<PAGE>
 
                                 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, 1998              Commission File No. 0-6694

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

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

   214 W. TEXAS AVENUE, SUITE 1101                                79701
            MIDLAND, TEXAS                                      (Zip Code)
(Address of principal executive offices)


      Registrant's telephone number, including area code: (915) 682-1119
       Securities registered pursuant to Section 12(b) of the Act:  None

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


       Title of Each Class               Name of Exchange on Which Registered
       -------------------               ------------------------------------
   Common Stock, $.50 par value                           None

Indicate by check-mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past ninety (90) days.
        
                    Yes    X                    No  
                         ------                     --------    

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

The aggregate market value of the common stock of the Registrant held by non-
affiliates was approximately $1,646,573 based upon the closing bid price of the
registrant's common stock as of June 3, 1998.

As of June 3, 1998 the registrant had outstanding 1,623,289 shares of common
stock.
<PAGE>
 
                      DOCUMENTS INCORPORATED BY REFERENCE

     The information required by Item 601 of Regulation S-K with respect to this
Form 10-K has either been included or omitted because of non-applicability.

     The index to the Exhibits is located on page 22 herein.

                                       2
<PAGE>
 
                                    PART I

ITEM NO. 1.  BUSINESS
             --------

     Mexco Energy Corporation (the "Company"), a Colorado corporation, was
organized in 1972, and maintains its principal office at 214 W. Texas, Suite
1101, Midland, Texas.  Since its incorporation, the Company has been engaged in
the acquisition, exploration and development of oil and gas properties located
in the United States.  The bulk of its activities are, and have been since its
incorporation, conducted in the State of Texas.

     The Company's corporate name was formerly Miller Oil Company.  In 1980 the
shareholders of the Company amended the Articles of Incorporation ("Articles")
of the Company to change the corporate name to Mexco Energy Corporation.  Also
at that time, the shareholders of the Company approved amendments to the
Articles resulting in a one-for-fifty reverse stock split of the Company's
common stock ($0.50 par value).  The corporate name change and reverse stock
split became effective April 30, 1980.

     The Company's operations are not divided into industry segments.  Since its
inception, the Company's entire business has been acquiring, and developing oil
and gas properties and producing oil and gas within the oil and gas industry.
All sales of oil and gas are to unaffiliated customers.  See the Company's
financial statements and notes thereto for an account of the Company's past
operating results attributable to its oil and gas operations.

     The Company acquires interests in producing and non-producing oil and gas
leases purchased from landowners and leaseholders in areas considered favorable
for oil and gas exploration and production by the Company.  In addition, oil and
gas prospects are acquired by joining with other oil and gas operators in
drilling prospects which such third parties have generated.  The Company employs
a combination of the above methods of obtaining producing acreage and related
prospects.  In recent years, the Company has placed primary emphasis on
evaluation and purchase of producing oil and gas properties.

     As of March 31, 1998, the Company held leasehold rights covering in excess
of 214,112 gross acres (3,871 net acres), all of which have producing oil and
gas wells located thereon.  The Company is the operator of five (5) of the
producing wells in which it owns an interest and other companies operate one
thousand five hundred thirty-six (1,536) of the remaining producing wells.

     Approximately 74% of the Company's present value discounted at ten percent
per annum of future net revenues of total proved reserves is concentrated in
three (3) principal fields, the Lazy JL, Viejos and Gomez fields.  See Note L of
the Notes to Financial Statements herein.   The Company owns 3,964 gross (1,512
net) acres in the Lazy JL Field located in Garza County, Texas. The Company owns
2,594 gross (197 net) acres in the Viejos Field and 14,476 gross (72 net) acres
in the Gomez Field both fields located in Pecos County, Texas.

     The Company's oil and gas activities involve oil and gas drilling, which
carries high risk including the risk that no commercial oil or gas production
will be obtained.  The cost of drilling, completing and operating wells is often
uncertain.  Further, drilling may be curtailed or delayed as a result of many
factors, including title problems, weather conditions, delivery delays, and
shortage of pipe and equipment.

                                       3
<PAGE>
 
     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 but losses can occur
from uninsured risks or in amounts in excess of existing insurance coverage.
The occurrence of an event which is not insured or not fully insured could have
an adverse impact upon the Company.

     The oil and gas industry in which the Company is engaged is a highly
competitive and speculative business.  Competitors include well-capitalized oil
and gas companies and other companies having financial and other resources
greater than those of the Company.  The Company's ability to locate and produce
oil and gas reserves is essential to the ultimate realization of income and
value from  the Company's properties and, therefore, may be considered to be a
raw material essential to the Company's business.  The availability of drilling
rigs, fuel, tubular goods and other drilling and production equipment is also
essential to the Company's business.  The Company relies on the acquisition of
leases and other oil and gas interests on which to explore for, develop and/or
produce oil and gas.  The availability of such property is essential to the
Company's continuing business.

     Crude oil and condensate produced from the properties in which the Company
owns an interest are sold to oil companies and pipeline companies at prices
posted by the principal purchasers in the Company's producing area.  As of March
31, 1998 the principal purchasers (percentage purchased) of the Company's crude
oil production were Navajo Crude Oil Marketing Company (62%) and Sun Refining
and Marketing Company (12%).

     Natural gas obtained from the properties in which the Company has an
interest is sold pursuant to contracts negotiated between operators of producing
wells and purchasers of natural gas (subject to the Natural Gas Policy Act).  As
of March 31, 1998 the principal purchasers (percentage purchased) of the
Company's natural gas production were approximately:  Aquila Southwest Pipeline
Corporation (32%) and Chevron USA Production Company (12%). The Company does not
believe that the loss of any of these purchasers would have a material impact on
Company's business because of the demand for oil, gas and casinghead gas
production.  Oil and gas production is transported by trucks and pipelines,
respectively.  The Company does not own any bulk storage facilities or
pipelines.

     As of March 31, 1998, the Company employed two full-time and one part-time
persons.  The Company believes that relations with these employees are generally
satisfactory.  The Company's employees are not covered by collective bargaining
arrangements.

     The Company, by nature of its oil and gas operations, is subject to
compliance with federal, state and local provisions regulating the discharge of
materials into the environment or otherwise relating to the protection of the
environment.  At the present time, however, such compliance does not require any
substantial capital expenditures, does not materially affect the Company's
earnings and in the Company's opinion will not materially affect future
operations.

     The Company is not engaged in operations in foreign countries, and no
portion of sales or revenues is derived from customers in foreign countries.

                                       4
<PAGE>
 
ITEM NO. 2.  PROPERTIES
             ----------

Office Facilities
-----------------

     The Company occupies its principal offices at 214 W. Texas, Suite 1101,
Midland, Texas pursuant to a lease which terminates in less than one (1) year.

Oil and Gas Properties and Reserves
-----------------------------------

     The Company owns and operates 100% of four (4) producing oil wells and one
(1) well which is currently shut-in.  The Company also owns partial interests in
an additional one thousand five hundred forty-two (1,542) wells located in the
states of Texas, New Mexico, Oklahoma, Louisiana, Arkansas, Wyoming, Kansas,
Colorado, Alabama, Montana, North Dakota and Utah. Of the wells, one thousand
five hundred thirty-seven (1,537) are producing.  The Company operates one (1)
water injection well and owns partial interests in two additional injection
wells.  Additional information concerning these properties and the oil and gas
reserves of the Company is provided as follows.

Oil and Gas Properties
----------------------

     The following table indicates the net oil and gas production of the Company
in each of the last five (5) years, all of which is located within the United
States.
<TABLE>
<CAPTION>
 
                Year    Oil (Bbls)     Gas (MCF)
                ----    ----------     ---------
                <S>     <C>            <C>
                1998       63,800       432,343
                1997       39,363       236,034
                1996       29,058       186,419
                1995       21,844       140,010
                1994       13,390        77,126
</TABLE>
    The following table indicates the Company's total gross and net productive
oil and gas wells and the total gross and net producing acreage as of March 31,
1998.
<TABLE>
<CAPTION>
 
                           Wells               Producing
                ---------------------------  --------------
                     Oil           Gas         Acreage (a)
                -------------  ------------  --------------
                Gross   Net    Gross   Net    Gross    Net
                -----  ------  -----  -----  -------  -----
<S>             <C>    <C>     <C>    <C>    <C>      <C>
 
Texas           1,086  22.078     81  1.472   89,642  3,469
New Mexico         64    .331     41   .237   16,954    172
Oklahoma           12    .050     51   .171   36,358    126
Wyoming             7    .040     10   .020    4,750     21
Louisiana          48    .013     10   .010   20,469     25
Arkansas            1    .001      -      -      320      -
Kansas              3    .010     13   .040    9,160     27
Colorado            -       -      2   .010      240      -
Alabama             5    .010      -      -      800      2
Montana            21    .020      -      -    7,189      4
North Dakota       86    .080      -      -   24,464     16
Utah                6    .010      -      -    3,766      9
                -----  ------    ---  -----  -------  -----
TOTALS          1,339  22.643    208  1.960  214,112  3,871
</TABLE>

                                       5
<PAGE>
 
(a) A gross well or acre is one in which an interest is owned. A net well or
    acre indicates the percentage of interest of the gross well or acre owned by
    the Company.

