What changed in this filing

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Item 9A. Controls and Procedures

2021-06-25 compared with 2020-06-26 · 763 added, 699 removed, 422 unchanged (78% of the section changed)

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Annual Report on Internal Control over Financial Reporting.

The management of the Company is responsible for establishing

and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f) and

The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding

the reliability of financial reporting and the preparation of the consolidated financial statements.

Our internal control over

financial reporting is supported by appropriate reviews by management, written policies and guidelines, careful selection and

training of qualified personnel, and a written Code of Conduct adopted by our Board of Directors, applicable to all directors,

officers and employees of Mexco.

chief executive officer and chief financial officer assessed the effectiveness our internal control over financial reporting using

the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in the 2013 “Internal Control

- Integrated Framework”.

Based upon that evaluation, our chief executive officer and chief financial officer concluded that

our internal control over financial reporting was effective as of March 31, 2020.

The management of the Company is responsible for establishing and maintaining

adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f) and 15d-15(f).

The Company’s

internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting

and the preparation of the consolidated financial statements.

Our internal control over financial reporting is supported by appropriate

reviews by management, written policies and guidelines, careful selection and training of qualified personnel, and a written Code of

Conduct adopted by our Board of Directors, applicable to all directors, officers and employees of Mexco.

chief executive officer and chief financial officer assessed the effectiveness our internal control over financial reporting using the

criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in the 2013 “Internal Control - Integrated

Framework”.

Based upon that evaluation, our chief executive officer and chief financial officer concluded that our internal control

over financial reporting was effective as of March 31, 2021.

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 Rule 13a-15(e).

Based on such evaluation, such officers

concluded that, as of March 31, 2020, our disclosure controls and procedures were effective.

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 Rule 13a-15(e).

Based on such evaluation, such officers concluded that, as of March 31, 2021,

our disclosure controls and procedures were effective.

in Internal Control over Financial Reporting.

No changes in the Company’s internal control over financial reporting

occurred during the year ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our

internal control over financial reporting.

No changes in the Company’s internal control over financial reporting occurred

during the year ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control

over financial reporting.

OTHER INFORMATION

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in the Proxy Statement of Mexco Energy Corporation for our Annual Meeting of Stockholders

to be held September 10, 2020 (“Proxy Statement”) to be filed with the SEC within 120 days after the end of our fiscal

year ended March 31, 2020, which is incorporated herein by reference.

to be held September 9, 2021 (“Proxy Statement”) to be filed with the SEC within 120 days after the end of our fiscal year

ended March 31, 2021, which is incorporated herein by reference.

information required by this item with respect to executive officers of the Company is also set forth in Part I of this report.

EXECUTIVE COMPENSATION

information required by this item will be contained in the Proxy Statement under the caption “Executive Compensation”,

and is hereby incorporated herein by reference.

information required by this item will be contained in the Proxy Statement under the caption “Executive Compensation”, and

is hereby incorporated herein by reference.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

information required by this item will be contained in the Proxy Statement under the captions “Security Ownership of Certain

Beneficial Owners and Management”

and “Employee Incentive Stock Option Plans”, and is hereby incorporated herein

by reference.

information required by this item will be contained in the Proxy Statement under the captions “Security Ownership of Certain Beneficial

Owners and Management”

and “Employee Incentive Stock Option Plans”, and is hereby incorporated herein by reference.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

information required by this item will be contained in the Proxy Statement under the captions “Certain Relationships and

Related Transactions”

and “Meetings and Committees of the Board of Directors”, and is hereby incorporated by

reference herein.

information required by this item will be contained in the Proxy Statement under the captions “Certain Relationships and Related

Transactions”

and “Meetings and Committees of the Board of Directors”, and is hereby incorporated by reference herein.

PRINCIPAL ACCOUNTING FEES AND SERVICES

information required by this item will be contained in the Proxy Statement under the caption “Audit Fees and Services”,

and is hereby incorporated by reference herein.

information required by this item will be contained in the Proxy Statement under the caption “Audit Fees and Services”, and

is hereby incorporated by reference herein.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Financial Statements.

For a list of the consolidated financial statements filed as part of this Form 10-K, see the “Index

to Consolidated Financial Statements”

set forth on page F1 of this report.

For a list of the consolidated financial statements filed as part of this Form 10-K, see the “Index to

Consolidated Financial Statements”

set forth on F-1 of this report.

Statement Schedules.

All schedules have been omitted because they are not applicable, not required under the instructions

or the information requested is set forth in the consolidated financial statements or related notes thereto.

All schedules have been omitted because they are not applicable, not required under the instructions or the

information requested is set forth in the consolidated financial statements or related notes thereto.

For a list of the exhibits required by this Item and accompanying this Form 10-K see the “Index to Exhibits”

forth on page F21 of this report.

to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report

to be signed on its behalf by the undersigned, thereunto duly authorized.

on page F25 of this report.

to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed

on its behalf by the undersigned, thereunto duly authorized.

ENERGY CORPORATION

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June 25, 2021

to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of June 26, 2020, by the following

persons on behalf of the Registrant and in the capacity indicated.

to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of June 25, 2021, by the following persons

on behalf of the Registrant and in the capacity indicated.

Executive Officer, Chairman of the Board of Directors

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The number of acres which are allocated or assignable to producing wells or wells capable of production.

Capital costs incurred in the acquisition, exploitation and exploration of proved oil and natural gas reserves divided

by proved reserve additions and revisions to proved reserves.

Capital costs incurred in the acquisition, exploitation and exploration of proved oil and natural gas reserves divided by

proved reserve additions and revisions to proved reserves.

A well drilled into a proved oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive.

A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of

such production exceed production expenses and taxes.

A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production

exceed production expenses and taxes.

The search for natural accumulations of oil and natural gas by any geological, geophysical or other suitable means.

A well drilled to find and produce oil or natural gas reserves not classified as proved, to find a new reservoir in

a field previously found to be productive of oil or natural gas in another reservoir or to extend a known reservoir.

A well drilled to find and produce oil or natural gas reserves not classified as proved, to find a new reservoir in a field

previously found to be productive of oil or natural gas in another reservoir or to extend a known reservoir.

and discoveries .

As to any period, the increases to proved reserves from all sources other than the acquisition of proved

properties or revisions of previous estimates.

As to any period, the increases to proved reserves from all sources other than the acquisition of proved properties

or revisions of previous estimates.

An area consisting of either a single reservoir or multiple reservoirs, all grouped on or related to the same individual geological

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Refers to the total acres or wells in which the Company owns any amount of working interest.

An instrument which grants to another (the lessee) the exclusive right to enter and explore for, drill for, produce, store

and remove oil and natural gas from the mineral interest, in consideration for which the lessor is entitled to certain rents and

royalties payable under the terms of the lease.

Typically, the duration of the lessee’s authorization is for a stated term

of years and “for so long thereafter”

An instrument which grants to another (the lessee) the exclusive right to enter and explore for, drill for, produce, store and remove

oil and natural gas from the mineral interest, in consideration for which the lessor is entitled to certain rents and royalties payable

under the terms of the lease.

Typically, the duration of the lessee’s authorization is for a stated term of years and “for

so long thereafter”

as minerals are producing.

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gas liquids (“NGLs”) .

Liquid hydrocarbons that have been extracted from natural gas, such as ethane, propane,

butane and natural gasoline.

Liquid hydrocarbons that have been extracted from natural gas, such as ethane, propane, butane

and natural gasoline.

acres or wells.

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A royalty interest that is created out of the operating or working interest.

is coextensive with that of the operating interest from which it was created.

Its term is coextensive

with that of the operating interest from which it was created.

and abandonment.

Refers to the sealing off of fluids in the strata penetrated by a well so that the fluids from one stratum

will not escape into another or to the surface.

Refers to the sealing off of fluids in the strata penetrated by a well so that the fluids from one stratum will

not escape into another or to the surface.

Regulations of all states require plugging of abandoned wells.

A well that is found to be capable of producing hydrocarbons in sufficient quantities such that proceeds from the sale

of the production exceed operating and production expenses and taxes.

A specific geographic area which, based on supporting geological, geophysical or other data and also preliminary economic

analysis using reasonably anticipated prices and costs, is deemed to have potential for the discovery of commercial hydrocarbons.

A well that is found to be capable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of the

production exceed operating and production expenses and taxes.

A specific geographic area which, based on supporting geological, geophysical or other data and also preliminary economic analysis

using reasonably anticipated prices and costs, is deemed to have potential for the discovery of commercial hydrocarbons.

developed nonproducing reserves (“PDNP”) .

Reserves that consist of (i) proved reserves from wells which have been

completed and tested but are not producing due to lack of market or minor completion problems which are expected to be corrected

and (ii) proved reserves currently behind the pipe in existing wells and which are expected to be productive due to both the well

log characteristics and analogous production in the immediate vicinity of the wells.

