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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-Q/ A


(Amendment No. 1)


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 
|          
|           |  | For the quarterly period ended October 31, 2004                                             
|          
|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 |       
|                                                     |                   | October 31, 2004   |       
|                                                     |                   |                    |       
|                                                     |                   | Reported           |        |       | Restated |  
|                                                     |                   |                    |        |       |          |  
|Condensed Consolidated Statement of Operations Data: |                   |                    |        |       |          |   |        |      
|Net revenue                                          |                   | $                  | 58,496 |       |          | $ | 58,496 |      
|Direct energy costs                                  |                   |                    | 52,406 |       |          |   | 51,335 |      
|                                                     |                   |                    |        |       |          |  
|Gross profit                                         |                   |                    | 6,090  |       |          |   | 7,161  |      
|Net loss                                             |                   |                    | (1,120 | )     |          |   | (48    | )    
|Net loss per common share:                           |                   |                    |        |       |          |   |        |      
|                                                     | Basic and diluted |                    |        | (0.04 | )        |   |        | (0.00 | )







|                                           |  |                  |         |  |          |   |         | 
|------------------------------------------ |  | ---------------- | ------- |  | -------- | - | ------- | 
|                                           |  | October 31, 2004 |        
|                                           |  |                  |        
|                                           |  | Reported         |         |  | Restated |  
|                                           |  |                  |         |  |          |  
|Condensed Consolidated Balance Sheet Data: |  |                  |         |  |          |   |         | 
|Total assets                               |  | $                | 107,632 |  |          | $ | 107,632 | 
|Accrued liabilities                        |  |                  | 6,364   |  |          |   | 6,742   | 
|Retained earnings                          |  |                  | 12,446  |  |          |   | 13,518  | 
|Other comprehensive income                 |  |                  | 1,450   |  |          |   |        | 
|Total stockholders equity                 |  |                  | 74,460  |  |          |   | 74,082  | 














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COMMERCE ENERGY GROUP, INC.


Form 10-Q/ A





(Amendment No. 1)








Restated For the Period Ended October 31, 2004





Index





|                                   |  |                                                                                                                         |    |      |    | 
|---------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                   |  |                                                                                                                         |    | Page |   
|                                   |  |                                                                                                                         |    |      |   
|Part I  Financial
    Information |  |                                                                                                                         | 2  |     
|Item 1.                            |  | Financial Statements:                                                                                                   |    |      | 2  | 
|                                   |  | Condensed Consolidated Statements of
    Operations for the three months ended October 31, 2003 and
    2004 (Restated) |    |      | 2  | 
|                                   |  | Condensed Consolidated Balance Sheets as of
    July 31, 2004 and October 31, 2004 (Restated)                           |    |      | 3  | 
|                                   |  | Condensed Consolidated Statements of Cash
    Flows for the three months ended October 31, 2003 and 2004
    (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                      |    |      | 13 | 
|Item 3.                            |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                          |    |      | 24 | 
|Item 4.                            |  | Restated Controls and Procedures                                                                                        |    |      | 24 | 
|Part II  Other
    Information    |  |                                                                                                                         | 26 |     
|Item 1.                            |  | Legal Proceedings                                                                                                       |    |      | 26 | 
|Item 6.                            |  | Exhibits                                                                                                                |    |      | 26 | 
|Signatures                         |  |                                                                                                                         | 27 |     
|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 in certain states;                                                                                                                                                                                  
|
| |  | our dependence upon a limited number of third parties to
    generate and supply to us electricity;                                                                                                                                                                                               
|
| |  | fluctuations in market prices for electricity;                                                                                                                                                                                                                                                    
|
| |  | 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 utilities to transmit
    and distribute the electricity we sell to our customers.                                                                                                                                                                        



