What changed in this filing

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Item 1. Financial Statements

2020-08-06 compared with 2020-02-12 · 382 added, 355 removed, 270 unchanged (73% of the section changed)

2 unchanged sentences

BALANCE SHEETS

December 31, 2019

March 31, 2019

Current assets

2 unchanged sentences

Oil and natural gas sales

Note receivable

Derivative instruments

Prepaid asset –

option contract

Prepaid costs and expenses

14 unchanged sentences

Total current liabilities

Long-term liabilites

Long-term debt

Long-term liabilities

Long-term debt, net

Operating lease liability, long-term

PPP loan payable

Asset retirement obligations

8 unchanged sentences

40,000,000 shares authorized;

2,107,166 shares issued and 2,040,166 shares outstanding as of December 31, 2019 and March 31, 2019, respectively

2,107,166 shares issued and 2,040,166 shares outstanding as of June 30, 2020 and March 31, 2020

Additional paid-in capital

Retained earnings

Treasury stock, at cost –

(67,000 shares)

Treasury stock, at cost (67,000 shares)

Total stockholders’

3 unchanged sentences

STATEMENTS OF OPERATIONS

Three Months Ended

Nine Months Ended

Operating revenue:

the Three Months Ended June 30,

Operating revenues:

Natural gas sales

1 unchanged sentence

Operating expenses:

Accretion of asset retirement obligation

Accretion of asset retirement obligations

Depreciation, depletion and amortization

1 unchanged sentence

Total operating expenses

Operating income (loss)

Other income (expenses):

Operating loss

Other income (expense):

Interest income

Net realized and unrealized loss on derivative contracts

Interest expense

Net other expense

Income (loss) before income taxes

Net income (loss)

Income (loss) per common share:

Loss before provision for income taxes

Loss per common share:

Weighted average common shares outstanding:

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

Mexco Energy Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’

Common Stock Par Value

Additional Paid-In Capital

Retained Earnings

Treasury Stock

Total Stockholders’

Energy Corporation and Subsidiaries

STATEMENTS OF CHANGES IN STOCKHOLDERS’

Stockholders’

Balance at April 1, 2020

Stock based compensation

Balance at December 31, 2019

Common Stock Par Value

Additional Paid-In Capital

Retained Earnings

Treasury Stock

Total Stockholders’

Balance at September 30, 2019

Stock based compensation

Balance at December 31, 2019

Common Stock Par Value

Additional Paid-In Capital

Retained Earnings

Treasury Stock

Total Stockholders’

Balance at June 30, 2020

Stockholders’

Balance at April 1, 2019

Issuance of stock through options exercised

Stock based compensation

Balance at December 31, 2018

Common Stock Par Value

Additional Paid-In Capital

Retained Earnings

Treasury Stock

Total Stockholders’

Balance at September 30, 2018

Stock based compensation

Balance at December 31, 2018

Balance at June 30, 2019

SHARE ACTIVITY

1 unchanged sentence

Balance at April 1, 2020

Balance at Dec.

Balance at June 30, 2020

Common stock shares, held in treasury:

Balance at April 1, 2020

Balance at Dec.

Common stock shares, outstanding at December 31, 2019

Balance at June 30, 2020

Common stock shares, outstanding at June 30, 2020

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

1 unchanged sentence

STATEMENTS OF CASH FLOWS

the Nine Months Ended December 31,

the Three Months Ended June 30,

Cash flows from operating activities:

Net (loss) income

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Adjustments to reconcile net loss to net cash provided by operating activities:

Stock-based compensation

2 unchanged sentences

Amortization of debt issuance costs

Change in fair value of derivative instruments

Changes in operating assets and liabilities

(Increase) decrease in accounts receivable

Decrease in right-of-use asset

Decrease (increase) in accounts receivable

Decrease in prepaid expenses

Decrease (increase) in other assets

Decrease in accounts payable and accrued expenses

Increase in prepaid asset –

option contract

Decrease in other assets

Decrease in right-of-use asset

Increase (decrease) in accounts payable and accrued expenses

Settlement of asset retirement obligations

8 unchanged sentences

Cash flows from financing activities:

Proceeds from exercise of stock options

Proceeds from long-term debt

Debt issuance costs

Reduction of long-term debt

Net cash provided by (used in) financing activities

Net decrease in cash and cash equivalents

Proceeds from long-term debt

Net cash provided by financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

12 unchanged sentences

Southwest Texas Disposal Corporation (a Texas corporation) and TBO Oil & Gas, LLC (a Texas limited liability company) (collectively,

the “Company”) are engaged in the exploration, development and production of natural gas, crude oil, condensate and

the “Company”) are engaged in the exploration, development and production of crude oil, natural gas, condensate and

natural gas liquids (“NGLs”).

1 unchanged sentence

however, the Company owns producing properties and undeveloped acreage in fourteen states.

All of the Company’s

All of Company’s

oil and gas interests are operated by others.

16 unchanged sentences

adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position of the Company as

of December 31, 2019, and the results of its operations and cash flows for the interim periods ended December 31, 2019 and 2018.

The consolidated financial statements as of December 31, 2019 and for the three and nine month periods ended December 31, 2019

and 2018 are unaudited.

The consolidated balance sheet as of March 31, 2019 was derived from the audited balance sheet filed in

the Company’s 2019 annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”).

