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, 20172022

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, par value $.50 per share, as of February 12, 201810, 2023 was 2,037,266.2,142,000.

MEXCO ENERGY CORPORATION AND SUBSIDIARIES

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)

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)

For the three and nine months ended December 31, 2022 and 2021:

The accompanying notes are an integral part of

the consolidated financial statements.

Mexco Energy Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended December 31,

(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 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. AlthoughAll of the 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, 2017,2022, and the results of its operations and cash flows for the interim periods ended December 31, 20172022 and 2016.2021. The consolidated financial statements as of December 31, 20172022 and for the three and nine month periods ended December 31, 20172022 and 20162021 are unaudited. The consolidated balance sheet as of March 31, 20172022 was derived from the audited balance sheet filed in the Company’s 20172022 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 financial statements be read in conjunction with the financial statements and notes thereto included in the Form 10-K.

Reclassifications.Investments. The Company accounts for investments of less than 3% of any limited liability companies at cost. The Company has no control or significant influence 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.

Reclassifications. Certain amounts in prior periods’ consolidated financial statements have been reclassified to conform with the current period’s presentation. These reclassifications had no effect on previously reported results of operations, retained earnings or net cash flows.

3. Property Sales

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 small portion of the sale assets. This amount is reflected in accounts receivable escrow on our consolidated balance sheets.

During the first nine months of fiscal 2018, the Company sold for a total consideration of $460,461, leasehold interests in 137 net acres in the Scoop-Stack areas of Canadian and Grady Counties, Oklahoma. The first of these transactions 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 indebtedness and the balance of $50,461 was applied to working capital of the Company.

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. 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 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 in 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 nine months of fiscal 2018:2022:

Schedule of Rollforward of Asset Retirement Obligations

4. Stock-based Compensation

The Company recognized stock-based compensation expense of $41,460 and $25,570 in general and administrative expense in the Consolidated Statements of Operations for the three months ended December 31, 2022 and 2021, respectively. Stock-based compensation expense recognized for the nine months ended December 31, 2022 and 2021 was $101,462 and $62,003, respectively. The total cost related to non-vested awards not yet recognized at December 31, 2022 totals approximately $498,285 which is expected to be recognized over a weighted average of 2.63 years.

During the nine months ended December 31, 2022, the Compensation Committee of the Board of Directors approved and the Company granted 31,000 stock options exercisable at $18.05 per share with an estimated fair value of $385,640. During the nine months ended December 31, 2021, the Compensation Committee of the Board of Directors approved and the Company granted 31,000 stock options exercisable at $8.51 per share with an estimated fair value of $187,550. These options are exercisable at a price not less than the fair market value of the stock at the date of grant, have an exercise period of ten years and generally vest over four years.

Included in the following table is a summary of the grant-date fair value of stock options granted and the related assumptions used in the Binomial models for stock options granted during the nine months ended December 31, 2022 and 2021. All such amounts represent the weighted average amounts.

Schedule of Grant-date Fair Value of Stock Options Granted and Assumptions Used Binominal Models

The following table is a summary of activity of stock options for the nine months ended December 31, 2021:

Summary of Activity of Stock Options

5. Credit Facility

During the nine months ended December 31, 2022, stock options covering 5,000 shares were exercised with a total intrinsic value of $47,575. The Company hasreceived proceeds of $16,700 from these exercises. During the nine months ended December 31, 2021, stock options covering 45,000 shares were exercised with a total intrinsic value of $241,226. The Company received proceeds of $295,640 from these exercises.

There were no stock options forfeited or expired during the nine months ended December 31, 2022 and 2021. No forfeiture rate is assumed for stock options granted to directors or employees due to the forfeiture rate history of these types of awards.

Outstanding options at December 31, 2022 expire between August 2024 and August 2032 and have exercise prices ranging from $3.34 to $18.05.

5. Long Term Debt

On December 28, 2018, the Company entered into a loan agreement with Bank of America, N.A. (the “Agreement”) with West Texas National Bank (“WTNB”), which originally 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 credit 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. There was no availabilityIn addition, the Company will pay an unused commitment fee in an amount equal to one-half of this lineone percent (0.5%) times the daily average of credit atthe unadvanced amount of the commitment. The unused commitment fee is payable quarterly in arrears on the last day of each calendar quarter. As of December 31, 2017. 2022, there was $1,500,000 available for borrowing by the Company 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 original 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 undercovering crude oil and natural gas prices without prior WTNB approval.

There was no obligation to do so.

