         |       | 162,648                     |       | —                          |       | —                      |       | —           |       | 162,648          |       |
| Total  long-term debt                                                 |       | 162,648                     |       | —                          |       | —                      |       | —           |       | 162,648          |       |
| Total  liabilities                                                    |       | 176,490                     |       | 2,829                           |       | 266,899                     |       | (172,455         | )          | 273,763          |       |
|                                                                  |       |                        |       |                            |       |                        |       |             |       |             |       |
| Redeemable  convertible preferred stock                               |       | 48,779                      |       | —                          |       | —                      |       | —           |       | 48,779           |       |
|                                                                  |       |                        |       |                            |       |                        |       |             |       |             |       |
| Commitments  and contingencies                                        |       | —                      |       | —                          |       | —                      |       | —           |       | —           |       |
|                                                                  |       |                        |       |                            |       |                        |       |             |       |             |       |
| Stockholders’  equity:                                           |       |                        |       |                            |       |                        |       |             |       |             |       |
| Common  stock                                                         |       | 36                          |       | 1                               |       | —                      |       | (1               | )          | 36               |       |
| Additional  paid-in-capital                                           |       | 23,635                      |       | —                          |       | —                      |       | —           |       | 23,635           |       |
| Contributed  capital                                                  |       | —                      |       | —                          |       | 42,401                      |       | (42,401          | )          | —           |       |
| Unearned  stock compensation                                          |       | (4                          | )          | —                          |       | —                      |       | —           |       | (4               | )          |
| Accumulated  other comprehensive loss                                 |       | (189                        | )          | (189                            | )          | —                      |       | 189              |       | (189             | )          |
| (Accumulated  deficit) retained earnings                              |       | 9,732                       |       | (1,273                          | )          | 34,009                      |       | (32,736          | )          | 9,732            |       |
| Total  stockholders’ equity                                      |       | 33,210                      |       | (1,461                          | )          | 76,410                      |       | (74,949          | )          | 33,210           |       |
| Total  liabilities and stockholders’ equity                      |       | $                           | 258,479    |                            | $          | 1,368                       |       | $                | 343,309    |             | $          | (247,404 | ) | $ | 355,752 |   |

 

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**MXENERGYHOLDINGS INC.**

**ConsolidatingStatement of Operations**

**YearEnded June 30, 2009**

**(inthousands)**

** **
|                                                           |       | ** **         |       | **Non-**       |       | ** **       |       |             |       |             |       |
|----------------------------------------------------------------|------------|--------------------|------------|----------------|------------|------------------|------------|------------------|------------|------------------|------------|
|                                                           |       | **MXenergy**       |       | **Guarantor**  |       | **Guarantor**    |       |             |       |             |       |
|                                                           |       | **Holdings  Inc.** |       | **Subsidiary** |       | **Subsidiaries** |       | **Eliminations** |       | **Consolidated** |       |
|                                                           |       |               |       |           |       |             |       |             |       |             |       |
| Sales  of natural gas and electricity                          |       | $                  | —     |           | $          | 358              |       | $                | 789,422    |             | $          | — |   | $ | 789,780 |   |
| Cost  of goods sold (excluding depreciation and amortization): | ** ** | ** **         | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
| Cost  of natural gas and electricity sold                      |       | —             |       | 348            |       | 596,399          |       | —           |       | 596,747          |       |
| Realized  losses from risk management activities               |       | —             |       | —         |       | 72,824           |       | —           |       | 72,824           |       |
| Unrealized  losses from risk management activities             |       | —             |       | —         |       | 87,575           |       |             |       | 87,575           |       |
|                                                           |       | —             |       | 348            |       | 756,798          |       | —           |       | 757,146          |       |
| Gross  profit                                                  |       | —             |       | 10             |       | 32,624           |       | —           |       | 32,634           |       |
| Operating  expenses:                                           |       |               |       |           |       |             |       |             |       |             |       |
| General  and administrative expenses                           |       | 93                 |       | 733            |       | 59,131           |       | —           |       | 59,957           |       |
| Advertising  and marketing expenses                            |       | —             |       | (454           | )          | 2,571            |       | —           |       | 2,117            |       |
| Reserves  and discounts                                        |       | —             |       | —         |       | 15,130           |       | —           |       | 15,130           |       |
| Depreciation  and amortization                                 |       | —             |       | 31             |       | 37,544           |       | —           |       | 37,575           |       |
| Equity  in operations of consolidated subsidiaries             |       | 97,288             |       | —         |       | —           |       | (97,288          | )          | —           |       |
| Total  operating expenses                                      |       | 97,381             |       | 310            |       | 114,376          |       | (97,288          | )          | 114,779          |       |
|                                                           |       |               |       |           |       |             |       |             |       |             |       |
| Operating  (loss) profit                                       |       | (97,381            | )          | (300           | )          | (81,752          | )          | 97,288           |       | (82,145          | )          |
| Interest  expense, net                                         |       | 3,693              |       | (5             | )          | 41,617           |       | —           |       | 45,305           |       |
| (Loss)  income before income tax benefit (expense)             |       | (101,074           | )          | (295           | )          | (123,369         | )          | 97,288           |       | (127,450         | )          |
| Income  tax benefit (expense)                                  |       | 873                |       | —         |       | 26,376           |       | —           |       | 27,249           |       |
| Net  (loss) income                                             |       | $                  | (100,201   | )              | $          | (295             | )          | $                | (96,993    | )                | $          | 97,288 |   | $ | (100,201 | ) |

