MEXCO ENERGY CORP, 10-K, 1999-06-17

MEXCO ENERGY CORP
10-K, 1999-06-17
CRUDE PETROLEUM & NATURAL GAS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended March 31, 1999 Commission File No. 0-6694

MEXCO ENERGY CORPORATION
(Exact name of registrant as specified in its charter)

Colorado 84-0627918
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

214 W. Texas Avenue, Suite 1101 79701
Midland, Texas (Zip Code)
(Address of principal executive offices)

Registrant's telephone number, including area code: (915) 682-1119

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Title of Each Class Name of Exchange on Which Registered
Common Stock, $0.50 par value None

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 twelve (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 ninety (90) days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or an amendment to this Form 10-K.[ ]

As of May 27, 1999, the aggregate market value of the registrant's common
stock held by non-affiliates (using the closing bid price of $7.625) was
approximately $1,851,098.

The number of shares outstanding of the registrant's common stock as of May
27, 1999 was 1,623,289.

DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Report is incorporated by reference from the Registrant's
Information Statement relating to its Annual Meeting of Stockholders to be held
on September 15, 1999. Such Information Statement will be filed with the
Commission not later than July 29, 1999.
<PAGE>

TABLE OF CONTENTS

PART 1

Item 1. Business ......................................................... 3
Item 2. Properties ....................................................... 7
Item 3. Legal Proceedings ................................................ 10
Item 4. Submission of Matters to a Vote of Security Holders .............. 10

PART II

Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters ..................................... 10
Item 6. Selected Financial Data .......................................... 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................. 12
Item 8. Financial Statements and Supplementary Data ...................... 16
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures ............................. 31

PART III

Item 10. Directors and Executive Officers of the Registrant ............... 31
Item 11. Executive Compensation ........................................... 31
Item 12. Security Ownership of Certain Beneficial Owners
and Management ................................................... 31
Item 13. Certain Relationships and Related Transactions ................... 31

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K ...................................................... 31
Signatures ................................................................ 33

2
<PAGE>

PART I

Item 1. Business

Mexco Energy Corporation, a Colorado corporation, (the "Company", which
reference shall include the Company's wholly-owned subsidiary) is an independent
oil and gas company engaged in the acquisition, exploration and development of
oil and gas properties located in the United States. Incorporated in April 1972
under the name Miller Oil Company, the Company changed its name to Mexco Energy
Corporation effective April 30, 1980. At the same time, the shareholders of the
Company also approved amendments to the Articles of Incorporation resulting in a
one-for-fifty reverse stock split of the Company's common stock.

On February 25, 1997 Mexco Energy Corporation acquired all of the issued
and outstanding stock of Forman Energy Corporation, a New York corporation also
engaged in the oil and gas industry.

Since its inception, the Company has been engaged in acquiring and
developing oil and gas properties and the exploration for and production of oil
and gas within the United States. The Company continues to focus on the
exploration for and development of natural gas and crude oil resources, as well
as increased profit margins through reductions in operating costs. The Company's
long-term strategy is to increase production and profits, while increasing its
concentration of gas reserves.

While the Company owns oil and gas properties in other states, the majority
of its activities are centered in West Texas. The Company acquires interests in
producing and non-producing oil and gas leases from landowners and leaseholders
in areas considered favorable for oil and gas exploration, development and
production. In addition, the Company may acquire oil and gas interests by
joining in third party generated oil and gas drilling prospects. The Company may
employ a combination of the above methods of obtaining producing acreage and
related prospects. In recent years, the Company has placed primary emphasis on
the evaluation and purchase of producing oil and gas properties and re-entry
prospects.

OIL AND GAS OPERATIONS

As of March 31, 1999, gas reserves constituted approximately 78% of the
Company's total proved reserves and approximately 60% of the Company's oil and
gas revenues for fiscal 1999. With the sale of the Lazy JL field discussed
below, gas reserves constitute approximately 83% of the Company's proved
reserves. Revenues from oil and gas royalty interests accounted for
approximately 16% of the Company's oil and gas revenues for fiscal 1999.

LAZY JL OIL FIELD properties, encompassing 3,964 gross and 1,512 net acres
in Garza County, Texas, account for approximately 5% of the Company's discounted
future net cash flows from proved reserves as of March 31, 1999, and for fiscal
1999, approximately 23% of oil and gas revenues and 39% of production costs. As
part of the Company's focus on increasing profit margins and concentrating on
gas reserves with low cost operations, the Company closed the sale of these
properties in April 1999. With an effective date of February 1, 1999, the sales
price was $600,000. The sales proceeds were used to reduce the Company's bank
debt.

GOMEZ GAS FIELD properties, encompassing 14,476 gross and 72 net acres in
Pecos County, Texas, account for approximately 22% of the Company's discounted
future net cash flows from proved reserves as of March 31, 1999, and for fiscal
1999, approximately 12% of oil and gas revenues and 5% of production costs.

3
<PAGE>
VIEJOS GAS FIELD properties, encompassing 2,594 gross and 197 net acres in
Pecos County, Texas, account for approximately 20% of the Company's discounted
future net cash flows from proved reserves as of March 31, 1999, and for fiscal
1999, approximately 30% of oil and gas revenues and 19% of production costs.

In September 1998, the Company, as operator, successfully re-entered a gas
well in Pecos County, Texas at a cost to the Company of approximately $112,000.
Funds for this project were provided out of cash flow from operations and
existing cash balances. A pipeline connection was made on January 29, 1999. The
Company owns a 100% working interest and a 75.375% net revenue interest in this
well.

In March 1999, the Company, as operator, successfully re-entered a second
gas well in Pecos County, Texas at a cost to the Company of approximately
$67,000. Funds for this project were provided out of cash flow from operations
and existing cash balances. A pipeline connection was made on April 20, 1999.
The Company owns a 97% working interest and a 70.325% net revenue interest in
this well.

The Company owns interests in and operates seven producing wells and one
well that is shut in. The Company also owns partial interests in an additional
1,592 producing wells located in the states of Texas, New Mexico, Oklahoma,
Louisiana, Arkansas, Wyoming, Kansas, Colorado, Alabama, Montana, North Dakota
and Utah. The Company operates one water injection well and owns partial
interests in three additional injection wells. Additional information concerning
these properties and the oil and gas reserves of the Company is provided below.

The following table summarizes the net oil and natural gas production for
the Company, the average sales price per barrel of oil and per mcf of natural
gas produced and the average production (lifting) cost per unit of production
for the years ended March 31, 1999, 1998 and 1997.

PRODUCTION, PRICE AND COST DATA

Year Ended March 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
Oil (a):
Production (Bbls) ....................... 49,573 63,800 39,363
Revenue ................................. $ 600,285 $1,129,331 $ 869,337
Average Bbls per day .................... 136 175 108
Average sales price per Bbl ............. $ 12.11 $ 17.70 $ 22.09
Gas (b):
Production (Mcf) ........................ 482,948 432,343 236,034
Revenue ................................. $ 903,338 $ 960,786 $ 583,787
Average Mcf per day ..................... 1,323 1,185 647
Average sales price per Mcf ............. $ 1.87 $ 2.22 $ 2.47
Production cost:
Production cost ......................... $ 644,563 $ 663,525 $ 346,765
Equivalent Bbls (c) ..................... 130,064 135,857 78,702
Production cost per equivalent Bbl ...... $ 4.96 $ 4.88 $ 4.41
Production cost per sales dollar ........ $ 0.43 $ 0.32 $ 0.24
Total oil and gas revenues .............. $1,503,623 $2,090,117 $1,453,124

4
<PAGE>
(a) Includes condensate.
(b) Includes natural gas products.
(c) Gas production is converted to equivalent bbls at the rate of 6 mcf per bbl,
representing the estimated relative energy content of natural gas to oil.

COMPETITION

The oil and gas industry is a highly competitive business. Competition for
oil and gas reserve acquisitions is significant. The Company may compete with
major oil and gas companies, other independent oil and gas companies and
individual producers and operators with significantly larger financial and other
resources. Competitive factors include price, contract terms, and types and
quality of service, including pipeline distribution. The price for oil and gas
is widely followed and is generally subject to worldwide market factors.

