What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-08-11 compared with 2021-02-10 · 267 added, 674 removed, 148 unchanged (86% of the section changed)

10 unchanged sentences

Oil and gas properties, using the full cost method

Accumulated depreciation, depletion and amortization

Accumulated depreciation, depletion

and amortization

( 29,279,932 )

1 unchanged sentence

Property and equipment, net

Investment –

Investment – cost basis

Operating lease, right-of-use asset

Other noncurrent assets

LIABILITIES AND STOCKHOLDERS’

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

2 unchanged sentences

Total current liabilities

Long-term liabilites

Long-term debt

Long-term liabilities

Long-term debt, net

Operating lease liability, long-term

3 unchanged sentences

Commitments and contingencies

Stockholders’

Stockholders’ equity

Preferred stock - $ 1.00 par value;

4 unchanged sentences

2,148,666 and 2,143,666 shares issued;

2,051,866 and 2,040,166 shares outstanding as of December 31, 2020 and March 31, 2020, respectively

and, 2,081,666 and 2,076,666 shares outstanding as of June 30, 2021 and March 31, 2021, respectively

Additional paid-in capital

Retained earnings

Treasury stock, at cost (67,000 shares)

Total stockholders’

Total liabilities and stockholders’

Treasury stock, at cost ( 67,000

Total stockholders’ equity

Total liabilities and stockholders’

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

1 unchanged sentence

STATEMENTS OF OPERATIONS

Three Months Ended

Nine Months Ended

Operating revenue:

the Three Months Ended June 30,

Operating revenues:

Natural gas sales

1 unchanged sentence

Operating expenses:

Accretion of asset retirement obligation

Accretion of asset retirement obligations

Depreciation, depletion and amortization

2 unchanged sentences

Operating income (loss)

Other income (expenses):

Other income (expense):

Interest income

Net realized and unrealized loss on derivative contracts

Interest expense

PPP loan forgiveness

Loss on derivative instruments

Net other income (expense)

Income (loss) before income taxes

Net other expense

Income (loss) before provision for income taxes

Net income (loss)

$ ( 299,670 )

Income (loss) per common share:

2 unchanged sentences

Energy Corporation and Subsidiaries

STATEMENTS OF CHANGES IN STOCKHOLDERS’

Common Stock Par Value

Additional Paid-In Capital

Retained Earnings

Treasury Stock

Total Stockholders’

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Stock Par Value

Paid-In Capital

Stockholders’ Equity

Balance at April 1, 2021

Issuance of stock through options exercised

Stock based compensation

Balance at December 31, 2020

Common Stock Par Value

Additional Paid-In Capital

Retained Earnings

Treasury Stock

Total Stockholders’

Balance at September 30, 2020

$ ( 346,001 )

Issuance of stock through options exercised

Stock based compensation

Balance at December 31, 2020

Common Stock Par Value

Additional Paid-In Capital

Retained Earnings

Treasury Stock

Total Stockholders’

Balance at June 30, 2021

$ ( 346,001 )

Stock Par Value

Paid-In Capital

Stockholders’ Equity

Balance at April 1, 2020

Stock based compensation

Balance at December 31, 2019

Common Stock Par Value

Additional Paid-In Capital

Retained Earnings

Treasury Stock

Total Stockholders’

Balance at September 30, 2019

$ ( 346,001 )

Net income (loss)

Stock based compensation

Balance at December 31, 2019

Balance at June 30, 2020

$ ( 346,001 )

SHARE ACTIVITY

1 unchanged sentence

Balance at April 1, 2021

Balance at Dec.

Balance at June 30, 2021

Common stock shares, held in treasury:

Balance at April 1, 2021

Balance at Dec.

Common stock shares, outstanding at December 31, 2020

Balance at June 30, 2021

Common stock shares, outstanding at June 30, 2021

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

1 unchanged sentence

STATEMENTS OF CASH FLOWS

the Nine Months Ended December 31,

the Three Months Ended June 30,

Cash flows from operating activities:

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

Net income (loss)

$ ( 299,670 )

