-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DnNbaSOO9YXTpe50Nb4P45jX3Yjs7arlXaqnWRVSEfOZQG31Bu7JD5YvHoWYdjny awGVwZ8nnU5byx9RfcDNEA== 0001093801-03-000744.txt : 20030630 0001093801-03-000744.hdr.sgml : 20030630 20030627174517 ACCESSION NUMBER: 0001093801-03-000744 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030630 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEXCO ENERGY CORP CENTRAL INDEX KEY: 0000066418 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 840627918 STATE OF INCORPORATION: CO FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-06694 FILM NUMBER: 03762332 BUSINESS ADDRESS: STREET 1: 214 W TEXAS AVENUE STREET 2: SUITE 1101 CITY: MIDLAND STATE: TX ZIP: 79701 BUSINESS PHONE: 9156821119 MAIL ADDRESS: STREET 1: 214 W TEXAS AVENUE STREET 2: SUITE 1101 CITY: MIDLAND STATE: TX ZIP: 79701 FORMER COMPANY: FORMER CONFORMED NAME: MILLER OIL CO DATE OF NAME CHANGE: 19800702 10-K 1 x10k-603.txt MEXCO ENERGY CORPORATION 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, 2003 Commission File No. 0-6694 MEXCO ENERGY CORPORATION (Exact name of registrant as specified in its charter) COLORADO 84-0627918 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 214 W. TEXAS AVENUE, SUITE 1101 79701 MIDLAND, TEXAS (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (432) 682-1119 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of Each Class Name of Exchange on Which Registered ----------------------------- ------------------------------------ Common Stock, $0.50 par value None Indicate by check-mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past ninety (90) days. Yes [ ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or an amendment to this Form 10-K. [ ] As of June 26, 2003, the aggregate market value of the registrant's common stock held by non-affiliates (using the closing bid price of $7.75) was approximately $3,956,088. The number of shares outstanding of the registrant's common stock as of June 26, 2003 was 1,736,041. DOCUMENTS INCORPORATED BY REFERENCE Part III of this Report is incorporated by reference from the Registrant's Information Statement relating to its Annual Meeting of Stockholders to be held on August 14, 2003. Such Information Statement will be filed with the Commission not later than July 30, 2003. TABLE OF CONTENTS PART I Item 1. Business ........................................................ 3 Item 2. Properties....................................................... 7 Item 3. Legal Proceedings................................................ 10 Item 4. Submission of Matters to a Vote of Security Holders.............. 11 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.............................................. 11 Item 6. Selected Financial Data.......................................... 12 Item 6A. Selected Quarterly Financial Data................................ 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 13 Item 7A. Quantitative and Qualitative Disclosures About Market Risk....... 15 Item 8. Financial Statements and Supplementary Data...................... 17 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures............................. 34 PART III Item 10. Directors and Executive Officers of the Registrant............... 34 Item 11. Executive Compensation........................................... 34 Item 12. Security Ownership of Certain Beneficial Owners and Management... 34 Item 13. Certain Relationships and Related Transactions................... 35 Item 14. Controls and Procedures.......................................... 35 PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.. 35 Signatures................................................................. 36 Certifications............................................................. 38 2 PART I ITEM 1. BUSINESS GENERAL Mexco Energy Corporation, a Colorado corporation, (the "Company", which reference shall include the Company's wholly-owned subsidiary) is an independent oil and gas company engaged in the acquisition, exploration and development of oil and gas properties located in the United States. Incorporated in April 1972 under the name Miller Oil Company, the Company changed its name to Mexco Energy Corporation effective April 30, 1980. At 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 of Forman Energy Corporation, a New York corporation also engaged in oil and gas exploration and development. Since its inception, the Company has been engaged in acquiring and developing oil and gas properties and the exploration for and production of oil and gas within the United States. The Company primarily focuses on the exploration for and development of natural gas 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 properties in other states, the majority of its activities are centered in West Texas. The Company acquires interests in producing and non-producing oil and gas leases from landowners and leaseholders in areas considered favorable for oil and gas exploration, development and production. In addition, the Company may acquire oil and gas interests by joining in oil and gas drilling prospects generated by third parties. The Company may employ a combination of the above methods of obtaining producing acreage and prospects. In recent years, the Company has placed primary emphasis on the evaluation and purchase of producing oil and gas properties and re-entry prospects that could have a potentially meaningful impact on Company reserves. OIL AND GAS OPERATIONS As of March 31, 2003, gas reserves constituted approximately 90% of the Company's total proved reserves and approximately 76% of the Company's revenues for fiscal 2003. Revenues from oil and gas royalty interests accounted for approximately 15% of the Company's revenues for fiscal 2003. 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 6% of the Company's discounted future net cash flows from proved reserves as of March 31, 2003, and for fiscal 2003, approximately 21% of revenues and 12% 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 17% of the Company's discounted future net cash flows from proved reserves as of March 31, 2003, and for fiscal 2003, approximately 11% of revenues and 6% of production costs. EL CINCO GAS FIELD properties, encompassing 1,873 gross acres, 1,349 net acres, 10 gross producing wells and 7.36 net wells in Pecos County, Texas, account for approximately 48% of the Company's discounted future net cash flows from proved reserves as of March 31, 2003. This is a 3 multi-pay area where most of the leases have potential reserves in two zones. Of this amount approximately 33% of the Company's discounted future net cash flows from proved reserves are attributable to proven undeveloped reserves which will be developed primarily through re-entry of existing wells. The Company owns interests in and operates 22 producing wells and two shut-in wells. The Company owns partial interests in an additional 1,572 producing wells located in the states of Texas, New Mexico, Oklahoma, Louisiana, Arkansas, Wyoming, Kansas, Colorado, Montana and North Dakota. Additional information concerning these properties and the oil and gas reserves of the Company is provided below. The following table indicates the Company's oil and gas production in each of the last five years, all of which is located within the United States: Year Oil(Bbls) Gas (Mcf) ---- --------- --------- 2003....................... 23,391 538,787 2002....................... 21,139 467,013 2001....................... 18,545 503,773 2000....................... 19,334 540,793 1999....................... 49,573 482,948 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. Some of these competitors have financial and personnel resources substantially in excess of those available to the Company and, therefore, the Company may be placed at a competitive disadvantage. 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. Our ability to acquire and develop additional properties in the future will depend upon our ability to conduct operations, to evaluate and select suitable properties, and to consummate transactions in this highly competitive environment in a timely manner. MAJOR CUSTOMERS The Company had sales to the following company that amounted to 10% or more of revenues for the year ended March 31: 2003 2002 2001 ---- ---- ---- Sid Richardson Energy Services, Co. (formerly Koch Midstream Services Company) 26% 24% 39% Because a ready market exists for the Company's oil and gas production, the Company does not believe the loss of any individual customer would have a material adverse effect on its financial position or results of operations. RISK FACTORS There are many factors that affect the Company's business and results of operations, some of which are beyond our control. The following is a description of some of the important factors that may cause results of operations in future periods to differ materially from those currently expected or desired. Oil and gas prices are volatile and could adversely affect our revenues, cash flow, liquidity and reserve estimates. The Company cannot predict 4 future oil and natural gas prices with any certainty. Historically, the markets for oil and gas have been volatile, and they are likely to continue to be volatile. Factors that can cause price fluctuations include changes in supply and demand, weather conditions, the price and availability of alternative fuels, political and economic conditions in oil producing countries, and other factors that are beyond our control. Natural gas prices affect the Company more than oil prices because most of the Company's production and reserves are natural gas. Prices also affect the amount of cash flow available for capital expenditures and the Company's ability to borrow money or raise additional capital. Lower prices may also reduce the amount of crude oil and natural gas than can be produced economically. Changes in oil and gas prices impact both estimated future net revenue and the estimated quantity of proved reserves. Price increases may permit additional quantities of reserves to be produced economically, and price decreases may render uneconomic the production of reserves previously classified as proved. Thus, the Company may experience material increases or decreases in reserve quantities solely as a result of price changes and not as a result of drilling or well performance. Lower oil and gas prices increase the risk of ceiling limitation write-downs. The Company uses the full cost method to account for oil and gas operations. Accordingly, the Company capitalizes the cost to acquire, explore for and develop crude oil and natural gas properties. Under the full cost accounting rules, the net capitalized cost of crude oil and natural gas properties may not exceed a "ceiling limit" which is based upon the present value of estimated future net cash flows from proved reserves, discounted at 10% plus the lower of cost or fair market value of unproved properties. If net capitalized costs of oil and natural gas properties exceed the ceiling limit, the Company must charge the amount of the excess to earnings. This charge does not impact cash flow from operating activities, but does reduce stockholders' equity and earnings. The risk that the Company will be required to write down the carrying value of oil and natural gas properties increases when oil and natural gas prices are low. Estimates of proved reserves and the estimated future net revenue from such reserves are uncertain and inherently imprecise. The process of estimating oil and gas reserves is complex and requires significant decisions and assumptions in the evaluation of available geological, geophysical, engineering and economic data for each reservoir. The interpretation of such data is a subjective process dependent upon the quality of the data and the decision-making and judgment of reservoir engineers Actual future production, oil and gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable oil and gas reserves most likely will vary from those estimated. Any significant variance could materially affect the estimated quantities and present value of reserves, which may in turn adversely affect our cash flow, results of operations and the availability of capital resources. One should not assume that the present value of proved reserves is equal to the current fair market value of the Company's estimated oil and gas reserves. In accordance with the requirements of the "Securities and Exchange Commission", the estimated discounted future net cash flows from proved reserves are generally based on prices and costs as of the date of the estimate. Actual future prices and costs may be materially higher or lower than those as of the date of the estimate. The timing of both the production and the expenses with respect to the development and production of oil and gas properties will effect the timing of future net cash flows from proved reserves and their present value. 