Reserves that consist of (i) proved reserves from wells which have been completed

and tested but are not producing due to lack of market or minor completion problems which are expected to be corrected and (ii) proved

reserves currently behind the pipe in existing wells and which are expected to be productive due to both the well log characteristics

and analogous production in the immediate vicinity of the wells.

developed producing reserves (“PDP”).

Proved reserves that can be expected to be recovered from currently producing

zones under the continuation of present operating methods.

Proved reserves that can be expected to be recovered from currently producing zones

under the continuation of present operating methods.

developed reserves.

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undeveloped reserves (“PUD”) .

Proved reserves that are expected to be recovered from new wells on undrilled acreage

or from existing wells where a relatively major expenditure is required for recompletion.

When used with respect to oil and natural gas reserves, PV-10 means the estimated future gross revenue to be generated from

the production of proved reserves, net of estimated production and future development and abandonment costs, using prices and

costs in effect at the determination date, before income taxes, and without giving effect to non-property-related expenses except

for specific general and administrative expenses incurred to operate the properties, discounted to a present value using an annual

discount rate of 10%.

Proved reserves that are expected to be recovered from new wells on undrilled acreage or

from existing wells where a relatively major expenditure is required for recompletion.

When used with respect to oil and natural gas reserves, PV-10 means the estimated future gross revenue to be generated from the production

of proved reserves, net of estimated production and future development and abandonment costs, using prices and costs in effect at the

determination date, before income taxes, and without giving effect to non-property-related expenses except for specific general and administrative

expenses incurred to operate the properties, discounted to a present value using an annual discount rate of 10%.

Recompletion.

A process of re-entering an existing wellbore that is either producing or not producing and completing new reservoirs in an

attempt to establish or increase existing production.

A porous and permeable underground formation containing a natural accumulation of producible natural gas and/or oil that is

confined by impermeable rock or water barriers and is separate from other reservoirs.

An interest in an oil and natural gas lease that gives the owner of the interest the right to receive a portion of the production

from the leased acreage, or of the proceeds of the sale thereof, but generally does not require the owner to pay any portion of

the costs of drilling or operating the wells on the leased acreage.

Royalties may be either landowner’s royalties, which

are reserved by the owner of the leased acreage at the time the lease is granted, or overriding royalties, which are usually reserved

by an owner of the leasehold in connection with a transfer to a subsequent owner.

A process of re-entering an existing wellbore that is either producing or not producing and completing new reservoirs in an attempt

to establish or increase existing production.

A porous and permeable underground formation containing a natural accumulation of producible natural gas and/or oil that is confined

by impermeable rock or water barriers and is separate from other reservoirs.

An interest in an oil and natural gas lease that gives the owner of the interest the right to receive a portion of the production from

the leased acreage, or of the proceeds of the sale thereof, but generally does not require the owner to pay any portion of the costs

of drilling or operating the wells on the leased acreage.

Royalties may be either landowner’s royalties, which are reserved by

the owner of the leased acreage at the time the lease is granted, or overriding royalties, which are usually reserved by an owner of

the leasehold in connection with a transfer to a subsequent owner.

A well suspended from production or injection but not abandoned.

The distance between wells producing from the same reservoir.

Spacing is often expressed in terms of acres (e.g., 640-acre

spacing) and is often established by regulatory agencies.

Spacing is often expressed in terms of acres (e.g., 640-acre spacing)

and is often established by regulatory agencies.

measure of discounted future net cash flows .

The discounted future net cash flows relating to proved reserves based on prices

used in estimating the reserves, year-end costs, and statutory tax rates, and a 10% annual discount rate.

The information for

this calculation is included in the note regarding disclosures about oil and gas reserve data contained in the Notes to Consolidated

Financial Statements included in this Form 10-K.

The discounted future net cash flows relating to proved reserves based on prices used

in estimating the reserves, year-end costs, and statutory tax rates, and a 10% annual discount rate.

The information for this calculation

is included in the note regarding disclosures about oil and gas reserve data contained in the Notes to Consolidated Financial Statements

included in this Form 10-K.

Leased acreage on which wells have not been drilled or completed to a point that would permit the production of commercial

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The hole drilled by the bit that is equipped for crude oil or natural gas production on a completed well.

Also called well

An interest in an oil and gas lease that gives the owner of the interest the right to drill for and produce oil

and natural gas on the leased acreage and requires the owner to pay a share of the costs of drilling and production operations.

The share of production to which a working interest is entitled will be smaller than the share of costs that the working interest

owner is required to bear to the extent of any royalty burden.

Also called well or borehole.

An interest in an oil and gas lease that gives the owner of the interest the right to drill for and produce oil and natural

gas on the leased acreage and requires the owner to pay a share of the costs of drilling and production operations.

The share of production

to which a working interest is entitled will be smaller than the share of costs that the working interest owner is required to bear to

the extent of any royalty burden.

TO CONSOLIDATED FINANCIAL STATEMENTS

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on the Financial Statements

have audited the accompanying consolidated balance sheets of Mexco Energy Corporation (a Colorado corporation) and Subsidiaries

(the Company) as of March 31, 2020 and 2019, and the related consolidated statements of operations, changes in stockholders’

equity, and cash flows for each of the two years in the period ended March 31, 2020, and the related notes (collectively referred

to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects,

the financial position of the Company as of March 31, 2020 and 2019, and the results of its operations and its cash flows for

each of the two years in the period ended March 31, 2020, in conformity with accounting principles generally accepted in the United

States of America.

financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on

these financial statements based on our audits.

We are a public accounting firm registered

with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with

respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities

and Exchange Commission and the PCAOB.

have audited the accompanying consolidated balance sheets of Mexco Energy Corporation (a Colorado corporation) and Subsidiaries (the

Company) as of March 31, 2021 and 2020, and the related consolidated statements of operations, changes in stockholders’

and cash flows for each of the two years in the period ended March 31, 2021, and the related notes (collectively referred to as the “financial

statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the

Company as of March 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended

March 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

financial statements are the responsibility of the entity’s management.

Our responsibility is to express an opinion on these financial

statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United

States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities

laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit

to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not

for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits

we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion

on the effectiveness of the entity’s internal control over financial reporting.

Accordingly, we express no such opinion.

audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to

error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence

regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles

used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

discussed in Note 16 to the consolidated financial statements, in January 2020, the World Health Organization has declared COVID-19

a “Public Health Emergency of International Concern.”

Given the uncertainty of the situation, the duration of business

disruption, including the impact to demand for oil and gas products, and related financial impact cannot be reasonably estimated

at this time.

Our opinion is not modified with respect to this matter.

audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error

or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding

the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant

estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits

provide a reasonable basis for our opinion.

Audit Matters

critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated

or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial

statements and (2) involved are especially challenging, subjective, or complex judgments.

The communication of critical audit matters

does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit

matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

of proved reserves impacting the recognition and valuation of depletion expense and impairment of oil and gas properties

Accounting Matter Description

described in Note 2 to the financial statements, the Company accounts for its oil and gas properties using the full cost method of accounting

which requires management to make estimates of proved reserve volumes and future revenues and expenses to calculate depletion expense

and measure its oil and gas properties for potential impairment.

To estimate the volume of proved reserves and future revenues, management

makes significant estimates and assumptions, including forecasting the production decline rate of producing properties and forecasting

the timing and volume of production associated with the Company’s development plan for proved undeveloped properties.

the estimation of proved reserves is also impacted by management’s judgments and estimates regarding the financial performance

of wells associated with proved reserves to determine if wells are expected, with reasonable certainty, to be economical under the appropriate

pricing assumptions required in the estimation of depletion expense and potential impairment measurements.

We identified the estimation

of proved reserves of oil and gas properties, due to its impact on depletion expense and impairment evaluation, as a critical audit matter.

principal consideration for our determination that the estimation of proved reserves is a critical audit matter is that changes in certain

inputs and assumptions, which require a high degree of subjectivity necessary to estimate the volume and future revenues of the Company’s

proved reserves could have a significant impact on the measurement of depletion expense or the impairment assessment.

In turn, auditing

those inputs and assumptions required subjective and complex auditor judgment.

the Critical Audit Matter Was Addressed in the Audit

obtained an understanding of the design and implementation of management’s controls and our audit procedures related to the estimation

of proved reserves included the following, among others.

We evaluated the level of knowledge, skill, and ability of the Company’s reservoir engineering specialists and their relationship to the Company, made inquiries of those reservoir engineers regarding the process followed and judgments made to estimate the Company’s proved reserve volumes, and read the reserve report prepared by the Company’s specialists.

To the extent key, sensitive inputs and assumptions used to determine proved reserve volumes and other cash flow inputs and assumptions are derived from the Company’s accounting records, such as commodity pricing, historical pricing differentials, operating costs, estimated capital costs and working and net revenue interests, we tested management’s process for determining the assumptions, including examining the underlying support, on a sample basis.