1



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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 |       
|                                                   |                                       | October 31,        |       
|                                                   |                                       |                    |       
|                                                   |                                       | 2003               |        |            | 2004 |  
|                                                   |                                       |                    |        |            |      |  
|                                                   |                                       |                    |        | (Restated) |     
|Net revenue                                        |                                       | $                  | 58,396 |            |      | $ | 58,496 |       
|Direct energy costs                                |                                       |                    | 54,075 |            |      |   | 51,335 |       
|                                                   |                                       |                    |        |            |      |  
|Gross profit                                       |                                       |                    | 4,321  |            |      |   | 7,161  |       
|Selling and marketing expenses                     |                                       |                    | 970    |            |      |   | 953    |       
|General and administrative expenses                |                                       |                    | 5,518  |            |      |   | 5,007  |       
|Reorganization and initial public listing expenses |                                       |                    | 118    |            |      |   |       |       
|                                                   |                                       |                    |        |            |      |  
|Income (loss) from operations                      |                                       |                    | (2,285 | )          |      |   | 1,201  |       
|Other income and expenses:                         |                                       |                    |        |            |      |   |        |       
|                                                   | Initial formation litigation expenses |                    |        | (585       | )    |   |        | (1,439 | )
|                                                   | Minority interest share of loss       |                    |        | 544        |      |   |        |       |  
|                                                   | Interest income, net                  |                    |        | 130        |      |   |        | 190    |  
|                                                   |                                       |                    |        |            |      |  
|Total other income and expenses                    |                                       |                    | 89     |            |      |   | (1,249 | )     
|                                                   |                                       |                    |        |            |      |  
|Loss before benefit from income taxes              |                                       |                    | (2,196 | )          |      |   | (48    | )     
|Benefit from income taxes                          |                                       |                    | 1,074  |            |      |   |       |       
|                                                   |                                       |                    |        |            |      |  
|Net loss                                           |                                       | $                  | (1,122 | )          |      | $ | (48    | )     
|                                                   |                                       |                    |        |            |      |  
|Loss per common share:                             |                                       |                    |        |            |      |   |        |       
|                                                   | Basic                                 |                    | $      | (0.04      | )    |   | $      | 0.00   |  
|                                                   |                                       |                    |        |            |      |  
|                                                   | Diluted                               |                    | $      | (0.04      | )    |   | $      | 0.00   |  
|                                                   |                                       |                    |        |            |      |  






2



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COMMERCE ENERGY GROUP, INC.





CONDENSED CONSOLIDATED BALANCE SHEETS


(In thousands)





|                                     |                                                                                                                                                    |                                            |       |             |             |  |       |        |         | 
|------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----- | ----------- | ----------- |  | ----- | ------ | ------- | 
|                                     |                                                                                                                                                    | July 31,                                   |       |             | October 31, | 
|                                     |                                                                                                                                                    | 2004                                       |       |             | 2004        | 
|                                     |                                                                                                                                                    |                                            |       |             |             | 
|                                     |                                                                                                                                                    |                                            |       | (Unaudited) |            
|                                     |                                                                                                                                                    |                                            |       | (Restated)  |            
|ASSETS                              
|Current assets:                      |                                                                                                                                                    |                                            |       |             |             |  |       |       
|                                     | Cash and cash equivalents                                                                                                                          |                                            | $     | 54,065      |             |  | $     | 53,757 |        
|                                     | Accounts receivable, net                                                                                                                           |                                            |       | 31,119      |             |  |       | 27,452 |        
|                                     | Income taxes refund receivables                                                                                                                    |                                            |       | 4,423       |             |  |       | 4,423  |        
|                                     | Deferred income tax assets                                                                                                                         |                                            |       | 74          |             |  |       | 74     |        
|                                     | Prepaid expenses and other current assets                                                                                                          |                                            |       | 5,141       |             |  |       | 5,819  |        
|                                     |                                                                                                                                                    |                                            |       |             |             | 
|                                     |                                                                                                                                                    | Total current assets                       |       |             | 94,822      |  |       |        | 91,525  | 
|Restricted cash and cash equivalents |                                                                                                                                                    |                                            | 4,008 |             |             |  | 4,268 |       
|Deposits                             |                                                                                                                                                    |                                            | 5,445 |             |             |  | 5,663 |       
|Investments                          |                                                                                                                                                    |                                            | 96    |             |             |  | 96    |       
|Property and equipment, net          |                                                                                                                                                    |                                            | 2,613 |             |             |  | 2,409 |       
|Goodwill and other intangible assets |                                                                                                                                                    |                                            | 3,839 |             |             |  | 3,671 |       
|                                     |                                                                                                                                                    |                                            |       |             |             | 
|                                     |                                                                                                                                                    | Total assets                               |       | $           | 110,823     |  |       | $      | 107,632 | 
|                                     |                                                                                                                                                    |                                            |       |             |             | 
|                                    
|LIABILITIES AND STOCKHOLDERS EQUITY
|Current liabilities:                 |                                                                                                                                                    |                                            |       |             |             |  |       |       
|                                     | Accounts payable                                                                                                                                   |                                            | $     | 30,576      |             |  | $     | 26,808 |        
|                                     | Accrued liabilities                                                                                                                                |                                            |       | 6,141       |             |  |       | 6,742  |        
|                                     |                                                                                                                                                    |                                            |       |             |             | 
|                                     |                                                                                                                                                    | Total current liabilities                  |       |             | 36,717      |  |       |        | 33,550  | 
|Stockholders equity:                |                                                                                                                                                    |                                            |       |             |             |  |       |       
|                                     | Common stock  150,000 shares authorized with
    $0.001 par value; 30,519 shares issued and outstanding
    at July 31, 2004 and October 31, 2004 |                                            |       | 60,796      |             |  |       | 60,796 |        
|                                     | Unearned restricted stock compensation                                                                                                             |                                            |       | (256        | )           |  |       | (232   | )      
|                                     | Retained earnings                                                                                                                                  |                                            |       | 13,566      |             |  |       | 13,518 |        
|                                     |                                                                                                                                                    |                                            |       |             |             | 
|                                     |                                                                                                                                                    | Total stockholders equity                 |       |             | 74,106      |  |       |        | 74,082  | 
|                                     |                                                                                                                                                    |                                            |       |             |             | 
|                                     |                                                                                                                                                    | Total liabilities and stockholders equity |       | $           | 110,823     |  |       | $      | 107,632 | 
|                                     |                                                                                                                                                    |                                            |       |             |             | 






