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Retail Supplier Parent Suspends Unsecured Subordinated Note Program After "Going Concern" Disclosure

May 23,2017



Aspirity Holdings (“Holdings”) announced that it has suspended its Renewable Unsecured Subordinated Note (the “Notes”) program.

After disposing of its previously developed retail books, Aspirity created a new start-up retail supplier and became licensed to serve retail customers in Illinois, Maryland, New York, Ohio, Pennsylvania, and Rhode Island. Aspirity was providing electricity to over 7,000 households as of the end of 2016.

The suspension of the Notes program follows Aspirity’s release of its 2016 Annual Report on Form 10-K on April 28, 2017. The Form 10-K included two significant changes from previous filings:

1. A going concern note which reflected Management’s substantial doubt as to Holding’s ability to continue as a going concern principally due to the amount of debt maturing within twelve months of the filing. A going concern note was also included in Holding’s auditor’s report for the year ended December 31, 2016.

2. A reclassification of the Term Loan owed to Holdings by Diversified Trading Company from an asset to a contra-equity, which reduced Holding’s total assets from approximately $19 million to approximately $2 million.

"Reaction to the Form 10-K filing was significant, as a substantial number of subscriptions received pending release of the 10-K were requested to be returned. Consequently, Aspirity Management and Board determined that the Notes program is presently not viable and returned all new Notes subscriptions that were held pending the release of the Form 10-K," Aspirity said in an SEC filing

Aspirity has suspended all activities related to its Notes program. More specifically: (1) all interest and redemption payments have ceased; (2) all Notes will continue to accrue interest; and (3) no new Notes subscriptions will be accepted at this time.

"Aspirity is considering all options to address this situation and will provide more information in the near future," Aspirity said in an SEC filing

Specifically, in its 10-K filed on April 28, 2017, Aspirity had stated:

Historically, the Company has relied on sales of Notes and payments from its Term Loan to Enterprises [Krieger Enterprises, LLC] as its principal sources of funding and will continue to do so for at least the next 12 months until it can generate sufficient operating cash flow to fund its ongoing business. As of December 31, 2016, $12,430,000 of Notes will mature prior to December 31, 2017. Historically, a significant portion of maturing Notes renew, which does not require a cash outlay by the Company. However, the decision to redeem or renew is solely at the discretion of the noteholder and not the Company.

While the Company expects that Notes will be redeemed at rates similar to those that have occurred historically, management’s analysis of the ability of the Company to continue as a going concern must consider the possibility that all Notes maturing for at least the next 12 months from the issuance of the financial statements will be redeemed. If such events were to occur, the Company would not have enough liquidity to meet all redemption requests, given the Company currently has no other sources of capital that could be accessed to cover increased redemptions from these Notes.

To evaluate the Company’s ability to continue as a going concern, the Company considered both the aggregation of the negative financial metrics, as noted above, and the possibility these will not turn positive for at least the next 12 months. Further, the Company assessed the possibility of the redemption of all Notes maturing in the next 12 months by the respective noteholders. These uncertainties suggest there is substantial doubt as to the Company’s ability to continue as a going concern within one year from the date that these financial statements were issued.

Management has plans intended to mitigate the conditions described above. These plans include growing customer acquisitions such that positive operating cash flow is generated on a sustained basis beginning in the first half of 2018, continuing collection on the Term Loan, and continuing to sell Notes. Further, the Company intends to evaluate other sources of debt and equity financing, there can be no assurance that these efforts will be successful

While the Company believes that payments from Enterprises on the Term Loan, anticipated cash generated from operating activities, availability of trade credit, and anticipated proceeds from the Notes Offering will be sufficient to meet operating cash requirements and Note redemption obligations for the next twelve months, the Company is unable to conclude that it is probable that management’s plans will fully mitigate the conditions identified.



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