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, 2004
Or
Transition Report Pursuant to Section 13 or 15(d)
Of the Securities Exchange Act of 1934
For the transition period from to
Commission File No. 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 |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). YES |_| NO |X|
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 12, 2004
MEXCO ENERGY CORPORATION
Table of Contents
Page
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PART I. FINANCIAL INFORMATION
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Item 1. Consolidated Balance Sheets as of June 30, 2004
(Unaudited) and March 31, 2004 3
Consolidated Statements of Operations (Unaudited) for
the three months ended June 30, 2004 and June 30, 2003 4
Consolidated Statements of Cash Flows (Unaudited) for
the three months ended June 30, 2004 and June 30, 2003 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 12
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
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CERTIFICATIONS 15
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Page 2
MEXCO ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, March 31,
2004 2004
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 60,260 $ 92,795
Accounts receivable:
Oil and gas sales 404,972 396,902
Trade 41,166 3,101
Related parties 7,614 --
Prepaid costs and expenses 41,889 32,382
------------ ------------
Total current assets 555,901 525,180
Property and equipment, at cost:
Oil and gas properties, using
the full cost method, ($983,680 and $858,602 excluded from
amortization as of June 30, 2004 and March 31, 2004,
respectively) 17,204,738 16,959,560
Other 34,542 34,542
------------ ------------
17,239,280 16,994,102
Less accumulated depreciation,
depletion and amortization 9,499,590 9,346,818
------------ ------------
Property and equipment, net 7,739,690 7,647,284
------------ ------------
$ 8,295,591 $ 8,172,464
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 183,820 $ 97,308
Income tax payable 27,223 --
Current portion of long-term debt -- 443,378
------------ ------------
Total current liabilities 211,043 540,686
Long-term debt 1,600,000 1,256,622
Asset retirement obligation 416,190 420,665
Deferred income tax liability 517,610 519,272
Commitments and contingencies -- --
Stockholders' equity
Preferred stock - $1 par value;
10,000,000 shares authorized; none outstanding -- --
Common stock - $0.50 par value;
40,000,000 shares authorized;
1,766,566 shares issued 883,283 883,283
Additional paid in capital 3,797,320 3,784,493
Retained earnings 999,070 896,368
Treasury stock, at cost (30,525 shares) (128,925) (128,925)
------------ ------------
Total stockholders' equity 5,550,748 5,435,219
------------ ------------
$ 8,295,591 $ 8,172,464
============ ============
The accompanying notes are 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, 2004 and 2003
(Unaudited)
2004 2003
--------- ---------
Operating revenue:
Oil and gas sales $ 674,995 $ 767,060
Other 2,008 1,266
--------- ---------
Total operating revenue 677,003 768,326
Operating costs and expenses:
Production 191,738 268,692
Accretion of asset retirement obligation 6,820 5,824
Depreciation, depletion and amortization 152,772 166,219
General and administrative 164,419 115,978
--------- ---------
Total operating costs and expenses 515,749 556,713
--------- ---------
161,254 211,613
Other income and (expenses):
Interest income 53 62
Interest expense (16,843) (24,280)
--------- ---------
Net other income and expenses (16,790) (24,218)
--------- ---------
Income before income taxes 144,464 187,395
Income tax expense: Current 43,425 --
Income tax expense: Deferred (1,663) 35,635
--------- ---------
Income before cumulative effect of
accounting change 102,702 151,760
Cumulative effect of accounting change,
net of tax -- (102,267)
--------- ---------
Net income $ 102,702 $ 49,493
========= =========
Net income (loss) per common share:
Basic:
Income before cumulative effect of
accounting change $ 0.06 $ 0.09
Cumulative effect, net of tax $ -- $ (.06)
Net income $ 0.06 $ 0.03
Diluted:
Income before cumulative effect of
accounting change $ 0.06 $ 0.09
Cumulative effect, net of tax $ -- $ (.06)
Net income $ 0.06 $ 0.03
The accompanying notes are 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, 2004 and 2003
(Unaudited)
2004 2003
--------- ---------
Cash flows from operating activities:
Net income $ 102,702 $ 49,493
Cumulative effect of accounting change,
net of tax -- 102,267
Adjustments to reconcile net income
to net cash provided by operating
activities:
Increase (decrease) in deferred income taxes (1,663) 35,635
Stock-based compensation 12,827 11,980
Depreciation, depletion and
amortization 152,772 166,219
Accretion of asset retirement obligations 6,820 5,824
(Increase) decrease in
accounts receivable (53,750) 91,525
Increase in prepaid expenses (9,507) (13,937)
Increase in accounts payable
and accrued expenses 67,154 54,264
Increase in income tax payable 27,223 --
--------- ---------
Net cash provided by operating
activities 304,578 503,270
Cash flows from investing activities:
Additions to property and equipment (237,113) (174,317)
--------- ---------
Net cash used in investing
activities (237,113) (174,317)
Cash flows from financing activities:
Acquisition of treasury stock -- (1,385)
Payments of capital lease obligations -- (20,747)
Principal payments on long-term debt (100,000) (250,000)
--------- ---------
Net cash used by financing activities (100,000) (272,132)
--------- ---------
Net increase (decrease) in cash (32,535) 56,821
Cash, beginning of the period 92,795 68,547
--------- ---------
Cash, end of period $ 60,260 $ 125,368
========= =========
Interest paid $ 16,754 $ 25,642
Income taxes paid $ -- $ --
The accompanying notes are 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, 2004, and the results of its
operations and cash flows for the interim periods ended June 30, 2004 and 2003.
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 ("SEC"). 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 amounts 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.
Page 6
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, 2004, the Company recognized $12,827 related to
these stock options for independent consultants.
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 expense
relating to 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,
---------------------------
2004 2003
----------- -----------
Net income, as reported $ 102,702 $ 49,493
Deduct: Stock-based employee
compensation expense determined
under fair value based method
(SFAS 123), net of tax $ (22,341) $ (14,399)
----------- -----------
Net income, pro forma $ 80,361 $ 35,094
=========== ===========
Basic earnings per share:
As reported $ 0.06 $ 0.03
Pro forma $ 0.05 $ 0.02
Diluted earnings per share:
As reported $ 0.06 $ 0.03
Pro forma $ 0.04 $ 0.02
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 related cumulative adjustment to 2004 net income was a decrease of $102,267
net of tax, or ($0.06) per share. Additionally, in 2004, the Company recorded an
initial asset retirement obligation liability of $358,419 and an increase to net
properties and equipment and other assets of $210,206.
The asset retirement obligations are recorded at fair value and accretion
expense, recognized over the life of the property, increases the liability to
its expected settlement value. If the fair value of the estimated asset
retirement obligation changes, an adjustment is recorded for both the asset
retirement obligation and the asset retirement cost.
Page 7
The current portion of the asset retirement obligation as of June 30, 2004 is
$11,780 and is included in accounts payable and other accrued expenses.
Oil and Gas Costs
The cost of certain oil and gas leases 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 these properties when the projects are evaluated,
which is currently estimated to be within this fiscal year. Costs excluded from
amortization at June 30, 2004 total $828,950 for U.S. properties and $154,730
for Russian properties. The Russian costs in fiscal 2004 and fiscal 2005 were
for the feasibility study referred to in Note H to the Company's financial
statements in its Annual Report to the SEC on Form 10K.
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, 2004 and 2003.
Three Months Ended
June 30
--------------------------
2004 2003
--------- ---------
Weighted average number of
common shares outstanding 1,736,041 1,736,067
Incremental shares from the
assumed exercise of dilutive
stock options and warrants 120,938 24,417
--------- ---------
Dilutive potential common shares 1,856,979 1,760,484
========= =========
Options and warrants to purchase 70,000 shares at an average exercise price of
$7.54 and 120,000 shares at an average exercise price of $7.25 outstanding at
June 30, 2004 and June 30, 2003, 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.
Income Taxes
Current income tax expense for the three months ended June 30, 2004 is $43,425.
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.
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 base determination. On July 29, 2004, the borrowing base was
redetermined and set at $2,500,000. The maturities of the debt are based on this
revised borrowing base. As of June 30, 2004, the balance outstanding under this
agreement was $1,600,000 and as of August 1, 2004 was $2,025,000. No principal
payments are required for fiscal 2005 based on the revised borrowing base.
Amounts borrowed under this agreement are collateralized by the common stock of
the Company's wholly owned subsidiary and all oil and gas properties.
Page 8
The asset retirement obligation as of June 30, 2004 represents the present value
of the Company's estimated asset retirement obligations under SFAS 143.
