What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-11-12 compared with 2025-08-12 · 170 added, 107 removed, 81 unchanged (77% of the section changed)

25 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 focus our efforts on the acquisition of royalty and working

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

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

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

Net cash provided by operating activities

For the Six Months Ended

September 30,

Net cash provided by operating

Net cash used in investing activities

$ (2,066,957 )

$ (1,196,745 )

Net cash used in financing activities

3 unchanged sentences

account balances.

Cash flow provided by our operating activities for the three months ended June 30, 2025 was $1,363,277 in comparison

to $1,078,614 for the three months ended June 30, 2024.

This increase of $284,663 in our cash flow from operating activities consisted

of an increase in our non-cash expenses of $21,304;

a decrease in our accounts receivable of $211,775;

a increase of $92,998 in our payables

and accrued expenses;

and, a decrease in our net income for the current quarter of $49,088.

Variations in cash flow from operating activities

may impact our level of exploration and development expenditures.

Cash flow provided by our operating activities for the six months ended September 30, 2025 was $2,067,549 in comparison

to $2,006,405 for the six months ended September 30, 2024.

This increase of $61,144 in our cash flow operating activities consisted of

an decrease in our non-cash expenses of $38,080;

an increase in our accounts receivable of $167,957;

a decrease of $26,351 in our accounts

payable and accrued expenses;

and, a decrease in our net income of $42,780.

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.

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

For the three months ended June 30, 2025, we had net cash of $365,910 used for additions to oil and gas properties compared to $517,387

and a $200,000 investment in a limited liability company for the three months ended June 30, 2024.

For the six months ended September 30, 2025, we had net cash of $870,212 used for additions to oil and gas properties compared to $2,066,957

for the six months ended September 30, 2024.

Flow Used in Financing Activities.

Cash flow from financing activities is derived from our changes in long-term debt and in

equity account balances.

Net cash flow used in our financing activities was $204,600 for the three months ended June 30, 2025

compared to cash flow used in our financing activities of $319,996 for the three months ended June 30, 2024.

During the three

months ended June 30, 2025, we expended $204,600 to pay the regular annual dividend.

During the three months ended June 30, 2024, we

expended $209,000 to pay the regular annual dividend, expended $188,637 to purchase 13,766 shares of our stock for the treasury

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

net cash increased $792,767, leaving cash and cash equivalents on hand of $2,546,722 as of June 30, 2025.

June 30, 2025, we had working capital of $2,922,683 compared to working capital of $2,469,664 at March 31, 2025, an increase of $453,019

Cash flow from financing activities is derived from our changes in long-term debt and in equity

account balances.

Net cash flow used in our financing activities was $204,600 for the six months ended September 30, 2025 compared to

$834,575 for the six months ended September 30, 2024.

During the six months ended September 30, 2025, we expended $204,600 to pay the

regular annual dividend.

During the six months ended September 30, 2024, we expended $703,216 to purchase 57,766 shares of stock for the treasury account, $209,000

to pay the special dividend and received $77,641 from the exercise of stock options.

net cash increased $992,737, leaving cash and cash equivalents on hand of $2,746,692 as of September 30, 2025.

September 30, 2025, we had working capital of $3,282,347 compared to working capital of $2,469,664 at March 31, 2025, an increase of

$812,683 for the reasons set forth below.

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Participations in Fiscal 2026.

The Company currently plans to participate in the drilling and completion of 35 horizontal wells at

an estimated cost of approximately $1,100,000 for the fiscal year ending March 31, 2026.

Thirty-four 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 well is in Reagan County,

June 2025, Mexco expended approximately $116,000 to participate in the drilling of five horizontal wells in the Bone Spring formation

of the Delaware Basin in Eddy County, New Mexico.

The Company currently plans to participate in the drilling and completion of forty-six horizontal

wells and one vertical well at an estimated cost of approximately $1,000,000 for the fiscal year ending March 31, 2026.

Forty-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

wells are in Reagan and Ward Counties, Texas.

expended approximately $166,000 to participate in the drilling of five horizontal wells in the Bone Spring formation of the Delaware

Basin in Eddy County, New Mexico.

Subsequently, in October 2025, two of these wells were completed with initial average production

rates of 1,194 barrels of oil, 2,924 barrels of water, and 1,819,000 cubic feet of gas per day, or 1,497 BOE per day.

working interest in these wells is .5%.

expended approximately $79,000 to drill and complete two horizontal wells in the Bone Spring formation of the Delaware Basin in Lea County,

In August 2025, these wells were completed with initial average production rates of 741 barrels of oil, 3,276 barrels of

water, and 1,110,000 cubic feet of gas per day, or 926 BOE per day.

Mexco’s working interest in these wells is .3%.

June 2025, Mexco expended approximately $79,000 to drill and complete three horizontal wells in the Bone Spring formation of the Delaware

Basin in Lea County, New Mexico.

Subsequently, in August 2025, these wells were completed with initial average production rates of 741

barrels of oil, 3,276 barrels of water, and 1,110 cubic feet of gas per day, or 926 BOE per day.

Mexco’s working interest in these

wells is .3%.

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

of which $1,800,000 has been funded as of June 30, 2025.

The limited liability company is capitalized at approximately $100 million to

purchase mineral interests in the Utica and Marcellus areas in the state of Ohio.

Subsequently, in July 2025, the Company funded the

remaining $200,000 toward this investment.

To date, this LLC has returned $303,164 or 15% of the total investment.

September 2025, Mexco expended approximately $70,000 to participate in the drilling of three horizontal wells in the Wolfcamp Sand Formation

of the Delaware Basin in Lea County, New Mexico.

Mexco’s working interest in these wells is .52%.

of Wells Drilled in Fiscal 2025.

The Company also expects to expend approximately $150,000 for the completion of 17 horizontal wells

in which the Company participated during fiscal 2025.

The Company also expects to expend approximately $150,000 for the completion of seventeen horizontal

wells in which the Company participated during fiscal 2025.

Company expended approximately $85,000 for the completion costs of six horizontal wells in the Bone Spring Sand formation of the Delaware

Basin in Lea County, New Mexico that the Company participated in drilling during fiscal 2025.

Mexco’s working interest in these

wells is .16%.

In May 2025, these wells were completed

with initial average production rates of 1,375 barrels of oil, 3,499 barrels of water, and 1,934,000 cubic feet of gas per day, or 1,697

Mexco’s working interest in these wells is .16%.

horizontal wells in the Penn Shale formation of the Delaware Basin in Lea County, New Mexico in which the Company participated during

fiscal 2025 were completed in June 2025 with initial average production rates of 676 barrels of oil, 1,899 barrels of water, and 729,000

cubic feet of gas per day, or 798 BOE per day.

fiscal 2025 were completed during the first six months of fiscal 2026 with initial average production rates of 805 barrels of oil, 2,142

barrels of water, and 721,000 cubic feet of gas per day, or 925 BOE per day.

Mexco’s working interest in these wells is approximately

Subsequently,

in July 2025, the Company expended approximately $53,000 for the completion costs of two horizontal wells in the Bone Spring Sand formation

July 2025, the Company expended approximately $53,000 for the completion costs of two horizontal wells in the Bone Spring Sand formation

of the Delaware Basin in Lea County, New Mexico that the Company participated in drilling during fiscal 2025.

Mexco’s working interest

in these wells is .28%.

In September 2025, these

wells were completed with initial average production rates of 955 barrels of oil, 1,340 barrels of water, and 608,000 cubic feet of gas

per day, or 1,056 BOE per day.

Mexco’s working interest in these wells is .28%.

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

which has been fully funded as of September 30, 2025.

The limited liability company is capitalized at approximately $100 million to purchase

mineral interests in the Utica and Marcellus areas in the state of Ohio.

As of September 30, 2025, this LLC has returned $401,801 or

20% of the total investment.

Subsequently, in October 2025, the Company expended $200,000 to exercise its option to participate in a

voluntary optional cash call increasing the capitalized investment.

Acquisitions.

In May 2025, the Company acquired royalty (mineral) interests in 2 wells operated by Chevron USA and located in Pecos County, Texas

for a purchase price of $40,000.

In May 2025, the Company acquired royalty (mineral) interests in 2 wells operated by Chevron USA and located in Pecos County, Texas for

a purchase price of $40,000.

This acquisition was effective April 1, 2025 and includes acreage for future development.

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.

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

August 2025, the Company acquired royalty interests in 12 producing wells operated by Diamondback E & P and located in Martin County,

Texas for a purchase price of $60,000 and royalty interests in 25 wells operated by Chevron USA and located in Weld County, Colorado

for a purchase price of $26,000.

These acquisitions were effective September 1, 2025.

Subsequently,

in October 2025, the Company acquired royalty interests in 3 producing wells operated by Expand Operating and located in Caddo Parish,

Louisiana for a purchase price of $31,000;

royalty interests in 14 producing wells wells operated by Diamondback E & P and located

in Martin County, Texas for a purchase price of $44,000;

royalty interests in 3 producing wells operated by Permian Resources and located

in Eddy County, New Mexico for a purchase price of $7,000;

and, overriding royalty interest in 4 producing wells operated by Tap Rock

Operating and located in Eddy County, New Mexico for a purchase price of $240,000.

All of these acquisitions are effective November 1,

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

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West Texas Intermediate (“WTI”) posted price for crude oil has ranged from a low of $53.11 per bbl in May 2025 to a high

of $79.86 per bbl in July 2024.

of $76.02 per bbl in January 2025.

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

per MMBtu in November 2024 to a high of $9.86 per MMBtu in January 2025.

June 30, 2025, the WTI posted price for crude oil was $61.09 and the Henry Hub spot price for natural gas was $3.26 per MMBtu.

of Operations below for realized prices.

Pipeline capacity constraints and maintenance in the Permian Basin area has contributed to a

wider difference between the WaHa Hub and the Henry Hub and at times prices were negative.

$1.21 per MMBtu in November 2024 to a high of $7.15 per MMBtu in February 2025.

September 30, 2025, the WTI posted price for crude oil was $58.35 and the Henry Hub spot price for natural gas was $3.12 per MMBtu.

Results of Operations below for realized prices.

Pipeline capacity constraints and maintenance in the Permian Basin area has contributed

to a wider difference between the WaHa Hub and the Henry Hub and at times prices were negative.

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, 2025:

Payments due in:

following table summarizes our future payments we are obligated to make based on agreements in place as of September 30, 2025:

Contractual obligations:

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 $11,023 1-3 years for his portion of the shared office space.

of Operations – Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024.

For the quarter ended June 30,

2025, net income was $241,951 compared to net income of $291,039 for the quarter ended June 30, 2024.

This was primarily the result of

an increase in operating revenues and an increase in operating expenses, which 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

$8,479 1-3 years for his portion of the shared office space.

of Operations – Three Months Ended September 30, 2025 Compared to Three Months Ended September 30, 2024.

There was net income

of $323,506 for the quarter ended September 30, 2025 compared to net income of $317,198 for the quarter ended September 30, 2024.

This was a result of a decrease in the provision for income taxes partially offset by a decrease in oil and gas revenues and an increase

in operating expense that is further explained below.

and gas sales.

Revenue from oil and gas sales was $1,754,734 for the quarter ended June 30, 2025, a 4% increase from $1,688,056 for

the quarter ended June 30, 2024.

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

offset by a decrease in oil prices.

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 $1,624,566 for the second quarter of fiscal 2026, a 4% decrease from $1,695,853

for the same period of fiscal 2025.

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

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

ended September 30:

Volume (bbls)

2 unchanged sentences

operating revenues.

Other revenues increased 49% to 59,442 for the quarter ended June 30, 2025 from $39,779 for the quarter ended

June 30, 2024.

This resulted from an increase in income from one of our limited liability company investments.

Interest income on corporate funds decreased 36% to $14,531 for the quarter ended June 30, 2025 from $22,746 for the quarter

ended June 30, 2024.

This decrease resulted from a change in our average cash balances due to using the corporate funds for property

acquisitions.

Other revenues increased 106% to $110,177 for the quarter ended September 30, 2025 from $53,374 for the quarter

ended September 30, 2024.

This resulted from an increase in income from our most recent limited liability company investment.

and exploration.

Production costs were $404,770 for the three months ended June 30, 2025, a 7% decrease from $437,420 for the three

months ended June 30, 2024.

This was primarily due to a decrease in lease operating expenses on wells in which we own a working interest.

Production costs were $369,093 for the second quarter of fiscal 2026, an 11% decrease from $413,405 for the same

period of fiscal 2025.

This was primarily the result of a decrease in lease operating expenses on wells in which we own a working interest

and a decrease in production taxes due to the decrease in oil revenue partially offset by the increase in gas revenue.

Depreciation,

depletion and amortization.

Depreciation, depletion and amortization (“DD&A”) expense was $675,270 for the first

quarter of fiscal 2026, an 25% increase from $539,697 for the first quarter of fiscal 2025, primarily due to an increase in oil and gas

production volumes 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 $662,647 for the second quarter of fiscal 2026,

a 13% increase from $584,288 for the same period of fiscal 2025, primarily due to a a decrease in the full cost pool amortization base,

an increase in gas production volumes and a decrease in oil and gas reserves partially offset by a decrease in the full cost amortization

and administrative expenses.

General and administrative expenses were $394,437 for the three months ended June 30, 2025, an 7% increase

from $367,045 for the three months ended June 30, 2024.

This was primarily due to an increase in engineering and accounting fees.

Income tax for the three months ended June 30, 2025 was $103,231 compared to $106,586 for the three months ended June 30,

The effective tax rate for state and federal taxes combined for the three months ended June 30, 2025 and 2024 was 30% and 27%,

respectively.

General and administrative expenses were $332,264 for the second quarter of fiscal 2026, a 1% decrease

from $334,525 for the same period of fiscal 2025.

This was primarily due to a decrease in contract services.

Federal income tax for the three months ended September 30, 2025 was $31,001.

Federal income tax for the three months ended

September 30, 2024 was $84,833.

State income tax was $27,234 for the three months ended September 30, 2025, a 1% increase from $26,920

for the three months ended September 30, 2024.

The effective tax rate for the three months ended September 30, 2025 and 2024 was 15%

and 26%, respectively.

of Operations – Six Months Ended September 30, 2025 Compared to Six Months Ended September 30, 2024.

For the six months ended

September 30, 2025, there was net income of $565,457 compared to net income of $608,237 for the six months ended September 30, 2024.

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 $3,379,300 for the six months ended September 30, 2025, a decrease from $3,383,909

for the same period of fiscal 2025.

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

and an increase in gas prices.

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

received during the six months ended September 30:

Volume (bbls)

Average Price (per bbl)

Average Price (per mcf)

operating revenues.

Other revenues increased 82% to $169,619 for the six months ended September 30, 2025 from $93,153 for the six

months ended September 30, 2024.

This resulted from an increase in income from our most recent limited liability company investment.

and exploration.

Production costs were $773,863 for the six months ended September 30, 2025, a 9% decrease from $850,825 for the

six months ended September 30, 2024.

This was primarily the result of a decrease in lease operating expenses on wells in which we own

a working interest and a decrease in production taxes due to the decrease in oil revenue partially offset by the increase in gas revenue.

Depreciation,

depletion and amortization.

Depreciation, depletion and amortization expense was $1,337,917 for the six months ended September 30,

2025, a 19% increase from $1,123,985 for the six months ended September 30, 2024, primarily due to an increase in oil and gas production

volumes 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 $726,701 for the six months ended September 30, 2025, a 4%

increase from $701,570 for the six months ended September 30, 2024.

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

services partially offset by a decrease in contract services.

Federal income tax for the six months ended September 30, 2025 was $108,781.

Federal income tax for the six months ended September

30, 2024 was $171,353.

State income tax was $52,685 for the six months ended September 30, 2025, a 12% increase from $46,986 for the

six months ended September 30, 2024 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, 2025 and 2024 was 22% and 26%, respectively.

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