 

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**MXENERGYHOLDINGS INC.**

**ConsolidatingStatement of Operations**

**YearEnded June 30, 2008**

**(dollarsin thousands)**

 
| ** **                                                     | ** ** | **MXenergy  Holdings Inc.** | ** ** | **Non-   Guarantor  Subsidiary** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|-----------------------------|------------|------------------|------------|------------------|------------|
|                                                           |       |                             |       |                             |       |                        |       |             |       |             |       |
| Sales  of natural gas and electricity                          |       | $                                | —     |                             | $          | 1,481                       |       | $                | 750,802    |             | $          | — |   | $ | 752,283 |   |
| Cost  of goods sold (excluding depreciation and amortization): |       |                             |       |                             |       |                        |       |             |       |             |       |
| Cost  of natural gas and electricity sold                      |       | —                           |       | 1,402                            |       | 628,604                     |       | —           |       | 630,006          |       |
| Realized  losses from risk management activities               |       | —                           |       | —                           |       | 6,747                       |       | —           |       | 6,747            |       |
| Unrealized  losses from risk management activities             |       | —                           |       | —                           |       | (67,168                     | )          | —           |       | (67,168          | )          |
|                                                           |       | —                           |       | 1,402                            |       | 568,183                     |       | —           |       | 569,585          |       |
| Gross  profit                                                  |       | —                           |       | 79                               |       | 182,619                     |       | —           |       | 182,698          |       |
|                                                           |       |                             |       |                             |       |                        |       |             |       |             |       |
| Operating  expenses:                                           |       |                             |       |                             |       |                        |       |             |       |             |       |
| General  and administrative expenses                           |       | 117                              |       | 505                              |       | 61,649                      |       | —           |       | 62,271           |       |
| Advertising  and marketing expenses                            |       | —                           |       | (426                             | )          | 4,972                       |       | —           |       | 4,546            |       |
| Reserves  and discounts                                        |       | —                           |       | —                           |       | 7,130                       |       | —           |       | 7,130            |       |
| Depreciation  and amortization                                 |       | —                           |       | 36                               |       | 32,662                      |       | —           |       | 32,698           |       |
| Equity  in operations of consolidated subsidiaries             |       | (27,584                          | )          | —                           |       | —                      |       | 27,584           |       | —           |       |
| Total  operating expenses                                      |       | (27,467                          | )          | 115                              |       | 106,413                     |       | 27,584           |       | 106,645          |       |
|                                                           |       |                             |       |                             |       |                        |       |             |       |             |       |
| Operating  profit (loss)                                       |       | 27,467                           |       | (36                              | )          | 76,206                      |       | (27,584          | )          | 76,053           |       |
| Interest  expense, net                                         |       | 3,290                            |       | —                           |       | 30,815                      |       | —           |       | 34,105           |       |
| Income  (loss) before income tax (expense) benefit             |       | 24,177                           |       | (36                              | )          | 45,391                      |       | (27,584          | )          | 41,948           |       |
| Income  tax benefit (expense)                                  |       | 616                              |       | —                           |       | (17,771                     | )          | —           |       | (17,155          | )          |
| Net  income (loss)                                             |       | $                                | 24,793     |                             | $          | (36                         | )          | $                | 27,620     |             | $          | (27,584 | ) | $ | 24,793 |   |