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

Stock-based compensation

1 unchanged sentence

Accretion of asset retirement obligations

loan forgiveness

Amortization of debt issuance costs

Change in fair value of derivative instruments

Changes in operating assets and liabilities

Increase in accounts receivable

Decrease in right-of-use asset

(Increase) decrease in accounts receivable

Decrease in prepaid expenses

Decrease in other assets

Decrease in accounts payable and accrued expenses

Increase in prepaid asset – option contract

(Increase) decrease in right-of-use asset

Increase in accounts payable and accrued expenses

Settlement of asset retirement obligations

Decrease in operating lease liability

Increase (decrease) in operating

lease liability

Net cash provided by operating activities

2 unchanged sentences

Additions to other property and equipment

Drilling refund

Investment –

Proceeds from sale of oil and gas properties and equipment

Proceeds from sale of oil and

gas properties and equipment

Net cash used in investing activities

1 unchanged sentence

Proceeds from exercise of stock options

Proceeds from long-term debt

Proceeds from PPP loan

Reduction of long-term debt

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Proceeds from long-term debt

Net cash (used in) provided by financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

4 unchanged sentences

Asset retirement obligations

Operating lease –

right of use asset and associated liabilities

Operating lease – right of use asset and associated

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

2 unchanged sentences

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 natural gas, crude oil, 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.

outbreak of the novel coronavirus (“COVID-19”) in the first calendar quarter of 2020 and its continued spread across

the globe in the second and third calendar quarters of 2020 has resulted, and is likely to continue to result, in significant

economic disruption and has, and is likely to continue to, adversely affect the operations of the Company’s business, as

the significantly reduced global and national economic activity has resulted in reduced demand for oil and natural gas.

state and local governments mobilized to implement containment mechanisms to minimize impacts to their populations and economies.

Various containment measures, which include the quarantining of cities, regions and countries, while aiding in the prevention

of further outbreak, have resulted in a severe drop in general economic activity and a resulting decrease in energy demand.

addition, the global economy has experienced a significant disruption to global supply chains.

The extent of the COVID-19 outbreak

on the Company’s operational and financial performance will continue to depend on certain developments, including the duration

and spread of the outbreak and its continued impact on customer activity and third-party providers.

The direct impact to the Company’s

operations began to take effect at the close of the fiscal year ended March 31, 2020, and continued through the issuance of these

condensed consolidated financial statements.

The full extent to which the COVID-19 outbreak may affect the Company’s financial

conditions, results of operations or liquidity subsequent to the issuance of these condensed consolidated financial statements

is uncertain.

At the time of this filing, cases of COVID-19 in the U.S.

remain high, including in Texas, where we are involved

in significant operations.

severe drop in economic activity, travel restrictions and other restrictions due to COVID-19 have had a significant negative impact

on the demand for oil and gas.

Due to the significantly reduced demand for oil and natural gas as a result of the COVID-19 pandemic

and the current oversupply of oil and natural gas in the market, available storage and capacity for the Company’s customers’

production may be limited or completely unavailable in the future, which may further negatively impact the price of oil.

cannot predict whether, or when, the global supply and demand imbalance will be resolved or whether, or when, oil and natural

gas production and economic activities will return to normalized levels.

In the absence of additional reductions to global production,

oil, natural gas and NGLs prices could remain at current levels, or decline further, for an extended period of time.

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 Company’s oil and gas interests are operated by others.

Basis of Presentation and 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.

Financial Statements .

In the opinion of management, the accompanying unaudited consolidated financial statements contain all

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

of December 31, 2020, and the results of its operations and cash flows for the interim periods ended December 31, 2020 and 2019.

The consolidated financial statements as of December 31, 2020 and for the three and nine month periods ended December 31, 2020

and 2019 are unaudited.

The consolidated balance sheet as of March 31, 2020 was derived from the audited balance sheet filed in

the Company’s 2020 annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”).

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

The accounting policies followed by the Company are set forth in more detail in Note 2 of the “Notes to Consolidated Financial

Statements”

in the Form 10-K.

Certain information and footnote disclosures normally included in financial statements prepared

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

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

However, the disclosures herein are adequate to make the information

presented not misleading.

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

and notes thereto included in the Form 10-K.

The Company accounts for investments of less than 1% of any limited liability company 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.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments

(consisting only of normal recurring accruals) necessary to present fairly the financial position of the Company as of June 30, 2021,

and the results of its operations and cash flows for the interim periods ended June 30, 2021 and 2020.

The consolidated financial statements

as of June 30, 2021 and for the three-month periods ended June 30, 2021 and 2020 are unaudited.

