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, 19982000 Commission File No. 0-6694
MEXCO ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
COLORADOColorado 84-0627918
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
214 W. TEXAS AVENUE, SUITETexas Avenue, Suite 1101 79701
MIDLAND, TEXASMidland, 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, $.50$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. [_]
The[ ]
As of May 30, 2000, the aggregate market value of the registrant's common
stock of the Registrant held by non-
affiliates was approximately $1,646,573 based uponnon-affiliates (using the closing bid price of $4.375) was
approximately $989,857.
The number of shares outstanding of the registrant's common stock as of June 3, 1998.
As of June 3, 1998 the registrant had outstanding 1,623,289 shares of common
stock.
May
30, 2000 was 1,623,293.
DOCUMENTS INCORPORATED BY REFERENCE The information requiredPart 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 29, 2000. Such Information
Statement will be filed with the Commission not later than July 31, 2000.
TABLE OF CONTENTS
PART 1
Item 6011. Business ......................................................... 3
Item 2. Properties........................................................ 6
Item 3. Legal Proceedings................................................. 8
Item 4. Submission of Regulation S-KMatters to a Vote of Security Holders............... 9
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters............................................... 9
Item 6. Selected Financial Data........................................... 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 11
Item 8. Financial Statements and Supplementary Data....................... 15
Item 9. Changes in and Disagreements with respect to thisAccountants on
Accounting and Financial Disclosures.............................. 30
PART III
Item 10. Directors and Executive Officers of the Registrant................ 30
Item 11. Executive Compensation............................................ 30
Item 12. Security Ownership of Certain Beneficial Owners and Management.... 30
Item 13. Certain Relationships and Related Transactions.................... 30
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 10-K has either been included or omitted because of non-applicability.
The index to the Exhibits is located on page 22 herein.8-K... 30
Signatures ...............................................................32
2
PART I
ITEM NO. 1. BUSINESS
--------General
Mexco Energy Corporation, (the "Company"), a Colorado corporation, was
organized in 1972,(the "Company", which
reference shall include the Company's wholly-owned subsidiary) is an independent
oil and maintains its principal office at 214 W. Texas, Suite
1101, Midland, Texas. Since its incorporation, the Company has beengas company engaged in the acquisition, exploration and development of
oil and gas properties located in the United States. The bulk of its activities are, and have been since its
incorporation, conductedIncorporated in April 1972
under the State of Texas.
The Company's corporate name was formerly Miller Oil Company. In 1980 the
shareholders ofCompany, the Company amended the Articles of Incorporation ("Articles")
of the Company to change the corporatechanged its name to Mexco Energy
Corporation. Also
atCorporation effective April 30, 1980. At that 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 ($0.50 par value). The corporate name changeof Forman Energy Corporation, a New York corporation also
engaged in oil and reverse stock
split became effective April 30, 1980.
The Company's operations are not divided into industry segments.gas exploration and development.
Since its inception, the Company's entire businessCompany has been engaged in acquiring and
developing oil and gas properties and producingthe 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 on gas reserves.
While the Company owns oil and gas industry.
All salesproperties in other states, the majority
of oil and gasits activities are to unaffiliated customers. See the Company's
financial statements and notes thereto for an account of the Company's past
operating results attributable to its oil and gas operations.centered in West Texas. The Company acquires interests in
producing and non-producing oil and gas leases purchased from landowners and leaseholders
in areas considered favorable for oil and gas exploration, development and
production by the Company.production. In addition, the Company may acquire oil and gas prospects are acquiredinterests by
joining with otherin oil and gas operators in
drilling prospects which suchgenerated by third parties have generated.parties. The
Company employsmay 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.properties and re-entry
prospects.
Oil and Gas Operations
As of March 31, 1998,2000, gas reserves constituted approximately 85% of the
Company's total proved reserves and approximately 75% of the Company's revenues
for fiscal 2000. Revenues from oil and gas royalty interests accounted for
approximately 16% of the Company's revenues for fiscal 2000.
VIEJOS GAS FIELD properties, encompassing 2,583 gross acres, 156 net acres,
18 gross wells and 1.27 net wells in Pecos County, Texas, account for
approximately 24% of the Company's discounted future net cash flows from proved
reserves as of March 31, 2000, and for fiscal 2000, approximately 34% of
revenues and 21% of production costs.
GOMEZ GAS FIELD properties, encompassing 13,847 gross acres, 73 net acres,
24 gross wells and .11 net wells in Pecos County, Texas, account for
approximately 18% of the Company's discounted future net cash flows from proved
reserves as of March 31, 2000, and for fiscal 2000, approximately 13% of
revenues and 7% of production costs.
The Company owns interests in and operates 10 producing wells and one
shut-in well. The Company owns partial interests in an additional 1,395
producing wells located in the states of Texas, New Mexico, Oklahoma, Louisiana,
Arkansas, Wyoming, Kansas, Colorado, Alabama, Montana and North Dakota.
Additional information concerning these properties and the oil and gas reserves
3
of the Company held leasehold rights coveringis provided below.
The following table indicates the Company's oil and gas production in excesseach
of 214,112 gross acres (3,871 net acres),the last five years, all of which is located within the United States:
Year Oil(Bbls) Gas(MCF)
---- --------- --------
2000................................... 19,334 540,793
1999................................... 49,573 482,948
1998................................... 63,800 432,343
1997................................... 39,363 236,034
1996................................... 29,058 186,419
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:
2000 1999 1998
---- ---- ----
Koch Midstream Services Company 35% 30% -
Navajo Crude Oil Marketing Company - 25% 33%
Aquila Southwest Pipeline Corporation - - 15%
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
producingissued 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 located thereon.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 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 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.
4
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 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
operatorresults of five (5)operations or financial condition of the producing wells in which it owns an interest and other companies operate one
thousand five hundred thirty-six (1,536) ofCompany, there can be no
assurance that future developments, such as increasingly stringent environmental
laws or enforcement thereof, will not cause the remaining producing wells.
Approximately 74% of the Company's present value discounted at ten percent
per annum of future net revenues of total proved reserves is concentrated in
three (3) principal fields, the Lazy JL, Viejos and Gomez fields. See Note L of
the NotesCompany to Financial Statements herein. The Company owns 3,964 gross (1,512
net) acres in the Lazy JL Field located in Garza County, Texas. The Company owns
2,594 gross (197 net) acres in the Viejos Field and 14,476 gross (72 net) acres
in the Gomez Field both fields located in Pecos County, Texas.
The Company's oil and gas activities involve oil and gas drilling, which
carries high risk including the risk that no commercial oilincur material
environmental liabilities or gas production
will be obtained. The cost of drilling, completing and operating wells is often
uncertain. Further, drilling may be curtailed or delayed as a result of many
factors, including title problems, weather conditions, delivery delays, and
shortage of pipe and equipment.
3
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 can occurcould arise from uninsured risks or
in amounts in excess of existing insurance coverage.
The occurrence of an event which is not insured or not fully insured could have
an adverse impact upon the Company.
The oil and gas industry in which the Company is engaged is a highly
competitive and speculative business. Competitors include well-capitalized oil
and gas companies and other companies having financial and other resources
greater than those of the Company. The Company's ability to locate and produce
oil and gas reserves is essential to the ultimate realization of income and
value from the Company's properties and, therefore, may be considered to be a
raw material essential to the Company's business. The availability of drilling
rigs, fuel, tubular goods and other drilling and production equipment is also
essential to the Company's business. The Company relies on the acquisition of
leases and other oil and gas interests on which to explore for, develop and/or
produce oil and gas. The availability of such property is essential to the
Company's continuing business.
Crude oil and condensate produced from the properties in which the Company
owns an interest are sold to oil companies and pipeline companies at prices
posted by the principal purchasers in the Company's producing area.Employees
As of March 31, 1998 the principal purchasers (percentage purchased) of the Company's crude
oil production were Navajo Crude Oil Marketing Company (62%) and Sun Refining
and Marketing Company (12%).
Natural gas obtained from the properties in which2000, the Company has an
interest is sold pursuant to contracts negotiated between operators of producing
wells and purchasers of natural gas (subject to the Natural Gas Policy Act). As
of March 31, 1998 the principal purchasers (percentage purchased) of the
Company's natural gas production were approximately: Aquila Southwest Pipeline
Corporation (32%) and Chevron USA Production Company (12%). The Company does not
believe that the loss of any of these purchasers would have a material impact on
Company's business because of the demand for oil, gas and casinghead gas
production. Oil and gas production is transported by trucks and pipelines,
respectively. The Company does not own any bulk storage facilities or
pipelines.
As of March 31, 1998, the Company employed twohad one full-time and onethree part-time
persons.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 by nature of its oil and gas operations, is subject to
compliance with federal, state and local provisions regulating the discharge of
materials into the environment or otherwise relating to the protection of the
environment. At the present time, however, such compliance does not require any
substantial capital expenditures, does not materially affect the Company's
earnings and in the Company's opinion will not materially affect future
operations.
The Company is not engaged in operations in foreign countries, and no
portion of sales or revenues is derived from customers in foreign countries.
4
ITEM NO. 2. PROPERTIES
----------
Office Facilities
- - -----------------
The Company occupiesmaintains its principal offices at 214 W. Texas, Suite 1101,
Midland, Texas pursuant to a lease which terminates in less than one (1) year.month to month lease.
Title to Oil and Gas Properties
and Reserves
- - -----------------------------------
The Company owns and operates 100%believes that its methods of four (4) producing oil wells and one
(1) well which is currently shut-in. The Company also owns partial interestsinvestigating title to its
properties are consistent with practices customary in
an additional one thousand five hundred forty-two (1,542) wells located in the
states of Texas, New Mexico, Oklahoma, Louisiana, Arkansas, Wyoming, Kansas,
Colorado, Alabama, Montana, North Dakota and Utah. Of the wells, one thousand
five hundred thirty-seven (1,537) are producing. The Company operates one (1)
water injection well and owns partial interests in two additional injection
wells. Additional information concerning these properties and the oil and gas reservesindustry,
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 is provided as follows.Company's
properties are currently mortgaged under a deed of trust to secure funding
through a revolving line of credit.
5
ITEM 2. PROPERTIES
Oil and Natural Gas Properties
- - ----------------------Reserves
The following table indicates the net oil and gas productionestimates of the Company
in each of the last five (5) years, all of which is located within the United
States.
Year Oil (Bbls) Gas (MCF)
---- ---------- ---------
1998 63,800 432,343
1997 39,363 236,034
1996 29,058 186,419
1995 21,844 140,010
1994 13,390 77,126
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,
1998.
Wells Producing
--------------------------- --------------
Oil Gas Acreage (a)
------------- ------------ --------------
Gross Net Gross Net Gross Net
----- ------ ----- ----- ------- -----
Texas 1,086 22.078 81 1.472 89,642 3,469
New Mexico 64 .331 41 .237 16,954 172
Oklahoma 12 .050 51 .171 36,358 126
Wyoming 7 .040 10 .020 4,750 21
Louisiana 48 .013 10 .010 20,469 25
Arkansas 1 .001 - - 320 -
Kansas 3 .010 13 .040 9,160 27
Colorado - - 2 .010 240 -
Alabama 5 .010 - - 800 2
Montana 21 .020 - - 7,189 4
North Dakota 86 .080 - - 24,464 16
Utah 6 .010 - - 3,766 9
----- ------ --- ----- ------- -----
TOTALS 1,339 22.643 208 1.960 214,112 3,871
5
(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 the gross well or acre owned by
the Company.
(b) Of these wells, one is shut in pending evaluation and two are shut in
pending possible conversion to water injection wells.
The following table sets forth the results of the drilling activity by the
Company for the years ended March 31, 1998, 1997 and 1996.
