** **

**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

**Form 10-Q**

 

| **(Mark one)** |                                                                                    |
|----------------|-----------------------------------------------------------------------------------------|
| **ý**     | **QUARTERLY  REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

For the quarterly periodended: **March 31, 2004**

 

| **o** | **TRANSITION  REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------------------------------------------------------------------------------------|

 

**For the transition period from              to              **

 

**Commission file number: 0-16179**

 

**Gexa Corp.**

(Exact name of registrant as specified in its charter)

 

| **Texas**                                                       | **76-0670175**                    |
|-----------------------------------------------------------------|-----------------------------------|
| (State or other jurisdiction of incorporation or  organization) | (IRS Employer Identification No.) |
|                                                            |                              |
| **24  Greenway Plaza, Suite 1826, Houston, TX**                 | **77046**                         |
| (Address of principal executive offices)                        | (Zip Code)                        |
|                                                            |                              |
| **(713)-961-9399**                                              |
| (Issuer’s telephone number)                                |

 

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by section 13 or 15 (d) of the Securities Exchange Act of 1934 during thepast 12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes ý No o

 

Indicateby check mark whether the registrant is an accelerated filer (as defined inRule 12b-2 of the Exchange Act). Yes o No ý

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

Indicate the number of shares outstanding ofeach of the issuer’s classes of common stock, as of the latest practicabledate:

CommonStock, $.01 par value 8,444,032 shares outstanding as of May 18, 2004

 

 

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TABLE OF CONTENTS

 
| **PART I. FINANCIAL  INFORMATION**                                                                  |   |
|-----------------------------------------------------------------------------------------------------|--------|
|                                                                                                |   |
| Item 1. Financial Statements                                                                        |   |
| Item 2. Management’s Discussion and  Analysis of Financial Condition and Results of Operations |   |
| Item 3. Quantitative and Qualitative  Disclosures About Market Risk                                 |   |
| Item 4. Controls and Procedures                                                                     |   |
|                                                                                                |   |
| **PART II. OTHER INFORMATION**                                                                      |   |
|                                                                                                |   |
| Item  1. Legal Proceedings                                                                          |   |
| Item  2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity  Securities          |   |
| Item 3. Defaults Upon Senior Securities                                                             |   |
| Item 4. Submission of Matters to a Vote of Security Holders                                         |   |
| Item  5. Other Information                                                                          |   |
| Item  6. Exhibits and Reports on Form 8-K                                                           |   |

 

2

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**PART I. FINANCIAL INFORMATION**

 

**Item 1****. Financial Statements**

 

Set forth below are the unaudited condensedfinancial statements for the Company for the three month periods ended March31, 2004 and 2003.

 

INDEXTO CONDENSED FINANCIAL STATEMENTS

 
| Condensed  Balance Sheets as of March 31, 2004 (Unaudited) and December 31, 2003                   |   |
|----------------------------------------------------------------------------------------------------|--------|
| Condensed Statements  of Operations for the three months ended March 31, 2004 and 2003 (Unaudited) |   |
| Condensed Statements  of Cash Flows for the three months ended March 31, 2004 and 2003 (Unaudited) |   |
| Notes  to Condensed Financial Statements (Unaudited)                                               |   |

 

3

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**GEXA CORP.**

**CONDENSEDBALANCE SHEETS**

 
|                                                                                                                                                                                                                     |   | **March 31,  2004** |       | **December 31,  2003** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|------------|------------------------|--------|
|                                                                                                                                                                                                                     |   | **(unaudited)**     |       |                   |   |
| ASSETS                                                                                                                                                                                                                   |   |                |       |                   |   |
| Current assets:                                                                                                                                                                                                          |   |                |       |                   |   |
| Cash and cash equivalents                                                                                                                                                                                                |   | $                   | 7,886,691  |                   | $      | 10,829,281 |   |
| Cash- restricted                                                                                                                                                                                                         |   | 4,113,026           |       | 3,613,221              |   |
| Accounts receivable, net of allowance for  doubtful accounts                                                                                                                                                             |   | 25,331,834          |       | 22,138,806             |   |
| Other receivables                                                                                                                                                                                                        |   | 174,578             |       | 187,404                |   |
| Deferred tax asset                                                                                                                                                                                                       |   | 732,500             |       | 458,000                |   |
| Other current assets                                                                                                                                                                                                     |   | 102,661             |       | 82,246                 |   |
| Total current assets                                                                                                                                                                                                     |   | 38,341,290          |       | 37,308,958             |   |
| Property and equipment, net                                                                                                                                                                                              |   | 389,293             |       | 373,983                |   |
| Deferred tax asset                                                                                                                                                                                                       |   | 286,500             |       | 292,000                |   |
| Other assets                                                                                                                                                                                                             |   | 388,069             |       | 226,594                |   |
|                                                                                                                                                                                                                     |   |                |       |                   |   |
| Total assets                                                                                                                                                                                                             |   | $                   | 39,405,152 |                   | $      | 38,201,535 |   |
|                                                                                                                                                                                                                     |   |                |       |                   |   |
| LIABILITIES  AND SHAREHOLDERS’ EQUITY                                                                                                                                                                               |   |                |       |                   |   |
| Current liabilities:                                                                                                                                                                                                     |   |                |       |                   |   |
| Term loans- current portion                                                                                                                                                                                              |   | $                   | 811,111    |                   | $      | 608,333 |   |
| Advance customer payments                                                                                                                                                                                                |   | 183,545             |       | 179,258                |   |
| Accrued electricity costs                                                                                                                                                                                                |   | 10,043,370          |       | 16,554,598             |   |
| Accounts payable and other accrued expenses                                                                                                                                                                              |   | 9,419,805           |       | 6,083,872              |   |
| Sales tax payable                                                                                                                                                                                                        |   | 1,463,739           |       | 1,445,993              |   |
| Income tax payable                                                                                                                                                                                                       |   | 2,672,056           |       | 1,476,923              |   |
| Customer deposits                                                                                                                                                                                                        |   | 4,045,930           |       | 3,197,233              |   |
| Total current liabilities                                                                                                                                                                                                |   | 28,639,556          |       | 29,546,210             |   |
|                                                                                                                                                                                                                     |   |                |       |                   |   |
| Term loans- long term portion, net of  discount                                                                                                                                                                          |   | 2,212,142           |       | 2,381,826              |   |
| Puttable warrant obligation                                                                                                                                                                                              |   | 2,145,000           |       | 4,125,000              |   |
| Accrued interest payable- officer                                                                                                                                                                                        |   | 22,515              |       | 20,404                 |   |
| Total liabilities                                                                                                                                                                                                        |   | 33,019,213          |       | 36,073,440             |   |
|                                                                                                                                                                                                                     |   |                |       |                   |   |
| Shareholders’ equity:                                                                                                                                                                                               |   |                |       |                   |   |
| Common stock, $.01 par value; 75,000,000  shares authorized;  844,032 shares issued and 8,428,185 shares outstanding at  March 31, 2004; 8,261,128 shares issued and 8,247,281  shares outstanding at December 31, 2003. |   | 84,420              |       | 82,611                 |   |
| Additional paid-in capital                                                                                                                                                                                               |   | 8,112,302           |       | 7,347,795              |   |
| Treasury stock, at cost; 13,847 shares                                                                                                                                                                                   |   | (14,447             | )          | (14,447                | )      |
| Accumulated deficit                                                                                                                                                                                                      |   | (1,796,336          | )          | (5,287,864             | )      |
| Total shareholders’ equity                                                                                                                                                                                          |   | 6,385,939           |       | 2,128,095              |   |
|                                                                                                                                                                                                                     |   |                |       |                   |   |
| Total liabilities and shareholders’ equity                                                                                                                                                                          |   | $                   | 39,405,152 |                   | $      | 38,201,535 |   |