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”

of June 30, 2020, and the results of its operations and cash flows for the interim periods ended June 30, 2020 and 2019.

The consolidated

financial statements as of June 30, 2020 and for the three-month periods ended June 30, 2020 and 2019 are unaudited.

The consolidated

balance sheet as of March 31, 2020 was derived from the audited balance sheet filed in the Company’s 2020 annual report

on Form 10-K filed with the Securities and Exchange Commission (“SEC”).

The results of operations for the periods

presented are not necessarily indicative of the results to be expected for a full year.

The accounting policies followed by the

Company are set forth in more detail in Note 2 of the “Notes to Consolidated Financial Statements”

in the Form 10-K.

Certain information and footnote disclosures normally included in financial statements prepared

in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in

this Form 10-Q pursuant to the rules and regulations of the SEC.

However, the disclosures herein are adequate to make the information

presented not misleading.

It is suggested that these financial statements be read in conjunction with the financial statements

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.

The Company accounts for investments of less than 1% in limited liability companies using the cost method.

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.

Financial Instruments.

The Company’s derivative financial instruments are used to manage commodity price risk attributable

to expected oil and gas production.

While there is risk the financial benefit of rising oil and gas prices may not be captured,

the Company believes the benefits of stable and predictable cash flows outweigh the potential risks.

Company accounts for derivative financial instruments using fair value accounting and recognizes gains and losses in earnings

during the period in which they occur.

Unsettled derivative instruments are recorded in the accompanying consolidated balance

sheets as either a current or non-current asset or a liability measured at its fair value.

The Company only offsets derivative

assets and liabilities for arrangements with the same counterparty when right of setoff exists.

Derivative assets and liabilities

with different counterparties are recorded gross in the consolidated balance sheets.

Derivative contract settlements are reflected

in operating activities in the accompanying consolidated statements of cash flows.

Company uses certain pricing models to determine the fair value of its derivative financial instruments.

Inputs to the pricing

models include publicly available prices and forward price curves generated from a compilation of data gathered from third parties.

Company management validates the data provided by third parties by understanding the pricing models used, obtaining market values

from other pricing sources, analyzing pricing data in certain situations and confirming that those securities trade in active

Adopted Accounting Pronouncements.

In February 2016, the FASB issued ASU 2016-02, Topic 842 Leases and subsequent amendments

to the initial guidance:

ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, Topic 842).

The standard establishes

a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet

for all leases with a term greater than one year.

Leases will be classified as finance or operating, with classification affecting

the pattern and classification of expense recognition in the income statement.

The Company has determined that it has only one

operating lease, which is an office lease.

The Company adopted Topic 842 on April 1, 2019 using the modified retrospective approach

and the impact of the adoption resulted in the recognition of a ROU asset and liability on the Company’s consolidated balance

sheets of $141,385.

The current portion of the operating lease liability is included in Total current liabilities and the noncurrent

portion of the operating lease liability is included in Total long-term liabilities on the Company’s consolidated balance

Prior periods have not been adjusted.

See Note 6 –

Leases for additional discussion.

In December 2019, the FASB issued ASU No.

2019-12, “Income Taxes (Topic 740):

the Accounting for Income Taxes”

(“ASU 2019-12”), which simplifies various aspects of the income tax accounting

guidance in ASC 740, including requirements related to the following:

(i) hybrid tax regimes;

(ii) the tax basis step-up in goodwill

obtained in a transaction that is not a business combination;

(iii) separate financial statements of entities not subject to tax;

(iv) the intraperiod tax allocation exception to the incremental approach;

(v) ownership changes in investments - changes from

a subsidiary to an equity method investment (and vice versa);

(vi) interim-period accounting for enacted changes in tax laws;

and (vii) the year-to-date loss limitation in interim-period tax accounting.

ASU 2019-12 is effective for fiscal years beginning

after December 15, 2020, and interim periods within those fiscal years and early adoption is permitted.

If an entity early adopts

these amendments in an interim period, it should reflect any adjustments as of the beginning of the annual period that includes

that interim period.

In addition, an entity that elects to early adopt ASU 2019-12 is required to adopt all of the amendments

in the same period.

The Company is currently assessing the effect that ASU 2019-12 will have on its financial position, results

of operations and disclosures.

Asset Retirement Obligations

2 unchanged sentences

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

in which it is initially incurred, discounted to its present value using the credit adjusted risk-free interest rate, and a corresponding

amount capitalized by increasing the carrying amount of the related long-lived asset.

3 unchanged sentences

as part of the carrying amount of our oil and natural gas properties.

The ARO is included in the consolidated balance sheets with

The ARO is included on the consolidated balance sheets with

the current portion being included in the accounts payable and other accrued expenses.

following table provides a rollforward of the AROs for the first nine months of fiscal 2020:

following table provides a rollforward of the AROs for the first three months of fiscal 2021:

Carrying amount of asset retirement obligations as of April 1, 2020

2 unchanged sentences

Accretion expense

Carrying amount of asset retirement obligations as of December 31, 2019

Carrying amount of asset retirement obligations as of June 30, 2020

Current portion

Non-Current asset retirement obligation

Stock-based Compensation

Company recognized stock-based compensation expense of $8,125 and $8,104 in general and administrative expense in the Consolidated

Statements of Operations for the three months ended December 31, 2019 and 2018, respectively.