Net Net Net Net
Gross Productive Dry Productive Dry/(1)/
Year Wells Exploratory Exploratory Development Development
- - ---- ----- ----------- ----------- ----------- -----------
1998 8 0 0 2.560 .881
1997 12 0 .167 2.550 0
1996 9 0 .063 .815 0
- - -------------
/(1)/ Of the net dry development wells, 2 gross wells (.776 net) were converted
to injection wells.
The following table presents, for the periods indicated, the average sales
price per unit and average production costs per unit attributable to the
Company's interest in producing oil and gas properties.
Year Ended March 31,
----------------------
1998 1997 1996
------ ------ ------
Average sales price
per product:
Oil (per bbl.) $17.70 $22.09 $17.45
Gas (per MCF) 2.22 2.47 1.57
Average production costs per
barrel equivalent (gas con-
verted to barrel equivalent
to 6 MCF per barrel of oil) 4.88 4.41 4.54
Production cost per dollar
of sales .32 .24 .35
Oil and Gas Reserves
- - --------------------
See Note L of the Notes to Financial Statements herein for information
regarding the estimated quantities of proved oil and gas reserves, ownedwhich are
located entirely within the United States, were prepared in accordance with the
guidelines established by the Company.SEC and Financial Accounting Standards Board. The
estimates as of March 31, 2000 and 1999 are based on evaluations prepared by Joe
C. Neal and Associates, Petroleum Consultants. The estimates as of March 31,
1998 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, have been estimated in accordance with
regulations promulgated by the Securities and Exchange Commission.
The following table indicates estimates by the Company's Independent
Petroleum Engineers, T. Scott Hickman & Associates, Inc., of Midland, Texas, of
the availability to the
6
Company of proved oil and gas reserves, all of which are located in the United
States. For 1998, T. Scott Hickman & Associates, Inc. has estimated 245,860
barrels of oil and 3,196,594 MCF of gas for a combined $3,892,533present
value of future net revenuerevenues discounted at ten percent (10%) per annum. According10% and changes therein, see Notes to
SEC guidelines
no provisions were made for changes in product prices and costs; therefore, the Company's consolidated financial statements. The Company does not believeemphasizes that
thesereserve estimates of reserves and future net
revenues fully reflect potential future revenue values. Estimates of oil and gas
reserves are projections based on engineering information and data. There are
uncertainties inherent in the interpretation of such data,inherently imprecise and there can be no assurance that
the reserves set forth below will be ultimately realized.
Proved Developed and Undeveloped Reserves
-----------------------------------------
Present Worth of
Future Net Revenues
Oil (bbls) Gas (MCF) Discounted at 10%
---------- --------- -------------------
March 31, 1998 245,860 3,196,594 $3,892,533
March 31, 1997 436,289 2,956,219 $5,320,610
March 31, 1996 424,737 1,920,107 $4,627,526
Except for a sharp decline in crude oil prices, no major discovery or other
favorable or adverse event has caused a material change in the estimated proved
reserves since March 31, 1998 except for the increase in the Company's proved
oil and gasIn estimating reserves as of March 31, 1998 due primarily to purchases2000, average prices of $27.74 per
barrel for oil and development of producing properties and except$2.47 per mcf (million cubic feet) for normal production declines,
price and related adjustments.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 (12) 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 has no foreign operationsin the
periods ended March 31 are summarized below.
PROVED RESERVES
March 31,
-----------------------------------
2000 1999 1998
---------- ---------- ----------
Oil (Bbls):
Proved developed - Producing .......... 138,839 193,970 213,939
Proved developed - Non-producing ...... -- -- 5,176
Proved undeveloped .................... -- -- 26,745
---------- ---------- ----------
Total ............................... 138,839 193,970 245,860
========== ========== ==========
Natural gas (Mcf):
Proved developed - Producing .......... 4,165,396 3,182,342 2,769,794
Proved developed - Non-producing ...... 589,951 1,011,971 170,738
Proved undeveloped .................... -- -- 256,062
---------- ---------- ----------
Total ............................... 4,755,347 4,194,313 3,196,594
========== ========== ==========
Present value of estimated future
net revenues before income taxes ...... $6,144,644 $3,485,196 $3,892,533
========== ========== ==========
The preceding tables should be read in connection with the following
definitions:
Proved Reserves. Estimated quantities of oil and has no agreementsgas, based on geologic and
engineering data, appear with foreign
governments.reasonable certainty to be economically
recoverable in future years from known reservoirs under existing economic and
operating conditions.
Proved Developed Reserves. Proved oil and gas reserves expected to be
6
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
recoverable 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.
Productive wells and acreage
Productive wells consist of producing wells and wells capable of
production, including gas wells awaiting pipeline connections. Wells that are
completed in more than one producing zone are counted as one well. The following
table indicates the Company's productive wells as of March 31, 2000:
Gross Net
----- -----
Oil........................................ 1,248 11
Gas........................................ 199 4
----- -----
Total Productive Wells................. 1,447 15
===== =====
Undeveloped acreage includes leased acres on which wells have not been
drilled or completed to a point that would permit the production of commercial
quantities of oil and gas, regardless of whether or not such acreage contains
proved reserves. A gross acre is an acre in which an interest is owned. A net
acre is deemed to exist when the sum of fractional ownership interests in gross
acres equals one. The number of net acres is the sum of the fractional interests
owned in gross acres. As of March 31, 1998,2000 the only material undeveloped acreage
the Company owned was participatingapproximately 1,128 gross and 355 net acres in the drillingstate
of five
(5) wells, four (4) ofTexas.
The following table sets forth the approximate developed acreage in which have subsequently been successfully completed.
There were no other operations of material importance to Company such as
waterfloods and pressure maintenance projects being installed by
the Company exceptheld a pilot two injection well water flood projection inleasehold mineral or other interest at March 31, 2000.
Developed Acres
---------------------------
Gross Net
------- -------
Texas .................................. 82,870 1,828
New Mexico ............................. 16,554 145
North Dakota ........................... 23,999 16
Louisiana .............................. 21,961 28
Oklahoma ............................... 36,161 122
Montana ................................ 7,189 4
Kansas ................................. 7,240 21
Wyoming ................................ 1,798 4
Colorado ............................... 1,040 1
Alabama ................................ 640 1
Arkansas ............................... 320 --
------- -------
Total .................................. 199,772 2,170
======= =======
7
Drilling Activities
The following table sets forth the Lazy JL Field,
Garza County, Texasdrilling activity of the Company for the
years ended March 31, 2000, 1999 and commencement of planning for a gas recycling operation
in the Viejos Field, Pecos County, Texas.
Title to Oil and Gas Properties1998.
Years ended March 31,
-----------------------------------------------------------
2000 1999 1998
---------------- ---------------- ----------------
Gross Net Gross Net Gross Net
----- ----- ----- ----- ----- -----
Exploratory Wells
Productive 1 .01 - - -------------------------------
Substantially all- -
Nonproductive - - - - - -
----- ----- ----- ----- ----- -----
Total 1 .01 - - - -
===== ===== ===== ===== ===== =====
Development Wells
Productive 1 .6 8 1.9 7 2.6
Nonproductive - - - - 1 .9
----- ----- ----- ----- ----- -----
Total 1 .6 8 1.9 8 3.5
===== ===== ===== ===== ===== =====
Net Production, Unit Prices and Costs
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 Company's properties are currently mortgaged under
a deedaverage production (lifting) cost per unit of trust to secure funding through a revolving line of credit. The
Company's properties are generally subject toproduction
for the customary royaltyyears ended March 31, 2000, 1999 and overriding royalty interests, liens incident to operating agreements, liens for
current taxes and other burdens and minor encumbrances, easements and
restrictions. The Company believes that none of such burdens materially detract
from the value
7
of such properties or materially interferes with their use in the operation of
the Company's business.
As is common industry practice, little or no investigation of title is made
at the time of acquisition of undeveloped properties, other than preliminary
review of local mineral records. Title investigations, in most cases including
obtaining a title opinion of local counsel, are made before commencement of
drilling operations. The Company believes that its methods of investigating
title to its properties are consistent with practices customary in the1998.
Year Ended March 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
Oil (a):
Production (Bbls) ..................... 19,334 49,573 63,800
Revenue ............................... $ 416,405 $ 600,285 $1,129,331
Average Bbls per day .................. 53 136 175
Average sales price per Bbl ........... $ 21.54 $ 12.11 $ 17.70
Gas (b):
Production (Mcf) ...................... 540,793 482,948 432,343
Revenue ............................... $1,262,556 $ 903,338 $ 960,786
Average Mcf per day ................... 1,478 1,323 1,185
Average sales price per Mcf ........... $ 2.33 $ 1.87 $ 2.22
Production cost:
Production cost ....................... $ 542,789 $ 644,563 $ 663,525
Equivalent Bbls (c) ................... 109,466 130,064 135,857
Production cost per equivalent Bbl .... $ 4.96 $ 4.96 $ 4.88
Production cost per sales dollar ...... $ 0.32 $ 0.43 $ 0.32
Total oil and gas industry in connection withrevenues .............. $1,678,961 $1,503,623 $2,090,117
(a) Includes condensate.
(b) Includes natural gas products.
(c) Gas production is converted to equivalent bbls at the acquisitionrate of such properties, and that
such practices are adequately designed6 mcf per bbl,
representing the estimated relative energy content of natural gas to enable it to acquire good title to
such properties.
Undeveloped Acreage
- - -------------------
The Company currently does not own any material inventory of non-productive
acreage in partially developed prospects except those located in the Viejos
Devonian Field of Pecos County, Texas and the Lazy JL Spraberry Field of Garza
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 twenty (20) wells.
The Company owns from 35% to 45% working interests (net revenue interests
from 26.25% to 33.84%) in twenty-three (23) wells in the Lazy JL (Lower
Spraberry) Field of Garza County, Texas, consisting of 3,964 gross acres.oil.
ITEM 3. LEGAL PROCEEDINGS
The Company is unable to determine the extent of future development, if any,a plaintiff in these two (2) fields.
ITEM NO. 3. LEGAL PROCEEDINGS
-----------------class action lawsuits against gas
purchasers involving contract price disputes. The Company does not expect any
expenses of a material nature to arise from these class action claims. While
8
recoveries from these lawsuits could be substantial, the ultimate outcome is
not involved in any pending or threatened legal proceedings.uncertain.
ITEM NO. 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matter has beenThere were no matters submitted to a vote of security holders during the
fourth quarter ended March 31, 2000.
Executive Officers of the fiscal year being reported upon.
8
Registrant
The following table sets forth certain information concerning the executive
officers of the Company as of March 31, 2000.
Name Age Position
- ------------------ --- ---------------------------------------------
Nicholas C. Taylor 62 President and Chief Executive Officer
Donna Gail Yanko 56 Vice President and Corporate Secretary
Linda J. Crass 45 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. Ms.
Crass was appointed Assistant Secretary of the Company in August 1998 and
Treasurer in March 1999. From 1996 to 1998 Ms. Crass was employed by Titan
Exploration, Inc. in various accounting positions. From 1989 to 1996, Ms. Crass
served as Controller for Midland Resources, Inc.
PART II
-------
ITEM NO. 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER -------------------------------------------------------------
MATTERS.
-------
"Common Stock"
- - --------------MATTERS
The Company's common stock is traded in the over-the-counter market.market under
the symbol MEXC. The registrar and transfer agent is American Securities
Transfer & Trust, P.O. Box 1596, Denver, Colorado, 80201 (Tel: 303-986-5400). As
of March 31, 2000 the Company had 1,404 shareholders of record and 1,623,289
shares outstanding.
9
PRICE RANGE OF COMMON STOCK
Bid Price
-----------------------------
High Low
------- -------
2000: (1)
April - June 1999 7 11/16 7 5/8
July - September 1999 7 1/2 5 1/2
October - December 1999 5 1/2 5
January - March 2000 5 4 7/8
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
(1) Reflects high and low bid information received from National Quotation
Bureau, LLC.