Specifically, our audit procedures involved testing management’s assumptions as follows:

the estimated pricing differentials used in the reserve report to realized prices related to revenue transactions recorded in the

current year and examined contractual support for the pricing differentials;

the models used to estimate the operating costs at year-end compared to historical operating costs;

the models used to determine the future capital expenditures and compared estimated future capital expenditures used in the reserve

report to amounts expended for recently drilled and completed wells with similar locations;

the working and net revenue interests used in the reserve report by inspecting a sample of ownership interests, historical pricing

differentials, and operating costs to underlying support from the Company’s accounting records.

the Company’s evidence supporting the amount of proved undeveloped properties reflected in the reserve report by examining

historical conversion rates and support for the Company’s or the operator’s intent to develop the proved undeveloped

analytical procedures to the reserve report by comparing to historical actual results and to the prior year reserve report.

WEAVER AND TIDWELL, L.L.P.

Texas June 26, 2020

have served as the Company’s auditor since 2017.

Energy Corporation and Subsidiaries

BALANCE SHEETS

June 25, 2021

Mexco Energy Corporation and Subsidiaries

CONSOLIDATED BALANCE SHEETS

Current assets

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Oil and natural gas sales

Note receivable

Prepaid costs and expenses

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Property and equipment, net

Investment –

Investment in limited liability company at cost

Operating lease, right-of-use asset

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10,000,000 shares authorized;

none outstanding

Common stock - $0.50 par value;

40,000,000 shares authorized;

2,107,166 shares issued and 2,040,166 shares

outstanding as of March 31, 2020 and 2019

2,143,666 and 2,107,166 shares issued;

and, 2,076,666 and 2,040,166 shares outstanding as of March 31, 2021 and 2020

Additional paid-in capital

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Total liabilities and stockholders’

accompanying notes to the consolidated financial statements

are an integral part of these statements.

Energy Corporation and Subsidiaries

STATEMENTS OF OPERATIONS

ended March 31,

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

Mexco Energy Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended March 31,

Operating revenues:

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Total operating expenses

Operating (loss) income

Operating income (loss)

Other income (expenses):

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Interest expense

PPP loan forgiveness

Loss on derivative instruments

Net other expense

Loss before provision for income taxes

Loss per common share:

Income (loss) before provision for income taxes

Net income (loss)

Income (loss) per common share:

Weighted average common shares outstanding:

accompanying notes to the consolidated financial statements

are an integral part of these statements.

Energy Corporation and Subsidiaries

STATEMENTS OF CHANGES IN STOCKHOLDERS’

ended March 31, 2020 and 2019

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

Mexco Energy Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’

Years ended March 31, 2021 and 2020

Common Stock Par Value

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Treasury Stock

Total Stockholders’

Stockholders’

Balance at April 1, 2019

Issuance of stock through options exercised

Stock based compensation

Balance at March 31, 2020

Issuance of stock through options exercised

Stock based compensation

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At end of year

accompanying notes to the consolidated financial statements

an integral part of these statements.

Energy Corporation and Subsidiaries

STATEMENTS OF CASH FLOWS

ended March 31,

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

Mexco Energy Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended March 31,

Cash flows from operating activities:

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

Net income (loss)

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

Stock-based compensation

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Accretion of asset retirement obligations

PPP loan forgiveness

Amortization of debt issuance costs

Changes in operating assets and liabilities:

Decrease in accounts receivable

(Increase) decrease in accounts receivable

Decrease in right-of-use asset

Decrease (increase) in prepaid expenses

Decrease (increase) in other assets

Decrease in accounts payable and accrued expenses

Decrease in prepaid expenses

Decrease in other assets

Increase (decrease) in accounts payable and accrued expenses

Decrease in operating lease liability

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Additions to other property and equipment

Investment –

Drilling refund

Investment in limited liability company at cost

Proceeds from sale of oil and gas properties and equipment

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Cash flows from financing activities:

Reduction of long-term debt

Proceeds from exercise of stock options

Proceeds from long-term debt

Proceeds from PPP loan

Debt issuance costs

Proceeds from exercise of stock options

Net cash provided by (used in) financing activities

Net decrease in cash and cash equivalents

Reduction of long-term debt

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

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right of use asset and associated liabilities

accompanying notes to the consolidated financial statements

an integral part of these statements.

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

ENERGY CORPORATION AND SUBSIDIARIES

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Nature of Operations

Energy Corporation (a Colorado corporation) and its wholly owned subsidiaries, Forman Energy Corporation (a New York corporation),

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

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

natural gas liquids (“NGLs”).

Most of the Company’s oil and gas interests are centered in West Texas and Southeastern

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.

Energy Corporation (a Colorado corporation) and its wholly owned subsidiaries, Forman Energy Corporation (a New York corporation), Southwest

Texas Disposal Corporation (a Texas corporation) and TBO Oil & Gas, LLC (a Texas limited liability company) (collectively, the “Company”)

are engaged in the exploration, development and production of crude oil, natural gas, condensate and natural gas liquids (“NGLs”).

Most of the Company’s oil and gas interests are centered in 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.

Summary of Significant Accounting Policies

of Consolidation .

The consolidated financial statements include the accounts of Mexco Energy Corporation and its wholly owned

subsidiaries.

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.

and Assumptions .

In preparing financial statements in conformity with accounting principles generally accepted in the United

States of America (“GAAP”), management is required to make informed judgments, estimates and assumptions that affect

the reported amounts of assets and liabilities as of the date of the financial statements and affect the reported amounts of revenues

and expenses during the reporting period.

In preparing financial statements in conformity with accounting principles generally accepted in the United States

of America (“GAAP”), management is required to make informed judgments, estimates and assumptions that affect the reported

amounts of assets and liabilities as of the date of the financial statements and affect the reported amounts of revenues and expenses

during the reporting period.

In addition, significant estimates are used in determining proved oil and gas reserves.

Although management believes its estimates and assumptions are reasonable, actual results may differ materially from those estimates.

The estimate of the Company’s oil and natural gas reserves, which is used to compute depreciation, depletion, amortization

and impairment of oil and gas properties, is the most significant of the estimates and assumptions that affect these reported

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.

and Cash Equivalents .

The Company considers all highly liquid debt instruments purchased with maturities of three months or

less and money market funds to be cash equivalents.

The Company maintains cash in bank deposit accounts that may, at times, exceed

federally insured limits.

The Company considers all highly liquid debt instruments purchased with maturities of three months or less

and money market funds to be cash equivalents.

The Company maintains cash in bank deposit accounts that may, at times, exceed federally

insured limits.

At March 31, 2021, the Company had all of its cash and cash equivalents with one financial institution.

The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk.

The Company has

not experienced any losses in such accounts and believes it is not exposed to any significant credit risk.

Accounts receivable includes trade receivables from joint interest owners and oil and gas purchasers.

extended based on an evaluation of a customer’s financial condition and, generally, is uncollateralized.

Accounts receivable

under joint operating agreements have a right of offset against future oil and gas revenues if a producing well is completed.

The collectibility of receivables is assessed and an allowance is made for any doubtful accounts.

The allowance for doubtful accounts

is determined based on the Company’s previous loss history.

Credit is extended

based on an evaluation of a customer’s financial condition and, generally, is uncollateralized.

Accounts receivable under joint

operating agreements have a right of offset against future oil and gas revenues if a producing well is completed.

The collectibility

of receivables is assessed and an allowance is made for any doubtful accounts.

The allowance for doubtful accounts is determined based

on the Company’s previous loss history.

The Company has not experienced any significant credit losses.

For the years ended March 31, 2020 and 2019, no allowance has been made for doubtful accounts.

For the years ended March

31, 2021 and 2020, no allowance has been made for doubtful accounts.

and Gas Properties .

Oil and gas properties are accounted for using the full cost method of accounting.

Under this method of

accounting, the costs of unsuccessful, as well as successful, acquisition, exploration and development activities are capitalized

as property and equipment.

This includes any internal costs that are directly related to exploration and development activities

but does not include any costs related to production, general corporate overhead or similar activities.

The carrying amount of

oil and gas properties also includes estimated asset retirement costs recorded based on the fair value of the asset retirement

obligation (“ARO”) when incurred.

Generally, no gains or losses are recognized on the sale or disposition of oil and

gas properties.

Under this method of accounting,

the costs of unsuccessful, as well as successful, acquisition, exploration and development activities are capitalized as property and

This includes any internal costs that are directly related to exploration and development activities but does not include

any costs related to production, general corporate overhead or similar activities.

The carrying amount of oil and gas properties also

includes estimated asset retirement costs recorded based on the fair value of the asset retirement obligation (“ARO”) when

Generally, no gains or losses are recognized on the sale or disposition of oil and gas properties.

Oil and gas properties include costs that are excluded from capitalized costs being amortized.

These amounts represent

investments in unproved properties and major development projects.

