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

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended SeptemberJune 30, 20092010

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from         to


Commission File No. 0-6994


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

Colorado84-0627918
(State or other jurisdiction of
(IRS Employer
incorporation or organization)Identification Number)

214 West Texas Avenue, Suite 1101 
Midland, Texas79701
(Address of principal executive offices)(Zip code)

(432) 682-1119
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.  YES [√]  NO [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [  ]  No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company as defined in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer [  ]Accelerated Filer [  ]
  
Non-Accelerated Filer [  ]Smaller reporting company [√]
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES [  ]   NO [√]

The number of shares outstanding of the registrant’s common stock, $0.50 par value, $.50 per share, as of NovemberAugust 12, 20092010 was 1,891,866.2,006,366.
 
 
Page 1
 
 
MEXCO ENERGY CORPORATION


Table of Contents
   Page
PART I.  FINANCIAL INFORMATION 
  
 Item 1.Consolidated Balance Sheets (Unaudited) as of SeptemberJune 30, 20092010 (Unaudited) and March 31, 200920103
    
  Consolidated Statements of Operations (Unaudited) for the three months ended June 30, 2010 and six months ended SeptemberJune 30, 2009 and September 30, 20084
    
  
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) as of
September June 30, 2009
2010		5
    
  Consolidated Statements of Cash Flows (Unaudited) for the sixthree months ended SeptemberJune 30, 20092010 and SeptemberJune 30, 200820096
    
  Notes to Consolidated Financial Statements (Unaudited)7
    
 Item 2.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
1110
    
 Item 3.Quantitative and Qualitative Disclosures About Market Risk1412
    
 Item 4.Controls and Procedures1413
    
PART II.  OTHER INFORMATION 
  
 Item 1.Legal Proceedings1514
    
 Item 1A.Risk Factors1514
    
 Item 2.Unregistered Sales of Equity Securities and Use of Proceeds1514
    
 Item 3.Defaults upon Senior Securities1514
    
 Item 4.Submission of Matters to a Vote of Security HoldersRemoved and Reserved1514
    
 Item 5.Other Information1514
    
 Item 6.Exhibits1514
    
SIGNATURES1614
  
CERTIFICATIONS 
 
 
Page 2
 
 
Mexco Energy Corporation and SubsidiariesMexco Energy Corporation and Subsidiaries Mexco Energy Corporation and Subsidiaries 
CONSOLIDATED BALANCE SHEETSCONSOLIDATED BALANCE SHEETS CONSOLIDATED BALANCE SHEETS 
(Unaudited) 
      
       June 30,  March 31, 
 September 30,  March 31,  2010  2010 
 2009  2009  (Unaudited)    
ASSETS            
Current assets            
Cash and cash equivalents $229,057  $223,583  $141,457  $160,439 
Accounts receivable:                
Oil and gas sales  475,643   351,040   430,732   538,444 
Trade  58,317   164,834   22,136   63,455 
Related parties  -   1,687   -   55 
Prepaid costs and expenses  69,866   36,610   56,399   17,161 
Total current assets  832,883   777,754   650,724   779,554 
                
        
        
Property and equipment, at cost                
Oil and gas properties, using the full cost method  27,016,662   26,735,778   27,439,085   27,353,016 
Other  65,470   61,362   78,520   76,161 
  27,082,132   26,797,140   27,517,605   27,429,177 
                
Less accumulated depreciation, depletion and amortization  13,604,549   13,066,014   14,430,651   14,179,156 
Property and equipment, net  13,477,583   13,731,126   13,086,954   13,250,021 
 $14,310,466  $14,508,880  $13,737,678  $14,029,575 
                
LIABILITIES AND STOCKHOLDERS' EQUITY                
        
Current liabilities                
Accounts payable and accrued expenses $460,074  $555,765  $401,078  $301,160 
Current portion of long-term debt  325,000   - 
Total current liabilities  726,078   301,160 
                
Long-term debt  1,275,000   1,400,000   -   700,000 
Asset retirement obligations  462,042   440,011 
Asset retirement obligation  498,180   486,305 
Deferred income tax liabilities  986,705   1,185,494   853,748   902,757 
        
Commitments and contingencies        
                
Stockholders' equity                
Preferred stock - $1.00 par value;                
10,000,000 shares authorized; none outstanding  -   -   -   - 
Common stock - $0.50 par value; 40,000,000 shares authorized;                
1,975,866 and 1,962,616 shares issued;
1,891,866 and 1,878,616 shares outstanding as of
        
September 30, 2009 and March 31, 2009, respectively  987,933   981,308 
2,006,366 and 2,003,866 shares issued;
1,922,366 and 1,919,866 shares outstanding
        
as of June 30, 2010 and March 31, 2010, respectively  1,003,183   1,001,933 
Additional paid-in capital  5,719,683   5,617,620   5,921,192   5,907,899 
Retained earnings  4,845,646   4,755,299   5,161,914   5,156,138 
Treasury stock, at cost (84,000 shares)  (426,617)  (426,617)  (426,617)  (426,617)
Total stockholders' equity  11,126,645   10,927,610   11,659,672   11,639,353 
 $14,310,466  $14,508,880  $13,737,678  $14,029,575 
The accompanying notes are an integral part of
the consolidated financial statements.
Page 3
Mexco Energy Corporation and Subsidiaries 
CONSOLIDATED STATEMENTS OF OPERATIONS 
(Unaudited) 
  
  Three Months Ended  Six Months Ended 
  September 30  September 30 
  2009  2008  2009  2008 
Operating revenue:            
Oil and gas $737,944  $1,595,209  $1,391,754  $3,267,797 
Other  8,350   6,597   12,717   13,330 
Total operating revenues  746,294   1,601,806   1,404,471   3,281,127 
                 
Operating expenses:                
Production  269,251   357,753   510,224   692,741 
Accretion of asset retirement obligation  7,879   7,266   15,607   14,204 
Depreciation, depletion, and amortization  275,072   240,962   538,534   479,807 
General and administrative  198,229   199,239   430,414   480,900 
Total operating expenses  750,431   805,220   1,494,779   1,667,652 
                 
Operating profit (loss)  (4,137)  796,586   (90,308)  1,613,475 
                 
Other income (expenses):                
Interest income  61   671   227   1,007 
Interest expense  (8,737)  (19,854)  (18,361)  (53,589)
                 
Net other expense  (8,676)  (19,183)  (18,134)  (52,582)
                 
Earnings (loss) before provision for income taxes  (12,813)  777,403   (108,442)  1,560,893 
                 
Income tax expense (benefit):                
Current  -   257,562   -   471,130 
Deferred  (171,163)  8,726   (198,789)  39,859 
   (171,163)  266,288   (198,789)  510,989 
                 
Net income $158,350  $511,115  $90,347  $1,049,904 
                 
                 
Earnings per common share:                
Basic $0.08  $0.27  $0.05  $0.58 
Diluted $0.08  $0.26  $0.05  $0.55 
                 
Weighted average common shares outstanding:                
Basic  1,883,248   1,873,127   1,880,944   1,817,962 
Diluted  1,942,514   1,975,453   1,945,702   1,922,568 

The accompanying notes are an integral part of
the consolidated financial statements.
 