(2) These bid quotations for the calendar periods indicated are shown on the
following table.
Bid Price
----------------
High Low
---- ---
1998 April - June 1997 $5.50 $5.50
July - September 1997 7.50 5.50
October - December 1997 7.75 7.50
January - March 1998 7.75 7.50
1997 April - June 1996 $4.50 $3.50
July - September 1996 4.25 3.50
October - December 1996 4.50 4.50
January - March 1997 5.50 5.50
Bid quotations representingrepresent prices between dealers, do not includewithout retail
mark up, mark downmarkup, markdown or commissions, and do not necessarily representreflect actual transactions.
Number of Shareholders
- - ----------------------
As of March 31, 1998, there were approximately 1,443 shareholders of record
of(3) On May 30, 2000, the Company's common stock.
Dividends
- - ---------bid price was 4 3/8.
The Company has not paid any dividends on its common stock, and it is the
payment
of any dividends at a future date would be dependent upon the earnings,
financial condition and capital needspresent policy of the Company at such time. Paymentnot to do so, but to retain its earnings for
future growth and business activities. The Company is also subject to certain
loan covenants including restrictions on payment of dividends is currently restricted by the terms of the Company's bank loan
agreement.
9
dividends.
ITEM NO. 6. SELECTED FINANCIAL DATA
-----------------------
Years Ended March 31,
-----------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
1995 1994
----------- ---------- ---------- ---------- ---------------------------------------------------------------------------------
Oil & gasStatement of Operations:
Operating revenues $ 1,686,266 $ 1,510,005 $ 2,106,338 $ 1,458,741 $ 816,788
Operating income $ 2,090,117 $1,453,124 $ 798,589 $ 543,267 $ 374,322
Proceeds from settlement of
litigation - - - - 1,160,933
Administrative service charges and
reimbursements 5,112 5,009 7,380 10,123 26,553(loss) 498,384 (281,099) (1,558,335) 521,123 195,020
Other income 13,230 7,774 28,104 20,531 18,071(expense) (104,737) (144,675) (134,891) (5,621) 17,285
Net income (loss) 393,647 (425,774) (1,323,657) 377,867 200,606 104,843 1,028,718
Net Income (loss) per
share - basic ( .83) .27 .15 .09 .880.24 (0.26) (0.83) 0.27 0.15
Net Income (loss) per
share - diluted ( .83) .27 .15 .09 .88
Net Income (loss) from continuing
operations (1,323,657) 377,867 200,606 104,843 1,028,718
Net Income (loss) from continuing
operations per share ( .83) .27 .15 .09 .88
EBITDA/(1)/ $ 1,252,539 1,006,119 474,697 285,548 1,308,300
Operating Cash flow/(1)/ 1,118,566 866,931 396,409 255,649 1,302,760
Total Assets $ 4,542,486 5,109,199 2,612,039 1,951,896 1,868,369
Total Long-Term Debt 1,822,000 1,637,000 - - -0.24 (0.26) (0.83) 0.27 0.15
Weighted average shares
outstanding 1,623,289 1,623,289 1,594,752 1,423,229 1,342,628
1,173,229 1,173,229
Dividends - - - - -Balance Sheet:
Property and equipment, net $ 3,459,522 $ 3,749,400 $ 4,078,053 $ 4,777,132 $ 2,331,344
Total assets 3,853,319 4,043,015 4,542,486 5,109,199 2,612,039
Total debt 1,200,000 1,784,000 1,822,000 1,637,000 --
Stockholders' equity 2,567,228 2,173,581 2,599,355 2,923,012 2,545,145
Cash Flow:
Cash provided by operations $ 722,088 $ 532,171 $ 1,118,566 $ 866,931 $ 396,409
EBITDA(1) $ 927,326 $ 635,260 $ 1,252,539 $ 1,006,119 $ 474,697
/(1)/(1) EBITDA (as used herein) represents earnings before interest expense, income
taxes, depreciation, depletion and amortization. Management of the Company
10
believes that EBITDA and operating cash flow may provide additional information about the Company's
ability to meet its future requirements for debt service, capital
expenditures and working capital. EBITDA and operating cash flow areis a financial measuresmeasure 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.
10
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
- - -----------------------------------------------
As indicated by the Statements of Cash Flows for the past three fiscal
years,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 2000, the Company used cash provided by operations, bank
borrowings and existing cash balances to fund its oil and gas property
acquisitions and development. Working capital as of March 31, 2000 was $307,706.
In April 1999, as part of the Company's focus on increasing profits and
concentrating on gas reserves with lower cost operations, 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 credit
facility with the Bank.
In April and July 1999, the Company acquired interests in non-producing and
producing acreage and assumed operations of two producing gas wells in
Schleicher County, Texas at a cost to the Company of approximately $204,000.
Funds for these acquisitions were provided by the credit facility discussed
below. In September 1999, the Company re-worked one of the producing wells and
increased the Company's average daily production from this well from 5 mcf to
239 mcf at a cost to the Company of approximately $15,000. In February 2000, the
Company, as operator, successfully completed the re-entry of a gas well on this
acreage at a cost to the Company of approximately $189,000. Funds were provided
out of cash flow from operations and existing cash balances. The Company owns
approximate working interests in these wells ranging from 67% to 97%. Operating
cash flow from these wells was approximately $88,000 for the nine months ended
March 31, 2000.
In July 1999, the Company acquired royalty interests in a producing gas
well in Winkler County, Texas at a cost to the Company of approximately $94,000.
Funds for this acquisition were provided by the credit facility discussed below.
Operating cash flow from this well was approximately $10,000 for the eight
months ended March 31, 2000.
The Company has entered into an exploration agreement relating to
non-producing acreage in Pecos County, Texas. Approximately 3,689 gross acres
and 306 net acres have been leased and a 3-D seismic survey covering 23 square
miles has been completed at a cost to the Company of approximately $146,000 as
of May 31, 2000. Two test wells will be drilled on this acreage. The first test
well is planned within the next sixty days at an estimated cost to the Company
11
of $60,000. Depending on the results of the wells drilled, as many as 21 wells
may be drilled on this prospect. The Company owns approximate working interests
in this prospect ranging from 10% to 16% and a third party has assumed property
operations. Funds to date for this project have been provided by cash flow from
operations.
The Company is reviewing several other projects in which it may
participate. The costs of such projects would be funded, to the extent possible,
from existing cash balances and cash flow from operations. The remainder may be
funded through borrowings on the credit facility discussed below.
The Company has a revolving credit agreement with Bank of America, N.A.
("Bank"), formerly NationsBank of Texas, which provides for a credit facility of
$3,000,000, revolving line of credit withsubject to a borrowing base of $2,200,000 which is reduced by $50,000 each month throughout the term of the
loan.determination. The loan is reviewed by the bank annually and maturescredit facility was
amended on August 15, 1999.
The Company currently has outstanding borrowings1999 to increase the borrowing base to $2,200,000, with
scheduled monthly reductions of $1,822,000 against the line.
At the current levelavailable borrowing base of borrowing principal payments will be due$28,000
beginning September 5, 1998.1999, and to extend the maturity date to August 15, 2001.
As of March 31, 2000, the borrowing base was $1,954,000. The obligationsbalance outstanding
under this credit facility was $1,200,000 and $1,784,000 at March 31, 2000 and
1999, respectively. The borrowing base is subject to redetermination on or about
August 1, each year. Interest under this agreement is payable monthly at prime
rate (9% at March 31, 2000 and 7.75% at March 31, 1999). This agreement
generally restricts the loan agreement areCompany'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 ofand the
Company and thecommon stock of its subsidiary. The loan agreement contains certain covenants relating to the
financial condition of the Company. Interest is payable monthly at the prime
rate as established by the bank.
The Company also has a letter of credit with NationsBank of Texas, N.A.,
Midland, Texas,outstanding under the Bank credit
facility discussed above, which provides for unsecured borrowings up to $25,000$50,000 in lieu of
a plugging bond with the Railroad Commission covering properties operated by the
Company.
DuringCrude 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 the next fiscal year.
Results of Operations
Fiscal 2000 Compared to Fiscal 1999
Oil and gas sales increased from $1,503,623 in 1999 to $1,678,961 in 2000,
an increase of $175,338 or 12%. This increase was primarily due to increased oil
and gas prices and increased production from the acquisition and development of
gas properties, offset in part by the sale of the Lazy JL properties and normal
production declines. The sale of the Lazy JL properties accounts for a decrease
for fiscal 2000 as compared to fiscal 1999 of $335,532 in oil and gas sales,
26,673 bbls and 4,345 mcf. The average oil price increased from $12.11 in 1999
to $21.54 per bbl in 2000, an increase of $9.43 per bbl or 78%. The average gas
price increased from $1.87 in 1999 to $2.33 per mcf in 2000, an increase of
$0.46 per mcf or 25%. Oil production decreased from 49,573 bbls in 1999 to
19,334 bbls in 2000, a decrease of 30,239 bbls or 61%. Gas production increased
from 482,948 mcf in 1999 to 540,793 mcf in 2000, an increase of 57,845 mcf or
12%.
Production costs decreased from $644,563 in 1999 to $542,789 in 2000, a
decrease of $101,774 or 16%. The sale of the Lazy JL properties accounts for a
reduction in production costs for fiscal 2000 as compared to fiscal 1999 of
$238,072, while property acquisitions and development, and remedial repairs
increased production costs.
12
Depreciation, depletion and amortization decreased from $909,965 in 1999 to
$426,102 in 2000, a decrease of $483,863 or 53%, due primarily to an impairment
of oil and gas properties in the first quarter the Company increased capital by $1,000,000of fiscal 1999 of $288,393.
General and administrative expenses decreased from the issuance$236,576 in 1999 to
$218,991 in 2000, a decrease of 200,000 shares$17,585 or 7%.
Interest expense decreased from $151,069 in 1999 to $107,577 in 2000, a
decrease of common stock at $5.00 per share through$43,492 or 29%. This decrease was primarily attributable to a
private placement. $500,000 of these proceeds were usedreduction in amounts borrowed during 2000.
Fiscal 1999 Compared to reduce the principal
borrowings under the line of credit and the remaining proceeds were used for
property acquisitions and drilling activity.
The Company believes that it will have sufficient capital available from
borrowings along with cash flows from operations to fund any future capital
expenditures and to meet its financial obligations.
In past years, the oilFiscal 1998
Oil and gas industrysales decreased from time$2,090,117 in 1998 to time has suffered
because$1,503,623 in 1999,
a decrease of price decreases for oil. An oversupply of petroleum in both the
domestic and international markets appeared$586,494 or 28%. This decrease was primarily attributable to be the reason for the price
decline. The Company is unable to predict price changes or the possible effects
on the Company at this time. Past changes in tax laws and the
decline in oil prices have had the effect industry-wide of limiting funds available for oil and gas exploration.
Results of Operations
- - ---------------------
Business Segment
----------------
The Company only has a single line of business which isprices and oil and gas
acquisition, exploration and production.
11
Fiscal 1998 Compared to Fiscal 1997
-----------------------------------
Duringproduction during the year, the Company participatedoffset in the successful drilling and
completion of six (6) producing wells (each with approximately 43% working
interest and 32% net revenue interest) in the Lazy JL Field, Garza County,
Texas. The Company also participated in the drilling of one (1) well which has
been converted to a water injection well and one (1) well which is currently
shut in pending possible conversion to a water injection well or a salt water
disposal well.
A decrease in working capital of $124,061 for fiscal 1998, compared to a
decrease of $124,050 for fiscal 1997 was the result ofpart
by increased acquisition,
drilling and development costs.
Gross revenue from oil and gas production increased in 1998 compared to
1997 by $636,993 (44%). Revenues increased due to the increase in oil and 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 for crude oil is $17.70decreased
from $2.22 in 1998 to $1.87 per barrel comparedmcf in 1999, a decrease of $0.35 per mcf or 16%.