These costs are excluded until proved reserves are found or

until it is determined that the costs are impaired.

All costs excluded are reviewed at least quarterly to determine if impairment

has occurred.

The amount of any impairment is transferred to the capitalized costs being amortized (the depreciation, depletion

and amortization (“DD&A”) pool).

These amounts represent investments

in unproved properties and major development projects.

These costs are excluded until proved reserves are found or until it is determined

that the costs are impaired.

All costs excluded are reviewed at least quarterly to determine if impairment has occurred.

The amount of

any impairment is transferred to the capitalized costs being amortized (the depreciation, depletion and amortization (“DD&A”)

Impairments transferred to the DD&A pool increase the DD&A rate.

were excluded for the years ended March 31, 2020 and 2019.

No costs were excluded for the years ended March 31,

2021 and 2020.

Under the full cost method of accounting, a ceiling test is performed each quarter.

The full cost ceiling test is an

impairment test to determine a limit, or ceiling, on the book value of oil and gas properties.

That limit is the after tax present

value of the future net cash flows from proved crude oil and natural gas reserves and using an average price over the prior first

day of the month 12-month period held flat for the life of production plus the lower of cost or fair market value of unproved

If net capitalized costs of crude oil and natural gas properties exceed the ceiling limit, the Company must charge

the amount of the excess to earnings as an expense reflected in additional accumulated DD&A.

This is called a “ceiling

limitation write-down.”

This impairment to our oil and gas properties does not impact cash flow from operating activities,

but does reduce stockholders’

equity and reported earnings.

The full cost ceiling test is an impairment

test to determine a limit, or ceiling, on the book value of oil and gas properties.

That limit is the after-tax present value of the

future net cash flows from proved crude oil and natural gas reserves and using an average price over the prior first day of the month

12-month period held flat for the life of production plus the lower of cost or fair market value of unproved properties.

If net capitalized

costs of crude oil and natural gas properties exceed the ceiling limit, the Company must charge the amount of the excess to earnings

as an expense reflected in additional accumulated DD&A.

This is called a “ceiling limitation write-down.”

This impairment

to our oil and gas properties does not impact cash flow from operating activities, but does reduce stockholders’

equity and reported

Depreciation,

Depletion and Amortization .

The depreciable base for oil and gas properties includes the sum of capitalized costs, net of

accumulated DD&A, estimated future development costs and asset retirement costs not accrued in oil and gas properties, less

costs excluded from amortization and salvage.

The depreciable base of oil and gas properties is amortized using the unit-of-production

The depreciable base for oil and gas properties includes the sum of capitalized costs, net of accumulated

DD&A, estimated future development costs and asset retirement costs not accrued in oil and gas properties, less costs excluded from

amortization and salvage.

The depreciable base of oil and gas properties is amortized using the unit-of-production method.

Retirement Obligations .

The Company has significant obligations to plug and abandon natural gas and crude oil wells and related

equipment at the end of oil and gas production operations.

The Company records the fair value of a liability for an ARO in the

period in which it is incurred and a corresponding increase in the carrying amount of the related asset.

Subsequently, the asset

retirement costs included in the carrying amount of the related asset are allocated to expense using the units of production method.

In addition, increases in the discounted ARO liability resulting from the passage of time are reflected as accretion expense in

the Consolidated Statements of Operations.

the future ARO requires management to make estimates and judgments regarding timing and existence of a liability, as well as what

constitutes adequate restoration.

The Company uses the present value of estimated cash flows related to the ARO to determine the

Inherent in the present value calculation are numerous assumptions and judgments including the ultimate costs, inflation

factors, credit adjusted discount rates, timing of settlement, and changes in the legal, regulatory, environmental and political

environments.

To the extent future revisions to these assumptions impact the present value of the existing ARO liability, a corresponding

adjustment is made to the related asset.

The Company recognizes deferred tax assets and liabilities for future tax consequences of temporary differences between

the carrying amounts of assets and liabilities and their respective tax bases.

Deferred tax assets and liabilities are measured

using enacted tax rates applicable to the years in which those differences are expected to be settled.

The effect on deferred

tax assets and liabilities of a change in tax rates is recognized in net income in the period that includes the enactment date.

Any interest and penalties are recorded as interest expense and general and administrative expense, respectively.

The Company has significant obligations to plug and abandon natural gas and crude oil wells and related equipment

at the end of oil and gas production operations.

The Company records the fair value of a liability for an ARO in the period in which

it is incurred and a corresponding increase in the carrying amount of the related asset.

Subsequently, the asset retirement costs included

in the carrying amount of the related asset are allocated to expense using the units of production method.

In addition, increases in

the discounted ARO liability resulting from the passage of time are reflected as accretion expense in the Consolidated Statements of

the future ARO requires management to make estimates and judgments regarding timing and existence of a liability, as well as what constitutes

adequate restoration.

The Company uses the present value of estimated cash flows related to the ARO to determine the fair value.

in the present value calculation are numerous assumptions and judgments including the ultimate costs, inflation factors, credit adjusted

discount rates, timing of settlement, and changes in the legal, regulatory, environmental and political environments.

To the extent future

revisions to these assumptions impact the present value of the existing ARO liability, a corresponding adjustment is made to the related

The Company recognizes deferred tax assets and liabilities for future tax consequences of temporary differences between the

carrying amounts of assets and liabilities and their respective tax bases.

Deferred tax assets and liabilities are measured using enacted

tax rates applicable to the years in which those differences are expected to be settled.

The effect on deferred tax assets and liabilities

of a change in tax rates is recognized in net income in the period that includes the enactment date.

Any interest and penalties are recorded

as interest expense and general and administrative expense, respectively.

Property and Equipment .

Provisions for depreciation of office furniture and equipment are computed on the straight-line method

based on estimated useful lives of three to ten years.

Per Common Share .

Basic net loss per share is computed by dividing net loss by 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

Provisions for depreciation of office furniture and equipment are computed on the straight-line method based

on estimated useful lives of three to ten years.

(Loss) Per Common Share .

Basic net income (loss) per share is computed by dividing net income (loss) by 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

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Recognition - Revenue from Contracts with Customers.

Revenues from our royalty and non-operated working interest properties

are recorded under the cash receipts approach as directly received from the remitters’

statement accompanying the revenue

Since the revenue checks are generally received two to four months after the production month, the Company accrues for

revenue earned but not received by estimating production volumes and product prices.

Any identified differences between its revenue

estimates and actual revenue received historically have not been significant.

Company records transportation and processing costs that are incurred after control of its product has transferred to the customer

as a reduction of “Natural gas sales”

Revenues from our royalty and non-operated working interest properties are recorded

under the cash receipts approach as directly received from the remitters’

statement accompanying the revenue check.

Since the revenue

checks are generally received two to four months after the production month, the Company accrues for revenue earned but not received

by estimating production volumes and product prices.

Any identified differences between its revenue estimates and actual revenue received

historically have not been significant.

Company records transportation and processing costs that are incurred after control of its product has transferred to the customer as

a reduction of “Natural gas sales”

on the Consolidated Statement of Operations.

Gas imbalances are accounted for under the sales method whereby revenues are recognized based on production sold.

A liability is recorded when excess takes of natural gas volumes exceed estimated remaining recoverable reserves (over produced).

No receivables are recorded for those wells where the Company has taken less than its ownership share of gas production (under

The Company does not have any significant gas imbalances.

is recorded when excess takes of natural gas volumes exceed estimated remaining recoverable reserves (over produced).

No receivables

are recorded for those wells where the Company has taken less than its ownership share of gas production (under produced).

does not have any significant gas imbalances.

Compensation .

2 unchanged sentences

This expense is recognized as compensation expense in its consolidated financial statements over the vesting period.

The Company recognizes the fair value of stock-based compensation awards as wages within general and administrative expense in

the Consolidated Statements of Operations based on a graded-vesting schedule over the vesting period.

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.

Recent Accounting Pronouncements.

December 2019, the FASB issued ASU No.

Company recognizes the fair value of stock-based compensation awards as wages within general and administrative expense in the Consolidated

Statements of Operations based on a graded-vesting schedule over the vesting period.

The Company accounts for investments of less than 1% in 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.

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 offset 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.

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.

Accounting Pronouncements.

In December 2019, the FASB issued ASU No.

2019-12, “Income Taxes (Topic

Simplifying 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:

(“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);

(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

(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.

In June 2016, the FASB issued ASU No.

“Financial Instruments–Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments”

(“Topic

326”), which replaces the current “incurred loss”

methodology for recognizing credit losses with an “expected

This new methodology requires that a financial asset measured at amortized cost be presented at the net

amount expected to be collected.

This standard is intended to provide more timely decision-useful information about the expected

credit losses on financial instruments.

In November 2018, the FASB issued ASU No.

2018-19, “Codification Improvements to

Topic 326, Financial Instruments–Credit Losses,”

which makes amendments to clarify the scope of the guidance, including

the amendment clarifying that receivables arising from operating leases are not within the scope of Topic 326.