 

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**MXENERGYHOLDINGS INC.**

**ConsolidatingStatement of Operations**

**YearEnded June 30, 2007**

**(dollarsin thousands)**

 
| ** **                                                     | ** ** | **MXenergy  Holdings Inc.** | ** ** | **Non-  Guarantor  Subsidiary** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|-----------------------------|------------|------------------|------------|------------------|------------|
|                                                           |       |                        |       |                            |       |                        |       |             |       |             |       |
| Sales  of natural gas and electricity                          |       | $                           | —     |                            | $          | 1,292                       |       | $                | 702,634    |             | $          | — |   | $ | 703,926 |   |
| Cost  of goods sold (excluding depreciation and amortization): |       |                        |       |                            |       |                        |       |             |       |             |       |
| Cost  of natural gas and electricity sold                      |       | —                      |       | 1,267                           |       | 550,761                     |       | —           |       | 552,028          |       |
| Realized  losses from risk management activities               |       | —                      |       | —                          |       | 33,039                      |       | —           |       | 33,039           |       |
| Unrealized  losses from risk management activities             |       | —                      |       | —                          |       | 17,079                      |       | —           |       | 17,079           |       |
|                                                           |       | —                      |       | 1,267                           |       | 600,879                     |       | —           |       | 602,146          |       |
| Gross  profit                                                  |       | —                      |       | 25                              |       | 101,755                     |       | —           |       | 101,780          |       |
|                                                           |       |                        |       |                            |       |                        |       |             |       |             |       |
| Operating  expenses:                                           |       |                        |       |                            |       |                        |       |             |       |             |       |
| General  and administrative expenses                           |       | —                      |       | 339                             |       | 54,177                      |       | —           |       | 54,516           |       |
| Advertising  and marketing expenses                            |       | —                      |       | 4                               |       | 4,040                       |       | —           |       | 4,044            |       |
| Reserves  and discounts                                        |       | —                      |       | —                          |       | 4,725                       |       | —           |       | 4,725            |       |
| Depreciation  and amortization                                 |       | —                      |       | 91                              |       | 27,639                      |       | —           |       | 27,730           |       |
| Equity  in operations of consolidated subsidiaries             |       | 15,326                      |       | —                          |       | —                      |       | (15,326          | )          | —           |       |
| Total  operating expenses                                      |       | 15,326                      |       | 434                             |       | 90,581                      |       | (15,326          | )          | 91,015           |       |
|                                                           |       |                        |       |                            |       |                        |       |             |       |             |       |
| Operating  (loss) profit                                       |       | (15,326                     | )          | (409                            | )          | 11,174                      |       | 15,326           |       | 10,765           |       |
| Interest  expense, net                                         |       | (3,144                      | )          | —                          |       | 36,202                      |       | —           |       | 33,058           |       |
| (Loss)  income before income tax benefit (expense)             |       | (12,182                     | )          | (409                            | )          | (25,028                     | )          | 15,326           |       | (22,293          | )          |
| Income  tax (expense) benefit                                  |       | (1,616                      | )          | —                          |       | 10,111                      |       | —           |       | 8,495            |       |
| Net  (loss) income                                             |       | $                           | (13,798    | )                               | $          | (409                        | )          | $                | (14,917    | )                | $          | 15,326 |   | $ | (13,798 | ) |

 