Oil production decreased from 63,800 bbls in 1998 to the 1997 price49,573 bbls in 1999, a
decrease of $22.09. Average prices received per MCF14,227 bbls or 22%. Gas production increased from 432,343 mcf in
1998 to 482,948 mcf in 1999, an increase of gas for50,605 mcf or 12%.
Other revenues decreased from $16,221 in 1998 and 1997 were $2.22
and $2.47, respectively.
Production costs increased $316,760 (91%) from 1997. Of this increase,
$43,920 is attributable to increased production taxes relating to the increase$6,382 in production and revenues as stated above with the remaining $272,840 being
attributable to increased operating expenses due to the acquisition and
development1999, a decrease
of new wells in 1998.
Interest income decreased $5,045 (70%) due to the reduced funds invested in
a money market account.
Other income increased $10,501$9,839 or 61%, primarily due to the recovery of a bad debt.
Overall,debt in 1998. There was
no such item in 1999.
Production costs and expenses increaseddecreased from $663,525 in 1998 by $2,851,280 (300%)to $644,563 in 1999, a
decrease of $18,962 or 3%.
Depreciation, depletion and amortization increaseddecreased from $2,808,753 in 1998
as compared to 1997
by $2,330,923 (488%)$909,965 in 1999, a decrease of $1,898,788 or 68%, due primarily due to an
impairment of oil and gas properties which resulted from significantly lowerin 1998 of $1,742,386. There was an
additional impairment of oil prices and gas properties in the related downward
adjustmentfirst quarter of estimated reserves.fiscal
1999 of $288,393.
General and administrative expenses increased $79,372 (70%)from $192,395 in 1998 to
$236,576 in 1999, an increase of $44,181 or 23%. This increase was primarily
dueattributable 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 engineering costs.
Fiscal 1997 Comparedcontract services ($12,407).
Interest expense increased from $137,012 in 1998 to Fiscal 1996
-----------------------------------
The Company participated$151,069 in the drilling of twelve (12) gross (2.717 net)
wells, of which nine (9) were productive oil wells in fiscal 1997 and one well
which has been converted to a water injection well.
A decrease in working capital of $124,050 for fiscal 1997, compared to1999, an
increase of $20,300 for fiscal 1996$14,057 or 10%. This increase was the result of increased acquisition,
drilling and development costs.
Gross revenue from oil and gas production increased in 1997 compared to
1996 by $654,535 (82%) and the Company reflected net earnings of $377,867 which
is an increase of $177,261 (88%). Revenues increased due to the increase in oil
and gas production from acquisition and development of oil and gas properties
and the increase in oil and gas prices during
12
the current year. The average 1997 price for crude oil is $22.09 per barrel
compared to the 1996 price of $17.45. Average prices received per MCF of gas
for 1997 and 1996 were $2.47 and $1.57, respectively.
Administrative services income and reimbursement to the Company decreased
$2,371 (32%) due to the plugging and abandonment of two operated wells during
the prior year.
Production costs increased $73,873 (27%) from 1996. Of this increase,
$37,897 is attributable to increased
production taxes relating to the increaseborrowing during 1999, offset in production and revenues as stated above with the remaining $35,976 being
attributable to increased operating expenses due to the acquisition and
development of new wells in 1997. Production costs per barrel equivalent
actually declinedpart by 3%.
Interest income decreased $10,120 (59%) due to the reduced funds invested
in a money market account.
Overall, costs and expenses increased in 1997 by $328,637 (53%).
Depreciation, depletion and amortization increased in 1997 as compared to 1996
by $215,438 (82%) due to increased production, acquisition and development of
oil and gas properties. General and administrative expenses increased $26,539
(31%) primarily due to increased salaries, legal fees, accounting fees and
engineering costs.lower interest rates.
Other Matters
- - -------------
Forwarding-LookingForward 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-
lookingforward-looking statements. These statements are based on certain assumptions
13
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.
Recently Issued Accounting Standards
------------------------------------Risk Factors
All of the Company's financial instruments are for purposes other than
trading.
Interest Rate Risk. The Company adoptedfollowing table summarizes maturities for the
provisions of Statement of Financial Accounting
Standard No. 128, Earnings Per Share, duringCompany's variable rate bank debt, which is tied to prime rate. If the quarter ended December 31,
1997. Since the Company has only Common Stock outstanding the adoption had no
effectinterest
rate on the Company's financial statements atbank debt increases or decreases by one percentage point,
the Company's annual pretax income would change by $12,000.
Year ended March 31,
1998.
13
Year----------------------------------------
2000 Issue
---------------2001 2002
---------- ---------- ----------
Variable rate bank debt $ - $ - $1,200,000
========== ========== ==========
Credit Risk. Credit risk is the risk of loss as a result of nonperformance
by counter-parties of their contractual obligations. The Company's third-party software vendorprimary
credit risk is currently modifyingrelated to oil and gas production sold to various purchasers and
the systemreceivables are generally not collateralized. At March 31, 2000, the
Company's largest credit risk associated with any single purchaser was $38,640.
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 accurately handle the year 2000 issue with all necessary changes scheduledcontinue to be completedso 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 had increased or decreased by December 31, 1998. Thereone
cent per barrel for fiscal 2000, the Company's pretax income would have changed
by $193. If the average gas price had increased or decreased by one cent per mcf
for fiscal 2000, the Company's pretax income would have changed by $5,408.
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
14
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 nodeveloped.
Reserve Replacement Risk. The Company's future success depends upon its
ability to find, develop or acquire additional, costseconomically recoverable oil and
gas reserves. The proved reserves of the Company will generally decline as
reserves are depleted, except to the Company for these modifications as the updates are included in the monthly
support contract. Therefore,extent the Company has determinedcan find, develop or
acquire replacement reserves.
Drilling and Operating Risks. Drilling and operating activities are subject
to many risks, including well blowouts, 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 year 2000
issues directly related toCompany will recover all or any portion of its informationinvestment 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, will not have a material
impact on its business, operations, nor its financial position. The Company
cannot determine the effect, if any, that the year 2000 issues will have on its
vendors, customers, other businessespipelines and governmental entities.
ITEM NO. 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
-----------------------------------------------------------
The Company is not subject to market risk as to currency exchange since the
Company does not deal in foreign currency. The Company also has not dealt in
derivatives. However, the Company is subject to significantprocessing facilities. Federal and state
regulation of oil and gas production and transportation, tax and energy
policies, changes in connection with sales of crudesupply and demand and general economic conditions could all
affect the Company's ability to produce and market its oil and natural gas.
ITEM NO. 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- - --------------------------------------------------------
See IndexINDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants..................... 16
Consolidated Balance Sheets............................................ 17
Consolidated Statements of Operations.................................. 18
Consolidated Statements of Stockholders' Equity........................ 19
Consolidated Statements of Cash Flows.................................. 20
Notes to Consolidated Financial Statements elsewhere herein.
ITEM NO. 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURES
--------------------
There were no changes or disagreements.
14
PART III
--------
Compliance with Section 16(a) of the Securities Exchange Act of 1934
- - --------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent
(10%) of a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission and the National Association of Securities
Dealers, Inc. initial reports of ownership and reports of changes in ownership
of Common Stock and other equity securities of the Company. Officers, Directors
and greater than ten percent (10%) shareholders are required by SEC regulation
to furnish the Company with copies of all Section 16(a) forms they file.
Ownership of and transactions in Company stock by executive officers and
Directors of the Company are required to be reported to the Securities and
Exchange Commission pursuant to Section 16(a) of the Securities Exchange Act of
1934. On June 24, 1998, Terry L. Cox and Donna Gail Yanko each filed a Form 4
to report stock options which were granted on April 2, 1998. Also on June 24,
1998 Thomas R. Craddick, Thomas Graham, Jr., Jack D. Ladd and Gerald Martin each
filed a Form 3 to report the initial number of shares owned upon their election
as directors. Thomas Graham, Jr. also reported stock options which were granted
on April 2, 1998 on his Form 3.
ITEM NO. 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
Name Age Position
---- --- --------
Thomas R. Craddick 54 Director
William G. Duncan, Jr. 55 Director
Thomas Graham, Jr. 64 Chairman of the Board of Directors
Jack D. Ladd 48 Director
Gerald R. Martin 52 Director
Nicholas C. Taylor 60 Director, President and Treasurer
Donna Gail Yanko 54 Director, Vice President and Secretary
On March 2, 1998, the above persons were elected to serve on the Board of
Directors for a term of one year and until their successors are duly elected and
qualified.
The following is a brief account of the business experience during the last
five years of each director and executive officer:
Thomas R. Craddick, 54, was elected to the Board of Directors of the
------------------
Company in 1997 and is a member of the Compensation Committee. Since 1968 to
the present, Mr. Craddick has served as State Representative for the State of
Texas. Throughout his tenure of the past 15 sessions of the Legislature,
Representative Craddick has served on various committees and conferences, most
recently serving on the Legislative Budget Board, Legislative Audit Committee,
the State Affairs Committee and the Revenue & Public Education Funding, Select
Committee, along with serving as Chairman of the House Ways and Means Committee
and Chairman of the Republican Legislative Caucus. For more than the past five
years Mr. Craddick has been Sales Representative for Mustang Mud, Inc., as well
as the owner of Craddick Properties and Owner and President of Craddick, Inc.
both of which invest in oil and gas properties and real estate.Statements............................. 21
15
William G. Duncan, 55, since April 1995, has been the PresidentReport of -----------------
Southeastern Financial Services, Louisville, Kentucky, prior to which he had
served as Senior Vice President and Chief Investment Officer since October 1991.
For the previous twenty-five (25) years, he held several positions at Liberty
National Bank and Trust Company, Louisville, Kentucky, serving as Senior Vice
President and Manager of the bank's Personal Trust Investment Section, member of
Liberty's Trust Executive Committee, and several positions in Liberty's
Commercial Banking Division. Mr. Duncan was appointed to the position of
Director on July 22, 1994, after the resignation of Thomas Graham, Jr. to become
a United States Ambassador, and was elected a Director in 1994.
Thomas Graham, Jr., 64, was appointed Chairman of the Board of Directors by
------------------
the Directors of the Company, effective July 1997, having served as a director
from 1990 through 1994. From 1994 through May 1997, Mr. Graham served as a
United States Ambassador. For more than five years prior thereto, Mr. Graham
served as the General Counsel, United States Arms Control and Disarmament
Agency, as well as Acting Director and as Acting Deputy Director of such agency
successively, in 1993 and 1994. He has served as President of the Lawyers
Alliance for World Security since mid 1997.
Jack D. Ladd, 48, was elected to the Board of Directors of the Company in
------------
1997 and is a member of the Compensation Committee. Mr. Ladd is currently a
shareholder of the law firm of Stubbeman, McRae, Sealy, Laughlin & Browder, Inc.
Mr. Ladd is also a partner in various real estate partnerships, an arbitrator
for the National Association of Securities Dealers, and a mediator certified by
the Attorney Mediation Institute. Mr. Ladd has served as a director and
advisory director of other oil and gas corporations.
Gerald R. Martin, 52, co-founded River Hill Capital, LLC in June 1996. The
----------------
prior twenty-three (23) years, Mr. Martin had worked for J.J.B. Hilliard, W. L.
Lyons, Inc., seventeen (17) years were spent as Senior Vice President of
Investment Banking. Mr. Martin has experience as a financial consultant or
advisor to several local government agencies and non-profit organizations
including Louisville Water Company and Louisville's Municipal Transit System.
In December 1996, he completed fifteen years of volunteer service as Vice
Chairman of the Board of Commissioners of the Housing Assistance Corporation
(LHAC). Mr. Martin is a director of Orr Safety Corporation and National
Healthcare Services, Inc., both in Louisville. He was elected to the Board of
Directors of the Company in 1997 and is a member of the Compensation Committee.