MAJOR CUSTOMERS

The Company had sales to the following companies that amounted to 10% or
more of revenues for the year ended March 31:

1999 1998 1997
---- ---- ----
Koch Midstream Services Company .............. 30% -- --
Navajo Crude Oil Marketing Company ........... 25% 33% 46%
Aquila Southwest Pipeline Corporation ........ -- 15% 24%
Sun Refining and Marketing Company ........... -- -- 10%

REGULATION

The Company's exploration, development, production and marketing operations
are subject to extensive rules and regulations by federal, state and local
authorities. Numerous federal, state and local departments and agencies have
issued rules and regulations, binding on the oil and gas industry, some of which
carry substantial penalties for noncompliance. State statutes and regulations
require permits for drilling operations, bonds and reports concerning
operations. Most states also have statutes and regulations governing
conservation and safety matters, including the unitization and pooling of oil
and gas properties, the establishment of maximum rates of production from oil
and gas wells and the spacing of such wells. Such statutes and regulations may
limit the rate at which oil and gas otherwise could be produced from the
Company's properties. The regulatory burden on the oil and gas industry
increases its cost of doing business and, consequently, affects its
profitability.

Currently there are no laws that regulate the price for sales of production
by the Company. However, the rates charged and terms and conditions for the
movement of gas in interstate commerce through certain of its intrastate
pipelines and production area hubs are subject to regulation under the Natural
Gas Policy Act of 1978 ("NGPA"). The construction of pipelines and hubs are, to
a limited extent, also subject to regulation under the Natural Gas Act of 1938
("NGA"). The NGA also establishes comprehensive controls over interstate
pipelines, including the transportation and resale of gas in interstate
commerce. While these NGA controls do not apply directly to the Company, their
effect on natural gas markets can be significant in terms of competition and
cost of transportation services. The Federal Energy Regulatory Commission
("FERC") administers the NGA and NGPA.

5
<PAGE>
FERC has taken significant steps to increase competition in the sale,
purchase, storage and transportation of natural gas. FERC's regulatory programs
generally allow more accurate and timely price signals from the consumer to the
producer. Nonetheless, the ability to respond to market forces can and does add
to price volatility, inter-fuel competition and pressure on the value of
transportation and other services.

Additional proposals and proceedings that might affect the natural gas
industry are considered from time to time by Congress, FERC, state regulatory
bodies and the courts. Several proposals that might affect the natural gas
industry are pending before Congress and the FERC. The Company cannot predict
when or if any such proposals will become effective and their effect, if any, on
the Company's operations. Historically, the natural gas industry has been
heavily regulated and there is no assurance that the less stringent regulatory
approach recently pursued by FERC, Congress and the states will continue
indefinitely into the future.

ENVIRONMENTAL

The Company, by nature of its oil and gas operations, is subject extensive
federal, state and local environmental laws and regulations governing the
protection of the environment. The Company is in compliance, in all material
respects, with applicable environmental requirements. Although future
environmental obligations are not expected to have a material impact on the
results of operations or financial condition of the Company, there can be no
assurance that future developments, such as increasingly stringent environmental
laws or enforcement thereof, will not cause the Company to incur material
environmental costs.

INSURANCE

The Company is subject to all the risks inherent in the exploration for,
and development and production of oil and gas including blowouts, fires and
other casualties. The Company maintains insurance coverage customary for
operations of a similar nature, but losses could arise from uninsured risks or
in amounts in excess of existing insurance coverage.

EMPLOYEES

As of March 31, 1999, the Company had two full-time and three part-time
employees. The Company believes that relations with these employees are
generally satisfactory. The Company's employees are not covered by collective
bargaining arrangements. From time to time, the Company utilizes the services of
independent contractors to perform various field and other services. Experienced
personnel are available in all disciplines should the need to hire additional
staff arise.

OFFICE FACILITIES

The Company maintains its principal offices at 214 W. Texas, Suite 1101,
Midland, Texas pursuant to a month to month lease.

The following table sets forth certain information concerning the executive
officers of the Company as of March 31, 1999.

6
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT

Name Age Position
---- --- --------
Nicholas C. Taylor 61 President and Chief Executive Officer
Donna Gail Yanko 55 Vice President, Operations and Corporate Secretary
Linda J. Crass 44 Treasurer, Controller and Assistant Secretary

Set forth below is a description of the backgrounds of each executive
officer of the Company, including employment history for at least the last five
years.

Nicholas C. Taylor was elected President, Treasurer and Director of the
Company in April 1983 and continues to serve as President and Director on a part
time basis, as required. Mr. Taylor served as Treasurer until March 1999. From
July 1993 to the present, Mr. Taylor has been involved in the independent
practice of law and other business activities. For more than the prior 19 years,
he was a director and shareholder of the law firm of Stubbeman, McRae, Sealy,
Laughlin & Browder, Inc., Midland, Texas, and a partner of the predecessor firm.
In 1995 he was appointed by the Governor of Texas and serves as Chairman of the
three member State Securities Board.

Donna Gail Yanko has worked as part-time administrative assistant to the
Chief Executive Officer and as Assistant Secretary of the Company until June
1992 when she was appointed Corporate Secretary. Mrs. Yanko was appointed to the
position of Vice President and elected to the Board of Directors of the Company
in 1990.

Linda J. Crass has been Controller for the Company since July 1998 and was
appointed Assistant Secretary in August 1998. In March 1999, Ms. Crass was
appointed Treasurer of the Company and continues to serve as Assistant
Secretary. From 1996 to 1998, Ms. Crass was employed in various accounting
positions by Titan Exploration, Inc.. From 1989 to 1996, Ms. Crass served as
Controller for Midland Resources, Inc.

Item No. 2. Properties

TITLE TO OIL AND GAS PROPERTIES

The Company believes that its methods of investigating title to its
properties are consistent with practices customary in the oil and gas industry,
and that such practices are adequately designed to enable it to acquire good
title to such properties. The Company's properties may be subject to one or more
royalty, overriding royalty, carried and other similar interests and contractual
arrangements customary in the industry. Substantially all of the Company's
properties are currently mortgaged under a deed of trust to secure funding
through a revolving line of credit.

The following table indicates the net oil and gas production of the Company
in each of the last five years, all of which is located within the United
States.

7
<PAGE>
OIL AND GAS PRODUCTION

Year Oil (Bbls) Gas (MCF)
---- ---------- ---------
1999 49,573 482,948
1998 63,800 432,343
1997 39,363 236,034
1996 29,058 186,419
1995 21,844 140,010

The following table indicates the Company's total gross and net productive
oil and gas wells and the total gross and net producing acreage as of March 31,
1999.
ACREAGE AND PRODUCING WELL SUMMARY

Wells
-------------------------------- Producing
Oil Gas Acreage
--------------- -------------- -----------------
Gross Net Gross Net Gross Net
----- ------ ----- ----- ------- -----
Texas ................. 1,108 16.946 80 2.092 88,581 2,439
New Mexico ............ 59 .292 42 .190 15,834 128
Oklahoma .............. 13 .050 54 .177 37,622 126
Wyoming ............... 7 .041 17 .026 7,270 26
Louisiana ............. 49 .015 13 .023 21,789 34
Arkansas .............. 1 .001 -- -- 320 --
Kansas ................ 3 .005 13 .039 9,160 27
Colorado .............. -- -- 7 .007 1,040 1
Alabama ............... 4 .008 -- -- 640 1
Montana ............... 21 .018 -- -- 7,189 4
North Dakota .......... 95 .083 -- -- 25,744 16
Utah .................. 6 .012 -- -- 3,806 9
----- ------ --- ----- ------- -----
TOTALS ................ 1,366 17.471 226 2.554 218,995 2,811
===== ====== === ===== ======= =====

(a) A gross well or acre is one in which an interest is owned. A net well or
acre indicates the percentage of interest of a gross well or acre owned by
the Company.
(b) Of these wells, one was shut in pending a pipeline connection. A pipeline
connection was made on April 20, 1999.

The following table sets forth the results of the drilling activity by the
Company for the years ended March 31, 1999, 1998 and 1997.

DRILLING ACTIVITY

Net Net Net Net
Gross Productive Dry Productive Dry
Year Wells Exploratory Exploratory Development Development
- ---- ----- ----------- ----------- ----------- -----------
1999 8 0 0 1.86 0
1998 8 0 0 2.56 .88
1997 12 0 .17 2.55 0

8
<PAGE>
PROVED RESERVES

The estimates of the Company's proved oil and gas reserves, which are
located entirely within the United States, were prepared in accordance with the
guidelines established by the SEC and Financial Accounting Standards Board. The
estimates as of March 31, 1999 are based on evaluations prepared by Joe C. Neal
and Associates, Petroleum Consultants. The estimates as of March 31, 1998 and
1997 are based on evaluations prepared by T. Scott Hickman and Associates, Inc.,
Petroleum Engineers. For information concerning costs incurred by the Company
for oil and gas operations, net revenues from oil and gas production, estimated
future net revenues attributable to the Company's oil and gas reserves, present
value of future net revenues discounted at 10% and changes therein, see Notes to
the Company's consolidated financial statements. The Company emphasizes that
reserve estimates are inherently imprecise and there can be no assurance that
the reserves set forth below will be ultimately realized.