Stock-based compensation expense

recognized for the nine months ended December 31, 2019 and 2018 was $24,375 and $14,552, respectively.

The total cost related

to non-vested awards not yet recognized at December 31, 2019 totals approximately $87,636 which is expected to be recognized over

a weighted average of 2.70 years.

the nine months ended December 31, 2019, no stock options were granted.

During the nine months ended December 31, 2018, the Compensation

Committee of the Board of Directors approved and the Company granted 40,000 stock options exercisable at $4.84 per share.

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.

in the following table is a summary of the grant-date fair value of stock options granted and the related assumptions used in

the Binomial models for stock options granted during the nine months ended December 31, 2019 and 2018.

All such amounts represent

the weighted average amounts.

Nine Months Ended

Grant-date fair value

Volatility factor

Dividend yield

Risk-free interest rate

Expected term (in years)

following table is a summary of activity of stock options for the nine months ended December 31, 2019:

Number of Shares

Weighted Average Exercise Price

Weighted Average Remaining Contract Life in Years

Outstanding at April 1, 2019

Forfeited or Expired

Outstanding at December 31, 2019

Vested at December 31, 2019

Exercisable at December 31, 2019

the nine months ended December 30, 2019, no stock options were exercised.

During the nine months ended December 31, 2018, stock

options covering 2,900 shares were exercised with a total intrinsic value of $6,575.

The Company received proceeds of $18,241

from these exercises.

forfeiture rate is assumed for stock options granted to directors or employees due to the forfeiture rate history of these types

There were no stock options forfeited or expired during the nine months ended December 31, 2019 and 2018.

options at December 31, 2019 expire between August 2020 and September 2028 and have exercise prices ranging from $4.84 to $7.00.

Long Term Debt

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

December 31, 2019

June 30, 2020

March 31, 2020

2 unchanged sentences

Total long-term debt

Company has a loan agreement (the “Agreement”) with West Texas National Bank (“WTNB”) which provided for

a credit facility of $1,000,000.

The Agreement has no monthly commitment reduction and a borrowing base to be evaluated annually.

December 28, 2018, the Company entered into a loan agreement (the “Agreement”) with West Texas National Bank (“WTNB”),

which 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.

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.

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

1 unchanged sentence

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 (.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 December 31, 2019, there was $485,000 available on the facility.

principal payments are anticipated to be required through the maturity date of the credit facility, December 28, 2021.

with WTNB on the Agreement, the Company paid a .5% loan origination fee in the amount of $5,000 plus legal and recording expenses

totaling $34,532, which were deferred over the life of the credit facility.

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

As of June 30, 2020, there was $570,000 available on the facility.

principal payments are anticipated to be required through the maturity date of the credit facility, March 28, 2023.

with WTNB on the original Agreement, the Company paid a .5% loan origination fee in the amount of $5,000 plus legal and recording

expenses totaling $34,532, which were deferred over the life of the credit facility.

Upon closing the amendment to the Agreement,

the Company paid a .1% loan origination fee of $2,500 and an extension fee of $3,125 plus legal and recording expenses totaling

$12,266, which were also deferred over the life of the credit facility.

borrowed under the Agreement are collateralized by the common stock of the Company’s wholly owned subsidiaries and substantially

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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 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, 2019 and believes it will remain in compliance for the next fiscal year.

addition, the Agreement prohibits the Company from paying cash dividends on its common stock without prior written permission

The Agreement does not permit the Company to enter into hedge agreements covering crude oil and natural gas prices.

balance outstanding on the line of credit as of December 31, 2019 was $515,000.

The following table is a summary of activity on

the WTNB line of credit for the nine months ended December 31, 2019:

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.

The Company is in compliance with all covenants as of June

addition, this Agreement prohibits the Company from paying cash dividends on its common stock without written permission of WTNB.

The Agreement does not permit the Company to enter into hedge agreements covering crude oil and natural gas prices without prior

WTNB approval.

The Company obtained written permission prior to entering into the current hedge agreement discussed in Note 7

of this report.

balance outstanding on the line of credit as of June 30, 2020 was $930,000.

The following table is a summary of activity on the

WTNB line of credit for the three months ended June 30, 2020:

Balance at April 1, 2020:

Balance at December 31, 2019:

Subsequently,

on January 9, 2020, the Company borrowed $335,000 on the WTNB line of credit;

on January 16, 2020, made a payment of $115,000;

and on February 10, 2020, borrowed $60,000 on the WTNB line of credit, leaving a balance of $795,000.

Company also maintains a Certificate of Deposit Account at WTNB to collateralize one outstanding letter of credit for $25,000

Balance at June 30, 2020:

Company also maintained a Certificate of Deposit Account at WTNB to collateralize one outstanding letter of credit for $25,000

in lieu of a plugging bond with the Texas Railroad Commission covering the properties the Company operated.

Company leases approximately 4,160 rentable square feet of office space from an unaffiliated third party for the corporate office

The operated property

was sold effective December 1, 2019 and the letter of credit was cancelled.

On April 10, 2020, the Certificate of Deposit Account

was terminated and the funds deposited into the Company’s operating account.