 
Page 43
 
 
Mexco Energy Corporation and Subsidiaries 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 
(Unaudited) 
                
  Common Stock Par Value  Treasury Stock  Additional Paid-In Capital  Retained Earnings  Total Stockholders’ Equity 
                
Balance at March 31, 2009 $981,308  $(426,617) $5,617,620  $4,755,299  $10,927,610 
Net loss  -   -   -   (68,003)  (68,003)
Stock based compensation  -   -   9,348   -   9,348 
Balance at June 30, 2009 $981,308  $(426,617) $5,626,968  $4,687,296  $10,868,955 
                     
Net Income  -   -   -   158,350   158,350 
Issuance of stock through                    
options exercised  6,625   -   86,167   -   92,792 
Stock based compensation  -   -   6,548   -   6,548 
Balance at September 30, 2009 $987,933  $(426,617) $5,719,683  $4,845,646  $11,126,645 
                     
                     
SHARE ACTIVITY                    
                     
Common stock shares, issued:                    
Balance at March 31, 2009      1,962,616             
Issued      -             
Balance at June 30, 2009      1,962,616             
Issued      13,250             
Balance at Sept. 30, 2009      1,975,866             
                     
Common stock shares, held in treasury:                 
Balance at March 31, 2009      (84,000)            
Acquisitions      -             
Balance at June 30, 2009      (84,000)            
Acquisitions      -             
Balance at Sept. 30, 2009      (84,000)            
                     
Common stock shares, outstanding                 
at September 30, 2009      1,891,866             
Mexco Energy Corporation and Subsidiaries 
CONSOLIDATED STATEMENTS OF OPERATIONS 
For the Three Months Ended June 30, 
(Unaudited) 
       
  2010  2009 
       
Operating revenues:      
Oil and gas $832,010  $653,810 
Other  4,383   4,367 
Total operating revenues  836,393   658,177 
         
Operating expenses:        
Production  368,227   240,973 
Accretion of asset retirement obligation  8,430   7,728 
Depreciation, depletion and amortization  251,495   263,462 
General and administrative  248,139   232,185 
Total operating expenses  876,291   744,348 
         
Operating loss  (39,898)  (86,171)
         
Other income (expense):        
Interest income  4   166 
Interest expense  (3,339)  (9,624)
Net other expense  (3,335)  (9,458)
         
Loss before provision for income taxes  (43,233)  (95,629)
         
Income tax benefit:        
Current  -   - 
Deferred  (49,009)  (27,626)
   (49,009)  (27,626)
         
Net income (loss) $5,776  $(68,003)
         
         
Earnings (loss) per common share:        
Basic $0.00  $(0.04)
Diluted $0.00  $(0.04)
         
Weighted average common shares outstanding:        
Basic  1,922,152   1,878,616 
Diluted  1,946,847   1,878,616 

The accompanying notes are an integral part of
the consolidated financial statements.
Page 4
Mexco Energy Corporation and Subsidiaries 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 
(Unaudited) 
                
  
Common
Stock Par
Value
  
Treasury
Stock
  
Additional
Paid-In
Capital
  
Retained
Earnings
  
Total
Stockholders’
Equity
 
                
Balance at March 31, 2010 $1,001,933  $(426,617) $5,907,899  $5,156,138  $11,639,353 
Net income  -   -   -   5,776   5,776 
Issuance of stock through                    
options exercised  1,250   -   9,625   -   10,875 
Stock based compensation  -   -   3,668   -   3,668 
Balance at June 30, 2010 $1,003,183  $(426,617) $5,921,192  $5,161,914  $11,659,672 
                     
                     
SHARE ACTIVITY                    
                     
Common stock shares, issued:                    
Balance at March 31, 2010      2,003,866             
Issued      2,500             
Balance at June 30, 2010      2,006,366             
                     
Common stock shares, held in treasury:                 
Balance at March 31, 2010      (84,000)            
Acquisitions      -             
Balance at June 30, 2010      (84,000)            
                     
Common stock shares, outstanding                 
at June 30, 2010      1,922,366             
 
The accompanying notes are an integral part of
the consolidated financial statements.
 
 
Page 5
 
 
Mexco Energy Corporation and SubsidiariesMexco Energy Corporation and Subsidiaries Mexco Energy Corporation and Subsidiaries 
CONSOLIDATED STATEMENTS OF CASH FLOWSCONSOLIDATED STATEMENTS OF CASH FLOWS CONSOLIDATED STATEMENTS OF CASH FLOWS 
For the Six Months Ended September 30, 
For the Three Months Ended June 30,For the Three Months Ended June 30, 
(Unaudited)(Unaudited) (Unaudited) 
            
 2009  2008  2010  2009 
Cash flows from operating activities:            
Net income $90,347  $1,049,904 
Adjustments to reconcile net income to net cash        
Net income (loss) $5,776  $(68,003)
Adjustments to reconcile net income (loss) to net cash        
provided by operating activities:                
Deferred income tax (benefit) expense  (198,789)  39,859 
Excess tax benefit from share based payment arrangement  -   (471,130)
Deferred income tax benefit  (49,009)  (27,626)
Stock-based compensation  15,896   32,447   3,668   9,348 
Depreciation, depletion and amortization  538,534   479,807   251,495   263,462 
Accretion of asset retirement obligations  15,607   14,204   8,430   7,728 
Other  (2,038)  1,809   -   (625)
Changes in assets and liabilities:                
Increase in accounts receivable  (16,399)  (510,815)
Decrease in accounts receivable  149,086   82,960 
Increase in prepaid expenses  (33,256)  (29,242)  (39,238)  (26,979)
Increase in income taxes payable  -   471,130 
Increase in accounts payable and accrued expenses  41,959   543,091   114,734   53,114 
Net cash provided by operating activities  451,861   1,621,064   444,942   293,379 
                
Cash flows from investing activities:                
Additions to oil and gas properties  (451,485)  (1,231,574)  (97,440)  (234,224)
Additions to other property and equipment  (4,108)  -   (2,359)  (4,108)
Proceeds from investment in GazTex, LLC  -   18,700 
Proceeds from sale of oil and gas properties and equipment  41,414   374   -   2,290 
Net cash used in investing activities  (414,179)  (1,212,500)  (99,799)  (236,042)
                
Cash flows from financing activities:                
Proceeds from exercise of stock options  92,792   686,928   10,875   - 
Reduction of long-term debt  (200,000)  (2,025,000)  (375,000)  (150,000)
Proceeds from long-term debt  75,000   375,000 
Excess tax benefit from share based payment arrangement  -   471,130 
Net cash used in financing activities  (32,208)  (491,942)  (364,125)  (150,000)
                
Net increase (decrease) in cash and cash equivalents  5,474   (83,378)
Net decrease in cash and cash equivalents  (18,982)  (92,663)
                
Cash and cash equivalents at beginning of period  223,583   303,617   160,439   223,583 
                
Cash and cash equivalents at end of period $229,057  $220,239  $141,457  $130,920 
                
                
Supplemental disclosure of cash flow information:                
Cash paid for interest $18,899  $60,794  $4,214  $10,065 
Income taxes paid  -   -   -   - 
                
Non-cash investing and financing activities:                
Asset retirement obligations $7,335  $21,183  $3,445  $101 
 
The accompanying notes are an integral part of
the consolidated financial statements.
 
 
Page 6
 
 
MEXCO ENERGY CORPORATION AND SUBSIDIARYSUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.  Nature of Operations

Mexco Energy Corporation (a Colorado corporation) and its wholly owned subsidiary, Forman Energy Corporation (a New York corporation) (collectively, the “Company”) are engaged in the exploration, development and production of natural gas, crude oil, condensate and natural gas liquids (“NGLs”).  Although mostMost of the Company’s oil and gas interests are centered in West Texas,Texas; however, the Company owns producing properties and undeveloped acreage in ten states.  Although most of the Company’s oil and gas interests are operated by others, the Company operates several properties in which it owns an interest.

2.  Summary of Significant Accounting Policies

Principles of Consolidation.  The consolidated financial statements include the accounts of Mexco Energy Corporation and its wholly owned subsidiary.  All significant intercompany balances and transactions associated with the consolidated operations have been eliminated.

Estimates and Assumptions.  In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make informed judgments, estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and affect the reported amounts of revenues and expenses during the reporting period.  In addition, significant estimates are used in determining year end proved oil and gas reserves.  Although management believes its estimates and assumptions are reasonable, actual results may differ materially from those estimates.  The estimate of our oil and natural gas reserves, which is used to compute depreciation, depletio n, amortization and impairment of oil and gas properties, is the most significant of the estimates and assumptions that affect these reported results.

Interim Financial Statements.  In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position of the Company as of SeptemberJune 30, 2009,2010, and the results of its operations and cash flows for the interim periods ended SeptemberJune 30, 20092010 and 2008.2009.  The results of operations for the periods presented are not necessarily indicative of the results to be expected for a full year.  The accounting policies followed by the Company are set forth in more detail in Note A2 of the “Notes to Consolidated Financial Statements” in the Company’s annual report on Form 10-K filed with the Securities and Exchange CommissionCommis sion (“SEC”).  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the SEC.  However, the disclosures herein are adequate to make the information presented not misleading.  It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Form 10-K.

2.  Summary of Significant Accounting Policies

Principles of Consolidation.  The consolidated financial statements include the accounts of Mexco Energy Corporation and its wholly owned subsidiary.  Prior to fiscal 2010, balances included our wholly owned subsidiary, OBTX, LLC (a Delaware limited liability company) which was dissolved in March 2009.  All significant intercompany balances and transactions associated with the consolidated operations have been eliminated.

Estimates and Assumptions.  In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make informed judgments and estimates that affect the reported amounts of assets and liabilities as of the date of the financial statements and affect the reported amounts of revenues and expenses during the reporting period.  Although management believes its estimates and assumptions are reasonable, actual results may differ materially from those estimates.  Significant estimates affecting these financial statements include the estimated quantities of proved oil and gas reserves, the related present value of estimated future net cash flows and the future development, dismantlement and abandonment costs.

Stock-based Compensation.  The Company recognized compensation expense of $6,548$3,668 and $13,002$9,348 in general and administrative expense in the Consolidated Statements of Operations for the three months ended SeptemberJune 30, 20092010 and 2008, respectively.  Compensation expense recognized for the six months ended September 30, 2009, and 2008 was $15,896 and $32,447, respectively.

The following table is a summary of activity of stock options for the sixthree months ended SeptemberJune 30, 2009:2010:

  Number of Shares  Weighted Average Exercise Price Per Share  Weighted Aggregate Average Remaining Contract Life in Years  Intrinsic Value 
Outstanding at March 31, 2009  148,750  $6.04   3.04  $813,703 
Granted  -   -         
Exercised  13,250   7.00         
Forfeited or Expired  -   -         
Outstanding at September 30, 2009  135,500  $5.95   2.63  $657,783 
                 
Vested at September 30, 2009  109,250  $6.06   2.56  $517,645 
Exercisable at September 30, 2009  109,250  $6.06   2.56  $
517,645
 
  
Number of
Shares
  
Weighted
Average
Exercise Price
Per Share
  
Weighted
Aggregate Average
Remaining Contract
Life in Years
  
Intrinsic
Value
 
Outstanding at March 31, 2010  107,500  $5.94   2.51  $237,088 
Granted  -   -         
Exercised  (2,500)  4.35         
Forfeited or Expired  (7,500)  5.65         
Outstanding at June 30, 2010  97,500  $6.01   2.28  $150,313 
                 
Vested at June 30, 2010  85,000  $6.02   2.34  $129,763 
Exercisable at June 30, 2010  85,000  $6.02   2.34  $129,763 

There were no stock options granted during the quarters ended June 30, 2010 and 2009.
 
 
Page 7
 
 
There were noDuring the three months ended June 30, 2010, stock options granted during the six months ended September 30, 2009 and 2008.

During the six months ended September 30, 2009, employees and directorscovering 2,500 shares were exercised options onwith a total intrinsic value of 13,250 shares at exercise prices between $6.17 and $8.24 per share.$12,429.  The Company received proceeds of $92,792$10,875 from these exercises.  The total intrinsic value ofDuring the exercisedthree months ended June 30, 2009, no stock options was $55,661.  No tax deduction is recorded when options are awarded.  Of these exercised options, 4,750 shares resulted in a disqualifying disposition.  The Company issued new shares of common stock to settle these option exercises.were exercised.

No forfeiture rate is assumed for stock options granted to directors or employees due to the forfeiture rate history for these types of awards.  During the three months ended June 30, 2010, 7,500 unvested stock options were forfeited due to the termination of a consulting agreement with a consultant.  There were no stock options forfeited or expired during the sixthree months ended SeptemberJune 30, 2009.  During the six months ended September 30, 2008, 20,000 stock options expired because they were not exercised prior to the end of their ten-year term.

Outstanding options at SeptemberJune 30, 20092010 expire between March 2010January 2011 and July 2014 and have exercise prices ranging from $4.00 to $8.24.

The total cost related to non-vested awards not yet recognized at SeptemberJune 30, 20092010 totals approximately $22,000$4,400 which is expected to be recognized over a weighted average of 1.8.88 years.

Fair Value of Financial Instruments.  Fair value as defined by authoritative literature is the price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants at the measurement date (exit price).  The Company utilizes market datadate.  Fair value measurements are classified and disclosed in one of the following categories:

Level 1 – Quoted prices in active markets for identical assets and liabilities.

Level 2 – Quoted prices in active markets for similar assets and liabilities, quoted prices for identical or assumptionssimilar instruments in markets that market participants would use in pricing the assetare not active and model-derived valuations whose inputs are observable or liability, including assumptions about risk and the risks inherent in thewhose significant value drivers are observable.

Level 3 – Significant inputs to the valuation technique.  These inputs can be readily observable, market corroborated, or generallymodel are unobservable.  The Company primarily applies

Financial assets and liabilities are classified based on the market approach for recurringlowest level of input that is significant to the fair value measurementsmeasurement.  In accordance with the reporting requirements of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 825, Financial Instruments, the Company calculates the fair value of its assets and endeavor to utilize the best available information.liabilities which qualify as financial instruments under this statement.

The following represents information aboutinitial measurement of asset retirement obligations’ fair value is calculated using discounted cash flow techniques and is based on internal estimates of future retirement costs associated with oil and gas properties. Given the estimated fair valuesunobservable nature of the inputs, including plugging costs and reserve lives, the initial measurement of the asset retirement obligation (“ARO”) liability is deemed to use Level 3 inputs.  See the Company’s financial instruments:note on AROs for further discussion.  AROs incurred during the quarter ended June 30, 2010 were approximately $3,400.

CashThe carrying amount reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, other current assets, accounts payable interest payable and otheraccrued expenses and current liabilities.  The carrying amounts approximateportion of long term debt approximates fair value due tobecause of the shortimmediate or short-term maturity of these financial instruments.

Line of credit and term note.  The carrying amount of borrowings outstanding underreported in the Company’s credit facility approximateaccompanying consolidated balance sheets for long term debt approximates fair value because the instrument bearsactual interest at variable market rates.rates do not significantly differ from current rates offered for instruments with similar characteristics.

Assets and Liabilities Measured at Fair ValueCredit Facility.  The Company has a revolving credit agreement with Bank of America, N.A., which provides for a credit facility of $5,000,000 with no monthly commitment reductions.  The borrowing base is evaluated annually, on a Nonrecurring Basis. Certain assets and liabilitiesor about September 1.  Amounts borrowed under this agreement are reported at fair value on a nonrecurring basis incollateralized by the common stock of the Company’s consolidated balance sheets.wholly owned subsidiary and substantially all of the Company’s oil and gas properties.  In September 2008, the borrowing base was redetermined and set at $4,900,000.  There has been no change to this set borrowing base through June 2010.  Availability of this line of credit at June 30, 2010 was $4,575,000.  The following methods and assumptions were used to estimatecurrent portion of the fair values:long term debt will be due Ap ril 30, 2011.

ImpairmentsIn December 2008, the credit agreement was renewed with a maturity date of long-lived assets — TheOctober 31, 2010, which was subsequently amended in December 2009 to a maturity date of January 31, 2011.  A second amendment in March 2010, revised the maturity date to April 30, 2011.  Under the renewed agreement, interest on the facility accrues at an annual rate equal to the British Bankers Association London Interbank Offered Rate (“BBA LIBOR”) daily floating rate, plus 2.5 percentage points, which was 2.85% on June 30, 2010.  Interest on the outstanding amount under the credit agreement is payable monthly.  In addition, the Company reviews its long-lived assetswill pay an unused commitment fee in an amount equal to be held and used, including proved oil and gas properties, whenever events or circumstances indicate that½ of 1 percent (.5%) times the carrying value of those assets may not be recoverable.  An impairment loss is indicated if the sumdaily average of the expected future cash flows is less than the carryingunadvanced amount of the assets.commitment.  The unused comm itment fee shall be payable quarterly in arrears on the last day of each calendar quarter.

Page 8

The agreement contains customary covenants for credit facilities of this type including limitations on disposition of assets, mergers and reorganizations.  We are also obligated to meet certain financial covenants under the loan agreement.  The Company is in compliance with all covenants as of June 30, 2010.  In addition, this circumstance,agreement prohibits us from paying cash dividends on our common stock.

At the end of fiscal 2010, a letter of credit for $50,000, in lieu of a plugging bond with the Texas Railroad Commission covering the properties the Company recognizes an impairment loss foroperates is also outstanding under the amount by which the carrying amountfacility.  This letter of the asset exceeds the estimated fair value of the asset.  The Company reviews its oil and gas properties by amortization base or by individual well for those wells not constituting part of an amortization base.  For each property determined to be impaired, an impairment loss equal to the difference between the carrying value of the properties and the estimated fair value (discounted future cash flows) of the properties would be recognized at that time.  Estimating future cash flows involves the use of judgments, including estimation of the proved and unproved oil and gas reserve quantities, timing of development and production, expected future commodity prices, capital expenditures and production costs.credit renews annually.

Asset Retirement Obligations — The Company estimatesbalance outstanding on the fair valuesline of asset retirement obligations (“AROs”) based on discounted cash flow projections using numerous estimates, assumptionscredit as of June 30, 2010 was $325,000 and judgments regarding such factors$300,000 as the existence of a legal obligation for an ARO; amounts and timing of settlements; the credit-adjusted risk-free rate to be used; and inflation rates.August 11, 2010.

Asset Retirement Obligations.  The Company’s asset retirement obligations relate to the plugging of wells, the removal of facilities and equipment, and site restoration on oil and gas properties.  The fair value of a liability for an ARO is recorded in the period in which it is incurred, discounted to its present value using the credit adjusted risk-free interest rate, and a corresponding amount capitalized by increasing the carrying amount of the related long-lived asset.  The liability is accreted each period, and the capitalized cost is depreciated over the useful life of the related asset.
Page 8

The following table provides a rollforward of the asset retirement obligationsAROs for the first sixthree months of fiscal 2010:2011:

Carrying amount of asset retirement obligations as of April 1, 2009 $490,011 
Carrying amount of asset retirement obligations as of April 1, 2010 $536,305 
Liabilities incurred  7,335   3,445 
Liabilities settled  (911)  - 
Accretion expense  15,607   8,430 
Carrying amount of asset retirement obligations as of September 30, 2009  512,042 
Carrying amount of asset retirement obligations as of June 30, 2010  548,180 
Less: Current portion  50,000   50,000 
Non-Current asset retirement obligation $ 462,042  $498,180 

The ARO is included on the consolidated balance sheets with the current portion being included in the accounts payable and other accrued expenses.

Related Party Transactions.  Thomas Craddick, a member of the board of directors and Company employee, invested his personal funds in a working interest (5.0% before payout and 3.75% after payout) in the Company’s well in Ward County, Texas.  This personal investment was made on the same basis as an unrelated thirdRelated party investor.  Revenues paid to Mr. Craddick from this well were approximately $2,545transactions for the six months ended September 30, 2009.

On March 1, 2009, Jeff Smith, a geological consultant, entered into an amended agreementCompany relate to shared office expenditures with the Companymajority stockholder.   The total billed to provide geological consulting services for a fee of approximately $5,000 per month plus expenses.  In September 2009, this agreement was amended a second time to $500 per month plus expenses for services rendered without prior written approval the Company.  The Company incurred charges from Mr. Smith for services rendered under this amended agreement of approximately $8,250 and $22,750stockholder for the three and six monthsquarter ended September 30, 2009, respectively.  Also as part of this agreement, Mr. Smith received from the Company a 0.25% overriding interest in each of the two wells in Loving County, Texas, a 1.0% overriding interest in the well in Ward County, Texas and a .5% overriding interest in the well in Reeves County, Texas.  Mr. Smith invested his personal funds in a working interest in the Company’s wells in Reeves County, Texas (2.5% before payout and 1.875% after payout) and Ward County, Texas (2.0% before payout and 1.5% after payout, on a non-promoted basis.  Revenues paid to Mr. Smith from these wells were approximately $2,530 for the six months ended September 30, 2009.

At September 30, 2009, these related parties did not have a balance due for their share of the expenses on these wells.June 2010 was $31,032.

Income Per Common Share.  Basic net income per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period.  Diluted net income (loss) per share assumes the exercise of all stock options having exercise prices less than the average market price of the common stock during the period using the treasury stock method and is computed by dividing net income (loss) by the weighted average number of common shares and dilutive potential common shares (stock options) outstanding during the period.  In periods where losses are reported, the weighted-averageweighted average number of common shares outstanding excludes potential common shares, because their inclusion would be anti-dilutive.

The following is a reconciliation of the number of shares used in the calculation of basic income per share and diluted income per share for the three and six month periods ended SeptemberJune 30, 20092010 and 2008.2009.

 Three Months Ended  Six Months Ended  2010  2009 
 September 30  September 30 
 2009  2008  2009  2008 
Net income $158,350  $511,115  $90,347  $1,049,904 
Net income (loss) $5,776  $(68,003)
                        
Shares outstanding:                        
Weighted avg. common shares outstanding – basic  1,883,248   1,873,127   1,880,944   1,817,962 
Weighted average common shares outstanding – basic  1,922,152   1,878,616 
Effect of the assumed exercise of dilutive stock options  59,266   102,326   64,758   104,606   24,695   - 
Weighted avg. common shares outstanding – dilutive  1,942,514   1,975,453   1,945,702   1,922,568 
Weighted average common shares outstanding – dilutive  1,946,847   1,878,616 
                        
Earnings (loss) per common share:                        
Basic $0.08  $0.27  $0.05  $0.58  $0.00  $(0.04)
Diluted $0.08  $0.26  $0.05  $0.55  $0.00  $(0.04)

For the three month and six month periodsquarter ended SeptemberJune 30, 2009 and 2008,2010, no potential common shares relating to stock options were excluded in the computation of diluted net income per share.  Due to a net loss for the three months ended June 30, 2009, the weighted average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.

 
Page 9
 

Income Taxes.  The Company recognizes deferred tax assets and liabilities for future tax consequences of temporary differences between the carrying amounts of assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates applicable to the years in which those differences are expected to be settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in net income in the period that includes the enactment date.  There was no current income tax expense for the three months ended June 30, 2010 and six2009.  For the three months ending Septemberended June 30, 2009.  There2010 and 2009, there was a deferred income tax benefit of $171,163$49,009 and $198,789 for the three and six months ended September 2009,$27,626, respectively.& #160; This benefit was primarily a result of the completion of the 2008 tax return which included a changean increase in the statutory depletion carryforward.  For the three and six months ending September 30, 2008, current income tax was $257,562 and $471,130 and deferred income tax was $8,726 and $39,859, respectively.

As of September 30, 2009, the Company has a statutory depletion carryforward of approximately $3,218,000, which does not expire.  At September 30, 2009, there was a net operating loss carryforward for regular income tax reporting purposes of approximately $1,867,000, which will begin expiring in 2021.  The Company’s ability to use some of the net operating loss carryforward and certain other tax attributes to reduce current and future U.S. federal taxable income is subject to limitations under the Internal Revenue Code.

Any interest and penalties related to uncertain tax positions are recorded as interest expense and general and administrative expense, respectively.  As of SeptemberJune 30, 2009,2010, the Company hashad unrecognized tax benefits of approximately $473,000.  For the six months ending September 30, 2008, the amount of unrecognized tax benefits was approximately $563,000.$442,000.

Long Term Liabilities.Gas Balancing  Long term liabilities consist of a revolving credit agreement with Bank of America, N.A., which provides.  Gas imbalances are accounted for a credit facility of $5,000,000 with no monthly commitment reductions.  The borrowing base is evaluated annually, on or about September 1.  Amounts borrowed under this agreementthe sales method whereby revenues are collateralized by the common stock of  the Company’s wholly owned subsidiary and substantially all of the Company’s oil and gas properties.   In September 2008, the borrowing base was redetermined and set at $4,900,000.  There was no change to this set borrowing base in September 2009. Availability of this line of credit at September 30, 2009 was $3,625,000.  No principal payments are anticipated to be required through March 31, 2010recognized based on the revised borrowing base.production sold.  A liability is recorded when our excess takes of natural gas volumes exceeds our estimated remaining recoverable reserves (over produced).  No receivables are recorded for those wells where Mexco has taken less than its ownership share of gas production (under produced).  The Company does not have any significant gas imbalances.

In December 2008, the credit agreement was renewed with a maturity date of October 31, 2010.  Under the renewed agreement, interest on the facility accrues at an annual rate equal to the British Bankers Association London Interbank Offered Rate (“BBA LIBOR”) daily floating rate, plus 2.5 percentage points, which was 2.74625% on September 30, 2009.  Interest on the outstanding amount under the credit agreement is payable monthly.  In addition the Company will pay an unused commitment fee in an amount equal to 1/2 of 1 percent (.5%) times the daily average of the unadvanced amount of the commitment.  The unused commitment fee shall be payable quarterly in arrears on the last day of each calendar quarter beginning March 31, 2009.  The loan agreement contains customary covenants for credit facilities of this type including limitations on disposition of assets, mergers and reorganizations.  We are also obligated to meet certain financial covenants under the loan agreement.  Subsequent Events.  The Company is in compliance withcompleted a review and analysis of all covenants as of September 30, 2009.  In addition, this agreement prohibits us from paying cash dividends on our common stock.

Atevents that occurred after the end of fiscal 2009, two letters of credit for $50,000 each, in lieu of a plugging bond covering the properties the Company operates were outstanding under the facility, one with the Texas Railroad Commissionbalance sheet date to determine if any such events must be reported and one with the State of New Mexico.  These letters of credit renew annually.  Since the Companyhas determined that there are no longer has any well operations and does not plansubsequent events to have any operations in the State of New Mexico, the letter of credit for the State of New Mexico was not renewed and subsequently cancelled on April 29, 2009.

The balance outstanding on the line of credit was $1,275,000 as of September 30, 2009 and $1,150,000 as of November 12, 2009.be disclosed. 

Recent Accounting Pronouncements.In June 2009, the Financial Accounting Standards Board (“FASB”) introduced the FASB Accounting Standards Codification (the “Codification”) as the new source of authoritative U.S. Generally Accepted Accounting Principles (“GAAP”).  All existing accounting standard documents are superseded by the Codification and any accounting literature not included in the Codification will not be authoritative.  However, rules and interpretive releases of the SEC issued under the authority of federal securities laws will continue to be the source of authoritative generally accepted accounting principles for SEC registrants.  Effective September 30, 2009, there will be no more references made to the superseded FASB standards in the Company’s consolidated financial statements.  The Codification does not change or alter existing GAAP and, therefore, will not have an impact on the Company’s financial position, results of operations or cash flows.
Page 10
In December 2008, the SEC released Final Rule, Modernization of Oil and Gas Reporting.  The new requirements provide for consideration of new technologies in evaluating reserves, allow companies to disclose their probable and possible reserves to investors, report oil and gas reserves using an average price based on the prior 12-month period rather than year-end prices, and revise the disclosure requirements for oil and gas operations.  The final rules are effective for fiscal years ending on or after December 31, 2009.  The Company anticipates that the implementation of the new rule will provide a more meaningful and comprehensive understanding of oil and gas reserves.  The Company is currently assessing the impact that the adoption will have on its disclosures, operating results, financial position and cash flows.

In May 2009,January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-06, Fair Value Measurements and Disclosures (Topic 820).  ASU No. 2010-06 amends ASC Topic 820 with new guidance on Subsequent Events.and clarifications for improving disclosures about fair value measurements.  This guidance sets forth general standardsrequires enhanced disclosures regarding transfers of accountingassets and liabilities between Level 1 (quoted prices in active market for identical assets or liabilities) and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued.  The Company adopted this guidance asLevel 2 (significant other observable inputs) of the quarter ended June 30, 2009 with no impact to its financial statements.  Thefair value measurement hierarchy, including the reasons and the timing of the transfers.  Additionally, the guidance requires a roll forw ard of activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements).  ASU No. 2010-06 became effective for the Company has evaluated subsequent events through November 12, 2009, which isbeginning January 1, 2010, except for the date these financial statements were issued. 

In June 2009, the FASB issued guidance related to the accounting for transfers of financial assets.  The guidance removes the concept of a qualifying special-purpose entity from Codification topic, “Transfers and Servicing”, creates a new unit of account definition that must be met for transfers of portions of financial assets to be eligible for sale accounting, clarifies the de-recognition criteria for a transfer to be accounted for as a sale, changes the amount of recognized gains or lossesdisclosure on the transfer of financial assets accountedroll forward activities for as a sale when beneficial interests are received by the transferor and introduces new disclosure requirements. The new guidance isLevel 3 fair value measurements, which will become effective for annual reporting periods beginning after November 15, 2009.  Presently, the Company does not anticipate thatwith the reporting period beginning April 1, 2011.  Other than requiring additional disclosures, adoption of this Standard willnew guidance did not have an impactany effect on itsthe financial statements.

In June 2009, the FASB issued guidance which requires a qualitative approach to identifying a controlling financial interest in a variable interest entity (“VIE”), and requires ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE.  The Standard is effective for annual reporting periods beginning after November 15, 2009.  Presently, the Company does not anticipate that adoption of this Standard will have a material impact on its financial statements.

In August 2009, the FASB issued guidance under the “Fair Value Measurements and Disclosures” topic of the Codification to provide additional guidance on measuring the fair value of liabilities.  The FASB issued this update because some entities have expressed concern that there may be a lack of observable market information to measure the fair value of a liability.  The guidance provides clarification on measuring liabilities at fair value when a quoted price in an active market is not available.  In such circumstances, the new guidance specifies that a valuation technique should be applied that uses either the quote of the liability when traded as an asset, the quoted prices for similar liabilities or similar liabilities when traded as assets, or another valuation technique consistent with existing fair value measurement guidance.  Examples of the alternative valuation methods include using a present value technique or a market approach, which is based on the amount at the measurement date that the reporting entity would pay to transfer the identical liability or would receive to enter into the identical liability. The guidance also states that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustments to other inputs relating to the existence of a restriction that prevents the transfer of the liability.  This new guidance is effective for the first reporting period beginning after August 28, 2009, with earlier application permitted.  Accordingly, the Company will begin to use the new guidance in the third quarter of fiscal 2010.  Presently, the Company does not anticipate that adoption of this Standard will have a material impact on its financial statements.

In September 2009, the FASB issued an update to Extractive Activities-Oil and Gas which makes a technical correction to an SEC Observer comment in EITF 90-22, “Accounting for Gas-Balancing Arrangements”.  The update amends paragraph 932-10-S99-5 of the Codification regarding the accounting and disclosures for gas balancing arrangements because the SEC staff has not taken a position on whether the entitlements method or sales method is preferable for gas-balancing arrangements that do not meet the definition of a derivative.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless the context otherwise requires, references to the “Company”, “Mexco”, “we”, “us” or “our” mean Mexco Energy Corporation and its consolidated subsidiary.

Cautionary Statements Regarding Forward-Looking Statements.  Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains “forward-looking statements” withinforward-looking statements relating to Mexco’s operations and the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”),oil and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).gas industry.  Forward-looking statements include statements regarding our plans, beliefs orare based on management’s current expectationsprojections and may be signifiedestimates and are typically identified by the words “could”, “should”, “expect”, “project”, “estimate”, “believe”, “anticipate”, “intend”, “budget”, “plan”, “forecast”, “predict” and other similar expressions.  Forward-lookingThese statements appear throughout this Form 10-Q with respect to, among other things:  profitability, planned capital expenditures; estimates of oil and gas production; future project dates; estimatesare not guarantees of future oilperformance and gas prices; estimates of oilinvolve certain risks, uncertainties, and gas reserves; our future financial condition orassumptions that are difficult to predict.  Therefore, actual results of operations; and our business strategy and other plans and objectives for future operations.  Forward-looking statements involve known and unknown risks and uncertaintiesmay differ materially from what is expressed in such forward-looking statements.

Among the factors that could cause actual results to differ materially are oil and gas price fluctuations, failure to achieve expected production and the timing of receipt of revenues from those containedexisting and future exploration and development projects, changes in any forward-looking statement.
Page 11
While we have made assumptions that we believe are reasonable, the assumptions that support our forward-looking statements are based upon information that is currently availableoil and is subject to change.gas regulations, higher than estimated oil and gas recovery costs.  All forward-looking statements in this Form 10-Q are qualified in their entirety by the cautionary statement contained in this section.  We do not undertake to update, revise or correct any of the forward-looking information.  It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Form 10-K.

Contractual Obligations.  We have no off-balance sheet debt or unrecorded obligations and have not guaranteed the debt of any other party.  The following table summarizes our future payments we are obligated to make based on agreements in place as of September 30, 2009:
Page 10
 
  Payments Due In (1): 
  Total  less than 1 year  1-3 years  3 years 
Contractual obligations:            
Secured bank line of credit
 $1,275,000  $-  $1,275,000  $- 

(1)           Does not include estimated interest of $35,000 less than 1 year and $105,000 1-3 years.

These amounts represent the balances outstanding under the bank line of credit.  These repayments assume that interest will be paid on a monthly basis and that no additional funds will be drawn.

Liquidity and Capital Resources.  Historically, we have funded our operations, acquisitions, exploration and development expenditures from cash generated by operating activities, bank borrowings and issuance of common stock.  Our primary financial resource is our base of oil and gas reserves.  We pledge our producing oil and gas properties to secure our revolving line of credit.  In the past twoprevious fiscal years, we have obtained additional financing for prospects by selling fractional working interests to industry partners at prices in excess of our cost.

Our long term strategy is on increasing profit margins while concentrating on obtaining reserves with low cost operations by acquiring and developing primarily gas properties and secondarily oil properties with potential for long-lived production.

For the first sixthree months of fiscal 2010,2011, cash flow from operations was $451,861.$444,942, a 52% increase when compared to the corresponding period of fiscal 2010.  Cash of $451,485$97,440 was used for additions to oil and gas properties and $125,000$375,000 for net reduction in long term debt.  Accordingly, net cash increased $5,474.  decreased $18,982.  This decrease in cash can be primarily attributed to the reduction in long term debt partially offset by an increase in cash receipts from trade accounts and oil and gas sales.

Effective July 1, 2008,During the fourth quarter of fiscal 2010, a joint venture in which we purchasedare a wellworking interest partner drilled and completed 3 infill wells on a 960 acre lease in LovingReagan County, Texas which producesTexas.  This joint venture originally consisted of 9 wells producing from the Lower Cherry Canyon section.  We are acting as operatorproved Spraberry and have re-entered the well and constructed a pipeline for transmission and sales of natural gas.Dean formations.  Our share of the costs to drill and complete these 3 wells through June 2010 for our 50.2%3.75% working interest through September 2009 iswas approximately $247,000.$100,000. In April 2010, we purchased additional interests in 2 of the 9 original wells which were recompleted in May and June 2010.

We currently hold royalty interestsAlso during the fourth quarter of fiscal 2010, another joint venture in an aggregate of 522 acreswhich we are a working interest partner drilled and completed 2 infill wells on a 3,330 acre lease in the Newark East (Barnett-Shale) Field of TarrantReagan County, Texas.  This acreage has 9joint venture originally consisted of 33 wells producing natural gasfrom the proved Spraberry, Dean and Wolfcamp formations.  Our share of the costs to drill and complete these 2 wells 3 proven undeveloped well locations and 6 additional potential drill sites.  We subsequently purchased additional royaltiesthrough June 2010 for our 3.35% working interest was approximately $64,000. In May 2010, one of the original wells in this acreage onin which we purchased additional interest was recompleted.

During the first quarter of fiscal 2011, we participated in 2 wells in the Dodd Federal Unit operated by Marbob Energy Corporation.  This unit, located in Eddy County, New Mexico currently contains approximately 110 wells and is expected to contain approximately 140 wells when completely drilled.  For the fiscal year ending March 31, 2009 for approximately $49,000.2010, Mexco participated in the drilling of 7 producing wells in this unit.  Our working interest in this unit is .185% (.14% net revenue interest).

We continue to focus our efforts on the acquisition of royalties in areas with significant development potential.

We are participating in other projects and are reviewing projects in which we may participate.  The cost of such projects would be funded, to the extent possible, from existing cash balances and cash flow from operations.  The remainder may be funded through borrowings on the credit facility.

At SeptemberJune 30, 2009,2010, we had a working capital deficit of approximately $372,809$75,354 compared to working capital of $221,989$478,394 at March 31, 2009, an increase of $150,820.2010.  This decrease in working capital was mainly as a result of an increasea current portion of long term debt in the amount of $325,000, a decrease in accounts receivable and a decreasean increase in accounts payable and accrued expenses.

Crude oil and natural gas prices have fluctuated significantly in recent years.  During the second quarter of fiscal 2009, oil and gas prices began trending downward, while drilling, completion and operating costs remained high.  The effect of declining product prices on our business is significant.  Lower product prices reduce our cash flow from operations and diminish the present value of our oil and gas reserves.  Lower product prices also offer us less incentive to assume the drilling risks that are inherent in our business. The volatility of the energy markets makemakes it extremely difficult to predict future oil and natural gas price movements with any certainty.  For example in the last twelve months, the West Texas Intermediate (“WTI”) posted price for crude oil has ranged from a low of $30.28$59.52 per bbl in December 2008July 2009 to a high of $145.31$86.84 per bbl in July 2008.April 2010.  The Henry Hub Spot Market Price (“Henry Hub”Hub̶ 1;) for natural gas has ranged from a low of $1.84 per MMBtu in September 2009 to a high of $13.31$7.51 per MMBtu in July 2008.January 2010.  On SeptemberJune 30, 20092010 the WTI posted price for crude oil was $70.46$75.63 per bbl and the Henry Hub spot price for natural gas was $3.24$4.53 per MMBtu.  Management is of the opinion that cash flow from operations and funds available from financing will be sufficient to provide adequate liquidity for the next fiscal year.

 
Page 1211
 
 
Contractual Obligations.  We have no off-balance sheet debt or unrecorded obligations and have not guaranteed the debt of any other party.  The following table summarizes our future payments we are obligated to make based on agreements in place as of June 30, 2010:

   Payments Due In (1): 
  Total  less than 1 year  1-3 years  3 years 
Contractual obligations:            
Secured bank line of credit $325,000  $325,000  $—  $— 
                 
(1) Does not include estimated interest of $9,300. 

These amounts represent the balances outstanding under the bank line of credit.  These repayments assume that interest will be paid on a monthly basis and that no additional funds will be drawn.

Results of Operations – Three Months Ended SeptemberJune 30, 2009 and 2008.2010 Compared to Three Months Ended June 30, 2009.  Net income was $158,350$5,776 for the quarter ended SeptemberJune 30, 2009,2010, an increase from a decrease from $511,115net loss of $68,003 for the quarter ended SeptemberJune 30, 2008.2009.  This was a result of a decreasean increase in operating revenues partially offset by a decreasean increase in production costs.

Oil and gas sales.  Revenue from oil and gas sales was $737,944$832,010 for the second quarter of fiscalended June 30, 2010, a 54% decrease27% increase from $1,595,209$653,810 for the same period of fiscalquarter ended June 30, 2009.  This resulted from a decreasean increase in oil and gas prices and oil production offset partially by an increase in oil production partially offset by a decrease in gas production.  Average gas prices were $3.08 per thousand cubic feet (“mcf”) for the second quarter of fiscal 2010, a decrease from $8.78 per mcf for the same period of fiscal 2009.  AverageThe following table sets forth our oil prices were $64.40 per barrel (“bbl”) for the second quarter of fiscal 2010, a decrease from $116.07 per bbl for the period of fiscal 2009. Oil and gas revenues, production quantities were 4,379 bbls and 147,853 mcf foraverage prices received during the second quarter of fiscal 2010 and 4,606 bbls and 120,856 mcf for the second quarter of fiscal 2009, an increase of 22% in gas production and a decrease of 5% in oil production.three months ended June 30.

  2010  2009  % Difference 
Oil:         
Revenue $335,057  $232,935   43.8%
Volume (bbls)  4,516   4,331   4.3%
Average Price (per bbl) $74.19  $53.78   38.0%
             
Gas:            
Revenue $496,953  $420,875   18.1%
Volume (mcf)  120,058   138,418   (13.3%)
Average Price (per mcf) $4.14  $3.04   36.2%

Production and exploration.  Production costs were $269,251$368,227 for the second quarter of fiscalthree months ended June 2010, a 25% decrease53% increase from $357,753$240,973 for the same period of fiscalthree months ended June 2009. This was primarily the result of a decreaseworkover and repairs in production taxes due to the decreaseamount of approximately $113,000 on one of our operated wells in oil and gas sales as well as a decreaseHutchinson County, Texas in lease operating expenses.which we own 100%.

Depreciation, depletion and amortization.Depreciation, depletion and amortization (“DD&A”) expense was $275,072$251,495 for the secondfirst quarter of fiscal 2011, a 5% decrease from $263,462 for the first quarter of fiscal 2010, a 14% increase from $240,962 for the same period of fiscal 2009, primarily due to an increase toa decrease in gas production and the full cost pool amortization base and an increase in production.base.

General and administrative expenses.General and administrative expenses were $198,229$248,139 for the second quarter of fiscalthree months ended June 30, 2010, a 1% decrease7% increase from $199,239$232,185 for the same period of fiscal 2009.three months ended June 30, 2010.  This was due to a decreasean increase in consulting services, fees and salaries.engineering services.

Interest expense.  Interest expense was $8,737$3,339 for the secondfirst quarter of fiscal 2010,2011, a 56%65% decrease from $19,854$9,624 for the same periodfirst quarter of fiscal 2009,2010 due to a decrease in borrowings and interest rate.borrowings.

Income taxes.There was an income tax benefit of $171,163$49,009 for the three months ended SeptemberJune 30, 2009, a decrease from2010 compared to an income tax expensebenefit of $266,288$27,626 for the three months ended SeptemberJune 30, 2008.2009.  This benefit was primarily a result of the completion of the 2008 tax return which included a changean increase in the statutory depletion carryforward.

Results of Operations – Six Months Ended September 30, 2009 and 2008.  Net income was $90,347 for the six months ended September 30, 2009, a decrease from $1,049,904 for the six months ended September 30, 2008.  This was a result of a decrease in operating revenues partially offset by a decrease in production costs.

Oil and gas sales.  Revenue from oil and gas sales was $1,391,754 for the six months ended September 30, 2009, a 57% decrease  from $3,267,797 for the same period of fiscal 2009.  This resulted from a decrease in oil and gas prices partially offset by an increase in gas production.  Average gas prices were $3.06 per mcf for the first six months of fiscal 2010, a decrease from $9.24 per mcf for the first six months of fiscal 2009.  Average oil prices were $59.12 per bbl for the first six months of fiscal 2010, a decrease from $117.25 per bbl for the first six months of fiscal 2009.  Oil and gas production quantities were 8,710 bbls and 286,271 mcf for the first six months of fiscal 2010 and 8,713 bbls and 243,143 mcf for the first six months of fiscal 2009, an increase of 18% in gas production and no change in oil production.

Production and exploration.  Production costs were $510,224 for the six months ended September 30, 2009, a 26% decrease from $692,741 for the six months ended September 30, 2008.  This was the result of a decrease in production taxes due to the decrease in oil and gas sales as well as a decrease in lease operating expenses.

Depreciation, depletion and amortization.  Depreciation, depletion and amortization expense were $538,534 for the six months ended September 30, 2009, a 12% increase from $479,807 for the six months ended September 30, 2008 primarily due to an increase to the full cost pool amortization base and an increase in production.

General and administrative expenses.  General and administrative expenses were $430,414 for the six months ended September 30, 2009, a 10% decrease from $480,900 for the six months ended September 30, 2008.  This was due to a decrease in consulting services, fees and salaries.
Page 13
Interest expense.  Interest expense was $18,361 for the six months ended September 30, 2009, a 66% decrease from $53,589 for the same period fiscal 2009 due to a decrease in borrowings and interest rate.

Income taxes.  There was an income tax benefit of $198,789 for the six months ended September 30, 2009, a decrease from an income tax expense of $510,989 for the three months ended September 30, 2008.  This was a result of the completion of the 2008 tax return which included a change in the statutory depletion carryforward.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

The primary sourcessource of market risk for us includeincludes fluctuations in commodity prices and interest rates.  All of our financial instruments are for purposes other than trading.  At SeptemberJune 30, 2009,2010, we had not entered into any hedge arrangements, commodity swap agreements, commodity futures, options or other similar agreements relating to crude oil and natural gas.

Page 12
Interest Rate Risk.  At SeptemberJune 30, 2009,2010, we had an outstanding loan balance of $1,275,000$325,000 under our $5.0 million revolving credit agreement, which bears interest at an annual rate equal to the BBA LIBOR daily floating rate, plus 2.50 percentage points.  If the interest rate on our bank debt increases or decreases by one percentage point our annual pretax income would change by $12,750$3,250, based on the outstanding balance at SeptemberJune 30, 2009.2010.

Credit Risk.  Credit risk is the risk of loss as a result of nonperformance by other parties of their contractual obligations. Our primary credit risk is related to oil and gas production sold to various purchasers and the receivables are generally not collateralized.  At SeptemberJune 30, 2009,2010, our largest credit risk associated with any single purchaser was $77,550.$70,536.  We are also exposed to credit risk in the event of nonperformance from any of our working interest partners. At SeptemberJune 30, 2009,2010, our largest credit risk associated with any working interest partner was $20,262.$4,964.  We have not experienced any significant credit losses.

Energy Price Risk.  Our most significant market risk is the pricing for natural gas and crude oil.  Our financial condition, results of operations, and capital resources are highly dependent upon the prevailing market prices of, and demand for, oil and natural gas.  Prices for oil and natural gas fluctuate widely.  We cannot predict future oil and natural gas prices with any certainty. Historically, the markets for oil and gas have been volatile, and they are likely to continue to be volatile.  Factors that can cause price fluctuations include the level of global demand for petroleum products, foreign supply of oil and gas, the establishment of and compliance with production quotas by oil-exporting countries, weather conditions,condition s, the price and availability of alternative fuels and overall political and economic conditions in oil producing countries.  Declines in oil and natural gas prices will materially adversely affect our financial condition, liquidity, ability to obtain financing and operating results.  Changes in oil and gas prices impact both estimated future net revenue and the estimated quantity of proved reserves.  Any reduction in reserves, including reductions due to price fluctuations, can reduce the borrowing base under our revolving credit facility and adversely affect the amount of cash flow available for capital expenditures and our ability to obtain additional capital for our acquisition, exploration and development activities.  In addition, a noncash write-down of our oil and gas properties could be required under full cost accounting rules if prices declined significantly, even if it is only for a short period of time.  Lower prices may also reduce the amount of crude oil and natural gas that can be produced economically.  Thus, we may experience material increases or decreases in reserve quantities solely as a result of price changes and not as a result of drilling or well performance.

Similarly, any improvements in oil and gas prices can have a favorable impact on our financial condition, results of operations and capital resources.  Oil and natural gas prices do not necessarily fluctuate in direct relationship to each other.  Our financial results are more sensitive to movements in natural gas prices than oil prices because most of our production and reserves are natural gas.  If the average oil price had increased or decreased by one dollar per barrel for the first six months of fiscalquarter ended June 30, 2010, our net incomepretax loss would have changed by $8,710.$4,516.  If the average gas price had increased or decreased by one dollar per mcf for the first six months of fiscalquarter ended June 30, 2010, our net incomepretax loss would have changed by $286,271.$120,058.

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures.  We maintain disclosure controls and procedures to ensure that the information we must disclose in our filings with the SEC is recorded, processed, summarized and reported on a timely basis.  At the end of the period covered by this report, our principal executive officer and principal financial officer reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e).  Based on such evaluation, such officers concluded that, as of SeptemberJune 30, 2009,2010, our disclosure controls and procedures were effective to ensure that information we are required to disclose in timely alerting themthe reports that we file or submit under the Exchange Act is disclosed wit hin the time periods specified in the SEC’s rules and forms and are effective to materialensure that information relating to us (and our consolidated subsidiary) required to be included in our periodic SEC filings.disclosed by us is accumulated and communicated to them to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting.  No changes in the Company’sour internal control over financial reporting occurred during the quarter ended SeptemberJune 30, 20092010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 
Page 1413
 
 
PART II – OTHER INFORMATION

Item 1.Legal Proceedings

We may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business.  We are not aware of any legal or governmental proceedings against us, or contemplated to be brought against us, under various environmental protection statutes or other regulations to which we are subject.

Item 1A.
Risk Factors

There have been no material changes to the information previously disclosed in Item 1A. “Risk Factors” in our 20092010 Annual Report on Form 10-K.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
None.

Item 3.Defaults Upon Senior Securities
None.

Item 4.Submission of Matters to a Vote of Security HoldersRemoved and Reserved

Our annual meeting was held on September 15, 2009.  Following are the three proposals voted on at the meeting and the results of each:

Proposal #1 was the election of the following directors:
  Votes For:Votes Withheld:
 Thomas R. Craddick1,509,10262,609
 Thomas Graham, Jr.1,519,76151,950
 Arden R. Grover1,538,11833,593
 Jack D. Ladd1,539,08932,622
 Nicholas C. Taylor1,514,78156,930

Proposal #2 was to ratify the selection of Grant Thornton, LLP as independent registered public accounting firm for the Company for the fiscal year ended March 31, 2010.  Votes for were 1,542,356, votes against were 9,016 and votes abstained were 20,339.

Proposal #3 was to approve the Mexco Energy Corporation 2009 Employee Incentive Stock Plan.  Votes for were 1,258,170, votes against were 39,315 and votes abstained were 3,538 with 270,688 non-votes.

Item 5.Other Information
None.

Item 6.Exhibits

 31.1Certification of the Chief Executive Officer of Mexco Energy Corporation

 31.2Certification of the Chief Financial Officer of Mexco Energy Corporation

 32.1Certification of the Chief Executive Officer and Chief Financial Officer of Mexco Energy Corporation pursuant to 18 U.S.C. §1350
 
Page 15
 
SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 MEXCO ENERGY CORPORATION
 (Registrant)
  
  
Dated: NovemberAugust 12, 20092010
/s/ Nicholas C. Taylor
 Nicholas C. Taylor
President
 
 
President 
Dated: NovemberAugust 12, 20092010
/s/ Tamala L. McComic
 Tamala L. McComic
 Executive Vice President, Treasurer and Assistant Secretary
 
 
Page 1614