In estimating reserves as of March 31, 1999, average prices of $14.36 per
barrel for oil and $1.48 per mcf for gas were used, which were the average
actual prices in effect for the Company's production.

The Company has not filed any oil or gas reserve estimates or included any
such estimates in reports to any other federal or foreign governmental authority
or agency within the past twelve months.

The estimated proved oil and gas reserves and present value of estimated
future net revenues from proved oil and gas reserves for the Company in the
periods ended March 31 are summarized below.

PROVED RESERVES

March 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
Oil (Bbls):
Proved developed - Producing ............ 193,970 213,939 280,894
Proved developed - Non-producing ........ -- 5,176 --
Proved undeveloped ...................... -- 26,745 155,395
--------- --------- ---------
Total ............................ 193,970 245,860 436,289
========= ========= =========
Natural gas (Mcf):
Proved developed - Producing ............ 3,182,342 2,769,794 2,399,539
Proved developed - Non-producing ........ 1,011,971 170,738 --
Proved undeveloped ...................... -- 256,062 556,680
--------- --------- ---------
Total ............................ 4,194,313 3,196,594 2,956,219
========= ========= =========
Present value of estimated future
net revenues before income taxes ...... $3,485,196 $3,892,533 $5,320,610
========== ========== ==========

The preceding tables should be read in connection with the following
definitions:

PROVED RESERVES

Estimated quantities of oil and gas, based on geologic and engineering
data, appear with reasonable certainty to be economically recoverable in future
years from known reservoirs under existing economic and operating conditions.

9
<PAGE>
PROVED DEVELOPED RESERVES

Proved oil and gas reserves expected to be recovered through existing wells
with existing equipment and operating methods. Developed reserves include both
producing and non-producing reserves. Producing reserves are those reserves
expected to be recovered from existing completion intervals producing as of the
date of the reserve report. Non-producing reserves are currently shut-in
awaiting a pipeline connection or in reservoirs behind the casing or at minor
depths above or below the producing zone and are considered by production either
from wells in the field, by successful drill-stem tests, or by core analysis.
Non-producing reserves require only moderate expense for recovery.

PROVED UNDEVELOPED RESERVES

Proved oil and gas reserves expected to be recovered from additional wells
yet to be drilled or from existing wells where a relatively major expenditure is
required for completion.

UNDEVELOPED ACREAGE

The Company currently does not own any material inventory of non-productive
acreage except in a partially developed prospect located in the Viejos Devonian
Field of Pecos County, Texas. The Company owns from 8.31% to 12.02% working and
royalty interests (net revenue interests 6.42% to 9.01%) in the Viejos Field of
Pecos County, Texas, consisting of 2,594 gross acres and 20 wells. The Company
is unable to determine the extent of future development, if any, in this field.

Item No. 3. Legal Proceedings

The Company is a plaintiff in a class action lawsuit against a gas
purchaser involving a contract price dispute. The Company does not expect any
expenses of a material nature to arise from this class action claim. The
ultimate outcome is uncertain.

Item No. 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the
fourth quarter ended March 31, 1999.

PART II

Item No. 5. Market For Registrant's Common Equity and Related Stockholder
Matters.

The Company's common stock is traded in the over-the-counter market under
the symbol MEXC. The registrar and transfer agent is American Securities
Transfer & Trust, Denver, Colorado. As of March 31, 1999 the Company had 1,423
shareholders of record and 1,623,289 shares outstanding.

10
<PAGE>
PRICE RANGE OF COMMON STOCK
Bid Price
---------------------
High Low
------- -----
1999: (1)
April - June 1998 ........................ 7 3/4 7 3/4
July - September 1998 .................... 7 3/4 7 3/4
October - December 1998 .................. 7 3/4 7 1/2
January - March 1999 ..................... 7 11/16 7 1/2
1998: (1)
April - June 1997 ........................ 5 1/2 5 1/2
July - September 1997 .................... 7 1/2 5 1/2
October - December 1997 .................. 7 3/4 7 1/2
January - March 1998 ..................... 7 3/4 7 1/2

(1) Reflects high and low bid information received from National Quotation
Bureau, LLC.
(2) These bid quotations represent prices between dealers, without retail
markup, markdown or commissions, and do not reflect actual transactions.
(3) On May 27, 1999, the bid price was 7 5/8.

The Company has not paid any dividends on its common stock, and it is the
present policy of the Company not to do so, but to retain its earnings for
future growth and business activities. The Company is also subject to certain
loan covenants which include restrictions on payment of dividends.

Item No. 6. Selected Financial Data
<TABLE>
<CAPTION>
Years Ended March 31,
------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Operating revenues .............................. $ 1,510,005 $ 2,106,338 $ 1,458,741 $ 816,788 $ 558,587
Operating income (loss) ......................... (281,099) (1,558,335) 521,123 195,020 99,491
Other income (expense) .......................... (144,675) (134,891) (5,621) 17,285 15,334
Net income (loss) ............................... (425,774) (1,323,657) 377,867 200,606 104,843
Net Income (loss) per share - basic ............. (0.26) (0.83) 0.27 0.15 0.09
Net Income (loss) per share - diluted ........... (0.26) (0.83) 0.27 0.15 0.09
Weighted average shares outstanding ............. 1,623,289 1,594,752 1,423,229 1,342,628 1,173,229
Balance Sheet Data:
Properties and equipment, net ................... $ 3,749,400 $ 4,078,053 $ 4,777,132 $ 2,331,344 $ 1,648,465
Total assets .................................... 4,043,015 4,542,486 5,109,199 2,612,039 1,951,896
Total debt ...................................... 1,784,000 1,822,000 1,637,000 -- --
Stockholders' equity ............................ 2,173,581 2,599,355 2,923,012 2,545,145 1,844,539
Cash Flow Data:
Cash provided by operations ..................... $ 532,171 $ 1,118,566 $ 866,931 $ 396,409 $ 255,649
EBITDA(1) ....................................... $ 635,260 $ 1,252,539 $ 1,006,119 $ 474,697 $ 285,548
</TABLE>
(1) EBITDA represents earnings before interest expense, income taxes,
depreciation, depletion and amortization. Management of the Company
believes that EBITDA may provide additional information about the Company's
ability to meet its future requirements for debt service, capital
expenditures and working capital. EBITDA is a financial measure commonly
used in the oil and gas industry and should not be considered in isolation
or as a substitute for net income, operating income, cash flows from
operating activities or any other measure of financial performance
presented in accordance with generally accepted accounting principles or as
a measure of the Company's profitability or liquidity.
11
<PAGE>
Item No. 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

The following information should be read in conjunction with the
information contained in the Consolidated Financial Statements and the notes
thereto included in Item 8 of this report.

LIQUIDITY AND CAPITAL RESOURCES AND COMMITMENTS

Historically, the Company has funded its operations, acquisitions,
exploration and development expenditures from cash generated by operating
activities, bank borrowings and issuance of common stock.

In fiscal 1999, the Company used cash provided by operations and existing
cash balances to fund its oil and gas property acquisitions and development.
Working capital as of March 31, 1999 was a negative $307,819 due to current
maturities of outstanding bank debt of $516,000. On April 21, 1999, the Company
sold all of its oil and gas interests in Lazy JL field properties located in
Garza County, Texas for $600,000 cash, adjusted for revenues and expenses from
the effective date of February 1, 1999 through the date of closing. The sales
proceeds were used to reduce the Company's outstanding debt under its line of
credit with Bank of America.

The Company has a revolving credit agreement with Bank of America, formerly
NationsBank of Texas, which provides for a credit facility of $3,000,000,
subject to a borrowing base determination. The credit facility was amended on
August 15, 1998 to increase the borrowing base to $2,085,000, with scheduled
monthly reductions of $43,000 beginning September 5, 1998, and to extend the
maturity date to August 15, 2000. At March 31, 1999, the borrowing base was
$1,784,000. On April 21, 1999, with the sale of the Lazy JL field properties,
the borrowing base was $1,639,107. The borrowing base is subject to
redetermination on or about August 1, each year. Interest under this agreement
is payable monthly at prime rate (7.75% at March 31, 1999 and 8.5% at March 31,
1998). The balance outstanding under this credit facility was $1,784,000 and
$1,822,000 at March 31, 1999 and 1998, respectively. 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 dividends. The credit facility
is secured by substantially all of the Company's oil and gas properties and the
common stock of it's subsidiary.

