What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-05 compared with 2021-08-11 · 129 added, 91 removed, 100 unchanged (69% of the section changed)

24 unchanged sentences

that is currently available and is subject to change.

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

All forward-looking statements in this Form 10-Q are qualified in their entirety

by the cautionary statement contained in this section.

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We have pledged our producing oil and gas properties to secure our credit facility.

do not have any delivery commitments to provide a fixed and determinable quantity of our 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.

do not have any delivery commitments to provide a fixed and determinable quantity of its oil and gas under any existing contract or agreement.

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 royalty and working

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

June 30, 2021, we had working capital of $626,850 compared to working capital of $618,960 at March 31, 2021, an increase of $7,890 for

the reasons set forth below.

We focus our efforts on the acquisition of royalties and

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

September 30, 2021, we had working capital of $744,882 compared to working capital of $618,960 at March 31, 2021, an increase of $125,922

for the reasons set forth below.

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

For the Three Months Ended

For the Six Months Ended September 30,

Net cash provided by operating activities

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account balances.

Cash flow provided by our operating activities for the three months ended June 30, 2021 was $666,054 in comparison

to $66,472 for the three months ended June 30, 2020.

This increase of $599,582 in our cash flow operating activities consisted of an

increase in our non-cash expenses of $40,496;

Cash flow provided by our operating activities for the six months ended September 30, 2021 was $1,584,816 in comparison

to $164,237 for the six months ended September 30, 2020.

This increase of $1,420,579 in our cash flow operating activities consisted

of an increase in our non-cash expenses of $92,505;

an increase in our accounts receivable of $102,786;

and, an increase in our net income

for the current quarter of $694,676 compared to a net loss the same quarter of the prior year.

Variations in cash flow from operating

activities may impact our level of exploration and development expenditures.

expenditures in operating activities consist primarily of drilling expenses, production expenses and engineering services.

also consist of employee compensation, accounting, insurance and other general and administrative expenses that we have incurred in order

to address normal and necessary business activities of a public company in the crude oil and natural gas production industry.

for the current six months of $1,445,474 compared to a net loss the same six month period of the prior year.

Variations in cash flow

from operating activities may impact our level of exploration and development expenditures.

expenditures in operating activities consist primarily of non-operated lease expenses and production expenses.

Our expenses also consist

of employee compensation, accounting, insurance and other general and administrative expenses that we have incurred in order to address

normal and necessary business activities of a public company in the crude oil and natural gas production industry.

Flow Used in Investing Activities.

Cash flow from investing activities is derived from changes in oil and gas property balances.

For the three months ended June 30, 2021, we had net cash of $297,113 used for additions to oil and gas properties compared to $251,890

for the three months ended June 30, 2020.

For the six months ended September 30, 2021, we had net cash of $554,787 used for additions to oil and gas properties compared to $593,949

for the six months ended September 30, 2020.

Flow Provided by Financing Activities.

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account balances.

Cash flow used in our financing activities was $346,000 for the three months ended June 30, 2021 compared to cash flow

provided by our financing activities of $203,574 for the three months ended June 30, 2020.

During the three months ended June 30, 2021

Cash flow used in our financing activities was $994,268 for the six months ended September 30, 2021 compared to cash

flow provided by our financing activities of $458,009 for the six months ended September 30, 2020.

During the six months ended September

30, 2021 and 2020, we received advances of $275,000 and $605,000, respectively, from our credit facility.

During the three months ended June 30,

2021 and 2020, we made payments of $480,000 and $100,000, respectively, on the credit facility.

For the three months ended June 30, 2021,

we received proceeds of $34,000 for the exercise of director stock options.

For the three months ended June 30, 2020, we received $68,574

under the paycheck protection program (PPP).

net cash increased $22,941, leaving cash and cash equivalents on hand of $80,754 as of June 30, 2021.

During the six months ended

September 30, 2021 and 2020, we made payments of $1,455,000 and $225,000, respectively, on the credit facility.

For the six months ended

September 30, 2021 and 2020, we received proceeds of $185,732 and $9,435, respectively, from the exercise of employee and director stock

For the six months ended September 30, 2020, we received $68,574 under the paycheck protection program (PPP).

net cash increased $35,761, leaving cash and cash equivalents on hand of $93,574 as of September 30, 2021.

and Natural Gas Property Development

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All of these horizontal wells are

in the Delaware Basin located in the western portion of the Permian Basin in Lea and Eddy Counties, New Mexico.

in the Delaware Basin located in the western portion of the Permian Basin in Lea and Eddy Counties, New Mexico and Reeves County, Texas.

the six months ended September 30, 2021, Mexco expended approximately $180,000 to participate in the drilling and completion of four

horizontal wells in the Lower Wolfcamp Shale of the Delaware Basin in Eddy County, New Mexico.