(b) Of these wells, one is shut in pending evaluation and two are shut in
    pending possible conversion to water injection wells.

    The following table sets forth the results of the drilling activity by the
Company for the years ended March 31, 1998, 1997 and 1996.
 
                          Net           Net          Net          Net
              Gross    Productive       Dry      Productive    Dry/(1)/
Year          Wells    Exploratory  Exploratory  Development  Development
----          -----    -----------  -----------  -----------  -----------
 
1998             8          0              0        2.560         .881
1997            12          0           .167        2.550            0
1996             9          0           .063         .815            0
-------------

/(1)/ Of the net dry development wells, 2 gross wells (.776 net) were converted
      to injection wells.

     The following table presents, for the periods indicated, the average sales
price per unit and average production costs per unit attributable to the
Company's interest in producing oil and gas properties.
 
                                  Year Ended March 31,
                                 ----------------------
                                  1998    1997    1996
                                 ------  ------  ------
Average sales price
  per product:
 
       Oil (per bbl.)            $17.70  $22.09  $17.45
       Gas (per MCF)               2.22    2.47    1.57
 
Average production costs per
  barrel equivalent (gas con-
  verted to barrel equivalent
  to 6 MCF per barrel of oil)      4.88    4.41    4.54
 
Production cost per dollar
  of sales                          .32     .24     .35

Oil and Gas Reserves
--------------------

    See Note L of the Notes to Financial Statements herein for information
regarding the estimated quantities of proved oil and gas reserves owned by the
Company.  The oil and gas reserves have been estimated in accordance with
regulations promulgated by the Securities and Exchange Commission.

    The following table indicates estimates by the Company's Independent
Petroleum Engineers, T. Scott Hickman & Associates, Inc., of Midland, Texas, of
the availability to the

                                       6
<PAGE>
 
Company of proved oil and gas reserves, all of which are located in the United
States.  For 1998, T. Scott Hickman & Associates, Inc. has estimated 245,860
barrels of oil and 3,196,594 MCF of gas for a combined $3,892,533 of future net
revenue discounted at ten percent (10%) per annum.  According to SEC guidelines
no provisions were made for changes in product prices and costs; therefore, the
Company does not believe that these estimates of reserves and future net
revenues fully reflect potential future revenue values. Estimates of oil and gas
reserves are projections based on engineering information and data.  There are
uncertainties inherent in the interpretation of such data, and there can be no
assurance that the reserves set forth below will be ultimately realized.


                   Proved Developed and Undeveloped Reserves
                   -----------------------------------------
<TABLE> 
<CAPTION> 
                                              Present Worth of
                                             Future Net Revenues
                 Oil (bbls)     Gas (MCF)     Discounted at 10%
                 ----------     ---------    -------------------
<S>              <C>            <C>          <C>
March 31, 1998    245,860       3,196,594       $3,892,533
March 31, 1997    436,289       2,956,219       $5,320,610
March 31, 1996    424,737       1,920,107       $4,627,526
</TABLE>

    Except for a sharp decline in crude oil prices, no major discovery or other
favorable or adverse event has caused a material change in the estimated proved
reserves since March 31, 1998 except for the increase in the Company's proved
oil and gas reserves as of March 31, 1998 due primarily to purchases and
development of producing properties and except for normal production declines,
price and related adjustments.

    The Company has not filed any oil or gas reserve estimates or included any
such estimates in reports to any other federal or foreign governmental authority
or agency within the past twelve (12) months.

    The Company has no foreign operations and has no agreements with foreign
governments.

    As of March 31, 1998, the Company was participating in the drilling of five
(5) wells, four (4) of which have subsequently been successfully completed.
There were no other operations of material importance to Company such as
waterfloods and pressure maintenance projects being installed by the Company,
except a pilot two injection well water flood projection in the Lazy JL Field,
Garza County, Texas and commencement of planning for a gas recycling operation
in the Viejos Field, Pecos County, Texas.

Title to Oil and Gas Properties
-------------------------------

    Substantially all of the Company's properties are currently mortgaged under
a deed of trust to secure funding through a revolving line of credit.  The
Company's properties are generally subject to the customary royalty and
overriding royalty interests, liens incident to operating agreements, liens for
current taxes and other burdens and minor encumbrances, easements and
restrictions. The Company believes that none of such burdens materially detract
from the value

                                       7
<PAGE>
 
of such properties or materially interferes with their use in the operation of
the Company's business.

    As is common industry practice, little or no investigation of title is made
at the time of acquisition of undeveloped properties, other than preliminary
review of local mineral records.  Title investigations, in most cases including
obtaining a title opinion of local counsel, are made before commencement of
drilling operations.  The Company believes that its methods of investigating
title to its properties are consistent with practices customary in the oil and
gas industry in connection with the acquisition of such properties, and that
such practices are adequately designed to enable it to acquire good title to
such properties.

Undeveloped Acreage
-------------------

    The Company currently does not own any material inventory of non-productive
acreage in partially developed prospects except those located in the Viejos
Devonian Field of Pecos County, Texas and the Lazy JL Spraberry Field of Garza
County, Texas.  The Company owns from 8.31% to 12.02% working and royalty
interests (net revenue interests 6.42% to 9.01%) in the Viejos Field of Pecos
County, Texas, consisting of 2,594 gross acres and twenty (20) wells.

    The Company owns from 35% to 45% working interests (net revenue interests
from 26.25% to 33.84%) in twenty-three (23) wells in the Lazy JL (Lower
Spraberry) Field of Garza County, Texas, consisting of 3,964 gross acres.  The
Company is unable to determine the extent of future development, if any, in
these two (2) fields.


ITEM NO. 3.  LEGAL PROCEEDINGS
             -----------------

    The Company is not involved in any pending or threatened legal proceedings.

ITEM NO. 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
             ---------------------------------------------------

    No matter has been submitted to a vote of security holders during the fourth
quarter of the fiscal year being reported upon.

                                       8
<PAGE>
 
                                    PART II
                                    -------


ITEM NO. 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
             -------------------------------------------------------------
           MATTERS.
           ------- 


"Common Stock"
--------------

    The Company's common stock is traded in the over-the-counter market.  The
high and low bid quotations for the calendar periods indicated are shown on the
following table.

 
                                                 Bid Price
                                              ----------------
                                              High         Low
                                              ----         ---
 
             1998    April - June 1997        $5.50      $5.50
                     July - September 1997     7.50       5.50
                     October - December 1997   7.75       7.50
                     January - March 1998      7.75       7.50
 
             1997    April - June 1996        $4.50      $3.50
                     July - September 1996     4.25       3.50
                     October - December 1996   4.50       4.50
                     January - March 1997      5.50       5.50

    Bid quotations representing prices between dealers do not include retail
mark up, mark down or commissions, and do not necessarily represent actual
transactions.


Number of Shareholders
----------------------

    As of March 31, 1998, there were approximately 1,443 shareholders of record
of the Company's common stock.


Dividends
---------

    The Company has not paid any dividends on its common stock, and the payment
of any dividends at a future date would be dependent upon the earnings,
financial condition and capital needs of the Company at such time.  Payment of
dividends is currently restricted by the terms of the Company's bank loan
agreement.

                                       9
<PAGE>
 
ITEM NO. 6.  SELECTED FINANCIAL DATA
             -----------------------

<TABLE>
<CAPTION>
                                                               Years Ended March 31,
                                         ------------------------------------------------------------  
                                             1998         1997         1996       1995        1994
                                         -----------   ----------  ----------  ----------  ----------
<S>                                      <C>           <C>         <C>         <C>         <C>
Oil & gas income                         $ 2,090,117   $1,453,124  $  798,589  $  543,267  $  374,322
 
Proceeds from settlement of
   litigation                                      -            -           -           -   1,160,933
 
Administrative service charges and
  reimbursements                               5,112        5,009       7,380      10,123      26,553
 
Other income                                  13,230        7,774      28,104      20,531      18,071
 
Net income (loss)                         (1,323,657)     377,867     200,606     104,843   1,028,718
 
Net Income (loss) per share - basic            ( .83)         .27         .15         .09         .88
 
Net Income (loss) per share - diluted          ( .83)         .27         .15         .09         .88
 
Net Income (loss) from continuing
 operations                               (1,323,657)     377,867     200,606     104,843   1,028,718
 
Net Income (loss) from continuing
 operations per share                          ( .83)         .27         .15         .09         .88
 
EBITDA/(1)/                              $ 1,252,539    1,006,119     474,697     285,548   1,308,300
 
Operating Cash flow/(1)/                   1,118,566      866,931     396,409     255,649   1,302,760
 
Total Assets                             $ 4,542,486    5,109,199   2,612,039   1,951,896   1,868,369
 
Total Long-Term Debt                       1,822,000    1,637,000           -           -           -
 
Weighted average shares
 outstanding                               1,594,752    1,423,229   1,342,628   1,173,229   1,173,229
 
Dividends                                          -            -           -           -           -
</TABLE>

    /(1)/  EBITDA represents earnings before interest expense, income taxes,
           depreciation, depletion and amortization. Management of the Company
           believes that EBITDA and operating cash flow may provide additional
           information about the Company's ability to meet its future
           requirements for debt service, capital expenditures and working
           capital. EBITDA and operating cash flow are financial measures
           commonly used in the oil and gas industry and should not be
           considered in isolation or as a substitute for net income, operating
           income, cash flows from operating activities or any other measure of
           financial performance presented in accordance with generally accepted
           accounting principles or as a measure of the Company's profitability
           or liquidity. 