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**MXENERGYHOLDINGS INC.**

**ConsolidatingStatement of Cash Flows**

**YearEnded****June 30, 2009**

**(inthousands)**

 
| ** **                                                                                                                  | ** ** | **MXenergy**       | ** ** | **Non-  Guarantor** | ** ** | **Guarantor**    | ** ** | ** **       | ** ** | ** **       | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|---------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                                                  | ** ** | **Holdings  Inc.** | ** ** | **Subsidiary**      | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| **Operating  activities:**                                                                                                  |       |               |       |                |       |             |       |             |       |             |       |
| Net income  (loss)                                                                                                          |       | $                  | (100,201   | )                   | $          | (295             | )          | $                | (96,993    | )                | $          | 97,288 |   | $ | (100,201 | ) |
| Adjustments to  reconcile net (loss) income to net cash provided by (used in) operating activities:                         |       |               |       |                |       |             |       |             |       |             |       |
| Unrealized  losses from risk management activities                                                                          |       | —             |       | —              |       | 87,575           |       | —           |       | 87,575           |       |
| Stock  compensation expense                                                                                                 |       | —             |       | —              |       | 519              |       | —           |       | 519              |       |
| Depreciation and  amortization                                                                                              |       | —             |       | 31                  |       | 37,544           |       | —           |       | 37,575           |       |
| Deferred tax benefit                                                                                                        |       | —             |       | —              |       | (23,406          | )          | —           |       | (23,406          | )          |
| Non-cash  interest expense, primarily unrealized losses on interest rate swaps and  amortization of deferred financing fees |       | 3,694              |       | —              |       | 12,539           |       | —           |       | 16,233           |       |
| Amortization of  customer contracts acquired                                                                                |       | —             |       | —              |       | (634             | )          | —           |       | (634             | )          |
| Equity in  operations of consolidated subsidiaries                                                                          |       | 97,288             |       | —              |       | —           |       | (97,288          | )          | —           |       |
| Changes in  assets and liabilities, net of effects of acquisitions                                                          |       |               |       |                |       |             |       |             |       |             |       |
| Restricted cash                                                                                                             |       | —             |       | —              |       | (74,781          | )          | —           |       | (74,781          | )          |
| Accounts  receivable                                                                                                        |       | (18,944            | )          | (28                 | )          | 40,103           |       | 18,944           |       | 40,075           |       |
| Natural gas  inventories                                                                                                    |       | —             |       | —              |       | 36,509           |       | —           |       | 36,509           |       |
| Income taxes  receivable                                                                                                    |       | 1,063              |       | —              |       | 1,063            |       | (1,063           | )          | 1,063            |       |
| Option Premiums                                                                                                             |       | —             |       | —              |       | 1,571            |       | —           |       | 1,571            |       |
| Other assets                                                                                                                |       | (1,278             | )          | 350                 |       | (19,581          | )          | —           |       | (20,509          | )          |
| Accounts  payable, accrued commodity purchases and accrued liabilities                                                      |       | (974               | )          | (825                | )          | (46,236          | )          | 1,482            |       | (46,553          | )          |
| Deferred revenue                                                                                                            |       | —             |       | —              |       | (3,164           | )          | —           |       | (3,164           | )          |
| Net cash (used  in) provided by operating activities                                                                        |       | (19,352            | )          | (767                | )          | (47,372          | )          | 19,363           |       | (48,128          | )          |
|                                                                                                                        |       |               |       |                |       |             |       |             |       |             |       |
| **Investing  activities:**                                                                                                  |       |               |       |                |       |             |       |             |       |             |       |
| Long-term  investments                                                                                                      |       | 19,363             |       | —              |       | —           |       | (19,363          | )          | —           |       |
| Purchase of  Catalyst assets                                                                                                |       | —             |       | —              |       | (1,609           | )          | —           |       | (1,609           | )          |
| Customer  acquisition costs                                                                                                 |       | —             |       | 59                  |       | (15,402          | )          | —           |       | (15,343          | )          |
| Purchases of  fixed assets                                                                                                  |       | —             |       | —              |       | (1,001           | )          | —           |       | (1,001           | )          |
| Net cash  provided by (used in) investing activities                                                                        |       | 19,363             |       | 59                  |       | (18,012          | )          | (19,363          | )          | (17,953          | )          |
|                                                                                                                        |       |               |       |                |       |             |       |             |       |             |       |
| **Financing  activities:**                                                                                                  |       |               |       |                |       |             |       |             |       |             |       |
| Proceeds from  Denham Credit Facility                                                                                       |       | —             |       | —              |       | 12,000           |       | —           |       | 12,000           |       |
| Proceeds from  cash advances under Revolving Credit Facility                                                                |       | —             |       | —              |       | 30,000           |       | —           |       | 30,000           |       |
| Repayment of  cash advances under Revolving Credit Facility                                                                 |       | —             |       | —              |       | (30,000          | )          | —           |       | (30,000          | )          |
| Proceeds from  Revolving Credit Facility Bridge Financing)                                                                  |       | —             |       | —              |       | 10,400           |       | —           |       | 10,400           |       |
| Repurchase of  Revolving Credit Facility Bridge Financing                                                                   |       | —             |       | —              |       | (5,000           | )          | —           |       | (5,000           | )          |
| Purchase and  cancellation of treasury shares, net of tax benefit                                                           |       | (11                | )          | —              |       | —           |       | —           |       | (11              | )          |
| Net cash  provided by financing activities                                                                                  |       | (11                | )          | —              |       | 17,400           |       | —           |       | 17,389           |       |
|                                                                                                                        |       |               |       |                |       |             |       |             |       |             |       |
| Net decrease in  cash and cash equivalents                                                                                  |       | —             |       | (708                | )          | (47,984          | )          | —           |       | (48,692          | )          |
| Cash and cash  equivalents at beginning of period                                                                           |       | —             |       | 970                 |       | 70,988           |       | —           |       | 71,958           |       |
| Cash and cash  equivalents at end of period                                                                                 |       | $                  | —     |                | $          | 262              |       | $                | 23,004     |             | $          | — |   | $ | 23,266 |   |

 

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**MXENERGYHOLDINGS INC.**

**ConsolidatingStatement of Cash Flows**

**YearEnded June 30, 2008**

**(dollarsin thousands)**

 
| ** **                                                                                                                 | ** ** | **MXenergy**       | ** ** | **Non-  Guarantor** | ** ** | **Guarantor**    | ** ** | ** **       | ** ** | ** **       | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|---------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                                                 | ** ** | **Holdings  Inc.** | ** ** | **Subsidiary**      | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| **Operating activities:**                                                                                                  |       |               |       |                |       |             |       |             |       |             |       |
| Net income (loss)                                                                                                          |       | $                  | 24,793     |                | $          | (36              | )          | $                | 27,620     |             | $          | (27,584 | ) | $ | 24,793 |   |
| Adjustments to reconcile net income (loss) to net cash (used in)  provided by operating activities:                        |       |               |       |                |       |             |       |             |       |             |       |
| Unrealized losses (gains) from risk management activities                                                                  |       | —             |       | —              |       | (67,168          | )          | —           |       | (67,168          | )          |
| Stock compensation expense                                                                                                 |       | —             |       | —              |       | 1,704            |       | —           |       | 1,704            |       |
| Depreciation and amortization                                                                                              |       | —             |       | 36                  |       | 32,662           |       | —           |       | 32,698           |       |
| Deferred income tax expense (benefit)                                                                                      |       | —             |       | —              |       | 18,187           |       | —           |       | 18,187           |       |
| Non-cash interest expense, primarily unrealized losses on interest  rate swaps and amortization of deferred financing fees |       | 3,290              |       | —              |       | 7,546            |       | —           |       | 10,836           |       |
| Amortization of customer contracts acquired                                                                                |       | —             |       | —              |       | (762             | )          | —           |       | (762             | )          |
| Equity in operations of consolidated subsidiaries                                                                          |       | (27,584            | )          | —              |       | —           |       | 27,584           |       | —           |       |
| Changes in assets and liabilities, net of effects of acquisition:                                                          |       |               |       |                |       |             |       |             |       |             |       |
| Restricted cash                                                                                                            |       | —             |       | —              |       | 463              |       | —           |       | 463              |       |
| Accounts receivable                                                                                                        |       | (98,687            | )          | 93                  |       | (30,274          | )          | 98,687           |       | (30,181          | )          |
| Natural gas inventories                                                                                                    |       | —             |       | —              |       | (7,308           | )          | —           |       | (7,308           | )          |
| Income taxes receivable                                                                                                    |       | (7,173             | )          | —              |       | (7,173           | )          | 7,173            |       | (7,173           | )          |
| Option premiums                                                                                                            |       | —             |       | —              |       | 1,191            |       | —           |       | 1,191            |       |
| Other assets                                                                                                               |       | 1,343              |       | (194                | )          | (540             | )          | —           |       | 609              |       |
| Accounts payable, accrued commodity purchases and accrued liabilities                                                      |       | 20,330             |       | 981                 |       | (3,429           | )          | —           |       | 17,882           |       |
| Deferred revenue                                                                                                           |       | —             |       | —              |       | (4,352           | )          | —           |       | (4,352           | )          |
| Net cash (used in) provided by operating activities                                                                        |       | (83,688            | )          | 880                 |       | (31,633          | )          | 105,860          |       | (8,581           | )          |
|                                                                                                                       |       |               |       |                |       |             |       |             |       |             |       |
| **Investing activities:**                                                                                                  |       |               |       |                |       |             |       |             |       |             |       |
| Long-term investments                                                                                                      |       | 105,860            |       | —              |       | —           |       | (105,860         | )          | —           |       |
| Loan to PS Energy Group Inc. related to purchase of GasKey                                                                 |       | —             |       | —              |       | (8,983           | )          | —           |       | (8,983           | )          |
| Cash received from PS Energy Group, Inc. for repayment of loan                                                             |       | —             |       | —              |       | 8,983            |       | —           |       | 8,983            |       |
| Purchase of GasKey assets                                                                                                  |       | —             |       | —              |       | (12,427          | )          | —           |       | (12,427          | )          |
| Customer acquisition costs                                                                                                 |       | —             |       | (47                 | )          | (19,508          | )          | —           |       | (19,555          | )          |
| Purchases of fixed assets                                                                                                  |       | —             |       | —              |       | (1,959           | )          | —           |       | (1,959           | )          |
| Net cash provided by (used in) investing activities                                                                        |       | 105,860            |       | (47                 | )          | (33,894          | )          | (105,860         | )          | (33,941          | )          |
|                                                                                                                       |       |               |       |                |       |             |       |             |       |             |       |
| **Financing activities:**                                                                                                  |       |               |       |                |       |             |       |             |       |             |       |
| Repayment of Denham Credit Facility                                                                                        |       | (11,040            | )          | —              |       | —           |       | —           |       | (11,040          | )          |
| Repurchase of senior notes                                                                                                 |       | (11,716            | )          | —              |       | (290             | )          | —           |       | (12,006          | )          |
| Issuance of common stock and exercise of warrants and options                                                              |       | 387                |       | —              |       | —           |       | —           |       | 387              |       |
| Issuance of common stock from other executive compensation                                                                 |       | 952                |       | —              |       | —           |       | —           |       | 952              |       |
| Purchase and cancellation of treasury shares, net of tax benefit                                                           |       | (755               | )          | —              |       | —           |       | —           |       | (755             | )          |
| Net cash used in financing activities                                                                                      |       | (22,172            | )          | —              |       | (290             | )          | —           |       | (22,462          | )          |
| Net increase (decrease) in cash                                                                                            |       | —             |       | 833                 |       | (65,817          | )          | —           |       | (64,984          | )          |
| Cash and cash equivalents at beginning of year                                                                             |       | —             |       | 137                 |       | 136,805          |       | —           |       | 136,942          |       |
| Cash and cash equivalents at end of year                                                                                   |       | $                  | —     |                | $          | 970              |       | $                | 70,988     |             | $          | — |   | $ | 71,958 |   |

 