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 1,021 square feet of office space shared with and reimbursed by the majority shareholder.

The lease is a 36-month lease that expires in May 2021 and does not include an option to renew.

This includes 1,021 square feet of office space shared with and reimbursed by our majority shareholder.

The lease is a 36-month lease that was to expire in May 2021 and does not include an option to renew.

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.

Company determines an arrangement is a lease at inception.

14 unchanged sentences

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

December 31, 2019

June 30, 2020

Operating lease right-of-use asset, beginning balance

Current period amortization

Lease amendment

Lease extension

Total operating lease right-of-use asset

2 unchanged sentences

Total lease liabilities

minimum lease payments as of December 31, 2019 under non-cancellable operating leases are as follows:

minimum lease payments as of June 30, 2019 under non-cancellable operating leases are as follows:

Lease Obligation

1 unchanged sentence

Fiscal Year Ended March 31, 2022

Total lease payments

3 unchanged sentences

Operating lease liability, long term

cash paid for our operating lease for the nine months ended December 31, 2019 and 2018 was $35,300 and $31,992, respectively.

cash paid for our operating lease for the three months ended June 30, 2020 and 2019 was $10,600 and $11,016, respectively.

Rent expense, less sublease income of $3,803 and $3,938, respectively, is included in general and administrative expenses.

Fair Value Measurements

Company applies FASB ASC Topic 820, Fair Value Measurements and Disclosure (“ASC Topic 820”), which establishes a

framework for measuring fair value based upon inputs that market participants use in pricing an asset or liability, which are

classified into two catagories:

observable inputs or unobservable inputs.

Observable inputs represent market data obtained from

independent sources, whereas unobservable inputs reflect a company’s own market assumptions, which are used if observable

inputs are not reasonably available without undue cost and effort.

These two types of inputs are further prioritized into the

following fair value input hierarchy:

Quoted prices for identical instruments in active markets at the measurement date.

Quoted prices for similar instruments in active markets;

quoted prices for identical or similar instruments in markets

that are not active;

and model-derived valuations in which all significant inputs and significant value drivers are observable

in active markets at the measurement date and for the anticipated term of the instrument.

Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable

inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing

the asset or liability acquired, based on the best information available in the circumstances.

carrying amount reported in the accompanying consolidated balance sheets for cash and cash equivalents, accounts receivable and

accounts payable approximates fair value because of the immediate or short-term maturity of these financial instruments.

fair value amount reported in the accompanying consolidated balance sheets for long-term debt approximates fair value because

the actual interest rates do not significantly differ from current rates offered for instruments with similar characteristics.

See the Company’s note 4 on Long Term Debt for further discussion.

Value Measurements on a Recurring Basis

financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant

to the fair value measurement.

Company’s commodity derivative instruments were carried at fair value on a recurring basis in the Company’s consolidated

balance sheets.

The Company uses certain pricing models to determine the fair value of its derivative financial instruments.

to the pricing models include publicly available prices and forward price curves generated from a compilation of data gathered

from third parties.

management validates the data provided by third parties by understanding the pricing models used, obtaining market values from

other pricing sources, analyzing pricing data in certain situations and confirming that those securities trade in active markets.

Assumed credit risk adjustments, based on published credit ratings and public bond yield spreads are applied to the Company’s

commodity derivatives.

The Company’s derivative instruments are subject to netting arrangements and qualify for net presentation

in the consolidated balance sheets in those instances where such arrangements exist with the respective counterparty.

ensure these derivative instruments are recorded at fair value, valuation adjustments may be required to reflect the creditworthiness

of either party as well as market constraints on liquidity.

Any such adjustment was not material as of June 30, 2020.

following tables presents the fair value hierarchy for those derivative instruments measured at fair value on a recurring basis

as of June 30, 2020.

June 30, 2020

Financial asset –

Oil derivative price put option contracts

Financial asset –

Oil derivative price put option contracts

Total financial assets

Value Measurements on a Nonrecurring Basis

asset retirement obligation estimates are derived from historical costs and management’s expectation of future cost environments

and, therefore, the Company has designated these liabilities as Level 3 measurements.

The significant inputs to this fair value

measurement include estimates of plugging, abandonment and remediation costs, well life, inflation and credit-adjusted risk-free

See Note 3 for a reconciliation of the beginning and ending balances of the liability for the Company’s asset retirement

Derivative Financial Instruments

is the Company’s policy to enter into derivative contracts only with counterparties that are creditworthy financial institutions

deemed by management as competent and competitive.

Company is exposed to certain risks relating to its ongoing business operations, such as commodity price risk.

Derivative contracts

are utilized to economically hedge the Company’s exposure to price fluctuations and reduce the variability in the Company’s

cash flows associated with anticipated sales of future oil and natural gas production.

The Company follows FASB ASC Topic 815,

Derivatives and Hedging (ASC Topic 815), to account for its derivative financial instruments.

Company’s crude oil derivative positions consist of put options.

The Company has elected not to designate any of its derivative

contracts for hedge accounting.

Accordingly, the Company records the net change in the mark-to-market valuation of these derivative

contracts, as well as all payments and receipts on settled derivative contracts, in net realized and unrealized gain (loss) on

commodity price hedging contracts on the consolidated statements of operations.

All derivative contracts are recorded at fair

market value and included in the consolidated balance sheets as assets or liabilities.

Company may have multiple hedge positions that span a several-month time period and result in fair value asset and liability positions.

At the end of the reporting periods, those positions are offset to a single fair value asset or liability for each commodity and

the netted balance is reflected in the consolidated balance sheets as an asset or liability.

the quarter ended June 30, 2020 the Company entered into a series of crude oil put option contracts.

following table summarizes the fair value amounts of derivative contracts in the consolidated balance sheets as well as the gross

recognized derivative assets in the consolidated balance sheets as of June 30, 2020.

Gross Recognized

Gross Amounts

Net Recognized

Oil price hedging contracts - current

Oil price hedging contracts –

following tables summarizes the amounts of the Company’s realized and unrealized gains (losses) on derivative contracts

in the Company’s consolidated statements of operations for the quarter ended June 30, 2020.

Gain Recognized

Realized gain (loss) on oil price hedging contracts

Unrealized gain (loss) on oil price hedging contracts

Net realized and unrealized loss on derivative contracts

periods covered, notional amounts, fixed price and related commodity pricing index of the Company’s outstanding crude oil

derivative contracts as of June 30, 2020 are set forth in the table below:

Type of Contract

Weighted Average

valuation allowance for deferred tax assets, including net operating losses, is recognized when it is more likely than not that

7 unchanged sentences

on the material write-downs of the carrying value of our oil and natural gas properties during fiscal 2016, we are in a net deferred

tax asset position as of December 31, 2019.

Our deferred tax asset is $1,352,437 as of December 31, 2019 with a valuation amount

of $1,352,437.

tax asset position as of June 30, 2020.

Our deferred tax asset is $1,374,837 as of June 30, 2020 with a valuation amount of $1,374,837.

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 reduced or 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.

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

The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable

income are increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight

is given to subjective evidence such as expected future growth.

Related Party Transactions

party transactions for the Company relate to shared office expenditures in addition to administrative and operating expenses paid

on behalf of the principal stockholder.

The total billed to and reimbursed by the stockholder for the three months ended December

31, 2019 and 2018 was $12,289 and $12,487, respectively.

The total billed to and reimbursed by the stockholder for the nine months

ended December 31, 2019 and 2018 was $32,232 and $39,508, respectively.

The principal stockholder pays for his share of the lease

amount for the shared office space directly to the lessor.

Amounts paid by the principal stockholder directly to the lessor for

the three months ending December 31, 2019 and 2018 were $3,981 and $3,917, respectively.

Amounts paid by the principal stockholder

directly to the lessor for the nine months ending December 31, 2019 and 2018 were $11,900 and $10,680, respectively.

Income (loss) Per Common Share

Company’s basic net income (loss) per share has been computed based on the weighted average number of common shares outstanding

during the period.

Diluted net income (loss) per share assumes the exercise of all stock options having exercise prices less than

the average market price of the common stock during the period using the treasury stock method and is computed by dividing net

income (loss) by the weighted average number of common shares and dilutive potential common shares (stock options) outstanding

during the period.

In periods where losses are reported, the weighted-average number of common shares outstanding excludes potential

common shares, because their inclusion would be anti-dilutive.

following is a reconciliation of the number of shares used in the calculation of basic and diluted net income (loss) per share

for the three and nine month periods ended December 31, 2019 and 2018:

Three Months Ended

Nine Months Ended

Net income (loss)

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, 2020 and 2019 was $10,102 and $10,101, 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, 2020 and 2019 were $3,803 and $3,938, respectively.

Loss Per Common Share

Company’s basic net loss per share has been computed based on the weighted average number of common shares outstanding during

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.

periods where losses are reported, the weighted average number of common shares outstanding excludes potential common shares,

because their inclusion would be anti-dilutive.

following is a reconciliation of the number of shares used in the calculation of basic and diluted net loss per share for the

three-month periods ended June 30, 2020 and 2019.

Shares outstanding:

Weighted avg.

shares outstanding –

Effect of assumed exercise of dilutive stock options

Weighted avg.

shares outstanding –

Income (loss) per common share:

the three months ended December 31, 2019, 185,700 potential common shares relating to stock options were excluded in the computation

of diluted net income per share because the price of the options was greater than the average market price of the common shares

and therefore, the effect would be anti-dilutive.

Anti-dilutive stock options have a weighted average exercise price of $6.18

at December 31, 2019.

Due to a net loss for the three months ended December 31, 2018, the weighted average number of common shares

outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.

to a net loss for the nine months ended December 31, 2019, the weighted average number of common shares outstanding excludes common

stock equivalents because their inclusion would be anti-dilutive.

For the nine months ended December 31, 2018, 185,700 potential

common shares relating to stock options were excluded in the computation of diluted net income per share because the price of

the options was greater than the average market price of the common shares and therefore, the effect would be anti-dilutive.

Anti-dilutive

stock options have a weighted average exercise price of $6.18 at December 31, 2018.

Weighted average common shares outstanding –

Effect of the assumed exercise of dilutive stock options

Weighted average common shares outstanding –

Loss per common share:

to a net loss for the three months ended June 30, 2020 and 2019, the weighted average number of common shares outstanding excludes

common stock equivalents because their inclusion would be anti-dilutive.