5 REGULATION The Company's exploration, development, production and marketing operations are subject to extensive rules and regulations by federal, state and local authorities. Numerous federal, state and local departments and agencies have issued rules and regulations, binding on the oil and gas industry, some of which carry substantial penalties for noncompliance. State statutes and regulations require permits for drilling operations, bonds and reports concerning operations. Most states also have statutes and regulations governing conservation and safety matters, including the unitization and pooling of oil and gas properties, the establishment of maximum rates of production from oil and gas wells and the spacing of such wells. Such statutes and regulations may limit the rate at which oil and gas otherwise could be produced from the Company's properties. The regulatory burden on the oil and gas industry increases its cost of doing business and, consequently, affects its profitability. Because these rules and regulations are frequently amended or reinterpreted, the Company is not able to predict the future cost or impact of complying with such laws. 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. 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; therefore, there is no assurance that the less stringent regulatory approach recently pursued by FERC and Congress will continue. ENVIRONMENTAL The Company, by nature of its oil and gas operations, is subject to extensive federal, state and local environmental laws and regulations controlling the generation, use, storage, and discharge of materials into the environment or otherwise relating to the protection of the environment. Numerous governmental departments issue rules and regulations to implement and enforce such laws, which are often difficult and costly to comply with and which carry substantial penalties for failure to comply. These laws and regulations may require the acquisition of a permit before drilling or production commences, 6 restrict the types, quantities and concentration of various substances that can be released into the environment in connection with drilling and production activities, limit or prohibit construction or drilling activities on certain lands lying within protected areas, restrict the rate of oil and gas production, require remedial actions to prevent pollution from former operations and impose substantial liabilities for pollution resulting from the Company's operations. In addition, these laws and regulations may impose substantial liabilities and penalties for the Company's failure to comply with them or for any contamination resulting from the Company's operations. The Company believes it is in compliance, in all material respects, with applicable environmental requirements. The Company does not believe costs relating to these laws and regulations have had a material adverse effect on the Company's operations or financial condition in the past. As these laws and regulations become more stringent and complex, there is no assurance that changes in or additions to laws or regulations regarding the protection of the environment will not have such an impact in the future. INSURANCE The Company is subject to all the risks inherent in the exploration for, and development and production of oil and gas including blowouts, fires and other casualties. The Company maintains insurance coverage customary for operations of a similar nature, but losses could arise from uninsured risks or in amounts in excess of existing insurance coverage. EMPLOYEES As of March 31, 2003, the Company had two full-time and three part-time employees. The Company believes that relations with these employees are generally satisfactory. The Company's employees are not covered by collective bargaining arrangements. From time to time, the Company utilizes the services of independent contractors to perform various field and other services. Experienced personnel are available in all disciplines should the need to hire additional staff arise. OFFICE FACILITIES The Company maintains its principal offices at 214 W. Texas, Suite 1101, Midland, Texas pursuant to a month to month lease. TITLE TO OIL AND GAS PROPERTIES The Company believes that its methods of investigating title to its properties are consistent with practices customary in the oil and gas industry, and that such practices are adequately designed to enable it to acquire good title to such properties. The Company's properties may be subject to one or more royalty, overriding royalty, carried and other similar non-cost bearing interests and contractual arrangements customary in the industry. Substantially all of the Company's properties are currently mortgaged under a deed of trust to secure funding through a revolving line of credit. ITEM 2. PROPERTIES OIL AND NATURAL GAS RESERVES The estimates of the Company's proved oil and gas reserves, which are located entirely within the United States, were prepared in accordance with the guidelines established by the SEC and Financial Accounting Standards Board. The estimates as of March 31, 2003, 2002 and 2001 are based on evaluations prepared by Joe C. Neal and Associates, Petroleum Consultants. For information concerning costs incurred by the 7 Company for oil and gas operations, net revenues from oil and gas production, estimated future net revenues attributable to the Company's oil and gas reserves, present value of future net revenues discounted at 10% and changes therein, see Notes to the Company's consolidated financial statements. The Company emphasizes that reserve estimates are inherently imprecise and there can be no assurance that the reserves set forth below will be ultimately realized. Actual future production, oil and gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable oil and gas reserves will most likely vary from the assumptions and estimates. Any significant variance could materially affect the estimated quantities and value of our oil and gas reserves, which in turn may adversely affect the Company's cash flow, results of operations and the availability of capital resources. In accordance with applicable financial accounting and reporting standards of the Securities and Exchange Commission, the estimates of our proved reserves and the present value of proved reserves set forth herein are made using oil and gas sales prices estimated to be in effect as of the date of such reserve estimates and are held constant throughout the life of the properties. Actual future prices and costs may be materially higher or lower than those as of the date of the estimate. The timing of both the production and the expenses with respect to the development and production of oil and gas properties will effect the timing of future net cash flows from proved reserves and their present value. The Company has not filed any other oil or gas reserve estimates or included any such estimates in reports to other federal or foreign governmental authority or agency within the last twelve months. The estimated proved oil and gas reserves and present value of estimated future net revenues from proved oil and gas reserves for the Company in the periods ended March 31 are summarized below. PROVED RESERVES
March 31, 2003 2002 2001 ------------ ------------ ------------ Oil (Bbls): Proved developed - Producing 93,199 143,003 145,954 Proved developed - Non-producing 1,386 1,404 88,700 Proved undeveloped 55,564 92,900 -- ------------ ------------ ------------ Total 150,149 237,307 234,654 ============ ============ ============ Natural gas (Mcf): Proved developed - Producing 3,451,880 3,822,715 4,447,379 Proved developed - Non-producing 1,065,902 1,336,190 1,889,833 Proved undeveloped 3,413,846 5,023,328 8,234 ------------ ------------ ------------ Total 7,931,628 10,182,233 6,345,446 ============ ============ ============ Present value of estimated future net revenues before income taxes $ 20,772,830 $ 11,925,260 $ 15,988,820 ============ ============ ============
The preceding tables should be read in connection with the following definitions: PROVED RESERVES. Estimated quantities of oil and gas, based on geologic and engineering data, appear with reasonable certainty to be economically recoverable in future years from known reservoirs under existing economic and operating conditions. PROVED DEVELOPED RESERVES. Proved oil and gas reserves expected 8 to be recovered through existing wells with existing equipment and operating methods. Developed reserves include both producing and non-producing reserves. Producing reserves are those reserves expected to be recovered from existing completion intervals producing as of the date of the reserve report. Non-producing reserves are currently shut-in awaiting a pipeline connection or in reservoirs behind the casing or at minor depths above or below the producing zone and are considered 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, 2003: Gross Net ------- ----- Oil........................................ 1,268 14 Gas........................................ 326 11 ------- ----- Total Productive Wells................... 1,594 25 ======= ===== 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, 2003 material undeveloped acreage owned by the Company was approximately 8,018 gross and 2,983 net acres all of which is in the state of Texas. The following table sets forth the approximate developed acreage in which the Company held a leasehold mineral or other interest at March 31, 2003. Developed Acres ------------------------ Gross Net ------------------------ Texas................................ 114,273 4,993 New Mexico........................... 17,154 147 North Dakota......................... 23,999 18 Louisiana............................ 22,601 28 Oklahoma............................. 39,002 137 Montana.............................. 7,508 4 Kansas............................... 7,240 21 Wyoming.............................. 2,078 4 Colorado............................. 1,040 1 Arkansas............................. 320 -- -------- ------- Total................................ 235,215 5,353 ======== ======= 9 DRILLING ACTIVITIES The following table sets forth the drilling activity of the Company for the years ended March 31, 2003, 2002 and 2001. Years ended March 31, -------------------------------------------------------- 2003 2002 2001 ---------------- ---------------- ---------------- Gross Net Gross Net Gross Net ------ ------ ------ ------ ------ ------ Exploratory Wells Productive 2 .01 2 .01 1 .08 Nonproductive 1 .07 1 .09 2 .48 ------ ------ ------ ------ ------ ------ Total 3 .08 3 .10 3 .56 ====== ====== ====== ====== ====== ====== Development Wells Productive 10 .17 12 .13 1 .02 Nonproductive -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ Total 10 .17 12 .13 1 .02 ====== ====== ====== ====== ====== ====== 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 average production (lifting) cost per unit of production for the years ended March 31, 2003, 2002 and 2001. Year Ended March 31, -------------------------------------- 2003 2002 2001 ---------- ---------- ---------- Oil (a): Production (Bbls) 23,391 21,139 18,545 Revenue $ 640,685 $ 456,108 $ 531,751 Average Bbls per day 64 58 51 Average sales price per Bbl $ 27.39 $ 21.58 $ 28.67 Gas (b): Production (Mcf) 538,787 467,013 503,773 Revenue $2,041,074 $1,312,452 $2,560,459 Average Mcf per day 1,476 1,279 1,380 Average sales price per Mcf $ 3.79 $ 2.81 $ 5.08 Production cost: Production cost $ 848,513 $ 648,820 $ 526,032 Equivalent Mcf (c) 679,133 593,847 615,043 Production cost per equivalent Mcf $ 1.25 $ 1.09 $ 0.86 Production cost per sales dollar $ 0.32 $ 0.37 $ 0.17 Total oil and gas revenues $2,681,759 $1,768,560 $3,092,210 (a) Includes condensate. (b) Includes natural gas products. (c) Oil production is converted to equivalent mcf at the rate of 6 mcf per bbl, representing the estimated relative energy content of natural gas to oil. ITEM 3. LEGAL PROCEEDINGS The Company is a named plaintiff in one class action lawsuit against a gas purchaser involving contract price disputes. The Company does not expect any expenses of a material nature to arise from this class action claim. No amounts have been accrued for this item in the Company's consolidated financial statement for the year ended March 31, 2003. During the third quarter of fiscal 2003, the Company received proceeds of $254,862 before expenses of $101,945, from the settlement of a class action lawsuit against a gas purchaser involving contract price disputes. 10 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter ended March 31, 2003. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information concerning the executive officers of the Company as of March 31, 2003. Name Age Position ------------------- --- --------------------------------------------- Nicholas C. Taylor 65 President and Chief Executive Officer Donna Gail Yanko 58 Vice President and Corporate Secretary Tamala L. McComic 34 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 to the State Securities Board through January 2001. In addition to serving as chairman for four years, he continues to serve as a member pending the appointment of his successor. Donna Gail Yanko 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. Tamala L. McComic has been Controller for the Company since July 2001. She was appointed Assistant Secretary of the Company in August 2001 and Treasurer in September 2001. From 1994 to 2001 Mrs. McComic was Regional Controller and Credit Manager for Transit Mix Concrete & Materials Company, a subsidiary of Trinity Industries, Inc. In May 2003, Mrs. McComic was appointed Vice President, Chief Financial Officer and continues to serve as Treasurer and Assistant Secretary. PART II ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded on the over-the-counter market bulletin board under the symbol MEXC. The registrar and transfer agent is Computershare Investor Services, Inc., P.O. Box 1596, Denver, Colorado, 80201 (Tel: 303-262-0600). As of March 31, 2003 the Company had 1,406 shareholders of record and 1,766,566 shares outstanding. 