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 December 31, 2017June 30, 2021

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. 1-31785

MEXCO ENERGY CORPORATION

(Exact name of registrant as specified in its charter)

(432)682-1119

(Registrant’s telephone number, including area code)

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

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 [X] ☒ 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 [X] ☒ 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.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

The number of shares outstanding of the registrant’s common stock, $0.50 par value, $.50 per share, as of February 12, 2018August 11, 2021 was 2,037,266.2,092,166.

MEXCO ENERGY CORPORATION

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Mexco Energy Corporation and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(Unaudited)

The accompanying notes are an integral part of

the consolidated financial statements.

Mexco Energy Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)For the Three Months Ended June 30,

(Unaudited)

The accompanying notes are an integral part of

the consolidated financial statements.

Mexco Energy Corporation and Subsidiaries

CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

The accompanying notes are an integral part of

the consolidated financial statements.

Mexco Energy Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the NineThree Months Ended December 31,June 30,

(Unaudited)

The accompanying notes are an integral part of

the consolidated financial statements.

Mexco Energy Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of Operations

Mexco Energy Corporation (a Colorado corporation) and its wholly owned subsidiaries, Forman Energy Corporation (a New York corporation), Southwest Texas Disposal Corporation (a Texas corporation) and TBO Oil & Gas, LLC (a Texas limited liability company) (collectively, the “Company”) are engaged in the exploration, development and production of crude oil, natural gas, crude oil, condensate and natural gas liquids (“NGLs”). Most of the Company’s oil and gas interests are centered in West Texas;Texas and Southeastern New Mexico; however, the Company owns producing properties and undeveloped acreage in thirteenfourteen states. Although theAll of Company’s oil and gas interests predominately are operated by others, the Company operates five wells in which it owns an interest.others.

2. Basis of Presentation and Significant Accounting Policies

Principles of Consolidation. The consolidated financial statements include the accounts of Mexco Energy Corporation and its wholly owned subsidiaries. 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 (“GAAP”), 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 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 the Company’s oil and natural gas reserves, which is used to compute depreciation, depletion, 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.Statements. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (including(consisting only of normal recurring accruals) necessary to present fairly the financial position of the Company as of December 31, 2017,June 30, 2021, and the results of its operations and cash flows for the interim periods ended December 31, 2017June 30, 2021 and 2016.2020. The consolidated financial statements as of December 31, 2017June 30, 2021 and for the three and nine monththree-month periods ended December 31, 2017June 30, 2021 and 20162020 are unaudited. The consolidated balance sheet as of March 31, 20172021 was derived from the audited balance sheet filed in the Company’s 20172021 annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”). 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 2 of the “Notes to Consolidated Financial Statements” in the Form 10-K. 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 consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Form 10-K.

Reclassifications.Investments. Certain amountsThe Company accounts for investments of less than 1% in prior periods’limited liability companies at cost. The Company has no control of the limited liability companies. The cost of the investment is recorded as an asset on the consolidated balance sheets and when income from the investment is received, it is immediately recognized on the consolidated statements of operations.

Derivative Financial Instruments. The Company’s derivative financial statements have been reclassifiedinstruments are used to conformmanage commodity price risk attributable to expected oil and gas production. While there is risk the financial benefit of rising oil and gas prices may not be captured, the Company believes the benefits of stable and predictable cash flows outweigh the potential risks.

The Company accounts for derivative financial instruments using fair value accounting and recognizes gains and losses in earnings during the period in which they occur. Unsettled derivative instruments are recorded in the accompanying consolidated balance sheets as either a current or non-current asset or a liability measured at its fair value. The Company only offsets derivative assets and liabilities for arrangements with the current period’s presentation. These reclassifications had no effect on previously reported resultssame counterparty when right of operations, retained earnings or net cash flows.