                                       10
<PAGE>
 
ITEM NO. 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
             -------------------------------------------------
           CONDITION AND RESULTS OF OPERATIONS
           -----------------------------------

Liquidity and Capital Resources and Commitments
-----------------------------------------------

     As indicated by the Statements of Cash Flows for the past three fiscal
years, the Company has funded its operations, acquisitions, exploration and
development expenditures from cash generated by operating activities, bank
borrowings and issuance of common stock.

     The Company has a $3,000,000 revolving line of credit with a borrowing base
of $2,200,000 which is reduced by $50,000 each month throughout the term of the
loan.  The loan is reviewed by the bank annually and matures on August 15, 1999.
The Company currently has outstanding borrowings of $1,822,000 against the line.
At the current level of borrowing principal payments will be due beginning
September 5, 1998.  The obligations under the loan agreement are secured by
substantially all of the oil and gas properties of the Company and the stock of
its subsidiary.  The loan agreement contains certain covenants relating to the
financial condition of the Company.  Interest is payable monthly at the prime
rate as established by the bank.

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

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

     The Company believes that it will have sufficient capital available from
borrowings along with cash flows from operations to fund any future capital
expenditures and to meet its financial obligations.

     In past years, the oil and gas industry from time to time has suffered
because of price decreases for oil.  An oversupply of petroleum in both the
domestic and international markets appeared to be the reason for the price
decline.  The Company is unable to predict price changes or the possible effects
on the Company at this time.  Past changes in tax laws and the decline in oil
prices have had the effect industry-wide of limiting funds available for oil and
gas exploration.


Results of Operations
---------------------

     Business Segment
     ----------------

     The Company only has a single line of business which is oil and gas
acquisition, exploration and production.

                                       11
<PAGE>
 
     Fiscal 1998 Compared to Fiscal 1997
     -----------------------------------

     During the year the Company participated in the successful drilling and
completion of six (6) producing wells (each with approximately 43% working
interest and 32% net revenue interest) in the Lazy JL Field, Garza County,
Texas.  The Company also participated in the drilling of one (1) well which has
been converted to a water injection well and one (1) well which is currently
shut in pending possible conversion to a water injection well or a salt water
disposal well.

     A decrease in working capital of $124,061 for fiscal 1998, compared to a
decrease of $124,050 for fiscal 1997 was the result of increased acquisition,
drilling and development costs.
 
     Gross revenue from oil and gas production increased in 1998 compared to
1997 by $636,993 (44%).  Revenues increased due to the increase in oil and gas
production from acquisition and development of oil and gas properties. The
average 1998 price for crude oil is $17.70 per barrel compared to the 1997 price
of $22.09.  Average prices received per MCF of gas for 1998 and 1997 were $2.22
and $2.47, respectively.

     Production costs increased $316,760 (91%) from 1997. Of this increase,
$43,920 is attributable to increased production taxes relating to the increase
in production and revenues as stated above with the remaining $272,840 being
attributable to increased operating expenses due to the acquisition and
development of new wells in 1998.

     Interest income decreased $5,045 (70%) due to the reduced funds invested in
a money market account.

     Other income increased $10,501 primarily due to the recovery of a bad debt.

     Overall, costs and expenses increased in 1998 by $2,851,280 (300%).
Depreciation, depletion and amortization increased in 1998 as compared to 1997
by $2,330,923 (488%) primarily due to an impairment of oil and gas properties
which  resulted from significantly lower oil prices and the related downward
adjustment of estimated reserves.  General and administrative expenses increased
$79,372 (70%) primarily due to increased salaries, legal fees, accounting fees
and engineering costs.

     Fiscal 1997 Compared to Fiscal 1996
     -----------------------------------

     The Company participated in the drilling of twelve (12) gross (2.717 net)
wells, of which nine (9) were productive oil wells in fiscal 1997 and one well
which has been converted to a water injection well.

     A decrease in working capital of $124,050 for fiscal 1997, compared to an
increase of $20,300 for fiscal 1996 was the result of increased acquisition,
drilling and development costs.
 
     Gross revenue from oil and gas production increased in 1997 compared to
1996 by $654,535 (82%) and the Company reflected net earnings of $377,867 which
is an increase of $177,261 (88%).  Revenues increased due to the increase in oil
and gas production from acquisition and development of oil and gas properties
and the increase in oil and gas prices during

                                       12
<PAGE>
 
the current year. The average 1997 price for crude oil is $22.09 per barrel
compared to the 1996 price of $17.45.  Average prices received per MCF of gas
for 1997 and 1996 were $2.47 and $1.57, respectively.

     Administrative services income and reimbursement to the Company decreased
$2,371 (32%) due to the plugging and abandonment of two operated wells during
the prior year.

     Production costs increased $73,873 (27%) from 1996. Of this increase,
$37,897 is attributable to increased production taxes relating to the increase
in production and revenues as stated above with the remaining $35,976 being
attributable to increased operating expenses due to the acquisition and
development of new wells in 1997. Production costs per barrel equivalent
actually declined by 3%.

     Interest income decreased $10,120 (59%) due to the reduced funds invested
in a money market account.

     Overall, costs and expenses increased in 1997 by $328,637 (53%).
Depreciation, depletion and amortization increased in 1997 as compared to 1996
by $215,438 (82%) due to increased production, acquisition and development of
oil and gas properties.  General and administrative expenses increased $26,539
(31%) primarily due to increased salaries, legal fees, accounting fees and
engineering costs.


Other Matters
-------------

     Forwarding-Looking Statements
     -----------------------------

     Certain statements in this Form 10-K may be deemed to be "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act").  All statements, other than statements
of historical facts, included in this Form 10-K that address activities, events
or developments that the Company expects, projects, believes or anticipates will
or may occur in the future, including such matters as oil and gas reserves,
future drilling and operations, future production of oil and gas, future net
cash flows, future capital expenditures and other such matters, are forward-
looking statements.  These statements are based on certain assumptions and
analysis made by management of the Company in light of its experience and its
perception of historical trends, current conditions, expected future
developments and other factors it believes are appropriate in the circumstances.
Such statements are subject to a number of assumptions, risks and uncertainties,
including general economic and business conditions, prices of oil and gas, the
business opportunities (or lack thereof) that may be presented to and pursued by
the Company, changes in laws or regulations and other factors, many of which are
beyond the control of the Company.

     Recently Issued Accounting Standards
     ------------------------------------

     The Company adopted the provisions of Statement of Financial Accounting
Standard No. 128, Earnings Per Share, during the quarter ended December 31,
1997.  Since the Company has only Common Stock outstanding the adoption had no
effect on the Company's financial statements at March 31, 1998.

                                       13
<PAGE>
 
     Year 2000 Issue
     ---------------

     The Company's third-party software vendor is currently modifying the system
to accurately handle the year 2000 issue with all necessary changes scheduled to
be completed by December 31, 1998.  There will be no additional costs to the
Company for these modifications as the updates are included in the monthly
support contract.  Therefore, the Company has determined that the year 2000
issues directly related to its information systems will not have a material
impact on its business, operations, nor its financial position.  The Company
cannot determine the effect, if any, that the year 2000 issues will have on its
vendors, customers, other businesses and governmental entities.

ITEM NO. 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
             -----------------------------------------------------------

     The Company is not subject to market risk as to currency exchange since the
Company does not deal in foreign currency.  The Company also has not dealt in
derivatives.  However, the Company is subject to significant changes in
connection with sales of crude oil and natural gas.

ITEM NO. 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
--------------------------------------------------------

     See Index to Financial Statements elsewhere herein.

ITEM NO. 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
             ---------------------------------------------------------------
           FINANCIAL DISCLOSURES
           --------------------

     There were no changes or disagreements.

                                       14
<PAGE>
 
                                    PART III
                                    --------


Compliance with Section 16(a) of the Securities Exchange Act of 1934
--------------------------------------------------------------------

     Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent
(10%) of a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission and the National Association of Securities
Dealers, Inc. initial reports of ownership and reports of changes in ownership
of Common Stock and other equity securities of the Company.  Officers, Directors
and greater than ten percent (10%) shareholders are required by SEC regulation
to furnish the Company with copies of all Section 16(a) forms they file.