Subsequent Events

January 2020, the Company made another $25,000 payment towards its $250,000 commitment in a limited liability company.

$125,000 has been funded including this payment.

July 1, 2020, the Company sold its interest in the deep rights of a property in Martin County, Texas for a cash payment of $100,000.

Company completed a review and analysis of all events that occurred after the consolidated balance sheet date to determine if

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of the forward-looking information.

It is suggested that these financial statements be read in conjunction with the financial

statements and notes thereto included in the Form 10-K.

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.

and Capital Resources.

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line of credit.

We do not have any delivery commitments to provide a fixed and determinable quantity of its oil and gas under

We do not have any delivery commitments to provide a fixed and determinable quantity of our oil and gas under

any existing contract or agreement.

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and developing oil and gas properties with potential for long-lived production.

We focus our efforts on the acquisition of royalties

We focus our efforts on the acquisition of royalty

and working interests and non-operated properties in areas with significant development potential.

the first nine months of fiscal 2020, cash flow from operations was $543,584, a 34% decrease when compared to the corresponding

period of fiscal 2019 primarily as a result of a decrease in natural gas revenues primarily due to a 43% decrease in natural gas

price offset by an increase in oil sales as well as an increase in accounts receivable compared to a decrease in accounts receivable

during fiscal 2019.

Net cash of $515,000 was received from the line of credit, net cash of $1,023,541 was used for additions to

oil and gas properties, and cash of $100,000 was used for an investment at cost basis.

Accordingly, net cash decreased $64,957,

leaving cash and cash equivalents on hand of $63,295 as of December 31, 2019.

December 31, 2019, we had working capital of $324,391 compared to working capital of $395,895 at March 31, 2019, a decrease of

$71,504 primarily due to a decrease in cash resulting from property development as described below.

the first three months of fiscal 2021, cash flow from operations was $66,472, a decrease of 64% when compared to the corresponding

period of fiscal 2020 primarily due to a 56% decrease in crude oil price and a 29% decrease in natural gas price partially offset

by a 9% increase in oil production and an 11% increase in gas production.

Net cash of $204,000 was received from long-term borrowings

and net cash of $251,890 was used for addition to oil and gas properties.

Accordingly, net cash increased $18,157 leaving cash

and cash equivalents on hand of $52,537 as of June 30, 2020.

June 30, 2020, we had working capital of $102,065 compared to working capital of $186,785 at March 31, 2020, a decrease of $84,720

for the reasons set forth below.

and Natural Gas Property Development.

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Mexco’s royalty interests, the Company currently plans to participate in the drilling and completion of approximately 20

horizontal wells at an estimated aggregate cost of approximately $1,500,000 for the fiscal year ending March 31, 2020.

The operators of these wells include Concho Resources, Inc., Devon Energy, Marathon Oil Company, Mewbourne Oil Company, and others.

the first nine months of fiscal 2020, Mexco participated with various percentage interests in the drilling and completion of the

first 36 of these horizontal wells in the Delaware Basin located in the western portion of the Permian Basin in Eddy and Lea Counties,

New Mexico with aggregate costs of approximately $850,000.

Subsequently, in January 2020, Mexco expended

an additional $348,000 for participation in the completion of four of these wells and the drilling and completion of an additional

In February 2020, Mexco expended another $47,250 for the drilling of 2 more wells.

Thus, for the 40 wells to date, the

total expended is approximately $1,200,000.

during the first quarter of fiscal 2020, Mexco expended $186,000 for the completion of 4 wells in which the Company participated

in drilling during fiscal 2019.

These wells began producing in June 2019.

the first nine months of fiscal 2020, Mexco also participated in the drilling and completion of 6 vertical wells in Winkler County,

Texas at an aggregate cost of approximately $20,000.

April 2019, the Company made a less than 1% cost basis investment commitment in a limited liability company amounting to $250,000

of which $100,000 has been funded through December 31, 2019.

This amount is classified as an investment at cost basis on the Company’s

consolidated balance sheets less any payments received.

The limited liability company is capitalized at approximately $50 million

to purchase royalty interests consisting of minerals located in the state of Ohio with 144 gross wells of which 136 are Utica

gas wells and 8 are Marcellus oil wells either producing, drilling or in process.

Subsequently, in January 2020, the Company made

an additional $25,000 payment towards its commitment.

June 2019, the Company received $30,894 in payment for a promissory note in connection with the settlement of a lawsuit from September

horizontal wells at an estimated aggregate cost of approximately $950,000 for the fiscal year ending March 31, 2021 of which,

$205,000 has already been expended.

The operators of these wells include Concho Resources, Inc., Marathon Oil Company, Mewbourne

Oil Company, and others.

Company also plans to expend approximately $280,000 for the additional completion costs of 22 horizontal wells located in Eddy

and Lea Counties, New Mexico that the Company participated in drilling during fiscal 2020 that were delayed due to the depressed

oil and gas prices in March 2020.

Of these wells, 4 were completed in April 2020 and are currently producing at an aggregate average

rate of 3,298 barrels of oil 6,486 barrels of water;

and 6,154,000 cubic feet of gas per day, or 4,324 barrels of oil equivalent

Mexco’s working interest in these wells is .48%.

Another 3 of these wells were completed in May 2020 and are currently

producing at an aggregate average rate of 1,801 barrels of oil and 6,626,000 cubic feet of gas per day, or 2,905 barrels of oil

equivalent per day.

Mexco’s interest in these wells is .006%.

the first quarter of fiscal 2021, Mexco participated in the drilling of 2 horizontal wells in the Wolfcamp formation of the Delaware

Basin located in the western portion of the Permian Basin in Lea County, New Mexico with aggregate costs of approximately $101,000.

Mexco’s working interest in these wells is 1.2%.

during the first quarter of fiscal 2021, Mexco expended $99,000 to participate in the drilling of 5 horizontal wells in the Upper

Avalon formation of the Delaware Basin located in the western portion of the Permian Basin in Lea County, New Mexico.

Mexco’s

working interest in these wells is .5%.

Company also expended $5,000 during the first quarter of fiscal 2021 for its share to participate in 1 horizontal well in the

Bone Spring formation of the Delaware Basin located in the western portion of the Permian Basin in Lea County, New Mexico.

Mexco’s

working interest in this well is .14%.

are participating in other projects and are reviewing projects in which we may participate.

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borrowings on the credit facility and, if appropriate, sales of non-core properties.

oil and natural gas prices generally remained volatile during the last year.

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 $42.75 per bbl in January

2019 to a high of $62.75 per bbl in April 2019.

The Henry Hub Spot Market Price (“Henry Hub”) for natural gas has

ranged from a low of $1.75 per MMBtu in December 2019 to a high of $4.25 per MMBtu in March 2019.

On December 31, 2019 the WTI

posted price for crude oil was $57.50 per bbl and the Henry Hub spot price for natural gas was $2.09 per MMBtu.

See Results of

Operations below for realized prices which are substantially below the Henry Hub Spot Market Price.

in March 2020, crude oil and natural gas prices decreased significantly through May 2020.

The volatility of the energy markets

makes it extremely difficult to predict future oil and natural gas price movements with any certainty.

For example, the NYMEX

West Texas Intermediate (“WTI”) posted price for crude oil on March 31, 2020 was $16.75 per bbl and averaged $14.68

and $24.67 per bbl for the months of April and May, respectively.

The WTI posted price for crude oil was $35.25 on June 30, 2020.

The Henry Hub Spot Market Price (“Henry Hub”) posted price for natural gas on March 31, 2020 was $1.71 per MMBtu and

averaged $1.74 and $1.75 per MMBtu for the months of April and May, respectively.

The Henry Hub posted price for natural gas was

$1.67 on June 30, 2020.

Protection Program (PPP) Loan.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic

Security Act commonly referred to as the CARES Act.

One component of the CARES Act was the paycheck protection program (“PPP”)

which provides small businesses with the resources needed to maintain their payroll and cover applicable overhead.

implemented by the United States Small Business Administration (“SBA”) with support from the Department of the Treasury.

The PPP provides funds to pay up to 24 weeks of payroll costs including benefits.

Funds can also be used to pay interest on mortgages,

rent, and utilities.

The Company applied for, and was accepted to participate in this program.

On May 5, 2020, the Company received

funding for approximately $68,574.

loan is a two-year loan with a maturity date of May 5, 2022.

The loan bears an annual interest rate of 1%.

The loan shall be payable

monthly with the first six monthly payments deferred.

It is the Company’s intent to apply for loan forgiveness under the

provisions of Section 1106 of the CARES Act.

Loan forgiveness is subject to the sole approval of the SBA.

The Company is eligible

for loan forgiveness in an amount equal to payments made during the 24-week period beginning on the Loan date, with the exception

that no more than 40.0% of the amount of loan forgiveness may be for expenses other than payroll expenses.

The Company used all

loan proceeds to partially subsidize direct payroll expenses and rent for our corporate office space.

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, 2019:

The following table summarizes our future payments we are obligated to make based on agreements in place as of June 30, 2020:

Payments due in:

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amounts represent the balances outstanding under the bank line of credit.

This repayment assumes that interest will be paid

on a monthly basis, no additional funds will be drawn and does not include estimated interest of $27,038 less than 1 year,

and $27,038 1-3 years.

lease amount represents the monthly rent amount for our principal office space in Midland, Texas under a three-year lease

agreement effective May 15, 2018.

Of this total obligation for the remainder of the lease, our majority shareholder will pay

$16,073 less than 1 year and $6,741 1-3 years for his portion of the shared office space.

This repayment

assumes that interest will be paid on a monthly basis, no additional funds will be drawn

and does not include estimated interest of $34,875 less than 1 year and $61,031 1-3 years.

lease amount represents the monthly rent amount for our principal office space in Midland,

Texas under a 38 month lease agreement effective May 15, 2018.

Of this total obligation

for the remainder of the lease, our majority shareholder will pay $15,980 less than 1

year and $1,348 1-3 years for his portion of the shared office space.

of Operations –

Three Months Ended December 31, 2019 and 2018.

For the quarter ended December 31, 2019, there was net

income of $35,196 compared to a net loss of $13,076 for the quarter ended December 31, 2018 as a result of an increase in operating

revenues partially offset by an increase in operating expenses that is further explained below.

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019.

For the quarter ended

June 30, 2020, there was a net loss of $299,670, compared to a net loss of $54,186 for the quarter ended June 30, 2019.

a result of a decrease in operating revenues due to a decrease in oil and gas prices partially offset by a decrease in operating

expenses that is further explained below.

and gas sales.

Revenue from oil and gas sales was $766,223 for the third quarter of fiscal 2020, a 20% increase from $640,143

for the same period of fiscal 2019.

This resulted from an increase in oil and gas production volumes and an increase in oil prices

partially offset by a decrease in gas prices.

Revenue from oil and gas sales was $364,179 for the quarter ended June 30, 2020, a 47% decrease from $691,694

for the quarter ended June 30, 2019.

This primarily resulted from a decrease in oil and gas prices partially offset by an increase

in oil and gas production.

Volume (bbls)

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and exploration.

Production costs were $249,921 for the third quarter of fiscal 2020, an 18% increase from $211,788 for the

same period of fiscal 2019.

This is primarily the result of an increase in lease operating expenses on new wells in which we participated

and increased production.

Production costs were $171,666 for the three months ended June 30, 2020, a 22% decrease from $219,395 for

the three months ended June 30, 2019.

This decrease is primarily the result of a decrease in production taxes as a result of a

decrease in oil and gas revenues and a decrease in lease operating expenses due to numerous wells being shut-in during the month

of May 2020 as well as cost cutting measures being implemented by the operators because of the depressed oil and gas prices.

Depreciation,

depletion and amortization.

Depreciation, depletion and amortization expense was $228,762 for the third quarter of fiscal

2020, an 17% increase from $196,206 for the same period of fiscal 2019, primarily due to an increase in oil and gas production

and a decrease in oil and gas reserves from natural decline.

This is partially offset by a decrease in the full cost pool amortization

base primarily due to a decrease in future development costs.

Depreciation, depletion and amortization (“DD&A”) expense was $224,105 for the

first quarter of fiscal 2021, a 7% increase from $210,238 for the first quarter of fiscal 2020, primarily due to an increase in

oil and gas production and a decrease in oil and gas reserves partially offset by a decrease in the full cost pool amortization

and administrative expenses.

General and administrative expenses were $239,346 for the third quarter of fiscal 2020, a 2%

increase from $234,987 for the same period of fiscal 2019.

This was primarily due to an increase in accounting fees partially

offset by a decrease in legal fees.

Interest expense was $10,203 for the third quarter of fiscal 2020, a 106% increase from $4,951 for the same period

General and administrative expenses were $248,878 for the three months ended June 30, 2020, a

20% decrease from $311,061 for the three months ended June 30, 2019.

This was primarily due to a decrease in engineering and accounting

fees and salaries.

Interest expense was $11,055 for the first quarter of fiscal 2021, an increase of 74% from $6,356 for the first quarter

of fiscal 2020 due to an increase in borrowings partially offset by a decrease in interest rate.

There was no income tax expense for the quarter ended December 31, 2019 and the quarter ended December 31, 2018.

effective tax rate for the three months ended December 31, 2019 and December 31, 2018 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.

of Operations –

Nine Months Ended December 31, 2019 and 2018.

For the nine months ended December 31, 2019, there was

a net loss of $101,777 compared to net income $23,375 for the nine months ended December 31, 2018.

This was a result of an increase

in operating expenses and a decrease in operating revenues that is further explained below.

and gas sales .

Revenue from oil and gas sales was $2,083,667 for the nine months ended December 31, 2019, a .3% increase from

$2,076,742 for the same period of fiscal 2019.

This resulted from an increase in oil and gas production volumes partially offset

by a decrease in oil and gas prices.

Volume (bbls)

Average Price (per bbl)

Average Price (per mcf)

and exploration.

Production costs were $698,358 for the nine months ended December 31, 2019, a 3% decrease from $721,301 for

the nine months ended December 31, 2018.

This is primarily the result of a decrease in expenses due to repairs, maintenance and

workovers on our operated properties and our working interest properties in Oklahoma and Louisiana during the nine-month period

of fiscal 2019 partially offset by an increase in lease operating expenses on new wells in which we participated.

Depreciation,

depletion and amortization.

Depreciation, depletion and amortization expense was $648,729 for the nine months ended December

31, 2019, a 5% increase from $617,864 for the nine months ended December 31, 2018, primarily due to an increase in oil and gas

production and a decrease in oil and gas reserves from natural decline.

This is partially offset by a decrease in the full cost

pool amortization base primarily due to a decrease in future development costs.

and administrative expenses.

General and administrative expenses were $805,701 for the nine months ended December 31, 2019,

a 13% increase from $710,194 for the nine months ended December 31, 2018.

This was primarily due to an increase in accounting

fees, engineering fees and contract services partially offset by a decrease in shareholder and proxy services.

Interest expense was $25,054 for the nine months ended December 31, 2019, a 37% increase from $18,318 for the nine

months ended December 31, 2018 due to an increase in borrowings partially offset by an decrease in interest rate.

There was no income tax for the nine months ended December 31, 2019 and for the nine months ended December 31, 2018.

The effective tax rate for the nine months ended December 31, 2019 and December 31, 2018 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.

There was no income tax expense for the three months ended June 30, 2020 and for the three months ended June 30, 2019.

The effective tax rate for the three months ended June 30, 2020 and June 30, 2019 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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements