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, 2023

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)

Colorado84-0627918

(State or other jurisdiction of

(IRS Employer
incorporation or organization)

(IRS Employer

Identification Number)

214415 West Texas Avenue, Wall Street, Suite 1101475
Midland, Texas79701
(Address of principal executive offices)(Zip code)

 

(432)682-1119

(Registrant’s telephone number, including area code)

 

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

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.50 per shareMXCNYSE American

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.

Large Accelerated Filer [  ]☐Accelerated Filer [  ]☐
Non-Accelerated Filer [  ] ☐Smaller reporting company [X]☒
Emerging growth company ☐

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 10, 2023 was 2,037,266.2,127,000.

 

 

MEXCO ENERGY CORPORATION

Table of Contents

Table of ContentsPage
Page
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements3
Consolidated Balance Sheets (Unaudited) as of December 31, 2017June 30, 2023 (Unaudited) and March 31, 201720233

Consolidated Statements of Operations (Unaudited) for the three months ended June 30, 2023 and nine months ended December 31, 2017 and December 31, 2016June 30, 2022

4

Consolidated StatementStatements of Changes in Stockholders’ Equity (Unaudited)for the period ending December 31, 2017three months ended June 30, 2023 and June 30, 2022

5

Consolidated Statements of Cash Flows (Unaudited) for the ninethree months ended December 31, 2017June 30, 2023 and December 31, 2016June 30, 2022

6
Notes to Consolidated Financial Statements (Unaudited)7
Item 2.

Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations

1012
Item 3.Quantitative and Qualitative Disclosures About Market Risk1415
Item 4.Controls and Procedures1516
PART II. OTHER INFORMATION
Item 1.Legal Proceedings1517
Item 1A.Risk Factors1517
Item 2.6.Unregistered Sales of Equity Securities and Use of ProceedsExhibits1517
SIGNATURESItem 3.Defaults upon Senior Securities1518
CERTIFICATIONSItem 4.Mine Safety Disclosures15
Item 5.Other Information15
Item 6.Exhibits15
SIGNATURES16
CERTIFICATIONS19

Page 2

 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Mexco Energy Corporation and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(Unaudited)

  2023  2023 
  June 30,  March 31, 
  2023  2023 
  (Unaudited)     
ASSETS        
Current assets        
Cash and cash equivalents $3,376,487  $2,235,771 
Accounts receivable:        
Oil and natural gas sales  893,251   1,366,784 
Trade  10,718   7,031 
Prepaid drilling  33,529   67,951 
Prepaid costs and expenses  43,974   56,502 
Total current assets  4,357,959   3,734,039 
         
Property and equipment, at cost        
Oil and gas properties, using the full cost method  45,648,608   45,391,634 
Other  121,926   121,926 
Accumulated depreciation, depletion and amortization  (32,701,280)  (32,215,095)
Property and equipment, net  13,069,254   13,298,465 
Investments – cost basis  700,000   700,000 
Operating lease, right-of-use asset  61,734   75,629 
Other noncurrent assets  11,825   12,156 
Total assets $18,200,772  $17,820,289 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities        
Accounts payable and accrued expenses $210,310  $201,897 
Operating lease liability, current  56,896   56,366 
Total current liabilities  267,206   258,263 
Long-term liabilities        
Operating lease liability, long-term  4,838   19,263 
Asset retirement obligations  697,607   710,276 
Deferred income tax liabilities  88,683   - 
Total long-term liabilities  791,128   729,539 
Total liabilities  1,058,334   987,802 
         
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; 2,221,916 and 2,221,416 shares issued; and, 2,136,500 and 2,136,000 shares outstanding as of June 30, 2023 and March 31, 2023, respectively  1,110,958   1,110,708 
Additional paid-in capital  8,378,832   8,321,145 
Retained earnings  8,243,143   7,991,129 
Treasury stock, at cost (85,416 shares)  (590,495)  (590,495)
Total stockholders’ equity  17,142,438   16,832,487 
Total liabilities and stockholders’ equity $18,200,772  $17,820,289 

  December 31, 2017  March 31, 2017 
ASSETS        
Current assets        
Cash and cash equivalents $97,282  $73,451 
Accounts receivable:        
Oil and gas sales  399,987   381,414 
Trade  30,415   13,744 
Escrow  200,000   - 
Prepaid costs and expenses  18,782   36,325 
Total current assets  746,466   504,934 
         
Property and equipment, at cost        
Oil and gas properties, using the full cost method  35,669,560   37,640,096 
Other  107,484   107,484 
Accumulated depreciation, depletion and amortization  (26,417,172)  (25,572,606)
Property and equipment, net  9,359,872   12,174,974 
         
Other noncurrent assets  121,598   28,157 
Total assets $10,227,936  $12,708,065 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities        
Accounts payable and accrued expenses $212,429  $137,259 
Total current liabilities  212,429   137,259 
         
Long-term debt  950,000   2,900,000 
Asset retirement obligations  931,870   968,484 
Total liabilities  2,094,299   4,005,743 
         
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; 2,104,266 issued and 2,037,266 shares outstanding as of December 31, 2017 and March 31, 2017  1,052,133   1,052,133 
Additional paid-in capital  7,262,113   7,244,848 
Retained earnings  165,392   751,342 
Treasury stock, at cost – (67,000 shares)  (346,001)  (346,001)
Total stockholders’ equity  8,133,637   8,702,322 
Total liabilities and stockholders’ equity $10,227,936  $12,708,065 

The accompanying notes are an integral part of

the consolidated financial statements.

Page 3

 

Mexco Energy Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)For the Three Months Ended June 30,

  Three Months Ended  Nine Months Ended 
  December 31  December 31 
  2017  2016  2017  2016 
Operating revenue:                
Oil and gas $641,468  $580,419  $1,903,361  $1,662,985 
Other  13,463   9,715   38,342   178,174 
Total operating revenues  654,931   590,134   1,941,703   1,841,159 
                 
Operating expenses:                
Production  248,865   234,372   813,570   721,864 
Accretion of asset retirement obligation  8,639   9,248   25,196   26,939 
Depreciation, depletion, and amortization  247,801   273,885   844,566   879,637 
General and administrative  225,528   199,995   765,056   780,608 
Total operating expenses  730,833   717,500   2,448,388   2,409,048 
                 
Operating loss  (75,902)  (127,366)  (506,685)  (567,889)
                 
Other income (expenses):                
Interest income  34   3   45   175 
Interest expense  (25,360)  (32,378)  (79,310)  (123,385)
Net other expense  (25,326)  (32,375)  (79,265)  (123,210)
                 
Loss before income taxes  (101,228)  (159,741)  (585,950)  (691,099)
                 
Income tax benefit:                
Deferred  -   -   -   - 
                 
Net loss $(101,228) $(159,741) $(585,950) $(691,099)
                 
Loss per common share:                
Basic and diluted $(0.05) $(0.08) $(0.29) $(0.34)
                 
Weighted average common shares outstanding:                
Basic and diluted  2,037,266   2,037,266   2,037,266   2,037,266 

(Unaudited)

  2023  2022 
       
Operating revenues:        
Oil sales $1,429,678  $1,559,321 
Natural gas sales  285,412   856,792 
Other  33,329   33,860 
Total operating revenues  1,748,419   2,449,973 
         
Operating expenses:        
Production  349,407   435,028 
Accretion of asset retirement obligations  7,356   7,519 
Depreciation, depletion and amortization  486,186   387,128 
General and administrative  340,969   290,243 
Total operating expenses  1,183,918   1,119,918 
         
Operating income  564,501   1,330,055 
         
Other income (expense):        
Interest income  23,695   35 
Interest expense  (1,081)  (3,131)
Net other income (expense)  22,614   (3,096)
         
Income before provision for income taxes  587,115   1,326,959 
         
Income tax expense:        
Current  32,818   28,287 
Deferred  88,683   - 
Total income tax expense  121,501   28,287 
         
Net income $465,614  $1,298,672 
         
Income per common share:        
Basic: $0.22  $0.60 
Diluted: $0.21  $0.59 
Weighted average common shares outstanding:        
Basic:  2,136,165   2,149,416 
Diluted:  2,182,800   2,216,742 

The accompanying notes are an integral part of

the consolidated financial statements.

Page 4

 

Mexco Energy Corporation and Subsidiaries

CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

  Common Stock Par Value  Additional Paid-In Capital  Retained Earnings  Treasury Stock  

Total

Stockholders’ Equity

 
                
Balance at April 1, 2023 $1,110,708  $8,321,145  $7,991,129  $(590,495) $16,832,487 
Net income  -   -   465,614   -   465,614 
Dividends paid          (213,600)      (213,600)
Issuance of stock through
options exercised		  250   2,712           2,962 
Stock based compensation  -   54,975   -   -   54,975 
Balance at June 30, 2023 $1,110,958  $8,378,832  $8,243,143  $(590,495) $17,142,438 

  Common Stock Par Value  Additional Paid-In Capital  Retained Earnings  Treasury Stock  

Total

Stockholders’ Equity

 
                
Balance at April 1, 2022 $1,108,208  $8,133,982  $3,328,427  $(346,001) $12,224,616 
Net income  -   -   1,298,672   -   1,298,672 
Stock based compensation  -   25,571   -   -   25,571 
Balance at June 30, 2022 $1,108,208  $8,159,553  $4,627,099  $(346,001) $13,548,859 
                     
SHARE ACTIVITY                    
                     
Common stock shares, issued:                    
Balance at April 1, 2023      2,221,416             
Issued      500             
Balance at June 30, 2023      2,221,916             
                     
Common stock shares, held in treasury:                    
Balance at April 1, 2023      (85,416)            
Acquisitions      -             
Balance at June 30, 2023      (85,416)            
                     
Common stock shares, outstanding at June 30, 2023      2,136,500             

  Common Stock Par Value  Treasury Stock  Additional Paid-In Capital  Retained Earnings  Total
Stockholders’ Equity		 
Balance at April 1, 2017 $1,052,133  $(346,001) $7,244,848  $751,342  $8,702,322 
Net loss  -   -   -   (585,950)  (585,950)
Stock based compensation  -   -   17,265   -   17,265 
Balance at December 31, 2017 $1,052,133  $(346,001) $7,262,113  $165,392  $8,133,637 
                     
SHARE ACTIVITY                    
                     
Common stock shares, issued:                    
Balance at April 1, 2017      2,104,266             
Issued      -             
Balance at Dec. 31, 2017      2,104,266             
                     
Common stock shares, held in treasury:                    
Balance at April 1, 2017      (67,000)            
Acquisitions      -             
Balance at Dec. 31, 2017      (67,000)            
                    
Common stock shares, outstanding at December 31, 2017      2,037,266             

The accompanying notes are an integral part of

the consolidated financial statements.

Page 5

 


Mexco Energy Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the NineThree Months Ended December 31,June 30,

(Unaudited)

 2017 2016  2023 2022 
Cash flows from operating activities:                
Net loss $(585,950) $(691,099)
Adjustments to reconcile net loss to net cash provided by operating activities:        
Net income $465,614  $1,298,672 
Adjustments to reconcile net income to net cash provided by operating activities:        
Deferred income tax expense  88,683   - 
Stock-based compensation  17,265   42,424   54,975   25,571 
Depreciation, depletion and amortization  844,566   879,637   486,186   387,128 
Accretion of asset retirement obligations  25,196   26,939   7,356   7,519 
Changes in assets and liabilities:        
Increase in accounts receivable  (235,244)  (65,801)
Amortization of debt issuance costs  1,081   3,131 
Changes in operating assets and liabilities        
Decrease (increase) in accounts receivable  469,846   (222,248)
Decrease in prepaid expenses  17,543   33,649   12,528   14,266 
Increase in non-current assets  -   (25,219)
Decrease in right-of-use asset  13,894   13,384 
Increase (decrease) in accounts payable and accrued expenses  77,024   (103,500)  32,111   (12,364)
Settlement of asset retirement obligations  (7,264)  (93,630)  (2,185)  (6,077)
Decrease in operating lease liability  (13,894)  (13,384)
Net cash provided by operating activities  153,136   3,400   1,616,195   1,495,598 
                
Cash flows from investing activities:                
Additions to oil and gas properties  (802,184)  (517,454)  (542,840)  (2,320,974)
Additions to other property and equipment  -   -   -   (1,718)
Drilling refunds  74,744   75,808 
Investments in limited liability companies at cost  -   (25,000)
Drilling refund  -   18,329 
Proceeds from sale of oil and gas properties and equipment  2,548,135   2,975,091   278,749   - 
Net cash provided by investing activities  1,820,695   2,533,445 
Net cash used in investing activities  (264,091)  (2,329,363)
                
Cash flows from financing activities:                
Reduction of long-term debt  (1,950,000)  (2,510,000)
Proceeds from exercise of stock options  2,962   - 
Dividends paid  (213,600)  - 
Debt issuance costs  (750)  - 
Net cash used in financing activities  (1,950,000)  (2,510,000)  (211,388)  - 
                
Net increase in cash and cash equivalents  23,831   26,845 
Net increase (decrease) in cash and cash equivalents  1,140,716   (833,765)
                
Cash and cash equivalents at beginning of period  73,451   34,013   2,235,771   1,370,766 
                
Cash and cash equivalents at end of period $97,282  $60,858  $3,376,487  $537,001 
                
Supplemental disclosure of cash flow information:        
Cash paid for interest $81,415  $126,593 
        
Non-cash investing and financing activities:                
Asset retirement obligations $6,356  $5,247  $1,080  $14,668 

The accompanying notes are an integral part of

the consolidated financial statements.

Page 6

 

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 acquisition, 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 consolidated 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, 2023, and the results of its operations and cash flows for the interim periods ended December 31, 2017June 30, 2023 and 2016.2022. The consolidated financial statements as of December 31, 2017June 30, 2023 and for the three and nine monththree-month periods ended December 31, 2017June 30, 2023 and 20162022 are unaudited. The consolidated balance sheet as of March 31, 20172023 was derived from the audited balance sheet filed in the Company’s 20172023 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. The Company accounts for investments of less than 3% of any 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.

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.

 

Page 7

 

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. 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 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 2018:2024:

Carrying amount of asset retirement obligations as of April 1, 2017 $978,484 
Liabilities incurred  6,356 
Liabilities settled  (68,166)
Accretion expense  25,196 
Carrying amount of asset retirement obligations as of December 31, 2017  941,870 
Less: Current portion  10,000 
Non-Current asset retirement obligation $931,870 

5. Credit FacilitySchedule of Rollforward of Asset Retirement Obligations

Carrying amount of asset retirement obligations as of April 1, 2023 $730,276 
Liabilities incurred  1,080 
Liabilities settled  (21,105)
Accretion expense  7,356 
Carrying amount of asset retirement obligations as of June 30, 2023  717,607 
Less: Current portion  20,000 
Non-Current asset retirement obligation $697,607 

4. Long Term Debt

The

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 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. On March 28, 2023, the bank states otherwise.

The Agreement was renewed eleven times withamended to extend the eleventh amendment effective as of March 8, 2017 with a maturity date of November 30, 2020. to March 28, 2026.

Under such renewal agreement,the 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, 2023, there was no availability of this line of credit at December 31, 2017. $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, 2026. Upon closing the second amendment to the Agreement, the Company paid a loan origination fee of $9,000 plus legal and recording expenses totaling $12,950, 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.quarter.

In addition, this Agreement prohibits the Company from paying cash dividends on its common stock.stock without prior written permission of WTNB. The Company obtained written permission from WTNB prior to declaring the special dividend on April 10, 2023 as discussed in Note 10. 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.balance outstanding on the credit facility as of June 30, 2023.

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5. Stock-based Compensation

The Agreement allowsCompany recognized compensation expense of $54,975 and $25,571 related to vesting stock options in general and administrative expense in the Consolidated Statements of Operations for upthe first quarter of fiscal 2024 and 2023, respectively. The total cost related to $500,000non-vested awards not yet recognized at June 30, 2023 totals $677,185, which is expected to be recognized over a weighted average of 2.85 years.

During the three months ended June 30, 2023, the Compensation Committee of the facility to be used for outstanding lettersBoard 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 propertiesDirectors approved and the Company operates is outstanding undergranted 32,000 stock options exercisable at $12.68 per share with an estimated fair value of $279,360. These options are exercisable at a price not less than the facility. This letter of credit renews annually. The Company will pay a fee in an amount equal to 1 percent (1.0%) per annumfair market value of the outstanding undrawn amountstock at the date of each standby lettergrant, have an exercise period of credit, payable monthlyten years and generally vest over four years. During the three months ended June 30, 2022, no stock options were granted.

Included in arrears, on the basisfollowing table is a summary of the face amount outstanding ongrant-date fair value of stock options granted and the dayrelated assumptions used in the fee is calculated.Binomial models for stock options granted during the three months ended June 30, 2023 and 2022. All such amounts represent the weighted average amounts.

The balance outstanding on the lineSchedule of credit asGrant-date Fair Value of December 31, 2017 was $950,000. Stock Options Granted and Assumptions Used Binominal Models

  Three Months Ended 
  June 30 
  2023  2022 
Grant-date fair value $8.73   - 
Volatility factor  56.5%  - 
Dividend yield  -   - 
Risk-free interest rate  3.44%  - 
Expected term (in years)  6.25   - 

The following table is a summary of stock options activity for the three months ended June 30, 2023:

Summary of Activity of Stock Options

  Number of Shares  Weighted Average Exercise Price Per Share  Weighted Aggregate Average Remaining Contract Life
in Years		  Intrinsic Value 
Outstanding at April 1, 2023  139,250  $8.36   7.04  $419,853 
Granted  32,000   12.68         
Exercised  (500)  5.93         
Forfeited or Expired  -   -         
Outstanding at June 30, 2023  170,750  $9.18   7.35  $483,098 
                 
Vested at June 30, 2023  75,250  $5.02   5.44  $526,328 
Exercisable at June 30, 2023  75,250  $5.02   5.44  $526,328 

During the three months ended June 30, 2023, stock options covering 500 shares were exercised with a total intrinsic value of $2,416. The Company received proceeds of $2,962 from these exercises. During the three months ended June 30, 2022, no stock options 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, 2023 and 2022, there were no stock options forfeited or expired.

Outstanding options at June 30, 2023 expire between August 2024 and April 2033 and have exercise prices ranging from $3.34 to $18.05.

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 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 Bank of America, N.A. line of creditconsolidated balance sheets.

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Operating lease right-of-use assets represent the Company’s right to use an underlying asset for the ninelease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company’s lease does not provide an implicit rate, the 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 determining 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

  June 30, 2023 
Assets    
Operating lease right-of-use asset, beginning balance $75,629 
Current period amortization  (13,895)
Total operating lease right-of-use asset $61,734 
     
Liabilities    
Operating lease liability, current $56,896 
Operating lease liability, long term  4,838 
Total lease liabilities $61,734 

Future minimum lease payments as of June 30, 2023 under non-cancellable operating leases are as follows:

Schedule of Future Minimum Lease Payments

  Lease Obligation 
Fiscal Year Ended March 31, 2024  43,680 
Fiscal Year Ended March 31, 2025  19,413 
Total lease payments $63,093 
Less: imputed interest  (1,359)
Operating lease liability  61,734 
Less: operating lease liability, current  (56,896)
Operating lease liability, long term $4,838 

Net cash paid for our operating lease for the three months ended June 30, 2023 and 2022 was $10,667. Rent expense, less sublease income of $3,893 is included in general and administrative expenses.

7. Income Taxes

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (“IRA 2022”). The IRA 2022, among other tax provisions, imposes a 15% corporate alternative minimum tax on corporations with book financial statement income in excess of $1.0 billion, effective for tax years beginning after December 31, 2017:

  Principal 
Balance at April 1, 2017: $2,900,000 
Borrowings  - 
Repayments  1,950,000 
Balance at December 31, 2017: $950,000 

2022. The balance outstandingIRA 2022 also establishes a 1% excise tax on the linestock repurchases made by publicly traded U.S. corporations, effective for stock repurchases in excess of credit asan annual limit of February 12, 2018 was $900,000.

6. Income Taxes

On$1.0 million after December 22, 2017, the tax legislation referred to as the “Tax Cuts and Jobs Act” (the 2017 Tax Reform Act) was enacted.31, 2022. The more significant changes thatIRA 2022 did not impact the Company areCompany’s current year tax provision or the reduction inCompany’s financial statements.

The income tax provision consists of the corporatefollowing for the three months ended June 30, 2023 and 2022:

Schedule of Income Tax Provision

  2023  2022 
  Three Months Ended 
  June 30 
  2023  2022 
Current income tax expense:        
Federal $-  $- 
State  32,818   28,287 
Total current income tax expense  32,818   28,287 
Deferred income tax expense:        
Federal  88,683   - 
State  -   - 
Total deferred income tax expense  88,683   - 
Total income tax expense: $121,501  $28,287 

Federal income tax for the three months ended June 30, 2023 was $88,683. There was no 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, 2017expense for the 2017 Tax Reform Act. GAAP also requires deferred income tax assets and liabilities to be measured atthree months ended June 30, 2022 because the enacted tax rate expected to apply when temporary differences are to be realized or settled. The Company’s deferred income taxes were remeasured based upon the new tax rates which amounted to a $509,863 reduction in deferred tax asset and valuation amount.

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 areCompany was in a net deferred tax asset position as of December 31, 2017. Our deferred tax asset is $822,425 as of December 31, 2017 with a valuation amount of $822,425. 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 future expected growth.position.

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:

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  Three Months Ended  Nine Months Ended 
  December 31  December 31 
  2017  2016  2017  2016 
Net loss $(101,228) $(159,741) $(585,950) $(691,099)
                 
Shares outstanding:                
Weighted avg. common shares outstanding – basic  2,037,266   2,037,266   2,037,266   2,037,266 
Effect of the assumed exercise of dilutive stock options  -   -   -   - 
Weighted avg. common shares outstanding – dilutive  2,037,266   2,037,266   2,037,266   2,037,266 
                 
Loss per common share:                
Basic and diluted $(0.05) $(0.08) $(0.29) $(0.34)

DueA reconciliation of the provision for income taxes to a net lossincome taxes computed using the federal statutory rate for the three and nine months ended December 31, 2017 and 2016, the weighted average numberJune 30 follows:

Schedule of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.Reconciliation of Provision for Income Taxes

  2023  2022 
Tax expense at federal statutory rate (1) $116,402  $272,721 
Statutory depletion carryforward  (36,015)  (50,738)
Change in valuation allowance  (3,578)  (226,644)
U. S. tax reform, corporate rate reduction  -   - 
Permanent differences  11,874   4,661 
State income expense  32,818   28,287 
Other  -   - 
Total income tax $121,501  $28,287 
Effective income tax rate  20.7%  2.1%

(1)The federal statutory rate was 21% for three months ended June 30, 2023 and 2022.

8. 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, 2023 and 2022 was $9,382 and $10,085, 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 June 30, 2023 and 2022 were $3,893.

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-month periods ended June 30, 2023 and 2022.

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

  2023  2022 
Net income $465,614  $1,298,672 
         
Shares outstanding:        
Weighted average common shares outstanding – basic  2,136,165   2,149,416 
Effect of the assumed exercise of dilutive stock options  46,635   67,326 
Weighted average common shares outstanding – dilutive  2,182,800   2,216,742 
Income per common share:        
Basic $0.22  $0.60 
Diluted $0.21  $0.59 

For the three months ended June 30, 2023, 63,000 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 $15.32 at June 30, 2023. For the three months ended June 30, 2022, no anti-dilutive shares relating to stock options were excluded from the computation of diluted net income.

10. Stockholders’ Equity

In June 2023, the Board of Directors authorized the use of up to $1,000,000 to repurchase shares of the Company’s common stock, par value $0.50, 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.

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (“IRA 2022”). The IRA 2022, among other tax provisions, establishes a 1% excise tax on stock repurchases made by publicly traded U.S. corporations, effective for stock repurchases in excess of an annual limit of $1,000,000 after December 31, 20172022.

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During the three months ended June 30, 2023 and 2016 was $11,873 and $9,565, respectively.2022 there were no shares of common stock repurchased for the treasury account. Subsequently, in July 2023, the Company repurchased 9,500 shares for the treasury at an aggregate cost of $116,707.

On April 10, 2023, the Board of Directors declared a special dividend of $0.10 per common share. The total billedCompany paid the special dividend of $213,600 on May 15, 2023 to and reimbursedthe stockholders of record at the close of business on May 1, 2023. The Company can provide no assurance that dividends will be declared in the future or as to the amount of any future dividend.

Dividends declared by the stockholder forBoard and stock repurchased during the nine months ended December 31, 2017period are presented in the Company’s consolidated statements of changes in stockholders’ equity as dividends paid and 2016 was $30,355purchases of treasury stock, respectively. Dividends paid and $22,061, respectively.stock repurchased during the period are presented as cash used in financing activities in the Company’s consolidated statements of cash flows. Stock repurchases are included as treasury stock in the consolidated balance sheets.

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 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.

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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 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.

At June 30, 2023, we had working capital of $4,090,753 compared to working capital of $3,475,776 at March 31, 2023, an increase of $614,977 for the reasons set forth below.

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For

Cash Flows

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

  For the Three Months Ended
June 30,		    
  2023  2022  Change 
Net cash provided by operating activities $1,616,195  $1,495,598  $120,597 
Net cash used in investing activities $(264,091) $(2,329,363) $(2,065,272)
Net cash used in financing activities $(211,388) $-  $211,388 

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, 2023 was $1,616,195 in comparison to $1,495,598 for the three months ended June 30, 2022. This increase of fiscal 2018,$120,597 in our cash flow operating activities consisted of an increase in our non-cash expenses of $126,249; a decrease in our accounts receivable of $692,094; an increase of $44,475 in our accounts payable and accrued expenses; an increase of $88,683 in deferred income tax expense; and, a decrease in our net income for the current quarter of $833,058. 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, 2023, 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$264,091 used for additions to oil and gas properties. properties compared to $2,329,363 for the three months ended June 30, 2022.

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 $211,388 for the three months ended June 30, 2023 compared to cash flow provided by our financing activities of $0 for the three months ended June 30, 2022. During the three months ended June 30, 2023, we expended $213,600 to pay the special dividend.

Accordingly, net cash increased $23,831.$1,140,716, leaving cash and cash equivalents on hand of $3,376,487 as of June 30, 2023.

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 2024. The Company currently expectsplans to participate in the drilling and completion of approximately 3040 horizontal wells at an estimated aggregate cost of approximately $1,200,000$1,700,000 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 seventeen2024. 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 2023, Mexco expended approximately $133,000 to participate in the Yeso/Paddock formationsdrilling of four horizontal wells in the Wolfcamp Sand formation of the Dodd Federal Unit in the Grayburg San Andres Jackson Field 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 locatedDelaware Basin in Lea County, New Mexico. Mexco’s working interest in these wells is .6%.52%.

The remaining elevenIn May 2023, Mexco expended approximately $68,000 to participate in the drilling of two horizontal wells in the Penn Shale formation of the Delaware Basin in Lea County, New Mexico. Mexco’s working interest in these seventeen wells have been drilled and areis .4%.

In April 2023, Mexco expended approximately $60,000 to participate in various stagesthe drilling of completion.

Duringtwo horizontal wells in the first nine monthsPenn Shale formation of fiscal 2018,the Delaware Basin in Lea County, New Mexico. Mexco’s working interest in these wells is approximately .285%. Subsequently, in July 2023, the Company sold for a total considerationexpended approximately $45,000 to complete these wells.

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Completion of $460,461, leasehold interestsWells Drilled in 137 net acresFiscal 2023. The Company also expects to expend approximately $450,000 in the Scoop-Stack areascompletion of Canadian and Grady Counties, Oklahoma. The first of these transactions21 horizontal wells in which the Company retained its interestsparticipated in fiscal 2023 of which approximately $225,000 has been expended to date.

The Company expended approximately $211,000 for the completion costs of four horizontal wells in the existing producing wellbores onWolfcamp Sand formation of the acreage wasDelaware Basin in Lea County, New Mexico that the Company participated in drilling during fiscal 2023. Mexco’s working interest in these wells is .52%.

Three horizontal wells 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 capitalBone Spring formation of the Company.

Subsequently,Delaware Basin in January 2018, the Company sold additional leasehold interestsEddy County, New Mexico in the Scoop-Stack area of Grady County, Oklahoma for $46,000 which the Company used to reduce bank indebtedness. Theparticipated during fiscal 2023 were completed in May 2023 with initial average production rates of 437 barrels of oil, 983 barrels of water and 603,000 cubic feet of gas per day, or, 538 barrels of oil equivalent per day. Mexco’s working interest in these wells is .05%.

Acquisitions. In June 2023, the Company retained itsacquired small royalty (mineral) interests in 6 wells operated by Highpeak Energy and located in Howard County, Texas for a purchase price of $20,000 which is effective July 1, 2023.

Sales of Properties. During the existing producing wellbore on the acreage.

In December 2017,first quarter of fiscal 2024, the Company received approximately $1.9 million$280,000 in cash from a sale of joint venture leasehold acreage and marginal producing working interestsinterest wells in several thousand acres locatedReagan County, Texas, marginal producing working interest wells in WardPecos County, Texas and Midland Counties,interest in surface acreage in Palo Pinto County, Texas. Of these proceeds,

Subsequent Participations. In July 2023, Mexco expended approximately $1.518 million was applied$787,000 to participate in the Company’s bank debt anddrilling of five horizontal wells in the balance to the Company’s working capital. Additionally, approximately $200,000Bone Spring Sand formation of the purchase price is being heldDelaware Basin in escrow pending paymentLea County, New Mexico.

In July 2023, Mexco expended approximately $36,000 to participate in the drilling and completion of closing costs and resolution of title issues as to a small portiontwo horizontal wells in the Bone Spring Sand formation of the sale assets. This amount is reflectedDelaware Basin in accounts receivable escrow on our consolidated balance sheets.Lea County, New Mexico.

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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$62.72 per bbl in June 2017March 2023 to a high of $56.75$104.41 per bbl in December 2017.July 2022. The Henry Hub Spot Market Price (“Henry Hub”) for natural gas has ranged from a low of $2.44$1.74 per MMBtu in February 2017June 2023 to a high of $3.71$9.85 per MMBtu in January 2017. August 2022.

On December 31, 2017June 30, 2023, the WTI posted price for crude oil was $56.75 per bbl$66.62 and the Henry Hub spot price for natural gas was $3.69$2.48 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, 2023:

  Payments due in: 
  Total  less than 1 year  1 - 3 years  over 3 years 
Contractual obligations:                
Leases (1) $63,093  $58,240  $4,853  $     - 

  Payments due in: 
  Total  less than 1 year  1 - 3 years  over 3 years 
Contractual obligations:                
Secured bank line of credit (1) $950,000  $-  $950,000  $- 
Leases (2) $4,755  $4,755  $-  $- 

(1)These amounts represent the balances outstanding under the bank line of credit. These repayments assume that interest will be paid on a monthly basis, no additional funds will be drawn and does not include estimated interest of $43,356 less than 1 year and $83,098 1-3 years.
(2)The lease amount represents the monthly rent amount for our principal office space in Midland, Texas under a three year38 month lease agreement effective April 1, 2013. In February 2016, the optionMay 15, 2018 and extended another 36 months to renew the lease for two years was exercised. The lease expires on April 1, 2018. TheJuly 31, 2024. Of this total obligation for the remainder of the lease, is $7,065 which includes $2,310 billed toour majority shareholder will pay $15,572 less than 1 year and reimbursed by our principal shareholder$1,298 1-3 years for his portion of the shared office space.

Results of Operations – Three Months Ended December 31, 2017 and 2016.June 30, 2023 Compared to Three Months Ended June 30, 2022. For the quarter ended December 31, 2017, theJune 30, 2023, net loss of $101,228income was $465,614 compared to a net lossincome of $159,741$1,298,672 for the quarter ended December 31, 2016June 30, 2022. This was aprimarily the result of a decrease in operating revenues due to a decrease in oil and gas prices and an increase in operating expenses, partially offset by an increase in oil and gas revenues partially offset by an increase in total operating expenses asproduction volumes, which is further explained below.

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Oil and gas salessales.. Revenue from oil and gas sales was $641,468$1,715,090 for the third quarter of fiscal 2018, an 11% increaseended June 30, 2023, a 29% decrease from $580,419$2,416,113 for the same period of fiscal 2017.quarter ended June 30, 2022. This primarily resulted from an increasea decrease in oil and gas prices partially offset by a decreasean increase in oil and 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.volumes. The following table sets forth our oil and natural gas revenues, production quantities and average prices received during the three months ended December 31, 2017 and 2016:June 30:

 2017 2016 % Difference  2023 2022 % Difference 
Oil:                        
Revenue $434,729  $376,014   15.6% $1,429,678  $1,559,321   (8.3)%
Volume (bbls)  8,209   8,502   (3.4%)  19,528   14,224   37.3%
Average Price (per bbl) $52.96  $44.23   19.7% $73.21  $109.62   (33.2)%
                        
Gas:                        
Revenue $206,739  $204,405   1.1% $285,412  $856,792   (66.7)%
Volume (mcf)  76,033   87,512   (13.1%)  141,578   129,706   9.2%
Average Price (per mcf) $2.72  $2.34   16.2% $2.02  $6.61   (69.4)%

Production and exploration.Production costs were $248,865$349,407 for the third quarter of fiscal 2018,three months ended June 30, 2023, a 6% increase20% decrease from $234,372$435,028 for the same period of fiscal 2017.three months ended June 30, 2022. This increasedecrease is primarily the result of an increase in lease operating expense for well repairs on non-operated properties and an increasea decrease in production taxes due toand lease operating expenses as a result of the increase in oil and gas sales.

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Depreciation, depletion and amortization. Depreciation, depletion and amortization expense was $247,801 for the third quarter of fiscal 2018, a 10% decrease from $273,885 for the same period of fiscal 2017, primarily due to a decrease in oil and gas productionrevenues.

Depreciation, depletion and amortization. Depreciation, depletion and amortization (“DD&A”) expense was $486,186 for the full cost pool asfirst quarter of fiscal 2024, a result26% increase from $387,128 for the first quarter of oil and gas property sales. And additionallyfiscal 2023, primarily due to an increase in oil and gas production and a decrease in the oil and gas reserves, partially offset by an increasea decrease in future development costs.the full cost pool amortization base.

General and administrative expenses.General and administrative expenses were $225,528$340,969 for the third quarter of fiscal 2018,three months ended June 30, 2023, a 13%17% increase from $199,995$290,243 for the same period of fiscal 2017.three months ended June 30, 2022. This was primarily due to an increase in engineering services, accounting fees, and salaries partially offset by a decrease inemployee stock option compensation expense and insurance expense.engineering services.

Interest expense.Interest expense, which consisted of debt issuance costs, was $25,360$1,081 for the thirdfirst quarter of fiscal 2018,2024, a 22% decrease of 65% from $32,378$3,131 for the same periodfirst quarter of fiscal 2017, due to a decrease in borrowings partially offset by an increase in interest rate.2023.

Income taxes.There was no Federal income tax for the quarterthree months ended December 31, 2017June 30, 2023 was $88,683. There was no federal income tax expense for the three months ended June 30, 2022 because the Company was in a net deferred tax asset position. State income tax was $32,818 for the three months ended June 30, 2023, a 16% increase from $28,287 for the three months ended June 30, 2022 due to the increase in oil and natural gas sales in the quarter ended December 31, 2016.State of New Mexico. The effective tax rate for the three months ended December 31, 2017June 30, 2023 and December 31, 20162022 was 0%. We are in a net deferred tax asset position21% and believe it is more likely than not that these deferred tax assets will not be realized.2%, respectively.

Results of Operations – Nine Months Ended December 31, 2017 and 2016. For the nine months ended December 31, 2017, the net loss of $585,950 compared to a net loss of $691,099 for the nine months ended December 31, 2016 was a result of an increase in operating revenues partially offset by an increase in total operating expenses as further explained below.

Oil and gas sales. Revenue from oil and gas sales was $1,903,361 for the nine months ended December 31, 2017, a 14% increase from $1,662,985 for the same period of fiscal 2017. This resulted from an increase in oil and gas prices partially offset by a decrease in oil and 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 nine months ended December 31, 2017 and 2016:

  2017  2016  % Difference 
Oil:            
Revenue $1,240,151  $1,117,525   11.0%
Volume (bbls)  26,178   26,434   (1.0%)
Average Price (per bbl) $47.37  $42.28   12.0%
             
Gas:            
Revenue $663,210  $545,460   21.6%
Volume (mcf)  250,049   266,606   (6.2%)
Average Price (per mcf) $2.65  $2.05   29.3%

Other operating revenue.Other operating revenue was $38,342 for the nine months ended December 31, 2017 compared to $178,174 for the nine months ended December 31, 2016 due to the settlement of a lawsuit for underpayment of royalties from Chesapeake Energy Corporation and Total E & P USA in the amount of $148,614 during fiscal 2017.

Production and exploration.Production costs were $813,570 for the nine months ended December 31, 2017, a 13% increase from $721,864 for the nine months ended December 31, 2016. This was primarily the result of an increase in lease operating expenses and production taxes due to the increase in oil and gas revenue.

Depreciation, depletion and amortization. Depreciation, depletion and amortization expense was $844,566 for the nine months ended December 31, 2017, a 4% decrease from $879,637 for the nine months ended December 31, 2016, primarily due to a decrease in oil and gas production and the full cost pool as a result of oil and gas property sales. And additionally due to an increase in oil and gas reserves partially offset by an increase in future development costs.

General and administrative expenses.General and administrative expenses were $765,056 for the nine months ended December 31, 2017, a 2% decrease from $780,608 for the nine months ended December 31, 2016. This was primarily due to our efforts to apply financial discipline in all areas of our business resulting in a decrease in engineering services, insurance expense, legal fees and stock option compensation expense partially offset by an increase in accounting fees and salaries.

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Interest expense.Interest expense was $79,310 for the nine months ended December 31, 2017, a 36% decrease from $123,385 for the nine months ended December 31, 2016 due to a decrease in borrowings partially offset by an increase in interest rate.

Income taxes.There was no income tax for the nine months ended December 31, 2017 and for the nine months ended December 31, 2016. The effective tax rate for the nine months ended December 31, 2017 and December 31, 2016 was 0%. We are in a net deferred tax asset position and believe it is more likely than not that these deferred tax assets will not be realized.

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.

Interest Rate Risk. At December 31, 2017, we had an outstanding loan balance of $950,000 under our revolving credit agreement, which bears interest at an annual rate equal to the BBA LIBOR daily floating rate, plus 3.0 percentage points. If the interest rate on our bank debt increases or decreases by one percentage point, our annual pretax income would change by $9,500 based on the outstanding balance at December 31, 2017.

Credit Risk. Credit risk is the risk of loss as a result of nonperformance by other parties of their contractual obligations. At December 31, 2017, our largest credit risk was $200,000 or 32% of our total accounts receivables which related to escrow pending payment of closing costs on our property sale in Midland and Ward Counties, Texas. Our primary credit risk is related to oil and gas production sold to various purchasers and the receivables are generally not collateralized. At December 31, 2017,June 30, 2023, our largest credit risk associated with any single purchaser was $68,330$531,435 or 17%59% of our total oil and gas receivables. We are also exposed to credit risk in the event of nonperformance from any of our working interest co-owners. At December 31, 2017, our largest credit risk associated with any working interest partner was $8,718 or 29% of our total trade receivables. We have not experienced any significant credit losses.

Energy Price Risk.Risk. Our most significant market risk is the pricing forapplicable to our crude oil and natural gas and crude oil.production. 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 haveproduction has been volatile and they are likelyunpredictable for several years, and we expect this volatility to continue to be volatile.in the future.

Factors that can cause price fluctuations include the level of global demand for petroleum products, foreign and domestic supply of oil and gas, the establishment of and compliance with production quotas by oil-exporting countries, weather conditions, the price and availability of alternative fuels and overall political and economic conditions in oil producing and consuming countries.

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For example, in the last twelve months, the NYMEX West Texas Intermediate (“WTI”) posted price for crude oil has ranged from a low of $62.72 per bbl in March 2023 to a high of $104.41 per bbl in July 2022. The Henry Hub Spot Market Price (“Henry Hub”) posted price for natural gas has ranged from a low of $1.74 per MMBtu in June 2023 to a high of $9.85 per MMBtu in August 2022. On June 30, 2023, the WTI posted price for crude oil was $66.62 and the Henry Hub posted price for natural gas was $2.48. See Results of Operations above for the Company’s realized prices during the quarter.

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 oil prices than gas prices because most of our production is oil. If the average oil price had increased or decreased by ten dollars per barrel for the first nine months of fiscal 2018, pretax income or lossquarter ended June 30, 2023, our oil sales would have changed by $261,780.$195,280. If the average gas price had increased or decreased by one dollar per mcf for the first nine months of fiscal 2018, pretax income or lossquarter ended June 30, 2023, our natural gas sales would have changedincreased or decreased by $250,049.$141,578.

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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(f)13a-15(e). Based on such evaluation, such officers concluded that, as of December 31, 2017,June 30, 2023, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting.No changes in our internal control over financial reporting occurred during the nine monthsquarter ended December 31, 2017June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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 20172023 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.Mine Safety Disclosures

None

Item 5.Other Information

None

Item 6.Exhibits

31.131.1Certification of the Chief Executive Officer of Mexco Energy Corporation
31.231.2Certification of the Chief Financial Officer of Mexco Energy Corporation
32.132.1Certification of the Chief Executive Officer and Chief Financial Officer of Mexco Energy Corporation pursuant to 18 U.S.C. §1350
101.INSInline XBRL Instance Document
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)

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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: February 12, 2018August 10, 2023/s/Nicholas C. Taylor
Nicholas C. Taylor
Chairman of the Board and Chief Executive Officer
Dated: February 12, 2018August 10, 2023/s/Tamala L. McComic
Tamala L. McComic
President, Chief Financial Officer, Treasurer and Assistant Secretary

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