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**MXENERGYHOLDINGS INC.**

**ConsolidatingStatement of Cash Flows**

**YearEnded June 30, 2007**

**(dollarsin thousands)**

 
| ** **                                                                                                                 | ** ** | **MXenergy**       | ** ** | **Non-  Guarantor** | ** ** | **Guarantor**    | ** ** | ** **       | ** ** | ** **       | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|---------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                                                 | ** ** | **Holdings  Inc.** | ** ** | **Subsidiary**      | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                                                                                       |       |               |       |                |       |             |       |             |       |             |       |
| **Operating activities:**                                                                                                  |       |               |       |                |       |             |       |             |       |             |       |
| Net (loss) income                                                                                                          |       | $                  | (13,798    | )                   | $          | (409             | )          | $                | (14,917    | )                | $          | 15,326 |   | $ | (13,798 | ) |
| Adjustments to reconcile net loss to net cash (used in) provided by  operating activities:                                 |       |               |       |                |       |             |       |             |       |             |       |
| Unrealized losses from risk management activities                                                                          |       | —             |       | —              |       | 17,079           |       | —           |       | 17,079           |       |
| Stock compensation expense                                                                                                 |       | —             |       | —              |       | 4,539            |       | —           |       | 4,539            |       |
| Depreciation and amortization                                                                                              |       | —             |       | 91                  |       | 27,639           |       | —           |       | 27,730           |       |
| Deferred income tax benefit                                                                                                |       | —             |       | —              |       | (14,449          | )          | —           |       | (14,449          | )          |
| Non-cash interest expense, primarily unrealized losses on interest  rate swaps and amortization of deferred financing fees |       | (3,144             | )          | —              |       | 11,050           |       | —           |       | 7,906            |       |
| Amortization of customer contracts acquired                                                                                |       | —             |       | —              |       | 11,891           |       | —           |       | 11,891           |       |
| Equity in operations of consolidated subsidiaries                                                                          |       | 15,326             |       | —              |       | —           |       | (15,326          | )          | —           |       |
| Changes in assets and liabilities, net of effects of acquisition:                                                          |       |               |       |                |       |             |       |             |       |             |       |
| Restricted cash                                                                                                            |       | —             |       | —              |       | (623             | )          | —           |       | (623             | )          |
| Accounts receivable, net                                                                                                   |       | (208,155           | )          | (147                | )          | 177,964          |       | 33,791           |       | 3,453            |       |
| Natural gas inventories                                                                                                    |       | —             |       | —              |       | (1,712           | )          | —           |       | (1,712           | )          |
| Income taxes receivable                                                                                                    |       | 5,184              |       | —              |       | 5,184            |       | (5184            | )          | 5,184            |       |
| Option premiums                                                                                                            |       | —             |       | —              |       | 1,835            |       | —           |       | 1,835            |       |
| Other assets                                                                                                               |       | (1,627             | )          | (69                 | )          | 703              |       | —           |       | (993             | )          |
| Accounts payable, accrued commodity purchases and accrued liabilities                                                      |       | 14,177             |       | 620                 |       | 41,646           |       | (24,888          | )          | 31,555           |       |
| Deferred revenue                                                                                                           |       | —             |       | —              |       | 9,384            |       | —           |       | 9,384            |       |
| Net cash (used in) provided by operating activities                                                                        |       | (192,037           | )          | 86                  |       | 277,213          |       | 3,719            |       | 88,981           |       |
|                                                                                                                       |       |               |       |                |       |             |       |             |       |             |       |