     Ownership of and transactions in Company stock by executive officers and
Directors of the Company are required to be reported to the Securities and
Exchange Commission pursuant to Section 16(a) of the Securities Exchange Act of
1934.  On June 24, 1998, Terry L. Cox and Donna Gail Yanko each filed a Form 4
to report stock options which were granted on April 2, 1998.  Also on June 24,
1998 Thomas R. Craddick, Thomas Graham, Jr., Jack D. Ladd and Gerald Martin each
filed a Form 3 to report the initial number of shares owned upon their election
as directors. Thomas Graham, Jr. also reported stock options which were granted
on April 2, 1998 on his Form 3.

ITEM NO. 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
              --------------------------------------------------
 
     Name                       Age   Position
     ----                       ---   --------                  
     Thomas R. Craddick         54    Director
     William G. Duncan, Jr.     55    Director
     Thomas Graham, Jr.         64    Chairman of the Board of Directors
     Jack D. Ladd               48    Director
     Gerald R. Martin           52    Director
     Nicholas C. Taylor         60    Director, President and Treasurer
     Donna Gail Yanko           54    Director, Vice President and Secretary

     On March 2, 1998, the above persons were elected to serve on the Board of
Directors for a term of one year and until their successors are duly elected and
qualified.

     The following is a brief account of the business experience during the last
five years of each director and executive officer:

     Thomas R. Craddick, 54, was elected to the Board of Directors of the
     ------------------                                                  
Company in 1997 and is a member of the Compensation Committee.  Since 1968 to
the present, Mr. Craddick has served as State Representative for the State of
Texas.  Throughout his tenure of the past 15 sessions of the Legislature,
Representative Craddick has served on various committees and conferences, most
recently serving on the Legislative Budget Board, Legislative Audit Committee,
the State Affairs Committee and the Revenue & Public Education Funding, Select
Committee, along with serving as Chairman of the House Ways and Means Committee
and Chairman of the Republican Legislative Caucus. For more than the past five
years Mr. Craddick has been Sales Representative for Mustang Mud, Inc., as well
as the owner of Craddick Properties and Owner and President of Craddick, Inc.
both of which invest in oil and gas properties and real estate.

                                       15
<PAGE>
 
     William G. Duncan, 55, since April 1995, has been the President of
     -----------------                                                 
Southeastern Financial Services, Louisville, Kentucky, prior to which he had
served as Senior Vice President and Chief Investment Officer since October 1991.
For the previous twenty-five (25) years, he held several positions at Liberty
National Bank and Trust Company, Louisville, Kentucky, serving as Senior Vice
President and Manager of the bank's Personal Trust Investment Section, member of
Liberty's Trust Executive Committee, and several positions in Liberty's
Commercial Banking Division.  Mr. Duncan was appointed to the position of
Director on July 22, 1994, after the resignation of Thomas Graham, Jr. to become
a United States Ambassador, and was elected a Director in 1994.

     Thomas Graham, Jr., 64, was appointed Chairman of the Board of Directors by
     ------------------                                                         
the Directors of the Company, effective July 1997, having served as a director
from 1990 through 1994.  From 1994 through May 1997, Mr. Graham served as a
United States Ambassador.  For more than five years prior thereto, Mr. Graham
served as the General Counsel, United States Arms Control and Disarmament
Agency, as well as Acting Director and as Acting Deputy Director of such agency
successively, in 1993 and 1994.  He has served as President of the Lawyers
Alliance for World Security since mid 1997.

     Jack D. Ladd, 48, was elected to the Board of Directors of the Company in
     ------------                                                             
1997 and is a member of the Compensation Committee.  Mr. Ladd is currently a
shareholder of the law firm of Stubbeman, McRae, Sealy, Laughlin & Browder, Inc.
Mr. Ladd is also a partner in various real estate partnerships, an arbitrator
for the National Association of Securities Dealers, and a mediator certified by
the Attorney Mediation Institute.  Mr. Ladd has served as a director and
advisory director of other oil and gas corporations.

     Gerald R. Martin, 52, co-founded River Hill Capital, LLC in June 1996.  The
     ----------------                                                           
prior twenty-three (23) years, Mr. Martin had worked for J.J.B. Hilliard, W. L.
Lyons, Inc., seventeen (17) years were spent as Senior Vice President of
Investment Banking.  Mr. Martin has experience as a financial consultant or
advisor to several local government agencies and non-profit organizations
including Louisville Water Company and Louisville's Municipal Transit System.
In December 1996, he completed fifteen years of volunteer service as Vice
Chairman of the Board of Commissioners of the Housing Assistance Corporation
(LHAC).  Mr. Martin is a director of Orr Safety Corporation and National
Healthcare Services, Inc., both in Louisville.  He was elected to the Board of
Directors of the Company in 1997 and is a member of the Compensation Committee.

     Nicholas C. Taylor, 60, was elected President, Treasurer and Director of
     ------------------                                                      
the Company in 1983 and serves in such capacities on a part time basis, as
required.  From 1974 to 1993, he was a director and shareholder of the law firm
of Stubbeman, McRae, Sealy, Laughlin & Browder, Inc., Midland, Texas, and a
partner of the predecessor firm.  Since 1993 he has been engaged in the practice
of law and investments, primarily in oil and gas.  In 1995 he was appointed by
the Governor of Texas to serve as a member and currently serves as Chairman of
the State Securities Board.

     Donna Gail Yanko, 54, has worked as part-time administrative assistant to
     ----------------                                                         
the President and controlling shareholder for the past nine years. She served as
Assistant Secretary of the Company from 1986 to 1992 and was elected a Director
and appointed Vice President of the Company in 1990 and Secretary in 1992.

                                       16
<PAGE>
 
ITEM NO. 11.  EXECUTIVE COMPENSATION
              ----------------------

     The following table sets forth all cash compensation received by the
executive officers and directors of the Company as a group setting forth
individually executive officers and directors who received in excess of $60,000,
including cash bonuses.


                        Summary Compensation Table/(1)/
                        -------------------------------
<TABLE>
<CAPTION>
 
     Name and
     Principal Position    Year  Salary
     --------------------  ----  -------
     <S>                   <C>   <C>
 
          5 Officers &     1998  $44,825
          Directors        1997  $52,381
          as a group       1996  $38,400
</TABLE>
------------

/(1)/ Directors are paid $100 per meeting of which there were five (5) for the
      period.

ITEM NO. 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
              --------------------------------------------------------------

     The following table sets forth as of March 31, 1998 the owners of five
percent (5%) or more of its common stock:
<TABLE>
<CAPTION>
 
(1) Title    (2) Name and                (3) Amount and          (4) Percent
of Class     Address of                   Nature of Beneficial      of Class
             Beneficial Owner             Ownership
----------------------------------------------------------------------------
<S>          <C>                         <C>                     <C>
 
Common       Nicholas C. Taylor/(1)/        1,110,770/(2)/            68.43%
             214 West Texas
             Suite 1101
             Midland, TX  79701
 
Common       Howard E. Cox, Jr.               194,000                 11.95%
             One Federal Street
             26th Floor
             Boston, MA  02110
</TABLE>
-------------

/(1)/ Mr. Taylor, by virtue of his share of ownership, may be deemed to be a
      "parent" of the Company as defined under Rule 405 promulgated by the
      Securities and Exchange Commission (the "Commission") under the Securities
      Act of 1933 as amended (the "Securities Act").

/(2)/ Includes 1,079,770 shares which are held by Mr. and Mrs. Taylor as
      community property and 31,000 shares held as custodian for their minor
      daughter.  Mr. and Mrs. Taylor disclaim any beneficial ownership of 46,000
      shares owned by each of their two adult children.

                                       17
<PAGE>
 
     The information set forth below shows as of June 1, 1998, all shares of the
Company's common stock beneficially or indirectly owned by all directors, and
all directors and officers as a group.

     The following table sets forth the ownership of executive officers and
directors of the Company.
<TABLE>
<CAPTION>
 
(1) Title      (2) Name and            (3) Amount and     (4) Percent
of class       Address of              Nature of Bene-       of Class
               Beneficial Owner        ficial Ownership
---------------------------------------------------------------------
<S>            <C>                     <C>                <C>
Common         Nicholas C. Taylor        1,110,770/(1)/        68.43%
 
               Thomas Graham, Jr.           77,000              4.74%
 
               Gerald R. Martin             15,040               .93%
 
               Donna Gail Yanko              7,340               .45%

               Thomas R. Craddick            5,000               .31%

               Jack D. Ladd                  1,478               .09%

               Terry L. Cox                    200               .01%

               All Directors and
                Officers as a Group      1,215,828             74.90%
</TABLE>
------------

/(1)/ Includes 1,079,770 shares which are held by Mr. and Mrs. Taylor as
      community property and 31,000 shares held as custodian for their minor
      daughter.  Mr. and Mrs. Taylor disclaim any beneficial ownership of 46,000
      shares owned by each of their two adult children.

ITEM NO. 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
              ----------------------------------------------

     The Company's principal shareholder owns working interests varying from
93.75% to 100% in certain wells which it operates.  The Company operates these
wells on a contract basis charging the same or greater administrative fees as
the previous operator.  See Note I of the Notes to Financial Statements.

                                       18
<PAGE>
 
                                    PART IV
                                    -------


ITEM NO. 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
              ---------------------------------------------------------------

     (a) Financial Statements, Schedules and Exhibits

          1.   Financial Statements

          2.   Financial Statement Schedules

               All schedules are omitted because of the absence of conditions
               under which they are required or because the information is
               included in the financial statements or notes thereto.

          3.   Exhibits

               The exhibits and financial statement schedules filed as a part of
          this report are listed below according to the number assigned to it in
          the exhibit table of Item 601 of Regulation S-K:

               (3)(i) Articles of Incorporation - See exhibit E-1.

                 (ii) Bylaws - incorporated by reference to the Company's Annual
                      Report to the Securities and Exchange Commission on Form
                      10K dated June 23, 1995.

               (4)    Instruments defining the rights of security holders,
                      including indentures - None.

               (9)    Voting Trust Agreement - None, consequently, omitted.

               (10)   Material Contracts:

                        Stock Option Plan - incorporated by reference to the
                        Amendment to Schedule 14C Information Statement filed on
                        August 13, 1997.

                        Bank Line of Credit - See Exhibit E-2.

               (11)   Statement regarding computation of per share earnings -Not
                      Applicable.

               (12)   Statement regarding computation of ratios - Not
                      Applicable.

                                       19
<PAGE>
 
               (13)   Annual Report to security holders, Form 10-Q or quarterly
                      report to security holders - Not Applicable.

               (18)   Letter regarding change in accounting principles - No
                      change during fiscal 1998.

               (19)   Previously unfiled documents - No documents have been
                      executed or in effect during the reporting period which
                      should have been filed, consequently, this exhibit has
                      been omitted.

               (22)   Subsidiaries of the Company -
                      Name of Subsidiary: Forman Energy Corporation
                      Other Name Under Which Subsidiary Conducts Business: None
                      Jurisdiction of Incorporation: New York

               (23)   Published report regarding matters submitted to vote of
                      security holders - None, consequently omitted.

               (24)   Consent of experts - Not applicable.

               (25)   Power of Attorney - There are no signatures contained
                      within this report pursuant to a power of attorney,
                      consequently, this exhibit has been omitted.

               (28)  Additional Exhibits - None.

     (b)  Reports on Form 8-K.

     No report on Form 8-K was filed by the Company during the last quarter of
the period covered by this report.

                                       20
<PAGE>
 
SIGNATURES

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

                                    MEXCO ENERGY CORPORATION

                                    By: /s/ Nicholas C. Taylor
                                       -----------------------------
                                     Nicholas C. Taylor, President

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.

 
      Signatures                Title                           Date
      ----------                -----                           ----         
 
 /s/ Nicholas C. Taylor    President,                   June 24, 1998
-------------------------  Treasurer,
Nicholas C. Taylor         Director   
                                      
 
 /s/ Donna Gail Yanko      Vice President,              June 24, 1998
-------------------------  Director
Donna Gail Yanko           


 /s/ Jack D. Ladd          Director                     June 24, 1998
-------------------------                         
Jack D. Ladd


 /s/ Thomas R. Craddick    Director                     June 24, 1998
-------------------------                         
Thomas R. Craddick


/s/ Terry L. Cox          Controller                    June 24, 1998
------------------------                           
Terry L. Cox

                                       21
<PAGE>
 
                                 EXHIBIT INDEX
                                 -------------

 
Number     Exhibit                                               Page
------     -------                                               ----
 
(1)        *
(2)        *
(3)(i)     Articles of Incorporation                              E-1
   (ii)    Bylaws                                                  **
(4)        Instruments defining the rights of security
              holders, including indentures                      Omit
(5)        *
(6)        *
(7)        *
(8)        *
(9)        Voting Trust Agreement                                Omit
(10)       Material Contracts
           (a)  Stock Option Plan                                 ***
           (b)  Bank Line of Credit                               E-2
(11)       Statement regarding computation of per
              share earnings                                     Omit
(12)       Statement regarding computation of ratios             Omit
(13)       Annual Report to security holders, Form 10-Q,
              or quarterly report to security holders            Omit
(14)       *
(15)       *
(16)       *
(17)       *
(18)       Letter regarding change in accounting
              principles                                         Omit
(19)       Previously unfiled documents                          Omit
(20)       *
(21)       *
(22)       Subsidiaries of the Company                           Omit
(23)       Published report regarding matters submitted
              to vote of security holders                        Omit
(24)       Consent of experts                                    Omit
(25)       Power of Attorney                                     Omit
(26)       *
(27)       *
(28)       Additional Exhibits                                   Omit

*    This exhibit is not required to be filed in accordance with Item 601 of
     Regulation S-K.

**   Incorporated by reference to the Company's Annual Report to the Securities
     & Exchange Commission on Form 10-K, dated June 23, 1995.

***  Incorporated by reference to the Amendment to Schedule 14C Information
     Statement filed on August 13, 1998.

                                       22
<PAGE>
 
                     MEXCO ENERGY CORPORATION & SUBSIDIARY

                         INDEX TO FINANCIAL STATEMENTS



                              FINANCIAL STATEMENTS
                              --------------------
<TABLE>
<CAPTION>
 
                                                                Page
<S>                                                             <C>
 
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS               F-2
 
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1998 AND 1997        F-3
 
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
 MARCH 31, 1998, 1997, AND 1996                                  F-4
 
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEARS
 ENDED MARCH 31, 1998, 1997, AND 1996                            F-5
 
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
 MARCH 31, 1998, 1997, AND 1996                                  F-6
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                       F-8
</TABLE>
<PAGE>
 
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
               --------------------------------------------------


Board of Directors
Mexco Energy Corporation

We have audited the accompanying consolidated balance sheets of Mexco Energy
Corporation and Subsidiary, as of March 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended March 31, 1998.  These financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Mexco Energy
Corporation and Subsidiary, as of March 31, 1998 and 1997, and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended March 31, 1998 in conformity with generally
accepted accounting principles.



GRANT THORNTON LLP

Oklahoma City, Oklahoma
May 15, 1998

                                      F-2
<PAGE>
 
                    MEXCO ENERGY CORPORATION AND SUBSIDIARY

                          CONSOLIDATED BALANCE SHEETS

                                   March 31,
<TABLE>
<CAPTION>
 
ASSETS                                                                         1998               1997
                                                                          -------------     -------------
<S>                                                                     <C>               <C> 
CURRENT ASSETS                                                                               
 Cash and cash equivalents                                                 $   241,348         $   40,813
  Accounts receivable, including $8,473 in 1998 and $6,042 in 1997                           
   from a related party (note I)                                               207,900            291,254 
  Prepaid expenses                                                              15,185                  -
                                                                           -----------         ----------
          Total current assets                                                 464,433            332,067
                                                                                             
PROPERTY AND EQUIPMENT - AT COST (notes F and L)                                             
 Oil and gas properties, using the full cost method of                                       
  accounting                                                                 9,915,701          7,819,986
 Other                                                                          20,252              6,293
                                                                           -----------         ----------
                                                                             9,935,953          7,826,279
   Less accumulated depreciation, depletion, and amortization                5,857,900          3,049,147
                                                                           -----------         ----------
                                                                             4,078,053          4,777,132
                                                                           -----------         ----------
                                                                           $ 4,542,486         $5,109,199
                                                                           ===========         ==========

       LIABILITIES AND STOCKHOLDERS' EQUITY                                                  
                                                                                             
CURRENT LIABILITIES                                                                          
 Accounts payable - trade                                                  $   121,131         $  167,913
 Income taxes payable                                                                -             40,093
 Current maturities of bank line of credit (note C)                            322,000                  -
                                                                           -----------         ----------
        Total current liabilities                                              443,131            208,006

BANK LINE OF CREDIT, less current maturities (note C)                        1,500,000          1,637,000
                                                                                             
DEFERRED INCOME TAXES (note D)                                                       -            341,181
                                                                           -----------         ----------
          Total liabilities                                                  1,943,131          2,186,187
 
STOCKHOLDERS' EQUITY
  Common stock - $.50 par value; authorized, 40,000,000
   shares in 1998 and 5,000,000 shares in 1997; issued and outstanding,
   1,623,289 shares in 1998 and 1,423,229 shares in 1997 (note G)              811,644            711,614
  Preferred stock - $1.00 par value; authorized, 10,000,000 shares in
   1998 (note G)                                                                     -                  -
 Additional paid-in capital                                                  2,875,399          1,975,429
 Retained earnings (accumulated deficit)                                    (1,087,688)           235,969
                                                                           -----------         ----------
                                                                             2,599,355          2,923,012
                                                                           -----------         ----------
                                                                           $ 4,542,486         $5,109,199
                                                                           ===========         ==========
</TABLE>

       The accompanying notes are an integral part of these statements.