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 as of December 31, 2017 was $950,000.2022. The following table is a summary of activity on the Bank of America, N.A.WTNB line of credit for the nine months ended December 31, 2017:2022:

Summary of Line of Credit Activity

6. Leases

The balance outstandingCompany leases approximately 4,160 rentable square feet of office space from an unaffiliated third party for the corporate office located in Midland, Texas. This includes 1,112 square feet of office space shared with and reimbursed by the majority shareholder. The lease does not include an option to renew and is a 36-month lease that was to expire 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 at a flat (unescalated) rate for 36 months. The amended lease now expires on July 31, 2024.

The Company 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 December 31, 2022 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 nine months ended December 31, 2022 and 2021 was $32,001 and $31,570, respectively. Rent expense, less sublease income taxes were remeasured based upon the new tax rates which amounted to a $509,863 reductionof $11,679 and $14,662, 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, 2017.2022. Our deferred tax asset for federal income tax purposes is $822,425$202,543 as of December 31, 20172022 with a valuation amount of $822,425.$202,543. We believe it is more likely than not that these deferred tax assets will not be realized. Management assessesconsiders the likelihood that the Company’s net operating losses and other deferred tax attributes will be utilized prior to their expiration, if applicable. The determination to record a valuation allowance was based on management’s assessment of all available evidence, both positive and negative, evidence to estimate whether sufficient future taxable income will be generated to permitsupporting realizability of the useCompany deferred tax asset as required by applicable accounting standards. In light of those criteria for recognizing the tax benefit of deferred tax assets. The amountassets, the Company’s assessment resulted in application of a valuation allowance against the deferred tax asset considered realizable, however, could be adjusted if estimatesas 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 future expected growth.

7. Loss Per Common Share

The Company’s basic net loss per share has been computed based on the weighted average number of common shares outstanding during the period. Diluted net 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 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-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 loss per share for the three and nine month periods ended December 31, 2017 and 2016:2022.

Due to a net loss for the three and nine months ended December 31, 2017 and 2016, the weighted average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.

8. Related Party Transactions

Related party transactions for the Company 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 three months ended December 31, 20172022 and 20162021 was $11,873$11,598 and $9,565,$12,276, respectively. The total billed to and reimbursed by the stockholder for the nine months ended December 31, 20172022 and 20162021 was $30,355$35,333 and $22,061,$35,332, 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 for the three months ending December 31, 2022 and 2021 were $3,893. Amounts paid by the principal stockholder directly to the lessor for the nine months ending December 31, 2022 and 2021 were $11,679 and $11,882, respectively.

9. Income Per Common Share

The following is a reconciliation of the number of shares used in the calculation of basic and diluted net income per share for the three and nine month periods ended December 31, 2022 and 2021:

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

For the three months ended December 31, 2022, 31,000 shares relating to stock options were excluded from the computation of diluted net income because their inclusion would be anti-dilutive. Anti-dilutive stock options have a weighted average exercise price of $18.05 at December 31, 2022.

For the three and nine months ended December 31, 2021, 31,000 shares relating to stock options were excluded from the computation of diluted net income because their inclusion would be anti-dilutive. Anti-dilutive stock options have a weighted average exercise price of $8.51 at December 31, 2021.

10. Stockholders’ Equity

In June 2022, the Board of Directors authorized the use of up to $250,000 to repurchase shares of the Company’s common stock for the treasury account. This program does not have an expiration date and may be modified, suspended or terminated at any time by the board of directors. Under the repurchase program, shares of common stock may be purchased from time to time through open market purchases or other transactions. The amount and timing of repurchases will be subject to the availability of stock, prevailing market conditions, the trading price of the stock, our financial performance and other conditions. Repurchases may also be made from time-to-time in connection with the settlement our share-based compensation awards. Repurchases will be funded from cash flow from operations.

During the three months ended December 31, 2022, the Company repurchased 12,416 shares for the treasury at an aggregate cost of $168,260. There were no shares of common stock repurchased for the treasury account during the three months ended December 31, 2021. Subsequently, in January 2023, the Company repurchased 1,300 shares for the treasury at an aggregate cost of $16,359.

On September 6, 2022, one of the Company’s directors paid the Company $30,179, representing profit on Company stock purchased within the six-month window of a previous Company stock sale. Such payment was made in accordance with Section 16(b) of the Securities Exchange Act of 1934.

11. Subsequent Events

The Company 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 has determined that there are no other subsequent events to 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 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 its oil and gas under any existing contract or agreement.

Due to depressed 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 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, royalties and working interests andin non-operated properties in areas with significant development potential.

At December 31, 2022, we had working capital of $2,468,314 compared to working capital of $2,469,776 at March 31, 2022, a decrease of $1,462 for the reasons set forth below.