| **Investing activities:**                                                                                                  |       |               |       |                |       |             |       |             |       |             |       |
| Long-term investments                                                                                                      |       | 3,719              |       | —              |       | —           |       | (3,719           | )          | —           |       |
| Purchase of SESCo assets                                                                                                   |       | —             |       | —              |       | (126,044         | )          | —           |       | (126,044         | )          |
| Deposit and capitalized costs related to purchase of SESCo assets                                                          |       | 3,348              |       | —              |       | —           |       | —           |       | 3,348            |       |
| Purchase of Vantage assets                                                                                                 |       | —             |       | —              |       | (732             | )          | —           |       | (732             | )          |
| Customer acquisition costs                                                                                                 |       | —             |       | (95                 | )          | (7,515           | )          | —           |       | (7,610           | )          |
| Purchases of fixed assets                                                                                                  |       | —             |       | —              |       | (1,882           | )          | —           |       | (1,882           | )          |
| Net cash used in investing activities                                                                                      |       | 7,067              |       | (95                 | )          | (136,173         | )          | (3,719           | )          | (132,920         | )          |
|                                                                                                                       |       |               |       |                |       |             |       |             |       |             |       |
| **Financing activities:**                                                                                                  |       |               |       |                |       |             |       |             |       |             |       |
| Proceeds from Denham Credit Facility                                                                                       |       | 11,040             |       | —              |       | 12,000           |       | —           |       | 23,040           |       |
| Repayment of Denham Credit Facility                                                                                        |       | —             |       | —              |       | (12,000          | )          | —           |       | (12,000          | )          |
| Proceeds from loans                                                                                                        |       | —             |       | —              |       | 6,000            |       | —           |       | 6,000            |       |
| Repayments of loans                                                                                                        |       | —             |       | —              |       | (6,000           | )          | —           |       | (6,000           | )          |
| Debt financing costs                                                                                                       |       | —             |       | —              |       | (9,345           | )          | —           |       | (9,345           | )          |
| Proceeds from bridge loan                                                                                                  |       | —             |       | —              |       | 190,000          |       | —           |       | 190,000          |       |
| Repayment of bridge loan                                                                                                   |       | —             |       | —              |       | (190,000         | )          | —           |       | (190,000         | )          |
| Proceeds from Senior Notes                                                                                                 |       | 174,364            |       | —              |       | 10,886           |       | —           |       | 185,250          |       |
| Repurchase of Senior Notes                                                                                                 |       | —             |       | —              |       | (11,723          | )          | —           |       | (11,723          | )          |
| Issuance of common stock and exercise of warrants and options                                                              |       | 22                 |       | —              |       | —           |       | —           |       | 22               |       |
| Purchase and cancellation of treasury shares, net of tax benefit                                                           |       | (456               | )          | —              |       | —           |       | —           |       | (456             | )          |
| Net cash provided by financing activities                                                                                  |       | 184,970            |       | —              |       | (10,182          | )          | —           |       | 174,788          |       |
| Net (decrease) increase in cash and cash equivalents                                                                       |       | —             |       | (9                  | )          | 130,858          |       | —           |       | 130,849          |       |
| Cash and cash equivalents at beginning of year                                                                             |       | —             |       | 146                 |       | 5,947            |       | —           |       | 6,093            |       |
| Cash and cash equivalents at end of year                                                                                   |       | $                  | —     |                | $          | 137              |       | $                | 136,805    |             | $          | — |   | $ | 136,942 |   |