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COMMERCE ENERGY GROUP, INC.





CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)


(Unaudited)


|                                                                                              |                                                        |                                   |        |            |        |   |        |     |        |  
|--------------------------------------------------------------------------------------------- | ------------------------------------------------------ | --------------------------------- | ------ | ---------- | ------ | - | ------ | --- | ------ | -
|                                                                                              |                                                        | Three Months Ended                |       
|                                                                                              |                                                        | October 31,                       |       
|                                                                                              |                                                        |                                   |       
|                                                                                              |                                                        | 2003                              |        |            | 2004   |  
|                                                                                              |                                                        |                                   |        |            |        |  
|                                                                                              |                                                        |                                   |        | (Restated) |       
|Cash Flows From Operating Activities                                                          |                                                        |                                   |        |            |        |   |        |    
|Net loss                                                                                      |                                                        | $                                 | (1,122 | )          |        | $ | (48    | )  
|Adjustments to reconcile net loss to net cash provided by (used
    in) operating activities: |                                                        |                                   |        |            |        |   |        |    
|                                                                                              | Depreciation                                           |                                   |        | 375        |        |   |        | 354 |       
|                                                                                              | Amortization                                           |                                   |        | 63         |        |   |        | 168 |       
|                                                                                              | Provision for doubtful accounts                        |                                   |        | 661        |        |   |        | 548 |       
|                                                                                              | Stock-based compensation expense                       |                                   |        |           |        |   |        | 24  |       
|                                                                                              | Minority interest share of loss of consolidated entity |                                   |        | 172        |        |   |        |    |       
|                                                                                              | Changes in operating assets and liabilities:           |                                   |        |            |        |   |        |     |       
|                                                                                              |                                                        | Accounts receivable, net          |        |            | 13,690 |   |        |     | 3,119  |  
|                                                                                              |                                                        | Prepaid expenses and other assets |        |            | 692    |   |        |     | 554    |  
|                                                                                              |                                                        | Accounts payable                  |        |            | (5,908 | ) |        |     | (3,769 | )
|                                                                                              |                                                        | Accrued liabilities and other     |        |            | 307    |   |        |     | (847   | )
|                                                                                              |                                                        |                                   |        |            |        |  
|Net cash provided by operating activities                                                     |                                                        |                                   | 8,930  |            |        |   | 103    |    
|Cash Flows From Investing Activities                                                          |                                                        |                                   |        |            |        |   |        |    
|Purchase of property and equipment                                                            |                                                        |                                   | (466   | )          |        |   | (151   | )  
|                                                                                              |                                                        |                                   |        |            |        |  
|Net cash used in investing activities                                                         |                                                        |                                   | (466   | )          |        |   | (151   | )  
|Cash Flows From Financing Activities                                                          |                                                        |                                   |        |            |        |   |        |    
|Decrease (increase) in restricted cash and cash equivalents                                   |                                                        |                                   | 2,337  |            |        |   | (260   | )  
|                                                                                              |                                                        |                                   |        |            |        |  
|Net cash provided by (used in) financing activities                                           |                                                        |                                   | 2,337  |            |        |   | (260   | )  
|                                                                                              |                                                        |                                   |        |            |        |  
|Increase (decrease) in cash and cash equivalents                                              |                                                        |                                   | 10,801 |            |        |   | (308   | )  
|Cash and cash equivalents at beginning of period                                              |                                                        |                                   | 40,921 |            |        |   | 54,065 |    
|                                                                                              |                                                        |                                   |        |            |        |  
|Cash and cash equivalents at end of period                                                    |                                                        | $                                 | 51,722 |            |        | $ | 53,757 |    
|                                                                                              |                                                        |                                   |        |            |        |  