                                      F-3
<PAGE>
 
                    MEXCO ENERGY CORPORATION AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                              Year ended March 31,
<TABLE>
<CAPTION>
                                                              1998         1997        1996
                                                          ------------  ----------  ----------
<S>                                                       <C>           <C>         <C>
Revenues
 Oil and gas                                              $ 2,090,117   $1,453,124  $  798,589
 Administrative service charges and reimbursements              5,112        5,009       7,380
 Interest                                                       2,121        7,166      17,285
 Other income                                                  11,109          608      10,819
                                                          -----------   ----------  ----------
                                                            2,108,459    1,465,907     834,073
 
Costs and expenses
 Production                                                   663,525      346,765     272,892
 Depreciation, depletion, and amortization (note F)         2,808,753      477,830     262,392
 General and administrative                                   192,395      113,023      86,484
 Interest                                                     137,012       12,787           -
                                                          -----------   ----------  ----------
                                                            3,801,685      950,405     621,768
                                                          -----------   ----------  ----------
 
  Earnings (loss) before income taxes                      (1,693,226)     515,502     212,305
 
Income tax expense (benefit) (note D)                        (369,569)     137,635      11,699
                                                          -----------   ----------  ----------

  NET EARNINGS (LOSS)                                     $(1,323,657)  $  377,867  $  200,606
                                                          ===========   ==========  ==========
 
Basic and diluted earnings (loss) per share                     $(.83)        $.27        $.15
                                                          ===========   ==========  ==========
 
Weighted average outstanding shares, basic and diluted      1,594,752    1,423,229   1,342,628
                                                          ===========   ==========  ==========
</TABLE>

       The accompanying notes are an integral part of these statements.

                                      F-4
<PAGE>
 
                    MEXCO ENERGY CORPORATION AND SUBSIDIARY

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                   Years ended March 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
 
 
                                                                              Retained
                                          Common stock        Additional      earnings         Total    
                                     ----------------------    paid-in      (accumulated   stockholders' 
                                        Shares      Amount     capital        deficit)        equity
                                     ------------  --------  ------------  --------------  ------------
<S>                                  <C>           <C>       <C>           <C>             <C>
Balance at April 1, 1995                1,173,229  $586,614    $1,600,429    $  (342,504)  $ 1,844,539
 
Net earnings                                    -         -             -        200,606       200,606
 
Issuance of common stock                  250,000   125,000       375,000              -       500,000
                                        ---------  --------    ----------    -----------   -----------
 
Balance at March 31, 1996               1,423,229   711,614     1,975,429       (141,898)    2,545,145
 
Net earnings                                    -         -             -        377,867       377,867
                                        ---------  --------    ----------    -----------   -----------
 
Balance at March 31, 1997               1,423,229   711,614     1,975,429        235,969     2,923,012
 
Net loss                                        -         -             -     (1,323,657)   (1,323,657)
 
Issuance of common stock (note G)         200,060   100,030       899,970              -     1,000,000
                                        ---------  --------    ----------    -----------   -----------
 
Balance at March 31, 1998               1,623,289  $811,644    $2,875,399    $(1,087,688)  $ 2,599,355
                                        =========  ========    ==========    ===========   ===========
</TABLE>

        The accompanying notes are an integral part of this statement.

                                      F-5
<PAGE>
 
                    MEXCO ENERGY CORPORATION AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                              Year ended March 31,
<TABLE>
<CAPTION>
 
                                                           1998          1997         1996
                                                       ------------  ------------  ----------
<S>                                                    <C>           <C>           <C>
 
Increase (Decrease) in Cash and Cash Equivalents
 
Cash flows from operating activities
 Cash received from oil and gas operations             $ 2,178,583   $ 1,275,462   $ 769,367
 Cash paid for oil and gas operating expenses             (713,690)     (293,332)   (276,430)
 Cash paid for general and administrative expenses        (194,554)     (113,023)    (86,484)
 Interest received                                           2,121         7,166      17,285
 Interest paid                                            (140,272)       (7,298)          -
 Income taxes paid                                         (24,731)       (2,652)    (38,148)
 Other receipts                                             11,109           608      10,819
                                                       -----------   -----------   ---------
 
         Net cash provided by operating activities       1,118,566       866,931     396,409
 
Cash flows from investing activities
 Capital expenditures for oil and gas properties        (2,089,136)   (1,294,556)   (969,271)
 Proceeds from sale of assets                                   64        32,449      24,000
 Payments for purchase of other property                   (13,959)       (3,791)          -
 Payments for purchase of Forman Energy Corporation              -    (1,369,332)          -
                                                       -----------   -----------   ---------
 
         Net cash used in investing activities          (2,103,031)   (2,635,230)   (945,271)
 
Cash flows from financing activities
 Borrowings                                                685,000     1,637,000           -
 Payments on debt                                         (500,000)            -           -
 Proceeds from issuance of common stock                  1,000,000             -     500,000
                                                       -----------   -----------   ---------
 
         Net cash provided by financing activities       1,185,000     1,637,000     500,000
                                                       -----------   -----------   ---------
 
         NET INCREASE (DECREASE) IN CASH
             AND CASH EQUIVALENTS                          200,535      (131,299)    (48,862)
 
Cash and cash equivalents at beginning of year              40,813       172,112     220,974
                                                       -----------   -----------   ---------
 
Cash and cash equivalents at end of year               $   241,348   $    40,813   $ 172,112
                                                       ===========   ===========   =========
</TABLE>

                                      F-6
<PAGE>
 
                    MEXCO ENERGY CORPORATION AND SUBSIDIARY

               CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

                              Year ended March 31,
<TABLE>
<CAPTION>
 
 
                                                                1998         1997        1996
                                                            ------------  ----------  ----------
<S>                                                         <C>           <C>         <C>
 
Reconciliation of Net Earnings (Loss) to Net Cash
 Provided by Operating Activities
 
Net earnings (loss)                                         $(1,323,657)  $ 377,867    $200,606
Adjustments to reconcile net earnings (loss) to net cash
 provided by operating activities
   Depreciation, depletion, and amortization                  2,808,753     477,830     262,392
   Deferred income taxes                                       (341,181)     94,890       2,573
   (Increase) decrease in
     Accounts receivable                                         83,354    (182,671)    (36,602)
     Recoverable income taxes                                         -           -       9,126
     Prepaid expenses                                           (15,185)          -       1,350
   Increase (decrease) in
     Accounts payable                                           (53,425)     58,922      (4,888)
     Income taxes payable                                       (40,093)     40,093     (38,148)
                                                            -----------   ---------    --------
 
         Net cash provided by operating activities          $ 1,118,566   $ 866,931    $396,409
                                                            ===========   =========    ========
</TABLE>
Noncash investing and financing activities:
------------------------------------------ 

Included in trade accounts payable at March 31, 1998 are purchases of oil and
gas properties totaling $83,050.

Included in trade accounts payable at March 31, 1997 are purchases of oil and
gas properties and a liability related to the Forman Energy Corporation
acquisition totaling $76,407.

The purchase of Forman Energy Corporation on February 25, 1997 resulted in the
assumption of a deferred tax liability and account payable as follows:
<TABLE>
<CAPTION>
 
<S>                       <C>
   Assets acquired        $1,591,000
   Cash paid               1,369,000
                          ----------
 
   Liabilities assumed    $  222,000
                          ==========
</TABLE>

       The accompanying notes are an integral part of these statements.

                                      F-7
<PAGE>
 
                    MEXCO ENERGY CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                         March 31, 1998, 1997, and 1996


NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES

        The major operations of Mexco Energy Corporation and Subsidiary (the
        "Company") consist of exploration, production, and sale of crude oil and
        natural gas in the United States with an area of concentration in Texas.

        A summary of the significant accounting policies consistently applied in
        the preparation of the accompanying financial statements follows.

        1.  Principles of Consolidation
            ---------------------------

        The Company consolidates the accounts of its wholly-owned subsidiary
        Forman Energy Corporation ("Forman"), eliminating all intercompany
        balances and transactions.

        2.  Oil and Gas Properties
            ----------------------

        The full cost method of accounting is used to account for oil and gas
        properties. Under this method of accounting, all costs incident to the
        acquisition, exploration, and development of properties (both developed
        and undeveloped), including costs of abandoned leaseholds, lease
        rentals, unproductive wells, and well drilling and equipment costs, are
        capitalized. Costs are amortized using the units-of-production method
        based primarily on estimates of reserve quantities. Due to uncertainties
        inherent in this estimation process, it is at least reasonably possible
        that reserve quantities will be revised significantly in the near term.
        If the Company's unamortized costs exceed the cost center ceiling
        (defined as the sum of the present value, discounted at 10%, of
        estimated unescalated future net revenues from proved reserves, less
        related income tax effects), the excess is charged to expense in the
        year in which the excess occurs. Generally, no gains or losses are
        recognized on the sale or disposition of oil and gas properties.