3. Property Sales

In December 2017,setoff exists. Derivative assets and liabilities with different counterparties are recorded gross in the Company received approximately $1.9 million in cash from a sale of joint venture leasehold marginal producing working interests in several thousand acres located in Ward and Midland Counties, Texas. Of these proceeds, approximately $1.518 million was applied to the Company’s bank debt and theconsolidated balance to the Company’s working capital. Additionally, approximately $200,000 of the purchase price is being held in escrow pending payment of closing costs and resolution of title issues as to a small portion of the sale assets. This amount issheets. Derivative contract settlements are reflected in accounts receivable escrow on ouroperating activities in the accompanying consolidated balance sheets.statements of cash flows.

As of June 30, 2021, the Company had no derivative contracts. During the first nine months of fiscal 2018,quarter ended June 30, 2020, the Company sold forentered into a total considerationseries of $460,461, leasehold interests in 137 net acres in the Scoop-Stack areas of Canadian and Grady Counties, Oklahoma. The firstcrude oil put option contracts. All of these transactionssuch contracts expired in which the Company retained its interests in the existing producing wellbores on the acreage was in the amount of $336,730. The second transaction in the amount of $123,731 included the producing wellbores as well as the acreage. Of these proceeds, $410,000 was applied to reduce bank indebtednessJuly and the balance of $50,461 was applied to working capital of the Company.August 2020.

Subsequently, in January 2018, the Company sold additional leasehold interests in the Scoop-Stack area of Grady County, Oklahoma for $46,000 which the Company used to reduce bank indebtedness. The Company retained its interests in the existing producing wellbore on the acreage.

4. 3. Asset Retirement Obligations

The Company’s asset retirement obligations (“ARO”) 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 initially 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 anduntil the capitalizedliability is settled or the well is sold, at which time the liability is removed. The related asset retirement cost is depreciatedcapitalized as part of the carrying amount of our oil and natural gas properties, using the full cost method.properties. The ARO is included inon the Consolidated Balance Sheetsconsolidated balance sheets with the current portion being included in the accounts payable and other accrued expenses.

The following table provides a rollforward of the AROs for the first ninethree months of fiscal 2018:2022:

Schedule of Rollforward of Asset Retirement Obligations

5. Credit Facility4. Long Term Debt

TheLong-term debt on the Consolidated Balance Sheets consisted of the following as of the dates indicated:

Schedule of Long-Term Debt

On December 28, 2018, the Company hasentered into a loan agreement with Bank of America, N.A. (the “Agreement”) with West Texas National Bank (“WTNB”), which provided for a credit facility of $5,570,000$1,000,000 with a maturity date of December 28, 2021. The Agreement has no monthly commitment reductionsreduction and a borrowing base to be evaluated on July 30annually.

On February 28, 2020, the Agreement was amended to increase the credit facility to $2,500,000, extend the maturity date to March 28, 2023 and January 1 of each year or at any additional time in the bank’s discretion. The borrowing base was evaluated on January 26, 2018 and set at $950,000. The borrowing base also resets to the extent the Company sells or otherwise disposes of any of its oil and gas properties as the Company is required to pay 100% of such net proceeds to the lender resulting in a permanent reduction ofincrease the borrowing base unless prior approval byto $1,500,000.

Under the bank states otherwise.

The Agreement, was renewed eleven times with the eleventh amendment effective as of March 8, 2017 with a maturity date of November 30, 2020. Under such renewal agreement, interest on the facility accrues at an annuala rate equal to the British Bankers Association London Interbank Offered Rate (“BBA LIBOR”prime rate as quoted in the Wall Street Journal plus one-half of one percent (0.5%) daily floating rate, plus 3.0 percentage points, which was 4.56% on December 31, 2017.daily. Interest on the outstanding amount under the credit agreementAgreement is payable monthly. ThereIn addition, the Company will pay an unused commitment fee in an amount equal to one-half of one percent (0.5%) times the daily average of the unadvanced amount of the commitment. The unused commitment fee is payable quarterly in arrears on the last day of each calendar quarter. As of June 30, 2021, there was no availability of this line of credit at December 31, 2017. $700,000 available on the facility.