 

See accompanying notes to condensed financial statements.

 

4

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**GEXA CORP.**

**CONDENSED STATEMENTS OF OPERATIONS**

**(unaudited)**

 
|                                                |   | **For the Three  Months Ended  March 31,  2004** | ** ** | **For the Three  Months Ended  March 31,  2003** | ** ** |
|-----------------------------------------------------|--------|--------------------------------------------------|------------|--------------------------------------------------|------------|
|                                                |   |                                             |       |                                             |       |
| Sales                                               |   | $                                                | 50,512,716 |                                             | $          | 12,920,302 |   |
|                                                |   |                                             |       |                                             |       |
| Cost of goods sold                                  |   | 44,459,556                                       |       | 12,184,582                                       |       |
|                                                |   |                                             |       |                                             |       |
| Gross profit                                        |   | 6,053,160                                        |       | 735,720                                          |       |
|                                                |   |                                             |       |                                             |       |
| General and administrative expenses                 |   | 3,389,197                                        |       | 1,121,607                                        |       |
|                                                |   |                                             |       |                                             |       |
| Income (loss) from operations                       |   | 2,663,963                                        |       | (385,887                                         | )          |
|                                                |   |                                             |       |                                             |       |
| Interest income                                     |   | 4,966                                            |       | 1,960                                            |       |
|                                                |   |                                             |       |                                             |       |
| Interest expense                                    |   | (231,267                                         | )          | (7,318                                           | )          |
|                                                |   |                                             |       |                                             |       |
| Other financing income (see Note 6)                 |   | 1,980,000                                        |       | —                                           |       |
|                                                |   |                                             |       |                                             |       |
| Income before income tax expense                    |   | 4,417,662                                        |       | (391,245                                         | )          |
|                                                |   |                                             |       |                                             |       |
| Income tax expense (benefit)                        |   | 926,133                                          |       | (131,793                                         | )          |
|                                                |   |                                             |       |                                             |       |
| Net income (loss)                                   |   | 3,491,529                                        |       | (259,452                                         | )          |
|                                                |   |                                             |       |                                             |       |
| Preferred stock dividend                            |   | —                                           |       | (41,722                                          | )          |
|                                                |   |                                             |       |                                             |       |
| Net income (loss) available to common  stockholders |   | $                                                | 3,491,529  |                                             | $          | (301,174 | ) |
|                                                |   |                                             |       |                                             |       |
| Basic net income (loss) per share                   |   | $                                                | .42        |                                             | $          | (.04 | ) |
|                                                |   |                                             |       |                                             |       |
| Basic weighted average shares outstanding           |   | 8,360,923                                        |       | 7,604,528                                        |       |
|                                                |   |                                             |       |                                             |       |
| Diluted net income (loss) per share                 |   | $                                                | .37        |                                             | $          | (.04 | ) |
|                                                |   |                                             |       |                                             |       |
| Diluted weighted average shares outstanding         |   | 9,559,820                                        |       | 7,604,528                                        |       |

 

See accompanying notes to condensed financial statements.

 

5

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**GEXA CORP.**

**CONDENSEDSTATEMENTS OF CASH FLOWS**

**(unaudited)**

** **
|                                                                                  |   | **For the  Three  Months Ended  March 31,  2004** |      | **For the  Three  Months Ended  March 31,  2003** |   |
|---------------------------------------------------------------------------------------|--------|---------------------------------------------------|-----------|---------------------------------------------------|--------|
| Cash flows from operating activities:                                                 |   |                                              |      |                                              |   |
| Net income (loss)                                                                     |   | $                                                 | 3,491,529 |                                              | $      | (259,452 | ) |
| Adjustments to reconcile net income (loss) to  net cash used in operating activities: |   |                                              |      |                                              |   |
| Depreciation                                                                          |   | 58,713                                            |      | 21,966                                            |   |
| Amortization of financing costs                                                       |   | 7,315                                             |      | —                                            |   |
| Accretion of debt discount                                                            |   | 33,093                                            |      | —                                            |   |
| Stock issued to officers, directors  and consultants for services                     |   | 95,300                                            |      | —                                            |   |
| Change in puttable warrant obligation                                                 |   | (1,980,000                                        | )         | —                                            |   |
| Deferred income tax benefit                                                           |   | (269,000                                          | )         | (131,793                                          | )      |
| Changes in operating assets and liabilities:                                          |   |                                              |      |                                              |   |
| Accounts receivable                                                                   |   | (3,193,028                                        | )         | (2,831,937                                        | )      |
| Other receivables                                                                     |   | 12,826                                            |      | 4,626                                             |   |
| Other current assets                                                                  |   | (113,605                                          | )         | (472                                              | )      |
| Other long term assets                                                                |   | (75,600                                           | )         | (5,955                                            | )      |
| Advance customer payments                                                             |   | 4,287                                             |      | —                                            |   |
| Accrued electricity costs                                                             |   | (6,511,229                                        | )         | 688,319                                           |   |
| Accounts payable and other accrued expenses                                           |   | 3,335,935                                         |      | 903,611                                           |   |
| Income tax payable                                                                    |   | 1,195,132                                         |      | —                                            |   |
| Sales tax payable                                                                     |   | 17,746                                            |      | (490,785                                          | )      |
| Customer deposits                                                                     |   | 848,697                                           |      | 607,874                                           |   |
| Accrued interest payable                                                              |   | 2,111                                             |      | 7,011                                             |   |
| Net cash used in operating activities                                                 |   | (3,039,778                                        | )         | (1,486,987                                        | )      |
|                                                                                  |   |                                              |      |                                              |   |
| Cash flows used in investing activities:                                              |   |                                              |      |                                              |   |
| Restricted Cash                                                                       |   | (499,805                                          | )         | 201,847                                           |   |
| Purchases of equipment                                                                |   | (74,023                                           | )         | (39,611                                           | )      |
| Net cash provided by (used in) investing  activities                                  |   | (573,828                                          | )         | 868,564                                           |   |
|                                                                                  |   |                                              |      |                                              |   |
| Cash flows from financing activities:                                                 |   |                                              |      |                                              |   |
| Repayments on credit facility                                                         |   | —                                            |      | (500,000                                          | )      |
| Borrowings on revolving credit line                                                   |   | —                                            |      | 974,107                                           |   |
| Proceeds from sale of common stock                                                    |   | 671,016                                           |      | —                                            |   |
| Net cash provided by financing activities                                             |   | 671,016                                           |      | 474,107                                           |   |
|                                                                                  |   |                                              |      |                                              |   |
| Net change in cash                                                                    |   | (2,942,590                                        | )         | (1,506.44                                         | )      |
| Cash and cash equivalents at beginning of  period                                     |   | 10,829,281                                        |      | 3,399,962                                         |   |
| Cash and cash equivalents at end of period                                            |   | $                                                 | 7,886,691 |                                              | $      | 3,047,471 |   |