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 2005, cash flow from operations was
$304,578 compared to $503,270 for the first three months of fiscal 2004. The
cash flow from operations for the first three months of fiscal 2005 included the
effects of an increase in accounts receivable and an increase in accounts
payable and accrued expenses. Cash of $237,113 was used for additions to
property and equipment and cash of $100,000 was used to pay on the line of
credit. Accordingly, net cash decreased $32,535.
In March 2004 the Company purchased partially developed royalty interests in
Jackson Parish, Louisiana and interests in Limestone County, Texas for
approximately $224,000. The properties in Limestone County, operated by XTO
Energy, Inc., are in the Cotton Valley formation and contain 23 producing wells
and an additional 6 permitted and/or drilling wells. This acreage contains
approximately 100 potential undrilled locations on 40 acre spacing. The property
in Louisiana, operated by Anadarko and producing from the Lower Cotton Valley
formation, contains 3 producing wells and an additional 5 permitted and/or
drilling wells. These royalty purchases advanced the Company's primary goal of
acquiring natural gas reserves.
Page 9
In March 2004, the Company signed an agreement in Moscow, Russia to begin a
preliminary feasibility study for exploration and development of natural gas
reserves in Russia. A team of U.S. and Russia experts commenced a feasibility
study of a number of undeveloped natural gas fields located in the vicinity of
Gasprom pipelines which serve Russia. Mexco Energy Corporation has set up OBTX,
LLC, a Delaware limited liability company, in which Mexco owns a 90% interest
with the remaining 10% interest split equally among three individuals, one of
which is Arden Grover, a director of Mexco Energy Corporation. OBTX, LLC, plans
to participate in any Russian ventures entered into and own a 50% interest
subject to obtaining financing.
In August 2004, the Company purchased partially developed royalty interests for
$500,000 in Freestone County, Texas. These properties, operated by XTO and
Anadarko Energy, Inc., contain 31 producing wells and an additional seven (7)
permitted and/or drilling wells in the Cotton Valley formation. This acreage
contains approximately 19 potential undrilled locations on 40 acre spacing.
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, 2004, the Company had working capital of approximately $344,858
compared to a working capital deficit of approximately $15,506 at March 31,
2004, an increase of $360,364 due primarily to the reclassification of the
current portion of long-term debt as a result of the borrowing base
redetermination.
The Company has 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 base redetermination. On December 15, 2003 the credit agreement was
amended with a maturity date of August 15, 2005. The borrowing base was
redetermined on this date and set at $1,938,372 with monthly commitment
reductions of $45,450 beginning on January 5, 2004. On July 29, 2004, the
borrowing base was redetermined and increased to $2,500,000. As of June 30,
2004, the balance outstanding under this agreement was $1,600,000. No principal
payments are anticipated to be required for fiscal 2005 based on the revised
borrowing base. A letter of credit for $50,000, in lieu of a plugging bond with
the Texas Railroad Commission covering the properties of the Company operates,
is also outstanding under the facility. 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, 2004 and 2003). The 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 balance outstanding on the line
of credit as of August 1, 2004 was $2,025,000.
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.
Page 10
Results of Operations - Three Months Ended June 30, 2004 and 2003
Net income before the cumulative effect of an accounting change decreased from
$151,760 for the quarter ended June 30, 2003 to $102,702 for the quarter ended
June 30, 2004. 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 for the quarter ended June 30, 2003.
Oil and gas sales decreased from $767,060 for the first quarter of fiscal 2004
to $674,995 for the same period of fiscal 2005. This decrease of 12% or $92,065
resulted from a decrease in production offset partially by an increase in both
oil and gas prices. Average gas prices increased from $4.92 per mcf for the
first quarter of fiscal 2004 to $5.08 per mcf for the same period of fiscal
2005, while average oil prices increased from $26.90 per bbl for the first
quarter of fiscal 2004 to $36.19 for the same period of fiscal 2005. Oil and gas
production quantities were 5,518 barrels ("bbls") and 125,649 thousand cubic
feet ("mcf") for the first quarter of fiscal 2004 and 3,867 bbls and 105,347 mcf
for the same period of fiscal 2005, a decrease of 30% in oil production and a
decrease of 16% in gas production, a result of natural decline.
Production costs decreased from $268,692 for the first quarter of fiscal 2004 to
$191,738 for the same period of fiscal 2005. This was the result of decreased
repairs to operated wells during the quarter and decreased production taxes due
to the decrease in oil and gas sales.
