UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
Commission file number 0-6994
MEXCO ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Colorado 84-0627918
(State or other jurisdiction (IRS Employer
of incorporation) Identification Number)
214 West Texas Avenue, Suite 1101, Midland, Texas 79701
(Address of principal executive offices)
(432) 682-1119
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common Stock, $0.50 par value:
1,736,041 shares outstanding at August 8, 2003
MEXCO ENERGY CORPORATION
Table of Contents
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Page
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PART I. FINANCIAL INFORMATION
- -------------------------------
Item 1. Consolidated Balance Sheets as of June 30, 2003
(Unaudited) and March 31, 2003 3
Consolidated Statements of Operations (Unaudited) for
the three months ended June 30, 2003 and June 30, 2002 4
Consolidated Statements of Cash Flows (Unaudited) for
the three months ended June 30, 2003 and June 30, 2002 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
Item 4. Controls and Procedures 13
PART II. OTHER INFORMATION 13
- ---------------------------
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
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
SIGNATURES 14
- ----------
CERTIFICATIONS 15
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Page 2
MEXCO ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, March 31,
2003 2003
------------ ------------
(Unaudited)
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 125,368 $ 68,547
Accounts receivable:
Oil and gas sales 438,751 560,297
Trade 51,114 17,617
Related parties -- 3,475
Prepaid expenses 23,980 10,043
------------ ------------
Total current assets 639,213 659,979
Property and equipment, at cost:
Oil and gas properties and equipment,
using full cost method, pledged 16,175,166 15,656,928
Office and computer equipment
and software 34,217 33,708
------------ ------------
16,209,383 15,690,636
Less accumulated depreciation,
depletion and amortization 8,879,594 8,661,977
------------ ------------
Property and equipment, net 7,329,789 7,028,659
------------ ------------
Total assets $ 7,969,002 $ 7,688,638
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 241,690 $ 93,434
Current portion of long-term debt -- 116,280
Obligations under capital leases 40,339 61,086
------------ ------------
Total current liabilities 282,029 270,800
Long-term debt 1,900,000 2,033,720
Asset retirement obligation 353,083 --
Deferred income tax liability 417,419 427,730
Stockholders' equity:
Preferred stock, par value $1 per share;
10,000,000 shares authorized;
none issued -- --
Common stock, par value $0.50 per share;
40,000,000 shares authorized; 1,766,566
shares issued 883,283 883,283
Additional paid in capital 3,746,099 3,734,119
Retained earnings 516,010 466,522
Treasury stock, at cost (30,525 and 30,244
shares, respectively) (128,921) (127,536)
------------ ------------
Total stockholders' equity 5,016,471 4,956,388
------------ ------------
Total liabilities and stockholders'
equity $ 7,969,002 $ 7,688,638
============ ============
THE ACCOMPANYING NOTE IS AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS.
Page 3
MEXCO ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months ended June 30, 2003 and 2002
(Unaudited)
2003 2002
------------ ------------
Operating revenue:
Oil and gas sales $ 767,060 $ 544,650
Other 1,266 6,614
------------ ------------
Total operating revenue 768,326 551,264
Operating costs and expenses:
Oil and gas production 268,692 156,604
Depreciation, depletion and amortization 166,219 123,523
General and administrative 115,978 139,008
------------ ------------
Total operating costs and expenses 550,889 419,135
------------ ------------
217,437 132,129
Other income and (expenses):
Interest income 62 126
Interest expense (30,104) (20,849)
------------ ------------
Net other income and expenses (30,042) (20,723)
------------ ------------
Income before income taxes 187,395 111,406
Income tax expense 35,635 34,260
------------ ------------
Income before cumulative effect of
accounting change 151,760 77,146
Cumulative effect of accounting change,
net of tax (102,267) --
------------ ------------
Net income $ 49,493 $ 77,146
============ ============
Net income (loss) per common share:
Basic:
Income before cumulative effect
of accounting change $ 0.09 $ 0.04
Cumulative effect, net of tax $ (0.06) $ --
Net income $ 0.03 $ 0.04
Diluted:
Income before cumulative effect
of accounting change $ 0.09 $ 0.04
Cumulative effect, net of tax $ (0.06) $ --
Net income $ 0.03 $ 0.04
Pro forma amounts assuming, the new method
of accounting for asset retirement
obligations is applied retroactively:
Net income $ 151,760 $ 71,861
Basic earnings per share $ 0.09 $ 0.04
Diluted earnings per share $ 0.09 $ 0.04
THE ACCOMPANYING NOTE IS AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS.