ForCash Flows

Changes in the firstnet 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 nine months ended December 31, 2022 was $4,350,920 in comparison to $2,728,586 for the nine months ended December 31, 2021. This increase of $1,622,334 in our cash flow operating activities consisted of an increase in our non-cash expenses of $496,349; an increase in our accounts receivable of $639,657; and, an increase in our net income for the current nine months of fiscal 2018,$1,898,037. 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 nine months ended December 31, 2022, 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$4,969,269 used for additions to oil and gas properties. properties compared to $1,021,849 for the nine months ended December 31, 2021.

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 $121,381 for the nine months ended December 31, 2022 compared to cash flow used in our financing activities of $884,360 for the nine months ended December 31, 2021. During the nine months ended December 31, 2022, we received advances and made repayments of $675,000 on our credit facility, received proceeds of $16,700 from the exercise of director stock options, received payment of $30,179 from a director for profits on purchase of stock within the six-month window of a previous stock sale, and expended $168,260 for the purchase of 12,416 shares of our stock for the treasury.

Accordingly, net cash increased $23,831.

Atdecreased $739,730, leaving cash and cash equivalents on hand of $631,036 as of 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.2022.

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 2023. The Company currently expectsplans to participate in the drilling and completion of approximately 3050 horizontal wells at an estimated aggregate cost of approximately $1,200,000$4,000,000 for the fiscal year ending March 31, 2018. The operators2023, of these wells include Concho Resources, Inc., Marathon Oil Permian LLC, McElvain Energy, Inc., Mewbourne Oil Company, XTO Energy, Inc.which 53% will be spent in the Delaware Basin and others.

As of December 31, 2017, Mexco has expended approximately $700,000 for seventeenthe remaining balance in the Midland Basin. Thirty-eight of these horizontal wells are in the Delaware Basin located in the Delaware Basin.

The first twowestern portion of these wells began producingthe Permian Basin in September at an initial average rate of 288 barrels of oil; 1,308 barrels of water;Lea 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;Eddy Counties, New Mexico and 247,000 cubic feet of gas per day, or 286 barrels of oil equivalent per day. These wellstwelve are in the Yeso/Paddock formationsMidland Basin located in the eastern portion of the Dodd Federal UnitPermian Basin in Reagan County, Texas.

In April 2022, Mexco expended approximately $176,000 to participate in the Grayburg San Andres Jackson Fielddrilling of Eddy County, New Mexico and operated by Concho Resources, Inc. Mexco’s working interest in this unit is .1848%.

The next three of thesefour horizontal 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 AvalonWolfcamp Sand formation locatedof the Delaware Basin in Lea County, New Mexico. Mexco’s working interest in these wells is .6%.52%.

Mexco expended approximately $1,196,000 to participate in the drilling and completion of three horizontal wells in the Wolfcamp Sand formation of the Midland Basin located in the eastern portion of the Permian Basin in Reagan County, Texas. Mexco’s working interest in these wells is 3.2%. These wells were completed in October 2022 with initial average production rates of 507 barrels of oil, 2,147 barrels of water and 2,147,000 cubic feet of gas per day, or, 560 barrels of oil equivalent per day.

Mexco expended approximately $681,000 to participate in the drilling and completion of eight horizontal wells in the Wolfcamp Sand formation of the Delaware Basin in Lea County, New Mexico. Mexco’s working interest in these wells is .52%. These wells are currently being completed.

The remaining elevenMexco expended approximately $607,000 to participate in the drilling and completion of a horizontal well in the Wolfcamp Sand formation of the Midland Basin in Reagan County, Texas. Mexco’s working interest in this well is 5.1%. This well was completed in October 2022 with initial average production rates of 134 barrels of oil, 874 barrels of water and 143,000 cubic feet of gas per day, or, 158 barrels of oil equivalent per day.

Mexco expended approximately $625,000 to participate in the drilling and completion of four horizontal wells in the Bone Spring formation of the Delaware Basin in Eddy County, New Mexico. Mexco’s working interest in these seventeen wells have been drilledis 2.1%. These wells began producing in October 2022 with initial average production rates of 1,154 barrels of oil, 2,887 barrels of water and 2,966,000 cubic feet of gas per day, or, 1,648 barrels of oil equivalent per day.

Mexco expended approximately $78,000 to participate in the drilling and completion of two horizontal wells in the Penn Shale formation of the Delaware Basin in Lea County, New Mexico. Mexco’s working interest in these wells is .22%. These wells are currently being completed.

Mexco expended approximately $85,000 to participate in various stagesthe drilling and completion of completion.eight horizontal wells in the Spraberry trend of the Midland Basin in Reagan County, Texas. Mexco’s working interest in these wells is approximately .08%. These wells are currently being completed.

DuringMexco expended $16,000 to participate in the first nine monthsdrilling and completion of fiscal 2018,three horizontal wells in the Bone Spring formation of the Delaware Basin in Eddy County, New Mexico. Mexco’s working interest in these wells is .05%. These wells are currently being completed.