General and administrative expenses increased 42% from $115,978 for the first
quarter of fiscal 2004 to $164,419 for the same period of fiscal 2005. This is
primarily the result of an increase in consulting services, travel and
organization costs related to participating in the formation of a Russian
Company. These expenses were approximately $36,400 for the quarter.
Depreciation, depletion and amortization based on production and other methods
decreased 8%, from $166,219 for the first quarter of fiscal 2004 to $152,772 for
the same period of fiscal 2005 primarily due to a decrease in production.
Interest expense decreased 30% from $24,280 for the first quarter of fiscal 2004
to $16,843 for the same period of fiscal 2005, due to decreased borrowings.
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 related cumulative adjustment to 2004 net income was a decrease of $102,267
net of tax, or ($0.06) per share. Additionally, in 2004, the Company recorded an
initial asset retirement obligation liability of $358,419 and an increase to net
properties and equipment and other assets of $210,206.
The asset retirement obligations are recorded at fair value and accretion
expense, recognized over the life of the property, increases the liability to
its expected settlement value. If the fair value of the estimated asset
retirement obligation changes, an adjustment is recorded for both the asset
retirement obligation and the asset retirement cost.
Page 11
The following table provides a rollforward of the asset retirement obligations
for the current period:
Carrying amount of asset retirement obligations
as of April 1, 2004 $ 420,665
Liabilities incurred 840
Liabilities settled (355)
Accretion expense 6,820
Revisions in estimated liabilities --
---------
Carrying amount of asset retirement obligations
as of June 30, 2004 $ 427,970
=========
The current portion of the asset retirement obligation as of June 30, 2004 is
$11,780 and is included in accounts payable and other accrued expenses.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The primary sources of market risk for the Company include fluctuations in
commodity prices and interest rate fluctuations. At June 30, 2004, 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, 2004, the Company had an outstanding loan balance of $1,600,000
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 $16,000, based on the outstanding
balance at June 30, 2004.
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, 2004, the Company's
largest credit risk associated with any single purchaser was $89,411. 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 the Company's ability to obtain capital
for the Company's 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
Disclosure Controls and Procedures
Our Board of Directors has adopted a policy designated to establish disclosure
controls and procedures that are adequate to provide reasonable assurance that
we will be able to collect, process and disclose both financial and
non-financial information, on a timely basis, in our reports to the SEC and
other communications with our stockholders. Disclosure controls and procedures
include all processes necessary to ensure that material information is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and is accumulated and communicated to our management,
including our chief executive and chief financial officers, to allow timely
decisions regarding required disclosures.
Page 12
With respect to our disclosure controls and procedures:
o We have evaluated the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report;
o This evaluation was conducted under the supervision and with the
participation of our management, including our chief executive and
chief financial officers; and
o It is the conclusion of our chief executive and chief financial
officers that these disclosure controls and procedures operate such
that material information flows to the appropriate collection and
disclosure points in a timely manner and are effective in ensuring
that material information is accumulated and communicated to our
management and is made known to the chief executive and chief
financial officers, particularly during the period in which this
report was prepared, as appropriate to allow timely decisions
regarding required disclosures.
Changes in Internal Control Over Financial Reporting
No changes in internal control over financial reporting were made during the
quarter ended June 30, 2004 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal proceedings
None.
Item 2. Changes in securities
None.
Item 3. Defaults upon senior securities
None.
Item 4. Submission of matters to a vote of security holders
None.
Item 5. Other Information
None.
Page 13
Item 6. Exhibits and Reports on Form 8-K
Exhibits
31.1 Certification of the Chief Executive Officer of Mexco Energy Corporation
31.2 Certification of the Chief Financial Officer of Mexco Energy Corporation
32.1 Certification by the Chief Executive Officer of Mexco Energy Corporation
pursuant to 18 U.S.C.ss.1350
32.2 Certification by the Chief Financial Officer of Mexco Energy Corporation
pursuant to 18 U.S.C.ss.1350
Reports on Form 8-K
Form 8-K filed August 4, 2004 pursuant to Item 5, announcing royalty purchase in
Freestone County.
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 12, 2004 /s/ Nicholas C. Taylor
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Nicholas C. Taylor
President
Dated: August 12, 2004 /s/ Tamala L. McComic
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Tamala L. McComic
Vice President, Treasurer and Assistant
Secretary
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