UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2023

☐ 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)

Colorado		84-0627918
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification Number)

415 West Wall Street, Suite 475
Midland, Texas		79701
(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 class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.50 per share		MXC		NYSE 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 ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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

	Large Accelerated Filer ☐	Accelerated Filer ☐
	Non-Accelerated Filer ☐	Smaller reporting company ☒
	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 ☒

The number of shares outstanding of the registrant’s common stock, par value $.50 per share, as of November 8, 2023 was 2,104,500.

MEXCO ENERGY CORPORATION AND SUBSIDIARIES

Table of Contents

			Page
PART I. FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated Balance Sheets as of September 30, 2023 (Unaudited) and March 31, 2023	3

		Consolidated Statements of Operations (Unaudited) for the three months and six months ended September 30, 2023 and September 30, 2022	4

		Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the three and six months ended September 30, 2023 and September 30, 2022	5

		Consolidated Statements of Cash Flows (Unaudited) for the six months ended September 30, 2023 and September 30, 2022	6

		Notes to Consolidated Financial Statements (Unaudited)	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17

	Item 4.	Controls and Procedures	17

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings	18

	Item 1A.	Risk Factors	18

	Item 6.	Exhibits	18

SIGNATURES			19

CERTIFICATIONS			18

Page 2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Mexco Energy Corporation and Subsidiaries

CONSOLIDATED BALANCE SHEETS

	September 30, 2023			March 31, 2023
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	2,585,192		$	2,235,771
Accounts receivable:
Oil and natural gas sales		800,051			1,366,784
Trade		1,875			7,031
Prepaid costs and expenses		47,273			56,502
Prepaid drilling		37,247			67,951
Total current assets		3,471,638			3,734,039
Property and equipment, at cost
Oil and gas properties, using the full cost method		46,750,776			45,391,634
Other		121,926			121,926
Accumulated depreciation, depletion and amortization		(33,083,461	)		(32,215,095	)
Property and equipment, net		13,789,241			13,298,465
Investments – cost basis		900,000			700,000
Operating lease, right-of-use asset		47,709			75,629
Other noncurrent assets		10,747			12,156
Total assets	$	18,219,335		$	17,820,289

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses	$	178,749		$	201,897
Operating lease liability, current		47,709			56,366
Total current liabilities		226,458			258,263
Long-term liabilities
Operating lease liability, long-term		-			19,263
Asset retirement obligations		697,552			710,276
Deferred income tax liabilities		149,862			-
Total long-term liabilities		847,414			729,539
Total liabilities		1,073,872			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, 2,110,500 and 2,136,000 shares outstanding as of September 30, 2023 and March 31, 2023, respectively		1,110,958			1,110,708
Additional paid-in capital		8,437,680			8,321,145
Retained earnings		8,512,576			7,991,129
Treasury stock, at cost (111,416 and 85,416 shares, respectively)		(915,751	)		(590,495	)
Total stockholders’ equity		17,145,463			16,832,487
Total liabilities and stockholders’ equity	$	18,219,335		$	17,820,289

The accompanying notes are an integral part of the consolidated financial statements.

Page 3

Mexco Energy Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	2023			2022			2023			2022
	Three Months Ended September 30,						Six Months Ended September 30,
	2023			2022			2023			2022
Operating revenues:
Oil sales	$	1,099,806		$	1,397,875		$	2,529,484		$	2,957,196
Natural gas sales		280,904			884,020			566,316			1,740,812
Other		25,900			42,897			59,229			76,757
Total operating revenues		1,406,610			2,324,792			3,155,029			4,774,765

Operating expenses:
Production		392,674			394,445			742,081			829,473
Accretion of asset retirement obligations		7,540			7,830			14,896			15,349
Depreciation, depletion, and amortization		382,180			384,379			868,366			771,507
General and administrative		305,543			297,956			646,512			588,199
Total operating expenses		1,087,937			1,084,610			2,271,855			2,204,528

Operating income		318,673			1,240,182			883,174			2,570,237

Other income (expenses):
Interest income		26,364			58			50,059			93
Interest expense		(1,079	)		(3,561	)		(2,160	)		(6,692	)
Net other income (expense)		25,285			(3,503	)		47,899			(6,599	)

Income before provision for income taxes		343,958			1,236,679			931,073			2,563,638

Income tax expense:
Current		13,346			24,963			46,164			53,250
Deferred		61,179			-			149,862			-
Total income tax expense		74,525			24,963			196,026			53,250

Net income	$	269,433		$	1,211,716		$	735,047		$	2,510,388

Income per common share:
Basic:	$	0.13		$	0.56		$	.35		$	1.17
Diluted:	$	0.12		$	0.55		$	.34		$	1.13

Weighted average common shares outstanding:
Basic:		2,122,336			2,149,416			2,129,213			2,149,416
Diluted:		2,174,713			2,218,511			2,178,719			2,217,627

The accompanying notes are an integral part of

the consolidated financial statements.

Page 4

Mexco Energy Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

	Common Stock Par Value		Additional Paid-In Capital		Retained Earnings (Losses)			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
Net income		-		-		269,433			-			269,433
Purchase of stock		-		-		-			(325,256	)		(325,256	)
Stock based compensation		-		58,848		-			-			58,848
Balance at September 30, 2023	$	1,110,958	$	8,437,680	$	8,512,576		$	(915,751	)	$	17,145,463

	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
Balance	$	1,108,208	$	8,159,553		$	4,627,099	$	(346,001	)	$	13,548,859
Net income		-		-			1,211,716		-			1,211,716
Profit from purchase of stock by insider		-		30,179			-		-			30,179
Stock based compensation		-		34,431			-		-			34,431
Balance at September 30, 2022	$	1,108,208	$	8,224,163		$	5,838,815	$	(346,001	)	$	14,825,185
Balance	$	1,108,208	$	8,224,163		$	5,838,815	$	(346,001	)	$	14,825,185

SHARE ACTIVITY
Common stock shares, issued:
Balance at April 1, 2023				2,221,416
Issued				500
Balance at September 30, 2023				2,221,916

Common stock shares, held in treasury:
Balance at April 1, 2023				(85,416	)
Acquisitions				(26,000	)
Balance at September 30, 2023				(111,416	)

Common stock shares, outstanding at September 30, 2023				2,110,500

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 Six Months Ended September 30,

(Unaudited)

	2023			2022
Cash flows from operating activities:
Net income	$	735,047		$	2,510,388
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income tax expense		149,862			-
Stock-based compensation		113,823			60,002
Depreciation, depletion and amortization		868,366			771,507
Accretion of asset retirement obligations		14,896			15,349
Amortization of debt issuance costs		2,159			6,263
Changes in operating assets and liabilities:
Decrease in accounts receivable		571,889			124,486
Decrease in right-of-use asset		27,920			26,893
Decrease in prepaid expenses		9,229			9,540
Decrease in accounts payable and accrued expenses		(27,933	)		(63,588	)
Settlement of asset retirement obligations		(6,975	)		(15,860	)
Decrease in operating lease liability		(27,919	)		(26,893	)
Net cash provided by operating activities		2,430,364			3,418,087

Cash flows from investing activities:
Additions to oil and gas properties		(1,650,812	)		(4,245,064	)
Drilling refund		-			18,329
Investments in limited liability companies at cost		(200,000	)		(25,000	)
Proceeds from sale of oil and gas properties and equipment		306,513			-
Additions to other property and equipment		-			(1,718	)
Net cash used in investing activities		(1,544,299	)		(4,253,453	)

Cash flows from financing activities:
Proceeds from exercise of stock options		2,962			-
Profits from purchase of stock by insider		-			30,179
Acquisition of treasury stock		(325,256	)		-
Dividends paid		(213,600	)		-
Debt issuance costs		(750	)		-
Proceeds from long-term debt		-			500,000
Reduction of long-term debt		-			(500,000	)
Net cash (used in) provided by financing activities		(536,644	)		30,179

Net increase (decrease) in cash and cash equivalents		349,421			(805,187	)

Cash and cash equivalents at beginning of period		2,235,771			1,370,766

Cash and cash equivalents at end of period	$	2,585,192		$	565,579

Non-cash investing and financing activities:
Asset retirement obligations	$	2,495		$	21,197

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, condensate and natural gas liquids (“NGLs”). Most of the Company’s oil and gas interests are centered in the West Texas and Southeastern New Mexico; however, the Company owns producing properties and undeveloped acreage in fourteen states. All of the Company’s oil and gas interests are operated by 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 consolidated 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. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position of the Company as of September 30, 2023, and the results of its operations and cash flows for the interim periods ended September 30, 2023 and 2022. The consolidated financial statements as of September 30, 2023 and for the three and six month periods ended September 30, 2023 and 2022 are unaudited. The consolidated balance sheet as of March 31, 2023 was derived from the audited balance sheet filed in the Company’s 2023 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.

Investments. The Company accounts for investments of less than 3% in 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. 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 until the liability is settled or the well is sold, at which time the liability is removed. The related asset retirement cost is capitalized as part of the carrying amount of our oil and natural gas properties. The ARO is included on the consolidated balance sheets with the current portion being included in the accounts payable and other accrued expenses.

Page 7

The following table provides a rollforward of the AROs for the first six months of fiscal 2024:

Carrying amount of asset retirement obligations as of April 1, 2023	$	730,276
Liabilities incurred		2,495
Liabilities settled		(30,115	)
Accretion expense		14,896
Carrying amount of asset retirement obligations as of September 30, 2023		717,552
Less: Current portion		20,000
Non-Current asset retirement obligation	$	697,552

4. Long Term Debt

On December 28, 2018, the Company entered into a loan agreement (the “Agreement”) with West Texas National Bank (“WTNB”), which originally provided for a credit facility of $1,000,000 with a maturity date of December 28, 2021. The Agreement has no monthly commitment reduction and a borrowing base to be evaluated annually.

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 increase the borrowing base to $1,500,000. On March 28, 2023, the Agreement was amended to extend the maturity date to March 28, 2026.

Under the Agreement, interest on the facility accrues at a rate equal to the prime rate as quoted in the Wall Street Journal plus one-half of one percent (0.5%) floating daily. Interest on the outstanding amount under the Agreement is payable monthly. In 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 September 30, 2023, there was $1,500,000 available for borrowing by the Company on the facility.

No principal payments are anticipated to be required through the maturity date of the credit facility, March 28, 2026. Upon closing the second amendment to Agreement, the Company paid a loan origination fee of $9,000 plus legal and recording expenses totaling $12,950, which were 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 senior debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratios (Senior Debt/EBITDA) less than or equal to 4.00 to 1.00 measured with respect to the four trailing quarters and minimum interest coverage ratios (EBITDA/Interest Expense) of 2.00 to 1.00 for each quarter.

In addition, this Agreement prohibits the Company from paying cash dividends on its common stock without 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 not permit the Company to enter into hedge agreements covering crude oil and natural gas prices without prior WTNB approval.

There was no balance outstanding on the line of credit as of September 30, 2023.

5. Stock-based Compensation

The Company recognized stock-based compensation expense of $58,848 and $34,431 in general and administrative expense in the Consolidated Statements of Operations for the three months ended September 30, 2023 and 2022, respectively. Stock-based compensation expense recognized for the six months ended September 30, 2023 and 2022 was $113,823 and $60,002, respectively. The total cost related to non-vested awards not yet recognized at September 30, 2023 totals $618,338 which is expected to be recognized over a weighted average of 2.64 years.

During the six months ended September 30, 2023, the Compensation Committee of the Board of Directors approved and the Company granted 32,000 stock options exercisable at $12.68 per share with an estimated fair value of $279,360. During the six months ended September 30, 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. 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.

Page 8

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 six months ended September 30, 2023 and 2022. All such amounts represent the weighted average amounts.

	Six Months Ended September 30
	2023			2022
Grant-date fair value	$	8.73		$	18.05
Volatility factor		56.5	%		57.3	%
Dividend yield		-			-
Risk-free interest rate		3.44	%		3.15	%
Expected term (in years)		6.25			6.25

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

Summary of Activity of Stock Options

	Number of Shares			Weighted Average Exercise Price		Weighted 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 September 30, 2023		170,750		$	9.18

SEC Form 10-Q filed by Mexco Energy Corporation