        3.  Depreciation
            ------------

        Depreciation of office furniture, fixtures, and equipment is provided on
        the straight-line method over estimated useful lives of five to ten
        years.

        4.  Production Costs and Administrative Service Arrangements
            --------------------------------------------------------

        Production costs include lease operating expenses and production taxes.
        Reimbursements related to administrative service arrangements are
        recorded as revenues.

        5.  Earnings (Loss) Per Share
            -------------------------

        Basic and diluted earnings (loss) per share are calculated using the
        weighted average number of shares outstanding during each year. Basic
        and diluted earnings (loss) per share are the same for all periods
        presented.

        6.  Cash and Cash Equivalents
            -------------------------

        The Company considers all highly liquid debt instruments purchased with
        a maturity of three months or less and money market funds to be cash
        equivalents.

                                      F-8
<PAGE>
 
                    MEXCO ENERGY CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                         March 31, 1998, 1997, and 1996


NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES - CONTINUED

        6.  Cash and Cash Equivalents - Continued
            -------------------------------------

        The Company maintains its cash in bank deposit accounts and money market
        funds, some of which are not federally insured. The Company has not
        experienced any losses in such accounts and believes it is not exposed
        to any significant credit risk.

        7.  Income Taxes
             ------------

        The Company accounts for income taxes using the liability method. Under
        the liability method of accounting for income taxes, deferred taxes are
        recognized for the tax consequences of temporary differences by applying
        enacted tax rates applicable to future years to differences between the
        carrying amounts and the tax bases of existing assets and liabilities.

        8.  Use of Estimates
            ----------------

        In preparing financial statements in conformity with generally accepted
        accounting principles, management makes estimates based on management's
        knowledge and experience. Due to their prospective nature, actual
        results could differ from those estimates.

NOTE B - BUSINESS COMBINATION

        On February 25, 1997, Mexco acquired Forman who is engaged in the
        exploration, production, and sale of crude oil and natural gas. The
        acquisition has been accounted for using the purchase method, and the
        operations of the acquired company are included subsequent to February
        1, 1997. The purchase price of approximately $1,591,000 was allocated to
        the assets, primarily oil and gas properties, acquired on the basis of
        their estimated fair value.

        The following summarized pro forma, unaudited, information assumes the
        acquisition of Forman had occurred on April 1, 1995:
<TABLE>
<CAPTION>
 
                                            Year ended March 31,
                                           ----------------------
                                              1997        1996
                                           ----------  ----------
<S>                                        <C>         <C>
 
   Revenues                                $1,831,031  $1,151,912
   Net earnings                               476,948     107,993
   Basic and diluted earnings per share           .34         .08
</TABLE>

                                      F-9
<PAGE>
 
                    MEXCO ENERGY CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                         March 31, 1998, 1997, and 1996


NOTE C - BANK LINE OF CREDIT

        The Company has a $3,000,000 revolving line of credit with NationsBank
        of Texas, N.A. at March 31, 1998. The borrowing base of the line is
        reduced by $50,000 each month beginning in February 1998 and continuing
        throughout the term of the loan. At March 31, 1998, the borrowing base
        is $2,100,000. The line of credit may be drawn down through August 15,
        1999. Required principal payments will begin in September 1998 based on
        the current level of debt. The required payments for the year ended
        March 31, 1999 are reflected as a current liability in the financial
        statements. Interest is payable monthly at prime rate (8.5% at March 31,
        1998) as established by the bank. The line of credit is collateralized
        by the common stock of Forman and oil and gas properties.

NOTE D - INCOME TAXES

        Income tax expense (benefit) for years ended March 31 is as follows:
<TABLE>
<CAPTION>
 
                                   1998       1997      1996
                                ----------  --------  --------
<S>                             <C>         <C>       <C>
 
   Current expense (benefit)
      Federal                   $ (28,388)  $ 40,994   $ 9,126
      State                             -      1,751         -
                                ---------   --------  --------
                                  (28,388)    42,745     9,126
 
   Deferred expense (benefit)
        Federal                  (301,814)    83,941     2,150
        State                     (39,367)    10,949       423
                                ---------   --------  --------
 
                                 (341,181)    94,890     2,573
                                ---------   --------  --------
 
                                $(369,569)  $137,635   $11,699
                                =========   ========  ========
</TABLE>

        The income tax provision reconciled to the tax computed at the statutory
        federal rate for years ended March 31 is as follows:

<TABLE>
<CAPTION>
 
                                                    1998       1997       1996
                                                 ----------  ---------  ---------
<S>                                              <C>         <C>        <C>
 
   Tax expense (benefit) at statutory rate       $(575,697)  $175,271   $ 72,184
   Increase (decrease) in valuation allowance      135,890     (3,072)    (5,806)
   State income taxes                                    -      8,215      1,461
   Prior year overaccrual                          (28,388)    (4,794)   (16,308)
   Effect of graduated rates                       130,450    (41,241)   (34,194)
   Other                                           (31,824)     3,256     (5,638)
                                                 ---------   --------   --------
 
                                                 $(369,569)  $137,635   $ 11,699
                                                 =========   ========   ========
</TABLE>

                                      F-10
<PAGE>
 
                    MEXCO ENERGY CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                         March 31, 1998, 1997, and 1996


NOTE D - INCOME TAXES - CONTINUED

        Amounts of deferred tax assets, valuation allowance, and liabilities at
        March 31 are as follows:
<TABLE>
<CAPTION>
 
                                                                        1998        1997
                                                                     ----------  ----------
<S>                                                                  <C>         <C>
   Deferred tax assets
     Percentage depletion carryforwards                              $ 142,218   $  97,794
     Net operating loss carryforwards                                  101,780           -
      Valuation allowance                                             (135,890)          -
                                                                     ---------   ---------
                                                                       108,108      97,794
 
   Deferred tax liabilities
     Excess financial accounting bases over tax bases of property
        and equipment                                                 (108,108)   (438,975)
                                                                     ---------   ---------
 
             Net deferred tax assets (liabilities)                   $       -   $(341,181)
                                                                     =========   =========
 
   Increase (decrease) in valuation allowance for the year           $ 135,890   $  (3,072)
                                                                     =========   =========
</TABLE>

        As of March 31, 1998, the Company has statutory depletion carryforwards
        of approximately $547,000 which do not expire and operating loss
        carryforwards of approximately $391,000 that expire in 2018.

NOTE E - SEGMENT INFORMATION AND MAJOR CUSTOMERS

        The Company operates exclusively within the United States in the onshore
        exploration and production of oil and gas. In the normal course of
        business, the Company extends credit to customers in the oil and gas
        industry and therefore has significant credit risk in this sector of the
        economy. Historically, the Company has not had significant bad debts
        and, as such, no allowance for doubtful accounts has been provided in
        the accompanying financial statements.

        Customers which accounted for 10% or more of revenues are as follows:
<TABLE>
<CAPTION>
 
                                             Year ended March 31,
                                            -----------------------
                                             1998     1997    1996
                                            -------  ------  ------
<S>                                         <C>      <C>     <C>
 
   Navajo Crude Oil Marketing Company           33%     46%     40%
   Sun Refining and Marketing Company            -      10%     13%
   Aquila Southwest Pipeline Corporation        15%     24%      -
</TABLE>

        The Company does not believe the loss of any of the above customers
        would result in any material adverse effect on its business.

                                      F-11
<PAGE>
 
                    MEXCO ENERGY CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                         March 31, 1998, 1997, and 1996


NOTE F - OIL AND GAS COSTS

        The costs related to the oil and gas activities of the Company were
        incurred as follows:
<TABLE>
<CAPTION>
 
                                                            Year ended March 31,
                                                       ------------------------------
                                                          1998       1997      1996
                                                       ----------  --------  --------
<S>                                                    <C>         <C>       <C>
 
   Property acquisition costs                          $  751,160  $562,363  $650,496
   Development costs                                   $1,261,569  $808,600  $318,775

</TABLE>

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

<TABLE>
<CAPTION>
 
                                                          1998        1997        1996
                                                       ----------  ----------  ----------
<S>                                                    <C>         <C>         <C>
 
   Proved oil and gas properties                       $9,854,099  $7,698,866  $4,900,230
   Unproved oil and gas properties                         61,602     121,120           -
      Less accumulated depreciation, depletion, and
        amortization                                    5,853,458   3,046,602   2,569,291
                                                       ----------  ----------  ----------
 
                                                       $4,062,243  $4,773,384  $2,330,939
                                                       ==========  ==========  ==========
</TABLE>

        Depreciation, depletion, and amortization expense, which included a full
        cost ceiling write-down of approximately $1,742,000 recorded in the
        fourth quarter of the year ended March 31, 1998 due to declines in oil
        and gas prices. Depreciation, depletion, and amortization amounted to
        $20.66, $6.02, and $4.35 per equivalent barrel of production for the
        years ended March 31, 1998, 1997, and 1996, respectively.

NOTE G - STOCKHOLDERS' EQUITY

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

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

NOTE H - EMPLOYEE BENEFIT PLAN

        The Company adopted an employee incentive stock plan effective September
        15, 1997. Under the plan, 350,000 shares are available for distribution.
        Awards, granted at the discretion of a committee of the Board, include
        stock options or restricted stock. Stock options may be an incentive
        stock option or a nonqualified stock option. The exercise price of each
        option will not be less than the market price of the Company's stock on
        the date of grant. The maximum term of the options is ten years.
        Restricted stock may be granted with a condition to attain a specified
        goal. The purchase price will be at least $5.00 per share of restricted
        stock. The awards of restricted stock must be accepted within sixty days
        and will vest as determined by agreement. Holders of restricted stock
        have all rights of a shareholder of the Company. At March 31, 1998, no
        stock or stock options had been granted under the plan.

                                      F-12
<PAGE>
 
                    MEXCO ENERGY CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                         March 31, 1998, 1997, and 1996


NOTE I - RELATED PARTY TRANSACTIONS

        The Company serves as operator of properties in which the majority
        stockholder has interests and, in that capacity, bills the majority
        stockholder for lease operating expenses on a monthly basis subject to
        usual trade terms. The billings totaled approximately $50,097, $112,657,
        and $106,198 for the years ended March 31, 1998, 1997, and 1996,
        respectively. Accounts receivable include $8,473 and $6,042 due from the
        majority stockholder at March 31, 1998 and 1997, respectively.

NOTE J - FINANCIAL INSTRUMENTS

        The following table includes estimated fair value information as of
        March 31, 1998 and 1997, as required by Statement of Financial
        Accounting Standards ("SFAS") No. 107. Such information, which pertains
        to the Company's financial instruments, is based on the requirements set
        forth in that Statement and does not purport to represent the aggregate
        net fair value of the Company. All of the financial instruments are held
        for purposes other than trading.

        The following methods and assumptions were used to estimate the fair
        value of each class of financial instruments for which it is practicable
        to estimate that value.

        Cash and Cash Equivalents - The carrying amount approximates fair value
        -------------------------                                              
        because of the contractual right to receive the deposits upon demand.

        Bank Line of Credit - The carrying amount approximates fair value
        -------------------
        because floating interest rates approximate current market rates.

        Financial instruments and the estimated fair values are as follows:

<TABLE> 
<CAPTION> 
                                                     March 31, 1998
                                      --------------------------------------------
                                      Carrying amount of   Estimated fair value of
                                      assets (liabilities)   assets (liabilities)
                                      -------------------- -----------------------
<S>                                     <C>                  <C> 
   Cash and cash equivalents               $   241,348            $   241,348
   Bank line of credit                       1,822,000              1,822,000
</TABLE> 

<TABLE> 
<CAPTION> 
                                                      March 31, 1997
                                      --------------------------------------------
                                      Carrying amount of   Estimated fair value of
                                      assets (liabilities)   assets (liabilities)
                                      -------------------- -----------------------
<S>                                     <C>                  <C> 
   Cash and cash equivalents              $      40,813          $      40,813
   Bank line of credit                       (1,637,000)            (1,637,000)
</TABLE> 

NOTE K - SUBSEQUENT EVENT

        On April 2, 1998, the Board of Directors granted stock options for
        40,000 shares of common stock at $7.75 per share which vest at 25% on
        each annual anniversary date and expire ten years from date of grant.
        The Company will account for the options under the intrinsic value
        method pursuant to APB Opinion 25.

                                      F-13
<PAGE>
 
                    MEXCO ENERGY CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                         March 31, 1998, 1997, and 1996


NOTE L - OIL AND GAS RESERVE DATA (UNAUDITED)

        In accordance with SFAS No. 69 and Securities and Exchange Commission
        ("SEC") rules and regulations, the following information is presented
        with regard to the Company's proved oil and gas reserves, all of which
        are located in the United States. Information for oil is presented in
        barrels ("Bbls") and for gas in thousand cubic feet ("Mcf").

        The SEC has adopted SFAS No. 69 disclosure guidelines for oil and gas
        producers. These rules require the Company to include as a supplement to
        the basic financial statements a standardized measure of discounted
        future net cash flows relating to proved oil and gas reserves.

        The standardized measure, in management's opinion, should be examined
        with caution. The basis for these disclosures is an independent
        petroleum engineer's reserve study which contains imprecise estimates of
        quantities and rates of production of reserves. Revision of prior year
        estimates can have a significant impact on the results. Also,
        exploration costs in one year may lead to significant discoveries in
        later years and may significantly change previous estimates of proved
        reserves and their valuation. Values of unproved properties and
        anticipated future price and cost increases or decreases are not
        considered. Therefore, the standardized measure is not necessarily a
        "best estimate" of the fair value of the Company's oil and gas
        properties or of future net cash flows.

        The following summaries of changes in reserves and standardized measure
        of discounted future net cash flows were prepared from estimates of
        proved reserves developed by independent petroleum engineers.

                     Summary of Changes in Proved Reserves
                                  (Unaudited)
<TABLE>
<CAPTION>
 
                                                1998                   1997                   1996
                                        ---------------------  ---------------------  --------------------
                                          Bbls        Mcf        Bbls        Mcf        Bbls       Mcf
                                        ---------  ----------  ---------  ----------  --------  ----------
<S>                                     <C>        <C>         <C>        <C>         <C>       <C>
 
   Proved developed and undeveloped
     reserves
      Beginning of year                  436,000   2,956,000    425,000   1,920,000   207,000   1,567,000
      Revision of previous estimates    (132,000)    268,000   (113,000)    411,000    11,000      29,000
      Purchase of minerals in place        6,000     405,000     89,000     902,000   111,000     352,000
      Extensions and discoveries               -           -     75,000      83,000   126,000     217,000
      Production                         (64,000)   (432,000)   (40,000)   (236,000)  (29,000)   (188,000)
      Sales of minerals in place               -           -          -    (124,000)   (1,000)    (57,000)
                                        --------   ---------   --------   ---------   -------   ---------
 
      End of year                        246,000   3,197,000    436,000   2,956,000   425,000   1,920,000
                                        ========   =========   ========   =========   =======   =========
 
   Proved developed reserves
      Beginning of year                  281,000   2,400,000    209,000   1,593,000   183,000   1,472,000
      End of year                        219,000   2,941,000    281,000   2,400,000   209,000   1,593,000
</TABLE>

                                      F-14
<PAGE>
 
                    MEXCO ENERGY CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                         March 31, 1998, 1997, and 1996


NOTE L - OIL AND GAS RESERVE DATA (UNAUDITED) - CONTINUED

            Standardized Measure of Discounted Future Net Cash Flows
                    Relating to Proved Oil and Gas Reserves
                                  (Unaudited)
<TABLE>
<CAPTION>
 
                                                                              March 31,
                                                               ----------------------------------------
                                                                   1998          1997          1996
                                                               ------------  ------------  ------------
<S>                                                            <C>           <C>           <C>
 
   Future oil and gas revenues                                 $ 9,794,000   $13,901,000   $12,239,000
   Future production and development costs                      (3,791,000)   (5,678,000)   (4,576,000)
   Future income tax expense                                      (612,000)   (1,348,000)     (740,000)
                                                               -----------   -----------   -----------
   Future net cash flows                                         5,391,000     6,875,000     6,923,000
   Discounted at 10% for estimated timing of cash flows         (1,896,000)   (2,427,000)   (2,742,000)
                                                               -----------   -----------   -----------
 
   Standardized measure of discounted future net cash flows    $ 3,495,000   $ 4,448,000   $ 4,181,000
                                                               ===========   ===========   ===========
 
</TABLE>
      Changes in Standardized Measure of Discounted Future Net Cash Flows
                     Related to Proved Oil and Gas Reserves
                                  (Unaudited)
<TABLE>
<CAPTION>
 
                                                                             Year ended March 31,
                                                                 --------------------------------------------
                                                                       1998          1997           1996
                                                                 -------------  -------------  --------------
<S>                                                              <C>            <C>            <C>
   Sales and transfers of oil and gas produced, net of                          
    production costs                                               $(1,427,000)  $(1,106,000)    $(526,000)  
   Net changes in prices and production costs                         (519,000)     (582,000)      734,000
   Extensions and discoveries, less related costs                            -       678,000       954,000
   Revisions of previous quantity estimates                           (428,000)     (237,000)       95,000
   Accretion of discount                                               532,000       463,000       203,000
   Net change due to purchases and sales of minerals in place          456,000     1,338,000     1,150,000
   Net change in income taxes                                          475,000      (425,000)     (254,000)
   Other                                                               (42,000)      138,000       (11,000)
                                                                    ----------    ----------   -----------
                                                                                
          Net increase (decrease)                                     (953,000)      267,000     2,345,000
                                                                                
   Balance at beginning of year                                      4,448,000     4,181,000     1,836,000
                                                                    ----------    ----------   -----------
                                                                                
   Balance at end of year                                           $3,495,000    $4,448,000   $ 4,181,000
                                                                    ==========    ==========   ===========
</TABLE>

                                      F-15