The consolidated balance sheet as of

March 31, 2021 was derived from the audited balance sheet filed in the Company’s 2021 annual report on Form 10-K filed with the

Securities and Exchange Commission (“SEC”).

The results of operations for the periods presented are not necessarily indicative

of the results to be expected for a full year.

The accounting policies followed by the Company are set forth in more detail in Note 2

of the “Notes to Consolidated Financial Statements” in the Form 10-K.

Certain information and footnote disclosures normally

included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America

have been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the SEC.

However, the disclosures herein are

adequate to make the information presented not misleading.

It is suggested that these consolidated financial statements be read in conjunction

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

Investments .

The Company accounts for investments of less than 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.

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

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

Adopted Accounting Pronouncements.

In December 2019, the FASB issued ASU No.

2019-12, “Income Taxes (Topic 740):

the Accounting for Income Taxes”

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

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

(i) hybrid tax regimes;

(ii) the tax basis step-up in goodwill

obtained in a transaction that is not a business combination;

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

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

(v) ownership changes in investments - changes from

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

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

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

ASU 2019-12 is effective for fiscal years beginning

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

If an entity early adopts

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

that interim period.

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

in the same period.

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

of operations and disclosures.

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

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

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

the period in which they occur.

Unsettled derivative instruments are recorded in the accompanying consolidated balance sheets as either

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

The Company only offsets derivative assets and liabilities

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

Derivative assets and liabilities with different counterparties

are recorded gross in the consolidated balance sheets.

Derivative contract settlements are reflected in operating activities in the accompanying

consolidated statements of cash flows.

of June 30, 2021, the Company had no derivative contracts.

During 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.

Asset Retirement Obligations

Company’s asset retirement obligations (“ARO”) relate to the plugging of wells, the removal of facilities and

equipment, and site restoration on oil and gas properties.

The fair value of a liability for an ARO is recorded in the period

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

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

The liability is accreted each period until

the liability is settled or the well is sold, at which time the liability is removed.

The related asset retirement cost is capitalized

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

The ARO is included in the consolidated balance sheets with

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

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

Company’s asset retirement obligations (“ARO”) relate to the plugging of wells, the removal of facilities and equipment,

and site restoration on oil and gas properties.

The fair value of a liability for an ARO is recorded in the period in which it is initially

incurred, discounted to its present value using the credit adjusted risk-free interest rate, and a corresponding amount capitalized by

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

The liability is accreted each period until the liability is settled

or the well is sold, at which time the liability is removed.

The related asset retirement cost is capitalized as part of the carrying

amount of our oil and natural gas properties.

The ARO is included on the consolidated balance sheets with the current portion being included

in the accounts payable and other accrued expenses.

following table provides a rollforward of the AROs for the first three months of fiscal 2022:

of Rollforward of Asset Retirement Obligations

Carrying amount of asset retirement obligations as of April 1, 2021

2 unchanged sentences

Accretion expense

Carrying amount of asset retirement obligations as of December 31, 2020

Carrying amount of asset retirement obligations as of June 30, 2021

Current portion

Non-Current asset retirement obligation

Stock-based Compensation

Company recognized stock-based compensation expense of $13,865 and $8,125 in general and administrative expense in the Consolidated

Statements of Operations for the three months ended December 31, 2020 and 2019, respectively.

Stock-based compensation expense

recognized for the nine months ended December 31, 2020 and 2019 was $41,813 and $24,375, respectively.

The total cost related

to non-vested awards not yet recognized at December 31, 2020 totals approximately $127,996 which is expected to be recognized

over a weighted average of 2.70 years.

following table is a summary of activity of stock options for the nine months ended December 31, 2020:

Exercise Price

Weighted Average

Remaining Contract

Life in Years

Outstanding at April 1, 2020

Forfeited or Expired

Outstanding at December 31, 2020

Vested at December 31, 2020

Exercisable at December 31, 2020

the nine months ended December 31, 2020 and 2019, no stock options were granted.

the nine months ended December 31, 2020, stock options covering 11,700 shares were exercised with a total intrinsic value of $12,217.

The Company received proceeds of $78,795 from these exercises.

During the nine months ended December 31, 2019, no stock options

were exercised.

the nine months ended December 31, 2020, 1,000 unvested stock options were forfeited due to the resignation of an employee and

34,200 vested stock options expired unexercised.

There were no stock options forfeited or expired during the nine months ended

December 31, 2019.