 

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** **

**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the Registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 
|                    |     | MXENERGY  HOLDINGS INC. |
|-------------------------|----------|------------------------------|
|                    |     |                         |   |
| Date: July 8, 2010 |     |                         |   |
|                    |     | By:                          | /s/ JEFFREY A.  MAYER |   |
|                    |     |                         | Jeffrey A. Mayer |   |
| * *                | * * | * *                     | *President  and Chief Executive Officer* |   |

 

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**Index to Exhibits**

 
| **Exhibit  Number** | ** ** | **Title**                                                                                                                                             |
|---------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1                |       | Certification as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 *                                                            |
| 31.2                |       | Certification as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 *                                                            |
| 32                  |       | Certification required by 18 United States Code Section 1350,  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *† |
|                     |            |                                                                                                                                                       |  |  |

 

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| *      |   | Filed herewith.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| † |   | Pursuant to Securities and Exchange Commission Release No. 33-8238,  this certification will be treated as “accompanying” this Annual Report on Form 10-K  and not “filed” as part of such report for purposes of Section 18 of the  Securities Exchange Act of 1934, or otherwise subject to the liability of Section 18  of the Securities Exchange Act of 1934 and this certification will not be  deemed to be incorporated by reference into any filing under the Securities  Act of 1933 or the Securities Exchange Act of 1934, except to the extent that  the registrant specifically incorporates it by reference. |

 

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