11 PRICE RANGE OF COMMON STOCK Bid Price ------------------- High Low ------ ------ 2003: (1) April - June 2002 $ 6.00 $ 3.80 July - September 2002 6.00 2.50 October - December 2002 3.00 2.25 January - March 2003 4.80 2.85 2002: (1) April - June 2001 4.10 3.00 July - September 2001 4.10 3.71 October - December 2001 4.50 2.85 January - March 2002 4.50 3.50 (1) Reflects high and low bid information received from Pink Sheets LLC, formerly National Quotation Bureau, LLC. These bid quotations represent prices between dealers, without retail markup, markdown or commissions, and do not reflect actual transactions. On June 26, 2003, the bid price was $7.75. On February 1, 2002 the Company's Board of Directors declared a stock dividend consisting of shares of par value $0.50 common stock of the Company in the amount of ten percent (10%) of the outstanding shares, or 1 share for each 10 shares held by all stockholders of record of the Company as of February 15, 2002, with any resulting fractional share dividends to be rounded up or down to the nearest whole number of shares and issued the stock dividend accordingly. The payable date for this dividend was February 28, 2002 and resulted in an additional 160,566 shares of stock issued and outstanding. ITEM 6. SELECTED FINANCIAL DATA
Years Ended March 31, -------------------------------------------------------------------------------- 2003 2002 2001 2000 1999 -------------------------------------------------------------------------------- Statement of Operations: Operating revenues $ 2,949,113 $ 1,778,583 $ 3,099,966 $ 1,686,266 $ 1,510,005 Operating income (loss) 926,277 252,101 1,881,776 498,384 (281,099) Other income (expense) (95,357) (54,706) (92,160) (104,737) (144,675) Net income (loss) $ 672,808 $ 189,291 $ 1,539,458 $ 393,647 $ (425,774) Net income (loss) per share - basic (1) $ 0.39 $ 0.11 $ 0.86 $ 0.22 $ (0.24) Net Income (loss) per share - diluted (1) $ 0.39 $ 0.11 $ 0.86 $ 0.22 $ (0.24) Weighted average shares outstanding - basic (1) 1,741,462 1,768,314 1,784,825 1,785,618 1,785,618 Weighted average shares outstanding - diluted (1) 1,746,831 1,768,579 1,787,503 1,785,618 1,785,618 Balance Sheet: Property and equipment, net $ 7,028,659 $ 5,895,429 $ 4,009,852 $ 3,749,400 $ 3,749,400 Total assets 7,688,638 6,347,965 4,961,360 4,043,015 4,043,015 Total debt 2,150,000 1,710,000 600,000 1,200,000 1,784,000 Stockholders' equity $ 4,956,388 $ 4,276,042 $ 4,046,452 $ 2,567,228 $ 2,173,581 Cash Flow: Cash provided by operations $ 1,369,690 $ 899,977 $ 1,903,345 $ 722,088 $ 532,171
(1) Amounts have been adjusted to reflect the 10% stock dividend effected on February 1, 2002. 12 ITEM 6A. SELECTED QUARTERLY FINANCIAL DATA
FISCAL 2003 4TH QTR 3RD QTR 2ND QTR 1ST QTR ---------- ---------- ---------- ---------- Net sales $ 956,890 $ 668,039 $ 512,180 $ 544,650 Gross profit $ 730,662 $ 434,963 $ 279,575 $ 388,046 Net income $ 336,588 $ 238,718 $ 20,356 $ 77,146 Net income per share-basic $ 0.19 $ 0.14 $ 0.01 $ 0.04 Net income per share-diluted $ 0.19 $ 0.14 $ 0.01 $ 0.04 FISCAL 2002 4TH QTR 3RD QTR 2ND QTR 1ST QTR ---------- ---------- ---------- ---------- Net sales $ 409,058 $ 329,953 $ 434,798 $ 594,751 Gross profit $ 261,890 $ 199,406 $ 221,096 $ 437,348 Net income $ 48,988 $ (32,538) $ (26,012) $ 198,852 Net income per share-basic(1) $ 0.03 $ (0.02) $ (0.01) $ 0.11 Net income per share-diluted(1) $ 0.03 $ (0.02) $ (0.01) $ 0.11
(1) Amounts have been adjusted to reflect the 10% stock dividend effected on February 1, 2002. ITEM 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 10 of this report. LIQUIDITY AND CAPITAL RESOURCES AND COMMITMENTS Historically, the Company has funded its operations, acquisitions, exploration and development expenditures from cash generated by operating activities, bank borrowings and issuance of common stock. In fiscal 2003, the Company primarily used cash provided by operations ($1,369,690) and borrowings on the line of credit ($910,000) to fund oil and gas property acquisitions and development ($1,628,695). Working capital as of March 31, 2003 was $389,179. In fiscal 2001, the board of directors authorized the purchase of up to 25,000 shares of the Company's common stock, and the Company repurchased 13,160 shares, at an aggregate cost of $84,934. For fiscal 2002, the board of directors authorized the use of up to $250,000 to repurchase shares of the Company's common stock. During fiscal year 2002, the Company repurchased 22,533 shares, at an aggregate cost of $91,231. Of such shares, 18,400 shares were reissued in exchange for oil and gas lease rights representing 368 net acres valued at approximately $83,000. The remaining 4,133 shares were cancelled. In fiscal 2003, the board of directors once again authorized the use of up to $250,000 to repurchase shares of the Company's common stock. During fiscal year 2003, the Company repurchased 30,244 shares, at an aggregate cost of $127,536 for the treasury account. In December, 2002, the Company entered into a participation agreement with Falcon Bay Exploration, LLC exercising its right to purchase at an aggregate cash price of $597,301, the acreage and seismic data on the first of four such prospects referred to in the exploration agreement between the Company and Falcon Bay Exploration, LLC. This information is contained in Form 8-K filed by the Company on December 6, 2002. 13 The Company is reviewing several other projects in which it may participate. The cost 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. See Note B of Notes to Consolidated Financial Statements for a description of the Company's revolving credit agreement with Bank of America, N.A. Crude oil and natural gas prices have fluctuated significantly in recent years as well as in recent months. Fluctuations in price have a significant impact on the Company's financial condition and liquidity. However, management believes the Company can maintain adequate liquidity for the next fiscal year. RESULTS OF OPERATIONS FISCAL 2003 COMPARED TO FISCAL 2002 Oil and gas sales increased from $1,768,560 in 2002 to $2,681,759 in 2003, an increase of $913,199 or 52%. This increase was attributable to both an increase in production and an increase in oil and gas prices during the year. The average oil price increased from $21.58 per bbl in 2002 to $27.39 per bbl in 2003, an increase of $5.81 per bbl or 27%. The average gas price increased from $2.81 in 2002 to $3.79 per mcf in 2003, an increase of $.98 per mcf or 35%. Oil production increased from 21,139 bbls in 2002 to 23,391 bbls in 2003, an increase of 2,252 bbls or 11%. Gas production increased from 467,013 mcf in 2002 to 538,787 mcf in 2003, an increase of 71,774 mcf or 15%. Other income increased from $10,023 in 2002 to $267,354 in 2003, an increase of $257,331. This increase is the result of the proceeds received ($254,862) from the settlement of a class action lawsuit against a gas purchaser involving contract price disputes. Production costs increased from $648,820 in 2002 to $848,513 in 2003, an increase of $199,633 or 31%. This is primarily attributable to an increased number of repairs on operated properties during the year. Depreciation, depletion and amortization increased from $448,422 in 2002 to $641,827 in 2003, an increase of $193,405 or 43%, due primarily to the downward revisions of proved undeveloped reserves in the El Cinco Field. There was no impairment of oil and gas properties in fiscal 2002 or 2003. General and administrative expenses increased from $429,240 in 2002 to $532,496 in 2003, an increase of $103,256 or 24%. This increase was primarily attributable to the increased cost of consulting expenses relating to the settlement of the lawsuit which was settled during the fiscal year ($101,945) and an increase in compensation related to stock options granted to consultants ($12,792). Interest expense increased from $57,161 in 2002 to $96,337 in 2003, an increase of $39,176 or 69%. This increase was attributable to additional borrowings during the current fiscal year. FISCAL 2002 COMPARED TO FISCAL 2001 Oil and gas sales decreased from $3,092,210 in 2001 to $1,768,560 in 2002, a decrease of $1,323,650 or 43%. This decrease was primarily attributable to the decrease in oil and gas prices during the year. The average oil price decreased from $28.67 in 2001 to $21.58 per bbl in 2002, a decrease of $7.09 per bbl or 25%. The average gas price decreased from $5.08 in 2001 to $2.81 per mcf in 2002, a decrease of $2.27 per mcf or 45%. Oil production increased from 18,545 bbls in 2001 14 to 21,139 bbls in 2002, an increase of 2,594 bbls or 14%. Gas production decreased from 503,773 mcf in 2001 to 467,013 mcf in 2002, a decrease of 36,760 mcf or 7%. Production costs increased from $526,032 in 2001 to $648,820 in 2002, an increase of $122,788 or 23%. This is primarily attributable to the increased number of working interests the Company acquired during the fiscal year as well as repairs on operated properties. Depreciation, depletion and amortization increased from $377,761 in 2001 to $448,422 in 2002, an increase of $70,661 or 19%, due primarily to lower gas prices and a large amount of reserves attributable to acquired properties which require a significant amount of development costs. There was no impairment of oil and gas properties in fiscal 2001 or 2002. General and administrative expenses increased from $314,397 in 2001 to $429,240 in 2002, an increase of $114,843 or 37%. This increase was primarily attributable to increased cost of shareholder maintenance related to the 10% stock dividend issued ($28,200), increases in financial consulting fees ($20,000), engineering ($13,000), land and geological services ($18,000), and compensation related to stock options granted to consultants ($24,000). Interest expense decreased from $95,999 in 2001 to $57,161 in 2002, a decrease of $38,838 or 40%. This decrease was primarily attributable to lower interest rates during 2002. OTHER MATTERS FORWARD LOOKING STATEMENTS Certain statements in this Form 10-K may be deemed to be "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements, other than statements of historical facts, included in this Form 10-K that address activities, events or developments that the Company expects, projects, believes or anticipates will or may occur in the future, including such matters as oil and gas reserves, future drilling and operations, future production of oil and gas, future net cash flows, future capital expenditures and other such matters, are forward-looking statements. These statements are based on certain assumptions and analysis made by management of the Company in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, including general economic and business conditions, prices of oil and gas, the business opportunities (or lack thereof) that may be presented to and pursued by the Company, changes in laws or regulations and other factors, many of which are beyond the control of the Company. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK RISK FACTORS All of the Company's financial instruments are for purposes other than trading. At March 31, 2003, the Company had not entered into any hedge arrangements, commodity swap agreements, commodity futures, options or other similar agreements relating to crude oil and natural gas. INTEREST RATE RISK. The following table summarizes maturities for 15 the Company's variable rate bank debt, which is tied to prime rate. If the interest rate on the Company's bank debt increases or decreases by one percentage point, the Company's annual pretax income would change by $21,500. Year ended March 31, -------------------------------------- 2003 2004 2005 ---------- ---------- ---------- Variable rate bank debt $ -- $2,150,000 $ -- CREDIT RISK. Credit risk is the risk of loss as a result of nonperformance by counter-parties of their contractual obligations. The Company's primary credit risk is related to oil and gas production sold to various purchasers and the receivables are generally not collateralized. At March 31, 2003 the Company's largest credit risk associated with any single purchaser was $138,657. 