Nicholas C. Taylor, 60, was elected President, Treasurer and Director of
------------------
the Company in 1983 and serves in such capacities on a part time basis, as
required. From 1974 to 1993, 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. Since 1993 he has been engaged in the practice
of law and investments, primarily in oil and gas. In 1995 he was appointed by
the Governor of Texas to serve as a member and currently serves as Chairman of
the State Securities Board.
Donna Gail Yanko, 54, has worked as part-time administrative assistant to
----------------
the President and controlling shareholder for the past nine years. She served as
Assistant Secretary of the Company from 1986 to 1992 and was elected a Director
and appointed Vice President of the Company in 1990 and Secretary in 1992.
16
ITEM NO. 11. EXECUTIVE COMPENSATION
----------------------
The following table sets forth all cash compensation received by the
executive officers and directors of the Company as a group setting forth
individually executive officers and directors who received in excess of $60,000,
including cash bonuses.
Summary Compensation Table/(1)/
-------------------------------
Name and
Principal Position Year Salary
-------------------- ---- -------
5 Officers & 1998 $44,825
Directors 1997 $52,381
as a group 1996 $38,400
- - ------------
/(1)/ Directors are paid $100 per meeting of which there were five (5) for the
period.
ITEM NO. 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth as of March 31, 1998 the owners of five
percent (5%) or more of its common stock:
(1) Title (2) Name and (3) Amount and (4) Percent
of Class Address of Nature of Beneficial of Class
Beneficial Owner Ownership
- - ----------------------------------------------------------------------------
Common Nicholas C. Taylor/(1)/ 1,110,770/(2)/ 68.43%
214 West Texas
Suite 1101
Midland, TX 79701
Common Howard E. Cox, Jr. 194,000 11.95%
One Federal Street
26th Floor
Boston, MA 02110
- - -------------
/(1)/ Mr. Taylor, by virtue of his share of ownership, may be deemed to be a
"parent" of the Company as defined under Rule 405 promulgated by the
Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933 as amended (the "Securities Act").
/(2)/ Includes 1,079,770 shares which are held by Mr. and Mrs. Taylor as
community property and 31,000 shares held as custodian for their minor
daughter. Mr. and Mrs. Taylor disclaim any beneficial ownership of 46,000
shares owned by each of their two adult children.
17
The information set forth below shows as of June 1, 1998, all shares of the
Company's common stock beneficially or indirectly owned by all directors, and
all directors and officers as a group.
The following table sets forth the ownership of executive officers and
directors of the Company.
(1) Title (2) Name and (3) Amount and (4) Percent
of class Address of Nature of Bene- of Class
Beneficial Owner ficial Ownership
- - ---------------------------------------------------------------------
Common Nicholas C. Taylor 1,110,770/(1)/ 68.43%
Thomas Graham, Jr. 77,000 4.74%
Gerald R. Martin 15,040 .93%
Donna Gail Yanko 7,340 .45%
Thomas R. Craddick 5,000 .31%
Jack D. Ladd 1,478 .09%
Terry L. Cox 200 .01%
All Directors and
Officers as a Group 1,215,828 74.90%
- - ------------
/(1)/ Includes 1,079,770 shares which are held by Mr. and Mrs. Taylor as
community property and 31,000 shares held as custodian for their minor
daughter. Mr. and Mrs. Taylor disclaim any beneficial ownership of 46,000
shares owned by each of their two adult children.
ITEM NO. 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The Company's principal shareholder owns working interests varying from
93.75% to 100% in certain wells which it operates. The Company operates these
wells on a contract basis charging the same or greater administrative fees as
the previous operator. See Note I of the Notes to Financial Statements.
18
PART IV
-------
ITEM NO. 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) Financial Statements, Schedules and Exhibits
1. Financial Statements
2. Financial Statement Schedules
All schedules are omitted because of the absence of conditions
under which they are required or because the information is
included in the financial statements or notes thereto.
3. Exhibits
The exhibits and financial statement schedules filed as a part of
this report are listed below according to the number assigned to it in
the exhibit table of Item 601 of Regulation S-K:
(3)(i) Articles of Incorporation - See exhibit E-1.
(ii) Bylaws - incorporated by reference to the Company's Annual
Report to the Securities and Exchange Commission on Form
10K dated June 23, 1995.
(4) Instruments defining the rights of security holders,
including indentures - None.
(9) Voting Trust Agreement - None, consequently, omitted.
(10) Material Contracts:
Stock Option Plan - incorporated by reference to the
Amendment to Schedule 14C Information Statement filed on
August 13, 1997.
Bank Line of Credit - See Exhibit E-2.
(11) Statement regarding computation of per share earnings -Not
Applicable.
(12) Statement regarding computation of ratios - Not
Applicable.
19
(13) Annual Report to security holders, Form 10-Q or quarterly
report to security holders - Not Applicable.
(18) Letter regarding change in accounting principles - No
change during fiscal 1998.
(19) Previously unfiled documents - No documents have been
executed or in effect during the reporting period which
should have been filed, consequently, this exhibit has
been omitted.
(22) Subsidiaries of the Company -
Name of Subsidiary: Forman Energy Corporation
Other Name Under Which Subsidiary Conducts Business: None
Jurisdiction of Incorporation: New York
(23) Published report regarding matters submitted to vote of
security holders - None, consequently omitted.
(24) Consent of experts - Not applicable.
(25) Power of Attorney - There are no signatures contained
within this report pursuant to a power of attorney,
consequently, this exhibit has been omitted.
(28) Additional Exhibits - None.
(b) Reports on Form 8-K.
No report on Form 8-K was filed by the Company during the last quarter of
the period covered by this report.
20
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
By: /s/ Nicholas C. Taylor
-----------------------------
Nicholas C. Taylor, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Nicholas C. Taylor President, June 24, 1998
- - ------------------------- Treasurer,
Nicholas C. Taylor Director
/s/ Donna Gail Yanko Vice President, June 24, 1998
- - ------------------------- Director
Donna Gail Yanko
/s/ Jack D. Ladd Director June 24, 1998
- - -------------------------
Jack D. Ladd
/s/ Thomas R. Craddick Director June 24, 1998
- - -------------------------
Thomas R. Craddick
/s/ Terry L. Cox Controller June 24, 1998
- - ------------------------
Terry L. Cox
21
EXHIBIT INDEX
-------------
Number Exhibit Page
- - ------ ------- ----
(1) *
(2) *
(3)(i) Articles of Incorporation E-1
(ii) Bylaws **
(4) Instruments defining the rights of security
holders, including indentures Omit
(5) *
(6) *
(7) *
(8) *
(9) Voting Trust Agreement Omit
(10) Material Contracts
(a) Stock Option Plan ***
(b) Bank Line of Credit E-2
(11) Statement regarding computation of per
share earnings Omit
(12) Statement regarding computation of ratios Omit
(13) Annual Report to security holders, Form 10-Q,
or quarterly report to security holders Omit
(14) *
(15) *
(16) *
(17) *
(18) Letter regarding change in accounting
principles Omit
(19) Previously unfiled documents Omit
(20) *
(21) *
(22) Subsidiaries of the Company Omit
(23) Published report regarding matters submitted
to vote of security holders Omit
(24) Consent of experts Omit
(25) Power of Attorney Omit
(26) *
(27) *
(28) Additional Exhibits Omit
* This exhibit is not required to be filed in accordance with Item 601 of
Regulation S-K.
** Incorporated by reference to the Company's Annual Report to the Securities
& Exchange Commission on Form 10-K, dated June 23, 1995.
*** Incorporated by reference to the Amendment to Schedule 14C Information
Statement filed on August 13, 1998.
22
MEXCO ENERGY CORPORATION & SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
--------------------
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1998 AND 1997 F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
MARCH 31, 1998, 1997, AND 1996 F-4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEARS
ENDED MARCH 31, 1998, 1997, AND 1996 F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
MARCH 31, 1998, 1997, AND 1996 F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------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, 19982000 and 1997,1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended March 31, 1998.2000. 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, 19982000 and 1997,1999, and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended March 31, 19982000 in conformity with generally
accepted accounting principles.
GRANT THORNTON LLP
Oklahoma City, Oklahoma
May 15, 1998
F-212, 2000
16
MEXCO ENERGY CORPORATION AND SUBSIDIARYMexco Energy Corporation and Subsidiary
CONSOLIDATED BALANCE SHEETS
As of March 31,
ASSETS 1998 1997
------------- -------------
CURRENT ASSETS
Cash and cash equivalents $ 241,348 $ 40,813
Accounts receivable, including $8,473 in 1998 and $6,042 in 1997
from a related party (note I) 207,900 291,254
Prepaid expenses 15,185 -
----------- ----------
Total current assets 464,433 332,067
PROPERTY AND EQUIPMENT - AT COST (notes F and L)
Oil and gas properties, using the full cost method of
accounting 9,915,701 7,819,986
Other 20,252 6,293
----------- ----------
9,935,953 7,826,279
Less accumulated depreciation, depletion, and amortization 5,857,900 3,049,147
----------- ----------
4,078,053 4,777,132
----------- ----------
$ 4,542,486 $5,109,199
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 121,131 $ 167,913
Income taxes payable - 40,093
Current maturities of bank line of credit (note C) 322,000 -
----------- ----------
Total current liabilities 443,131 208,006
BANK LINE OF CREDIT, less current maturities (note C) 1,500,000 1,637,000
DEFERRED INCOME TAXES (note D) - 341,181
----------- ----------
Total liabilities 1,943,131 2,186,187
STOCKHOLDERS' EQUITY
Common stock - $.50 par value; authorized, 40,000,000
shares in 1998 and 5,000,000 shares in 1997; issued and outstanding,
1,623,289 shares in 1998 and 1,423,229 shares in 1997 (note G) 811,644 711,614
Preferred stock - $1.00 par value; authorized, 10,000,000 shares in
1998 (note G) - -
Additional paid-in capital 2,875,399 1,975,429
Retained earnings (accumulated deficit) (1,087,688) 235,969
----------- ----------
2,599,355 2,923,012
----------- ----------
$ 4,542,486 $5,109,199
=========== ==========
2000 1999
------------ ------------
ASSETS
Current assets
Cash and cash equivalents $ 97,712 $ 96,198
Accounts receivable:
Oil and gas sales 255,121 179,269
Trade 2,070 --
Related parties 18,105 3,780
Other 5,000 --
Prepaid expenses 15,789 14,368
------------ ------------
Total current assets 393,797 293,615
Property and equipment, at cost
Oil and gas properties, using
the full cost method 10,630,903 10,495,391
Other 22,586 21,874
------------ ------------
10,653,489 10,517,265
Less accumulated depreciation,
depletion, and amortization 7,193,967 6,767,865
------------ ------------
Property and equipment, net 3,459,522 3,749,400
------------ ------------
$ 3,853,319 $ 4,043,015
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable - trade $ 86,091 $ 85,434
Current maturities of long-term debt -- 516,000
------------ ------------
Total current liabilities 86,091 601,434
Long-term debt 1,200,000 1,268,000
------------ ------------
Total liabilities 1,286,091 1,869,434
Stockholders' equity
Common stock - $0.50 par value;
40,000,000 shares authorized;
1,623,289 shares issued and outstanding 811,644 811,644
Preferred stock - $1.00 par value;
10,000,000 shares authorized -- --
Additional paid-in capital 2,875,399 2,875,399
Accumulated deficit (1,119,815) (1,513,462)
------------ ------------
Total stockholders' equity 2,567,228 2,173,581
------------ ------------
$ 3,853,319 $ 4,043,015
============ ============
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-317
MEXCO ENERGY CORPORATION AND SUBSIDIARYMexco Energy Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended March 31,
1998 1997 1996
------------ ---------- ----------
Revenues
Oil and gas $ 2,090,117 $1,453,124 $ 798,589
Administrative service charges and reimbursements 5,112 5,009 7,380
Interest 2,121 7,166 17,285
Other income 11,109 608 10,819
----------- ---------- ----------
2,108,459 1,465,907 834,073
Costs and expenses
Production 663,525 346,765 272,892
Depreciation, depletion, and amortization (note F) 2,808,753 477,830 262,392
General and administrative 192,395 113,023 86,484
Interest 137,012 12,787 -
----------- ---------- ----------
3,801,685 950,405 621,768
----------- ---------- ----------
Earnings (loss) before income taxes (1,693,226) 515,502 212,305
Income tax expense (benefit) (note D) (369,569) 137,635 11,699
----------- ---------- ----------
NET EARNINGS (LOSS) $(1,323,657) $ 377,867 $ 200,6062000 1999 1998
----------- ----------- -----------
Operating revenues:
Oil and gas $ 1,678,961 $ 1,503,623 $ 2,090,117
Other 7,305 6,382 16,221
----------- ----------- -----------
Total operating revenues 1,686,266 1,510,005 2,106,338
Operating expenses:
Production 542,789 644,563 663,525
Depreciation, depletion
and amortization 426,102 909,965 2,808,753
General and administrative 218,991 236,576 192,395
----------- ----------- -----------
Total operating expenses 1,187,882 1,791,104 3,664,673
----------- ----------- -----------
498,384 (281,099) (1,558,335)
Other income (expense):
Interest income 2,840 6,394 2,121
Interest expense (107,577) (151,069) (137,012)
----------- ----------- -----------
Net other expense (104,737) (144,675) (134,891)
----------- ----------- -----------
Earnings (loss) before income taxes 393,647 (425,774) (1,693,226)
Income tax expense (benefit) -- -- (369,569)
----------- ----------- -----------
Net earnings (loss) $ 393,647 $ (425,774) $(1,323,657)
=========== =========== ===========
Basic and diluted
earnings (loss) per share $ 0.24 $ (0.26) $ (0.83)
=========== =========== ===========
Weighted average outstanding shares,
basic and diluted 1,623,289 1,623,289 1,594,752
=========== =========== =========== ========== ==========
Basic and diluted earnings (loss) per share $(.83) $.27 $.15
=========== ========== ==========
Weighted average outstanding shares, basic and diluted 1,594,752 1,423,229 1,342,628
=========== ========== ==========
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-418
MEXCO ENERGY CORPORATION AND SUBSIDIARYMexco Energy Corporation and Subsidiary
CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS' EQUITY
Years ended March 31, 1998, 1997,2000, 1999, and 19961998
Retained
Common stock Additional earnings Total
----------------------Common stock paid-in (accumulated stockholders'Stockholders'
Shares Amount capital deficit) equity
--------- ----------- ----------- ------------ -------- ------------ -------------- ------------
Balance at April 1, 1995 1,173,229 $586,614 $1,600,429 $ (342,504) $ 1,844,539
Net earnings - - - 200,606 200,606
Issuance of common stock 250,000 125,000 375,000 - 500,000
--------- -------- ---------- ----------- -----------
Balance at March 31, 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 (note G) 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)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
Net earnings -- -- -- 393,647 393,647
--------- ----------- ----------- ------------ ------------
Balance at March 31, 2000 1,623,289 $ 2,599,355811,644 $ 2,875,399 $ (1,119,815) $ 2,567,228
========= ======== ========== =========== =========== ============ ============
The accompanying notes to the consolidated financial statements
are an integral part of this statement.