This guidance is

effective for fiscal years beginning after December 15, 2019.

The Company is currently assessing the effect that ASU 2016-13 will

have on its financial position, results of operations and disclosures.

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.

an entity that elects to early adopt ASU 2019-12 is required to adopt all of the amendments in the same period.

The Company adopted ASU

2019-12 on April 1, 2021 and it will not have a material impact on its financial position, results of operations and disclosures.

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 long-term

strategy is on increasing profit margins while concentrating on obtaining reserves with low cost operations by acquiring and developing

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

We focus our efforts on the acquisition of royalties and working

interest, non-operated properties in areas with significant development potential.

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 long-term strategy

is on increasing profit margins while concentrating on obtaining reserves with low cost operations by acquiring and developing oil and

gas properties with potential for long-lived production.

We focus our efforts on the acquisition of royalties and working interest, non-operated

properties in areas with significant development potential.

Fair Value of Financial Instruments

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 5 on Long-Term Debt for further discussion.

Property Sales

fiscal 2020, the Company continued its policy of selling non-core assets in order to concentrate on the development of more profitable

assets and to pay down debt.

The Company received approximately $53,000 in cash from the sale of our remaining operated properties

in Ector County, Texas;

approximately $17,500 in cash for the sale of an overriding royalty interest in Lea County, New Mexico;

approximately $4,300 in cash from the sale of joint venture leasehold acreage in which we retained the deep rights in Lea County,

and, approximately $4,600 in cash from sales of joint venture leasehold acreage and marginal producing working interest

wells in Howard and Ward Counties, Texas.

The Company also received approximately

$18,000 in cash from the sale of its surface rights on acreage in Brazoria County, Texas to a related party.

The Company retained

its mineral rights in this property.

Other immaterial dispositions and purchase

price adjustments during fiscal 2020 amounted to approximately $7,200.

During fiscal 2019, the Company sold non-core assets for

a total of approximately $162,000.

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

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

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 5 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.

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

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.

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.

There was no adjustment as of March 31, 2021.

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 rate.

for a reconciliation of the beginning and ending balances of the liability for the Company’s asset retirement obligations.

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 consisted 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.

As of March 31, 2021 and 2020, the Company had no derivative contracts.

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.

All of these such contracts expired

in July and August 2020.

following tables summarizes the amounts of the Company’s realized and unrealized losses on derivative contracts listed as loss

on derivative instruments in the Company’s consolidated statements of operations for the year ended March 31, 2021.

Loss Recognized

Realized loss on oil price hedging contracts

Unrealized gain (loss) on oil price hedging contracts

Net realized and unrealized loss on derivative contracts

Long-Term Debt

3 unchanged sentences

Total long-term debt

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.

On 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

3 unchanged sentences

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.

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 March 31, 2020, there was $705,000 available on the facility.

As of March 31,

2021, there was $320,000 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.

Upon closing with

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

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

Upon closing the amendment to the Agreement, the Company

paid a .1% loan origination fee of $2,500 and an extension fee of $3,125 plus legal and recording expenses totaling $12,266, which were

also deferred over the life of the credit facility.

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.

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 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 March 31, 2020 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 without

prior WTNB approval.

balance outstanding on the line of credit as of March 31, 2020 was $795,000.

The following table is a summary of activity on the

WTNB line of credit for the year ended March 31, 2020:

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 fiscal quarters and minimum interest coverage ratios (EBITDA/Interest

Expense) of 2.00 to 1.00 for each quarter.

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

The Company obtained written permission from WTNB prior to entering into the current hedge agreement discussed in Note 4.

balance outstanding on the credit facility as of March 31, 2021 was $1,180,000.

The following table is a summary of activity on the WTNB

credit facility for the years ended March 31, 2021 and 2020:

Balance at April 1, 2019:

at March 31, 2020:

Subsequently, on April 6, 2020, the Company

borrowed $25,000 on the line of credit;

on April 17, 2020, made a payment of $100,000;

on May 11, 2020, borrowed $160,000 on the

line of credit;

and on June 10, 2020, borrowed $50,000 on the line of credit, leaving a balance of $930,000 as of June 26,

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 operates.

This operated

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

Subsequently, on April 10, 2020, the Certificate

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

Balance at March 31, 2020:

Balance at March 31, 2021:

Subsequently,

the Company has borrowed $100,000 and made payments totaling $480,000, leaving a balance of $800,000 as of June 21, 2021.

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 operates.

This 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.

Asset Retirement Obligations

Company’s asset retirement obligations 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 accrued expenses.

Company’s asset retirement obligations 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 accrued expenses.

following table provides a rollforward of the asset retirement obligations for fiscal years ended March 31:

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Company files a consolidated federal income tax return and various state income tax returns.

The amount of income taxes the Company

records requires the interpretation of complex rules and regulations of federal and state taxing jurisdictions.

With few exceptions,

the earliest year open to examination by U.S.

The amount of income taxes the Company records

requires the interpretation of complex rules and regulations of federal and state taxing jurisdictions.

With few exceptions, the earliest

year open to examination by U.S.

federal and state income tax jurisdictions is 2016.

December 22, 2017, the tax legislation referred to as the 2017 Tax Reform Act (“Tax Cuts and Jobs Act”) was enacted.

The more significant changes that impact the Company are the reduction in the corporate federal income tax rate from 35% to 21%.

Effective April 1, 2018, our corporate federal statutory income tax rate is 21%.

GAAP requires deferred income tax assets and

liabilities to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled.

more significant changes that impact the Company are the reduction in the corporate federal income tax rate from 35% to 21%.

April 1, 2018, our corporate federal statutory income tax rate is 21%.

GAAP requires deferred income tax assets and liabilities to be

measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled.

components of net deferred tax assets (liabilities) at March 31 are as follows:

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of March 31, 2021, the Company has a statutory depletion carryforward of approximately $5,400,000, which does not expire.

At March 31, 2020, the Company had a net operating loss carryforward for regular income tax reporting purposes of approximately

$5,950,000, which will begin expiring in 2029.

The Company’s ability to use some of its net operating loss carryforwards

and certain other tax attributes to reduce current and future U.S.

federal taxable income is subject to limitations under the

Internal Revenue Code.

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.

reconciliation of the provision for income taxes to income taxes computed using the federal statutory rate for years ended March

2021, the Company had a net operating loss carryforward for regular income tax reporting purposes of approximately $6,700,000, which

will begin expiring in 2029.

The Company’s ability to use some of its net operating loss carryforwards and certain other tax attributes

to reduce current and future U.S.

federal taxable income is subject to limitations under the Internal Revenue Code.

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.

reconciliation of the provision for income taxes to income taxes computed using the federal statutory rate for years ended March 31 follows:

Tax expense at federal statutory rate (1)

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impact on its results of operations.

The recognition of the total amount of the unrecognized tax benefits would have an impact

on the effective tax rate.

The recognition of the total amount of the unrecognized tax benefits would have an impact on the

effective tax rate.

If these unrecognized tax benefits are disallowed, the Company will be required to pay additional taxes.

Based on the material write-downs of the carrying

value of our oil and natural gas properties for the year ending March 31, 2016, we are in a net deferred tax asset position for

years ending March 31, 2020 and 2019.

Our deferred tax asset is $1,306,971 as of March 31, 2020 with a valuation amount

of $1,306,971.

on the material write-downs of the carrying value of our oil and natural gas properties for the year ending March 31, 2016, we are in

a net deferred tax asset position for years ending March 31, 2021 and 2020.

Our deferred tax asset is $1,258,401 as of March 31, 2021

with a valuation amount of $1,258,401.

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

assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit

the use of deferred tax assets.

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

of future taxable income are increased or if objective negative evidence in the form of cumulative losses is no longer present

and additional weight is given to subjective evidence such as expected future growth.

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.

December 2020, the President of the United States signed the Consolidated Appropriations Act, 2021 (“the Act”).

The Act includes

many tax provisions, including the extension of various expiring provisions, extensions and expansions of certain earlier pandemic tax

relief provisions, among other things.

The Act did not have a material impact on the Company’s current year tax provision or the

Company’s consolidated financial statements.

March 2020, the President of the United States signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)

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limitations and alternative minimum tax.

The CARES Act did not have a material impact on the Company’s current year provision

and the Company’s consolidated financial statements.

The CARES Act did not have a material impact on the Company’s current year provision and

the Company’s consolidated financial statements.

Major Customers

the Company operates exclusively within the United States and its revenues and operating profit are derived from the oil and gas

the Company operates exclusively within the United States and its revenues and operating profit are derived from the oil and gas industry.

Oil and gas production is sold to various purchasers and the receivables are unsecured.

Historically, the Company has

not experienced significant credit losses on its oil and gas accounts and management is of the opinion that significant credit

risk does not exist.