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. These market prices tend to fluctuate significantly in response to factors beyond the Company's control. The prices the Company receives for its crude oil production are based on global market conditions. The continued terror threats in the Middle East, the continuing economic crisis in Venezuela (a major oil exporter), and actions of OPEC and its maintenance of production constraints, as well as other economic, political, and environment factors will continue to affect world supply. Natural gas prices fluctuate significantly in response to numerous factors including the U.S. economic environment, North American weather patterns, other factors affecting demand such as substitute fuels, the impact of drilling levels on natural gas supply, and the environmental and access issues that limit future drilling activities for the industry. Historically, the markets for oil and gas have been volatile and are likely to continue to be so in the future. Various factors beyond the control of the Company affect the price of oil and gas, including but not limited to worldwide and domestic supplies of oil and gas, the ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls, political instability or armed conflict in oil-producing regions, the price and level of foreign imports, the level of consumer demand, the price and availability of alternative fuels, the availability of pipeline capacity, weather conditions, domestic and foreign governmental regulation and the overall economic environment. Any significant decline in prices would adversely affect the Company's revenues and operating income and may require a reduction in the carrying value of the Company's oil and gas properties. If the average oil price had increased or decreased by one cent per barrel for fiscal 2003, the Company's pretax income would have changed by $234. If the average gas price had increased or decreased by one cent per mcf for fiscal 2003, the Company's pretax income would have changed by $5,388. UNCERTAINTY OF RESERVE INFORMATION AND FUTURE NET REVENUE ESTIMATES. Estimates of oil and gas reserves, by necessity, are projections based on engineering data, and there are uncertainties inherent in the interpretation of such data as well as the projection of future rates of production and the timing of development expenditures. Reserve engineering is a subjective process of estimating underground accumulations of oil and gas that are difficult to measure. Estimates of economically recoverable oil and gas reserves and of future net cash flows depend upon a number of variable factors and assumptions, such as future production, oil and gas prices, operating costs, development costs and remedial costs, all of which may vary considerably from actual results. As a result, estimates of the economically recoverable quantities of oil and gas and of future net cash flows expected therefrom may vary substantially. Moreover, there can be no assurance that the Company's reserves will ultimately be produced or that any undeveloped reserves will be developed. As required by the SEC, the 16 estimated discounted future net cash flows from proved reserves are generally based on prices and costs as of the date of the estimate, while actual future prices and costs may be materially higher or lower. RESERVE REPLACEMENT RISK. The Company's future success depends upon its ability to find, develop or acquire additional, economically recoverable oil and gas reserves. The proved reserves of the Company will generally decline as reserves are depleted, except to the extent the Company can find, develop or acquire replacement reserves. DRILLING AND OPERATING RISKS. Drilling and operating activities are subject to many risks, including availability of workover and drilling rigs, well blowouts, cratering, explosions, fires, formations with abnormal pressures, pollution, releases of toxic gases and other environmental hazards and risks. Any of these operating hazards could result in substantial losses to the Company. In addition, the Company incurs the risk that no commercially productive reservoirs will be encountered and there is no assurance that the Company will recover all or any portion of its investment in wells drilled or re-entered. MARKETABILITY OF PRODUCTION. The marketability of the Company's production depends in part on the availability, proximity and capacity of natural gas gathering systems, pipelines and processing facilities. Federal and state regulation of oil and gas production and transportation, tax and energy policies, changes in supply and demand and general economic conditions could all affect the Company's ability to produce and market its oil and gas. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Certified Public Accountants...................... 18 Consolidated Balance Sheets............................................. 19 Consolidated Statements of Operations................................... 20 Consolidated Statements of Changes in Stockholders' Equity.............. 21 Consolidated Statements of Cash Flows................................... 22 Notes to Consolidated Financial Statements.............................. 23 17 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS -------------------------------------------------- Board of Directors Mexco Energy Corporation We have audited the accompanying consolidated balance sheets of Mexco Energy Corporation and Subsidiary as of March 31, 2003 and 2002 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended March 31, 2003. 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 auditing standards generally accepted in the United States of America. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mexco Energy Corporation and Subsidiary as of March 31, 2003 and 2002 and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2003 in conformity with accounting principles generally accepted in the United States of America. GRANT THORNTON LLP Oklahoma City, Oklahoma May 23, 2003 18 MEXCO ENERGY CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS As of March 31, 2003 2002 ------------ ------------ ASSETS Current assets Cash and cash equivalents $ 68,547 $ 44,958 Accounts receivable: Oil and gas sales 560,297 229,257 Trade 17,617 49,644 Related parties 3,475 523 Income taxes receivable -- 104,030 Prepaid costs and expenses 10,043 24,124 ------------ ------------ Total current assets 659,979 452,536 Property and equipment, at cost Oil and gas properties, using the full cost method ($673,690 excluded from amortization in 2003) 15,656,928 13,886,798 Other 33,708 28,781 ------------ ------------ 15,690,636 13,915,579 Less accumulated depreciation, depletion, and amortization 8,661,977 8,020,150 ------------ ------------ Property and equipment, net 7,028,659 5,895,429 ------------ ------------ $ 7,688,638 $ 6,347,965 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable - trade $ 93,434 $ 105,332 Lease obligation payable 61,086 -- Current portion of long-term debt 116,280 -- ------------ ------------ Total current liabilities 270,800 105,332 Long-term debt 2,033,720 1,710,000 Deferred income tax liability 427,730 256,591 Stockholders' equity Preferred stock - $1.00 par value; 10,000,000 shares authorized -- -- Common stock - $0.50 par value; 40,000,000 shares authorized; 1,766,566 shares issued 883,283 883,283 Additional paid-in capital 3,734,119 3,599,045 Retained earnings (accumulated deficit) 466,522 (206,286) Treasury stock, at cost (127,536) -- ------------ ------------ Total stockholders' equity 4,956,388 4,276,042 ------------ ------------ $ 7,688,638 $ 6,347,965 ============ ============ The accompanying notes to the consolidated financial statements are an integral part of these statements. 19 MEXCO ENERGY CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS Year ended March 31,
2003 2002 2001 ------------ ------------ ------------ Operating revenues: Oil and gas $ 2,681,759 $ 1,768,560 $ 3,092,210 Other 267,354 10,023 7,756 ------------ ------------ ------------ Total operating revenues 2,949,113 1,778,583 3,099,966 Operating expenses: Production 848,513 648,820 526,032 Depreciation, depletion, and amortization 641,827 448,422 377,761 General and administrative 532,496 429,240 314,397 ------------ ------------ ------------ Total operating expenses 2,022,836 1,526,482 1,218,190 ------------ ------------ ------------ 926,277 252,101 1,881,776 Other income (expense): Interest income 981 2,455 3,839 Interest expense (96,337) (57,161) (95,999) ------------ ------------ ------------ Net other expense (95,356) (54,706) (92,160) ------------ ------------ ------------ Earnings before income taxes 830,921 197,395 1,789,616 Income tax expense: Current (13,026) (62,992) 64,663 Deferred 171,139 71,096 185,495 ------------ ------------ ------------ 158,113 8,104 250,158 ------------ ------------ ------------ Net earnings $ 672,808 $ 189,291 $ 1,539,458 ============ ============ ============ Net earnings per share: Basic $ 0.39 $ 0.11 $ 0.86 Diluted $ 0.39 $ 0.11 $ 0.86 Weighted average outstanding shares: Basic 1,741,462 1,768,314 1,784,825 Diluted 1,746,831 1,768,579 1,787,503
The accompanying notes to the consolidated financial statements are an integral part of these statements. 20 MEXCO ENERGY CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Retained Additional Earnings Total Common Stock Treasury Paid-In (Accumulated Stockholders' Par Value Stock Capital Deficit) Equity ------------ ------------ ------------ ------------ ------------ Balance, April 1, 2000 $ 811,644 -- $ 2,875,399 $ (1,119,815) $ 2,567,228 Net earnings -- -- -- 1,539,458 1,539,458 Issuance of stock 2 -- (2) -- -- Retirement of stock (953) -- -- (12,389) (13,342) Stock based compensation -- -- 24,700 -- 24,700 Purchase of stock -- (71,592) -- -- (71,592) ------------ ------------ ------------ ------------ ------------ Balance, March 31, 2001 $ 810,693 $ (71,592) $ 2,900,097 $ 407,254 $ 4,046,452 Net earnings -- -- -- 189,291 189,291 10% stock dividend 80,283 -- 722,548 (802,831) -- Purchase of stock -- (91,231) -- -- (91,231) Issuance of stock for property -- 72,576 10,224 -- 82,800 Retirement of stock (7,693) 90,247 (82,554) -- -- Stock based compensation -- -- 48,730 -- 48,730 ------------ ------------ ------------ ------------ ------------ Balance, March 31, 2002 $ 883,283 $ -- $ 3,599,045 $ (206,286) $ 4,276,042 Net earnings -- -- -- 672,808 672,808 Purchase of stock -- (127,536) -- -- (127,536) Issuance of warrants for acreage -- -- 73,552 -- 73,552 Stock based compensation -- -- 61,522 -- 61,522 ------------ ------------ ------------ ------------ ------------ Balance, March 31, 2003 $ 883,283 $ (127,536) $ 3,734,119 $ 466,522 $ 4,956,388 ============ ============ ============ ============ ============
Share Activity -------------- 2003 2002 2001 ---------- ---------- ---------- Common stock issued At beginning of year 1,766,566 1,621,387 1,623,289 Issued -- 160,566 4 Cancelled -- (15,387) (1,906) ---------- ---------- ---------- At end of year 1,766,566 1,766,566 1,621,387 Held in treasury At beginning of year -- (11,254) -- Acquisitions (30,244) (22,533) (11,254) Issued for property -- 18,400 -- Cancellation, returned to unissued -- 15,387 -- ---------- ---------- ---------- At end of year (30,244) -- (11,254) ---------- ---------- ---------- Common shares outstanding at end of year 1,736,322 1,766,566 1,610,133 ========== ========== ========== The accompanying notes to the consolidated financial statements are an integral part of these statements. 21 MEXCO ENERGY CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended March 31,
2003 2002 2001 ------------ ------------ ------------ Cash flows from operating activities: Net earnings $ 672,808 $ 189,291 $ 1,539,458 Adjustments to reconcile net earnings to net cash provided by operating activities: Deferred income taxes 171,139 71,096 185,495 Stock-based compensation 61,522 48,730 24,700 Depreciation, depletion, and amortization 641,827 448,422 377,761 (Increase) decrease in accounts receivable (193,089) 114,896 (218,054) Increase in accounts payable 1,403 28,964 901 (Increase) decrease in prepaid assets 14,080 50,215 (58,553) Increase(decrease) in income taxes payable -- (51,637) 51,637 ------------ ------------ ------------ Net cash provided by operating activities 1,369,690 899,977 1,903,345 Cash flows from investing activities: Additions to oil and gas properties (1,628,695) (2,247,423) (936,293) Additions to other property and equipment (4,927) (5,181) (1,014) ------------ ------------ ------------ Net cash used in investing activities (1,633,622) (2,252,604) (937,307) Cash flows from financing activities: Borrowings 910,000 1,160,000 -- Principal payments on long-term debt (470,000) (50,000) (600,000) Payments of capital lease obligations (24,943) -- -- Purchases of common stock (127,536) (91,231) (84,934) ------------ ------------ ------------ Net cash (used in) provided by financing activities 287,521 1,018,769 (684,934) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents 23,589 (333,858) 281,104 Cash and cash equivalents at beginning of year 44,958 378,816 97,712 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 68,547 $ 44,958 $ 378,816 ============ ============ ============ Interest paid $ 94,792 $ 55,022 $ 99,044 Income taxes paid (recovered) $ (117,056) $ 92,675 $ -- Supplemental Disclosure of Non-cash investing and financing activities: Issuance of common stock in exchange for oil and gas properties $ -- $ 82,800 $ -- Fair value of warrants issued for oil and gas properties $ 73,552 $ -- $ -- Acquisition of equipment under capital leases $ 81,182 $ -- $ --
The accompanying notes to the consolidated financial statements are an integral part of these statements. 22 NOTE A - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS Mexco Energy Corporation and its wholly owned subsidiary, Forman Energy Corporation (collectively, the "Company") are engaged in the acquisition, exploration, development, and production of domestic oil and gas and owns producing properties and undeveloped acreage in 11 states. The majority of the Company's activities are centered in West Texas. Although most of the Company's oil and gas interests are operated by others, the Company operates several properties in which it owns an interest. SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation. The consolidated financial statements include the accounts of Mexco Energy Corporation and its wholly owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation. Cash and Cash Equivalents. The Company considers all highly liquid debt instruments purchased with maturities of three months or less and money market funds to be cash equivalents. The Company maintains its cash in bank deposit accounts and money market funds, some of which are not federally insured. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk. Oil and Gas Properties. Oil and gas properties are accounted for using the full cost method of accounting. Under this method, all costs associated with the acquisition, exploration, and development of properties (successful or not), including leasehold acquisition costs, geological and geophysical costs, lease rentals, exploratory and developmental drilling, and equipment costs, are capitalized. All capitalized costs of oil and gas properties (excluding certain unevaluated property costs), including the estimated future costs to develop proved reserves, are amortized on the unit-of-production method using estimates of proved 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 Per Common Share. Basic earnings per share is computed by dividing net earnings by the weighted average number of shares outstanding during the period. Diluted earnings per share is computed by dividing net earnings by the weighted average number of common shares and dilutive potential common shares (stock options and warrants) outstanding during the period. 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. The following is a reconciliation of the number of shares used in the calculation of basic earnings per share and diluted earnings per share for the periods ended March 31: 23 2003 2002 2001 ---------- ---------- ---------- Weighted average number of common shares outstanding, basic 1,741,462 1,768,314 1,784,825 Incremental shares from the assumed exercise of dilutive stock options 5,369 265 2,678 ---------- ---------- ---------- Dilutive potential common shares 1,746,831 1,768,579 1,787,503 ========== ========== ========== Outstanding options and warrants to purchase 388,500, 200,000 and 150,000 shares at March 31, 2003, 2002, and 2001, respectively, were not included in the computation of diluted net earnings per share because the exercise price of the options or warrants was greater than the average market price of the common shares and, therefore, the effect would be anti-dilutive. Stock Dividend. On February 1, 2002, the Company declared a 10% stock dividend to shareholders of record on February 15, 2002. On February 28, 2002, the Company issued 160,566 shares of common stock in conjunction with this dividend. Accordingly, amounts equal to the fair market value of the additional shares issued have been charged to retained earnings and credited to common stock and additional paid-in capital. All references in the consolidated financial statements to weighted average number of shares and earnings per common share amounts have been adjusted to reflect the stock dividend on a retroactive basis. Income Taxes. The Company recognizes deferred tax assets and liabilities for the future tax consequences of temporary differences between the carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applicable to the years in which those differences are expected to be settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in net income in the period that includes the enactment date. Environmental. The Company is subject to extensive federal, state, and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Liabilities for expenditures of a non-capital nature are recorded when environmental assessment and/or remediation is probable and the costs can be reasonably estimated. There were no significant environmental expenditures or liabilities for the years ended March 31, 2003, 2002, or 2001. Use of Estimates. In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the amounts reported in the these financial statements. Although management believes its estimates and assumptions are reasonable, actual results may differ materially from those estimates. Significant estimates affecting these financial statements include the estimated quantities of proved oil and gas reserves and the related present value of estimated future net cash flows. Revenue Recognition and Gas Balancing. Oil and gas sales and resulting receivables are recognized when the product is delivered to the purchaser and title has transferred. Sales are to credit-worthy major energy purchasers with payments generally received within 60 days of transportation from the well site. The Company has historically had little, if any, uncollectible receivables; therefore, an allowance for uncollectible accounts is not required. Gas imbalances are accounted for under the sales method whereby revenues are recognized based on production 24 sold. A liability is recorded when the Company's excess takes of natural gas volumes exceed its estimated remaining recoverable reserves (over produced). No receivables are recorded for those wells where the Company has taken less than its ownership share of gas production (under produced). The Company has no significant gas imbalances. Stock Options and Warrants. The Company accounts for employee stock option grants in accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," as amended by Financial Accounting Standards Board ("FASB") Interpretation No. 44, "Accounting for Certain Transactions involving Stock Compensation," an interpretation of APB Opinion No. 25. The Company applies the intrinsic value method in accounting for its employee stock options and records no compensation costs for its stock option awards to employees. The Company recognizes compensation cost related to stock options awarded to independent consultants based on fair value of the options at date of grant. If compensation cost for the Company's stock option plan had been determined based on the fair value at the grant dates for all employee awards under the plan, net earnings, basic earnings per common share, and diluted earnings per common share would have been as follows: 2003 2002 2001 ------------ ------------ ------------ Net income, as reported $ 672,808 $ 189,291 $ 1,539,458 Deduct: Stock-based employee compensation expense determined under fair value based method (SFAS 123), net of tax $ (63,133) $ (50,066) $ (79,622) ------------ ------------ ------------ Net income, pro forma $ 609,675 $ 139,225 $ 1,459,836 ============ ============ ============ Basic earnings per share: As reported (1) $ 0.39 $ 0.11 $ 0.86 Pro forma (1) $ 0.35 $ 0.08 $ 0.82 Diluted earnings per share: As reported (1) $ 0.39 $ 0.11 $ 0.86 Pro forma (1) $ 0.35 $ 0.08 $ 0.82 (1) Amounts have been adjusted to reflect the 10% stock dividend effected on February 1, 2002. Financial Instruments. Cash and money market funds, stated at cost, are available upon demand and approximate fair value. Interest rates associated with the Company's long-term debt are linked to current market rates. As a result, management believes that the carrying amount approximates the fair value of the Company's credit facilities. All financial instruments are held for purposes other than trading. Reclassifications. Certain reclassifications have been made to the 2001 and 2002 financial statements to conform with the 2003 presentation. Recent Accounting Pronouncements. In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. Subsequently, the asset retirement cost should be allocated to expense using a systematic and rational method. SFAS No. 143 is effective 25 for fiscal years beginning after June 15, 2002. The Company is required and plans to adopt the provisions of SFAS 143 for the quarter ending June 30, 2003. To accomplish this, the Company must identify all legal obligations for asset retirement obligations and determine the fair value of these obligations on the date of adoption. The determination of fair value is complex and requires the Company to gather market information and develop cash flow models. Due to these complexities, the Company has not completed all of the computations necessary to adopt SFAS No. 143 and the effects of adoption may materially increase the Company's liabilities, and may have a material effect on its results of operations. NOTE B - DEBT The Company has a revolving credit agreement with Bank of America, N.A. ("Bank"), which provides for a credit facility of $5,000,000, subject to a borrowing base determination. The borrowing base was originally decreased to $2,200,000, with scheduled monthly reductions of the available borrowing base of $25,581 per month beginning September 5, 2002, and the maturity date was originally August 15, 2003. The borrowing base was re-determined on September 10, 2002 and increased to $2,586,000 with monthly commitment reductions of $33,150. On November 15, 2002, the maturity date was extended to August 15, 2004. The borrowing base was re-determined on this date and reduced to $2,526,755 with monthly commitment reductions of $30,814 beginning on December 5, 2002. As of March 31, 2003, the balance outstanding under this agreement was $2,150,000. Principal payments of $116,280 are anticipated to be required for fiscal 2004 to comply with the monthly commitment reductions. A letter of credit for $50,000, in lieu of a plugging bond with the Texas Railroad Commission covering the properties the Company operates, is also outstanding under the facility. The borrowing base is subject to redetermination on or about August 1, of each year. Amounts borrowed under this agreement are collateralized by the common stock of Forman and the Company's oil and gas properties. Interest under this agreement is payable monthly at prime rate (4.25% and 4.75% at March 31, 2003 and 2002, respectively). This agreement generally restricts the Company's ability to transfer assets or control of the Company, incur debt, extend credit, change the nature of the Company's business, substantially change management personnel, or pay cash dividends. NOTE C - OTHER INCOME During the third quarter of fiscal 2003, the Company received proceeds of $254,862 before expenses of $101,945, from the settlement of a class action law suit against a gas purchaser involving contract price dispute. NOTE D - CAPITAL LEASE OBLIGATIONS During fiscal 2003, the Company began leasing three gas compressors under separate agreements that are classified as capital leases. The cost of the equipment under the capital leases is included in the balance sheet as property and equipment and was $81,182 with accumulated amortization of $5,796 on March 31, 2003. Amortization of assets under capital leases is included in depreciation expense. The lease agreements are each for a 12-month period with equal monthly payments. At the end of the term, the Company will receive title to the compressors under bargain purchase options of $1. The lease obligation associated with these three compressors was $61,086 on March 31, 2003, all of which is a current liability. Total payments required for these three leases will be $67,366, of which $6,280 represents interest. 26 NOTE E - INCOME TAXES Deferred tax assets and liabilities at March 31 are as follows: 2003 2002 ---------- ---------- Deferred tax assets: Percentage depletion carryforwards $ 403,344 $ 317,174 Vacation accrual 1,334 691 Deferred compensation 41,835 22,763 Net operating loss carryforwards 43,927 87,481 ---------- ---------- 490,440 428,109 Deferred tax liabilities: Excess financial accounting bases over tax bases of property and equipment (918,170) (684,700) ---------- ---------- Net deferred tax liabilities $ (427,730) $ (256,591) ========== ========== As of March 31, 2003, the Company has a net operating loss carryforward of approximately $141,700, which expires in 2022, and statutory depletion carryforwards of approximately $1,301,000, which do not expire. A reconciliation of the provision for income taxes to income taxes computed using the federal statutory rate for years ended March 31 follows: 2003 2002 2001 ---------- ---------- ---------- Tax expense at statutory rate $ 282,513 $ 67,114 $ 608,469 Decrease in valuation allowance -- -- (196,469) Depletion in excess of basis (86,170) (58,513) (80,864) Effect of graduated rates (24,928) (5,922) (53,688) Revision of prior year estimates (13,026) 7,657 -- Other (276) (2,232) (27,290) ---------- ---------- ---------- $ 158,113 $ 8,104 $ 250,158 ========== ========== ========== Effective tax rate 19% 4% 14% ========== ========== ========== NOTE F - EXPLORATION AGREEMENT On December 5, 2002, the Company entered into an exploration agreement with Falcon Bay Operating, LLC. Pursuant to such agreement, the Company has obtained the right to purchase and inventory seismic data and acreage in shallow water areas of Texas and Louisiana. In consideration for the right to obtain four such prospects, the Company has issued warrants to purchase 107,500 shares of common stock at an exercise price of $5.00 per share. Such warrants are exercisable for a period of two years from date of grant. Additional warrants, exercisable at the same exercise price and exercisable for two years, would be issued covering 322,500 shares upon exercise of the Company's right to participate in a total of four prospects. NOTE G - MAJOR CUSTOMERS The Company operates exclusively within the United States and its revenues and operating income are derived predominately from the oil and gas industry. Oil and gas production is sold to various purchasers and the receivables are unsecured. Historically, the Company has not experienced significant credit losses on its oil and gas accounts and management is of the opinion that significant credit risk does not exist. Management is of the opinion that the loss of any one purchaser would not have an adverse 27 effect on the ability of the Company to sell its oil and gas production. In fiscal 2003, 2002, and 2001, one purchaser accounted for 28%, 24%, and 39%, respectively, of revenues. At March 31, 2003, accounts receivable from the purchaser was approximately 25% of accrued oil and gas sales. NOTE H - OIL AND GAS COSTS The costs related to the oil and gas activities of the Company were incurred as follows: Year ended March 31, -------------------------------------- 2003 2002 2001 ---------- ---------- ---------- Property acquisition costs Proved $ 64,090 $ 649,021 $ 267,589 Unproved $ 673,690 $ 280,745 $ 177,305 Exploration costs $ 55,543 $ 46,907 $ 34,995 Development costs $ 990,106 $1,353,553 $ 456,404 The Company had the following aggregate capitalized costs relating to the Company's oil and gas property activities at March 31:
2003 2002 2001 ------------ ------------ ------------ Proved oil and gas properties $ 14,596,072 $ 13,462,406 $ 11,309,873 Unproved oil and gas properties: subject to amortization 387,166 424,392 248,107 not subject to amortization (acquired in 2003) 673,690 -- -- ------------ ------------ ------------ 15,656,928 13,886,798 11,557,980 Less accumulated depreciation, depletion, and amortization 8,637,902 7,999,539 7,555,356 ------------ ------------ ------------ $ 7,019,026 $ 5,887,259 $ 4,002,624 ============ ============ ============
The costs of a certain oil and gas lease that the Company has acquired, but not evaluated has been excluded in computing amortization of the full cost pool. The Company will begin to amortize this property when the project is evaluated, which is currently estimated to be within the following year. Costs excluded from amortization at March 31, 2003 total $673,690. No impairment exists for this property at March 31, 2003. Depreciation, depletion, and amortization amounted to $5.64, $4.49, and $3.65 per equivalent barrel of production for the years ended March 31, 2003, 2002, and 2001, respectively. NOTE I - STOCKHOLDERS' EQUITY In fiscal 2001, the board of directors authorized the purchase of up to 25,000 shares of the Company's common stock. For fiscal 2002, the board of directors has authorized the use of up to $250,000 to repurchase shares of the Company's common stock. During fiscal 2001, the Company repurchased 13,160 shares, at an aggregate cost of $84,934. During fiscal 2002, the Company repurchased 22,533 shares, at an aggregate cost of $91,231. Of such shares, 18,400 were reissued in exchange for oil and gas lease rights representing 368 net acres valued at $83,000. The remaining 4,133 shares along with the 11,254 shares of stock held in the treasury account from 28 fiscal year ending March 31, 2001 were cancelled. On February 28, 2002, the Company distributed 160,566 shares of common stock in connection with a 10% stock dividend. As a result of the stock dividend, par value of outstanding common stock was increased by $80,283, additional paid-in capital was increased by $722,548, and retained earnings was decreased by $802,831. In fiscal 2003, the board of directors authorized the use of up to $250,000 to repurchase shares of the Company's common stock. During fiscal 2003, the Company repurchased 30,244 shares at an aggregate cost of $127,536 for the treasury account. NOTE J - STOCK OPTIONS AND WARRANTS The Company adopted an employee incentive stock plan effective September 15, 1997. Under the plan, 350,000 shares are available for distribution. Awards, granted at the discretion of the compensation committee of the Board of Directors, include stock options of restricted stock. Stock options may be an incentive stock option or a nonqualified stock option. Options to purchase common stock under the plan are granted at the fair market value of the common stock at the date of grant, become exercisable to the extent of 25% of the shares optioned on each of four anniversaries of the date of grant, expire ten years from the date of grant, and are subject to forfeiture if employment terminates. Restricted stock awards 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 60 days and will vest as determined by agreement. Holders of restricted stock have all rights of a shareholder of the Company. During fiscal 2003, options for 51,000 shares were granted. Of these, 20,000 options were granted to contract consultants. The exercise price of all options granted equaled or exceeded the market price of the stock on the date of grant. Also during fiscal 2003, warrants for 107,500 shares were issued pursuant to the Falcon Bay Exploration Agreement. Additional information with respect to the Plan's stock option activity for options issued to employees and directors is as follows: Weighted Number Average of Shares Exercise Price ---------- ---------- Options outstanding, at April 1, 2000 140,000 $ 6.27 Granted 30,000 6.75 Exercised -- -- Forfeited -- -- ---------- ---------- Options outstanding, at March 31, 2001 170,000 $ 6.49 Granted 20,000 4.00 Exercised -- -- Forfeited (40,000) 6.81 ---------- ---------- Options outstanding, at March 31, 2002 150,000 6.07 Granted 31,000 4.00 Exercised -- -- Forfeited -- -- ---------- ---------- Options outstanding, at March 31, 2003 181,000 $ 5.71 ========== ========== Options exercisable at March 31, 2001 52,500 $ 6.82 Options exercisable at March 31, 2002 72,500 $ 6.57 Options exercisable at March 31, 2003 110,000 $ 6.40 Weighted average grant date fair value of stock options granted to 29 employees and directors during fiscal 2003, 2002, and 2001 were $3.72, $1.30, and $2.33, respectively. These values were determined using a Binomial option-pricing model. The model 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 Company considers the binomial model more accurate than the Black-Scholes model, in that it recognizes the ability to exercise before expiration once an option is vested, and began to use the Binomial model in fiscal 2001. The assumptions used in the Binomial models were as follows for stock options granted in fiscal 2003, 2002 and 2001: 2003 2002 2001 -------- -------- -------- Expected volatility 134.07% 27.24% 29.86% Expected dividend yield 0.00% 0.00% 0.00% Risk-free rate of return 5.40% 4.79% 5.25% Expected life of options 7 years 7 years 10 years The option valuation models were 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. The following tables summarize information about employee and directors stock options outstanding and exercisable at March 31, 2003: 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 50,000 5.55 $7.60 $6.75 20,000 7.81 $6.75 $5.25 60,000 6.97 $5.25 $4.00 51,000 8.87 $4.00 ----------- 181,000 Stock Options Exercisable Number of Weighted Range of Shares Average Exercise Prices Exercisable Exercise Price --------------- ----------- -------------- $7.50-$7.75 50,000 $7.60 $6.75 10,000 $6.75 $5.25 45,000 $5.25 $4.00 5,000 $4.00 Since the Company applies the intrinsic value method in accounting for its employee stock options, it generally records no compensation cost for its stock option awards to employees. The Company recognizes 30 expense related to stock options awarded to independent consultants and contractors based on fair value of the options at date of grant. Additional information with respect to stock option and warrant activity for options and warrants granted to outside consultants and contractors is as follows: Weighted Number Average of Shares Exercise Price ---------- ---------- Options outstanding, at April 1, 2000 40,000 $ 6.44 Granted 30,000 6.75 Exercised -- -- Forfeited -- -- ---------- ---------- Options outstanding, at March 31, 2001 70,000 $ 6.57 Granted 10,000 4.00 Exercised -- -- Forfeited -- $ -- ---------- ---------- Options outstanding, at March 31, 2002 80,000 6.25 Granted 127,500 4.84 Exercised -- -- Forfeited -- -- ---------- ---------- Options outstanding, at March 31, 2003 207,500 $ 5.39 ========== ========== Options exercisable at March 31, 2001 15,000 $ 6.83 Options exercisable at March 31, 2002 32,500 $ 6.69 Options exercisable at March 31, 2003 160,000 $ 5.50 Weighted average grant date fair value of stock options and warrants granted to outside consultants and contractors during fiscal 2003, 2002, and 2001 were $1.16, $1.26, and $2.33, respectively. These values were determined using a Binomial option-pricing model. The model 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 Binomial models were as follows for stock options granted in fiscal 2003, 2002 and 2001: 2003 2002 2001 -------- -------- -------- Expected volatility 90.09% 27.23% 29.86% Expected dividend yield 0.00% 0.00% 0.00% Risk-free rate of return 2.39% 4.52% 5.25% Expected life of options 3 years 7 years 10 years The option valuation models were 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. The following tables summarize information about outside consultants and contractors stock options and warrants outstanding and exercisable at March 31, 2003: 31 Stock Options/Warrants Outstanding Weighted Average Number of Remaining Weighted Range of Shares Contractual Average Exercise Prices Outstanding Life in Years Exercise Price --------------- ----------- ------------- -------------- $7.50-$7.75 20,000 5.46 $7.63 $6.75 30,000 7.81 $6.75 $5.25 20,000 6.97 $5.25 $5.00 107,500 1.68 $5.00 $4.00 30,000 8.96 $4.00 ----------- 207,500 Stock Options/Warrants Exercisable Number of Weighted Range of Shares Average Exercise Prices Exercisable Exercise Price --------------- ----------- -------------- $7.50-$7.75 20,000 $7.63 $6.75 15,000 $6.75 $5.25 15,000 $5.25 $5.00 107,500 $5.00 $4.00 2,500 $4.00 The Company recognizes expense related to stock options awarded to independent consultants based on fair value of the options at date of grant. Total expense related to these awards for fiscal 2003 was $61,522. The fair value of the warrants are capitalized as part of the leasehold cost of the acreage acquired in connection with the issuance of the warrants. NOTE K - RELATED PARTY TRANSACTIONS The Company served as operator of properties in which the majority stockholder had interests and billed the majority stockholder for lease operating expenses and shared office expenditures on a monthly basis subject to usual trade terms. The billings totaled $43,827 and $37,884 for the years ended March 31, 2002, and 2001, respectively. All of such properties were sold in October 2001. The only related party transactions for the year ended March 31, 2003 relate to shared office expenditures. The total billed for year ended March 31, 2003 was $10,016. Effective January 1, 2000, the Company entered into an agreement with the husband of an officer and director of the Company to provide geological consulting services. Amounts paid under this contract were $19,251, $23,627, and $25,787 for the years ended March 31, 2003, 2002, and 2001, respectively. During the year ending March 31, 2003, a member of the Board of Directors and a Company employee entered into an agreement with Falcon Bay, LLC, whereby he receives a commission from Falcon Bay Operating, LLC for any transactions consummated between Falcon Bay Operating, LLC and the Company in the course of the Exploration Agreement. During the year ending March 31, 2002, the Company entered into two transactions, respectively, with a Company director and employee and a trust related to but not controlled by said director and employee. In the first transaction, the Company purchased oil and gas lease rights representing 369 net acres for cash consideration of $83,000. In the second transaction, the Company exchanged 18,400 shares of its $.50 par value common stock for oil and gas lease rights representing 368 net acres 32 with a value of approximately $83,000. Such acreage is available for exploration and production of oil and gas. NOTE L - OIL AND GAS RESERVE DATA (UNAUDITED) The estimates of the Company's proved oil and gas reserves, which are located entirely within the United States, were prepared in accordance with the guidelines established by the Securities and Exchange Commission and FASB. These guidelines require that reserve estimates be prepared under existing economic and operating conditions at year-end, with no provision for price and cost escalators, except by contractual agreement. The estimates as of March 31, 2003, 2002, and 2001 are based on evaluations prepared by Joe C. Neal and Associates, Petroleum Consultants. Management emphasizes that reserve estimates are inherently imprecise and are expected to change as new information becomes available and as economic conditions in the industry change. The following estimates of proved reserves quantities and related standardized measure of discounted net cash flow are estimates only, and do not purport to reflect realizable values or fair market values of the Company's reserves. CHANGES IN PROVED RESERVE QUANTITIES (UNAUDITED):
2003 2002 2001 ----------------------------- ----------------------------- ----------------------------- Bbls Mcf Bbls Mcf Bbls Mcf ------------ ------------ ------------ ------------ ------------ ------------ Proved reserves, beginning of year 237,000 10,182,000 235,000 6,345,000 139,000 4,755,000 Revision of previous estimates (66,000) (1,746,000) (70,000) (1,204,000) (15,000) (10,000) Purchase of minerals in place -- 22,000 55,000 2,864,000 108,000 1,706,000 Extensions and discoveries 2,000 12,000 38,000 2,644,000 21,000 398,000 Production (23,000) (539,000) (21,000) (467,000) (18,000) (504,000) Sales of minerals in place -- -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ Proved reserves, end of year 150,000 7,931,000 237,000 10,182,000 235,000 6,345,000 ============ ============ ============ ============ ============ ============ PROVED DEVELOPED RESERVES (UNAUDITED): Beginning of year 144,000 5,159,000 235,000 6,337,000 139,000 4,755,000 End of year 94,000 4,518,000 144,000 5,159,000 235,000 6,337,000
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED RESERVES (UNAUDITED):
March 31, ---------------------------------------------- 2003 2002 2001 ------------ ------------ ------------ Future cash inflows $ 49,820,000 $ 36,005,000 $ 40,179,000 Future production and development costs (13,284,000) (12,217,000) (9,988,000) Future income taxes (a) (8,444,000) (5,228,000) (7,182,000) ------------ ------------ ------------ Future net cash flows 28,092,000 18,560,000 23,009,000 Annual 10% discount for estimated timing of cash flows (12,120,000) (9,256,000) (10,824,000) ------------ ------------ ------------ Standardized measure of discounted future net cash flows $ 15,972,000 $ 9,304,000 $ 12,185,000 ============ ============ ============
(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 and effects of statutory depletion. 33 CHANGES IN STANDARIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS FROM PROVED RESERVES (UNAUDITED):
Year ended March 31, ---------------------------------------------- 2003 2002 2001 ------------ ------------ ------------ Sales of oil and gas produced, net of production costs $ (1,833,000) $ (1,120,000) $ (2,566,000) Net changes in price and production costs 12,946,000 (7,145,000) 5,104,000 Changes in previously estimated development costs 512,000 (59,000) (20,000) Revisions of quantity estimates (5,103,000) (1,862,000) (148,000) Net change due to purchases and sales of minerals in place 77,000 3,685,000 5,939,000 Extensions and discoveries, less related costs 87,000 2,121,000 975,000 Net change in income taxes (2,180,000) 1,183,000 (2,567,000) Accretion of discount 1,193,000 1,599,000 614,000 Changes in timing of estimated cash flows and other 969,000 (1,283,000) (54,000) ------------ ------------ ------------ Changes in standardized measure 6,668,000 (2,881,000) 7,277,000 Standardized measure, beginning of year 9,304,000 12,185,000 4,908,000 ------------ ------------ ------------ Standardized measure, end of year $ 15,972,000 $ 9,304,000 $ 12,185,000 ============ ============ ============
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 30, 2003. 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 30, 2003. 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 30, 2003. 34 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 30, 2003. ITEM 14. CONTROLS AND PROCEDURES Disclosure Controls and Procedures In September 2002, the Board of Directors adopted a policy designed to establish disclosure controls and procedures that are adequate to provide reasonable assurance that we will be able to collect, process and disclose both financial and non-financial information, on a timely basis, in our reports to the SEC and other communications with our stockholders. Disclosure controls and procedures include all processes necessary to ensure that material information is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and form, and is accumulated and communicated to our management, including our chief executive and chief financial officers, to allow timely decisions regarding required disclosures. With respect to our disclosure controls and procedures: o We have evaluated the effectiveness of our disclosure controls and procedures within 90 days prior to the filing of this report; o This evaluation was conducted under the supervision and with the participation of our management, including our chief executive and chief financial officers; and o It is the conclusion of our chief executive and chief financial officers that these disclosure controls and procedures operate such that material information flows to the appropriate collection and disclosure points in a timely manner and are effective in ensuring that material information is accumulated and communicated to our management and is made known to the chief executive and chief financial officers, particularly during the period in which this report was prepared, as appropriate to allow timely decisions regarding required disclosures. Changes in Internal Controls There were no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date the controls were evaluated. No significant deficiencies or material weaknesses were identified in the evaluation of our internal controls and therefore no corrective actions have been taken. PART IV ------- ITEM 15. 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. 35 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. (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 adopted December 5, 2002. 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). 21 Subsidiaries of the Company (incorporated by reference to the Company's Annual Report on Form 10-K dated June 24, 1998). 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K. A report on Form 8-K, dated December 5, 2002, was filed by the Company for the year ended March 31, 2003 under Item 5. Other Events. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on behalf of the undersigned thereunto duly authorized. MEXCO ENERGY CORPORATION Registrant By: /s/ Nicholas C. Taylor ------------------------------- Nicholas C. Taylor President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of June 26, 2003, 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/ Tamala L. McComic - ---------------------------------- Tamala L. McComic Vice President, Treasurer and Assistant Secretary /s/ Thomas Graham, Jr. - ---------------------------------- Thomas Graham, Jr. Chairman of the Board of Directors 36 /s/ Thomas R. Craddick - ---------------------------------- Thomas R. Craddick Director /s/ William G. Duncan, Jr. - ---------------------------------- William G. Duncan, Jr. Director /s/ Arden Grover - ---------------------------------- Arden Grover Director /s/ Jack D. Ladd - ---------------------------------- Jack D. Ladd Director 37 I, Nicholas C. Taylor, certify that: 1. I have reviewed this annual report on Form 10-K of Mexco Energy Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of this Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in the annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. June 26, 2003 /s/ Nicholas C. Taylor ------------------------------ Nicholas C. Taylor President 38 I, Tamala L. McComic, certify that: 1. I have reviewed this annual report on Form 10-K of Mexco Energy Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of this Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in the annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. June 26, 2003 /s/ Tamala L. McComic ------------------------------ Tamala L. McComic Vice President, Treasurer, and Assistant Secretary 39 INDEX TO EXHIBITS Exhibit Number Exhibit Page - ------ ----------------------------------- ---- 3.1* Articles of Incorporation. 3.2*** Bylaws. 10.1** Stock Option Plan. 10.2* Bank Line of Credit. 21* Subsidiaries of the Company. 99.1*** Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2*** Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * 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. *** Filed with the Company's Annual Report on Form 10-K dated June 26, 2003. 40 EX-3.2 3 ex32-603.txt BY-LAWS MEXCO ENERGY CORPORATION * * * * * B Y - L A W S * * * * * ARTICLE I OFFICES Section 1. The registered office shall be located at 4988 W. Fair Avenue in Littleton, Colorado, 80123. Section 2. The corporation may also have offices at such other places both within and without the State of Colorado as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II ANNUAL MEETINGS OF SHAREHOLDERS Section 1. All meetings of shareholders for the election of directors shall be held in the City of Midland, State of Texas, at such place as may be fixed from time to time by the board of directors, or such other place either within or without the State of Colorado as shall be designated from time to time by the board of directors and stated in the notice of the meeting. Section 2. Annual meetings of shareholders, commencing with the year 1993, shall be held on the second Tuesday in July, if not a legal holiday, and if a legal holiday, then on the next secular day following, at two o'clock P.M., or such other date as shall be designated from time to time by the board of directors and stated in the notice of the meeting, at which they shall elect by a majority vote a board of directors, and transact such other business as may properly be brought before the meeting. ARTICLE III SPECIAL MEETINGS OF SHAREHOLDERS Section 1. Special meetings of shareholders for any purpose other than the election of directors may be held at such time and place within or without the State of Colorado as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute or by the articles of incorporation, may be called by the president, the board of directors, or the holders of not less than one-tenth of all the shares entitled to vote at the meeting. Section 3. Written or printed notice of a special meeting stating the place, day and hour of the meeting and the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than fifty days before the date of the meeting, either personally or by mail, by or at the direction BYLAWS - Page 1 of the president, the secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. Section 4. The business transacted at any special meeting of shareholders shall be limited to the purposes stated in the notice. ARTICLE IV QUORUM AND VOTING OF STOCK Section 1. The holders of a majority of the shares of stock issued and outstanding and entitled to vote, represented in person or by proxy, shall constitute a quorum at all meetings of the shareholders for the transaction of business except as otherwise provided by statute or by the articles of incorporation. If, however, such quorum shall not be present or represented at any meeting of the shareholders, the shareholders present in person or represented by proxy shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. Section 2. If a quorum is present, the affirmative vote of a majority of the shares of stock represented at the meeting shall be the act of the shareholders unless the vote of a greater number of shares of stock is required by law or the articles of incorporation. Section 3. Each outstanding share of stock, having voting power, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders. A shareholder may vote either in person or by proxy executed in writing by the shareholder or by his duly authorized attorney-in-fact. Section 4. Any action required to be taken at a meeting of the shareholders may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. ARTICLE V DIRECTORS Section 1. The number of directors shall be not less than one nor more than ten. Directors need not be residents of the State of Colorado nor shareholders of the corporation. The directors, other than the first board of directors, shall be elected at the annual meeting of the shareholders, and each director elected shall serve until the next succeeding annual meeting and until his successor shall have been elected and qualified. The first board of directors shall hold office until the first annual meeting of shareholders. Section 2. Vacancies and newly created directorships resulting from any increase in the number of directors may be filled by a majority of the directors then in office, though less than a quorum, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected BYLAWS - Page 2 and shall qualify. Also, newly created directorships resulting from any increase in the number of directors may be filled by election at an annual or at a special meeting of shareholders called for that purpose. Section 3. The business affairs of the corporation shall be managed by its board of directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the articles of incorporation or by these by-laws directed or required to be exercised or done by the shareholders. Section 4. The directors may keep the books of the corporation, except such as are required by law to be kept within the state, outside of the State of Colorado, at such place or places as they may from time to time determine. Section 5. The board of directors, by the affirmative vote of a majority of the directors then in office, and irrespective of any personal interest of any of its members, shall have authority to establish reasonable compensation of all directors for services to the corporation as directors, officers or otherwise. Section 6. A director whose term has ended, or resigns or is removed, may deliver a statement to that effect to the Secretary of State. ARTICLE VI MEETINGS OF THE BOARD OF DIRECTORS Section 1. Meetings of the board of directors, regular or special, may be held either within or without the State of Colorado. Section 2. The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the shareholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present, or it may convene at such place and time as shall be fixed by the consent in writing of all the directors. Section 3. Regular meetings of the board of directors may be held upon such notice, or without notice, and at such time and at such place as shall from time to time be determined by the board. Section 4. Special meetings of the board of directors may be called on at least two days' notice to each director, either personally or by mail or by telegram. Section 5. Attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of notice of such meeting. Section 6. A majority of the directors shall constitute a quorum for the transaction of business unless a greater number is required by law or by the articles of incorporation. The act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the board of directors, BYLAWS - Page 3 unless the act of a greater number is required by statute or by the articles of incorporation. If a quorum shall not be present at any meeting of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 7. Any action required or permitted to be taken at a meeting of the directors may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors entitled to vote with respect to the subject matter thereof. ARTICLE VII COMMITTEES Section 1. The board of directors, by resolution adopted by a majority of the number of directors fixed by the by-laws or otherwise, may designate two or more directors to constitute such committee or committees as may be deemed appropriate including an executive committee, which committees, to the extent provided in such resolution, shall have and exercise any authority of the board of directors in the management of the corporation, except as otherwise required by law. Vacancies in the membership of a committee shall be filled by the board of directors at a regular or special meeting of the board of directors. Such committees shall keep regular minutes of their proceedings and report the same to the board when required. ARTICLE VIII NOTICES Section 1. Whenever, under the provisions of the statutes or of the articles of incorporation or of these by-laws, notice is required to be given to any director or shareholder, it shall not be construed to mean personal notice, but such notice may be given in written, by mail, addressed to such director or share- holder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposed in the United States mail. Notice to directors may also be given by telegram. Section 2. Whenever any notice whatever is required to be given under the provisions of the statutes or under the provisions of the articles of incorporation or these by-laws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE IX OFFICERS Section 1. The officers of the corporation shall be chosen by the board of directors and shall be a president, a vice- president, a secretary and a treasurer. The board of directors may also choose additional vice-presidents, and one BYLAWS - Page 4 or more assistant secretaries and assistant treasurers. Section 2. The board of directors at its first meeting after each annual meeting of shareholders shall choose a president, one or more vice-presidents, a secretary and a treasurer, none of whom need be a member of the board. Section 3. The board of directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board of directors. Section 4. The salaries of all officers and agents of the corporation shall be fixed by the board of directors. Section 5. The officers of the corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. Any vacancy occurring in any office of the corporation shall be filled by the board of directors. THE PRESIDENT Section 6. The president shall be the chief executive officer of the corporation, shall preside at all meetings of the shareholders and the board of directors, shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the board of directors are carried into effect. Section 7. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. THE VICE-PRESIDENTS Section 8. The vice-president, or if there shall be more than one, the vice-presidents in the order determined by the board of directors, shall, in the absence or disability of the president, perform the duties and exercise the powers of the president and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE SECRETARY AND ASSISTANT SECRETARIES Section 9. The secretary shall attend all meetings of the board of directors and all meetings of the shareholders and record all the proceedings of the meetings of the corporation and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the shareholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or president, BYLAWS - Page 5 under whose supervision he shall be. He shall have custody of the corporate seal of the corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. Section 10. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors, shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE TREASURER AND ASSISTANT TREASURERS Section 11. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. Section 12. The treasurer shall disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the president and the board of directors, at its regular meetings, or when the board of directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation. Section 13. If required by the board of directors, the treasurer shall give the corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of such office and for the restoration to the corporation, in case of the treasurer's death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the treasurer's possession or under his control belonging to the corporation. Section 14. The assistant treasurer, or, if there shall be more than one, the assistant treasurers in the order determined by the board of directors, shall, in the absence or disability of the treasurer, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. ARTICLE X CERTIFICATES FOR SHARES Section 1. The shares of the corporation shall be represented by certificates signed by the chairman or vice chairman of the board of directors or by the president or a vice- president and by the treasurer or an assistant treasurer or by the secretary or an assistant secretary of the corporation, and may be sealed with the seal of the corporation or a facsimile thereof. When the corporation is authorized to issue shares of more than one class BYLAWS - Page 6 there shall be set forth upon the face or back of the certificate, or the certificate shall have a statement that the corporation will furnish to any shareholder upon request and without charge, a full statement of the designations, preferences, limitations, and relative rights of the shares of each class authorized to be issued and, if the corporation is authorized to issue any preferred or special class in series, the variations in the relative rights and preferences between the shares of each such series so far as the same have been fixed and determined and the authority of the board of directors to fix and determine the relative rights and preferences of subsequent series. Section 2. The signatures of the officers of the corporation upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent, or registered by a registrar, other than the corporation itself or an employee of the corporation. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of its issue. LOST CERTIFICATES Section 3. The board of directors may direct a new certificate to be issued in place of any certificate there to fore issued by the corporation alleged to have been lost or destroyed. When authorizing such issue of a new certificate, the board of directors, in its discretion and as a condition precedent to the issuance thereof, may prescribe such terms and conditions as it deems expedient, and may require such indemnities as it deems adequate, to protect the corporation from any claim that may be made against it with respect to any such certificate alleged to have been lost or destroyed. TRANSFERS OF SHARES Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate representing shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, a new certificate shall be issued to the person entitled thereto, and the old certificate cancelled and the transaction recorded upon the books of the corporation. FIXING THE RECORD DATE Section 5. For the purpose of determining shareholders entitled to notice of a shareholder's meeting, to demand a special meeting, to vote or in order to make a determination of shareholders form any other proper purpose, the board of directors may provide that the record date be fixed not more than seventy days before the meeting or action requiring a determination of shareholders. BYLAWS - Page 7 LIST OF SHAREHOLDERS Section 6. The officer or agent having charge of the transfer books for shares shall make, at least ten days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting, arranged in alphabetical order, with the address of each and the number of shares held by each, which list, for a period of ten days prior to such meeting, shall be kept on file at the principal office of the corporation and shall be subject to inspection by any shareholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original share ledger or transfer book, or a duplicate thereof, shall be prima facie evidence as to who are the shareholders entitled to examine such list or share ledger or transfer book or to vote at any meeting of the shareholders. ARTICLE XI GENERAL PROVISIONS DIVIDENDS Section 1. Subject to the provisions of the articles of incorporation relating thereto, if any, dividends may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or in shares of the capital stock, subject to any provisions of the articles of incorporation. Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. CHECKS Section 3. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. FISCAL YEAR Section 4. The fiscal year of the corporation shall be fixed by resolution of the board of directors. BYLAWS - Page 8 SEAL Section 5. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Colorado". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced. ARTICLE XII AMENDMENTS Section 1. These by-laws may be altered, amended, or repealed or new by-laws may be adopted by the affirmative vote of a majority of the board of directors at any regular or special meeting of the board. ARTICLE XIII INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES Section 1. The Corporation shall indemnify all of its directors, officers and employees to the extent authorized and permitted by Article 109 of the Colorado Business Corporation Act, as amended. EX-99.1 4 ex991-603.txt CERTIFICATION Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Mexco Energy Corporation (the "Company") on Form 10-K for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Nicholas C. Taylor, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: June 26, 2003 /s/ Nicholas C. Taylor ------------------------------------ President and Chief Executive Officer EX-99.2 5 ex992-603.txt CERTIFICATION Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Mexco Energy Corporation (the "Company") on Form 10-K for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Tamala L. McComic, Treasurer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: June 26, 2003 /s/ Tamala L. McComic ------------------------------------ Vice President, Treasurer and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----