 

See accompanying notes tocondensed financial statements.

 

6

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Supplemental Disclosure ofCash Flows Information

 
| Cash paid for interest     |   | $      | 113,530 |   | $      | 307    |   |
|----------------------------|--------|--------|---------|--------|--------|--------|--------|
|                       |   |   |    |   |   |
| Cash paid for income taxes |   | $      | —  |   | $      | — |   |

 

Supplemental Disclosure of Noncash Transactions

 

During the three months ended March 31, 2004, certain brokercommissions were paid with 7,400 shares of common stock valued at market priceon date of issue, averaging $7.17 per share.

 

During the three months ended March 31, 2004, an employee of theCompany was granted 1,000 shares of common stock valued at $7.35 per share inlieu of compensation. During the three months ended March 31, 2004, 4,750shares of common stock valued at $7.35 per share were issued to be distributedto Company officers in lieu of compensation.

 

See accompanying notes to condensed financialstatements.

 

7

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GEXA CORP.

Notes to theUnaudited Condensed Financial Statements

(unaudited)

March 31, 2004

 

**1. Basis of Presentation**

 

Theaccompanying unaudited condensed financial statements have been prepared inaccordance with accounting principles generally accepted in the United Statesof America (“GAAP”) for interim financial information and with the instructionsto Form 10-Q and Regulation S-K of the Securities and Exchange Commission.  Accordingly, they do not include all of theinformation and footnotes required by GAAP for complete financial statementsand should be read in conjunction with the audited financial statementscontained in the Company’s Annual Report on Form 10-KSB for the year endedDecember 31, 2003.  In the opinion ofmanagement, all adjustments (consisting of normal recurring accruals)considered necessary for a fair presentation have been included.  Operating results for the three months endedMarch 31, 2004 are not necessarily indicative of the results that may beexpected for the year ended December 31, 2004.

 

As used in this Quarterly Report, the terms “we,”“us,” “our,” the “Company” and “Gexa” mean Gexa Corp., a Texas corporation.

 

**Use ofestimates**

 

Thepreparation of financial statements in accordance with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and the disclosure of contingent assets and liabilities at the dateof the financial statements and revenues and expenses during the reportingperiod.  Actual results could differfrom those estimates. The significant estimates for the Company include (a)estimation of volumes delivered to customers, including the effects ofresettlements from ERCOT (b) estimation of rates for determination of revenues,and (c) bad debt expense.

 

8

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**2. Revenue and Cost Recognition**

 

The Companyrecords electricity sales under the accrual method and these revenues aregenerally recognized upon delivery of electricity to the customer’s meter.Electric services not billed by month-end are accrued based upon estimateddeliveries to customers as tracked and recorded by ERCOT, multiplied by theCompany’s average billing rate per kilowatt hour (“kWh”) in effect at the time.

 

In November2003, the Company changed its revenue estimation technique to one referred toas the “flow” technique.  In the latterhalf of 2003, the Company determined that the market was operating at a pointof efficiency such that it would be appropriate for the Company to beginaccruing revenue based on ERCOT settlements of power deliveries, and given thelimitations of the billings technique, the Company chose to change to the flowtechnique.  In addition, by the end ofthe year 2003, the Company had sufficient initial settlement and resettlementdata from ERCOT to arrive at a reasonable estimate for 2003 revenues assumingthat flow method had been in place since January 1, 2003.

 

The flowtechnique of revenue calculation relies upon ERCOT settlement statements todetermine the estimated revenue for a given month. Supply delivered to ourcustomers for the month, measured on a daily basis, provides the basis forrevenues. ERCOT provides net electricity delivered data in three time frames.Initial daily settlements become available approximately 17 days after the day beingsettled. Approximately 45 days after the day being settled, a ‘resettlement’ isprovided to adjust the initial settlement to the actual supply delivered basedon subsequent comparison of prior forecasts to actual meter reads processed. Afinal resettlement is provided about 180 days after power is delivered, markingthe last routine settlement adjustment to the power deliveries for that day.

 

Because flowdata for resettlements and final resettlements are not available in sufficienttime to be booked to the appropriate period, the effect of such settlements isbooked in the month in which the cost of goods sold (“COGS”) effect of thoseresettlements is realized. This allows for a proper matching of revenues withCOGS.

 

9

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Sales represent the totalproceeds from energy sales- including pass through chargesfrom the Transmission and Distribution Providers (“TDSPs”) billed to thecustomer at cost. COGS includes electric power purchased, sales commissions,and pass through charges from the TDSPs in the areas serviced by the Company.TDSP charges are costs for metering services and maintenance of the electricgrid. TDSP charges are established by regulation by the PUCT.