Management is of the opinion that the loss of any one purchaser would not have an adverse effect on the Company’s

ability to sell its oil and gas production.

fiscal 2020, one customer accounted for 52% of the total oil and natural gas revenues and 63% of the total oil and natural gas

accounts receivable.

In fiscal 2019, one customer accounted for 42% of the total oil and natural gas revenues and 40% of the total

oil and natural gas accounts receivable and another customer accounted for 6% of the total oil and natural gas revenues and 9%

of the total oil and natural gas accounts receivable.

Historically, the Company has not experienced

significant credit losses on its oil and gas accounts and management is of the opinion that significant credit risk does not exist.

is of the opinion that the loss of any one purchaser would not have an adverse effect on the Company’s ability to sell its oil

and gas production.

fiscal 2021, one customer accounted for 66% of the total oil and natural gas revenues and 71% of the total oil and natural gas accounts

In fiscal 2020, one customer accounted for 52% of the total oil and natural gas revenues and 63% of the total oil and natural

gas accounts receivable.

Oil and Natural Gas Costs

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amounted to $8.68 and $9.15 per BOE of production for the years ended March 31, 2021 and 2020, respectively.

Loss Per Common Share

to a net loss for the years ended March 31, 2020 and 2019, the weighted average number of common shares outstanding excludes common

stock equivalents because their inclusion would be anti-dilutive.

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

share for the years ended March 31:

Income (Loss) Per Common Share

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

for the years ended March 31:

Net income (loss)

Shares outstanding:

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common shares outstanding –

Loss per common share:

Income (loss) per common share:

the year ended March 31, 2021, no anti-dilutive shares relating to stock options were excluded from the computation of diluted net income.

Due to a net loss for the year ended March 31, 2020, the weighted average number of common shares outstanding excludes common stock equivalents

because their inclusion would be anti-dilutive.

Stockholders’

September 2019, the Board of Directors authorized the use of up to $250,000 to repurchase shares of the Company’s common

stock for the treasury account.

September 2020, the Board of Directors authorized the use of up to $250,000 to repurchase shares of the Company’s common stock

for the treasury account.

There were no shares of common stock repurchased for the treasury account during fiscal 2021 and 2020.

Stock Options

Stock-based Compensation

September 2019, the Company adopted the 2019 Employee Incentive Stock Plan (the “2019 Plan”).

The 2019 Plan provides

for the award of stock options up to 200,000 shares and includes option awards as well as stock awards.

Option awards are granted

with the restriction of requiring payment for the shares.

Stock awards are granted without restrictions and without payment by

the recipient.

The 2019 Plan provides for

the award of stock options up to 200,000 shares and includes option awards as well as stock awards.

Option awards are granted with the

restriction of requiring payment for the shares.

Stock awards are granted without restrictions and without payment by the recipient.

Neither option awards nor stock awards may exceed 25,000 shares granted to any one individual in any fiscal year.

Stock options may be an incentive stock option or a nonqualified stock option.

Options to purchase common stock under the plan

are granted at the fair market value of the common stock at the date of grant, become exercisable to the extent of 25% of the

shares optioned on each of four anniversaries of the date of grant, expire ten years from the date of grant and are subject to

forfeiture if employment terminates.

The 2019 Plan expires ten years from the date of adoption.

According to the Company’s

employee stock incentive plan, new shares will be issued upon the exercise of stock options and the Company can repurchase shares

exercised under the plan.

the year ended March 31, 2020, the Compensation Committee of the Board of Directors approved and the Company issued options covering

42,000 shares of stock.

During the year ended March 31, 2019, the Compensation Committee of the Board of Directors approved and

the Company issued options covering 40,000 shares of stock.

The plan also provides for the granting of stock awards.

awards were granted during fiscal 2019 and 2018.

Company recognized compensation expense of $34,303 and $22,656 related to vesting stock options in general and administrative

expense in the Consolidated Statements of Operations for fiscal 2020 and 2019, respectively.

The total cost related to non-vested

awards not yet recognized at March 31, 2020 totals $171,788, which is expected to be recognized over a weighted average of 3.31

Stock options may be

an incentive stock option or a nonqualified stock option.

Options to purchase common stock under the plan are granted at the fair market

value of the common stock at the date of grant, become exercisable to the extent of 25% of the shares optioned on each of four anniversaries

of the date of grant, expire ten years from the date of grant and are subject to forfeiture if employment terminates.

The 2019 Plan expires

ten years from the date of adoption.

According to the Company’s employee stock incentive plan, new shares will be issued upon the

exercise of stock options and the Company can repurchase shares exercised under the plan.

the year ended March 31, 2021, there were no stock options issued.

During the year ended March 31, 2020, the Compensation Committee of

the Board of Directors approved and the Company issued options covering 42,000 shares of stock.

The plan also provides for the granting

of stock awards.

No stock awards were granted during fiscal 2021 and 2020.

Company recognized compensation expense of $55,678 and $34,303 related to vesting stock options in general and administrative expense

in the Consolidated Statements of Operations for fiscal 2021 and 2020, respectively.

The total cost related to non-vested awards not

yet recognized at March 31, 2021 totals $114,131, which is expected to be recognized over a weighted average of 2.35 years.

fair value of each stock option is estimated on the date of grant using the Binomial valuation model.

Expected volatilities are

based on historical volatility of the Company’s stock over the contractual term of 120 months and other factors.

uses historical data to estimate option exercise and employee termination within the valuation model.

The expected term of options

granted is derived from the output of the option valuation model and represents the period of time that options granted are expected

to be outstanding.

Expected volatilities are based

on historical volatility of the Company’s stock over the contractual term of 120 months and other factors.

The Company uses historical

data to estimate option exercise and employee termination within the valuation model.

The expected term of options granted is derived

from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding.

The risk-free rate for periods within the contractual life of the option is based on the U.S.

Treasury yield

curve in effect at the time of grant.

Treasury yield curve in effect at the time

As the Company has never declared dividends, no dividend yield is used in the calculation.

Actual value realized, if any, is dependent on the future performance of the Company’s common stock and overall stock market

There is no assurance the value realized by an optionee will be at or near the value estimated by the Binomial model.

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 in fiscal 2020 and 2019.

All such amounts represent the weighted average amounts

for each period.

Actual value realized, if any, is

dependent on the future performance of the Company’s common stock and overall stock market conditions.

There is no assurance the

value realized by an optionee will be at or near the value estimated by the Binomial model.

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 in fiscal 2021 and 2020.

All such amounts represent the weighted average amounts for each period.

For the year ended March 31,

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Expected term (in years)

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

During the years ended March 31, 2020 and 2019, there were no stock options forfeited or expired.

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

During the year ended March 31, 2021, 1,000 unvested stock options were forfeited due to the resignation of an employee and 34,200

vested stock options expired unexercised.

During the year ended March 31, 2020, there were no stock options forfeited or expired.

following table is a summary of activity of stock options for the years ended March 31, 2021 and 2020:

Number of Shares

Weighted Average Exercise Price Per Share

Weighted Aggregate Average Remaining Contract Life in Years

Outstanding at April 1, 2018

Forfeited or Expired

Outstanding at March 31, 2019

Forfeited or Expired

Outstanding at March 31, 2020

Vested at March 31, 2020

Exercisable at March 31, 2020

the year ended March 31, 2020, no stock options were exercised.

During the year ended March 31, 2019, 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.

Weighted Average

Exercise Price

Aggregate Average Remaining Contract Life

at April 1, 2019

at March 31, 2020

at March 31, 2021

the year ended March 31, 2021, stock options covering 36,500 shares were exercised with a total intrinsic value of $72,981.

received proceeds of $247,435 from these exercises.

During the year ended March 31, 2020, no stock options were exercised.

information pertaining to option activity was as follows during the year ended March 31:

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Number of Options

Exercise Price

Weighted Average Remaining

Contract Life in Years

Weighted Average Exercise Price

Weighted Average Remaining Contract Life in Years

Aggregate Intrinsic Value

$ 3.34 –

options at March 31, 2020 expire between August 2020 and March 2030 and have exercise prices ranging from $3.34 to $7.00.

options at March 31, 2021 expire between November 2021 and March 2030 and have exercise prices ranging from $3.34 to $7.00.

Related Party Transactions

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 years ended

March 31, 2020 and 2019 were $44,724 and $51,276, 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 year

ending March 31, 2020 and 2019 were $15,881 and $13,291, respectively.

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 years ended March 31, 2021

and 2020 were $39,067 and $44,724, 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 year ending March 31, 2021 and

2020 were $16,549 and $15,881, respectively.

March 2020, the Company entered into an agreement with our principal shareholder, Nicholas C.

Taylor for the sale of surface rights

to an undivided interest of 1.98 acres in a 160-acre tract of rural land located in Brazoria County, Texas.

Taylor paid the

company approximately $18,000 in cash for these rights, such price being based on a November 22, 2019 appraisal by a firm of MAI

appraisers at $9,000 per acre undiscounted by 10%.