In October 2022, the Company sold formade an approximately 2% equity investment commitment in a total considerationlimited liability company amounting to $2,000,000 of $460,461, leasehold interests in 137 net acres in the Scoop-Stack areas of Canadian and Grady Counties, Oklahoma.which $200,000 has been funded through December 31, 2022. The first of these transactions in which the Company retained itslimited liability company is capitalized at approximately $100 million to purchase mineral interests in the existing producing wellbores on the acreage wasUtica and Marcellus areas in the amountstate of $336,730.Ohio.

Completion of Wells Drilled in Fiscal 2022. The second transactionCompany expended approximately $329,000 for the completion costs of 8 horizontal wells located in Lea County, New Mexico that the Company participated in drilling during fiscal 2022. The first 4 of these wells began producing in May 2022 and the remaining 4 were completed in November 2022 with initial average production rates of 953 barrels of oil, 4,063 barrels of water and 3,071,000 cubic feet of gas per day, or, 1,465 barrels of oil equivalent per day.

Acquisitions in Fiscal 2023. The Company acquired various royalty (mineral) interests in 22 wells and several additional potential locations for development operated by Chesapeake Energy Corporation and located in the amountEagleford area of $123,731 includedDimmit County, Texas for a purchase price of $939,000 which was effective April 1, 2022.

Subsequent Participations. In January 2023, Mexco expended $180,000 to participate in the producing wellbores as well asdrilling of four horizontal wells in the acreage. Of these proceeds, $410,000 was applied to reduce bank indebtedness and the balance of $50,461 was applied to working capitalWolfcamp Sand formation of the Company.Delaware Basin in Lea County, New Mexico.

Subsequently, in January 2018, the Company sold additional leasehold interestsIn February 2023, Mexco expended approximately $31,000 to participate in the Scoop-Stack areadrilling and completion of Grady County, Oklahoma for $46,000 which the Company used to reduce bank indebtedness. The Company retained its interestsseven horizontal wells 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 $200,000Bone Spring formation of the purchase price is being heldDelaware Basin in escrow pending payment of closing costs and resolution of title issues as to a small portion of the sale assets. This amount is reflected in accounts receivable escrow on our consolidated balance sheets.Lea County, New Mexico.

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 pricesgenerally 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$67.00 per bbl in June 2017December 2022 to a high of $56.75$119.68 per bbl in December 2017.March 2022. The Henry Hub Spot Market Price (“Henry Hub”) posted price for natural gas has ranged from a low of $2.44$3.46 per MMBtu in February 2017November 2022 to a high of $3.71$9.85 per MMBtu in January 2017. August 2022.

On December 31, 20172022, the WTI posted price for crude oil was $56.75 per bbl$76.24 and the Henry Hub spotposted price for natural gas was $3.69 per MMBtu.$3.52. See Results of Operations below for realized price.

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, 2017:2022:

Results of Operations – Three Months Ended December 31, 20172022 and 2016.2021. For the quarter ended December 31, 2017, the2022, there was net lossincome of $101,228$1,244,785 compared to a net loss of $159,741$753,302 for the quarter ended December 31, 2016 was2021, a 65% increase as a result of an increase in operating revenues due to an increase in oil and gas revenuesproduction and prices partially offset by an increase in total operating expenses asthat is further explained below.

Oil and gas sales. Revenue from oil and gas sales was $641,468$2,486,017 for the third quarter of fiscal 2018, an 11%2023, a 58% increase from $580,419$1,573,984 for the same period of fiscal 2017.2022. This resulted from an increase in oil and natural gas pricesproduction volumes and an increase in oil price partially offset by a decrease in oil andnatural gas production. This decrease in production was primarily due to the sale of our operated oil and gas properties in Pecos County, Texas and to a lesser extent, the shut-in of current production in certain fields with drilling and completion activities. The following table sets forth our oil and gas revenues, production quantities and average prices received during the three months ended December 31, 2017 and 2016:price.

Production and exploration.Production costs were $248,865$478,670 for the third quarter of fiscal 2018,2023, a 6%64% increase from $234,372$291,068 for the same period of fiscal 2017.2022. This increase is primarily the result of an increase in lease operating expense for well repairs on non-operated properties and an increase in production taxes due toand marketing charges as a result of the increase in oil and gas sales.revenues.

Depreciation, depletion and amortization. Depreciation, depletion and amortization expense was $247,801$496,509 for the third quarter of fiscal 2018, a 10% decrease2023, an 85% increase from $273,885$268,018 for the same period of fiscal 2017,2022, primarily due to a decreasean increase in oil and gas production and the full cost pool as a result of oil and gas property sales. And additionally due toamortization base partially offset by an increase in oil and gas reserves partially offset by an increase in future development costs.reserves.