No principal payments are anticipated to be required through November 30, 2020. the maturity date of the credit facility, March 28, 2023. Upon closing with WTNB on the original Agreement, the Company paid a .5% loan origination fee in the amount of $5,000 plus legal and recording expenses totaling $34,532, which were deferred over the life of the credit facility. Upon closing the amendment to the Agreement, the Company paid a .1% loan origination fee of $2,500 and an extension fee of $3,125 plus legal and recording expenses totaling $12,266, which were also deferred over the life of the credit facility.

Amounts borrowed under the Agreement are collateralized by the common stock of the Company’s wholly owned subsidiaries and substantially all of the Company’s oil and gas properties.

The Agreement contains customary covenants for credit facilities of this type including limitations on change in control, disposition of assets, mergers and reorganizations. The Company is also obligated to meet certain financial covenants under the Agreement and requires minimumsenior debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $650,000 for eachratios (Senior Debt/EBITDA) less than or equal to 4.00 to 1.00 measured with respect to the four trailing four fiscal quarters and minimum interest coverage ratios (EBITDA/Interest Expense) of 2.00 to 1.00 for each quarter. The Company is in compliance with all covenants as of December 31, 2017 and believes it will remain in compliance for the next fiscal year.

In addition, this Agreement prohibits the Company from paying cash dividends on its common stock.stock without written permission of WTNB. The Agreement does grantnot permit the Company permission to enter into hedge agreements however, it is under no obligation to do so.covering crude oil and natural gas prices without prior WTNB approval.

The Agreement allows for up to $500,000 of the facility to be used for outstanding letters of credit. As of December 31, 2017, one letter of credit for $50,000, in lieu of plugging bond with the Texas Railroad Commission (“TRRC”) covering the properties the Company operates is outstanding under the facility. This letter of credit renews annually. The Company will pay a fee in an amount equal to 1 percent (1.0%) per annum of the outstanding undrawn amount of each standby letter of credit, payable monthly in arrears, on the basis of the face amount outstanding on the day the fee is calculated.

The balance outstanding on the line of credit facility as of December 31, 2017June 30, 2021 was $950,000.$800,000. The following table is a summary of activity on the Bank of America, N.A. line ofWTNB credit facility for the ninethree months ended DecemberJune 30, 2021:

Summary of Line of Credit Activity

Subsequently, the Company has made payments totaling $250,000, leaving a balance of $550,000 as of the date of this report.

5. Stock-based Compensation

The Company recognized compensation expense of $13,865 and $14,005 related to vesting stock options in general and administrative expense in the Consolidated Statements of Operations for the first quarter of fiscal 2022 and 2021, respectively. The total cost related to non-vested awards not yet recognized at June 30, 2021 totals $100,266, which is expected to be recognized over a weighted average of 2.10 years.

The following table is a summary of stock options activity for the three months ended June 30, 2021 and 2020:

Summary of Activity of Stock Options

During the three months ended June 30, 2021 and 2020, 0stock options were granted. Subsequently, pursuant to approval from the Compensation Committee of the Board of Directors, the Company granted options covering 31,000 shares of stock at a strike price of $8.51 effective July 26, 2021.

During the three months ended June 30, 2021, stock options covering 5,000 shares were exercised with a total intrinsic value of $15,036. The Company received proceeds of $34,000 from these exercises. During the three months ended June 30, 2020, 0 stock options were exercised. Subsequently, in July 2021, stock options covering 10,500 were exercised with a total intrinsic value of $36,433. The Company received proceeds of $73,500 from these exercises.

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, 2021 and 2020, there were 0 stock options forfeited or expired.

Outstanding options at June 30, 2021 expire between April 2023 and March 2030 and have exercise prices ranging from $3.34 to $7.00.

6. Leases

The Company leases approximately 4,160 rentable square feet of office space from an unaffiliated third party for our corporate office located in Midland, Texas. This includes 1,112 square feet of office space shared with and reimbursed by our majority shareholder. The lease does not include an option to renew and is a 36-month lease that expired in May 2021. In June 2020, in exchange for a reduction in rent for the months of June and July 2020, the Company agreed to a 2-month extension to its current lease agreement at the regular monthly rate extending its current lease expiration date to July 2021.In June 2021, the Company agreed to extend its current lease for 36 months. The amended lease now expires on July 31, 2017:2024.