 

The energyportion of the Company’s COGS is comprised of two components – bilateralwholesale costs, and balancing/ancillary costs.  These two cost components are incurred and recognized indifferent manners.

 

Bilateralwholesale costs are incurred through contractual arrangements with wholesale powersuppliers for firm delivery of power at a fixed volume and fixed price.  The Company is invoiced for these wholesalevolumes at the end of each calendar month for the volumes purchased fordelivery during the month, with payment due 30 days after the end of the month.

 

Balancing/ancillarycosts are based on the customer load and are determined by ERCOT through amultiple step settlement process. Balancing costs/revenues are related to the differential between supplyprovided by Gexa through its bilateral wholesale supply and the supply requiredto serve Gexa’s customer load. Gexa endeavors to minimize the amount ofbalancing/ancillary costs through its load forecasting and forward purchasingprograms.

 

**3. Unbilled Revenue and AccountsReceivable**

 

At the end of each calendarmonth, revenue is accrued to unbilled receivables based on the estimated amountof power delivered to customers per the billings technique for the firstquarter of 2003, or the flow technique for the first quarter of 2004.  Unbilled revenue also includes accruals forestimated TDSP charges and monthly service charges applicable to the estimatedelectricity usage for the period.

 

All chargesthat were physically billed to customers in the calendar month are recordedfrom the unbilled account to the customer receivables account.  Accounts receivables are customerobligations billed at the conclusion of a month’s electricity usage and duewithin 16 days of date of invoice. Balances past due over 21 days are subjectto a late fee that can be assessed one time on that billing.

 

The largenumber of customers and significant volume of transactions in the commercialand residential retail energy business creates a challenge to managereceivables as well as estimate the account balances that ultimately will notbe paid by the customers (bad debt write-offs).  The Company uses a variety of tools to estimate and provide anaccurate and adequate allowance for doubtful accounts reserve; the allowancefor doubtful accounts is expensed each month as a percentage of revenue basedon the historical bad debt write-off trends that will result from that month’sgross revenues.

 

10

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The Company follows aconsistent process to determine which accounts should be written off andcompares the total actual write-offs to the estimated percentage of totalrevenue accrued and expensed each month. Past due accounts are regularly reviewed based on aging for possibleremoval from service, in-house or external collections efforts, orwrite-off.  For residential customers,with some minor exceptions, the total balance for all accounts with any portionof their balance over 60 days past due is considered to be uncollectible and iswritten off net of security deposits held for the accounts.  Delinquent commercial accounts are reviewedindividually by in-house collections, and payment arrangements, removal fromservice, and possible write-off of all or a portion of the receivable is determinedon a case-by-case basis.

 

The Company has initiated avariety of actions targeted to reduce the amount of bad debt incurred by theCompany, principally:

 

•                    Improvedpolicies requiring credit reviews, deposits, and late fees, and

•                    Implementingnew and more aggressive collection efforts.

 

Accounts Receivable containsbilled receivables, unbilled receivables and allowance for doubtful accounts asfollows: 

 
|                            |   | **March 31,  2004** |       | **December  31, 2003** |   |
|---------------------------------|--------|---------------------|------------|------------------------|--------|
| Billed receivables              |   | $                   | 15,398,451 |                   | $      | 13,125,561 |   |
| Unbilled receivables            |   | 12,041,649          |       | 10,313,367             |   |
| Allowance for doubtful accounts |   | (2,108,266          | )          | (1,300,122             | )      |
|                            |   |                |       |                   |   |
| Accounts Receivable, net        |   | $                   | 25,331,834 |                   | $      | 22,138,806 |   |

 

**4. Stock-Based Compensation**

 

TheCompany accounts for its employees’ stock-based compensation plans under theintrinsic value method.  The pro formainformation below is based on a fair value approach.

 
|                                                       |   | **Three  Months Ended  March 31** |       |
|------------------------------------------------------------|--------|-----------------------------------|------------|
|                                                       |   | **2004**                          |       | **2003** |   |
| **Pro forma impact of fair value method (FAS  148)**       |   |                              | ** ** |   | ** ** |
|                                                       |   |                              |       |   |   |
| Reported net income available to common  shareholders      |   | $                                 | 3,491,529  |   | $ | (301,174 | ) |
| Less: fair value impact of employee stock  compensation    |   | (105,686                          | )          | (100,291 | ) |
| Pro forma net income available to common  shareholders     |   | $                                 | 3,385,843  |   | $ | (401,465 | ) |
|                                                       |   |                              |       |   |   |
| **Earnings per common share**                              |   |                              | ** ** |   | ** ** |
| Basic- as reported                                         |   | $                                 | .42        |   | $ | (.04 | ) |
| Diluted- as reported                                       |   | $                                 | .37        |   | $ | (.04 | ) |
| Basic- pro forma                                           |   | $                                 | .40        |   | $ | (.05 | ) |
| Diluted- pro forma                                         |   | $                                 | .35        |   | $ | (.05 | ) |
|                                                       |   |                              |       |   |   |
| **Weighted average Black-Scholes fair value  assumptions** |   |                              | ** ** |   | ** ** |
| Risk free interest rate                                    |   | 5                                 | %          | 5 | % |
| Expected life                                              |   | 3 yrs.                            |       | 3 yrs. |   |
| Expected volatility                                        |   | 124                               | %          | 124 | % |
| Expected dividend yield                                    |   | 0                                 | %          | 0 | % |

 

11

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During the three months ended March 31, 2004, an employee of theCompany was granted 1,000 shares of stock valued at $7.35 per share in lieu ofcompensation. During the three months ended March 31, 2004, 4,750 shares valuedat $7.35 per share were issued to be distributed to Company officers in lieu ofcompensation.

 

**5.Significant Events**

 

Duringthe first quarter of 2004, the Company entered into a joint marketing agreementwith Continental Airlines, Inc. (“Continental”) pursuant to which Continentaland the Company will market the Company’s electricity services to allContinental OnePass members and Continental employees, enabling them to earnOnePass miles**for the amounts they pay to theCompany for electricity**. Payments to Continental bythe Company will be based on the volume of customers enrolled in the programand will consist of both cash and equity. In addition to this residential offering,Gexa anticipates offering the same Continental program to our small commercialcustomers by the end of 2004.

 

Duringthe three months ended March 31, 2004, the Company’s external auditorspresented a finding of material weakness to the Company’s audit committee. Seediscussion of this matter at Item 4. Controls and Procedures.