Page 4
MEXCO ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months ended June 30, 2003 and 2002
(Unaudited)
2003 2002
---------- ----------
Cash flows from operating activities:
Net income $ 49,493 $ 77,146
Cumulative effect of accounting change
net of tax 102,267 --
Adjustments to reconcile net income
to net cash provided by operating
activities:
Increase in deferred income taxes 35,635 34,260
Stock-based compensation 11,980 11,597
Depreciation, depletion and
amortization 166,219 123,523
Accretion of abandonment obligation 5,824 --
(Increase) decrease in
accounts receivable 91,525 (12,439)
Increase in prepaid expenses (13,937) (17,387)
Increase in accounts payable
and accrued expenses 54,264 3,598
---------- ----------
Net cash provided by operating
activities 503,270 220,298
Cash flows from investing activities:
Additions to property and equipment (174,317) (86,636)
---------- ----------
Net cash used in investing
activities (174,317) (86,636)
Cash flows from financing activities:
Acquisition of treasury stock (1,385) (120,526)
Payments of capital lease obligations (20,747) --
Principal payments on long-term debt (250,000) --
Principal borrowings on
long-term debt -- 60,000
---------- ----------
Net cash used by financing activities (272,132) (60,526)
---------- ----------
Net increase in cash 56,821 73,136
Cash, beginning of the period 68,547 44,958
---------- ----------
Cash, end of period $ 125,368 $ 118,094
========== ==========
Interest paid $ 25,642 $ 20,476
Income taxes paid $ -- $ --
THE ACCOMPANYING NOTE IS AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS.
Page 5
MEXCO ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A. Organization and Significant Accounting Policies
- ------- ------------------------------------------------
Organization and Basis of Presentation
- --------------------------------------
Mexco Energy Corporation, a Colorado corporation, was organized in 1972 and
maintains its principal office in Midland, Texas. The Company and its wholly
owned subsidiary, Forman Energy Corporation, a New York corporation,
(collectively the "Company") are engaged in the acquisition, exploration,
development and production of oil and gas. While the Company owns producing
properties and undeveloped acreage in eleven states, the majority of its
activities are centered in the Permian Basin of West Texas. Although most of the
Company's oil and gas interests are operated by others, the Company operates a
number of properties in which it owns an interest.
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial position of the Company and
its wholly owned subsidiary as of June 30, 2003, and the results of its
operations and cash flows for the interim periods ended June 30, 2003 and 2002.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for a full year. The accounting
policies followed by the Company are set forth in more detail in Note A of the
"Notes to Consolidated Financial Statements" in the Company's annual report on
Form 10-K filed with the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted in this Form 10-Q pursuant to the rules
and regulations of the Securities and Exchange Commission. However, the
disclosures herein are adequate to make the information presented not
misleading. It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included in the Form
10-K.
Principles of Consolidation
- ---------------------------
The accompanying consolidated balance sheets include the accounts of the Company
and its wholly owned subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
- ----------------
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to
make estimates and assumptions that affect the amount reported in these
financial statements. Although management believes its estimates and assumptions
are reasonable, actual results may differ materially from those estimates.
Significant estimates affecting these financial statements include the estimated
quantities of proved oil and gas reserves and the related present value of
estimated future net cash flows.
Stock-based Compensation
- ------------------------
The Company accounts for employee stock option grants in accordance with
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" ("APB 25"), as amended by Financial Accounting Standards Board
("FASB") Interpretation No. 44, "Accounting for Certain Transactions involving
Stock Compensation," an interpretation of APB Opinion No. 25. The Company
applies the intrinsic value method in accounting for its employee stock options
and records no compensation costs for its stock option awards to employees. The
Company recognizes compensation cost related to stock options awarded to
independent consultants based on fair value of the options at date of grant. For
the quarter ending June 30, 2003, the Company recognized $11,980 related to
these stock options for independent consultants.
Page 6
The following pro forma information, as required by Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS
123"), as amended by Statement of Financial Accounting Standards No. 148 ("SFAS
148"), presents net income and earnings per share information as if the stock
options issued had been determined based on the fair value at the grant dates
for all employee awards under the plan:
Three Months Ended
June 30,
2003 2002
---------- ----------
Net income, as reported $ 49,493 $ 77,146
Deduct: Stock-based employee
compensation expense determined
under fair value based method
(SFAS 123), net of tax $ (14,399) $ (11,729)
---------- ----------
Net income, pro forma $ 35,094 $ 65,417
========== ==========
Basic earnings per share:
As reported $ 0.03 $ 0.04
Pro forma $ 0.02 $ 0.04
Diluted earnings per share:
As reported $ 0.03 $ 0.04
Pro forma $ 0.02 $ 0.04
Asset Retirement Obligations
- ----------------------------
The Company's asset retirement obligations relate to the plugging and
abandonment of oil and gas properties. The Company adopted SFAS No. 143 on April
1, 2003. SFAS No. 143 requires the fair value of a liability for an asset
retirement obligation to be recorded in the period in which it is incurred and a
corresponding increase in the carrying amount of the related long-lived asset.
The change resulted in a cumulative effect to net income of ($102,267) net of
tax, or ($0.06) per share. Additionally, the Company recorded an asset
retirement obligation liability of $358,419 and an increase to net properties
and equipment and other assets of $210,206. As a result of adoption for the
current three-month period, depreciation expense increased $2,279 and interest
expense related to accretion of the obligation for the quarter increased $5,824.
There were no additional asset retirement obligations incurred or settled during
the first quarter of fiscal 2004. The current portion of the asset retirement
obligation as of June 30, 2003 is $11,160 and is included in accounts payable
and other accrued expenses.
Oil and Gas Costs
- -----------------
The cost of a certain oil and gas lease that the Company has acquired, but not
evaluated has been excluded in computing amortization of the full cost pool. The
Company will begin to amortize this property when the project is evaluated,
which is currently estimated to be within this fiscal year. Costs excluded from
amortization at June 30, 2003 total $673,890. No impairment exists for this
property at June 30, 2003.
Earnings Per Share
- ------------------
Basic earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted earnings
per share is computed by dividing net income by the weighted average number of
common shares and dilutive potential common shares (stock options and warrants)
outstanding during the period. The following is a reconciliation of the number
of shares used in the calculation of basic earnings per share and diluted
earnings per share for the three month periods ended June 30, 2003 and 2002.
Three Months Ended
June 30
2003 2002
---------- ----------
Weighted average number of
common shares outstanding 1,736,067 1,754,338
Incremental shares from the
assumed exercise of dilutive
stock options and warrants 24,417 12,582
---------- ----------
Dilutive potential common shares 1,760,484 1,766,920
Options and warrants to purchase 120,000 at an average exercise price of $7.25
and 220,000 shares at an average exercise price of $6.23 outstanding at June 30,
2003 and June 30, 2002, respectively, were not included in the computation of
diluted net income per share because the exercise price of the options and
warrants was greater than the average market price of the common stock of the
Company and, therefore, the effect would be antidilutive.
Page 7
Income Taxes
- ------------
There is no current income tax expense for the three months ended June 30, 2003
due to a tax loss carryforward of approximately $139,000 from the year ending
March 31, 2003. There is no current income tax expense for the three months
ended June 30 2002 due to a tax loss carryforward of approximately $283,000 from
the year ending March 31, 2002.
Stockholders' Equity
- --------------------
During the three month period ended June 30, 2003, the Company paid $1,385 to
purchase 281 shares of its common stock for treasury.
Long Term Liabilities
- ---------------------
Long term debt consists of a revolving credit agreement with Bank of America,
N.A. ("Bank"), which provides for a credit facility of $5,000,000, subject to a
borrowing based determination. On November 15, 2002, the borrowing base was
re-determined and reduced to $2,526,744 with monthly commitment reductions of
$30,814 beginning on December 5, 2002. As of June 30, 2003, the balance
outstanding under this agreement was $1,900,000. No principal payments are
required through June 30, 2004 to comply with the monthly commitment reductions.
Amounts borrowed under this agreement are collateralized by the common stock of
the Company's wholly owned subsidiary and all oil and gas properties.
The asset retirement obligation as of June 30, 2003 represents the present value
of the Company's estimated asset retirement obligation under SFAS 143.
Capital Lease Obligations
- -------------------------
During fiscal 2003, the Company began leasing three gas compressors under
separate agreements that are classified as capital leases. The cost of the
equipment under the capital leases is included in the balance sheet as property
and equipment and was $81,182 with accumulated amortization of $7,265 on June
30, 2003. Amortization of assets under capital leases is included in
depreciation expense. The lease agreements are each for a 12-month period with
equal monthly payments. At the end of the term, the Company will receive title
to the compressor under a bargain purchase option of $1. The lease obligation
associated with these three compressors was $40,339 on June 30, 2003, all of
which is a current liability. Total payments required for these three leases
will be $43,355, of which $3,016 represents interest.
Open Disclosure Issues with the Securities and Exchange Commission
- ------------------------------------------------------------------
The Company is aware that the Staff of the SEC, in consultation with the Staff
of the Financial Accounting Standards Board, is considering certain
implementation issues in the application of provisions of Statement of Financial
Accounting Standards No. 141, Business Combinations, and Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS No.
142), to companies in the extractive industries, including oil and gas
companies. The Staff of the SEC is considering whether SFAS No. 142 requires
registrants to reclassify costs associated with mineral rights, including both
proved and unproved leasehold acquisition costs, as intangible assets in the
balance sheet, apart from other capitalized oil and gas property costs.
Historically, the Company and all other oil and gas companies have included the
cost of these oil and gas leasehold interests as part of oil and gas properties.
The Staff is also considering whether SFAS No. 142 requires registrants to
provide the additional disclosures prescribed by SFAS No. 142 for intangible
assets for costs associated with mineral rights.
The reclassification of these amounts would not affect the method in which such
costs are amortized or the manner in which the Company assesses impairment of
capitalized costs. As a result, net income would not be affected by the
reclassification.
Page 8
MEXCO ENERGY CORPORATION AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Cautionary Statements Regarding Forward-Looking Statements
- ----------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Forward-looking statements can be identified with words and
phrases such as "believes," "expects," "anticipates," "should," "estimates,"
"foresees" or other words and phrases of similar meaning. Forward-looking
statements appear throughout this Form 10-Q and include statements regarding
Company plans, beliefs or current expectations with respect to, among other
things: profitability, planned capital expenditures; estimates of oil and gas
production, estimates of future oil and gas prices; estimates of oil and gas
reserves; future financial condition or results of operations; and business
strategy and other plans and objectives for future operations. Forward-looking
statements involve known and unknown risks and uncertainties that could cause
actual results to differ materially from those contained in any forward-looking
statement. While the Company has made assumptions that it believes are
reasonable, the assumptions that support its forward-looking statements are
based upon information that is currently available and is subject to change. All
forward-looking statements in the Form 10-Q are qualified in their entirety by
the cautionary statement contained in this section. The Company does not
undertake to update, revise or correct any of the forward-looking information.
Liquidity and Capital Resources
- -------------------------------
Historically, the Company's sources of funding have been from operating
activities, bank financing and the issuance of common stock.
The Company's focus is on increasing profit margins while concentrating on
obtaining gas reserves with low cost operations by acquiring and developing
primarily gas properties with potential for long-lived production.
For the first three months of fiscal 2004, cash flow from operations was
$503,270 compared to $220,298 for the first three months of fiscal 2003. The
cash flow from operations for the first three months of fiscal 2004 included the
effects of a decrease in accounts receivable and an increase in accounts payable
and accrued expenses. Cash of $174,317 was used for additions to property and
equipment and cash of $250,000 was used to pay on the line of credit.
Accordingly, net cash increased $56,821.
Page 9
The Company has acquired and also is reviewing several projects for future
participation. The cost of such projects would be funded, to the extent
possible, with existing cash balances and cash flow from operations. The
remainder may be funded through borrowings on the bank credit facility discussed
below.
At June 30, 2003, the Company had working capital of approximately $368,344
compared to working capital of approximately $389,179 at March 31, 2003, a
decrease of $16,908.