No forfeiture rate is assumed for stock options granted to directors or employees due to the forfeiture rate

history of these types of awards.

options at December 31, 2020 expire between November 2021 and March 2030 and have exercise prices ranging from $3.34 to $7.00.

Subsequently,

in January 2021, stock options covering 19,800 shares were exercised with a total intrinsic value of $53,751.

The Company received

proceeds of $134,640 from these exercises.

Long Term Debt

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

of Long-Term Debt

June 30, 2021

March 31, 2021

Credit facility

1 unchanged sentence

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 .

3 unchanged sentences

and increase the borrowing base to $ 1,500,000 .

the Agreement, interest on the credit facility accrues at a rate equal to the prime rate as quoted in the Wall Street Journal

plus one-half of one percent (0.5%) floating daily.

the Agreement, interest on the facility accrues at a rate equal to the prime rate as quoted in the Wall Street Journal plus one-half

of one percent ( 0.5 %) floating daily.

Interest on the outstanding amount under the Agreement is payable monthly.

In addition, the Company will pay an unused commitment fee in an amount equal to one-half of one percent (0.5%) times the daily

average of the unadvanced amount of the commitment.

The unused commitment fee is payable quarterly in arrears on the last day

of each calendar quarter.

As of December 31, 2020, there was $400,000 available on the credit facility.

In addition, the Company

will pay an unused commitment fee in an amount equal to one-half of one percent ( 0.5 %) times the daily average of the unadvanced amount

of the commitment.

The unused commitment fee is payable quarterly in arrears on the last day of each calendar quarter.

As of June 30,

2021, there was $ 700,000 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 original life of the credit facility.

Upon closing the amendment to the

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

totaling $12,266, which were also deferred over the new remaining 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 quarters and minimum interest coverage

ratios (EBITDA/Interest Expense) of 2.00 to 1.00 for each quarter.

The Company is in compliance with all covenants as of December

31, 2020 and believes it will remain in compliance for the next fiscal year.

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 quarters and minimum interest coverage ratios (EBITDA/Interest

Expense) of 2.00 to 1.00 for each quarter.

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

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

WTNB approval.

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

balance outstanding on the line of credit as of December 31, 2020 was $1,100,000.

The following table is a summary of activity

on the WTNB line of credit for the nine months ended December 31, 2020:

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 credit facility as of June 30, 2021 was $ 800,000 .

The following table is a summary of activity on the WTNB

credit facility for the three months ended June 30, 2021:

of Line of Credit Activity

Balance at April 1, 2021:

Balance at December 31, 2020:

Balance at June 30, 2021:

Subsequently,

on January 11, 2021, the Company borrowed $75,000 on the WTNB credit facility and on January 15, 2021, made a payment of $75,000

on the credit facility, leaving a balance of $1,100,000.

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

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

The operated property

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

On April 10, 2020, the Certificate of Deposit Account

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

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.

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

The Company applied

for, and was accepted to participate in this program.

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

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.

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.

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.

the Company has made payments totaling $ 250,000 , leaving a balance of $ 550,000 as of the date of this report.

Stock-based Compensation

Company recognized compensation expense of $ 13,865 and $ 14,005 related to vesting stock options in general and administrative expense

in the Consolidated Statements of Operations for the first quarter of fiscal 2022 and 2021, respectively.

The total cost related to non-vested

awards not yet recognized at June 30, 2021 totals $ 100,266 , which is expected to be recognized over a weighted average of 2.10 years.

following table is a summary of stock options activity for the three months ended June 30, 2021 and 2020:

of Activity of Stock Options

Number of Shares

Weighted Average Exercise Price Per Share

Weighted Aggregate Average Remaining Contract Life in Years

Intrinsic Value

Outstanding at April 1, 2021

Forfeited or Expired

Outstanding at June 30, 2021

Vested at June 30, 2021

Exercisable at June 30, 2021

the three months ended June 30, 2021 and 2020, no

stock options were granted.

Subsequently,

pursuant to approval from the Compensation Committee of the Board of Directors, the Company granted options covering 31,000

shares of stock at a strike

price of $ 8.51 effective July 26, 2021.

the three months ended June 30, 2021, stock options covering 5,000 shares were exercised with a total intrinsic value of $ 15,036 .

Company received proceeds of $ 34,000 from these exercises.

During the three months ended June 30, 2020, no stock options were exercised.

Subsequently, in July 2021, stock options covering 10,500 were exercised with a total intrinsic value of $ 36,433 .

The Company received

proceeds of $ 73,500 from these exercises.

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

During the three months ended June 30, 2021 and 2020, there were no stock options forfeited or expired.

options at June 30, 2021 expire between April 2023 and March 2030 and have exercise prices ranging from $ 3.34 to $ 7.00 .

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

in Midland, Texas.

This includes 1,112 square feet of office space shared with and reimbursed by our majority shareholder.

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

In June 2020, in exchange for a reduction in rent

for the months of June and July 2020, the Company agreed to a 2-month extension to its current lease agreement at the regular monthly

rate extending its current lease expiration date to July 2021.

In June 2021, the Company agreed to extend its current lease for 36 months .

The amended lease now expires on July 31, 2024 .

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 3.75 %.

Significant judgement

is required when determining the incremental borrowing rate.

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

Significant judgement is required when determining the

incremental borrowing rate.

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

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

of Operating Lease Assets and Liabilities

June 30, 2021

Operating lease right-of-use asset, beginning balance

1 unchanged sentence

Lease amendment

Lease extension

Total operating lease right-of-use asset, ending balance

Total operating lease right-of-use asset

Operating lease liability, current

1 unchanged sentence

Total lease liabilities

minimum lease payments as of December 31, 2020 under non-cancellable operating leases are as follows:

minimum lease payments as of June 30, 2021 under non-cancellable operating leases are as follows:

of Future Minimum Lease Payments

Lease Obligation

Fiscal Year Ended March 31, 2022

Fiscal Year Ended March 31, 2023

Fiscal Year Ended March 31, 2024

Fiscal Year Ended March 31, 2025

Total lease payments

3 unchanged sentences

Operating lease liability, long term

cash paid for our operating lease for the nine months ended December 31, 2020 and 2019 was $34,121 and $35,300, respectively.

Rent expense, less sublease income of $14,315 and $13,167, respectively, is included in general and administrative expenses.

Fair Value Measurements

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

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

classified into two catagories:

observable inputs or unobservable inputs.

Observable inputs represent market data obtained from

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

inputs are not reasonably available without undue cost and effort.

These two types of inputs are further prioritized into the

following fair value input hierarchy:

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

Quoted prices for similar instruments in active markets;

quoted prices for identical or similar instruments in markets that

are not active;

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

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

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

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

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

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

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

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

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

See the Company’s Note 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.

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

from third parties.

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

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

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

commodity derivatives.

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

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

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

of either party as well as market constraints on liquidity.

There was no adjustment as of December 31, 2020.

Value Measurements on a Nonrecurring Basis

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

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

The significant inputs to this fair value

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

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

Derivative Financial Instruments

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

deemed by management as competent and competitive.

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

Derivative contracts

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

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

The Company follows FASB ASC Topic 815,

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

Company’s crude oil derivative positions 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 December 31, 2020, the Company has

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 nine months ended December

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

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.

cash paid for our operating lease for the three months ended June 30, 2021 and 2020 was $ 10,929 and $ 10,600 , respectively.

Rent expense,

less sublease income of $ 5,200 and $ 4,889 , respectively, is included in general and administrative expenses.

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.

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

tax asset position as of December 31, 2020.

Our deferred tax asset is $1,312,129 as of December 31, 2020 with a valuation amount

of $1,312,129.

tax asset position as of June 30, 2021.

Our deferred tax asset is $ 1,180,248

as of June 30, 2021 with a

valuation amount of $ 1,180,248 .

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 reduced or increased or if objective negative evidence in the form of cumulative losses is no longer

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

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

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

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

Related Party Transactions

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

on behalf of the principal stockholder.

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

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

paid on behalf of the principal stockholder.

The total billed to and reimbursed by the stockholder for the quarters ended June 30, 2021

and 2020 was $ 12,768 and $ 10,102 , respectively.

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

ended December 31, 2020 and 2019 was $27,443 and $32,232, respectively.

The principal stockholder pays for his share of the lease

amount for the shared office space directly to the lessor.

Amounts paid by the principal stockholder directly to the lessor for

the three months ending December 31, 2020 and 2019 were $4,045 and $3,981, respectively.

Amounts paid by the principal stockholder

directly to the lessor for the nine months ending December 31, 2020 and 2019 were $11,694 and $11,900, 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 less sublease income for the three months

ending June 30, 2021 and 2020 were $ 3,700 and $ 3,803 , respectively.

Income (loss) Per Common Share

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

during the period.

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

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

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

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

during the period.

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

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

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

for the three and nine month periods ended December 31, 2020 and 2019:

Three Months Ended

Nine Months Ended

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.

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

their inclusion would be anti-dilutive.

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

three-month periods ended June 30, 2021 and 2020.

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

Net income (loss)

$ ( 299,670 )

Shares outstanding:

Weighted avg.

shares outstanding –

Effect of assumed exercise of dilutive stock options

Weighted avg.

shares outstanding –

Weighted average common shares outstanding – basic

Effect of the assumed exercise of dilutive stock options

Weighted average common shares outstanding – dilutive

Income (loss) per common share:

the three months ended December 31, 2019, 139,800 potential common shares relating to stock options were excluded in the computation

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

and therefore, the effect would be anti-dilutive.

Anti-dilutive stock options have a weighted average exercise price of $6.12

at December 31, 2020.

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

the three months ended June 30, 2021, no anti-dilutive shares relating to stock options were excluded from the computation of diluted

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

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

Subsequent Events

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

any such events must be reported and has determined that there are no other subsequent events to be disclosed.

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

the context otherwise requires, references to the “Company”, “Mexco”, “we”, “us”

or “our”

mean Mexco Energy Corporation and its consolidated subsidiaries.

Statements Regarding Forward-Looking Statements.

Management’s Discussion and Analysis of Financial Condition and Results

of Operations (“MD&A”) contains forward-looking statements within the meaning of Section 27A of the Securities

Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended

(the “Exchange Act”).

Forward-looking statements include statements regarding our plans, beliefs or current expectations

and may be signified by the words “could”, “should”, “expect”, “project”, “estimate”,

“believe”, “anticipate”, “intend”, “budget”, “plan”, “forecast”,

“predict”

and other similar expressions.

Forward-looking statements appear throughout this Form 10-Q with respect

to, among other things:

profitability;

planned capital expenditures;

estimates of oil and gas production;

future project dates;

estimates of future oil and gas prices;

estimates of oil and gas reserves;

our future financial condition or results of operations;

and our business strategy and other plans and objectives for future operations.

Forward-looking statements involve known and unknown

risks and uncertainties that could cause actual results to differ materially from those contained in any forward-looking statement.

we have made assumptions that we believe are reasonable, the assumptions that support our forward-looking statements are based

upon information that is currently available and is subject to change.

All forward-looking statements in the Form 10-Q are qualified

in their entirety by the cautionary statement contained in this section.

We do not undertake to update, revise or correct any

of the forward-looking information.

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

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

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.

financial resource is our base of oil and gas reserves.

We have pledged our producing oil and gas properties to secure our revolving

line of credit.

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

any existing contract or agreement.

to the current commodity price environment, we are applying financial discipline to all aspects of our business.

In order to meet

obligations, we may continue to sell non-core assets.

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

the first nine months of fiscal 2021, cash flow from operations was $372,863, a 31% decrease when compared to the

corresponding period of fiscal 2020 primarily as a result of a 19% decrease in crude oil and natural gas sales primarily due to

a 37% decrease in crude oil price partially offset by a 4% increase in natural gas price, a 17% increase in crude oil production

and a 14% increase in natural gas production.

Net cash of $305,000 was received from the line of credit, cash of $78,795 was received

from the exercise of stock options, net cash of $793,597 was used for additions to oil and gas properties, and cash of $25,000

was used for an investment at cost basis.

Accordingly, net cash increased $6,635, leaving cash and cash equivalents on hand of

$41,016 as of December 31, 2020.

December 31, 2020, we had working capital of $296,172 compared to working capital of $186,785 at March 31, 2020, an increase of

$109,387 primarily due to the reasons set forth below.

and Natural Gas Property Development.

The Company’s working interests in the following mentioned 42 wells range from

.03% to 1.2% with a total capital expenditure of approximately $1,295,000 through February 10, 2021, which includes subsequent

events listed herein.

Company planned to participate in the drilling and completion of 20 horizontal wells at an estimated aggregate cost of approximately

$1,200,000 for the fiscal year ending March 31, 2021, of which, $600,000 has already been expended during the nine months ending

December 31, 2020.

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

the first six months of fiscal 2021, Mexco participated in the drilling and completion of two horizontal wells in the Wolfcamp

formation of the Delaware Basin located in the western portion of the Permian Basin in Lea County, New Mexico with aggregate costs

of approximately $233,000.

These wells were completed in September 2020 with initial average production rates of 1,224 barrels

of oil, 4,881 barrels of water and 3,422,000 cubic feet of gas per day, or 1,794 barrels of oil equivalent per day.

Mexco’s

working interest in these wells is 1.2%.

the second quarter of fiscal 2021, Mexco participated in the drilling of four horizontal wells in the Wolfcamp formation

of the Delaware Basin located in the western portion of the Permian Basin in Lea County, New Mexico with aggregate costs of approximately

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

Subsequently, in January 2021, Mexco expended $168,000 to complete

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

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

Mexco’s working interest in these wells is .5%.

Subsequently, in January 2021, Mexco expended $172,000 to complete these

the third quarter of fiscal 2021, Mexco participated in the drilling of two horizontal wells in the Wolfcamp formation

of the Delaware Basin located in the western portion of the Permian Basin in Lea County, New Mexico at an initial cost of $37,200.

Subsequently, in January 2021, Mexco expended another $37,200 for an increased interest in these wells.

Mexco’s working

interest in these wells is 1.2%.

October 2020, the Company also expended $10,200 for its share to participate in the drilling of two horizontal wells in

the 3 rd Bone Spring Sand formation of the Delaware Basin located in the western portion of the Permian Basin in Lea

County, New Mexico.

Mexco’s working interest in this well is .1%.

Company has expended approximately $270,000 which is the balance of the completion costs of 22 horizontal wells located

in Eddy and Lea Counties, New Mexico which were drilled during fiscal 2020.

Of these wells, thirteen wells were completed

during Mexco’s first six months of fiscal 2021.

In December 2020, four more of these wells were completed and initially

produced at an average production rate of 1,171 barrels of oil;

4,004 barrels of water;

and 2,517,000 cubic feet of gas per day,

or 1,591 barrels of oil equivalent per day.

Mexco’s working interest in these wells is .36%.

Another three of these wells

were also completed in December 2020 and the remaining two wells were completed in January 2021.

Subsequently,

in January 2021, Mexco expended approximately $49,000 to participate in the drilling of four horizontal wells in the Upper

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

Mexco’s working interest in these wells is .36%.

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

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

The cost of such projects would be

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

The remainder may be funded through

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

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

The volatility of the energy markets

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

For example, in the last

twelve months, the NYMEX West Texas Intermediate (“WTI”) posted price for crude oil has ranged from a low of negative

$41.25 per bbl in April 2020 to a high of $59.75 per bbl in January 2020.

The Henry Hub Spot Market Price (“Henry Hub”)

for natural gas has ranged from a low of $1.33 per MMBtu in September 2020 to a high of $3.14 per MMBtu in October 2020.

31, 2020 the WTI posted price for crude oil was $44.50 per bbl and the Henry Hub spot price for natural gas was $2.36 per MMBtu.

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

Protection Program (PPP) Loan.

On 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.

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

Funds can also be used to pay interest on mortgages,

rent, and utilities.

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

On May 5, 2020, the Company received

funding for $68,574.

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 under the provisions

of Section 1106 of the CARES Act.

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

partially subsidize direct payroll expenses.

We have no off-balance sheet debt or unrecorded obligations and have not guaranteed the debt of any other party.

The following table summarizes our future payments we are obligated to make based on agreements in place as of December 31, 2020:

Payments due in:

less than 1 year

Contractual obligations:

Secured bank line of credit (1)

These amounts represent the balances outstanding under

the bank line of credit.

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

and does not include estimated interest of $41,250 less than 1 year, and $51,563 1-3 years.

The lease amount represents the monthly rent amount

for our principal office space in Midland, Texas under a three-year lease agreement effective May 15, 2018.

Of this total obligation

for the remainder of the lease, our majority shareholder will pay $9,438 for his portion of the shared office space.

of Operations –

Three Months Ended December 31, 2020 and 2019.

For the quarter ended December 31, 2020, there was net

income of $80,497 compared to $35,196 for the quarter ended December 31, 2019, a 129% increase primarily as a result of a decrease

in operating expenses that is further explained below.

and gas sales .

Revenue from oil and gas sales was $692,243 for the third quarter of fiscal 2021, a 10% decrease from $766,223

for the same period of fiscal 2020.

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

production volumes and an increase in gas prices.

Volume (bbls)

Average Price (per bbl)

Average Price (per mcf)

and exploration.

Production costs were $235,958 for the third quarter of fiscal 2021, a 6% decrease from $249,921 for the

same period of fiscal 2020.

This is primarily the result of a decrease in lease operating expenses due to the sale of our marginal

operated properties in Ector County, Texas and a decrease in production taxes as a result of the decrease in oil and gas sales.

Depreciation,

depletion and amortization.

Depreciation, depletion and amortization expense was $237,459 for the third quarter of fiscal

2021, a 4% increase from $228,762 for the same period of fiscal 2020, primarily due to an increase in oil and gas production and

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

and administrative expenses.

General and administrative expenses were $193,288 for the third quarter of fiscal 2021, a 19%

decrease from $239,346 for the same period of fiscal 2020.

This was primarily due to a decrease in salaries, contract services

and employee insurance expense.

Interest expense was $14,604 for the third quarter of fiscal 2021, a 43% increase from $10,203 for the same period

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

loan forgiveness.

PPP loan forgiveness in the amount of $68,957 for the three months ended December 31, 2020 was for the forgiveness

of our PPP loan in the amount of $68,574 and $383 in accrued interest expense.

The Company received the proceeds for this loan

in May 2020 and applied for and received loan forgiveness in November 2020.

There was no income tax expense for the quarter ended December 31, 2020 and the quarter ended December 31, 2019.

effective tax rate for the three months ended December 31, 2020 and December 31, 2019 was 0%.

We are in a net deferred tax asset

position and believe it is more likely than not that these deferred tax assets will not be realized.

of Operations –

Nine Months Ended December 31, 2020 and 2019.

For the nine months ended December 31, 2020, there was

a net loss of $261,143 compared to a net loss of $101,777 for the nine months ended December 31, 2019.

This was a result of a

decrease in operating revenues partially offset by a decrease in operating expenses that is further explained below.

and gas sales .

Revenue from oil and gas sales was $1,686,386 for the nine months ended December 31, 2020, a 19% decrease from

$2,083,667 for the same period of fiscal 2020.

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

oil and gas production volumes and an increase in gas prices.

Volume (bbls)

Average Price (per bbl)

Average Price (per mcf)

and exploration.

Production costs were $624,741 for the nine months ended December 31, 2020, an 11% decrease from $698,358

for the nine months ended December 31, 2019.

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

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

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

Depreciation,

depletion and amortization.

Depreciation, depletion and amortization expense was $697,698 for the nine months ended December

31, 2020, an 8% increase from $648,729 for the nine months ended December 31, 2019, primarily due to an increase in oil and gas

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

and administrative expenses.

General and administrative expenses were $634,526 for the nine months ended December 31, 2020,

a 21% decrease from $805,701 for the nine months ended December 31, 2019.

This was primarily due to a decrease in salaries, engineering

fees and accounting fees.

Interest expense was $39,174 for the nine months ended December 31, 2020, a 56% increase from $25,054 for the nine

months ended December 31, 2019 due to an increase in borrowings partially offset by an decrease in interest rates.

loan forgiveness.

PPP loan forgiveness in the amount of $68,957 for the three months ended December 31, 2020 was for the forgiveness

of our PPP loan in the amount of $68,574 and $383 in accrued interest expense.

The Company received the proceeds for this loan

in May 2020 and applied for and received loan forgiveness in November 2020.

There was no income tax for the nine months ended December 31, 2020 and for the nine months ended December 31, 2019.

The effective tax rate for the nine months ended December 31, 2020 and December 31, 2019 was 0%.

We are in a net deferred tax

asset position and believe it is more likely than not that these deferred tax assets will not be realized.

July 2021, the Company made payments totaling $ 250,000 on the credit facility leaving a balance of $ 550,000 .

July 2021, stock options covering 10,500 shares were exercised with a total intrinsic value of $ 36,433 .

The Company received proceeds

of $ 73,500 from these exercises.

to approval from the Compensation Committee of the Board of Directors, the Company granted options covering 31,000 shares of stock at

a strike price of $ 8.51 effective July 26, 2021.

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

events must be reported and has determined that there are no other subsequent events to be disclosed.

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

What changed 10-Q

Item 1. Financial Statements