 

**6.Put Warrant Obligation**

 

SFAS No. 150, *Accounting for Certain Financial Instruments withCharacteristics of Both Liabilities and Equity*, was issued in May2003 and requires issuers to classify as liabilities (or assets under certaincircumstances) free standing financial instruments which, at inception, requireor may require an issuer to settle an obligation by transferring assets. SFASNo. 150 is effective for financial instruments entered into or modified afterMay 31, 2003 and is otherwise effective at the beginning of the first interimperiod beginning after June 15, 2003.

 

SFAS No. 150 requireswarrants issued under a term loan agreement with The Catalyst Fund Ltd. to be classifiedas a liability. In January of 2005, The Catalyst Fund Ltd. may exercise itsright to force the Company to repurchase the 550,000 common shares at thecurrent market price on the common stock, less the warrant exercise price of$1.00. The put feature may be accelerated by a change of control or a capitaloffering in excess of $10 million; therefore, the Company could be forced topurchase up to 550,000 shares of its own common stock at the market price (lessthe $1 warrant exercise price) on the day the put option is exercised.

 

12

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At March 31, 2004, theCompany’s stock closed at $4.90 per share. The decrease in the market pricefrom the valuation at December 31, 2003 based on a December 31, 2003 closeprice of $8.50 per share required the Company to record a decrease in the valueof the puttable warrant obligation of $1,980,000 for the three months endedMarch 31, 2004 as other financing income in accordance with SFAS No. 150.

 

For the duration of theexistence of the Warrants, at each balance sheet date, this financing expenseor income and the related redemption obligation will be updated at each balancesheet date. For every $1 increase in the market value of the Company’s stock,the puttable warrant obligation will increase by $550,000. For every $1decrease in the market value of the Company’s stock, the puttable warrantobligation will decrease by $550,000, to the extent the Company’s stock priceremains in excess of the $1 Warrant exercise price.

 

**7.Related Party Transactions**

 

There were norelated party transactions during in the three months ended March 31, 2004.

 

**8.Income Taxes**

** **

The effectiveincome tax rate reflected in the 'Income tax expense' for the first quarter of2004 is lower than the Company's expected effective tax rate of approximately37%. Included in 'Income before taxes' is $1,980,000 of 'Other financingincome' related to puttable warrants (see Footnote 6, Puttable WarrantObligations); the income related to the puttable warrants is not taxable.Therefore, 'Income before Income tax expense' is reduced by the amount of the'Other financing income' prior to calculating 'Income tax expense', therebylowering the effective tax rate.

** **

**9.Subsequent Events**

 

In April 2004, the Company signeda lease for office space located at 20 Greenway Plaza. The office facilityconsists of approximately 26,700 square feet, and we expect to occupy thisspace by the end of the second quarter. The lease terminates in January 2011.This new lease will have no impact on the terms or obligations of the Company’slease listed above at 24 Greenway Plaza.

 

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**Item2.****Management’s Discussion and Analysis of FinancialCondition and Results of Operations**

 

**ForwardLooking Statements**

 

This quarterlyreport on Form 10-Q includes “forward-looking statements” within the meaning ofSection 27A of the Securities Act of 1933, as amended (the “Securities Act”),and Section 21E of the Securities Exchange Act of 1934, as amended (“ExchangeAct”).  All statements other thanstatements of historical fact are forward-looking statements.  Forward-looking statements are subject tocertain risks, trends and uncertainties that could cause actual results todiffer materially from those projected. Among those risks, trends and uncertainties are our estimate of thesufficiency of existing capital sources, our ability to raise additionalcapital to fund cash requirements for future operations, our assumptionsregarding the competitive restructuring and deregulation of the electricitymarket, competition from utility companies, our dependence on the services ofcertain key personnel and our ability to manage our growth successfully.  Although we believe that in making suchforward-looking statements our expectations are based upon reasonableassumptions, such statements may be influenced by factors that could causeactual outcomes and results to be materially different from thoseprojected.  We cannot assure you thatthe assumptions upon which these statements are based will prove to have beencorrect.

 

When used inthis Form 10-Q, the words “expect”, “anticipate”, “intend,” “plan,” “believe,”“seek,” “estimate” and similar expressions are intended to identifyforward-looking statements, although not all forward-looking statements containthese identifying words.  Because theseforward-looking statements involve risks and uncertainties, actual resultscould differ materially from those expressed or implied by theseforward-looking statements for a number of important reasons, including thosediscussed under “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” and elsewhere in this Form 10-Q.

 

You shouldread these statements carefully because they discuss our expectations about ourfuture performance, contain projections of our future operating results or ourfuture financial condition, or state other “forward-looking” information.  Before you invest in our stock, you shouldbe aware that the occurrence of any of the events described in “Management’sDiscussion

 

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and Analysis of FinancialCondition and Results of Operations” and elsewhere in this Form 10-Q couldsubstantially harm our business, results of operations and financial conditionand that upon the occurrence of any of these events, the trading price of ourcommon stock could decline, and you could lose all or part of your investment.

 

We cannotguarantee any future results, levels of activity, performance orachievements.  Except as required bylaw, we undertake no obligation to update any of the forward-looking statementsin this Form 10-Q after the date of this Form 10-Q.

 

**Results of Operations**

 

Revenues

 

The Company has continuedits strong pattern of growth with revenue expansion of 290% in the three monthsended March 31, 2004 as compared to revenues for the three months ended March31, 2003. For the three months ending March 31, 2004 the Company billed anaverage of 69,400 customers who, in total, consumed approximately 570,374megawatt hours (“mwh”) for the three month period as compared to approximately24,500 customers using approximately 168,066 mwh for the three months endedMarch 31, 2003.

 

These changes are reflectiveof at least two continuing general trends in the Company’s customer base. Onthe residential side, the Company’s direct marketing to apartments has greatlyincreased residential customer count. On the commercial side, we have been ableto add to our number of commercial accounts and gain larger commercialcustomers. This has resulted in a well diversified customer base, includingseveral large customers in a variety of industries in addition to our core baseof apartment complexes and small to mid-sized commercial clients.

 

Costs of goods sold

 

Costs of goods sold were 88%and 94% of sales for the three months ended March 31, 2004 and 2003,respectively.  Excess supply sold on thebalancing market undergoes three rounds of settlements to come to a final determinationof the balance of supply transacted each day. The second and third roundresettlements take several months to be finalized and the Company does not havethe ability to forecast the outcome of these settlements and their impact onvaluations achieved in first round settlements. The revenue effect of thesesettlements will be realized in future periods when the costs of goods soldimpact is billed and expensed to the Company.

 

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General and administrative expenses

 

General and administrativeexpenses were 7% and 9% of sales for the three months ended March 31, 2004 and2003, respectively. Improved economies of scale largely account for theimproved ratio of general and administrative expenses for the three monthsended March 31, 2004. In the past year the Company has also automated manyprocesses, including payment processing, and greatly improved the efficiency ofdata entry and receivables management. These enhancements have increasedproductivity, thus reducing general and administrative costs per account.

 

Salary expensewill increase in 2004 as a result of normal staff additions to accommodategrowth, and for new employees in executive and middle management roles,specifically in the finance function as necessary to improve our systems ofinternal controls as discussed below in Item 4. Controls and Procedures.

 

Otherfinancing income (expense)

 

On July 16,2003, warrants to acquire 550,000 shares of common stock were granted to TheCatalyst Fund Ltd. in consideration of a term loan. These warrants contained aput feature allowing the holder to exercise the warrants at a $1.00 per shareexercise price, and then force the Company to repurchase them at market value**upon the occurrence of certain events**.In accordance with SFAS No. 150, the warrants were initially recorded as adiscount to debt based on the close price of the Company’s common stock on thedate of issuance ($1.90) minus the exercise price, multiplied by the number ofwarrants, or $495,000. At each balance sheet date, any change in the closeprice of the common stock must be used to calculate and record financingexpense or income amount to reflect the difference on that date between themarket price of the Company’s stock and the exercise price of the warrants.

 

At March 31, 2004, theCompany’s stock closed at $4.90 per share. This decrease in the market pricefrom the $8.50 at December 31, 2003 required the Company to record a decreasein the value of the puttable warrant obligation of $1,980,000 for the threemonths ended March 31, 2004 as other financing income in accordance with SFASNo. 150.

 

**Liquidity and Capital Resources**

 

Since inception, the Companyhas financed its business operations and growth through a combination ofprivate equity placements, revolving credit lines, payment terms fromsuppliers, and term loan debt.

 

During the three monthsended March 31, 2004, the Company raised $671,016 via private placement of167,254 shares of Company common stock at $4 per share. These funds weredesignated to be used to support the Company’s continued operational expansion.

 

Our use of capital isprimarily driven by working capital needed to operate as a Retail ElectricityProvider (“REP”). We experience a time delay between purchasing electricity toflow to customers and receiving payments from our customers. This workingcapital cycle is impacted most by seasonality and customer count growthrates.  On average, our accountsreceivable turn approximately every 45-50 days, when considering both thebilled and unbilled receivables concurrently. Pursuant to our agreement withTXU PM, payments to TXU PM for monthly electricity purchases are on the lastbusiness day of the month following delivery. As a result of the TXU PM agreement and amendments thereto, the accruedelectricity costs as of December 31, 2003 reflected $7.8 million of Novemberdeliveries that were paid on January 2, 2004. Therefore, in the first quarter of 2004, the Company paid electricityinvoices to TXU PM for deliveries that took place in November and December2003, as well as January and February 2004. Consistent with the terms of the TXU PM agreement, the Company paid theinvoice for January deliveries at the end of February and the Februarydeliveries at the end of March 2004, and the Company anticipates that futureelectricity invoices will be due and paid at the end of the month followingdelivery.

 

 

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 Seasonality impacts our working capital needs, as the hottersummer months (driven by air conditioning) increase our electricity needsduring the second and third quarters, and commensurately reduces those needs inthe first and fourth quarters. With respect to customer growth rates, ourconstant addition of customers drives an increasing need for working capitalfunding for electricity purchases. Over time, should the growth rate level off,we would anticipate our business to fund working capital from cash reserves onhand. However, given our growth rates, we have continued needs for additionalsources of working capital financing to purchase electricity and expandoperations. In addition to working capital, we do spend capital for investmentsin operational infrastructure to serve our customers, but this amount isrelatively minor compared to the working capital needed for electricitypurchases.

 

Our largestcost in conducting business is the purchase of electricity. Our agreement withTXU PM provides both a source of electricity supply and vendor financing.  Since our commercial customer contracts have durations of one and twoyear terms, we attempt to match our customer obligations to our supplypurchases. Gexa purchases electricity from TXU PM and from third parties basedon its forecast of needs and monthly purchase limits imposed by TXU PM.Additionally, TXU PM reserves the right to review the credit-worthiness of allcustomers with peak demand of at least one megawatt. Gexa pays a monthly creditfee to TXU PM based on its monthly electricity purchases from TXU PM, as wellas small monthly administrative fees. TXU PM also provides credit guarantees toGexa to enable it to purchase electricity from third parties, in return for amonthly fee. The agreement has an initial term of five years, expiring in April2008, and renews thereafter on a year-to-year basis unless either party givesnotice of termination.

 

Purchasing this electricityexposes the wholesale electricity provider to credit risk that may exist due toany payment risk. Accordingly, TXU PM has three sources of security from theCompany to support this agreement. First, TXU PM has first lien on all of theCompany’s assets. Second, our customer receipts are managed through a lockboxarrangement controlled by TXU PM under which certain costs of good sold itemsand the monthly TXU PM invoice are paid during each month with the Companyreceiving any remaining funds to be used for operating expenses. TXU PM mustapprove all disbursements from the Company’s lockbox. Third, the Companyis required to post a cash collateralized letter of credit in amountsdetermined by TXU PM pursuant our agreement.

 

The TXU PMagreement also has a monthly limit for megawatt hours, which was recentlyincreased to enable the Company to continue to grow and handle the higherseasonal summer volumes.  Given our recent growth experience, weanticipate that the Company may reach that cap this summer, and may potentiallyneed to increase it through discussions with TXU PM.  There is noguarantee that TXU PM will increase this limit. As of March 31, 2004 the Companyhas $1,320,000 posted as a fully cash-collateralized letter of credit to TXUPM.  Under the current TXU PM agreement,we anticipate needing to post a cash collaterized letter of credit ofapproximately $5 million for power purchases this summer. The Company willrequire additional financing to collateralize and post this letter of credit.These funds add to the working capital requirements of our business and poseliquidity limitations to our growth.  Without having an investment gradecredit rating, we anticipate that we will continue to either increase ourlimits with TXU PM or reach agreements with additional third-parties for needsthat we may have above our current agreement.  However, there are noassurances that those agreements will be reached or that the modifications toany agreements will be made.

 

 

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As of March 31, 2003, theCompany had deposited approximately $3.3 million with JP Morgan Chase Bank toobtain letters of credit allowing us to purchase power on forward contracts,buy and sell power in the daily balancing markets, and pay TDSP invoices formetering charges passed through to customers on thirty five day terms. As ofMarch 31, 2003, approximately $2.7 million has been utilized under thosefacilities to purchase letters of credit.

 

Itis the policy of the Company to match, as accurately as possible, powerpurchases to expected customer demand. For power purchases, we use a combination of long-term contracts,short-term contracts, month-ahead purchases, and day-ahead purchases to matchup with forecasted demand of our commercial customers on long-term salescontracts, commercial customers on month-to-month contracts, and residentialcustomers (which are all on the equivalent of month-to month contracts.)   Our sales force bases their pricing quotesto potential customers on our minimum margin targets, ensuring better integrityof our cash flow from continued operations.

 

In July 2003, the Companyentered into a term loan agreement with The Catalyst Fund Ltd. who acted as theagent for a term loan providing the Company with $3.0 million in funds to beused for the growth of operations, including electricity purchases, in theTexas marketplace. In consideration of the loan, The Catalyst Fund Ltd.acquired a second lien on all Company assets.  Principal payments due on the loan total $608,333 in 2004, $811,111 foreach of the years 2005 through 2007, and $405,556 due in 2008. Payments are dueon a quarterly basis in the amount of $202,778. For a more complete descriptionof the terms of the Catalyst loan, see Note 7 to the Financial Statementsherein. For the three months ended March 31, 2004, the Company was incompliance with all financial covenants under the loan agreement.

 

We believe our rapid growthwill continue in the Texas market for 2004. We have no plans to enteradditional markets without raising additional capital in advance and buildingthe necessary infrastructure. While we do continue to assess new deregulatedmarkets in other states, our growth within the Texas market takes precedence.

 

The capital demands of ourrapid growth and/or severe seasonality will likely impact our cash flow andrequire us to raise additional funds through financing activities.  In order to maintain our current rapidgrowth rate we will likely have to raise additional capital. We may seek toraise additional funds from the sale of equity or debt securities or otherborrowings. There can be no assurance that we will be able to secure financingnecessary to continue our planned expansion. In addition, we cannot assure that such financing will be available onterms that will make such growth or expansion economically viable.

 

Depending on the growth ofits customer base, the Company may need to obtain financing to meet itsexpected cash collateralized letter of credit obligations for summer 2004electricity purchases under the TXU PM agreement. Our ability to borrowadditional funds is limited.  Theconsent of both TXU PM and The Catalyst Fund Ltd. would be required.  TXU currently holds a first lien on all ofour assets and The Catalyst Fund 

 

 

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Ltd. holds a second lien on all of our assets.  We are currently negotiating to refinanceour debt owed to The Catalyst Fund Ltd., and anticipate that any lender thatfinances us will require a second lien on all of our assets.  In addition, our limited resources may makeit difficult to borrow additional funds. Any additional debt financing obtained by us will subject us to therisks normally associated with such financing, including the risk of losingvaluable property or assets in the event we are unable to service such debt.

 

Because our ability toborrow is limited, we may also be required to raise additional capital throughequity financing. Any such equity financing may be made at a price below themarket price of our common stock.  Tothe extent that additional shares of common stock are issued, our shareholderswould experience dilution, which may be substantial, of their respectiveownership interests in the Company. Furthermore, the issuance of a substantial number of shares of commonstock may adversely affect prevailing market prices for the common stock andcould impair our ability to raise additional capital through the further saleof equity securities.

 

 

**Item 3.****Quantitative and Qualitative Disclosures About MarketRisk**

 

For an in-depth discussionof Gexa’s market risks, see “Risk Factors” in Gexa’s Form 10-KSB for December31, 2003.

 

**CommodityPrice Risk**

 

Gexais exposed to the impact of market fluctuations in the prices of electricityassociated with the purchase and sale of electricity to its customers.   Gexa enters into short and long termagreements to purchase electricity; these contracts that qualify for the normal purchases and salesexemption described in Paragraph 10 of SFAS No. 133 and DIG Issue No. C15. Forcontracts qualifying for the scope exception, no recognition of the contract’sfair value in the Financial Statements is required until settlement of thecontract. Gexa has applied this scope exception for its contracts involving thepurchase and sale of electricity at fixed prices in future periods.  Income recognition and realization relatedto normal purchases and normal sales contracts generally coincide with thephysical delivery of power.

 

**Credit Risk**

 

For an in-depth discussion of the Company’scredit risk and credit risk management initiative, see “Risk Factors” in Gexa’sForm 10-KSB for December 31, 2003.

 

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Equity PriceRisk

 

For a description of the Company’s equityprice risk, see Footnote 6 of this 10-Q entitled “Put Warrant Obligation”.

 

Interest RateRisk

 

The Company has a leveraged capital structurewhich could expose it to risk of fluctuating interest rate.  As of March 31, 2004, all the Company’sfinancial debt obligation are fixed rate debt obligation.  Therefore, the Company is not currently subjectto interest rate risk.

 

**Item 4.****Controls and Procedures.**

 

Asof the end of the period covered by this report, **the Company** carried out anevaluation, **under the supervision and**the participation of the**Company’s**management, including the **Company’s** Chief ExecutiveOfficer and the**Company’s**Chief Accounting Officer, of the effectiveness of **the design and operation of the Company’s**disclosure controls and procedures pursuant to Rule 13a-15 of the Securities **and**Exchange Act of **1934, as amended (the “Exchange Act”).** Based on **this evaluation**,the **Company’s Chief Executive Officer and ChiefAccounting Officer concluded**that **the Company’s** disclosurecontrols and procedures **were not effective, for the reasonsdiscussed below, in timely accumulations and communicating**to **them** information

 

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required to be disclosed by **the Company** in the reportsthat it **files or submits under the Exchange Act.**

 

**In connection with the audit of our financial statements for the fiscalyear ended December 31, 2003, our independent auditors, Hein & AssociatesLLP, informed us in writing that they had discovered a number of issues thatconstituted material weaknesses in our internal controls.  The identified deficiencies generally relateto (i) adequacy of the training of the staff within the Company’s accountingdepartment, and (ii) quality control over the financial reporting process.  Our auditors also indicated that theCompany’s new method for calculating its revenues required additional reviewand testing.  Previously, the Companyestimated revenues based on billings (the “billing” method), but theavailability of accurate and timely electricity supply delivery data for theentire 2003 fiscal year now allows the Company to estimate revenues based onmeasuring electricity as delivered to its customers (the “flow” method).  In the fourth quarter of 2003 and the firstquarter of 2004, the Company conducted additional testing and review of thecontrols and the source data being used to calculate revenues as well as theflow method of revenue calculation. Based on that review, the Company adopted the flow method fordetermining its revenues in fiscal year 2003 and thereafter.**

 

**Because of the issues raised by our auditors, including the review of ourrevenue calculation method, we were unable to timely file our Annual Report onForm 10-KSB for the fiscal year ended December 31, 2003 and our QuarterlyReport on Form 10-Q for the three months ended March 31, 2004.  In addition, the Audit Committee of ourBoard of Directors, with the assistance of independent counsel, began aninvestigation of the issues raised by our auditors, including revenuecalculation methods, which has only recently been completed.  The Audit Committee recommended that theCompany approve an action plan (the “Action Plan”), which has been reviewed andadopted by the Board of Directors.  TheAction Plan requires the Company to immediately undertake and complete a numberof actions (some of which have already been taken) including:**

 

•                                          **institute newdocument control procedures including an updated disaster and recovery plan.**

 

•                                          **finalize thesearch for a permanent CFO.**

 

•                                          **hire personnelwith experience in SEC reporting and accounting, human resources and investorrelations.**

 

•                                          **create newpolicies and procedures for the issuance of press releases and the preparationof SEC reports.**

 

•                                          **establish aninternal Disclosure Review Committee to review and coordinate SEC reports, andprepare a policy regarding the notification of senior management and the Boardof material developments.**

 

•                                          **add to and improveaccounting policies and procedures.**

 

•                                          **conduct a reviewof the Company’s internal controls pursuant to Section 404 of theSarbanes-Oxley Act.**

 

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•                                          **establish atraining program for all relevant personnel regarding SEC reporting,Sarbanes-Oxley Act compliance and related issues.**

 

**In reaching these conclusions, the Audit Committee indicated that whilethere were material weaknesses in the Company’s internal controls related tofinancial reporting, there was no intentional misconduct that occurred inconnection with the matters outlined in the material weakness letter sent bythe Company’s auditors.**

 

**To date, the Company has instituted the following actions and iscontinuing to work on implementing the remaining items in the Action Plan:**

 

•                                          **The Board hasadopted a new Disaster Recovery Plan, a policy regarding the issuance of pressreleases, and has formed an internal Disclosure Review Committee to review andassist in the preparation of the Company’s filings with the SEC.**

 

•                                          **The Company isfinalizing its search for a permanent CFO and other personnel mentioned in theAction Plan.**

 

**The Company is assigning high priority to the implementation of theAction Plan and will continue to evaluate the effectiveness of internal controlsand procedures on an on-going basis.  Itshould be noted that in designing and evaluating the disclosure controls andprocedures, management recognizes that any controls and procedures, no matterhow well designed and operated, can provide only reasonable assurance ofachieving the desired controlled objectives, and management necessarily wasrequired to apply its judgment and evaluating the cost benefit relationship ofpossible controls and procedures.  Basedon the evaluation described above and the implementation of the Action Plan todate, the Company’s Chief Executive Officer and Chief Accounting Officerconcluded that the Company’s disclosure controls and procedures were effectiveat reaching that level of reasonable assurance.**

 

**There has been no change in our internal controls over financialreporting during the period ended March 31, 2004, with the exception of theitems noted above, that has materially effected or is reasonably likely tomaterial effect our internal control over financial reporting.**

 

**PART II. OTHER INFORMATION**

 

**Item 1.Legal Proceedings**

 

In 2003, the Company wassued in the matter of Kyle Holland vs. Gexa Corp. et al. in the UnitedStates District Court, Western District of Texas. Mr. Holland alleged damagesin connection with his acquisition of common stock in the Company. The caseremains in the preliminary stages due to a delay on the part of the plaintiffin completing the steps to initiate a legal proceeding. The Company intends tocontest the suit vigorously.

 

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The Company is involved invarious receivable collections matters as a plaintiff. The Company believes **that**there are no **pending** matters that willhave a significant impact on the Company’s financial position or results ofoperations.

 

**Item 2. Changes****in Securities, Use of Proceeds andIssuer Purchases of Equity Securities**

 

None.

 

**Item 3. Default Upon****Senior Securities**

 

None.

 

**Item 4. Submission****of Matters to a Vote of SecurityHolders**

 

None.

 

**Item 5. Other****Information**

 

None.

 

**Item 6. Exhibits****and Reports on Form 8-K**

 

(a) Exhibits:

 
| 31.1                    |   | Certification of Chief  Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  |
|-------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                    |   |                                                                                                                                                               |
| 31.2                    |   | Certification of Chief  Accounting Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange  Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|                    |   |                                                                                                                                                               |
| 32.1                    |   | Certification of Chief  Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.                |
|                    |   |                                                                                                                                                               |
| 32.2                    |   | Certification of Chief  Accounting Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.               |
|                    |   |                                                                                                                                                               |
| (b) Reports on Form 8-K |

 

Current report on Form 8-Kdated March 30, 2004 announcing the Company’s filing of Form 12b-25 to extendthe period to file Form 10-KSB for the fiscal year ended December 31, 2003.

 

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Current report on Form 8-Kdated March 10, 2004 announcing a joint marketing partnership with ContinentalAirlines.

 

Current report on Form 8-Kdated February 18, 2004 announcing financial results for the quarter and yearended December 31, 2003.

 

**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has caused this report to be signed on itsbehalf by the undersigned thereunto duly authorized.

 
| Gexa Corp.                             |
|----------------------------------------|
|                                   |
| By:                                    | /s/ Neil  Leibman |   |
| Neil  Leibman, Chairman and CEO        |
| (principal  executive officer)         |
| Dated: May  21, 2004                   |
| Houston,  Texas                        |
|                                   |
| By:                                    | /s/ Sarah  Veach |   |
| Sarah Veach,  Chief Accounting Officer |
| (principal  accounting officer)        |
| Dated: May  21, 2004                   |
| Houston,  Texas                        |

 

**EXHIBITS ARE ON FOLLOWING PAGES**

 

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