The Company also has a letter of credit with Bank of America, Midland,
Texas, which provides for unsecured borrowings up to $25,000 in lieu of a
plugging bond with the Railroad Commission covering properties operated by the
Company.

During the first quarter of fiscal 1998, the Company increased capital by
$1,000,000 from the issuance of 200,000 shares of common stock at $5.00 per
share through a private placement. Proceeds of $500,000 were used to reduce the
principal borrowings under the line of credit. The remainder was used for
property acquisitions and drilling activity.

Crude oil and natural gas prices 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
believes the Company can maintain adequate liquidity for future needs.

RESULTS OF OPERATIONS
12
<PAGE>
FISCAL 1999 COMPARED TO FISCAL 1998

Oil and gas sales decreased from $2,090,117 in 1998 to $1,503,623 in 1999,
a decrease of $586,494 or 28%. This decrease was primarily attributable to the
decline in oil and gas prices and oil production during the year, offset in part
by increased gas production from the acquisition and development of oil and gas
properties. The average oil price decreased from $17.70 in 1998 to $12.11 per
bbl in 1999, a decrease of $5.59 per bbl or 32%. The average gas price decreased
from $2.22 in 1998 to $1.87 per mcf in 1999, a decrease of $0.35 per mcf or 16%.
Oil production decreased from 63,800 bbls in 1998 to 49,573 bbls in 1999, a
decrease of 14,227 bbls or 22%. Gas production increased from 432,343 mcf in
1998 to 482,948 mcf in 1999, an increase of 50,605 mcf or 12%.

Other revenues decreased from $16,221 in 1998 to $6,382 in 1999, a decrease
of $9,839 or 61%, primarily due to the recovery of a bad debt in 1998. There was
no such item in 1999.

Production costs decreased from $663,525 in 1998 to $644,563 in 1999, a
decrease of $18,962 or 3%.

Depreciation, depletion and amortization decreased from $2,808,753 in 1998
to $909,965 in 1999, a decrease of $1,898,788 or 68%, due primarily to an
impairment of oil and gas properties in 1998 of $1,742,386. There was an
additional impairment of oil and gas properties in the first quarter of fiscal
1999 of $288,393.

General and administrative expenses increased from $192,395 in 1998 to
$236,576 in 1999, an increase of $44,181 or 23%. This increase was primarily
attributable to increased salaries and benefits ($55,402), franchise taxes
($14,328), engineering and geological costs ($11,186), officers' and directors'
insurance ($6,708), and director fees ($6,700), offset in part by decreases in
legal fees ($22,671), accounting fees ($16,625) and contract services ($12,407).

Interest income increased from $2,121 in 1998 to $6,394 in 1999, an
increase of $4,273, due to the increased funds invested in a money market
account.

Interest expense increased from $137,012 in 1998 to $151,069 in 1999, an
increase of $14,057 or 10%. This increase was attributable to increased
borrowing during 1999, offset in part by lower interest rates.

FISCAL 1998 COMPARED TO FISCAL 1997

Oil and gas sales increased from $1,453,124 in 1997 to $2,090,117 in 1998,
an increase of $636,993 or 44%. This increase was primarily due to the increase
in oil and gas production from the acquisition and development of oil and gas
properties, offset in part by declining oil and gas prices. The average oil
price decreased from $22.09 in 1997 to $17.70 per bbl in 1998, a decrease of
$4.39 per bbl or 20%. The average gas price decreased from $2.47 in 1997 to
$2.22 per mcf in 1998, a decrease of $0.25 per mcf or 10%. Oil production
increased from 39,363 bbls in 1997 to 63,800 bbls in 1998, an increase of 24,437
bbls or 62%. Gas production increased from 236,034 mcf in 1997 to 432,343 mcf in
1998, an increase of 196,309 mcf or 83%.

Production costs increased from $346,765 in 1997 to $663,525 in 1998, an
increase of $316,760 or 91%. Of this increase, $43,920 is attributable to
increased production taxes relating to the increase in oil and gas sales with
the remaining $272,840 attributable to increased operating expenses due to the
acquisition and development of oil and gas properties and the related increase
in production in 1998.

13
<PAGE>
Other revenues increased from $5,617 in 1997 to $16,221 in 1998, an
increase of $10,604, primarily due to the recovery of a bad debt.

Depreciation, depletion and amortization increased from $477,830 in 1997 to
$2,808,753 in 1997, an increase of $2,330,923 or 488%, primarily due to an
impairment of oil and gas properties of $1,742,386 which resulted from
significantly lower oil prices and the related downward adjustment of estimated
reserves. The acquisition and development of oil and gas properties in 1998 also
contributed to this increase.

General and administrative expenses increased from $113,023 in 1997 to
$192,395 in 1998, an increase of $79,372 or 70%. This increase was primarily
attributable to increased engineering and geological costs ($19,731), legal fees
($16,875), accounting fees ($15,375) and contract and consulting services
($14,582).

Interest income decreased from $7,166 in 1997 to $2,121 in 1998, a decrease
of $5,045 or 70%, due to the reduced funds invested in a money market account.

Interest expense increased from $12,787 in 1997 to $137,012 in 1998, an
increase of $124,225, due to increased borrowings and time outstanding under the
bank line of credit.

OTHER MATTERS

FORWARDING-LOOKING STATEMENTS

Certain statements in this Form 10-K may be deemed to be "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"). All statements, other than statements
of historical facts, included in this Form 10-K that address activities, events
or developments that the Company expects, projects, believes or anticipates will
or may occur in the future, including such matters as oil and gas reserves,
future drilling and operations, future production of oil and gas, future net
cash flows, future capital expenditures and other such matters, are
forward-looking statements. These statements are based on certain assumptions
and analysis made by management of the Company in light of its experience and
its perception of historical trends, current conditions, expected future
developments and other factors it believes are appropriate in the circumstances.
Such statements are subject to a number of assumptions, risks and uncertainties,
including general economic and business conditions, prices of oil and gas, the
business opportunities (or lack thereof) that may be presented to and pursued by
the Company, changes in laws or regulations and other factors, many of which are
beyond the control of the Company.

YEAR 2000 ISSUE

The Company is conducting an assessment of the business risks associated
with the new century. These risks relate to the inability of certain software
and embedded logic control devices to distinguish between the year 1900 and the
year 2000. If not corrected, the year 2000 could cause such devices and software
to fail or create erroneous results.

14
<PAGE>
The Company's accounting software vendor has modified its software to
accurately handle the new century, at no additional cost to the Company.
Therefore, the Company does not expect to incur any material expense or risk
associated with its own information systems.

To mitigate or prevent the risk related to the Company's customers and
suppliers, formal communications have been initiated with key third parties in
an attempt to ascertain their ability to continue to meet their obligations to
the Company and the potential impact on the Company's operations and financial
condition. The responses received are being evaluated, and the Company may
choose to use alternative sources of supply, markets or develop other
contingency plans. The process of evaluating third party Year 2000 readiness
began in November 1998, is approximately 50 percent complete, and is scheduled
for completion by September 30, 1999.

The failure to correct, on a timely basis, a material Year 2000 problem
could result in an interruption in the Company's operations or business
activities. Such interruptions could have a material adverse affect on Company's
results of operations, liquidity and financial condition. Due to the inherent
uncertainty associated with the Year 2000 issue, particularly as it relates to
third party Year 2000 readiness, the Company cannot ascertain at this time
whether the consequences of Year 2000 failures will have a material impact on
the Company's future financial results, liquidity, condition or reporting.

RISK FACTORS

All of the Company's financial instruments are for purposes other than
trading.

Interest Rate Risk. The following table summarizes maturities for the
Company's variable rate bank debt, which is tied to prime rate. If the interest
rate on the Company's bank debt increases or decreases by one percentage point,
the Company's annual pretax income would decrease or increase by $17,840.