The Company's revolving credit agreement with Bank of America, N.A. ("Bank"),
was amended to provide for a credit facility of $5,000,000, subject to a
borrowing base determination. The borrowing base was originally decreased to
$2,200,000, with scheduled monthly reductions of the available borrowing base of
$25,581 per month beginning September 5, 2002, and the maturity date was
originally August 15, 2003. The borrowing base was re-determined on September
10, 2002 and increased to $2,586,000 with monthly commitment reductions of
$33,150. On November 15, 2002, the maturity date was extended to August 15,
2004. The borrowing base was re-determined on this date and reduced to
$2,526,744 with monthly commitment reductions of $30,814 beginning on December
5, 2002. As of June 30, 2003, the balance outstanding under this agreement was
$1,900,000. No principal payments are anticipated to be required for fiscal 2004
to comply with the monthly commitment reductions. A letter of credit for
$50,000, in lieu of a plugging bond with the Texas Railroad Commission covering
the properties the Company operates, is also outstanding under the facility. The
borrowing base is subject to redetermination on or about August 1, of each year.
Amounts borrowed under this agreement are collateralized by the common stock of
Forman and the Company's oil and gas properties. Interest under this agreement
is payable monthly at prime rate (4.00% at June 30, 2003). This agreement
generally restricts the Company's ability to transfer assets or control of the
Company, incur debt, extend credit, change the nature of the Company's business,
substantially change management personnel or pay cash dividends.
The prices of natural gas and crude oil have fluctuated significantly in recent
years as well as in recent months. Fluctuations in price have a significant
impact on the Company's financial condition and liquidity. However, management
is of the opinion that cash flow from operations and funds available from
financing will be sufficient to provide for its working capital requirements and
capital expenditures for the current fiscal year.
Results of Operations - Three Months Ended June 30, 2003 and 2002
- -----------------------------------------------------------------
Net income before the cumulative effect of an accounting change increased from
$77,146 for the quarter ended June 30, 2002 to $151,760 for the quarter ended
June 30, 2003. The Company recognized a cumulative effect of accounting change
of $102,267, net of tax related to the asset retirement obligation effect on
prior years.
Oil and gas sales increased from $544,650 for the first quarter of fiscal 2003
to $767,060 for the same period of fiscal 2004. This increase of 41% or $222,410
resulted from higher oil and gas prices. Average gas prices increased from $2.96
per mcf for the first quarter of fiscal 2003 to $4.92 per mcf for the same
period of fiscal 2004, while average oil prices increased from $23.87 per bbl
for the first quarter of fiscal 2003 to $26.90 for the same period of fiscal
Page 10
2004. Oil and gas production quantities were 5,972 barrels ("bbls") and 135,870
thousand cubic feet ("mcf") for the first quarter of fiscal 2003 and 5,518 bbls
and 125,649 mcf for the same period of fiscal 2004, a decrease of 8% for both
oil and gas production.
Other income decreased from $6,614 for the first quarter of fiscal 2003 to
$1,266 for the same period of fiscal 2004. The Company recovered $5,000 from a
previously written off bad debt in the first quarter of fiscal 2003.
Production costs increased 72% from $156,604 for the first quarter of fiscal
2003 to $268,692 for the same period of fiscal 2004. This was the result of
increased repairs to operated wells during the quarter and increased production
taxes due to the higher sales price.
General and administrative expenses decreased 17% from $139,008 for the first
quarter of fiscal 2003 to $115,978 for the same period of fiscal 2004. This is
primarily the result of a decrease in consulting and contract services for first
quarter of fiscal 2004.
Depreciation, depletion and amortization based on production and other methods
increased 35%, from $123,523 for the first quarter of fiscal 2003 to $166,219
for the same period of fiscal 2004 primarily due to a decrease in company
reserves.
Interest expense increased 44% from $20,849 for the first quarter of fiscal 2003
to $30,104 for the same period of fiscal 2004, due to increased borrowings and
$5,824 of accretion expense for the asset retirement obligation.
Open Disclosure Issues with the Securities and Exchange Commission
- ------------------------------------------------------------------
The Company is aware that the Staff of the SEC, in consultation with the Staff
of the Financial Accounting Standards Board, is considering certain
implementation issues in the application of provisions of Statement of Financial
Accounting Standards No. 141, Business Combinations, and Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS No.