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

located in Midland, Texas.

Taylor for the sale of surface rights to

an undivided interest of 1.98 acres in a 160-acre tract of rural land located in Brazoria County, Texas.

Taylor paid the company

approximately $18,000 in cash for these rights, such price being based on a November 22, 2019 appraisal by a firm of MAI appraisers at

$9,000 per acre.

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

in Midland, Texas.

This includes 1,021 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.

Subsequently 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.

is a 36-month lease that expired 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.

Operating leases are recorded in operating lease right-of-use asset,

operating lease liability, current, and operating lease liability, long-term on the consolidated balance sheets.

lease right-of-use assets represent the Company’s right to use an underlying asset for the lease 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.

Operating leases are recorded in operating lease right-of-use asset, operating

lease liability, current, and operating lease liability, long-term on the consolidated balance sheets.

lease right-of-use assets represent the Company’s right to use an underlying asset for the lease 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 6.0%.

Significant judgement

is required when determining the incremental borrowing rate.

Significant judgement is required when determining the incremental

borrowing rate.

The Company chose not to discount because the difference is not significant.

Rent expense for lease payments is recognized on a straight-line basis over the lease term.

Rent expense for lease payments is recognized

on a straight-line basis over the lease term.

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

March 31, 2020

Operating lease right-of-use asset, beginning balance

Current period amortization

Total operating lease right-of-use asset

Operating lease liability, current

Operating lease liability, long term

Total lease liabilities

lease right-of-use asset, beginning balance

period amortization

operating lease right-of-use asset

lease liability, current

lease liability, long term

lease liabilities

minimum lease payments as of March 31, 2021 under non-cancellable operating leases are as follows:

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cash paid for our operating lease for the year ended March 31, 2021 and 2020 was $48,360 and $46,447, respectively.

Rent expense,

less sublease income of $18,234 and $14,597, respectively, is included in general and administrative expenses.

Rent expense, less

sublease income of $19,109 and $18,234, respectively, is included in general and administrative expenses.

Subsequently,

in June 2021, the Company agreed to extend its current lease for its principal office space located at 415 West Wall Street, Suite 475,

Midland, Texas 79701 for 36 months.

The amended lease now expires on July 31, 2024.

Paycheck Protection Program (PPP) Loan.

March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act commonly referred to as the CARES Act became effective.

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.

The PPP is 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.

can also be used to pay interest on mortgages, rent, and utilities.

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

On May 5, 2020, the Company received funding for approximately $68,600.

loan was a two-year loan with a maturity date of May 5, 2022 an annual interest rate of 1% payable monthly with the first six monthly

payments deferred.

The Company applied for and on November 25, 2020 was approved for loan forgiveness in the amount of $68,957 under

the provisions of Section 1106 of the CARES Act.

This was for the forgiveness of our PPP loan in the amount of $68,574 and $383 in accrued

interest expense.

The Company was eligible for loan forgiveness because the Company used all loan proceeds to partially subsidize direct

payroll expenses.

Oil and Gas Reserve Data (Unaudited)

estimates of the Company’s proved oil and gas reserves, which are located entirely within the United States, were prepared

in accordance with the generally accepted petroleum engineering and evaluation principles and definitions and guidelines established

The estimates as of March 31, 2020 and 2019 were based on evaluations prepared by Russell K.

Hall and Associates,

The services provided by Russell K.

estimates of the Company’s proved oil and gas reserves, which are located entirely within the United States, were prepared in accordance

with the generally accepted petroleum engineering and evaluation principles and definitions and guidelines established by the SEC.

estimates as of March 31, 2021 and 2020 were based on evaluations prepared by Russell K.

Hall and Associates, Inc.

are not audits of our reserves but instead consist of complete

engineering evaluations of the respective properties.

For more information about their evaluations performed, refer to the copy

of their report filed as an exhibit to this Annual Report on Form 10-K.

Management emphasizes that reserve estimates are inherently

imprecise and that estimates of new discoveries are more imprecise than those of currently producing oil and natural gas properties.

Accordingly, these estimates are expected to change as additional information becomes available in the future.

The services provided

by Russell K.

Hall and Associates, Inc.

are not audits of our reserves but instead consist of complete engineering evaluations of the

respective properties.

For more information about their evaluations performed, refer to the copy of their report filed as an exhibit

to this Annual Report on Form 10-K.

Management emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries

are more imprecise than those of currently producing oil and natural gas properties.

Accordingly, these estimates are expected to change

as additional information becomes available in the future.

following table summarizes the prices utilized in the reserve estimates for 2021 and 2020.

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Natural gas per MMBtu

Company’s total estimated proved reserves at March 31, 2020 were approximately 1.816 MBOE of which 55% was oil and natural

gas liquids and 45% was natural gas.

Company’s total estimated proved reserves at March 31, 2021 were approximately 1.504 MBOE of which 49% was oil and natural gas

liquids and 51% was natural gas.

in Proved Reserves :

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developed reserves are those expected to be recovered through existing wells, equipment and operating methods.

Proved undeveloped

reserves (“PUD”) are proved reserves that are expected to be recovered from new wells on undrilled acreage or from

existing wells where a relatively major expenditure is required for recompletion within five years of the date of their initial

Moreover, the Company may be required to write down its proved undeveloped reserves if the operators do not drill

on the reserves within the required five-year timeframe.

The downward revision of oil and natural gas is primarily the result

of reserves written off due to the five-year limitation.

They are primarily royalty interests in the Barnett Shale in Tarrant

County, Texas and the Goldsmith field in Ector County, Texas, both of which are on a lease held by production and still in place

to be developed in the future.

There were also reserves written off due to the five-year limitation for a working interest in

the Fuhrman Mascho Field in Andrews County, Texas, also on a lease held by production and still in place to be developed in the

of Proved Developed and Undeveloped Reserves as of March 31, 2020 and 2019 :

Proved Developed Reserves:

As of April 1, 2018

As of March 31, 2019

As of March 31, 2020

Proved undeveloped reserves

As of April 1, 2018

As of March 31, 2019

As of March 31, 2020

March 31, 2020, the Company reported estimated PUDs of 901 MBOE, which accounted for 50% of its total estimated proved oil and

gas reserves.

This figure primarily consists of a projected 142 new wells (662 MBOE) operated by others, 7 wells are currently

being drilled with plans for 59 wells to follow in 2021, 64 wells in 2022 and 12 wells in 2023.

The cost of these projects would

be funded, to the extent possible, from existing cash balances, cash flow from operations and bank borrowings.

The remainder may

be funded through non-core asset sales and/or sales of our common stock.

(“PUD”) are proved reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells

where a relatively major expenditure is required for recompletion within five years of the date of their initial recognition.

the Company may be required to write down its proved undeveloped reserves if the operators do not drill on the reserves within the required

five-year timeframe.

Such downward revisions are primarily the result of reserves written off due to the five-year limitation.

primarily working interests in a unit in the Wolfcamp B Zone in Upton and Reagan Counties, Texas which are on a lease held by production

and still in place to be developed in the future.

of Proved Developed and Undeveloped Reserves as of March 31, 2021 and 2020 :

Developed Reserves:

of April 1, 2019

of March 31, 2020

of March 31, 2021

Undeveloped Reserves:

of April 1, 2019

of March 31, 2020

of March 31, 2021

March 31, 2021, the Company reported estimated PUDs of 484 MBOE, which accounted for 32% of its total estimated proved oil and gas reserves.

This figure primarily consists of a projected 121 new wells (263 MBOE) operated by others, 7 wells are currently being drilled with plans

for 60 wells to follow in 2022, 48 wells in 2023 and 6 wells in 2024.

The cost of these projects would be funded, to the extent possible,

from existing cash balances, cash flow from operations and bank borrowings.

The remainder may be funded through non-core asset sales

and/or sales of our common stock.

following table discloses the Company’s progress toward the conversion of PUDs during fiscal 2021.

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PUDs, end of year

future net cash flows represent an estimate of future net revenues from the production of proved reserves using average prices

for 2020 and 2019 along with estimates of the operating costs, production taxes and future development costs necessary to produce

such reserves.

No deduction has been made for depreciation, depletion or any indirect costs such as general corporate overhead

or interest expense.

future net cash flows represent an estimate of future net revenues from the production of proved reserves using average prices for 2021

and 2020 along with estimates of the operating costs, production taxes and future development costs necessary to produce such reserves.

No deduction has been made for depreciation, depletion or any indirect costs such as general corporate overhead or interest expense.

costs and production taxes are estimated based on current costs with respect to producing oil and natural gas properties.

development costs including abandonment costs are based on the best estimate of such costs assuming current economic and operating

The future cash flows estimated to be spent to develop the Company’s share of proved undeveloped properties

through March 31, 2023 are $6,632,064.

tax expense is computed based on applying the appropriate statutory tax rate to the excess of future cash inflows less future

production and development costs over the current tax basis of the properties involved, less applicable carryforwards.

future net revenue information assumes no escalation of costs or prices, except for oil and natural gas sales made under terms

of contracts which include fixed and determinable escalation.