1999 2000
--------- ----------
Variable rate bank debt $ 516,000 $1,268,000

Credit Risk. Credit risk is the risk of loss as a result of nonperformance
by counterparties of their contractual obligations. The Company's primary credit
risk is related to oil and gas production sold to various purchasers and the
receivables are generally uncollateralized. At March 31, 1999, the Company's
largest credit risk associated with any single purchaser was $27,510. 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 dependent upon the prices received for oil and
gas. Historically, the markets for oil and gas have been volatile and are likely
to continue to be so in the future. Various factors beyond the control of the
Company affect the price of oil and gas, including but not limited to worldwide
and domestic supplies of oil and gas, the ability of the members of the
Organization of Petroleum Exporting Countries to agree to and maintain oil price
and production controls, political instability or armed conflict in
oil-producing regions, the price and level of foreign imports, the level of
consumer demand, the price and availability of alternative fuels, the
availability of pipeline capacity, weather conditions, domestic and foreign
governmental regulation and the overall economic environment. Any significant
decline in prices would adversely affect the Company's revenues and operating
income and may require a reduction in the carrying value of the Company's oil
and gas properties. If the average oil price for fiscal 1999 had increased or
decreased by one cent, the Company's pretax loss would have decreased or
increased by $496. If the average gas price for fiscal 1999 had increased or
decreased by one cent, the Company's pretax loss would have decreased or
increased by $4,829. 15
<PAGE>
Uncertainty of Reserve Information and Future Net Revenue Estimates.
Estimates of oil and gas reserves, by necessity, are projections based on
engineering data, and there are uncertainties inherent in the interpretation of
such data as well as the projection of future rates of production and the timing
of development expenditures. Reserve engineering is a subjective process of
estimating underground accumulations of oil and gas that are difficult to
measure. Estimates of economically recoverable oil and gas reserves and of
future net cash flows depend upon a number of variable factors and assumptions,
such as future production, oil and gas prices, operating costs, development
costs and remedial costs, all of which may vary considerably from actual
results. As a result, estimates of the economically recoverable quantities of
oil and gas and of future net cash flows expected therefrom may vary
substantially. Moreover, there can be no assurance that the Company's reserves
will ultimately be produced or that any undeveloped reserves will be developed.

Reserve Replacement Risk. The Company's future success depends upon its
ability to find, develop or acquire additional, economically recoverable oil and
gas reserves. The proved reserves of the Company will generally decline as
reserves are depleted, except to the extent the Company can find, develop or
acquire replacement reserves.

Drilling and Operating Risks. Drilling and operating activities are subject
to many risks, including well blow outs, cratering, fires, releases of toxic
gases and other environmental hazards and risks, any of which could result in
substantial losses to the Company. In addition, the Company incurs the risk that
no commercially productive reservoirs will be encountered and there is no
assurance that the Company will recover all or any portion of its investment in
wells drilled or re-entered.

Marketability of Production. The marketability of the Company's production
depends in part on the availability, proximity and capacity of natural gas
gathering systems, pipelines and processing facilities. Federal and state
regulation of oil and gas production and transportation, tax and energy
policies, changes in supply and demand and general economic conditions could all
affect the Company's ability to produce and market its oil and gas.

Item No. 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Certified Public Accountants .............. 17
Consolidated Balance Sheets ..................................... 18
Consolidated Statements of Operations ........................... 19
Consolidated Statements of Stockholders' Equity ................. 20
Consolidated Statements of Cash Flows ........................... 21
Notes to Consolidated Financial Statements ...................... 22

16
<PAGE>

Report of Independent Certified Public Accountants

Board of Directors
Mexco Energy Corporation

We have audited the accompanying consolidated balance sheets of Mexco Energy
Corporation and Subsidiary, as of March 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended March 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Mexco Energy
Corporation and Subsidiary, as of March 31, 1999 and 1998, and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended March 31, 1999 in conformity with generally
accepted accounting principles.

GRANT THORNTON LLP

Oklahoma City, Oklahoma
May 14, 1999

17
<PAGE>
MEXCO ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
As of March 31,

1999 1998
------------ ------------
ASSETS
Current assets
Cash and cash equivalents $ 96,198 $ 241,348
Accounts receivable:
Oil and gas sales 179,269 199,427
Related parties (note I) 3,780 8,473
Prepaid expenses 14,368 15,185
------------ ------------
Total current assets 293,615 464,433

Property and equipment, at cost
(notes C, F and K)
Oil and gas properties,
using the full cost method 10,495,391 9,915,701
Other 21,874 20,252
------------ ------------
10,517,265 9,935,953
Less accumulated depreciation,
depletion, and amortization 6,767,865 5,857,900
------------ ------------
Property and equipment, net 3,749,400 4,078,053
------------ ------------
Total assets $ 4,043,015 $ 4,542,486
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable - trade $ 85,434 $ 121,131
Current maturities of long term debt (note C) 516,000 322,000
------------ ------------
Total current liabilities 601,434 443,131

Long term debt (note C) 1,268,000 1,500,000
------------ ------------
Total liabilities 1,869,434 1,943,131

Stockholders' equity
Common stock - $0.50 par value; 40,000,000
shares authorized; 1,623,289 shares issued
and outstanding (note G) 811,644 811,644
Preferred stock - $1.00 par value;
10,000,000 shares authorized (note G) -- --
Additional paid-in capital 2,875,399 2,875,399
Accumulated deficit (1,513,462) (1,087,688)
------------ ------------
Total stockholders' equity 2,173,581 2,599,355
------------ ------------
Total liabilities and stockholders' equity $ 4,043,015 $ 4,542,486
============ ============

The accompanying notes to the consolidated financial statements
are an integral part of these statements.

18
<PAGE>
MEXCO ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended March 31,

1999 1998 1997
----------- ----------- -----------
Operating revenues:
Oil and gas $ 1,503,623 $ 2,090,117 $ 1,453,124
Other 6,382 16,221 5,617
----------- ----------- -----------
Total operating revenues 1,510,005 2,106,338 1,458,741

Operating expenses:
Production 644,563 663,525 346,765
Depreciation, depletion,
and amortization (note F) 909,965 2,808,753 477,830
General and administrative 236,576 192,395 113,023
----------- ----------- -----------
Total operating expenses 1,791,104 3,664,673 937,618
----------- ----------- -----------
(281,099) (1,558,335) 521,123
Other income (expense):
Interest income 6,394 2,121 7,166
Interest expense (151,069) (137,012) (12,787)
----------- ----------- -----------
Net other expense (144,675) (134,891) (5,621)
----------- ----------- -----------
Earnings (loss) before income taxes (425,774) (1,693,226) 515,502

Income tax expense (benefit) (note D) -- (369,569) 137,635
----------- ----------- -----------
Net earnings (loss) $ (425,774) $(1,323,657) $ 377,867
=========== =========== ===========
Basic and diluted earnings
(loss) per share $ (0.26) $ (0.83) $ 0.27
=========== =========== ===========
Weighted average outstanding
shares, basic and diluted 1,623,289 1,594,752 1,423,229
=========== =========== ===========

The accompanying notes to the consolidated financial statements
are an integral part of these statements.

19
<PAGE>
MEXCO ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended March 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
Retained
Additional earnings Total
Common stock paid-in (accumulated Stockholders'
Shares Amount capital deficit) equity
--------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at April 1, 1996 1,423,229 $ 711,614 $ 1,975,429 $ (141,898) $ 2,545,145

Net earnings -- -- -- 377,867 377,867
--------- ----------- ----------- ----------- -----------
Balance at March 31, 1997 1,423,229 711,614 1,975,429 235,969 2,923,012

Net loss -- -- -- (1,323,657) (1,323,657)

Issuance of common stock 200,060 100,030 899,970 -- 1,000,000
--------- ----------- ----------- ----------- -----------
Balance at March 31, 1998 1,623,289 811,644 2,875,399 (1,087,688) 2,599,355

Net loss -- -- -- (425,774) (425,774)
--------- ----------- ----------- ----------- -----------
Balance at March 31, 1999 1,623,289 $ 811,644 $ 2,875,399 $(1,513,462) $ 2,173,581
========= =========== =========== =========== ===========
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these statements.

20
<PAGE>
MEXCO ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (note A)
Year ended March 31,
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows provided by operating activities:
Net earnings (loss) $ (425,774) $(1,323,657) $ 377,867
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Deferred income taxes -- (341,181) 94,890
Depreciation, depletion and amortization 909,965 2,808,753 477,830
(Increase) decrease in accounts receivable 24,851 83,354 (182,671)
Increase (decrease) in accounts payable 22,312 (53,425) 58,922
(Increase) decrease in prepaid assets 817 (15,185) --
Increase (decrease) in income taxes payable -- (40,093) 40,093
----------- ----------- -----------
Net cash provided by operating activities 532,171 1,118,566 866,931

Cash flows used in investing activities:
Additions to oil and gas properties (643,377) (2,089,136) (1,294,556)
Proceeds from sale of assets 5,678 64 32,449
Additions to other property and equipment (1,622) (13,959) (3,791)
Acquisition of Forman Energy Corporation -- -- (1,369,332)
----------- ----------- -----------
Net cash used in investing activities (639,321) (2,103,031) (2,635,230)

Cash flows (used in) provided by financing activities:
Borrowings -- 685,000 1,637,000
Principal payments on long-term debt (38,000) (500,000) --
Proceeds from issuance of common stock -- 1,000,000 --
----------- ----------- -----------
Net cash (used in) provided by financing activities (38,000) 1,185,000 1,637,000
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (145,150) 200,535 (131,299)
Cash and cash equivalents at beginning of year 241,348 40,813 172,112
----------- ----------- -----------
Cash and cash equivalents at end of year $ 96,198 $ 241,348 $ 40,813
=========== =========== ===========

Interest paid $ 138,586 $ 140,272 $ 7,298
Income taxes paid $ -- $ 24,731 $ 2,652

Non-cash investing and financing activities:
Included in trade accounts payable at March 31:
Acquisition and development costs of oil and gas properties $ 25,041 $ 83,050 $ 76,407
</TABLE>
The purchase of Forman Energy Corporation on February 25, 1997 resulted in the
assumption of a deferred tax liability and account payable as follows:

Assets acquired $ 1,591,000
Cash paid 1,369,000
------------
Liabilities assumed $ 222,000
============

The accompanying notes to the consolidated financial statements
are an integral part of these statements.

21
<PAGE>
MEXCO ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

Mexco Energy Corporation and its wholly-owned subsidiary, Forman Energy
Corporation (collectively, the "Company") is engaged in the acquisition,
exploration, development and production of domestic oil and gas and owns
producing properties and undeveloped acreage in twelve states. The majority of
the Company's activities are centered in West Texas. Although most of the
Company's oil and gas interests are operated by others, the Company does operate
several properties in which it owns an interest.

SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation. The consolidated financial statements include the
accounts of Mexco Energy Corporation and its wholly-owned subsidiary. All
significant inter-company balances and transactions have been eliminated in
consolidation.

Cash and Cash Equivalents. The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less and money market
funds to be cash equivalents. The Company maintains its cash in bank deposit
accounts and money market funds, some of which are not federally insured. The
Company has not experienced any losses in such accounts and believes it is not
exposed to any significant credit risk.

Oil and Gas Properties. Oil and gas properties are accounted for using the full
cost method of accounting. Under this method, all costs associated with the
acquisition, exploration, and development of properties (successful or not),
including leasehold acquisition costs, geological and geophysical costs, lease
rentals, exploratory and developmental drilling and equipment costs, are
capitalized. Costs are amortized using the units-of-production method based upon
estimates of proved oil and gas reserves. If unamortized costs, less related
deferred income taxes, exceed the sum of the present value, discounted at 10%,
of estimated future net revenues from proved reserves, less related income tax
effects, the excess is charged to expense. Generally, no gains or losses are
recognized on the sale or disposition of oil and gas properties.

Other Property and Equipment. Provisions for depreciation of office furniture
and equipment are computed on the straight-line method based on estimated useful
lives of five to ten years.

Earnings (Loss) Per Common Share. Net earnings (loss) per share is calculated
using the weighted average number of shares outstanding during each year
presented. There were no potential common stocks outstanding for March 31, 1997
or 1998. Potential common stocks (options) are excluded for March 31, 1999 as
their inclusion would have an antidilutive effect on loss per share.

Income Taxes. The Company recognizes deferred tax assets and liabilities for the
future tax consequences of temporary differences between the carrying amounts of
assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates applicable to the years in
which those differences are expected to be settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in net income in
the period that includes the enactment date.

22
<PAGE>
MEXCO ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A (CONTINUED)

Environmental. The Company is subject to extensive federal, state and local
environmental laws and regulations. These laws, which are constantly changing,
regulate the discharge of materials into the environment and may require the
Company to remove or mitigate the environmental effects of the disposal or
release of petroleum or chemical substances at various sites. Environmental
expenditures are expensed or capitalized depending on their future economic
benefit. Liabilities for expenditures of a non-capital nature are recorded when
environmental assessment and/or remediation is probable and the costs can be
reasonably estimated. There were no significant environmental expenditures or
liabilities for the years ended March 31, 1999, 1998 or 1997.

Use of Estimates. In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the amounts reported in the 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 therefrom.

Stock Options. The Company accounts for employee stock option grants in
accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," whereby compensation costs are recognized only
in situations where stock compensatory plans award intrinsic value to recipients
at the date of grant. The Financial Accounting Standards Board has issued a
proposed Interpretation of APB Opinion 25, which may require the Company to
recognize compensation costs related to stock options granted to outside
directors and independent consultants. The final Interpretation is expected in
1999. If adopted, the Interpretation would apply to events that occur after
December 15, 1998.

Financial Instruments. Cash and money market funds, stated at cost, are
available upon demand and approximate fair value. Interest rates associated with
the Company's long-term debt are linked to current market rates. As a result,
management believes that the carrying amount approximates the fair value of the
Company's credit facilities. All financial instruments are held for purposes
other than trading.

Reclassifications. Certain reclassifications have been made to the 1997 and 1998
financial statements to conform to the 1999 presentation. For the year ended
March 31, 1999, the Company has presented its Statement of Cash Flows using the
indirect method. The Statements of Cash Flows for prior years have been restated
using the same presentation.

NOTE B - BUSINESS COMBINATION

On February 25, 1997, the Company acquired Forman Energy Corporation. The
acquisition has been accounted for under the purchase method of accounting, and
the operations of the acquired company are included subsequent to February 1,
1997. The purchase price of approximately $1,591,000 was allocated to the
assets, primarily oil and gas properties, acquired on the basis of their
estimated fair value.

23
<PAGE>
MEXCO ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE B (CONTINUED)

The following summarized pro forma, unaudited information for the year
ended March 31, 1997 assumes the acquisition of Forman had occurred on April 1,
1996:
Revenues $1,831,031
Net earnings 476,948
Basic and diluted earnings per share .34

NOTE C - DEBT

The Company has a revolving credit agreement with Bank of America, N.A.,
formerly NationsBank of Texas, N.A., which provides for a credit facility of
$3,000,000, subject to a borrowing base determination. The credit facility was
amended on August 15, 1998 to increase the borrowing base to $2,085,000, with
scheduled monthly reductions of $43,000 beginning September 5, 1998, and to
extend the maturity date to August 15, 2000. At March 31, 1999, the borrowing
base was $1,784,000. On April 2, 1999, with the sale of the Lazy JL field
properties, the borrowing base was $1,639,107 and sales proceeds of $600,000
were used to reduce the outstanding debt. The borrowing base is subject to
redetermination on or about August 1, each year. Current amounts due under the
facility of $516,000 and $322,000 at March 31, 1999 and 1998, respectively, are
reflected in the financial statements. Interest under this agreement is payable
monthly at prime rate (7.75% at March 31, 1999 and 8.5% at March 31, 1998). The
balance outstanding under this credit facility was $1,784,000 and $1,822,000 at
March 31, 1999 and 1998, respectively. 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 dividends. The credit facility is secured by
substantially all of the Company's oil and gas properties and the common stock
of it's subsidiary.

The Company also has a letter of credit with Bank of America providing for
unsecured borrowings up to $25,000 in lieu of a plugging bond with the Texas
Railroad Commission covering properties operated by the Company.

NOTE D - INCOME TAXES

Components of income tax expense (benefit) for years ended March 31 are as
follows:
1999 1998 1997
--------- --------- ---------
Current:
Federal ................... $ -- $ (28,388) $ 40,994
State ..................... -- -- 1,751
--------- --------- ---------
-- (28,388) 42,745
Deferred:
Federal ................... -- (301,814) 83,941
State ..................... -- (39,367) 10,949
--------- --------- ---------
-- (341,181) 94,890
--------- --------- ---------
Income tax expense (benefit) ...... $ -- $(369,569) $ 137,635
========= ========= =========

24
<PAGE>
MEXCO ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE D. (CONTINUED)

Deferred tax assets, valuation allowance, and liabilities at March 31 are
as follows:

1999 1998
Deferred tax assets:
Percentage depletion carryforwards ........... $ 169,271 $ 142,218
Net operating loss carryforwards ............. 230,763 101,780
Valuation allowance .......................... (271,818) (135,890)
--------- ---------
128,216 108,108
Deferred tax liabilities:
Excess financial accounting bases over
tax bases of property and equipment ........ (128,216) (108,108)
--------- ---------
Net deferred tax assets (liabilities) .... $ -- $ --
========= =========
Increase (decrease) in valuation allowance
for the year ................................. $ 135,928 $ 135,890
========= =========

As of March 31, 1999, the Company has statutory depletion carryforwards of
approximately $651,000, which do not expire, and operating loss carryforwards of
approximately $888,000, which if not utilized begin to expire in 2018.

A reconciliation of the provision for income taxes to income taxes computed
using the federal statutory rate for years ended March 31 follows:

1999 1998 1997
--------- --------- ---------
Tax expense (benefit) at statutory rate .. $(144,763) $(575,697) $ 175,271
Increase (decrease) in valuation allowance 135,928 135,890 (3,072)
State income taxes ....................... -- -- 8,215
Prior year over accrual .................. -- (28,388) (4,794)
Effect of graduated rates ................ 34,062 130,450 (41,241)
Other .................................... (25,227) (31,824) 3,256
--------- --------- ---------
$ -- $(369,569) $ 137,635
========= ========= =========

NOTE E - MAJOR CUSTOMERS

The Company operates exclusively within the United States and it's revenues
and operating income are derived predominately from the oil and gas industry.
Oil and gas production is sold to various purchasers and the receivables are
unsecured. Historically, the Company has not experienced significant credit
losses on its oil and gas accounts and management is of the opinion that
significant credit risk does not exist. Management is of the opinion that the
loss of any one purchaser would not have an adverse effect on the ability of the
Company to sell its oil and gas production.

25
<PAGE>
MEXCO ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE E. (CONTINUED)

In fiscal 1999, two purchasers accounted for 30% and 25%, respectively, of
revenues. In fiscal 1998, two purchasers accounted for 33% and 15%,
respectively, of revenues. In fiscal 1997, three purchasers accounted for 46%,
24% and 10%, respectively, of revenues.

NOTE F - OIL AND GAS COSTS

The costs related to the oil and gas activities of the Company were
incurred as follows:

Year ended March 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
Property acquisition costs $ 207,325 $ 751,160 $ 562,363
Development costs $ 436,052 $1,261,569 $ 808,600

The Company had the following aggregate capitalized costs relating to the
Company's oil and gas property activities at March 31:

1999 1998 1997
----------- ----------- -----------
Proved oil and gas properties $10,331,594 $ 9,854,099 $ 7,698,866
Unproved oil and gas properties 163,797 61,602 121,120
----------- ----------- -----------
10,495,391 9,915,701 7,819,986
Less accumulated depreciation,
depletion, and amortization 6,759,416 5,853,458 3,046,602
----------- ----------- -----------
$ 3,735,975 $ 4,062,243 $ 4,773,384
=========== =========== ===========

Depreciation, depletion, and amortization expense included a full cost
ceiling write-down of $288,393 for the first quarter of fiscal 1999 and
$1,742,386 for the fourth quarter of fiscal 1998 due to declines in oil and gas
prices and the related downward adjustment of estimated reserves. Depreciation,
depletion, and amortization amounted to $6.97, $20.66 and $6.02 per equivalent
barrel of production for the years ended March 31, 1999, 1998, and 1997,
respectively.

NOTE G - STOCKHOLDERS' EQUITY

In May 1997, the Company completed a private placement of 200,000 shares of
common stock at $5.00 per share. The proceeds of $1,000,000 were used to reduce
debt and finance property acquisitions.

In September 1997, the shareholders approved an amendment to the Articles
of Incorporation to increase the number of authorized shares from 5,000,000
shares of common stock to 40,000,000 shares of common stock and 10,000,000
shares of preferred stock. The common stockholders maintain the exclusive right
to vote for the election of directors and for all other purposes. The preferred
stock may be issued in a series with certain rights as determined by the Board
of Directors.

26
<PAGE>
MEXCO ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE H - EMPLOYEE BENEEFIT PLAN

The Company adopted an employee incentive stock plan effective September
15, 1997. Under the plan, 350,000 shares are available for distribution. Awards,
granted at the discretion of the compensation committee of the Board of
Directors, include stock options or restricted stock. Stock options may be an
incentive stock option or a nonqualified stock option. Options to purchase
common stock under the plan are granted at the fair market value of the common
stock at the date of grant, become exercisable to the extent of 25% of the
shares optioned on each of four anniversaries of the date of grant, expire ten
years from the date of grant, and are subject to forfeiture if employment
terminates. Restricted stock may be granted with a condition to attain a
specified goal. The purchase price will be at least $5.00 per share of
restricted stock. The awards of restricted stock must be accepted within sixty
days and will vest as determined by agreement. Holders of restricted stock have
all rights of a shareholder of the Company.

During fiscal 1999, 100,000 options were granted. Of these 20,000 options
were granted to a consultant and 10,000 options were granted to an outside
director. As of March 31, 1999 there were 90,000 options outstanding under this
plan with exercise prices ranging from $7.50 to $7.75. The exercise price of all
options granted equaled or exceeded the market price of the stock on the date of
grant.

The summary of the status of the Company's stock option plan at March 31,
1999 and the changes during the year then ended is presented below:

Weighted
Company Average
Shares Exercise Price
------- --------------
Options outstanding, beginning of year -- $ --
Options granted 100,000 7.63
Options forfeited 10,000 7.75
Options exercised -- --
------- --------------
Options outstanding, end of year 90,000 $ 7.61
======= ==============

No options were exercisable at March 31, 1999. At April 2, 1999, 7,500
options were exercisable with an exercise price of $7.75.

Weighted average grant date fair value of stock options granted, was $4.04
for 1999, calculated in accordance with the Black-Scholes option pricing model,
using the following weighted average assumptions:

Expected volatility 27.89%
Expected dividend yield 0%
Expected option term 10 years
Risk-free rate of return 5.72%

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
27
<PAGE>
MEXCO ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE H. (CONTINUED)

Options to purchase common stock outstanding were as follows:

Number outstanding 90,000
Range of exercise prices $7.50-$7.75
Weighted average exercise price $7.61
Weighted average years to expiration 9.56

Since the Company applies the intrinsic value method in accounting for its
stock option plan, it generally records no compensation cost for its stock
options (note A). If compensation cost for the Company's stock option plan had
been determined based on the fair value at the grant dates for awards under the
plan, the Company's net loss would have been increased by $51,415 in fiscal
1999. Basic and diluted loss per share would have been increased by $0.03 per
share in fiscal 1999.

NOTE I - RELATED PARTY TRANSACTIONS

The Company serves as operator of properties in which the majority
stockholder has interests and bills the majority stockholder for lease operating
expenses on a monthly basis subject to usual trade terms. The billings totaled
$21,981, $50,097 and $112,657 for the years ended March 31, 1999, 1998, and
1997, respectively.

NOTE J - SUBSEQUENT EVENT

On April 21, 1999, the Company sold all of its oil and gas interests in
Lazy JL field properties located in Garza County, Texas for $600,000 cash,
adjusted for revenues and expenses from the effective date of February 1, 1999
through the date of closing. The sales proceeds were used to reduce the
Company's outstanding debt under its line of credit with Bank of America.

NOTE K - OIL AND GAS RESERVE DATA (UNAUDITED)

The estimates of the Company's proved oil and gas reserves, which are
located entirely within the United States, were prepared in accordance with the
guidelines established by the Securities and Exchange Commission and Financial
Accounting Standards Board. These guidelines require that reserve estimates be
prepared under existing economic and operating conditions, with no provision for
price and cost escalators, except by contractual agreement. The estimates as of
March 31, 1999 are based on evaluations prepared by Joe C. Neal and Associates,
Petroleum Consultants. The estimates as of March 31, 1998 and 1997 are based on
evaluations prepared by T. Scott Hickman and Associates, Inc., Petroleum
Engineers.

Management emphasizes that reserve estimates are inherently imprecise and
are expected to change as new information becomes available and as economic
conditions in the industry change. The following estimates of proved reserves
quantities and related standardized measure of discounted net cash flow are
estimates only, and do not purport to reflect realizable values or fair market
values of the Company's reserves.

28
<PAGE>
MEXCO ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE K. (CONTINUED)

CHANGES IN PROVED RESERVE QUANTITIES (UNAUDITED):
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- --------------------- ---------------------
Bbls Mcf Bbls Mcf Bbls Mcf
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Proved reserves, beginning of year 246,000 3,197,000 436,000 2,956,000 425,000 1,920,000
Revision of previous estimates (2,000) 348,000 (132,000) 268,000 (113,000) 411,000
Purchase of minerals in place -- 939,000 6,000 405,000 89,000 902,000
Extensions and discoveries -- 193,000 -- -- 75,000 83,000
Production (50,000) (483,000) (64,000) (432,000) (40,000) (236,000)
Sales of minerals in place -- -- -- -- -- (124,000)
------- --------- ------- --------- ------- ---------
Proved reserves, end of year 194,000 4,194,000 246,000 3,197,000 436,000 2,956,000
======= ========= ======= ========= ======= =========
PROVED DEVELOPED RESERVES (UNAUDITED):
Beginning of year 219,000 2,941,000 281,000 2,400,000 209,000 1,593,000
End of year 194,000 4,194,000 219,000 2,941,000 281,000 2,400,000
</TABLE>

STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED
RESERVES (UNAUDITED):
March 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
Future cash inflows $ 8,994,000 $ 9,794,000 $ 13,901,000
Future production and
development costs (2,989,000) (3,791,000) (5,678,000)
Future income taxes (a) (715,000) (612,000) (1,348,000)
------------ ------------ ------------
Future net cash flows 5,290,000 5,391,000 6,875,000
Annual 10% discount for
estimated timing of cash flows (2,220,000) (1,896,000) (2,427,000)
------------ ------------ ------------
Standardized measure of
discounted future net cash flows $ 3,070,000 $ 3,495,000 $ 4,448,000
============ ============ ============

(a) Future income taxes are computed using effective tax rates on future net
cash flows before income taxes less the tax bases of the oil and gas
properties.

29
<PAGE>
MEXCO ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE K. (CONTINUED)

CHANGES IN STANDARIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS FROM PROVED
RESERVES (UNAUDITED):

Year ended March 31,
1999 1998 1997
----------- ----------- -----------
Sales of oil and gas produced,
net of production costs $ (859,000) $(1,427,000) $(1,106,000)
Net changes in price and
production costs (1,255,000) (519,000) (582,000)
Previously estimated development
costs 296,000 -- --
Revisions of quantity estimates 389,000 (428,000) (237,000)
Net change due to purchases
and sales of minerals in place 527,000 456,000 1,338,000
Extensions and discoveries, less
related costs 81,000 -- 678,000
Net change in income taxes (18,000) 475,000 (425,000)
Accretion of discount 389,000 532,000 463,000
Changes in timing of estimated
cash flows and other 25,000 (42,000) 138,000
----------- ----------- -----------
Changes in standardized measure (425,000) (953,000) 267,000

Standardized measure, beginning of year 3,495,000 4,448,000 4,181,000
----------- ----------- -----------
Standardized measure, end of year $ 3,070,000 $ 3,495,000 $ 4,448,000
=========== =========== ===========

30
<PAGE>
Item No. 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosures

None.

PART III

Item No. 10. Directors and Executive Officers of the Registrant

The information required regarding Directors of the Registrant and
compliance with Section 16(a) of the Securities Exchange Act of 1934 is
incorporated by reference to the Company's Information Statement for its Annual
Meeting of Stockholders, which will be filed with the Commission not later than
July 29, 1999.

Pursuant to Item 401(b) of Regulation S-K, the information required by this
item with respect to executive officers of the Company is set forth in Part I of
this report.

Item No. 11. Executive Compensation

The information required in this item is incorporated by reference from the
Company's Information Statement for its Annual Meeting of Stockholders, which
will be filed with the Commission not later than July 29, 1999.

Item No. 12. Security Ownership of Certain Beneficial Owners and Management

Item No. 13. Certain Relationships and Related Transactions

PART IV

Item No. 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) 1. and 2. Financial Statements and Schedules.

See "Index to Consolidated Financial Statements" set forth in Item 8 of
this Form 10-K.

No schedules are required to be filed because of the absence of conditions
under which they would be required or because the required information is set
forth in the financial statements or notes thereto referred to above.

31
<PAGE>
(a) 3. Exhibits.

Exhibit
Number

3.1 Articles of Incorporation (incorporated by reference to the Company's
Annual Report on Form 10-K dated June 24, 1998).
3.2 Bylaws (incorporated by reference to the Company's Annual Report on Form
10K dated June 23, 1995).
10.1 Stock Option Plan (incorporated by reference to the Amendment to Schedule
14C Information Statement filed on August 13, 1997).
10.2 Bank Line of Credit (incorporated by reference to the Company's Annual
Report on Form 10-K dated June 24, 1998).
10.3 Partial Assignment, Bill of Sale and Conveyance between Mexco Energy
Corporation and Shenandoah Petroleum Corporation dated April 21, 1999
(previously filed as exhibit 10.1 and incorporated by reference to Form 8-K
dated April 21, 1999).
21 Subsidiaries of the Company (incorporated by reference to the Company's
Annual Report on Form 10-K dated Jun 24, 1998).

(b) Reports on Form 8-K.

No report on Form 8-K was filed by the Company during the quarter ended
March 31, 1999. A report on Form 8-K dated April 21, 1999 was filed under Item
2. Disposition of Assets.

32
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
behalf of the undersigned thereunto duly authorized.

MEXCO ENERGY CORPORATION

Registrant

By: /s/ Nicholas C. Taylor
-------------------------------------------------
Nicholas C. Taylor
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below as of June 15, 1999, by the following persons on
behalf of the Company and in the capacity indicated.

/s/ Nicholas C. Taylor
---------------------------------------------------
Nicholas C. Taylor
President, Chief Executive Officer and Director

/s/ Donna Gail Yanko
---------------------------------------------------
Donna Gail Yanko
Vice President, Operations and Director

/s/ Linda J. Crass
---------------------------------------------------
Linda J. Crass
Controller, Treasurer and Assistant Secretary

/s/ Thomas Graham, Jr.
---------------------------------------------------
Thomas Graham, Jr.
Chairman of the Board of Directors

/s/ Thomas R. Craddick
---------------------------------------------------
Thomas R. Craddick
Director

/s/ William G. Duncan, Jr.
---------------------------------------------------
William G. Duncan, Jr.
Director

/s/ Jack D. Ladd
---------------------------------------------------
Jack D. Ladd
Director

/s/ Gerald R. Martin
---------------------------------------------------
Gerald R. Martin
Director

33
<PAGE>
INDEX TO EXHIBITS

Exhibit
Number Exhibit Page
------ ------------------------------------------------------- ----
3.1** Articles of Incorporation.
3.2* Bylaws.
10.1*** Stock Option Plan.
10.2** Bank Line of Credit.
10.3**** Partial Assignment, Bill of Sale and Conveyance between
Mexco Energy Corporation and Shenandoah Petroleum
Corporation dated April 21, 1999.
21** Subsidiaries of the Company.

* Incorporated by reference to the Company's Annual Report on Form 10-K dated
June 23, 1995.
** Incorporated by reference to the Company's Annual Report on Form 10-K dated
June 24, 1998.
*** Incorporated by reference to the Amendment to Schedule 14C Information
Statement filed on August 13, 1998.
**** Previously filed as exhibit 10.1 and incorporated by reference to Form 8-K
dated April 21, 1999.

<ARTICLE> 5

<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-1998
<PERIOD-END> MAR-31-1999 MAR-31-1998
<CASH> 96,198 241,348
<SECURITIES> 0 0
<RECEIVABLES> 183,049 207,900
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 293,615 464,433
<PP&E> 10,517,265 9,935,953
<DEPRECIATION> 6,767,865 5,857,900
<TOTAL-ASSETS> 4,043,015 4,542,486
<CURRENT-LIABILITIES> 601,434 443,131
<BONDS> 0 0
0 0
0 0
<COMMON> 811,644 811,644
<OTHER-SE> 1,361,937 1,787,711
<TOTAL-LIABILITY-AND-EQUITY> 4,043,015 4,542,486
<SALES> 1,503,623 2,090,117
<TOTAL-REVENUES> 1,516,399 2,108,459
<CGS> 644,563 663,525
<TOTAL-COSTS> 644,563 663,525
<OTHER-EXPENSES> 1,297,610 3,138,160
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 151,069 137,012
<INCOME-PRETAX> (425,774) (1,693,226)
<INCOME-TAX> 0 (369,569)
<INCOME-CONTINUING> (425,774) (1,323,657)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (425,774) (1,323,657)
<EPS-BASIC> (0.26) (0.83)
<EPS-DILUTED> (0.26) (0.83)

</TABLE>