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COMMERCE ENERGY GROUP, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(in thousands, except per share and per kWh amounts)




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



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

electricAmerica






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





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





| |                  
| | -----------------
| | Reclassifications



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COMMERCE ENERGY GROUP, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share and per kWh amounts)




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

Accounting for Stock Issued to
Employees







|                                                                                                                                           |                                                                                       |                    |        |            |      |   |     |       |  
|------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------- | ------------------ | ------ | ---------- | ---- | - | --- | ----- | -
|                                                                                                                                           |                                                                                       | Three Months Ended |       
|                                                                                                                                           |                                                                                       | October 31,        |       
|                                                                                                                                           |                                                                                       |                    |       
|                                                                                                                                           |                                                                                       | 2003               |        |            | 2004 |  
|                                                                                                                                           |                                                                                       |                    |        |            |      |  
|                                                                                                                                           |                                                                                       |                    |        | (Restated) |     
|Net loss as applicable to common stock  basic and
    diluted                                                                             |                                                                                       | $                  | (1,122 | )          |      | $ | (48 | )    
|Deduct: Total stock-based compensation expense determined under
    fair value based method for all awards, net of related tax
    effects |                                                                                       |                    | (42    | )          |      |   | (3  | )    
|                                                                                                                                           |                                                                                       |                    |        |            |      |  
|Pro forma net loss  basic and diluted                                                                                                     |                                                                                       | $                  | (1,164 | )          |      | $ | (51 | )    
|                                                                                                                                           |                                                                                       |                    |        |            |      |  
|Loss per share:                                                                                                                            |                                                                                       |                    |        |            |      |   |     |      
|                                                                                                                                           | Basic and diluted  as reported on Condensed
    Consolidated Statement of Operations |                    | $      | (0.04      | )    |   | $   | (0.00 | )
|                                                                                                                                           |                                                                                       |                    |        |            |      |  
|                                                                                                                                           | Basic and diluted  pro forma                                                         |                    | $      | (0.04      | )    |   | $   | (0.00 | )
|                                                                                                                                           |                                                                                       |                    |        |            |      |  






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





|   |                                        
|-- | ---------------------------------------
|2. | Basic and Diluted Loss per Common Share



6



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COMMERCE ENERGY GROUP, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share and per kWh amounts)




|                                                     |  |                    |        |            |      |   |        |  
|---------------------------------------------------- |  | ------------------ | ------ | ---------- | ---- | - | ------ | -
|                                                     |  | Three Months Ended |       
|                                                     |  | October 31,        |       
|                                                     |  |                    |       
|                                                     |  | 2003               |        |            | 2004 |  
|                                                     |  |                    |        |            |      |  
|                                                     |  |                    |        | (Restated) |     
|Numerator:                                           |  |                    |        |            |      |   |        |  
|Net loss                                             |  | $                  | (1,122 | )          |      | $ | (48    | )
|Deduct: Preferred stock dividends                    |  |                    | (164   | )          |      |   |       |  
|                                                     |  |                    |        |            |      |  
|Net loss applicable to common stock  basic          |  |                    | (1,286 | )          |      |   | (48    | )
|Assumed conversion of preferred stock                |  |                    |       |            |      |   |       |  
|                                                     |  |                    |        |            |      |  
|Net loss applicable to common stock  diluted        |  | $                  | (1,286 | )          |      | $ | (48    | )
|                                                     |  |                    |        |            |      |  
|Denominator:                                         |  |                    |        |            |      |   |        |  
|Weighted-average outstanding common shares  basic   |  |                    | 27,645 |            |      |   | 30,519 |  
|Effect of stock options                              |  |                    |       |            |      |   |       |  
|Effect of convertible preferred stock                |  |                    |       |            |      |   |       |  
|                                                     |  |                    |        |            |      |  
|Weighted-average outstanding common shares  diluted |  |                    | 27,645 |            |      |   | 30,519 |  
|                                                     |  |                    |        |            |      |  





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



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









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COMMERCE ENERGY GROUP, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share and per kWh amounts)










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





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









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COMMERCE ENERGY GROUP, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share and per kWh amounts)




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







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







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



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



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COMMERCE ENERGY GROUP, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share and per kWh amounts)










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COMMERCE ENERGY GROUP, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share and per kWh amounts)






|   |                                 
|-- | --------------------------------
|6. | Derivative Financial Instruments
















|   |                                                     
|-- | ----------------------------------------------------
|7. | Restated Quarterly Financial Information (Unaudited)




















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COMMERCE ENERGY GROUP, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share and per kWh amounts)













|                                                     |  |                    |        |   |          |   |        |  
|---------------------------------------------------- |  | ------------------ | ------ | - | -------- | - | ------ | -
|                                                     |  | Three Months Ended |       
|                                                     |  | October 31, 2004   |       
|                                                     |  |                    |       
|                                                     |  | Reported           |        |   | Restated |  
|                                                     |  |                    |        |   |          |  
|Condensed Consolidated Statement of Operations Data: |  |                    |        |   |          |   |        |  
|Net revenue                                          |  | $                  | 58,496 |   |          | $ | 58,496 |  
|Direct energy costs                                  |  |                    | 52,406 |   |          |   | 51,335 |  
|                                                     |  |                    |        |   |          |  
|Gross profit                                         |  |                    | 6,090  |   |          |   | 7,161  |  
|Income (loss) from operations                        |  | $                  | 130    |   |          | $ | 1,201  |  
|Net loss                                             |  | $                  | (1,120 | ) |          | $ | (48    | )
|Net loss per common share  basic and diluted        |  | $                  | (0.04  | ) |          | $ | (0.00  | )
|                                                     |  |                    |        |   |          |  







|                                           |  |                  |         |  |          |   |         | 
|------------------------------------------ |  | ---------------- | ------- |  | -------- | - | ------- | 
|                                           |  | October 31, 2004 |        
|                                           |  |                  |        
|                                           |  | Reported         |         |  | Restated |  
|                                           |  |                  |         |  |          |  
|Condensed Consolidated Balance Sheet Data: |  |                  |         |  |          |   |         | 
|Total assets                               |  | $                | 107,632 |  |          | $ | 107,632 | 
|Accrued liabilities                        |  |                  | 6,364   |  |          |   | 6,742   | 
|Retained earnings                          |  |                  | 12,446  |  |          |   | 13,518  | 
|Other comprehensive income                 |  |                  | 1,450   |  |          |   |        | 
|Total stockholders equity                 |  |                  | 74,460  |  |          |   | 74,082  | 












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

Overview
















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Market and Regulatory




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















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





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



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





Critical Accounting Policies and Estimates






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Purchase and sale accounting 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. We apply the normal purchase,
    normal sale accounting treatment to our forward purchase supply
    contracts and our customer sales contracts. Accordingly, we
    record revenue generated from our sales contracts 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 the first quarter of fiscal
    2005, we also employed financial hedges using derivative
    instruments, to hedge our commodity price risks. We intend 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. Certain derivative instrument
    treatment may not qualify for hedge treatment and require
    mark-to-market accounting in accordance with the Financial
    Accounting Standards Board, or FASB, Statement of Financial
    Accounting Standard, or SFAS, No. 133, Accounting for
    Derivative Instruments and Hedging Activities.

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Independent System Operator Costs  Included in
    direct energy costs, along with electric power 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.           
|
| |  | 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 at various dates throughout the month. Unbilled
    receivables represent the amount of electric power 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 delivered, but not yet billed,
    multiplied by the current customer average sales price per
    kilowatt-hour.                                                                                                                                                                                                                                             
|
| |  | 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 assess whether 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.

Results of Operations




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












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



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##### Table of Contents









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



















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





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





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





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



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##### Table of Contents







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





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



Liquidity and Capital Resources
















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



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##### Table of Contents



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.









| |                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.

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##### Table of Contents







| |                                                                       
| | ----------------------------------------------------------------------
| | 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.





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







| |                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Historical procurement charges and customer rate changes
    in the Southern California Edison utility district could
    adversely affect our revenue and cash flows.





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##### Table of Contents













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





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##### 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 streamflow,                    
|
| |  | 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.                                           



| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | Our results of operation and financial condition could be
    affected by pending and future litigation.



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##### Table of Contents







| |                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.




Accounting for Derivative Instruments
and Hedging Activities


















| |                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.












23



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##### Table of Contents


















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














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




Restatement of the
Quarterly Periods in Fiscal 2005








Accounting for Derivative
Instruments and Hedging Activities













24



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##### Table of Contents
















Remediation of Material Weakness in Internal Control
















Evaluation of Disclosure Controls and Procedures





















Changes in Internal Control Over Financial Reporting










25



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##### Table of Contents






PART II  OTHER INFORMATION







|        |                   
|------- | ------------------
|Item 1. | Legal Proceedings.








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






|        |    |             |  |                                                                                                                                                                                                                                                                                                                                
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .1          |  | Form of Non-Employee Director Stock Option Agreement for
    directors, previously filed with the Commission on
    December 8, 2004 as Exhibit 10.1 to Commerce Energy
    Group, Inc.s Current Report on Form 8-K, which is
    incorporated herein by reference.                                                           
|       
|        | 10 | .2          |  | Commerce Energy Group, Inc. Non-Employee Director Compensation
    Policy, previously filed with the Commission on December 8,
    2004 as Exhibit 10.2 to Commerce Energy Group, Inc.s
    Current Report on Form 8-K, which is incorporated herein by
    reference.                                                        
|       
|        | 10 | .3          |  | Revised Security Agreement dated October 27, 2004 by and
    between Commonwealth Energy Corporation and DTE Energy Trading,
    previously filed with the Commission on November 15, 2004
    as Exhibit 10.32 to Commerce Energy Group, Inc.s
    Annual Report on Form 10-K, which is incorporated herein by
    reference.
|       
|        | 10 | .4          |  | Revised Operating Agreement dated November 15, 2004 between
    DTE Energy Trading, Inc. and Commonwealth Energy Corporation,
    previously filed with the Commission on April 5, 2004 as
    Exhibit 10.33 to Commerce Energy Group, Inc.s Annual
    Report on Form 10-K, 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.                                                                                                                                                                    




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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)  
|

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##### Table of Contents



EXHIBIT INDEX







|        |    |             |  |                                                                                                                                                                                                                                                                                                                                
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .1          |  | Form of Non-Employee Director Stock Option Agreement for
    directors, previously filed with the Commission on
    December 8, 2004 as Exhibit 10.1 to Commerce Energy
    Group, Inc.s Current Report on Form 8-K, which is
    incorporated herein by reference.                                                           
|       
|        | 10 | .2          |  | Commerce Energy Group, Inc. Non-Employee Director Compensation
    Policy, previously filed with the Commission on December 8,
    2004 as Exhibit 10.2 to Commerce Energy Group, Inc.s
    Current Report on Form 8-K, which is incorporated herein by
    reference.                                                        
|       
|        | 10 | .3          |  | Revised Security Agreement dated October 27, 2004 by and
    between Commonwealth Energy Corporation and DTE Energy Trading,
    previously filed with the Commission on November 15, 2004
    as Exhibit 10.32 to Commerce Energy Group, Inc.s
    Annual Report on Form 10-K, which is incorporated herein by
    reference.
|       
|        | 10 | .4          |  | Revised Operating Agreement dated November 15, 2004 between
    DTE Energy Trading, Inc. and Commonwealth Energy Corporation,
    previously filed with the Commission on April 5, 2004 as
    Exhibit 10.33 to Commerce Energy Group, Inc.s Annual
    Report on Form 10-K, which is incorporated herein by
    reference.   
|       
|        | 31 | .1          |  | Principal Executive Officer Certification required by rule
    13a-14(a) of the Securities Exchange Act of 1934.                                                                                                                                                                                                               
|       
|        | 31 | .2          |  | Principal Financial Officer Certification required by
    Rule 13a-14(a) of the Securities Exchange Act of 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.                                                                                                                                                                    




28