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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-Q/A


(Amendment No. 2)


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 
|          
|           |  | For the quarterly period ended April 30, 2005                                               
|          
|OR        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to                                             

Commission File Number 001-32239


COMMERCE ENERGY GROUP, INC.


(Exact name of registrant as specified in its charter)





|                                                                                                    |  |                                         
|--------------------------------------------------------------------------------------------------- |  | ----------------------------------------
|Delaware                                                                                            |  | 20-0501090                              
|(State or other jurisdiction of
    incorporation or organization)                                  |  | (I.R.S. Employer
    Identification No.)
|                                                                                                   
|600 Anton Boulevard, Suite 2000,
    Costa Mesa, California(Address of principal executive offices) |  | 92626(Zip Code)                         

(714) 259-2500


(Registrants telephone number, including area code)


Not Applicable


(Former name, former address and former fiscal year, if
changed since last report)


þ o


o þ


o þ












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EXPLANATORY NOTE







Accounting for Derivative Instruments and
Hedging Activities
































|                                                     |                   |                    |        |       |                   |   |        |          |   |   |          |       |   |   |         |       |  
|---------------------------------------------------- | ----------------- | ------------------ | ------ | ----- | ----------------- | - | ------ | -------- | - | - | -------- | ----- | - | - | ------- | ----- | -
|                                                     |                   | Three Months Ended |        |       | Nine Months Ended |  
|                                                     |                   | April 30, 2005     |        |       | April 30, 2005    |  
|                                                     |                   |                    |        |       |                   |  
|                                                     |                   | Reported           |        |       | Restated          |   |        | Reported |   |   | Restated |      
|                                                     |                   |                    |        |       |                   |   |        |          |   |   |          |      
|Condensed Consolidated Statement of Operations Data: |                   |                    |        |       |                   |   |        |          |   |   |          |       |   |   |         |      
|Net revenue                                          |                   | $                  | 68,478 |       |                   | $ | 68,478 |          |   | $ | 188,022  |       |   | $ | 188,022 |      
|Direct energy costs                                  |                   |                    | 60,439 |       |                   |   | 60,767 |          |   |   | 163,871  |       |   |   | 164,741 |      
|                                                     |                   |                    |        |       |                   |   |        |          |   |   |          |      
|Gross profit                                         |                   |                    | 8,039  |       |                   |   | 7,711  |          |   |   | 24,151   |       |   |   | 23,281  |      
|Net loss                                             |                   |                    | (993   | )     |                   |   | (1,319 | )        |   |   | (2,842   | )     |   |   | (3,709  | )    
|Net loss per common share:                           |                   |                    |        |       |                   |   |        |          |   |   |          |       |   |   |         |      
|                                                     | Basic and diluted |                    |        | (0.03 | )                 |   |        | (0.04    | ) |   |          | (0.09 | ) |   |         | (0.12 | )







|                                           |  |                |         |   |          |   |         | 
|------------------------------------------ |  | -------------- | ------- | - | -------- | - | ------- | 
|                                           |  | April 30, 2005 |        
|                                           |  |                |        
|                                           |  | Reported       |         |   | Restated |  
|                                           |  |                |         |   |          |  
|Condensed Consolidated Balance Sheet Data: |  |                |         |   |          |   |         | 
|Total assets                               |  | $              | 101,232 |   |          | $ | 101,232 | 
|Accrued liabilities                        |  |                | 6,311   |   |          |   | 6,459   | 
|Retained earnings                          |  |                | 10,724  |   |          |   | 9,857   | 
|Other comprehensive loss                   |  |                | (719    | ) |          |   |        | 
|Total stockholders equity                 |  |                | 72,426  |   |          |   | 72,374  | 














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COMMERCE ENERGY GROUP, INC.


FORM 10-Q/A


(Amendment No. 2)





Restated For the Period Ended April 30, 2005





Index





|                                   |  |                                                                                                    |    |                                                                                                                                |    |  |   | 
|---------------------------------- |  | -------------------------------------------------------------------------------------------------- | -- | ------------------------------------------------------------------------------------------------------------------------------ | -- |  | - | 
|                                   |  |                                                                                                    |    | Page                                                                                                                           |   
|                                   |  |                                                                                                    |    |                                                                                                                                |   
|PART I  FINANCIAL
    INFORMATION
|Item 1.                            |  | Financial Statements:                                                                              |    |                                                                                                                                |    | 
|                                   |  |                                                                                                    |    | Condensed Consolidated Statements of
    Operations for the three and nine months ended April 30,
    2004 and 2005 (Restated) |    |  | 2 | 
|                                   |  |                                                                                                    |    | Condensed Consolidated Balance Sheets as of
    July 31, 2004 and April 30, 2005 (Restated)                                    |    |  | 3 | 
|                                   |  |                                                                                                    |    | Condensed Consolidated Statements of Cash
    Flows for the nine months ended April 30, 2004 and 2005
    (Restated)           |    |  | 4 | 
|                                   |  |                                                                                                    |    | Restated Notes to Condensed Consolidated
    Financial Statements                                                              |    |  | 5 | 
|Item 2.                            |  | Restated Managements Discussion and
    Analysis of Financial Condition and Results of Operations |    |                                                                                                                                | 15 | 
|Item 3.                            |  | Quantitative and Qualitative Disclosures
    About Market Risk                                     |    |                                                                                                                                | 31 | 
|Item 4.                            |  | Restated Controls and Procedures                                                                   |    |                                                                                                                                | 31 | 
|PART II  OTHER
    INFORMATION   
|Item 6.                            |  | Exhibits                                                                                           |    |                                                                                                                                | 33 | 
|Signatures                         |  |                                                                                                    | 35 |                                                                                                                               
|EXHIBIT 31.1                      
|EXHIBIT 31.2                      
|EXHIBIT 32.1                      
|EXHIBIT 32.2                      






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FORWARD-LOOKING INFORMATION












| |   |                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | regulatory changes in the states in which we operate that could
    adversely affect our operations;                                                                                                                                                                                              
|
| |  | our continued ability to obtain and maintain licenses from the
    states in which we operate;                                                                                                                                                                                                    
|
| |  | the competitive restructuring of retail marketing may prevent us
    from selling electricity and natural gas in certain states;                                                                                                                                                                  
|
| |  | our dependence upon a limited number of third parties to
    generate and supply to us electricity and natural gas;                                                                                                                                                                               
|
| |  | fluctuations in market prices for electricity and natural gas;                                                                                                                                                                                                                                    
|
| |  | a decision by electricity and natural gas utilities not to raise
    rates proportionately to higher electricity and natural gas
    costs, thereby adversely affecting our profitability;                                                                                                        
|
| |  | our ability to successfully integrate the businesses that we
    acquire;                                                                                                                                                                                                                         
|
| |  | our ability to successfully enter and compete in new electricity
    and natural gas markets that we enter;                                                                                                                                                                                       
|
| |  | seasonal weather or force majeure events that adversely impact
    electricity and natural gas supply and infrastructure could
    prevent us from competitively servicing customers and meeting
    demand requirements in each of the states where we operate;                                  
|
| |  | our dependence on the Independent System Operators in each of
    the states where we operate, to properly coordinate and manage
    their electric grids, and to accurately and timely calculate and
    allocate the charges to the participants for the numerous
    related services provided;
|
| |  | our ability to obtain credit necessary to support future growth
    and profitability; and                                                                                                                                                                                                        
|
| |  | our dependence upon a limited number of local electric and
    natural gas utilities to transmit and distribute the electricity
    and natural gas we sell to our customers.                                                                                                                     



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PART I  FINANCIAL INFORMATION







|        |                      
|------- | ---------------------
|Item 1. | Financial Statements.

COMMERCE ENERGY GROUP, INC.





CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(In thousands, except per share amounts)


(Unaudited)





|                                                   |                                         |                    |        |            |                   |   |        |       |            |   |         |        |   |   |         |        |  
|-------------------------------------------------- | --------------------------------------- | ------------------ | ------ | ---------- | ----------------- | - | ------ | ----- | ---------- | - | ------- | ------ | - | - | ------- | ------ | -
|                                                   |                                         | Three Months Ended |        |            | Nine Months Ended |  
|                                                   |                                         | April 30,          |        |            | April 30,         |  
|                                                   |                                         |                    |        |            |                   |  
|                                                   |                                         | 2004               |        |            | 2005              |   |        | 2004  |            |   | 2005    |       
|                                                   |                                         |                    |        |            |                   |   |        |       |            |   |         |       
|                                                   |                                         |                    |        | (Restated) |                   |   |        |       | (Restated) |  
|Net revenue                                        |                                         | $                  | 48,521 |            |                   | $ | 68,478 |       |            | $ | 153,955 |        |   | $ | 188,022 |       
|Direct energy costs                                |                                         |                    | 42,799 |            |                   |   | 60,767 |       |            |   | 140,657 |        |   |   | 164,741 |       
|                                                   |                                         |                    |        |            |                   |   |        |       |            |   |         |       
|Gross profit                                       |                                         |                    | 5,722  |            |                   |   | 7,711  |       |            |   | 13,298  |        |   |   | 23,281  |       
|Selling and marketing expenses                     |                                         |                    | 1,171  |            |                   |   | 1,075  |       |            |   | 3,149   |        |   |   | 2,791   |       
|General and administrative expenses                |                                         |                    | 7,033  |            |                   |   | 8,176  |       |            |   | 18,758  |        |   |   | 23,224  |       
|Reorganization and initial public listing expenses |                                         |                    | 1,015  |            |                   |   |       |       |            |   | 1,783   |        |   |   |        |       
|                                                   |                                         |                    |        |            |                   |   |        |       |            |   |         |       
|Loss from operations                               |                                         |                    | (3,497 | )          |                   |   | (1,540 | )     |            |   | (10,392 | )      |   |   | (2,734  | )     
|Other income and expenses:                         |                                         |                    |        |            |                   |   |        |       |            |   |         |        |   |   |         |       
|                                                   | Initial formation litigation expenses   |                    |        | (407       | )                 |   |        |      |            |   |         | (992   | ) |   |         | (1,601 | )
|                                                   | Provision for impairment on investments |                    |        | (1,753     | )                 |   |        |      |            |   |         | (6,066 | ) |   |         |       |  
|                                                   | Provision for termination of Summit     |                    |        | (1,904     | )                 |   |        |      |            |   |         | (1,904 | ) |   |         |       |  
|                                                   | Minority interest share of loss         |                    |        | 290        |                   |   |        |      |            |   |         | 1,185  |   |   |         |       |  
|                                                   | Interest income, net                    |                    |        | 119        |                   |   |        | 221   |            |   |         | 400    |   |   |         | 626    |  
|                                                   |                                         |                    |        |            |                   |   |        |       |            |   |         |       
|Total other income and expenses                    |                                         |                    | (3,655 | )          |                   |   | 221    |       |            |   | (7,377  | )      |   |   | (975    | )     
|                                                   |                                         |                    |        |            |                   |   |        |       |            |   |         |       
|Loss before benefit from income taxes              |                                         |                    | (7,152 | )          |                   |   | (1,319 | )     |            |   | (17,769 | )      |   |   | (3,709  | )     
|Benefit from income taxes                          |                                         |                    | (1,558 | )          |                   |   |       |       |            |   | (3,400  | )      |   |   |        |       
|                                                   |                                         |                    |        |            |                   |   |        |       |            |   |         |       
|Net loss                                           |                                         | $                  | (5,594 | )          |                   | $ | (1,319 | )     |            | $ | (14,369 | )      |   | $ | (3,709  | )     
|                                                   |                                         |                    |        |            |                   |   |        |       |            |   |         |       
|Loss per common share:                             |                                         |                    |        |            |                   |   |        |       |            |   |         |        |   |   |         |       
|                                                   | Basic                                   |                    | $      | (0.20      | )                 |   | $      | (0.04 | )          |   | $       | (0.52  | ) |   | $       | (0.12  | )
|                                                   |                                         |                    |        |            |                   |   |        |       |            |   |         |       
|                                                   | Diluted                                 |                    | $      | (0.20      | )                 |   | $      | (0.04 | )          |   | $       | (0.52  | ) |   | $       | (0.12  | )
|                                                   |                                         |                    |        |            |                   |   |        |       |            |   |         |       






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COMMERCE ENERGY GROUP, INC.





CONDENSED CONSOLIDATED BALANCE SHEETS


(In thousands)





|                                      |                                                                                                                                                                               |                                            |       |             |                |  |        |        |         | 
|------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----- | ----------- | -------------- |  | ------ | ------ | ------- | 
|                                      |                                                                                                                                                                               | July 31, 2004                              |       |             | April 30, 2005 | 
|                                      |                                                                                                                                                                               |                                            |       |             |                | 
|                                      |                                                                                                                                                                               |                                            |       | (Unaudited) |               
|                                      |                                                                                                                                                                               |                                            |       | (Restated)  |               
|ASSETS                               
|Current assets:                       |                                                                                                                                                                               |                                            |       |             |                |  |        |       
|                                      | Cash and cash equivalents                                                                                                                                                     |                                            | $     | 54,065      |                |  | $      | 36,092 |        
|                                      | Accounts receivable, net                                                                                                                                                      |                                            |       | 31,119      |                |  |        | 27,475 |        
|                                      | Income taxes refund receivable                                                                                                                                                |                                            |       | 4,423       |                |  |        |       |        
|                                      | Deferred income tax asset                                                                                                                                                     |                                            |       | 74          |                |  |        |       |        
|                                      | Inventory                                                                                                                                                                     |                                            |       |            |                |  |        | 1,528  |        
|                                      | Prepaid expenses and other current assets                                                                                                                                     |                                            |       | 5,141       |                |  |        | 4,054  |        
|                                      |                                                                                                                                                                               |                                            |       |             |                | 
|                                      |                                                                                                                                                                               | Total current assets                       |       |             | 94,822         |  |        |        | 69,149  | 
|Restricted cash and cash equivalents  |                                                                                                                                                                               |                                            | 4,008 |             |                |  | 8,448  |       
|Deposits                              |                                                                                                                                                                               |                                            | 5,445 |             |                |  | 9,357  |       
|Property and equipment, net           |                                                                                                                                                                               |                                            | 2,613 |             |                |  | 2,283  |       
|Goodwill, intangible and other assets |                                                                                                                                                                               |                                            | 3,935 |             |                |  | 11,995 |       
|                                      |                                                                                                                                                                               |                                            |       |             |                | 
|                                      |                                                                                                                                                                               | Total assets                               |       | $           | 110,823        |  |        | $      | 101,232 | 
|                                      |                                                                                                                                                                               |                                            |       |             |                | 
|                                     
|LIABILITIES AND STOCKHOLDERS EQUITY 
|Current liabilities:                  |                                                                                                                                                                               |                                            |       |             |                |  |        |       
|                                      | Accounts payable                                                                                                                                                              |                                            | $     | 30,576      |                |  | $      | 22,495 |        
|                                      | Accrued liabilities                                                                                                                                                           |                                            |       | 6,141       |                |  |        | 6,459  |        
|                                      |                                                                                                                                                                               |                                            |       |             |                | 
|                                      |                                                                                                                                                                               | Total current liabilities                  |       |             | 36,717         |  |        |        | 28,954  | 
|Stockholders equity:                 |                                                                                                                                                                               |                                            |       |             |                |  |        |       
|                                      | Common stock - 150,000 shares authorized with
    $0.001 par value; 30,519 and 31,433 shares issued and
    outstanding at July 31, 2004 and April 30, 2005,
    respectively |                                            |       | 60,796      |                |  |        | 62,605 |        
|                                      | Unearned restricted stock compensation                                                                                                                                        |                                            |       | (256        | )              |  |        | (184   | )      
|                                      | Retained earnings                                                                                                                                                             |                                            |       | 13,566      |                |  |        | 9,857  |        
|                                      |                                                                                                                                                                               |                                            |       |             |                | 
|                                      |                                                                                                                                                                               | Total stockholders equity                 |       |             | 74,106         |  |        |        | 72,278  | 
|                                      |                                                                                                                                                                               |                                            |       |             |                | 
|                                      |                                                                                                                                                                               | Total liabilities and stockholders equity |       | $           | 110,823        |  |        | $      | 101,232 | 
|                                      |                                                                                                                                                                               |                                            |       |             |                | 






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COMMERCE ENERGY GROUP, INC.





CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)


(Unaudited)





|                                                                                              |                                                        |                                   |         |            |        |   |         |       |         |  
|--------------------------------------------------------------------------------------------- | ------------------------------------------------------ | --------------------------------- | ------- | ---------- | ------ | - | ------- | ----- | ------- | -
|                                                                                              |                                                        | Nine Months Ended                 |        
|                                                                                              |                                                        | April 30,                         |        
|                                                                                              |                                                        |                                   |        
|                                                                                              |                                                        | 2004                              |         |            | 2005   |  
|                                                                                              |                                                        |                                   |         |            |        |  
|                                                                                              |                                                        |                                   |         | (Restated) |       
|Cash Flows From Operating Activities                                                          |                                                        |                                   |         |            |        |   |         |      
|Net loss                                                                                      |                                                        | $                                 | (14,369 | )          |        | $ | (3,709  | )    
|Adjustments to reconcile net loss to net cash provided by (used
    in) operating activities: |                                                        |                                   |         |            |        |   |         |      
|                                                                                              | Depreciation                                           |                                   |         | 1,142      |        |   |         | 1,001 |        
|                                                                                              | Amortization                                           |                                   |         | 201        |        |   |         | 804   |        
|                                                                                              | Provision for doubtful accounts                        |                                   |         | 1,585      |        |   |         | 2,502 |        
|                                                                                              | Impairment of Summit investments                       |                                   |         | 6,596      |        |   |         | 5     |        
|                                                                                              | Termination of Summit                                  |                                   |         | 1,904      |        |   |         |      |        
|                                                                                              | Loss on equity investments                             |                                   |         | 800        |        |   |         |      |        
|                                                                                              | Stock-based compensation expense                       |                                   |         |           |        |   |         | 72    |        
|                                                                                              | Minority interest share of loss of consolidated entity |                                   |         | 140        |        |   |         |      |        
|                                                                                              | Deferred income tax provision                          |                                   |         |           |        |   |         | 74    |        
|                                                                                              | Changes in operating assets and liabilities:           |                                   |         |            |        |   |         |       |        
|                                                                                              |                                                        | Accounts receivable, net          |         |            | 12,377 |   |         |       | 1,209   |  
|                                                                                              |                                                        | Prepaid expenses and other assets |         |            | (6,167 | ) |         |       | 4,399   |  
|                                                                                              |                                                        | Accounts payable                  |         |            | (3,319 | ) |         |       | (10,958 | )
|                                                                                              |                                                        | Accrued liabilities and other     |         |            | (1,168 | ) |         |       | 3,914   |  
|                                                                                              |                                                        |                                   |         |            |        |  
|Net cash used in operating activities                                                         |                                                        |                                   | (278    | )          |        |   | (687    | )    
|Cash Flows From Investing Activities                                                          |                                                        |                                   |         |            |        |   |         |      
|Purchase of property and equipment                                                            |                                                        |                                   | (830    | )          |        |   | (670    | )    
|Business acquisitions, net of cash acquired                                                   |                                                        |                                   | (43     | )          |        |   | (14,525 | )    
|                                                                                              |                                                        |                                   |         |            |        |  
|Net cash used in investing activities                                                         |                                                        |                                   | (873    | )          |        |   | (15,195 | )    
|Cash Flows From Financing Activities                                                          |                                                        |                                   |         |            |        |   |         |      
|Proceeds from exercise of stock options                                                       |                                                        |                                   | 194     |            |        |   | 50      |      
|Repurchase/ Cancellation of common stock                                                      |                                                        |                                   | (1      | )          |        |   | (252    | )    
|Sale of common stock                                                                          |                                                        |                                   | 294     |            |        |   | 10      |      
|Decrease (increase) in restricted cash and cash equivalents                                   |                                                        |                                   | 13,845  |            |        |   | (1,899  | )    
|                                                                                              |                                                        |                                   |         |            |        |  
|Net cash provided by (used in) financing activities                                           |                                                        |                                   | 14,332  |            |        |   | (2,091  | )    
|                                                                                              |                                                        |                                   |         |            |        |  
|Increase (decrease) in cash and cash equivalents                                              |                                                        |                                   | 13,181  |            |        |   | (17,973 | )    
|Cash and cash equivalents at beginning of period                                              |                                                        |                                   | 40,921  |            |        |   | 54,065  |      
|                                                                                              |                                                        |                                   |         |            |        |  
|Cash and cash equivalents at end of period                                                    |                                                        | $                                 | 54,102  |            |        | $ | 36,092  |      
|                                                                                              |                                                        |                                   |         |            |        |  






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COMMERCE ENERGY GROUP, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Dollars in thousands, except per share amounts)




|   |                                           
|-- | ------------------------------------------
|1. | Summary of Significant Accounting Policies



| |                      
| | ---------------------
| | Basis of Presentation

electricAmerica






| |                                                                       
| | ----------------------------------------------------------------------
| | Preparation of Interim Condensed Consolidated Financial
    Statements





| |                  
| | -----------------
| | Uses of Estimates



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COMMERCE ENERGY GROUP, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Dollars in thousands, except per share amounts)




| |                    
| | -------------------
| | Revenue Recognition



|                         |                         |                    |        |        |                   |   |        |        |  |   |         |         |  |   |         |         | 
|------------------------ | ----------------------- | ------------------ | ------ | ------ | ----------------- | - | ------ | ------ |  | - | ------- | ------- |  | - | ------- | ------- | 
|                         |                         | Three Months Ended |        |        | Nine Months Ended |  
|                         |                         | April 30,          |        |        | April 30,         |  
|                         |                         |                    |        |        |                   |  
|                         |                         | 2004               |        |        | 2005              |   |        | 2004   |  |   | 2005    |        
|                         |                         |                    |        |        |                   |   |        |        |  |   |         |        
|Retail electricity sales |                         | $                  | 46,855 |        |                   | $ | 44,754 |        |  | $ | 149,036 |         |  | $ | 142,251 |        
|Excess energy sales      |                         |                    | 1,666  |        |                   |   | 5,695  |        |  |   | 4,919   |         |  |   | 27,742  |        
|                         |                         |                    |        |        |                   |   |        |        |  |   |         |        
|                         | Total electricity sales |                    |        | 48,521 |                   |   |        | 50,449 |  |   |         | 153,955 |  |   |         | 169,993 | 
|Retail natural gas sales |                         |                    |       |        |                   |   | 18,029 |        |  |   |        |         |  |   | 18,029  |        
|                         |                         |                    |        |        |                   |   |        |        |  |   |         |        
|                         | Net revenue             |                    | $      | 48,521 |                   |   | $      | 68,478 |  |   | $       | 153,955 |  |   | $       | 188,022 | 
|                         |                         |                    |        |        |                   |   |        |        |  |   |         |        





| |                         
| | ------------------------
| | Stock-Based Compensation

Accounting for Stock Issued to
Employees




|                                                                                                                                           |                       |                    |        |       |                   |   |        |       |   |   |         |       |   |   |        |       |  
|------------------------------------------------------------------------------------------------------------------------------------------ | --------------------- | ------------------ | ------ | ----- | ----------------- | - | ------ | ----- | - | - | ------- | ----- | - | - | ------ | ----- | -
|                                                                                                                                           |                       | Three Months Ended |        |       | Nine Months Ended |  
|                                                                                                                                           |                       | April 30,          |        |       | April 30,         |  
|                                                                                                                                           |                       |                    |        |       |                   |  
|                                                                                                                                           |                       | 2004               |        |       | 2005              |   |        | 2004  |   |   | 2005    |      
|                                                                                                                                           |                       |                    |        |       |                   |   |        |       |   |   |         |      
|Net loss as applicable to common stock  basic and
    diluted                                                                             |                       | $                  | (5,621 | )     |                   | $ | (1,319 | )     |   | $ | (14,447 | )     |   | $ | (3,709 | )    
|Deduct: Total stock-based compensation expense determined under
    fair value based method for all awards, net of related tax
    effects |                       |                    | (8     | )     |                   |   | (49    | )     |   |   | (101    | )     |   |   | (59    | )    
|                                                                                                                                           |                       |                    |        |       |                   |   |        |       |   |   |         |      
|Pro forma net loss  basic and diluted                                                                                                     |                       | $                  | (5,629 | )     |                   | $ | (1,368 | )     |   | $ | (14,548 | )     |   | $ | (3,768 | )    
|                                                                                                                                           |                       |                    |        |       |                   |   |        |       |   |   |         |      
|Loss per share: Basic  as reported                                                                                                        |                       | $                  | (0.20  | )     |                   | $ | (0.04  | )     |   | $ | (0.52   | )     |   | $ | (0.12  | )    
|                                                                                                                                           |                       |                    |        |       |                   |   |        |       |   |   |         |      
|                                                                                                                                           | Basic  pro forma     |                    | $      | (0.20 | )                 |   | $      | (0.04 | ) |   | $       | (0.52 | ) |   | $      | (0.12 | )
|                                                                                                                                           |                       |                    |        |       |                   |   |        |       |   |   |         |      
|                                                                                                                                           | Diluted  as reported |                    | $      | (0.20 | )                 |   | $      | (0.04 | ) |   | $       | (0.52 | ) |   | $      | (0.12 | )
|                                                                                                                                           |                       |                    |        |       |                   |   |        |       |   |   |         |      
|                                                                                                                                           | Diluted  pro forma   |                    | $      | (0.20 | )                 |   | $      | (0.04 | ) |   | $       | (0.52 | ) |   | $      | (0.12 | )
|                                                                                                                                           |                       |                    |        |       |                   |   |        |       |   |   |         |      

6



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##### Table of Contents



COMMERCE ENERGY GROUP, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Dollars in thousands, except per share amounts)




| |                  
| | -----------------
| | Segment Reporting







| |                         
| | ------------------------
| | Accounts Receivable, Net



|                                     |  |          |        |   |           |   |        |  
|------------------------------------ |  | -------- | ------ | - | --------- | - | ------ | -
|                                     |  | July 31, |        |   | April 30, |  
|                                     |  | 2004     |        |   | 2005      |  
|                                     |  |          |        |   |           |  
|Billed                               |  | $        | 21,777 |   |           | $ | 22,842 |  
|Unbilled                             |  |          | 12,535 |   |           |   | 9,925  |  
|                                     |  |          |        |   |           |  
|                                     |  | $        | 34,312 |   |           | $ | 32,767 |  
|Less allowance for doubtful accounts |  |          | (3,193 | ) |           |   | (5,292 | )
|                                     |  |          |        |   |           |  
|Accounts receivable, net             |  | $        | 31,119 |   |           | $ | 27,475 |  
|                                     |  |          |        |   |           |  



| |          
| | ---------
| | Inventory





|   |                                                 
|-- | ------------------------------------------------
|2. | Basic and Diluted Income (Loss) per Common Share





|                                                        |  |                    |        |   |                   |   |        |      |  |   |         |   |  |   |        |  
|------------------------------------------------------- |  | ------------------ | ------ | - | ----------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                                                        |  | Three Months Ended |        |   | Nine Months Ended |  
|                                                        |  | April 30,          |        |   | April 30,         |  
|                                                        |  |                    |        |   |                   |  
|                                                        |  | 2004               |        |   | 2005              |   |        | 2004 |  |   | 2005    |  
|                                                        |  |                    |        |   |                   |   |        |      |  |   |         |  
|Numerator:                                              |  |                    |        |   |                   |   |        |      |  |   |         |   |  |   |        |  
|Net loss                                                |  | $                  | (5,594 | ) |                   | $ | (1,319 | )    |  | $ | (14,369 | ) |  | $ | (3,709 | )
|Deduct: Preferred stock dividends                       |  |                    | (27    | ) |                   |   |       |      |  |   | (78     | ) |  |   |       |  
|                                                        |  |                    |        |   |                   |   |        |      |  |   |         |  
|Net loss applicable to common stock  basic and diluted |  | $                  | (5,621 | ) |                   | $ | (1,319 | )    |  | $ | (14,447 | ) |  | $ | (3,709 | )
|                                                        |  |                    |        |   |                   |   |        |      |  |   |         |  

7



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##### Table of Contents



COMMERCE ENERGY GROUP, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Dollars in thousands, except per share amounts)


|                                                     |  |                    |        |  |                   |  |        |      |  |  |        |  |  |  |        | 
|---------------------------------------------------- |  | ------------------ | ------ |  | ----------------- |  | ------ | ---- |  |  | ------ |  |  |  | ------ | 
|                                                     |  | Three Months Ended |        |  | Nine Months Ended | 
|                                                     |  | April 30,          |        |  | April 30,         | 
|                                                     |  |                    |        |  |                   | 
|                                                     |  | 2004               |        |  | 2005              |  |        | 2004 |  |  | 2005   | 
|                                                     |  |                    |        |  |                   |  |        |      |  |  |        | 
|Denominator:                                         |  |                    |        |  |                   |  |        |      |  |  |        |  |  |  |        | 
|Weighted-average outstanding common shares  basic   |  |                    | 28,174 |  |                   |  | 31,199 |      |  |  | 27,856 |  |  |  | 30,799 | 
|Effect of stock options                              |  |                    |       |  |                   |  |       |      |  |  |       |  |  |  |       | 
|                                                     |  |                    |        |  |                   |  |        |      |  |  |        | 
|Weighted-average outstanding common shares  diluted |  |                    | 28,174 |  |                   |  | 31,199 |      |  |  | 27,856 |  |  |  | 30,799 | 
|                                                     |  |                    |        |  |                   |  |        |      |  |  |        | 





|   |                      
|-- | ---------------------
|3. | Market and Regulatory





| |            
| | -----------
| | Electricity



| |           
| | ----------
| | California









| |             
| | ------------
| | Pennsylvania





| |         
| | --------
| | Michigan



8



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##### Table of Contents



COMMERCE ENERGY GROUP, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Dollars in thousands, except per share amounts)




| |           
| | ----------
| | New Jersey





| |      
| | -----
| | Texas





| |            
| | -----------
| | Natural Gas





| |           
| | ----------
| | California





| |        
| | -------
| | Georgia







| |         
| | --------
| | Maryland







| |         
| | --------
| | New York





9



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##### Table of Contents



COMMERCE ENERGY GROUP, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Dollars in thousands, except per share amounts)






| |     
| | ----
| | Ohio







| |             
| | ------------
| | Pennsylvania







|   |            
|-- | -----------
|4. | Investments







|   |              
|-- | -------------
|5. | Contingencies



| |                       
| | ----------------------
| | Employment Settlements



10



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##### Table of Contents



COMMERCE ENERGY GROUP, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Dollars in thousands, except per share amounts)




| |                       
| | ----------------------
| | Regulatory Proceedings





| |           
| | ----------
| | Litigation





|   |            
|-- | -----------
|6. | Acquisition







11



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##### Table of Contents



COMMERCE ENERGY GROUP, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Dollars in thousands, except per share amounts)




|                                   |  |                    |        |   |                    |   |        |             |  |   |           |   |  |   |        |  
|---------------------------------- |  | ------------------ | ------ | - | ------------------ | - | ------ | ----------- |  | - | --------- | - |  | - | ------ | -
|                                   |  | Three Months Ended |        |   | Three Months Ended |  
|                                   |  | April 30, 2004     |        |   | April 30, 2005     |  
|                                   |  |                    |        |   |                    |  
|                                   |  | As Reported        |        |   | Pro Forma          |   |        | As Reported |  |   | Pro Forma |  
|                                   |  |                    |        |   |                    |   |        |             |  |   |           |  
|Net revenue                        |  | $                  | 48,521 |   |                    | $ | 76,485 |             |  | $ | 68,478    |   |  | $ | 68,478 |  
|Net loss                           |  | $                  | (5,594 | ) |                    | $ | (4,673 | )           |  | $ | (1,319    | ) |  | $ | (1,319 | )
|Loss per share  basic and diluted |  | $                  | (0.20  | ) |                    | $ | (0.16  | )           |  | $ | (0.04     | ) |  | $ | (0.04  | )

|                                   |  |                   |         |   |                   |   |         |             |  |   |           |   |  |   |         |  
|---------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | ----------- |  | - | --------- | - |  | - | ------- | -
|                                   |  | Nine Months Ended |         |   | Nine Months Ended |  
|                                   |  | April 30, 2004    |         |   | April 30, 2005    |  
|                                   |  |                   |         |   |                   |  
|                                   |  | As Reported       |         |   | Pro Forma         |   |         | As Reported |  |   | Pro Forma |  
|                                   |  |                   |         |   |                   |   |         |             |  |   |           |  
|Net revenue                        |  | $                 | 153,955 |   |                   | $ | 227,009 |             |  | $ | 188,022   |   |  | $ | 227,352 |  
|Net loss                           |  | $                 | (14,369 | ) |                   | $ | (13,575 | )           |  | $ | (3,709    | ) |  | $ | (3,220  | )
|Loss per share  basic and diluted |  | $                 | (0.52   | ) |                   | $ | (0.47   | )           |  | $ | (0.12     | ) |  | $ | (0.10   | )



|   |                                 
|-- | --------------------------------
|7. | Derivative Financial Instruments



Accounting for Derivative Instruments
and Hedging Activities.


12



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##### Table of Contents



COMMERCE ENERGY GROUP, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Dollars in thousands, except per share amounts)











|   |                                                     
|-- | ----------------------------------------------------
|8. | Restated Quarterly Financial Information (Unaudited)






| |                                                               
| | --------------------------------------------------------------
| | Restatement  Gain on Sale of Electricity Supply
    Contracts






|                                           |  |                  |        |  |                  |   |        |              |  |   |             |  |  |                |         |   |                |   |        |   |  |   |         |  
|------------------------------------------ |  | ---------------- | ------ |  | ---------------- | - | ------ | ------------ |  | - | ----------- |  |  | -------------- | ------- | - | -------------- | - | ------ | - |  | - | ------- | -
|                                           |  | Three Months     |        |  | Six Months       |   |        |              |  |  
|                                           |  | Ended            |        |  | Ended            |   |        |              |  |  
|                                           |  | January 31, 2005 |        |  | January 31, 2005 |   |        | Three Months |  |   | Nine Months | 
|                                           |  |                  |        |  |                  |   |        | Ended        |  |   | Ended       | 
|                                           |  | Reported         |        |  | Restated         |   |        | Reported     |  |   | Restated    |  |  | April 30, 2005 |         |   | April 30, 2005 |  
|                                           |  |                  |        |  |                  |   |        |              |  |   |             |  |  |                |         |   |                |  
|Net revenue                                |  | $                | 61,048 |  |                  | $ | 61,048 |              |  | $ | 119,545     |  |  | $              | 119,545 |   |                | $ | 68,478 |   |  | $ | 188,022 |  
|Direct energy costs                        |  |                  | 48,926 |  |                  |   | 51,026 |              |  |   | 101,333     |  |  |                | 103,433 |   |                |   | 60,439 |   |  |   | 163,871 |  
|                                           |  |                  |        |  |                  |   |        |              |  |   |             |  |  |                |         |   |                |  
|Gross profit                               |  |                  | 12,122 |  |                  |   | 10,022 |              |  |   | 18,212      |  |  |                | 16,112  |   |                |   | 8,039  |   |  |   | 24,151  |  
|Earnings (loss) from operations            |  | $                | 1,318  |  |                  | $ | (782   | )            |  | $ | 1,447       |  |  | $              | (653    | ) |                | $ | (1,212 | ) |  | $ | (1,864  | )
|Net income (loss)                          |  | $                | 1,371  |  |                  | $ | (729   | )            |  | $ | 252         |  |  | $              | (1,848  | ) |                | $ | (993   | ) |  | $ | (2,842  | )
|Earnings (loss) per common share  basic   |  | $                | 0.04   |  |                  | $ | (0.02  | )            |  | $ | 0.01        |  |  | $              | (0.06   | ) |                | $ | (0.03  | ) |  | $ | (0.09   | )
|                                           |  |                  |        |  |                  |   |        |              |  |   |             |  |  |                |         |   |                |  
|Earnings (loss) per common share  diluted |  | $                | 0.04   |  |                  | $ | (0.02  | )            |  | $ | 0.01        |  |  | $              | (0.06   | ) |                | $ | (0.03  | ) |  | $ | (0.09   | )
|                                           |  |                  |        |  |                  |   |        |              |  |   |             |  |  |                |         |   |                |  






| |                                         
| | ----------------------------------------
| | Restatement  Accounting for Derivatives









13



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##### Table of Contents



COMMERCE ENERGY GROUP, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Dollars in thousands, except per share amounts)





Accounting for Derivative Instruments and Hedging
Activities.
















|                                                     |  |                    |        |   |                    |   |        |                    |  |   |                   |   |  |          |        |   |          |   |        |          |  |   |          |   |  |   |         |   |  |   |         |  
|---------------------------------------------------- |  | ------------------ | ------ | - | ------------------ | - | ------ | ------------------ |  | - | ----------------- | - |  | -------- | ------ | - | -------- | - | ------ | -------- |  | - | -------- | - |  | - | ------- | - |  | - | ------- | -
|                                                     |  | Three Months Ended |        |   | Three Months Ended |   |        | Three Months Ended |  |   | Nine Months Ended |  
|                                                     |  | October 31, 2004   |        |   | January 31, 2005   |   |        | April 30, 2005     |  |   | April 30, 2005    |  
|                                                     |  |                    |        |   |                    |   |        |                    |  |   |                   |  
|                                                     |  | Reported           |        |   | Restated           |   |        | Reported           |  |   | Restated          |   |  | Reported |        |   | Restated |   |        | Reported |  |   | Restated |  
|                                                     |  |                    |        |   |                    |   |        |                    |  |   |                   |   |  |          |        |   |          |   |        |          |  |   |          |  
|Condensed Consolidated Statement of Operations Data: |  |                    |        |   |                    |   |        |                    |  |   |                   |   |  |          |        |   |          |   |        |          |  |   |          |   |  |   |         |   |  |   |         |  
|Net revenue                                          |  | $                  | 58,496 |   |                    | $ | 58,496 |                    |  | $ | 61,048            |   |  | $        | 61,048 |   |          | $ | 68,478 |          |  | $ | 68,478   |   |  | $ | 188,022 |   |  | $ | 188,022 |  
|Direct energy costs                                  |  |                    | 52,406 |   |                    |   | 51,335 |                    |  |   | 51,026            |   |  |          | 52,639 |   |          |   | 60,439 |          |  |   | 60,767   |   |  |   | 163,871 |   |  |   | 164,741 |  
|                                                     |  |                    |        |   |                    |   |        |                    |  |   |                   |   |  |          |        |   |          |   |        |          |  |   |          |  
|Gross profit                                         |  |                    | 6,090  |   |                    |   | 7,161  |                    |  |   | 10,022            |   |  |          | 8,409  |   |          |   | 8,039  |          |  |   | 7,711    |   |  |   | 24,151  |   |  |   | 23,281  |  
|Earnings (loss) from operations                      |  | $                  | 130    |   |                    | $ | 1,201  |                    |  | $ | (782              | ) |  | $        | (2,395 | ) |          | $ | (1,212 | )        |  | $ | (1,540   | ) |  | $ | (1,864  | ) |  | $ | (2,734  | )
|Net loss                                             |  | $                  | (1,120 | ) |                    | $ | (48    | )                  |  | $ | (729              | ) |  | $        | (2,342 | ) |          | $ | (993   | )        |  | $ | (1,319   | ) |  | $ | (2,842  | ) |  | $ | (3,709  | )
|Net loss per common share  basic and diluted        |  | $                  | (0.04  | ) |                    | $ | (0.00  | )                  |  | $ | (0.02             | ) |  | $        | (0.08  | ) |          | $ | (0.03  | )        |  | $ | (0.04    | ) |  | $ | (0.09   | ) |  | $ | (0.12   | )
|                                                     |  |                    |        |   |                    |   |        |                    |  |   |                   |   |  |          |        |   |          |   |        |          |  |   |          |  







|                                           |  |                |         |   |          |   |         | 
|------------------------------------------ |  | -------------- | ------- | - | -------- | - | ------- | 
|                                           |  | April 30, 2005 |        
|                                           |  |                |        
|                                           |  | Reported       |         |   | Restated |  
|                                           |  |                |         |   |          |  
|Condensed Consolidated Balance Sheet Data: |  |                |         |   |          |   |         | 
|Total assets                               |  | $              | 101,232 |   |          | $ | 101,232 | 
|Accrued liabilities                        |  |                | 6,311   |   |          |   | 6,459   | 
|Retained earnings                          |  |                | 10,724  |   |          |   | 9,857   | 
|Other comprehensive loss                   |  |                | (719    | ) |          |   |        | 
|Total stockholders equity                 |  |                | 72,426  |   |          |   | 72,374  | 














|   |                           
|-- | --------------------------
|9. | Related Party Transactions



14



---



##### Table of Contents








|        |                                                                                           
|------- | ------------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations.

Overview




electricAmerica










15



---



##### Table of Contents







Acquisitions














Summit Energy Ventures




Market and Regulatory




16



---



##### Table of Contents





| |            
| | -----------
| | Electricity



| |           
| | ----------
| | California









| |             
| | ------------
| | Pennsylvania





| |         
| | --------
| | Michigan





| |           
| | ----------
| | New Jersey





| |      
| | -----
| | Texas





| |            
| | -----------
| | Natural Gas





| |           
| | ----------
| | California





| |        
| | -------
| | Georgia



17



---



##### Table of Contents







| |         
| | --------
| | Maryland







| |         
| | --------
| | New York







| |     
| | ----
| | Ohio







| |             
| | ------------
| | Pennsylvania





Critical Accounting Policies and Estimates




18



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##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Accounting for Derivative Instruments and Hedging
    Activities  In fiscal 2004 and 2005, we purchased
    substantially all of our power under long-term forward physical
    delivery contracts for supply to our retail electricity
    customers. Electricity supply contracts are commodity derivative
    contracts under Statement of Financial Accounting Standard, or
    SFAS, No. 133, Accounting for Derivative Instruments and
    Hedging Activities. Using the exemption available for
    qualifying electricity contracts under SFAS No. 133,
    we apply the normal purchase, normal sale accounting treatment
    to our forward purchase supply contracts. Accordingly, we record
    revenue generated from customer sales as energy is delivered to
    our retail customers, and direct energy costs are recorded when
    the energy under our long-term forward physical delivery
    contracts is delivered. In January 2005, we sold electricity
    commodity supply contracts back to the original supplier in
    connection with a strategic realignment of our customer
    portfolio in the Pennsylvania electricity market, which resulted
    in a gain in the second fiscal quarter of 2005. As a result of
    that sale, the normal purchase and sale exemption for the
    Pennsylvania market is no longer available for that market.
    Accordingly, we have applied mark-to-market accounting on any
    electricity supply contracts entered into after the
    January 28, 2005 date but not yet delivered as of
    April 30, 2005. In the first, second and third quarters of
    fiscal 2005, we also employed financial hedges using derivative
    instruments, to hedge our commodity price risks. The changes in
    fair market value of these derivatives are reported in each
    quarters earnings. We intend to continue to use derivative
    instruments as an efficient way of assisting in managing our
    price and volume risk in energy supply procurement for our
    retail customers.
|
| |  | Independent System Operator Costs  Included in
    direct energy costs, along with electricity that we purchase,
    are scheduling coordination costs and other ISO fees and
    charges. The actual ISO costs are not finalized until a
    settlement process by the ISO is performed for each days
    activities for all grid participants. Prior to the completion of
    settlement (which may take from one to several months), we
    estimate these costs based on historical trends and preliminary
    settlement information. The historical trends and preliminary
    information may differ from actual fees resulting in the need to
    adjust the previously estimated costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Transportation and Delivery Costs  Included in
    direct energy costs, along with natural gas that we
    purchase, are interstate pipeline costs and utility
    service charges. These fees are identified in the month incurred
    and settled in the following month.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Allowance for Doubtful Accounts  We maintain
    allowances for doubtful accounts for estimated losses resulting
    from non-payment of customer billings. If the financial
    condition of our customers were to deteriorate, resulting in an
    impairment of their ability to make payments, additional
    allowances may be required.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Unbilled Receivables  Our customers are billed
    monthly throughout the month on a sequential basis or on a meter
    read cycle. Unbilled receivables represent the amount of
    electricity and natural gas delivered to customers at the end of
    a reporting period, but not yet billed. Unbilled receivables
    from sales are estimated by us to be the number of
    kilowatt-hours or dekatherms delivered, but not yet billed,
    multiplied by the current customer average sales price per
    kilowatt-hour or dekatherms as applicable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Inventory  Inventory represents natural gas in
    storage as required by state regulatory bodies and contractual
    obligations under customer choice programs. Inventory is stated
    at the lower of cost or market.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Legal Matters  From time to time, we may be
    involved in litigation matters. We regularly evaluate our
    exposure to threatened or pending litigation and other business
    contingencies and accrue for estimated losses on such matters in
    accordance with SFAS No. 5, Accounting for
    Contingencies. As additional information about current or
    future litigation or other contingencies becomes available,
    management will assesswhether such information warrants
    the recording of additional expense relating to our
    contingencies. Such additional expense could potentially have a
    material adverse impact on our results of operations and
    financial position.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

19



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##### Table of Contents



Results of Operations






Three Months Ended
April 30, 2005 Compared to Three Months Ended
April 30, 2004.






| |            
| | -----------
| | Net Revenue



| |                         
| | ------------------------
| | Retail Electricity Sales





| |                  
| | -----------------
| | Natural Gas Sales





| |                    
| | -------------------
| | Excess Energy Sales



20



---



##### Table of Contents







| |                    
| | -------------------
| | Direct Energy Costs





| |                  
| | -----------------
| | Electricity Costs





| |                  
| | -----------------
| | Natural Gas Costs





| |          
| | ---------
| | Customers





| |                               
| | ------------------------------
| | Selling and Marketing Expenses





| |                                    
| | -----------------------------------
| | General and Administrative Expenses





| |                                                   
| | --------------------------------------------------
| | Reorganization and Initial Public Listing Expenses



21



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##### Table of Contents







| |                                      
| | -------------------------------------
| | Initial Formation Litigation Expenses





| |                                        
| | ---------------------------------------
| | Provision for Impairment on Investments





| |                                    
| | -----------------------------------
| | Provision for Termination of Summit





| |                                
| | -------------------------------
| | Minority Interest Share of Loss





| |                          
| | -------------------------
| | Benefit from Income Taxes



Nine Months Ended
April 30, 2005 Compared to Nine Months Ended April 30,
2004.












| |            
| | -----------
| | Net Revenue



| |                         
| | ------------------------
| | Retail Electricity Sales



22



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##### Table of Contents







| |                  
| | -----------------
| | Natural Gas Sales





| |                    
| | -------------------
| | Excess Energy Sales





| |                    
| | -------------------
| | Direct Energy Costs



| |                  
| | -----------------
| | Electricity Costs





| |                  
| | -----------------
| | Natural Gas Costs





| |                               
| | ------------------------------
| | Selling and Marketing Expenses





| |                                    
| | -----------------------------------
| | General and Administrative Expenses





| |                                                   
| | --------------------------------------------------
| | Reorganization and Initial Public Listing Expenses



23



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##### Table of Contents





| |                                      
| | -------------------------------------
| | Initial Formation Litigation Expenses





| |                                        
| | ---------------------------------------
| | Provision for Impairment on Investments





| |                                
| | -------------------------------
| | Minority Interest Share of Loss





| |                          
| | -------------------------
| | Benefit from Income Taxes



Liquidity and Capital Resources












24



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##### Table of Contents









| |                             
| | ----------------------------
| | Planned Capital Expenditures





| |                        
| | -----------------------
| | Contractual Obligations







Factors That May Affect Future Results




| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If competitive restructuring of the electric markets is
    delayed or does not result in viable competitive market rules,
    our business will be adversely affected.



25



---



##### Table of Contents











| |                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We face many uncertainties that may cause substantial
    operating losses and we cannot assure stockholders that we can
    achieve and maintain profitability.





| |   |                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our ability to attract and to retain a critical mass of
    customers at a reasonable cost;                                                     
|
| |  | Our ability to continue to develop and maintain internal
    corporate organization and systems;                                                
|
| |  | The continued competitive restructuring of retail energy markets
    with viable competitive market rules; and                                  
|
| |  | Our ability to effectively manage our energy procurement and
    shaping requirements, and to sell our energy at a sufficient
    profit margin.



| |                                                                       
| | ----------------------------------------------------------------------
| | We may have difficulty obtaining a sufficient number of
    customers.







| |                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We depend upon internally developed systems and processes
    to provide several critical functions for our business, and the
    loss of these functions could materially adversely impact our
    business.



26



---



##### Table of Contents







| |                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Substantial fluctuations in electricity and natural gas
    prices or the cost of transmitting and distributing electricity
    and natural gas could have a material adverse affect on
    us.







| |                                                                                       
| | --------------------------------------------------------------------------------------
| | Some suppliers of electricity have been experiencing
    deteriorating credit quality.





| |                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If the wholesale price of electricity decreases, we may be
    required to post letters of credit for margin to secure our
    obligations under our long term energy contracts.





| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | We do not utilize bank lines of credit at this time and
    may have limited access to additional credit from banks and
    commodity suppliers.



27



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##### Table of Contents







| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | We are required to rely on utilities with whom we will be
    competing to perform some functions for our customers.









| |                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are subject to federal and state regulations in our
    electricity and natural gas marketing business and the rules and
    regulations of regional independent system operators, or
    ISOs, in our electricity business.







28



---



##### Table of Contents





| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | In some markets, we are required to bear credit risk and
    billing responsibility for our customers.





| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | Our revenues and results of operations are subject to
    market risks that are beyond our control.







| |   |                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------
| |  | weather conditions, including hydrological conditions such as
    precipitation, snow pack and stream flow,                   
|
| |  | seasonality,                                                                                                                  
|
| |  | unexpected changes in customer usage,                                                                                         
|
| |  | transmission or transportation constraints or inefficiencies,                                                                 
|
| |  | planned and unplanned plant or transmission line outages,                                                                     
|
| |  | demand for electricity,                                                                                                       
|
| |  | natural gas, crude oil and refined products, and coal supply
    availability to generators from whom we purchase electricity,
|
| |  | natural disasters, wars, embargoes and other catastrophic
    events, and                                                     
|
| |  | federal, state and foreign energy and environmental regulation
    and legislation.                                           



| |                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may experience difficulty in integrating and managing
    acquired businesses successfully and in realizing anticipated
    economic, operational and other benefits in a timely
    manner.








| |                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to maintain an effective system of internal
    controls, we may not be able to accurately report our financial
    results or prevent fraud. As a result, current and potential
    stockholders could lose confidence in our financial reporting,
    which would harm our business and the trading price of our
    stock.












29



---



##### Table of Contents
























| |                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Investor confidence and share value may be adversely
    impacted if our independent auditors are unable to provide us
    with the attestation of the adequacy of our internal controls
    over financial reporting, as required by Section 404 of the
    Sarbanes-Oxley Act of 2002.














30



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##### Table of Contents
















|        |                                                                
|------- | ---------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures about Market
    Risk.














|        |                         
|------- | ------------------------
|Item 4. | Controls and Procedures.




Restatement of Quarterly Periods










| |                                             
| | --------------------------------------------
| | Gain on Sale of Electricity Supply Contracts












31



---



##### Table of Contents















| |   |                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Determined that a major integrated system upgrade was required
    to replace the current in-house forecasting, meter tracking and
    sales systems. We have evaluated several third party systems and
    have begun implementation on our selections;
|
| |  | Established procedures to reconcile demand and load factors
    among the various in-house systems until the integrated system
    can be fully implemented;                                                                                            
|
| |  | Established procedures to reconcile meter counts on a weekly
    basis among the various in-house systems until the integrated
    system can be fully implemented; and                                                                                 
|
| |  | Established senior level management oversight of the load
    forecasting process, including weekly update and reporting
    meetings.                                                                                                                  














| |             
| | ------------
| | SFAS No. 133







Accounting for Derivative
Instruments and Hedging Activities





























32



---



##### Table of Contents






















Evaluation of Disclosure Controls and Procedures























| |                                                     
| | ----------------------------------------------------
| | Changes in Internal Control Over Financial Reporting









33



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##### Table of Contents






PART II  OTHER INFORMATION







|        |          
|------- | ---------
|Item 6. | Exhibits.






|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .1          |  | Confidential Settlement Agreement and General Release dated as
    of April 21, 2005 by and among Ian B. Carter, Commerce
    Energy, Inc. and Commerce Energy Group, Inc. , previously filed
    with the Commission as Exhibit 10.1 to the Companys
    Current Report on Form 8-K filed with the Commission on
    April 22, 2005, which is incorporated herein by reference.                                                                                                                            
|       
|        | 10 | .2          |  | Form of Stock Option Agreement by and between Ian B. Carter and
    Commerce Energy Group, Inc. , previously filed with the
    Commission as Exhibit 10.2 to the Companys Current
    Report on Form 8-K filed with the Commission on
    April 22, 2005, which is incorporated herein by reference.                                                                                                                                                                                                       
|       
|        | 10 | .3          |  | Asset Purchase Agreement dated as of February 9, 2005 by
    and among Commonwealth Energy Corporation, ACN Utility Services,
    Inc., ACN Energy, Inc., ACN Power, Inc. and, as to certain
    sections thereof only, Commerce Energy Group, Inc. and American
    Communications Network, Inc., previously filed with the
    Commission as Exhibit 2.1 to the Companys Current
    Report on Form 8-K filed with the Commission on
    February 10, 2005, which is incorporated herein by
    reference.
|       
|        | 10 | .4          |  | Transition Services Agreement dated as of February 9, 2005
    by and between American Communications Network, Inc. and
    Commonwealth Energy Corporation, previously filed with the
    Commission as Exhibit 2.2 to the Companys Current
    Report on Form 8-K filed with the Commission on
    February 10, 2005, which is incorporated herein by
    reference.                                                                                                                                      
|       
|        | 10 | .5          |  | Sales Agency Agreement dated as of February 9, 2005 by and
    among Commonwealth Energy Corporation, Commerce Energy Group,
    Inc. and American Communications Network, Inc., previously filed
    with the Commission as Exhibit 2.3 to the Companys
    Current Report on Form 8-K filed with the Commission on
    February 10, 2005, which is incorporated herein by
    reference.                                                                                                                  
|       
|        | 10 | .6          |  | Escrow Agreement dated as of February 9, 2005 by and among
    Commonwealth Energy Corporation, ACN Utility Services, Inc., ACN
    Energy, Inc., ACN Power, Inc., Commerce Energy Group, Inc.,
    American Communications Network, Inc. and Computershare Trust
    Company, Inc., previously filed with the Commission as
    Exhibit 2.4 to the Companys Current Report on
    Form 8-K filed with the Commission on February 10,
    2005, which is incorporated herein by reference.                  
|       
|        | 10 | .7          |  | Summary of Commerce Energy Group, Inc. Management Bonus Program
    for 2005, previously filed with the Commission as
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K filed with the Commission on February 10,
    2005, which is incorporated herein by reference.                                                                                                                                                                                                                        
|       
|        | 10 | .8          |  | Offer Letter for Thomas L. Ulry dated February 28, 2005,
    previously filed with the Commission as Exhibit 99.1 to the
    Companys Current Report on Form 8-K filed with the
    Commission on March 7, 2005, which is incorporated herein
    by reference.                                                                                                                                                                                                                                             
|       
|        | 10 | .9          |  | Commerce Energy Group, Inc. 2005 Employee Stock Purchase Plan,
    previously filed with the Commission as Exhibit 10.1 to the
    Companys Current Report on Form 8-K filed with the
    Commission on January 19, 2005, which is incorporated
    herein by reference.                                                                                                                                                                                                                                    
|       
|        | 31 | .1          |  | Principal Executive Officer Certification required by
    Rule 13a-14(a) under the Securities Exchange Act of 1934.                                                                                                                                                                                                                                                                                                                                                                                          
|       
|        | 31 | .2          |  | Principal Financial Officer Certification required by
    Rule 13a-14(a)under of the Securities Exchange Act of 1934.                                                                                                                                                                                                                                                                                                                                                                                        
|       
|        | 32 | .1          |  | Principal Executive Officer Certification pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                  
|       
|        | 32 | .2          |  | Principal Financial Officer Certification pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                  




34



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##### Table of Contents






SIGNATURES






| |                            
| | ---------------------------
| | COMMERCE ENERGY GROUP, INC.












| |     |                   
| | --- | ------------------
| | By: | /s/ STEVEN S. BOSS




| | 
| | 
| | 



| |                              
| | -----------------------------
| | Steven S. Boss               
| | Chief Executive Officer      
|
| | (Principal Executive Officer)
|












| |     |                          
| | --- | -------------------------
| | By: | /s/ LAWRENCE CLAYTON, JR.




| | 
| | 
| | 



| |                                
| | -------------------------------
| | Lawrence Clayton, Jr.          
| | Interim Chief Financial Officer
|
| | (Principal Financial Officer)  
|

35



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##### Table of Contents



EXHIBIT INDEX





|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .1          |  | Confidential Settlement Agreement and General Release dated as
    of April 21, 2005 by and among Ian B. Carter, Commerce
    Energy, Inc. and Commerce Energy Group, Inc. , previously filed
    with the Commission as Exhibit 10.1 to the Companys
    Current Report on Form 8-K filed with the Commission on
    April 22, 2005, which is incorporated herein by reference.                                                                                                                            
|        | 10 | .2          |  | Form of Stock Option Agreement by and between Ian B. Carter and
    Commerce Energy Group, Inc. , previously filed with the
    Commission as Exhibit 10.2 to the Companys Current
    Report on Form 8-K filed with the Commission on
    April 22, 2005, which is incorporated herein by reference.                                                                                                                                                                                                       
|        | 10 | .3          |  | Asset Purchase Agreement dated as of February 9, 2005 by
    and among Commonwealth Energy Corporation, ACN Utility Services,
    Inc., ACN Energy, Inc., ACN Power, Inc. and, as to certain
    sections thereof only, Commerce Energy Group, Inc. and American
    Communications Network, Inc., previously filed with the
    Commission as Exhibit 2.1 to the Companys Current
    Report on Form 8-K filed with the Commission on
    February 10, 2005, which is incorporated herein by
    reference.
|        | 10 | .4          |  | Transition Services Agreement dated as of February 9, 2005
    by and between American Communications Network, Inc. and
    Commonwealth Energy Corporation, previously filed with the
    Commission as Exhibit 2.2 to the Companys Current
    Report on Form 8-K filed with the Commission on
    February 10, 2005, which is incorporated herein by
    reference.                                                                                                                                      
|        | 10 | .5          |  | Sales Agency Agreement dated as of February 9, 2005 by and
    among Commonwealth Energy Corporation, Commerce Energy Group,
    Inc. and American Communications Network, Inc., previously filed
    with the Commission as Exhibit 2.3 to the Companys
    Current Report on Form 8-K filed with the Commission on
    February 10, 2005, which is incorporated herein by
    reference.                                                                                                                  
|        | 10 | .6          |  | Escrow Agreement dated as of February 9, 2005 by and among
    Commonwealth Energy Corporation, ACN Utility Services, Inc., ACN
    Energy, Inc., ACN Power, Inc., Commerce Energy Group, Inc.,
    American Communications Network, Inc. and Computershare Trust
    Company, Inc., previously filed with the Commission as
    Exhibit 2.4 to the Companys Current Report on
    Form 8-K filed with the Commission on February 10,
    2005, which is incorporated herein by reference.                  
|        | 10 | .7          |  | Summary of Commerce Energy Group, Inc. Management Bonus Program
    for 2005, previously filed with the Commission as
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K filed with the Commission on February 10,
    2005, which is incorporated herein by reference.                                                                                                                                                                                                                        
|        | 10 | .8          |  | Offer Letter for Thomas L. Ulry dated February 28, 2005,
    previously filed with the Commission as Exhibit 99.1 to the
    Companys Current Report on Form 8-K filed with the
    Commission on March 7, 2005, which is incorporated herein
    by reference.                                                                                                                                                                                                                                             
|        | 10 | .9          |  | Commerce Energy Group, Inc. 2005 Employee Stock Purchase Plan,
    previously filed with the Commission as Exhibit 10.1 to the
    Companys Current Report on Form 8-K filed with the
    Commission on January 19, 2005, which is incorporated
    herein by reference.                                                                                                                                                                                                                                    
|        | 31 | .1          |  | Principal Executive Officer Certification required by
    Rule 13a-14(a) under the Securities Exchange Act of 1934.                                                                                                                                                                                                                                                                                                                                                                                          
|        | 31 | .2          |  | Principal Financial Officer Certification required by
    Rule 13a-14(a)under of the Securities Exchange Act of 1934.                                                                                                                                                                                                                                                                                                                                                                                        
|        | 32 | .1          |  | Principal Executive Officer Certification pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                  
|        | 32 | .2          |  | Principal Financial Officer Certification pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                  




36