F-5these statements.
19
MEXCO ENERGY CORPORATION AND SUBSIDIARYMexco Energy Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended March 31,
2000 1999 1998
1997 1996
------------ ------------ --------------------- ----------- -----------
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Cash received from oil and gas operations $ 2,178,583 $ 1,275,462 $ 769,367
Cash paid for oil and gas operating expenses (713,690) (293,332) (276,430)
Cash paid for general and administrative expenses (194,554) (113,023) (86,484)
Interest received 2,121 7,166 17,285
Interest paid (140,272) (7,298) -
Income taxes paid (24,731) (2,652) (38,148)
Other receipts 11,109 608 10,819
----------- ----------- ---------
Net cash provided by operating activities 1,118,566 866,931 396,409
Cash flows from investing activities
Capital expenditures for oil and gas properties (2,089,136) (1,294,556) (969,271)
Proceeds from sale of assets 64 32,449 24,000
Payments for purchase of other property (13,959) (3,791) -
Payments for purchase of Forman Energy Corporation - (1,369,332) -
----------- ----------- ---------
Net cash used in investing activities (2,103,031) (2,635,230) (945,271)
Cash flows from financing activities
Borrowings 685,000 1,637,000 -
Payments on debt (500,000) - -
Proceeds from issuance of common stock 1,000,000 - 500,000
----------- ----------- ---------
Net cash provided by financing activities 1,185,000 1,637,000 500,000
----------- ----------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 200,535 (131,299) (48,862)
Cash and cash equivalents at beginning of year 40,813 172,112 220,974
----------- ----------- ---------
Cash and cash equivalents at end of year $ 241,348 $ 40,813 $ 172,112
=========== =========== =========
F-6
MEXCO ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year ended March 31,
1998 1997 1996
------------ ---------- ----------
Reconciliation of Net Earnings (Loss) to Net Cash
Provided by Operating Activitiesactivities:
Net earnings (loss) $(1,323,657) $ 377,867 $200,606393,647 $ (425,774) $(1,323,657)
Adjustments to reconcile net earnings
(loss) to net cash provided by
operating activitiesactivities:
Deferred income taxes -- -- (341,181)
Depreciation, depletion and amortization 426,102 909,965 2,808,753 477,830 262,392
Deferred income taxes (341,181) 94,890 2,573
(Increase) decrease in Accountsaccounts receivable (97,247) 24,851 83,354 (182,671) (36,602)
Recoverable income taxes - - 9,126
Prepaid expenses (15,185) - 1,350
Increase (decrease) in Accountsaccounts payable 1,007 22,312 (53,425)
58,922 (4,888)
Income(Increase) decrease in prepaid assets (1,421) 817 (15,185)
Decrease in income taxes payable -- -- (40,093)
40,093 (38,148)
----------- --------- ------------------- -----------
Net cash provided by operating activities 722,088 532,171 1,118,566
Cash flows from investing activities:
Additions to oil and gas properties (803,554) (643,377) (2,089,136)
Proceeds from sale of assets 667,692 5,678 64
Additions to other property and equipment (712) (1,622) (13,959)
----------- ----------- -----------
Net cash used in investing activities (136,574) (639,321) (2,103,031)
Cash flows from financing activities:
Borrowings 248,174 -- 685,000
Principal payments on long-term debt (832,174) (38,000) (500,000)
Proceeds from issuance of common stock -- -- 1,000,000
----------- ----------- -----------
Net cash (used in) provided by
financing activities (584,000) (38,000) 1,185,000
----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents 1,514 (145,150) 200,535
Cash and cash equivalents
at beginning of year 96,198 241,348 40,813
----------- ----------- -----------
Cash and cash equivalents
at end of year $ 1,118,56697,712 $ 866,931 $396,40996,198 $ 241,348
=========== ========= ========
Noncash investing and financing activities:
- - ------------------------------------------
Included in trade accounts payable at March 31, 1998 are purchases of oil and
gas properties totaling $83,050.
Included in trade accounts payable at March 31, 1997 are purchases of oil and
gas properties and a liability related to the Forman Energy Corporation
acquisition totaling $76,407.
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=========== ===========
Interest paid 1,369,000
----------
Liabilities assumed $ 222,000
==========109,255 $ 138,586 $ 140,272
Income taxes paid $ -- $ -- $ 24,731
Non-cash investing and financing activities:
Included in trade accounts payable at March 31:
Acquisition and development costs of oil and
gas properties $ 24,691 $ 25,041 $ 83,050
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-720
MEXCO ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998, 1997,Mexco Energy Corporation and 1996Subsidiary
Notes to Consolidated Financial Statements
NOTE A - NATURE OF OPERATIONS AND SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES
The major operations ofNATURE OF OPERATIONS
Mexco Energy Corporation and Subsidiary (the
"Company") consist of exploration, production, and sale of crude oil and
natural gas in the United States with an area of concentration in Texas.
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows.
1. Principles of Consolidation
---------------------------
The Company consolidates the accounts of its wholly-owned subsidiary, Forman
Energy Corporation ("Forman"(collectively, the "Company"), eliminating all intercompany
balances are engaged in the
acquisition, exploration, development and transactions.
2. Oil and Gas Properties
----------------------
The full cost methodproduction of accounting is used to account fordomestic oil and
gas properties. Under this methodand owns producing properties and undeveloped acreage in eleven states.
The majority of accounting, all costs incident to the
acquisition, exploration, and development of properties (both developed
and undeveloped), including costs of abandoned leaseholds, lease
rentals, unproductive wells, and well drilling and equipment costs, are
capitalized. Costs are amortized using the units-of-production method
based primarily on estimates of reserve quantities. Due to uncertainties
inherent in this estimation process, it is at least reasonably possible
that reserve quantities will be revised significantly in the near term.
If the Company's unamortized costs exceed the cost center ceiling
(defined as the sumactivities are centered in West Texas.
Although most of the present value, discounted at 10%, of
estimated unescalated future net revenues from proved reserves, less
related income tax effects), the excess is charged to expense in the
year in which the excess occurs. Generally, no gains or losses are
recognized on the sale or disposition ofCompany's oil and gas properties.
3. Depreciation
------------
Depreciationinterests are operated by
others, the Company operates several properties in which it owns an
interest.
SIGNIFICANT ACCOUNTING POLICIES
Principles of office furniture, fixtures,Consolidation. The consolidated financial statements include
the accounts of Mexco Energy Corporation and equipment is provided on
the straight-line method over estimated useful lives of five to ten
years.
4. Production Costsits wholly-owned subsidiary.
All significant inter-company balances and Administrative Service Arrangements
--------------------------------------------------------
Production costs include lease operating expenses and production taxes.
Reimbursements related to administrative service arrangements are
recorded as revenues.
5. Earnings (Loss) Per Share
-------------------------
Basic and diluted earnings (loss) per share are calculated using the
weighted average number of shares outstanding during each year. Basic
and diluted earnings (loss) per share are the same for all periods
presented.
6.transactions have been
eliminated in consolidation.
Cash and Cash Equivalents
-------------------------Equivalents. The Company considers all highly liquid debt
instruments purchased with a maturitymaturities of three months or less and money
market funds to be cash equivalents.
F-8
MEXCO ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1998, 1997, and 1996
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES - CONTINUED
6. Cash and Cash Equivalents - Continued
------------------------------------- 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.
7.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. Basic earnings (loss) per share is
computed using the weighted-average number of shares outstanding during the
period. Diluted earnings (loss) per share is determined using the
weighted-average number of common shares outstanding during the period,
adjusted for the dilutive effect of potential common shares, consisting of
shares that might be issued upon exercise of common stock options. In
periods where losses are reported, the weighted-average number of common
shares outstanding excludes potential common shares, because their
inclusion would be anti-dilutive. There were no potential common stocks
outstanding for March 31, 1998. Potential common stocks are excluded for
March 31, 1999, as their inclusion would have an anti-dilutive effect on
loss per share. Potential common stocks are excluded for March 31, 2000
because the exercise price of the options was greater than the average
21
market price of the common shares and, therefore, the effect would be
anti-dilutive.
Income Taxes
------------Taxes. The Company accountsrecognizes deferred tax assets and liabilities
for income taxes using the liability method. Under
the liability method of accounting for income taxes, deferred taxes are
recognized for thefuture tax consequences of temporary differences by applyingbetween 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.
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 years to differences between the
carrying amountseconomic benefit. Liabilities for expenditures of a non-capital
nature are recorded when environmental assessment and/or remediation is
probable and the tax bases of existing assets and liabilities.
8.costs can be reasonably estimated. There were no
significant environmental expenditures or liabilities for the years ended
March 31, 2000, 1999 or 1998.
Use of Estimates
----------------Estimates. In preparing financial statements in conformity with
generally accepted accounting principles, management makesis required to make
estimates based on management's
knowledge and experience. Due to their prospective nature,assumptions that affect the amounts reported in the these
financial statements. Although Management believes its estimates and
assumptions are reasonable, actual results couldmay differ materially from those
estimates. Significant estimates affecting these financial statements
include the estimated quantities of proved oil and gas reserves and the
related present value of estimated future net cash flows.
Stock 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. On March 31, 2000, the
Financial Accounting Standards Board ("FASB") issued FASB Interpretation
No. 44, "Accounting for Certain Transactions involving Stock Compensation"
an interpretation of APB Opinion No. 25, which requires the Company to
recognize compensation costs related to stock options granted to
independent consultants in accordance with FASB Statement No. 123,
"Accounting for Stock-Based Compensation". The provisions of this
Interpretation are effective July 1, 2000 and apply to new awards granted
after December 15, 1998. The effects of applying this Interpretation will
be recognized only on a prospective basis for those previous awards to
independent consultants, and accordingly, no adjustments will be made upon
initial application to financial statements for periods prior to July 1,
2000. Compensation cost measured upon application of this Interpretation
that is attributable to periods subsequent to July 1, 2000, will be
recognized.
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.
22
NOTE B - BUSINESS COMBINATION
On February 25, 1997, Mexco acquired Forman who is engaged in the
exploration, production, and sale of crude oil and natural gas. The
acquisition has been accounted for using the purchase method, 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.
The following summarized pro forma, unaudited, information assumes the
acquisition of Forman had occurred on April 1, 1995:
Year ended March 31,
----------------------
1997 1996
---------- ----------
Revenues $1,831,031 $1,151,912
Net earnings 476,948 107,993
Basic and diluted earnings per share .34 .08
F-9
MEXCO ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1998, 1997, and 1996
NOTE C - BANK LINE OF CREDITDEBT
The Company has a $3,000,000 revolving linecredit agreement with Bank of credit withAmerica,
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, 1999 to increase the borrowing
base to $2,200,000, with scheduled monthly reductions of the available
borrowing base of $28,000 beginning September 5, 1999, and to extend the
maturity date to August 15, 2001. At March 31, 2000, the borrowing base was
$1,954,000. The borrowing base is subject to redetermination on or about
August 1, each year. There are no current amounts due under the facility at
March 31, 1998. The borrowing base of the line is
reduced by $50,000 each month beginning in February 1998 and continuing
throughout the term of the loan. At March 31, 1998, the borrowing base
is $2,100,000. The line of credit may be drawn down through August 15,
1999. Required principal payments will begin in September 1998 based on
the current level of debt. The required payments for the year ended
March 31, 1999 are reflected as a current liability in the financial
statements.2000. Interest under this agreement is payable monthly at prime
rate (8.5%(9% at March 31, 1998) as established2000 and 7.75% at March 31, 1999). The balance
outstanding under this credit facility was $1,200,000 and $1,784,000 at
March 31, 2000 and 1999, respectively. A letter of credit for $50,000, in
lieu of a plugging bond with the Texas Railroad Commission covering
properties operated by the bank. The lineCompany, is also outstanding under the facility.
Amounts borrowed under this agreement are secured by substantially all
of credit is collateralized
bythe Company's oil and gas properties and the common stock of Forman and oil and gas properties.its
subsidiary. 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 or pay dividends.
NOTE DC - INCOME TAXES
IncomeComponents of income tax expense (benefit) for years ended March 31
isare as follows:
1998 1997 1996
---------- -------- --------
Current expense (benefit)
Federal $ (28,388) $ 40,994 $ 9,126
State - 1,751 -
--------- -------- --------
(28,388) 42,745 9,1262000 1999 1998
------------ ------------ ------------
Current: Federal $ - $ - $ (28,388)
State - - -
------------ ------------ ------------
- - (28,388)
Deferred: Federal - - (301,814)
State - - (39,367)
------------ ------------ ------------
- - (341,181)
------------ ------------ ------------
Income tax benefit $ - $ - $ (369,569)
============ ============ ============
Deferred expense (benefit)
Federal (301,814) 83,941 2,150
State (39,367) 10,949 423
--------- -------- --------
(341,181) 94,890 2,573
--------- -------- --------
$(369,569) $137,635 $11,699
========= ======== ========
The income tax provision reconciled to the tax computed at the statutory
federal rate for years ended March 31 is as follows:
1998 1997 1996
---------- --------- ---------
Tax expense (benefit) at statutory rate $(575,697) $175,271 $ 72,184
Increase (decrease) in valuation allowance 135,890 (3,072) (5,806)
State income taxes - 8,215 1,461
Prior year overaccrual (28,388) (4,794) (16,308)
Effect of graduated rates 130,450 (41,241) (34,194)
Other (31,824) 3,256 (5,638)
--------- -------- --------
$(369,569) $137,635 $ 11,699
========= ======== ========
F-10
MEXCO ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1998, 1997, and 1996
NOTE D - INCOME TAXES - CONTINUED
Amounts of deferred tax assets, valuation allowance, and liabilities at March 31
are as follows:
1998 1997
---------- ----------
Deferred tax assets
Percentage depletion carryforwards $ 142,218 $ 97,794
Net operating loss carryforwards 101,780 -
Valuation allowance (135,890) -
--------- ---------
108,108 97,794
Deferred tax liabilities
Excess financial accounting bases over tax bases of property
and equipment (108,108) (438,975)
--------- ---------
Net deferred tax assets (liabilities) $ - $(341,181)
========= =========
Increase (decrease) in valuation allowance for the year $ 135,890 $ (3,072)2000 1999
--------- ---------
Deferred tax assets:
Percentage depletion carryforwards $ 213,365 $ 169,271
Net operating loss carryforwards 224,713 230,763
Valuation allowance (196,469) (271,818)
--------- ---------
241,609 128,216
Deferred tax liabilities:
Excess financial accounting bases over
tax bases of property and equipment (241,609) (128,216)
--------- ---------
Net deferred tax assets (liabilities) $ -- $ --
========= =========
Increase (decrease) in valuation allowance
for the year $ (75,349) $ 135,928
========= =========
23
As of March 31, 1998,2000, the Company has statutory depletion
carryforwards of approximately $547,000$821,000, which do not expire, and operating
loss carryforwards of approximately $391,000 that$864,000, 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:
2000 1999 1998
--------- --------- ---------
Tax expense (benefit) at statutory rate $ 133,840 $(144,763) $(575,697)
Increase (decrease) in valuation allowance (75,349) 135,928 135,890
State income taxes -- -- --
Prior year over accrual -- -- (28,388)
Effect of graduated rates (31,492) 34,062 130,450
Other (26,999) (25,227) (31,824)
--------- --------- ---------
$ -- $ -- $(369,569)
========= ========= =========
NOTE ED - SEGMENT INFORMATION AND MAJOR CUSTOMERS
The Company operates exclusively within the United States in the onshore
exploration and production of oilits
revenues and gas. In the normal course of
business, the Company extends credit to customers inoperating income are derived predominately from the oil and
gas industryindustry. Oil and therefore has significant credit risk in this sector ofgas production is sold to various purchasers and the
economy.receivables are unsecured. Historically, the Company has not hadexperienced
significant bad debtscredit losses on its oil and as such, no allowance for doubtfulgas accounts has been provided inand management is of
the accompanying financial statements.
Customers which accounted for 10% or more of revenues are as follows:
Year ended March 31,
-----------------------
1998 1997 1996
------- ------ ------
Navajo Crude Oil Marketing Company 33% 46% 40%
Sun Refining and Marketing Company - 10% 13%
Aquila Southwest Pipeline Corporation 15% 24% -
The Companyopinion that significant credit risk does not believeexist. Management is of
the opinion that the loss of any of the above customersone purchaser would result in any materialnot have an adverse
effect on the ability of the Company to sell its business.
F-11
MEXCO ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31,oil and gas production.
In fiscal 2000, one purchaser accounted for 35% of revenues. In fiscal
1999, two purchasers accounted for 30% and 25%, respectively, of revenues.
In fiscal 1998, 1997,two purchasers accounted for 33% and 199615%, respectively, of
revenues.
NOTE FE - OIL AND GAS COSTS
The costs related to the oil and gas activities of the Company were
incurred as follows:
Year ended March 31,
------------------------------
1998 1997 1996Year ended March 31,
--------------------------------------
2000 1999 1998
---------- ---------- ---------- -------- --------
Property acquisition costs $ 334,611 $ 207,325 $ 751,160 $562,363 $650,496
Development costs $ 468,943 $ 436,052 $1,261,569 $808,600 $318,775
The Company had the following aggregate capitalized costs relating to
the Company's oil and gas property activities at March 31:
2000 1999 1998 1997 1996
---------- ---------- ----------
Proved oil and gas properties $9,854,099 $7,698,866 $4,900,230
Unproved oil and gas properties 61,602 121,120 -
Less accumulated depreciation, depletion, and
amortization 5,853,458 3,046,602 2,569,291
---------- ---------- ----------
Proved oil and gas properties $10,531,259 $10,331,594 $9,854,099
Unproved oil and gas properties 99,644 163,797 61,602
---------- ---------- ----------
10,630,903 10,495,391 9,915,701
Less accumulated depreciation,
depletion, and amortization 7,181,648 6,759,416 5,853,458
---------- ---------- ----------
$3,449,255 $3,735,975 $4,062,243 $4,773,384 $2,330,939
========== ========== ==========
24
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.
Depreciation, depletion, and amortization expense which included a full cost
ceiling write-down of approximately $1,742,000 recorded in$288,393 for the first quarter of fiscal 1999 and
$1,742,386 for the fourth quarter of the year ended March 31,fiscal 1998 due to declines in oil and
gas prices.prices and the related downward adjustment of estimated reserves.
Depreciation, depletion, and amortization amounted to $20.66, $6.02,$3.86, $6.97 and
$4.35$20.66 per equivalent barrel of production for the years ended March 31,
1998, 1997,2000, 1999, and 1996,1998, respectively.
NOTE GF - STOCKHOLDERS' EQUITY
In May 1997, the Company completed a private placement consisting of 200,000
shares of common stock at $5.00 per share. The proceeds of $1,000,000 were
used to pay downreduce 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.
NOTE HG - EMPLOYEE BENEFIT 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 athe 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. The exercise price of each
option will not be less thanOptions to purchase common stock under the plan are granted
at the fair market pricevalue of the Company'scommon stock onat the date of grant. The maximum termgrant, become
exercisable to the extent of 25% of the options isshares optioned on each of four
anniversaries of the date of grant, expire ten years.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.
AtDuring fiscal 2000, options for 90,000 shares were granted. Of these
20,000 options were granted to contract consultants and 30,000 options were
granted to outside directors. The exercise price of all options granted
equaled or exceeded the market price of the stock on the date of grant.
25
Additional information with respect to the Plan's stock option
activity is as follows:
Weighted
Number Average
of Shares Exercise Price
--------- --------------
Options outstanding, at March 31, 1998 no
stock or- $ -
Granted 100,000 7.63
Exercised - -
Forfeited (10,000) 7.75
--------- --------------
Options outstanding, at March 31, 1999 90,000 7.61
Granted 90,000 5.25
Exercised - -
Forfeited - -
--------- --------------
Options outstanding, at March 31, 2000 180,000 $ 6.43
========= ==============
Options exercisable at March 31, 1999 - $ -
Options exercisable at March 31, 2000 22,500 $ 7.61
Weighted average grant date fair value of stock options granted during
fiscal 1999 and 2000 was $4.04 and $2.65, respectively. These amounts were
determined using the Black-Scholes option-pricing model, which values
options based on the stock price at the grant date, the expected life of
the option, the estimated volatility of the stock, the expected dividend
payments, and the risk-free interest rate over the expected life of the
option. The assumptions used in the Black-Scholes model were as follows for
stock options granted in fiscal 1999 and 2000:
2000 1999
-------- --------
Expected volatility 29.40% 27.89%
Expected dividend yield 0.00% 0.00%
Risk-free rate of return 6.43% 5.72%
Expected life of options 10 years 10 years
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.
The following tables summarize information about stock options
outstanding and exercisable at March 31, 2000:
26
Stock Options Outstanding
Weighted Average
Number of Remaining Weighted
Range of Shares Contractual Average
Exercise Prices Outstanding Life in Years Exercise Price
--------------- ----------- ---------------- --------------
$7.50-$7.75 90,000 8.56 $7.61
$5.25 90,000 9.97 $5.25
-----------
180,000
===========
Stock Options Exercisable
Number of Weighted
Range of Shares Average
Exercise Prices Exercisable Exercise Price
--------------- ----------- --------------
$7.50-$7.75 22,500 $7.61
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 granteddetermined based on the fair value at the grant dates for
awards under the plan.
F-12
MEXCO ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1998, 1997,plan, net earnings (loss), basic earnings (loss) per
common share and 1996diluted earnings (loss) per common share would have been
as follows:
2000 1999
--------- ---------
Net earnings (loss):
As reported $ 393,647 $(425,774)
Pro forma $ 291,027 $(477,189)
Basic earnings (loss) per share:
As reported $ 0.24 $ (0.26)
Pro forma $ 0.18 $ (0.29)
Diluted earnings (loss) per share:
As reported $ 0.24 $ (0.26)
Pro forma $ 0.18 $ (0.29)
NOTE IH - RELATED PARTY TRANSACTIONS
The Company serves as operator of properties in which the majority
stockholder has interests and in that capacity, bills the majority stockholder for lease
operating expenses on a monthly basis subject to usual trade terms. The
billings totaled approximately$56,775, $21,981 and $50,097 $112,657,
and $106,198 for the years ended March 31,
2000, 1999, and 1998, 1997,respectively.
Effective January 1, 2000, the Company entered into an agreement with
the husband of an officer and 1996,
respectively. Accounts receivable include $8,473 and $6,042 due fromdirector of the majority stockholder atCompany to provide geological
consulting services for one year. Amounts paid under this contract for the
year ended March 31, 1998 and 1997, respectively.2000 totaled $8,386.
NOTE J - FINANCIAL INSTRUMENTS
The following table includes estimated fair value information as of
March 31, 1998 and 1997, as required by Statement of Financial
Accounting Standards ("SFAS") No. 107. Such information, which pertains
to the Company's financial instruments, is based on the requirements set
forth in that Statement and does not purport to represent the aggregate
net fair value of the Company. All of the financial instruments are held
for purposes other than trading.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate that value.
Cash and Cash Equivalents - The carrying amount approximates fair value
-------------------------
because of the contractual right to receive the deposits upon demand.
Bank Line of Credit - The carrying amount approximates fair value
-------------------
because floating interest rates approximate current market rates.
Financial instruments and the estimated fair values are as follows:
March 31, 1998
--------------------------------------------
Carrying amount of Estimated fair value of
assets (liabilities) assets (liabilities)
-------------------- -----------------------
Cash and cash equivalents $ 241,348 $ 241,348
Bank line of credit 1,822,000 1,822,000
March 31, 1997
--------------------------------------------
Carrying amount of Estimated fair value of
assets (liabilities) assets (liabilities)
-------------------- -----------------------
Cash and cash equivalents $ 40,813 $ 40,813
Bank line of credit (1,637,000) (1,637,000)
NOTE K - SUBSEQUENT EVENT
On April 2, 1998, the Board of Directors granted stock options for
40,000 shares of common stock at $7.75 per share which vest at 25% on
each annual anniversary date and expire ten years from date of grant.
The Company will account for the options under the intrinsic value
method pursuant to APB Opinion 25.
F-13
MEXCO ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1998, 1997, and 1996
NOTE LI - OIL AND GAS RESERVE DATA (UNAUDITED)
In accordance with SFAS No. 69 and Securities and Exchange Commission
("SEC") rules and regulations, the following information is presented
with regard toThe estimates of the Company's proved oil and gas reserves, all of 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
27
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 and 2000 are based on
evaluations prepared by Joe C. Neal and Associates, Petroleum Consultants.
The estimates as of March 31, 1998 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 United States. Information for oil is presented in
barrels ("Bbls")industry change. The following estimates of
proved reserves quantities and for gas in thousand cubic feet ("Mcf").
The SEC has adopted SFAS No. 69 disclosure guidelines for oil and gas
producers. These rules require the Company to include as a supplement to
the basic financial statements arelated standardized measure of discounted
future net cash flows relatingflow are estimates only, and do not purport to proved oil and gas reserves.
The standardized measure, in management's opinion, should be examined
with caution. The basis for these disclosures is an independent
petroleum engineer's reserve study which contains imprecise estimates of
quantities and rates of production of reserves. Revision of prior year
estimates can have a significant impact on the results. Also,
exploration costs in one year may lead to significant discoveries in
later years and may significantly change previous estimates of proved
reserves and their valuation. Values of unproved properties and
anticipated future price and cost increasesreflect realizable
values or decreases are not
considered. Therefore, the standardized measure is not necessarily a
"best estimate" of the fair valuemarket values of the Company's oil and gas
properties or of future net cash flows.
The following summaries of changes in reserves and standardized measure
of discounted future net cash flows were prepared from estimates of
proved reserves developed by independent petroleum engineers.
Summary of Changes in Proved Reserves
(Unaudited)reserves.
CHANGES IN PROVED RESERVE QUANTITIES (UNAUDITED):
2000 1999 1998 1997 1996
--------------------- --------------------- -----------------------------------------
Bbls Mcf Bbls Mcf Bbls Mcf
------- --------- ----------------- --------- ---------- -------- ----------------- ---------
Proved developed and undeveloped
reserves, Beginningbeginning of year 194,000 4,194,000 246,000 3,197,000 436,000 2,956,000 425,000 1,920,000 207,000 1,567,000
Revision of previous estimates 13,000 (471,000) (2,000) 348,000 (132,000) 268,000 (113,000) 411,000 11,000 29,000
Purchase of minerals in place 3,000 1,403,000 -- 939,000 6,000 405,000 89,000 902,000 111,000 352,000
Extensions and discoveries - - 75,000 83,000 126,000 217,0001,000 174,000 -- 193,000 -- --
Production (19,000) (541,000) (50,000) (483,000) (64,000) (432,000) (40,000) (236,000) (29,000) (188,000)
Sales of minerals in place - - - (124,000) (1,000) (57,000)
-------- --------- --------(53,000) (4,000) -- -- -- --
------- --------- ------- --------- End------- ---------
Proved reserves, end of year 139,000 4,755,000 194,000 4,194,000 246,000 3,197,000
436,000 2,956,000 425,000 1,920,000
======== ========= ======== ========= ======= =========
Proved developed reservesPROVED DEVELOPED RESERVES (UNAUDITED):
Beginning of year 281,000 2,400,000 209,000 1,593,000 183,000 1,472,000
End of year194,000 4,194,000 219,000 2,941,000 281,000 2,400,000
209,000 1,593,000End of year 139,000 4,755,000 194,000 4,194,000 219,000 2,941,000
F-14STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED
RESERVES (UNAUDITED):
March 31,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
Future cash inflows $15,590,000 $ 8,994,000 $ 9,794,000
Future production and
development costs (4,414,000) (2,989,000) (3,791,000)
Future income taxes (a) (2,249,000) (715,000) (612,000)
----------- ----------- -----------
Future net cash flows 8,927,000 5,290,000 5,391,000
Annual 10% discount for
estimated timing of cash flows (4,019,000) (2,220,000) (1,896,000)
----------- ----------- -----------
Standardized measure of
discounted future net cash flows $ 4,908,000 $ 3,070,000 $ 3,495,000
=========== =========== ===========
(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.
28
CHANGES IN STANDARIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS FROM PROVED
RESERVES (UNAUDITED):
Year ended March 31,
---------------------------------------
2000 1999 1998
----------- ----------- -----------
Sales of oil and gas produced,
net of production costs $(1,136,000) $ (859,000) $(1,427,000)
Net changes in price and
production costs 2,310,000 (1,255,000) (519,000)
Changes in previously estimated
development costs 22,000 296,000 --
Revisions of quantity estimates (281,000) 389,000 (428,000)
Net change due to purchases and
sales of minerals in place 1,164,000 527,000 456,000
Extensions and discoveries,
less related costs 187,000 81,000 --
Net change in income taxes (821,000) (18,000) 475,000
Accretion of discount 349,000 389,000 532,000
Changes in timing of estimated
cash flows and other 44,000 25,000 (42,000)
----------- ----------- -----------
Changes in standardized measure 1,838,000 (425,000) (953,000)
Standardized measure, beginning of year 3,070,000 3,495,000 4,448,000
----------- ----------- -----------
Standardized measure, end of year $ 4,908,000 $ 3,070,000 $ 3,495,000
=========== =========== ===========
29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 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 31, 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 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
31, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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
31, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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
31, 2000.
PART IV
ITEM 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.
30
(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, 2000.
31
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
AND SUBSIDIARY
NOTESRegistrant
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 14, 2000, 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
32
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1998, 1997,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 1996
NOTE L - OIL AND GAS RESERVE DATA (UNAUDITED) - CONTINUED
Standardized MeasureConveyance between
Mexco Energy Corporation and Shenandoah Petroleum
Corporation dated April 21, 1999.
21** Subsidiaries of Discounted Future Net Cash Flows
Relatingthe Company.
* Incorporated by reference to Proved Oilthe 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 Gas Reserves
(Unaudited)
March 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
Future oil and gas revenues $ 9,794,000 $13,901,000 $12,239,000
Future production and development costs (3,791,000) (5,678,000) (4,576,000)
Future income tax expense (612,000) (1,348,000) (740,000)
----------- ----------- -----------
Future net cash flows 5,391,000 6,875,000 6,923,000
Discounted at 10% for estimated timing of cash flows (1,896,000) (2,427,000) (2,742,000)
----------- ----------- -----------
Standardized measure of discounted future net cash flows $ 3,495,000 $ 4,448,000 $ 4,181,000
=========== =========== ===========
Changes in Standardized Measure of Discounted Future Net Cash Flows
Relatedincorporated by reference to Proved Oil and Gas Reserves
(Unaudited)
Year ended March 31,
--------------------------------------------
1998 1997 1996
------------- ------------- --------------
Sales and transfers of oil and gas produced, net of
production costs $(1,427,000) $(1,106,000) $(526,000)
Net changes in prices and production costs (519,000) (582,000) 734,000
Extensions and discoveries, less related costs - 678,000 954,000
Revisions of previous quantity estimates (428,000) (237,000) 95,000
Accretion of discount 532,000 463,000 203,000
Net change due to purchases and sales of minerals in place 456,000 1,338,000 1,150,000
Net change in income taxes 475,000 (425,000) (254,000)
Other (42,000) 138,000 (11,000)
---------- ---------- -----------
Net increase (decrease) (953,000) 267,000 2,345,000
Balance at beginning of year 4,448,000 4,181,000 1,836,000
---------- ---------- -----------
Balance at end of year $3,495,000 $4,448,000 $ 4,181,000
========== ========== ===========
F-15Form 8-K
dated April 21, 1999.
33