Mexco’s working interest in these

wells is .44%.

during the six months ended September 30, 2021, Mexco expended $31,500 for its share to participate in the drilling and completion 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.

These wells were completed in August 2021 with initial average production rates of 1,294 barrels of

oil, 3,345 barrels of water and 3,124,000 cubic feet of gas per day, or, 1,815 barrels of oil equivalent per day.

Mexco’s working

interest in these wells is .1%.

September 2021, Mexco expended approximately $43,000 to participate in the drilling of three horizontal wells in the 2 nd Bone

Spring formation and two horizontal wells in the 3 rd Bone Spring formation of the Delaware Basin located in the western portion

of the Permian Basin in Lea County, New Mexico.

Mexco’s working interest in these wells is an average of approximately .22%.

August 2021, Mexco expended approximately $28,000 to participate in the drilling of two horizontal wells in the Wolfcamp 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

these wells is .37%.

Subsequently, in October 2021, Mexco expended approximately $42,000 for the completion of these wells.

August 2021, Mexco expended approximately $52,000 to participate in the drilling of two horizontal wells in the Bone Spring formation

of the Delaware Basin located in the western portion of the Permian Basin in Reeves County, Texas.

Mexco working interest in these wells

is approximately .6%.

These wells have been drilled and are planned to be completed in November 2021.

May 2021, Mexco expended approximately $28,000 to participate in the drilling of two horizontal wells in the Wolfcamp Sand formation

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these wells is .37%.

May 2021, Mexco expended approximately $70,000 to participate in the drilling of four horizontal wells in the Lower Wolfcamp Shale of

the Delaware Basin in Eddy County, New Mexico.

Mexco’s working interest in these wells is .44%.

April 2021, Mexco expended $11,400 for its share to participate in the drilling and completion 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 these wells is .1%.

Subsequently, in July 2021, the Company expended $20,100 to complete these wells.

Subsequently, in October 2021, Mexco expended approximately $42,000 for the completion of these wells.

during the quarter ended June 30, 2021, Mexco participated in the drilling and completion of two horizontal wells in the Wolfcamp formation

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

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

The volatility of the energy markets makes it extremely

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

For example, in the last twelve months, the NYMEX

West Texas Intermediate (“WTI”) posted price for crude oil has ranged from a low of $31.75 per bbl in October 2020 to a high

of $70.03 per bbl in June 2021.

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 $23.86 per MMBtu in February 2021.

June 30, 2021, the WTI posted price for crude oil was $69.45 and the Henry Hub spot price for natural gas was $3.79 per MMBtu.

of Operations below for realized prices.

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

The volatility of the energy markets makes it extremely difficult

to predict future oil and natural gas price movements with any certainty.

For example, in the last twelve months, the NYMEX West Texas

Intermediate (“WTI”) posted price for crude oil has ranged from a low of $31.75 per bbl in October 2020 to a high of $71.43

per bbl in September 2021.

The Henry Hub Spot Market Price (“Henry Hub”) for natural gas has ranged from a low of $1.41 per

MMBtu in October 2020 to a high of $23.86 per MMBtu in February 2021.

September 30, 2021, the WTI posted price for crude oil as $71.01 and the Henry Hub spot price for natural gas was $5.58 per MMBtu.

Results of Operations below for realized prices.

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

following table summarizes our future payments we are obligated to make based on agreements in place as of June 30, 2021:

following table summarizes our future payments we are obligated to make based on agreements in place as of September 30, 2021:

Payments due in:

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Contractual obligations:

Secured bank line of credit (1)

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 $30,000 less than 1 year and $22,500 1-3 years.

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

Texas under a 38 month lease agreement effective May 15, 2018 and extended another 36 months

to July 31, 2024.

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

will pay $15,623 less than 1 year and $32,442 1-3 years for his portion of the shared office

of Operations – Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020.

For the quarter ended June 30,

2021, net income was $395,006 compared to a net loss of $299,670 for the quarter ended June 30, 2020.

This was primarily the result of

an increase in operating revenues due to an increase in oil and gas prices and an increase in oil and gas production partially offset

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

lease amount represents the monthly rent amount for our principal office space in Midland, Texas under a 38 month lease agreement

effective May 15, 2018 and extended another 36 months to July 31, 2024.

Of this total obligation for the remainder of the lease,

our majority shareholder will pay $13,481 less than 1 year and $30,640 1-3 years for his portion of the shared office space.

of Operations – Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020.

There was net income

of $708,828 for the quarter ended September 30, 2021 compared to a net loss of $41,970 for the quarter ended September 30, 2020.

was a result of an increase in oil and gas prices and an increase in oil and gas production partially offset by an increase in operating

expenses that is further explained below.

and gas sales.

Revenue from oil and gas sales was $1,255,565 for the quarter ended June 30, 2021, a 245% increase from $364,179 for

the quarter ended June 30, 2020.

This primarily resulted from an increase in oil and gas prices and an increase in oil and gas production.

The following table sets forth our oil and natural gas revenues, production quantities and average prices received during the three months

ended June 30:

Revenue from oil and gas sales was $1,541,171 for the second quarter of fiscal 2022, a 145% increase from $629,964

for the same period of fiscal 2021.

This resulted from an increase in oil and gas prices as well as an increase in oil and gas production.

Volume (bbls)

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and exploration.

Production costs were $276,987 for the three months ended June 30, 2021, a 61% increase from $171,666 for the three

months ended June 30, 2020.

This increase is primarily the result of an increase in production taxes as a result of the increase in oil

and gas revenues and an increase in lease operating expenses over last year due to numerous wells being shut-in during the month of May

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

Production costs were $335,588 for the second quarter of fiscal 2022, a 55% increase from $217,117 for the same

period of fiscal 2021.

This is primarily the result of an increase in production taxes and marketing charges as a result of the increase

in oil and gas revenues.

Depreciation,

depletion and amortization.

Depreciation, depletion and amortization (“DD&A”) expense was $264,320 for the first

quarter of fiscal 2022, an 18% increase from $224,105 for the first quarter of fiscal 2021, 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.

Depreciation, depletion and amortization expense was $280,060 for the second quarter of fiscal 2022,

a 19% increase from $236,134 for the same period of fiscal 2021, 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 $308,167 for the three months ended June 30, 2021, a 24% increase

from $248,878 for the three months ended June 30, 2020.

This was primarily due to an increase in accounting fees, bonuses and director’s

fees which were significantly reduced last year due to the pandemic.

Interest expense was $12,719 for the first quarter of fiscal 2022, an increase of 15% from $11,055 for the first quarter

of fiscal 2021 due to an increase in borrowings.

There was no income tax expense for the three months ended June 30, 2021 and 2020.

The effective tax rate for the three months

ended June 30, 2021 and 2020 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.

General and administrative expenses were $214,242 for the second quarter of fiscal 2022, an 11% increase

from $192,360 for the same period of fiscal 2021.

This was primarily due to an increase in office and rent expenses and employee stock

option compensation expense.

Interest expense was $7,530 for the second quarter of fiscal 2022, a 44% decrease from $13,515 for the same period of fiscal

2021, due to a decrease in borrowings.

There was no income tax expense for the three months ended September 30, 2021 and for the three months ended September 30,

The effective tax rate for the three months ended September 30, 2021 and September 30, 2020 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 – Six Months Ended September 30, 2021 Compared to Six Months Ended September 30, 2020.

For the six months ended

September 30, 2021, there was net income of $1,103,834 compared to a net loss of $341,640 for the six months ended September 30, 2020.

This was a result of an increase in operating revenues partially offset by an increase in operating expenses that is further explained

and gas sales.

Revenue from oil and gas sales was $2,796,736 for the six months ended September 30, 2021, a 181% increase from $994,143

for the same period of fiscal 2021.

This resulted from an increase in oil and gas prices as well as an increase in oil and gas production.

Volume (bbls)

Average Price (per bbl)

Average Price (per mcf)

and exploration.

Production costs were $612,575 for the six months ended September 30, 2021, a 58% increase from $388,783 for the

six months ended September 30, 2020.

This increase is primarily the result of an increase in production taxes as a result of the increase

in oil and gas revenues and an increase in lease operating expenses over last year due to numerous wells being shut-in during the month

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

Depreciation,

depletion and amortization.

Depreciation, depletion and amortization expense was $544,380 for the six months ended September 30,

2021, an 18% increase from $460,239 for the six months ended September 30, 2020, primarily due to an increase in oil and gas production

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

and administrative expenses.

General and administrative expenses were $522,409 for the six months ended September 30, 2021, an 18%

increase from $441,238 for the six months ended September 30, 2020.

This was primarily due to an increase in bonuses and director’s

fees which were significantly reduced last year due to the pandemic and an increase in accounting fees.

Interest expense was $20,249 for the six months ended September 30, 2021, an 18% decrease from $24,570 for the same period

fiscal 2021 due to a decrease in borrowings.

There was no income tax expense for the six months ended September 30, 2021 and for the six months ended September 30, 2020.

The effective tax rate for the six months ended September 30, 2021 and September 30, 2020 was 0%.

We are in a net deferred tax asset

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis