What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-02-07 compared with 2024-11-07 · 170 added, 109 removed, 120 unchanged (70% of the section changed)

24 unchanged sentences

that is currently available and is subject to change.

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

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 consolidated financial statements and notes thereto included

in the Form 10-K.

It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the

and Capital Resources.

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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.

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

September 30, 2024, we had working capital of $1,974,033 compared to working capital of $3,259,200 at March 31, 2024, a decrease of $1,285,167 for the

reasons set forth below.

We focus our efforts on the acquisition of royalties and

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

December 31, 2024, we had working capital of $1,469,195 compared to working capital of $3,259,200 at March 31, 2024, a decrease of $1,790,005

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:

the Six Months Ended September 30,

Net cash provided by operating

For the Nine Months Ended

Net cash provided by operating activities

Net cash used in investing activities

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account balances.

Cash flow provided by our operating activities for the six months ended September 30, 2024 was $2,006,405 in comparison

to $2,430,364 for the six months ended September 30, 2023.

Cash flow provided by our operating activities for the nine months ended December 31, 2024 was $2,941,115 in comparison

to $3,374,717 for the nine months ended December 31, 2023.

This decrease of $433,602 in our cash flow operating activities consisted

of an increase in our non-cash expenses of $216,282;

a decrease in our accounts receivable of $483,411;

a decrease of $20,176 in our

accounts payable and accrued expenses;

and, a decrease in our net income of $126,810.

of an increase in our accounts receivable of $529,751;

an increase of $106,391 of our accounts payable and accrued expenses and income

and, a decrease in our net income for the current nine months of $3,287.

Variations in cash flow from operating activities

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

For the six months ended September 30, 2024, we had net cash of $2,066,957 used for additions to oil and gas properties compared to $1,544,299

for the six months ended September 30, 2023.

For the nine months ended December 31, 2024, we had net cash of $3,670,019 used for additions to oil and gas properties compared to $1,365,030

for the nine months ended December 31, 2023.

Flow Provided by Financing Activities.

1 unchanged sentence

account balances.

Net cash flow used in our financing activities was $834,575 for the six months ended September 30, 2024 compared to

cash flow provided by our financing activities of $536,644 for the six months ended September 30, 2023.

During the six months ended September

30, 2024, we expended $209,000 to pay the special dividend and $703,216 to purchase 57,766 shares of our stock for the treasury account

and received $77,641 from the exercise of stock options.

net cash decreased $895,127, leaving cash and cash equivalents on hand of $1,578,357 as of September 30, 2024.

Net cash flow used in our financing activities was $834,575 for the nine months ended December 31, 2024 compared to

cash flow used in our financing activities of $666,520 for the nine months ended December 31, 2023.

During the nine months ended December

31, 2024, we expended $209,000 to pay the regular annual dividend and $703,216 to purchase 57,766 shares of our stock for the treasury

account and received $77,641 from the exercise of stock options.

net cash decreased $1,563,479, leaving cash and cash equivalents on hand of $910,005 as of December 31, 2024.

and Natural Gas Property Development

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an estimated cost of approximately $1,500,000 for the fiscal year ending March 31, 2025.

Twenty-six of these wells are in the Delaware

Twenty-five of these wells are in the Delaware

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

The remaining 4 wells are in Reagan County,

April 2024, Mexco expended approximately $80,000 to participate in the drilling of five horizontal wells in the Bone Spring formation

of the Delaware Basin in Lea County, New Mexico.

Subsequently, in October 2024, the Company expended approximately $127,000 to complete

the first six months of fiscal 2025, Mexco expended approximately $293,000 to drill and complete four horizontal wells in the Wolfcamp

The remaining 3 wells are in Grady County,

the first nine months of fiscal 2025, Mexco expended approximately $207,000 to participate in the drilling of five horizontal wells in

the Bone Spring formation of the Delaware Basin in Lea County, New Mexico.

In November 2024, these wells were completed with initial

average production rates of 1,106 barrels of oil, 2,583 barrels of water and 1,165,000 cubic feet of gas per day, or 1,300 BOE per day.

the first nine months of fiscal 2025, Mexco expended approximately $293,000 to drill and complete four horizontal wells in the Wolfcamp

Sand formation of the Delaware Basin in Lea County, New Mexico.

In November 2024, these wells were completed with initial average production

rates of 1,089 barrels of oil, 4,716 barrels of water and 3,601,000 cubic feet of gas per day, or 1,689 BOE per day.

October 2024, the Company expended approximately $74,000 for the drilling of two horizontal wells in the Bone Spring Sand formation of

the Delaware Basin in Lea County, New Mexico.

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

Subsequently, in January 2025, the

Company expended approximately $43,000 to complete these wells.

November 2024, the Company expended approximately $78,000 for the drilling of two horizontal wells in the Penn Shale formation of the

Delaware Basin in Lea County, New Mexico.

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

October 2022, the Company made an approximately 2% equity investment commitment in a limited liability company amounting to $2,000,000

of which $1,200,000 has been funded as of September 30, 2024.

of which $1,600,000 has been funded as of December 31, 2024.

The limited liability company is capitalized at approximately $100 million

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wells is .45%.

Subsequently, in October 2024, these wells were completed with initial average production rates of 893 barrels of oil,

2,990 barrels of water and 1,161,000 cubic feet of gas per day, or 1,087 BOE per day.

In October 2024, these wells were completed with initial average production rates of 893 barrels of oil, 2,990 barrels

of water and 1,161,000 cubic feet of gas per day, or 1,087 BOE per day.

Acquisitions.

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for a purchase price of $50,000.

royalty interests in 15 producing wells operated by Anadarko Petroleum Corporation and located in Weld

This acquisition was effective August 1, 2024.

August 2024, the Company acquired royalty interests in 15 producing wells operated by Anadarko Petroleum Corporation and located in Weld

County, Colorado for a purchase price of $118,000;

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in Karnes County, Texas for a purchase price of $90,000 and effective August 1, 2024.

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.

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 $61.73 per bbl in September 2024 to a

high of $86.77 per bbl in October 2023.

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

of $1.25 per MMBtu in March 2024 to a high of $3.34 per MMBtu in October 2023.

September 30, 2024, the WTI posted price for crude oil was $64.15 and the Henry Hub spot price for natural gas was $2.65 per MMBtu.

October 2024, the Company acquired a .3% royalty interest in 15 producing wells operated by Civitas Resources, Inc.

and located in Broomfield

and Adams Counties, Colorado for a purchase price of $450,000.

This acquisition was effective November 1, 2024.

October 2024, the Company acquired a .5% royalty interest in 3 producing wells operated by Mewbourne Oil Company and located in Eddy

County, New Mexico for a purchase price of $260,000.

This acquisition was effective November 1, 2024 and includes acreage for further

October 2024, the Company acquired royalty interests in 8 producing wells operated by Marathon Oil and located in Live Oak County, Texas

for a purchase price of $20,000;

royalty interests in 6 producing wells operated by SWN Production Company, LLC and located in DeSoto

Parish, Louisiana for a purchase price of $25,000;

royalty interests in 10 producing wells operated by Ovintiv, Inc.

and located in Upton

County, Texas for a purchase price of $65,000;

and, royalty interests in 12 producing wells operated by Pioneer Natural Resources and

located in Reagan and Upton Counties, Texas for a purchase price of $65,000.

All of these acquisitions were effective November 1, 2024.

in October 2024 and effective November 1, 2024, the Company acquired various small royalty interests in over 300 producing wells operated

by Petro-Hunt Corporation, Hess Bakken Investments II, LLC, Marathon Oil, WPX Energy and others in multiple counties throughout the states

of Nebraska, North Dakota, South Dakota and Montana for a purchase price of $185,000.

We 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.

of Properties.

In November 2024, the Company conveyed its working and royalty interests in 13.5 net acres in Ward County, Texas.

The Company received $15,000 per acre in the total amount of $202,500.

The Company retained an overriding royalty interest equal to the

positive difference between 25% and any existing burdens of record as of the effective date.

The divestitures of this non-core oil and

gas asset did not result in a significant alteration of the relationship between the Company’s capitalized costs and proved reserves

and, accordingly, the Company recorded the proceeds as sales proceeds, a reduction of its full cost pool, with no gain or loss recognized

Crude 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 $61.73 per bbl in September

2024 to a high of $82.89 per bbl in April 2024.

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

from a low of $1.21 per MMBtu in November 2024 to a high of $3.40 per MMBtu in December 2024.

December 31, 2024, the WTI posted price for crude oil was $67.70 and the Henry Hub spot price for natural gas was $3.40 per MMBtu.

Results of Operations below for realized prices.

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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 September 30, 2024:

following table summarizes our future payments we are obligated to make based on agreements in place as of December 31, 2024:

Payments due in:

less than 1 year

Contractual obligations:

The lease amount represents

the monthly rent amount for our principal office space in Midland, Texas under a 36-month lease agreement expiring July 31, 2027.

this total obligation for the remainder of the lease, our majority shareholder will pay $10,175 less than 1 year and $18,354 1-3 years

for his portion of the shared office space.

of Operations – Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023.

There was net income

of $317,198 for the quarter ended September 30, 2024 compared to net income of $269,433 for the quarter ended September 30, 2023.

was a result of an increase in oil and gas revenues partially offset by an increase in operating expense that is further explained below.

lease amount represents the monthly rent amount for our principal office space in Midland, Texas under a 36-month lease agreement

expiring July 31, 2027.

Of this total obligation for the remainder of the lease, our majority shareholder will pay $10,175 less than

1 year and $16,110 1-3 years for his portion of the shared office space.

of Operations – Three Months Ended December 31, 2024 and 2023.

For the quarter ended December 31, 2024, there was net income

of $469,133 compared to $345,610 for the quarter ended December 31, 2023 as a result of an increase in operating revenues due to a increase

in oil and gas production volumes partially offset by a decrease in oil and gas prices and an increase in operating expenses that is

further explained below.

and gas sales .

Revenue from oil and gas sales was $1,695,853 for the second quarter of fiscal 2025, a 23% increase from $1,380,710

Revenue from oil and gas sales was $1,828,404 for the third quarter of fiscal 2025, a 14% increase from $1,610,595

for the same period of fiscal 2024.

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

The decrease in the natural gas price was, in part, due to temporary pipeline constraints on certain properties and at certain times,

prices were negative.

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

during the three months ended September 30:

This resulted from an increase in oil and natural gas production volumes partially offset by a decrease

in oil and natural gas prices.

Natural gas prices have been negatively impacted by limited pipeline capacity in the Permian

Volume (bbls)

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Average Price (per mcf)

operating revenues.

Other revenues increased to $62,861 for the three months ended December 31, 2024, from $45,848 for the three

months ended December 31, 2023.

This increase resulted from a settlement in a class action lawsuit from Contango Resources and an increase

in income from one of our limited liability company investments.

Interest income on corporate funds decreased to $7,315 for the three months ended December 31, 2024, from $36,936 for the

three months ended December 31, 2023.

This decrease resulted from using the corporate funds for property acquisitions.

and exploration.

Production costs were $413,405 for the second quarter of fiscal 2025, a 5% increase from $392,674 for the same period

of fiscal 2024.

This is the result of an increase in production taxes and marketing charges as a result of the increase in oil revenues and an increase in lease operating expense on new wells in which we own a working interest.

Production costs were $460,241 for the third quarter of fiscal 2025, a 15% increase from $401,035 for the same

period of fiscal 2024.

This is the result of an increase in production taxes due to an increase in oil revenues and an increase in

marketing and other charges due to the current natural gas pricing environment from limited pipeline takeaway capacity in the

Permian and an increase in lease operating expenses on new wells in which we own an interest.

Depreciation,

depletion and amortization.

Depreciation, depletion and amortization expense was $584,288 for the second quarter of fiscal 2025,

a 53% increase from $382,180 for the same period of fiscal 2024, primarily due to a an increase in the full cost pool amortization base,

an increase in oil and gas production and a decrease in gas reserves partially offset by an increase in oil reserves.

Depreciation, depletion and amortization expense was $636,424 for the third quarter of fiscal 2025, a

59% increase from $400,337 for the same period of fiscal 2024, primarily due to an increase in the full cost amortization base, an increase

in oil and gas production and a decrease in gas reserves partially offset by a increase in oil reserves.

and administrative expenses.

General and administrative expenses were $334,525 for the second quarter of fiscal 2025, a 9%

increase from $305,543 for the same period of fiscal 2024.

This was primarily due to an increase in accounting fees and contract

Federal income tax for the three months ended September 30, 2024 was $84,833.

Federal income tax for the three months ended

September 30, 2023 was $61,179.

State income tax was $26,920 for the three months ended September 30, 2024, a 102% increase from $13,346

for the three months ended September 30, 2023 due to the increase in oil and natural gas sales in the State of New Mexico and the acquired

properties in the State of Colorado.

The effective tax rate for the three months ended September 30, 2024 and 2023 was 26% and 22%, respectively.

of Operations – Six Months Ended September 30, 2024 Compared to Six Months Ended September 30, 2023.

For the six months ended

September 30, 2024, there was net income of $608,237 compared to net income of $735,047 for the six months ended September 30, 2023.

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

General and administrative expenses were $340,514 for the third quarter of fiscal 2025, a 2% increase

from $335,152 for the same period of fiscal 2024.

This was primarily due to an increase in contract services.

Income taxes.

There was an income

tax benefit of $18,305 for the three months ended December 31, 2024 compared to an expense of $202,945 for the three months ended December

31, 2023, primarily due to a decrease in state income taxes and a decrease in the deferred tax provision.

The effective tax rate for

state and federal taxes combined for the three months ended December 31, 2024 and 2023 was (4%) and 37%, respectively.

The decrease in

the effective tax rate is primarily the result of state income taxes net of federal benefit, primarily in New Mexico, and the impact

of permanent differences between book and taxable income.

of Operations – Nine Months Ended December 31, 2024 and 2023.

For the nine months ended December 31, 2024, there was a net

income of $1,077,370 compared to net income of $1,080,657 for the nine months ended December 31, 2023.

This was a result of an increase

in operating revenues due to an increase in oil and gas production volumes partially offset by a decrease in oil and gas prices and an

increase in operating expenses that is further explained below.

and gas sales .

Revenue from oil and gas sales was $3,383,909 for the six months ended September 30, 2024, a 9% increase from $3,095,800

Revenue from oil and gas sales was $5,212,313 for the nine months ended December 31, 2024, an 11% increase from $4,706,395

for the same period of fiscal 2024.

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

offset by a decrease gas prices.

The decrease in the natural gas price was, in part, due to temporary pipeline constraints on certain

properties and at certain times, prices were negative.

The following table sets forth our oil and natural gas revenues, production quantities

and average prices received during the six months ended September 30:

This resulted from a increase in oil and natural gas production partially offset by a decrease in

oil and natural gas prices.

Natural gas prices have been negatively impacted by pipeline capacity in the Permian Basin.

Volume (bbls)

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Average Price (per mcf)

operating revenues.

Other revenues increased to $156,014 for the nine months ended December 31, 2024, from $105,077 for the nine

months ended December 31, 2023.

This increase resulted from a settlement in a class action lawsuit from Contango Resources and an increase

in income from one of our limited liability company investments.

Interest income on corporate funds decreased to $50,891 for the nine months ended December 31, 2024, from $86,995 for the

nine months ended December 31, 2023.

This decrease resulted from using the corporate funds for property acquisitions and purchase of

treasury stock.

and exploration.

Production costs were $850,825 for the six months ended September 30, 2024, a 15% increase from $742,081 for the

six months ended September 30, 2023.

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

in oil and gas revenues and an increase in lease operating expense on new wells in which we own an interest.

Production costs were $1,311,066 for the nine months ended December 31, 2024, a 15% increase from $1,143,116

for the nine months ended December 31, 2023.

This is the result of an increase in production taxes due to an increase in oil

revenues and an increase in marketing and other charges due to the current natural gas pricing environment from limited pipeline

takeaway capacity in the Permian and an increase in lease operating expenses on new wells in which we own an interest.

Depreciation,

depletion and amortization.

Depreciation, depletion and amortization expense was $1,123,985 for the six months ended September 30,

2024, a 29% increase from $868,366 for the six months ended September 30, 2023, primarily due to an increase in the full cost pool amortization

base, an increase in oil and gas production, decrease in gas reserves partially offset by an increase in oil reserves.

Depreciation, depletion and amortization expense was $1,760,409 for the nine months ended December 31,

2024, a 39% increase from $1,268,703 for the nine months ended December 31, 2023, primarily due to an increase in the full cost amortization

base, an increase in oil and gas production and a decrease in gas reserves partially offset by an increase in oil reserves.

and administrative expenses.

General and administrative expenses were $701,570 for the six months ended September 30, 2024, a 9%

increase from $646,512 for the six months ended September 30, 2023.

This was primarily due to an increase in accounting fess

and contract and engineering services.

Federal income tax for the six months ended September 30, 2024 was $171,353.

Federal income tax for the six months ended September

30, 2023 was $149,862.

State income tax was $46,986 for the six months ended September 30, 2024, a 2% increase from $46,164 for the six

months ended September 30, 2023 due to the increase in oil and natural gas sales in the states that have state income tax.

The effective

tax rate for the six months ended September 30, 2024 and 2023 was 26% and 21%, respectively.

General and administrative expenses were $1,042,084 for the nine months ended December 31, 2024, a 6%

increase from $981,664 for the nine months ended December 31, 2023.

This was primarily due to an increase in contract and engineering

services partially offset by a decrease in salaries and stock option compensation.

Income taxes.

Income taxes for

the nine months ended December 31, 2024 was $200,034 compared to $398,971 for the nine months ended December 31, 2023, primarily due

a decrease in state income taxes and a decrease in the deferred tax provision.

The effective tax rate for state and federal taxes combined

for the nine months ended December 31, 2024 and 2023 was 16% and 27%, respectively.

The decrease in the effective tax rate is primarily

the result of state income taxes net of federal benefit, primarily in New Mexico, and the impact of permanent differences between book

and taxable income.

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