The balance outstandingCompany determines an arrangement is a lease at inception. Operating leases are recorded in operating lease right-of-use asset, operating lease liability, current, and operating lease liability, long-term on the line of credit as of February 12, 2018 was $900,000.consolidated balance sheets.

6. Income Taxes

On December 22, 2017,Operating lease right-of-use assets represent the tax legislation referredCompany’s right to as the “Tax Cuts and Jobs Act” (the 2017 Tax Reform Act) was enacted. The more significant changes that impact the Company are the reduction in the corporate federal income tax rate from 35% to 21%. Under GAAP, the tax effects of a change in tax law must be recognized in the period in which the law is enacted, or the quarter ending December 31, 2017use an underlying asset for the 2017 Tax Reform Act. GAAP also requires deferred income taxlease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease assets and liabilities to be measuredare recognized at the enacted taxcommencement date based on the present value of lease payments over the lease term. As the Company’s lease does not provide an implicit rate, expected to applythe Company uses the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate used at adoption was 3.75%. Significant judgement is required when temporary differencesdetermining the incremental borrowing rate. Rent expense for lease payments is recognized on a straight-line basis over the lease term.

The balance sheets classification of lease assets and liabilities was as follows:

Schedule of Operating Lease Assets and Liabilities

Future minimum lease payments as of June 30, 2021 under non-cancellable operating leases are to be realized or settled. The Company’s deferredas follows:

Schedule of Future Minimum Lease Payments

Net cash paid for our operating lease for the three months ended June 30, 2021 and 2020 was $10,929 and $10,600, respectively. Rent expense, less sublease income taxes were remeasured based upon the new tax rates which amounted to a $509,863 reductionof $5,200 and $4,889, respectively, is included in deferred tax assetgeneral and valuation amount.administrative expenses.

7. Income Taxes

A valuation allowance for deferred tax assets, including net operating losses, is recognized when it is more likely than not that some or all of the benefit from the deferred tax asset will not be realized. To assess that likelihood, we use estimates and judgment regarding our future taxable income, and we consider the tax consequences in the jurisdiction where such taxable income is generated, to determine whether a valuation allowance is required. Such evidence can include our current financial position, our results of operations, both actual and forecasted, the reversal of deferred tax liabilities, and tax planning strategies as well as the current and forecasted business economics of our industry.

Based on the material write-downs of the carrying value of our oil and natural gas properties during fiscal 2016, we are in a net deferred tax asset position as of December 31, 2017.June 30, 2021. Our deferred tax asset is $822,425 $1,180,248 as of December 31, 2017June 30, 2021 with a valuation amount of $822,425.$1,180,248. We believe it is more likely than not that these deferred tax assets will not be realized. Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of deferred tax assets. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income are increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as expected future expected growth.

7. Loss8. Related Party Transactions

Related party transactions for the Company primarily relate to shared office expenditures in addition to administrative and operating expenses paid on behalf of the principal stockholder. The total billed to and reimbursed by the stockholder for the quarters ended June 30, 2021 and 2020 was $12,768 and $10,102, respectively. The principal stockholder pays for his share of the lease amount for the shared office space directly to the lessor. Amounts paid by the principal stockholder directly to the lessor less sublease income for the three months ending June 30, 2021 and 2020 were $3,700 and $3,803, respectively.

9. Income (loss) Per Common Share

The Company’s basic net lossincome (loss) per share has been computed based on the weighted average number of common shares outstanding during the period. Diluted net lossincome (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 lossincome (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 net loss per share and diluted lossnet income (loss) per share for the three and nine monththree-month periods ended December 31, 2017June 30, 2021 and 2016:2020.

Schedule of Reconciliation of Basic and Diluted Net Income (loss) Per Share

For the three months ended June 30, 2021, 0 anti-dilutive shares relating to stock options were excluded from the computation of diluted net income. Due to a net loss for the three and nine months ended December 31, 2017 and 2016,June 30, 2020, the weighted average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.

8. Related Party Transactions10. Subsequent Events

Related party transactions forDuring July 2021, the Company relatemade payments totaling $250,000 on the credit facility leaving a balance of $550,000.

During July 2021, stock options covering 10,500 shares were exercised with a total intrinsic value of $36,433. The Company received proceeds of $73,500 from these exercises.

Pursuant to shared office expenditures in addition to administrative and operating expenses paid on behalfapproval from the Compensation Committee of the principal stockholder. Board of Directors, the Company granted options covering 31,000 shares of stock at a strike price of $8.51 effective July 26, 2021.

The total billedCompany completed a review and analysis of all events that occurred after the consolidated balance sheet date to determine if any such events must be reported and reimbursed by the stockholder for the three months ended December 31, 2017 and 2016 was $11,873 and $9,565, respectively. The total billedhas determined that there are no other subsequent events to and reimbursed by the stockholder for the nine months ended December 31, 2017 and 2016 was $30,355 and $22,061, respectively.be disclosed.

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 subsidiaries.

Cautionary Statements Regarding Forward-Looking Statements. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains “forward-looking statements”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”). Forward-looking statements include statements regarding our plans, beliefs or current expectations and may be signified by the words “could”, “should”, “expect”, “project”, “estimate”, “believe”, “anticipate”, “intend”, “budget”, “plan”, “forecast”, “predict” and other similar expressions. Forward-looking 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; estimates of future oil and gas prices; estimates of oil and gas reserves; our future financial condition or results of operations; and our business strategy and other plans and objectives for future operations. Forward-looking statements involve known and unknown risks and uncertainties that could cause actual results to differ materially from those contained in any forward-looking statement.

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 available and is subject to change. All forward-looking statements in the 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 consolidated financial statements and notes thereto included in the Form 10-K.

Liquidity and Capital Resources. Historically, we have funded our operations, acquisitions, exploration and development expenditures from cash generated by operating activities, bank borrowings, sales of non-core properties and issuance of common stock. Our primary financial resource is our base of oil and gas reserves. We pledgehave pledged our producing oil and gas properties to secure our revolving line of credit.credit facility. We do not have any delivery commitments to provide a fixed and determinable quantity of itsour oil and gas under any existing contract or agreement.

Due to depressedthe current commodity price environment, we are applying financial discipline to all aspects of our business. In order to meet obligations, we may continue to sell non-core assets.

Our long termlong-term strategy is on increasing profit margins while concentrating on obtaining reserves with low costlow-cost operations by acquiring and developing oil and gas properties with potential for long-lived production. We focus our efforts on the acquisition of minerals, royaltiesroyalty and working interests and non-operated properties in areas with significant development potential.

ForAt June 30, 2021, we had working capital of $626,850 compared to working capital of $618,960 at March 31, 2021, an increase of $7,890 for the first ninereasons set forth below.

Cash Flows

Changes in the net funds provided by or (used in) each of our operating, investing and financing activities are set forth in the table below:

Cash Flow Provided by Operating Activities. Cash flow from operating activities is primarily derived from the production of our crude oil and natural gas reserves and changes in the balances of non-cash accounts, receivables, payables or other non-energy property asset account balances. Cash flow provided by our operating activities for the three months ended June 30, 2021 was $666,054 in comparison to $66,472 for the three months ended June 30, 2020. This increase of fiscal 2018,$599,582 in our cash flow operating activities consisted of an increase in our non-cash expenses of $40,496; an increase in our accounts receivable of $145,903; and, an increase in our net income for the current quarter of $694,676 compared to a net loss the same quarter of the prior year. Variations in cash flow from operations was $153,136,operating activities may impact our level of exploration and development expenditures.

Our expenditures in operating activities consist primarily of drilling expenses, production expenses and engineering services. Our expenses also consist of employee compensation, accounting, insurance and other general and administrative expenses that we have incurred in order to address normal and necessary business activities of a 4404% increase when compared topublic company in the corresponding period of fiscal 2017. crude oil and natural gas production industry.