142), to companies in the extractive industries, including oil and gas
companies. The Staff of the SEC is considering whether SFAS No. 142 requires
registrants to reclassify costs associated with mineral rights, including both
proved and unproved leasehold acquisition costs, as intangible assets in the
balance sheet, apart from other capitalized oil and gas property costs.
Historically, the Company and all other oil and gas companies have included the
cost of these oil and gas leasehold interests as part of oil and gas properties.
The Staff is also considering whether SFAS No. 142 requires registrants to
provide the additional disclosures prescribed by SFAS No. 142 for intangible
assets for costs associated with mineral rights.
The reclassification of these amounts would not affect the method in which such
costs are amortized or the manner in which the Company assesses impairment of
capitalized costs. As a result, net income would not be affected by the
reclassification.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary sources of market risk for the Company include fluctuations in
commodity
Page 11
prices and interest rate fluctuations. At June 30, 2003, the Company had not
entered into any hedge arrangements, commodity swap agreements, commodity
futures, options or other similar agreements relating to crude oil and natural
gas.
At June 30, 2003, the Company had an outstanding loan balance of $1,900,000
under its $5.0 million revolving credit agreement, which bears interest at the
prime rate, which varies from time to time. If the interest rate on the
Company's bank debt increases or decreases by one percentage point, the
Company's annual pretax income would change by $19,000, based on the outstanding
balance at June 30, 2003.
Credit Risk. Credit risk is the risk of loss as a result of nonperformance by
other parties of their contractual obligations. The Company's primary credit
risk is related to oil and gas production sold to various purchasers and the
receivables generally are uncollateralized. At June 30, 2003, the Company's
largest credit risk associated with any single purchaser was $115,732. The
Company has not experienced any significant credit losses.
Volatility of Oil and Gas Prices. The Company's revenues, operating results and
future rate of growth are highly dependent upon the prevailing market prices of,
and demand for, oil and natural gas. These commodity prices are subject to wide
fluctuations and market uncertainties due to a variety of factors that are
beyond our control. These factors include the level of global demand for
petroleum products, foreign supply of oil and gas, the establishment of and
compliance with production quotas by oil exporting countries, weather
conditions, the price and availability of alternative fuels, and overall
economic conditions, both foreign and domestic. The Company cannot predict
future oil and gas prices with any degree of certainty. Sustained weakness in
oil and gas prices may adversely affect our ability to obtain capital for our
exploration and development activities and may require a reduction in the
carrying value of the Company's oil and gas properties. Similarly, an
improvement in oil and gas prices can have a favorable impact on the Company's
financial condition, results of operations and capital resources.
ITEM 4. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer (its principal
executive officer and principal financial officer, respectively) have concluded,
based on their evaluation as of a date within 90 days prior to the date of
filing of this quarterly report, that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed by
it in reports filed or submitted by it under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms, and includes controls and
procedures designed to ensure that information required to be disclosed by it in
such reports is accumulated and communicated to the Company's management,
including its Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
the evaluation.
PART II - OTHER INFORMATION
Item 1. Legal proceedings
-----------------
None.
Item 2. Changes in securities
---------------------
None.
Page 12
Item 3. Defaults upon senior securities
-------------------------------
None.
Item 4. Submission of matters to a vote of security holders
---------------------------------------------------
None.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEXCO ENERGY CORPORATION
(Registrant)
Dated: August 11, 2003 /s/ Nicholas C. Taylor
-------------------------------
Nicholas C. Taylor
President
Dated: August 11, 2003 /s/ Tamala L. McComic
-------------------------------
Tamala L. McComic
Vice President, Treasurer and
Assistant Secretary
Page 13
CERTIFICATIONS
I, Nicholas C. Taylor, President and Chief Executive Officer of Mexco Energy
Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Mexco Energy
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of this Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in the
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
August 11, 2003 /s/ Nicholas C. Taylor
---------------------------
Nicholas C. Taylor
President and Director
Page 14
I, Tamala L. McComic, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Mexco Energy
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of this Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in the
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
August 11, 2003 /s/ Tamala L. McComic
---------------------------
Tamala L. McComic
Vice President, Treasurer and
Assistant Secretary
Page 15