Future costs and prices could significantly vary from current amounts

and, accordingly, revisions in the future could be significant.

current reporting rules require that year end reserve calculations and future cash inflows be based on the 12-month average market

prices for sales of oil and gas on the first calendar day of each month during the fiscal year discounted at 10% per year and

assuming continuation of existing economic conditions.

The average prices used for fiscal 2020 were $53.23 per bbl of oil and

$1.655 per mcf of natural gas.

The average prices used for fiscal 2019 were $53.71 per bbl of oil and $2.77 per mcf of natural

standardized measure of discounted future net cash flows is computed by applying the 12-month unweighted average of the first

day of the month pricing for oil and natural gas (with consideration of price changes only to the extent provided by contractual

arrangements) to the estimated future production of proved oil and natural gas reserves, less estimated future expenditures (based

on year end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to

reflect the estimated timing of the future cash flows.

Future income taxes are calculated by comparing undiscounted future cash

flows to the tax basis of oil and natural gas properties plus available carryforwards and credits and applying the current tax

rate to the difference.

basis for this table is the reserve studies prepared by an independent petroleum engineering consultant, which contain imprecise

estimates of quantities and rates of production of reserves.

Revisions of previous year estimates can have a significant impact

on these results.

Also, exploration costs in one year may lead to significant discoveries in later years and may significantly

change previous estimates of proved reserves and their valuation.

Therefore, the standardized measure of discounted future net

cash flow is not necessarily indicative of the fair value of proved oil and gas properties.

following information is based on the Company’s best estimate of the required data for the Standardized Measure of Discounted

Future Net Cash Flows as of March 31, 2020 and 2019 in accordance with ASC 932, “Extractive Activities –

Future development

costs including abandonment costs are based on the best estimate of such costs assuming current economic and operating conditions.

future cash flows estimated to be spent to develop the Company’s share of proved undeveloped properties through March 31, 2024

are $3,015,174.

tax expense is computed based on applying the appropriate statutory tax rate to the excess of future cash inflows less future production

and development costs over the current tax basis of the properties involved, less applicable carryforwards.

future net revenue information assumes no escalation of costs or prices, except for oil and natural gas sales made under terms of contracts

which include fixed and determinable escalation.

Future costs and prices could significantly vary from current amounts and, accordingly,

revisions in the future could be significant.

current reporting rules require that year end reserve calculations and future cash inflows be based on the 12-month average market prices

for sales of oil and gas on the first calendar day of each month during the fiscal year discounted at 10% per year and assuming continuation

of existing economic conditions.

The average prices used for fiscal 2021 were $37.42 per bbl of oil and $2.29 per mcf of natural gas.

The average prices used for fiscal 2020 were $53.23 per bbl of oil and $1.66 per mcf of natural gas.

standardized measure of discounted future net cash flows is computed by applying the 12-month unweighted average of the first day of

the month pricing for oil and natural gas (with consideration of price changes only to the extent provided by contractual arrangements)

to the estimated future production of proved oil and natural gas reserves, less estimated future expenditures (based on year end costs)

to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing

of the future cash flows.

Future income taxes are calculated by comparing undiscounted future cash flows to the tax basis of oil and

natural gas properties plus available carryforwards and credits and applying the current tax rate to the difference.

basis for this table is the reserve studies prepared by an independent petroleum engineering consultant, which contain imprecise estimates

of quantities and rates of production of reserves.

Revisions of previous year estimates can have a significant impact on these results.

Also, exploration costs in one year may lead to significant discoveries in later years and may significantly change previous estimates

of proved reserves and their valuation.

Therefore, the standardized measure of discounted future net cash flow is not necessarily indicative

of the fair value of proved oil and gas properties.

following information is based on the Company’s best estimate of the required data for the Standardized Measure of Discounted Future

Net Cash Flows as of March 31, 2021 and 2020 in accordance with ASC 932, “Extractive Activities –

Oil and Gas”

which requires the use of a 10% discount rate.

This information is not the fair market value, nor does it represent the expected

present value of future cash flows of the Company’s proved oil and gas reserves.

requires the use of a 10% discount rate.

This information is not the fair market value, nor does it represent the expected present value

of future cash flows of the Company’s proved oil and gas reserves.

Measure of Discounted Future Net Cash Flows Relating to Proved Reserves:

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(14,359,000 )

(16,968,000 )

Standardized measure of discounted future net cash flows

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Subsequent Events

the first quarter of fiscal 2021, the Company borrowed $235,000 on the line of credit and made a payment of $100,000 to reduce

the line of credit leaving a balance of $930,000.

the first quarter of fiscal 2021, the Company expended approximately $200,000 for participation in the drilling of four wells

in Lea County, New Mexico.

April 10, 2020, the Company’s Certificate of Deposit Account used to collateralize a plugging bond with the Texas Railroad

Commission in the amount of $25,000 was closed and the funds deposited into the Company’s operating account.

March 27, 2020, President Trump signed the Coronavirus Aid, Relief and Economic Security (the “CARES Act”), which,

among other things, outlines the provisions of the Paycheck Protection Program (the “PPP”).

The Company determined

that it met the criteria to be eligible to obtain a loan under the PPP because, among other reasons, in light of the COVID-19

outbreak and the uncertainty of economic conditions related thereto, the loan was necessary to support the Company’s ongoing

Under the PPP, the Company could obtain a U.S.

Small Business Administration loan in an amount equal to the average

of the Company’s monthly payroll costs (as defined under the PPP) for calendar 2019 multiplied by 2.5 (approximately 10

weeks of payroll costs).

Section 1106 of the CARES Act contains provisions for the forgiveness of all or a portion of a PPP loan,

subject to the satisfaction of certain requirements.

The amount eligible for forgiveness is, subject to certain limitations, the

sum of the Company’s payroll costs, rent and utilities paid by the Company during the 24-week period beginning on the funding

date of the PPP loan.

On May 5, 2020, the Company closed on a PPP loan in the amount of $68,574, which was funded on the date

in March 2020, significant price decline and price volatility for oil and gas products emerged in the market.

The Company could

be directly impacted by these price changes if the decline in demand and price remain depressed for an extended period of time.

The financial statement impact, change in price and expected time for these changes is not estimable but will result in significant

decreases in oil and gas operations.

Management has considered all available information and has concluded that volatility in

price and demand is difficult to estimate and the current outcome of future operations is unknown.

The extent of the operational

and financial impact the COVID-19 pandemic may have on the Company has yet to be determined and is dependent on its duration and

spread, any related operational restrictions and the overall economy.

The Company is unable to accurately predict how COVID-19

will affect the results of its operations because the virus’s severity and the duration of the pandemic are uncertain.

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 2020, respectively.

The WTI posted price for crude oil

was $35.75 on June 19, 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 2020, respectively.

Hub posted price for natural gas was $1.67 on June 19, 2020.

April 2020, the Company expended approximately $28,100 to purchase twelve 1,000 barrel contracts to hedge our oil production for

the months of April through August at a floor price of $25.00 per barrel.

On May 4, 2020, the Company received a net settlement

of $8,200 for the first of these contracts.

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.

Restated Articles of Incorporation of Mexco Energy Corporation filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K dated June 24, 1998, and incorporated herein by reference.

the first quarter of fiscal 2022, the Company borrowed $100,000 on the credit facility and made payments totaling $480,000 on the credit

facility leaving a balance of $800,000.

the first quarter of fiscal 2022, the Company expended approximately $326,000 for participation in the drilling of eight wells and the

completion of six wells in Lea County, New Mexico.

June 2021, the Company agreed to extend its current lease for its principal office space located at 415 West Wall Street, Suite 475,

Midland, Texas 79701 for 36 months.

The amended lease now expires on July 31, 2024.

Articles of Incorporation of Mexco Energy Corporation filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K dated

June 24, 1998, and incorporated herein by reference.

Amended Bylaws of Mexco Energy Corporation as amended on September 13, 2011 filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated September 14, 2011, and incorporated herein by reference.

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Loan Agreement dated December 28, 2018 between West Texas National Bank and Mexco Energy Corporation filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 31, 2018, and incorporated herein by reference.

First Amendment to Loan Agreement dated February 28, 2020 to the Loan Agreement between West Texas National Bank and Mexco Energy Corporation dated December 31, 2018.

First Amendment to Loan Agreement dated February 28, 2020 to the Loan Agreement between West Texas National Bank and Mexco Energy Corporation dated December 31, 2018, and incorporated herein by reference.

Code of Business Conduct and Ethics of Mexco Energy Corporation filed with the Company’s Quarterly Report on Form 10-Q filed on November 15, 2004, and incorporated herein by reference.

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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-K

Item 9A. Controls and Procedures