Cash of $2,548,135 was receivedFlow Used in Investing Activities. Cash flow from the sale ofinvesting activities is derived from changes in oil and gas properties,property balances. For the three months ended June 30, 2021, we had net cash of $74,744 was received for drilling refunds, cash of $1,950,000 was used to reduce the line of credit, and cash of $802,184 was$297,113 used for additions to oil and gas properties. properties compared to $251,890 for the three months ended June 30, 2020.

Cash Flow Provided by Financing Activities. Cash flow from financing activities is derived from our changes in long-term debt and in equity account balances. Cash flow used in our financing activities was $346,000 for the three months ended June 30, 2021 compared to cash flow provided by our financing activities of $203,574 for the three months ended June 30, 2020. During the three months ended June 30, 2021 and 2020, we received advances of $100,000 and $235,000, respectively, from our credit facility. During the three months ended June 30, 2021 and 2020, we made payments of $480,000 and $100,000, respectively, on the credit facility. For the three months ended June 30, 2021, we received proceeds of $34,000 for the exercise of director stock options. For the three months ended June 30, 2020, we received $68,574 under the paycheck protection program (PPP).

Accordingly, net cash increased $23,831.$22,941, leaving cash and cash equivalents on hand of $80,754 as of June 30, 2021.

At December 31, 2017, we had working capital of $534,037 compared to working capital of $367,675 at March 31, 2017, an increase of $166,362 for the reasons set forth below.

Oil and Natural Gas PropertiesProperty Development

In addition to an indeterminate number of wells to be drilled by other operators on Mexco’s royalty interests, theNew Participations in Fiscal 2022. The Company currently expectsplans to participate in the drilling and completion of approximately 3036 horizontal wells at an estimated aggregate cost of approximately $1,200,000$1,250,000 for the fiscal year ending March 31, 2018. The operators of these wells include Concho Resources, Inc., Marathon Oil Permian LLC, McElvain Energy, Inc., Mewbourne Oil Company, XTO Energy, Inc. and others.

As of December 31, 2017, Mexco has expended approximately $700,000 for seventeen2022. All of these horizontal wells are in the Delaware Basin located in the Delaware Basin.western portion of the Permian Basin in Lea and Eddy Counties, New Mexico.

The first two of these wells began producing in September at an initial average rate of 288 barrels of oil; 1,308 barrels of water; and 332,000 cubic feet of gas per day, or 343 barrels of oil equivalent per day. The third well began producing in November at an initial rate of 245 barrels of oil; 1,053 barrels of water; and 247,000 cubic feet of gas per day, or 286 barrels of oil equivalent per day. These wells areIn May 2021, Mexco expended approximately $28,000 to participate in the Yeso/Paddock formationsdrilling of two horizontal wells in the Wolfcamp Sand formation of the Dodd Federal UnitDelaware Basin located in the Grayburg San Andres Jackson Fieldwestern portion of Eddy County, New Mexico and operated by Concho Resources, Inc. Mexco’s working interest in this unit is .1848%.

The next three of these wells were completed in December 2017 and tested at an average rate of 1,162 barrels of oil; 2,283 barrels of water; and 1,991,000 cubic feet of gas per day, or 1,494 barrels of oil equivalent per day, with an average flowing tubing pressure of 647 pounds per square inch. These wells are in the Lower Avalon formation locatedPermian Basin in Lea County, New Mexico. Mexco’s working interest in these wells is .6%.37%.

The remaining eleven of these seventeen wells have been drilled and are in various stages of completion.

During the first nine months of fiscal 2018, the Company sold for a total consideration of $460,461, leasehold interests in 137 net acresIn May 2021, Mexco expended approximately $70,000 to participate in the Scoop-Stack areasdrilling of Canadian and Grady Counties, Oklahoma. The first of these transactions in which the Company retained its interestsfour horizontal wells in the existing producing wellbores onLower Wolfcamp Shale of the acreage wasDelaware Basin in Eddy County, New Mexico. Mexco’s working interest in these wells is .44%.

In April 2021, Mexco expended $11,400 for its share to participate in the amountdrilling and completion of $336,730. The second transactiontwo horizontal wells in the amount of $123,731 included the producing wellbores as well as the acreage. Of these proceeds, $410,000 was applied to reduce bank indebtedness and the balance of $50,461 was applied to working capital3^rd Bone Spring Sand formation of the Company.

Subsequently, in January 2018, the Company sold additional leasehold interestsDelaware Basin located in the Scoop-Stack area of Grady County, Oklahoma for $46,000 which the Company used to reduce bank indebtedness. The Company retained its interests in the existing producing wellbore on the acreage.

In December 2017, the Company received approximately $1.9 million in cash from a sale of joint venture leasehold marginal producing working interests in several thousand acres located in Ward and Midland Counties, Texas. Of these proceeds, approximately $1.518 million was applied to the Company’s bank debt and the balance to the Company’s working capital. Additionally, approximately $200,000 of the purchase price is being held in escrow pending payment of closing costs and resolution of title issues as to a smallwestern portion of the sale assets. This amountPermian Basin in Lea County, New Mexico. Mexco’s working interest in these wells is reflected.1%. Subsequently, in accounts receivable escrow on our consolidated balance sheets.July 2021, the Company expended $20,100 to complete these wells.

Also, during the quarter ended June 30, 2020, Mexco participated in the drilling and completion of two horizontal wells in the Wolfcamp formation of the Delaware Basin located in the western portion of the Permian Basin in Lea County, New Mexico with aggregate costs of approximately $88,000. These wells were completed at the end of June 2021 with initial average production rates of 1,184 barrels of oil, 4,380 barrels of water and 1,818,000 cubic feet of gas per day, or 1,444 barrels of oil equivalent per day. Mexco’s working interest in these wells is .56%.

Completion of Wells Drilled in Fiscal 2021. The Company expended approximately $165,000 for the additional completion costs of 12 horizontal wells located in Eddy and Lea Counties, New Mexico that the Company participated in drilling during fiscal 2021.

The Company participated in the completion of two horizontal wells in the Wolfcamp formation of the Delaware Basin located in the western portion of the Permian Basin in Lea County, New Mexico with aggregate costs of approximately $108,000. These wells were completed at the end of June 2021 and beginning of July 2021 with initial average production rates of 1,046 barrels of oil, 3,214 barrels of water and 2,146,000 cubic feet of gas per day, or 1,403 barrels of oil equivalent per day. Mexco’s working interest in these wells is 1.2%.

The Company participated in the completion of two horizontal wells in the Wolfcamp formation of the Delaware Basin located in the western portion of the Permian Basin in Lea County, New Mexico with aggregate costs of approximately $55,000. These wells were completed at the end of June 2021 with initial average production rates of 774 barrels of oil, 2,648 barrels of water and 973,000 cubic feet of gas per day, or 913 barrels of oil equivalent per day. Mexco’s working interest in these wells is .56%.

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 operationsoperations. The remainder may be funded through borrowings on the credit facility and, if appropriate, sales of non-core properties.

Crude oil and natural gas prices generally remained significantly depressedvolatile during the last year. 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 makes it extremely difficult to predict future oil and natural gas price movements with any certainty. For example, in the last twelve months, the NYMEX West Texas Intermediate (“WTI”) posted price for crude oil has ranged from a low of $39.00$31.75 per bbl in October 2020 to a high of $70.03 per bbl in June 2017 to a high of $56.75 per bbl in December 2017.2021. The Henry Hub Spot Market Price (“Henry Hub”) for natural gas has ranged from a low of $2.44$1.33 per MMBtu in September 2020 to a high of $23.86 per MMBtu in February 2017 to a high of $3.71 per MMBtu in January 2017. 2021.

On December 31, 2017June 30, 2021, the WTI posted price for crude oil was $56.75 per bbl$69.45 and the Henry Hub spot price for natural gas was $3.69$3.79 per MMBtu. See Results of Operations below for realized prices.

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 December 31, 2017:June 30, 2021: