UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended March 31 2021, 2023

Commission File No. 1-31785

MEXCO ENERGY CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (432) 682-1119

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:Common Stock, $0.50 par value per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] ☐ No [X] ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [  ]☐

Indicate by check-mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past ninety (90) days. Yes [X] ☒ No [  ]☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] ☒ No [  ]☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or and emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer [  ]☐ Accelerated Filer [  ] ☐ Non-Accelerated Filer [  ] ☒ Smaller Reporting Company [X]☒ Emerging Growth Company [  ]☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.1D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] ☐ No [X] ☒

The aggregate market value of the voting stock held by non-affiliates of the Registrant as of September 30, 20202022 (the last business day of the Registrant’s most recently completed second quarter) was $4,724,764 based on Mexco Energy Corporation’s closing common stock price of $4.77 per share on that date$18,892,271 as computed by reference to the last reported by the NYSE American.sale.

There were 2,076,6662,136,500 shares of the registrant’s common stock outstanding as of June 25, 2021.26, 2023.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement relating to the 20212023 Annual Meeting of Shareholders to be held on September 9, 2021,12, 2023, have been incorporated by reference in Part III of this Form 10-K. Such Proxy Statement will be filed with the Commission not later than 120 days after March 31, 2021,2023, the end of the fiscal year covered by this report.

TABLE OF CONTENTS

As used in this document, “the Company”, “Mexco”, “we”, “us” and “our” refer to Mexco Energy Corporation and its consolidated subsidiaries.

Abbreviations or definitions of certain terms commonly used in the oil and gas industry and in this Form 10-K can be found in the “Glossary of Abbreviations and Terms”.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K 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”). These forward-looking statements are generally located in the material set forth under the headings “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Business”, “Properties” but may be found in other locations as well, and are typically identified by the words “could”, “should”, “expect”, “project”, “estimate”, “believe”, “anticipate”, “intend”, “budget”, “plan”, “forecast”, “predict” and other similar expressions.

Forward-looking statements generally relate to our 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 and are based upon our management’s reasonable estimates of future results or trends. Actual results in future periods may differ materially from those expressed or implied by such forward-looking statements because of a number of risks and uncertainties affecting our business, including those discussed in “Risk Factors”. The factors that may affect our expectations regarding our operations include, among others, the following: our success in development, exploitation and exploration activities; our ability to make planned capital expenditures; declines in our production or prices of oil and gas; our ability to raise equity capital or incur additional indebtedness; our restrictive debt covenants; our acquisition and divestiture activities; weather conditions and events; the proximity, capacity, cost and availability of pipelines and other transportation facilities; increases in the cost of drilling, completion and gas gathering or other costs of production and operations; and other factors discussed elsewhere in this document. We disclaim any intention or obligation to update or revise any forward-looking statements as a result of new information, future events or otherwise.

PART I

ITEM 1. BUSINESS

General

Mexco Energy Corporation, a Colorado corporation, is an independent oil and gas company engaged in the acquisition, exploration, development and production of crude oil and natural gas properties located in the United States. Incorporated in April 1972 under the name Miller Oil Company, the Company changed its name to Mexco Energy Corporation effective April 30, 1980. At that time, the shareholders of the Company also approved amendments to the Articles of Incorporation resulting in a one-for-fifty reverse stock split of the Company’s common stock.

Our total estimated proved reserves at March 31, 20212023 were approximately 1.5041.552 million barrels of oil equivalent (“MMBOE”) of which 49%47% was oil and natural gas liquids and 51%53% was natural gas, and our estimated present value of proved reserves was approximately $14$39 million based on estimated future net revenues excluding taxes discounted at 10% per annum, pricing and other assumptions set forth in “Item 2 – Properties” below.

Nicholas C. Taylor beneficially owns approximately 46%44% of the outstanding shares of our common stock. Mr. Taylor is also our Chairman of the Board and Chief Executive Officer. As a result, Mr. Taylor has significant influence in matters voted on by our shareholders, including the election of our Board members. Mr. Taylor participates in all facets of our business and has a significant impact on both our business strategy and daily operations.

Company Profile

Since our inception, we have been engaged in acquiring and developing oil and gas properties and the exploration for and production of natural gas, crude oil, condensate and natural gas liquids (“NGLs”) within the United States. We especially seek to acquire proved reserves that fit well with existing operations or in areas where Mexco has established production. Acquisitions preferably will contain most of their value in producing wells, behind pipe reserves and high quality proved undeveloped locations. Competition for the purchase of proved reserves is intense. Sellers often utilize a bid process to sell properties. This process usually intensifies the competition and makes it extremely difficult to acquire reserves without assuming significant price and production risks. We actively search for opportunities to acquire proved oil and gas properties. However, because the competition is intense, we cannot give any assurance that we will be successful in our efforts during fiscal 2022.2024.

While we own oil and gas properties in other states, the majority of our activities are centered in West Texas and Southeastern New Mexico. The Company also owns producing properties and undeveloped acreage in fourteen states. We acquire interests in producing and non-producing oil and gas leases from landowners and leaseholders in areas considered favorable for oil and gas exploration, development and production. In addition, we may acquire oil and gas interests by joining in oil and gas drilling prospects generated by third parties. We may also employ a combination of the above methods of obtaining producing acreage and prospects. In recent years, we have placed primary emphasis on the evaluation and purchase of producing oil and gas properties, including working, royalty and mineral interests, and prospects that could have a potentially meaningful impact on our reserves. All of the Company’s oil and gas interests are operated by others.

From 1983 to 2021,2023, Mexco Energy Corporation made approximately 80numerous acquisitions of producing oil and gas properties including royalties, overriding royalties, minerals and working interests both operatedin producing oil and non-operated plusgas properties including the following most significant and recent acquisitions:

Royalty interests, purchase price $500,000 covering 4 producing gas units in Freestone County, Texas containing 33 producing wells and 17 potential undeveloped locations in the Cotton Valley formation.

Royalty (mineral) acreage, purchase price $1,850,000 covering 122 mineral acres in the Newark East (Barnett Shale) Field of Tarrant County, Texas amounting to approximately 21.45% royalty interest.

Overriding royalty interests, purchase price $1,650,000 covering 5,120 gross acres over 8 sections in the Haynesville trend area of DeSoto Parish, Louisiana containing 6 horizontal producing wells, 2 wells drilling wells, and 57 additional potential drill sites. The Company paid $1.46 million in cash and the remainder was paid as 26,833 shares of its common stock issued from treasury shares.

Royalty interests, purchase price $580,000 covering 580 wells in 87 counties of eight8 states. Approximately 90% of the net revenue from these royalties is produced by 157 wells located in the Barnett Shale of the Fort Worth Basin of Texas. Also included are interests in 423 wells in 8 states.

Non-Operated working interests, purchase price $525,000 for 12.5% (approximately 10% net revenue interest). The purchase included eight wells producing oil on 20-acre spacing at approximately 3,600 foot depth on 190 acres in Pecos County, TX.

Royalty and mineral interests, purchase price $1,000,000 covering approximately 1,800 wells in 27 counties of Texas. Of these oil and gas reserves, approximately 80% is natural gas and 20% oil.

Non-Operated working interests, purchase price $840,000 in 70 Natural gas producing wells located in 5 counties of Oklahoma.

Non-Operated working interests, purchase price $450,000 covering 43 wells in Webster Parish, Louisiana; Eddy County, New Mexico; and, Nolan and Smith Counties, Texas.

Royalty interests, purchase price of $939,000 covering 22 producing wells and several additional potential locations for development in the Eagleford area of Dimmit County, Texas.

Royalty interest investment, $2,000,000 for an approximate 2% investment commitment in a limited liability company, capitalized at approximately $100 million to purchase royalty interests consisting of minerals located in the Marcellus and Utica areas of Ohio. As of the date of this report, $400,000 of the commitment has been expended.

Royalty interests, purchase price of $117,200 covering 28 producing wells in 6 counties in the Haynesville trend area of Louisiana and 5 counties in Texas.

Industry Environment and Outlook

The outbreak of the novel coronavirus (“COVID-19”) in the first calendar quarter of 2020 and its continued spread across the globe in the second, third and fourth 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. Federal, 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 generalworldwide economic activity and a resulting decrease in energy demand. In addition, the global economy has experienced a significant disruption to global supply chains. 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 close of the Company’s third quarter of this fiscal year.

The challenging commodity price environment continued in fiscal 2021 and in May 2020, commodity prices experienced extreme volatility resulting in historic lows. In light of these challenges facing our industry and in response to the continued challenging environment, our primary business strategies for fiscal 2022 will continue to include: (1) optimizing cash flows through operating efficiencies and cost reductions, (2) divesting of non-core assets, and (3) working to balance capital spending with cash flows to minimize borrowings, reduce debt and maintain ample liquidity.

During the Company’s fourth quarter of fiscal 2021 and continuing through the first quarter of fiscal 2022, oil and natural gas prices recovered to pre-pandemic levels, due in part to the accessibility of vaccines, reopening of states after the lockdown and optimism about the economic recovery. However, the continued spread of the virus, including vaccine-resistant strains, could once again reducedownturn, significantly disrupting the demand for oil throughout the world, and gascreated significant volatility, uncertainty and deteriorateturmoil in the oil and natural prices.gas industry. The decrease in demand for oil, combined with excess supply of oil and related products, resulted in oil prices declining significantly in late February 2020. Since mid-2020, oil prices have improved, with demand steadily increasing despite the uncertainties surrounding the COVID-19 variants, which have continued to inhibit a full global demand recovery. In addition, worldwide oil inventories, from a historical perspective, remain low and concerns exist with the ability of Organization of Petroleum Exporting Countries (“OPEC”) and other oil producing nations to meet forecasted future oil demand growth in 2023 and 2024, with many OPEC countries not able to produce at their OPEC agreed upon quota levels due to their limited capital investments, and increases in cost over the last few years directed towards developing incremental oil supplies.

See Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for discussion of our fiscal 20212023 operating results and potential impact on fiscal 20222024 operating results due to commodity price changes.

Oil and Gas Operations

As of March 31, 2021,2023, oil constituted approximately 73%70% of our oil and gas revenues and approximately 49%47% of our total proved reserves volumes for fiscal 2021.2023. Revenues from oil and gas royalty interests accounted for approximately 22%28% of our oil and gas revenues for fiscal 2021.2023.

There are two primary areas in which the Company is focused, 1) the Delaware Basin located in the Western portion of the Permian Basin including Lea and Eddy Counties, New Mexico and Reeves and Loving County,Counties, Texas and 2) the Midland Basin located in the Eastern portion of the Permian Basin including Reagan, Upton, Midland, Martin, Howard and Glasscock Counties, Texas. The Permian Basin in total accounts for 80% of our discounted future net cash flows from proved reserves and 86%79% of our gross revenues.

The Permian Basin is one of the oldest and most prolific producing basins in North America which has been a significant source of oil production since the 1920s. The Permian Basin is known to have a number of zones of oil and natural gas bearing rock throughout.

The Delaware Basin properties, encompassing 31,22430,007 gross acres, 210195 net acres, 526610 gross producing wells and 34 net wells account for approximately 52%58% of our discounted future net cash flows from proved reserves as of March 31, 2021.2023. For fiscal 2021,2023, these properties accounted for 66% of our gross revenues and 76%62% of our net revenues. Of these discounted future net cash flows from proved reserves, approximately 11%15% are attributable to proven undeveloped reserves which willwould be developed through new drilling.

The Midland Basin properties, encompassing 97,64097,584 gross acres, 263256 net acres, 9811,016 gross producing wells and 32 net wells account for approximately 14%18% of our discounted future net cash flows from proved reserves as of March 31, 2021.2023. For fiscal 2021,2023, these properties accounted for 14% of our gross revenues and 13% of our net revenues. Of these discounted future net cash flows from proved reserves, approximately 9%8% are attributable to proven undeveloped reserves which willwould be developed through new drilling.

Gomez Gas Field properties, encompassing 13,058 gross acres, 72 net acres, 27 gross wells and .13 net wells in Pecos County, Texas, account for approximately 13% of our discounted future net cash flows from proved reserves as of March 31, 2021. For fiscal 2021, these properties accounted for 3% of our gross revenues and 2% of our net revenues. All of these properties, except for one, are royalty interests. Of these discounted future net cash flows from proved reserves, approximately 10% are attributable to proven undeveloped reserves which will be developed through new drilling in the horizontal Wolfcamp.

Mexco believes its most important properties for future development by horizontal drilling and hydraulic fracturing area are located in Lea and Eddy Counties, New Mexico of the Delaware Basin and the Midland Basin in Midland, Reagan and Upton Counties, Texas.

For more on these and other operations in this area see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources Commitments”.

We own partial interests in approximately 6,400 producing wells all of which are located within the United States in the states of Texas, New Mexico, Oklahoma, Louisiana, Alabama, Mississippi, Arkansas, Wyoming, Kansas, Colorado, Montana, Virginia, North Dakota, and Ohio. Additional information concerning these properties and our oil and gas reserves is provided below.

The following table indicates our oil and gas production in each of the last five years:

Competition and Markets

The oil and gas industry is a highly competitive business. Competition for oil and gas reserve acquisitions is significant. We may compete with major oil and gas companies, other independent oil and gas companies and individual producers and operators, some of which have financial and personnel resources substantially in excess of those available to us. As a result, we may be placed at a competitive disadvantage. Competitive factors include price, contract terms and types and quality of service, including pipeline distribution. The price for oil and gas is widely followed and is generally subject to worldwide market factors. Our ability to acquire and develop additional properties in the future will depend upon our ability to evaluate and select suitable properties and to consummate transactions in this highly competitive environment in a timely manner.

In addition, the oil and gas industry as a whole also competes with other industries in supplying the energy and fuel requirements of industrial, commercial and individual consumers. The price and availability of alternative energy sources could adversely affect our revenue.

Market factors affect the quantities of oil and natural gas production and the price we can obtain for the production from our oil and natural gas properties. Such factors include: the extent of domestic production; the level of imports of foreign oil and natural gas; the general level of market demand on a regional, national and worldwide basis; domestic and foreign economic conditions that determine levels of industrial production; political events in foreign oil-producing regions like the crude oil price disputes between Saudi Arabia and Russia;regions; and variations in governmental regulations including environmental, energy conservation and tax laws or the imposition of new regulatory requirements upon the oil and natural gas industry.

The market for our oil, gas and natural gas liquids production depends on factors beyond our control including: national and international pandemics like the COVID-19; domestic and foreign political conditions; the overall level of supply of and demand for oil, gas and natural gas liquids; the price of imports of oil and gas; weather conditions; the price and availability of alternative fuels; the proximity and capacity of gas pipelines and other transportation facilities; and overall economic conditions.

Major Customers

We made sales that amounted to 10% or more of oil and gas revenues as follows for the years ended March 31:

Historically, the Company has not experienced significant credit losses on our oil and gas accounts and management is of the opinion that significant credit risk does not exist. Because a ready market exists for oil and gas production, we do not believe the loss of any individual customerpurchaser would have a material adverse effect on our financial position or results of operations.

Environmental Regulation

The exploration and development of crude oil and natural gas properties are subject to existing stringent and complexindustry is extensively regulated at the federal, state, and local laws (including case law)levels. Regulations affecting elements of the energy sector are under constant review for amendment or expansion and regulations governing health, safety, environmental qualityfrequently more stringent requirements are imposed. Various federal and pollution control. Failure to comply with these laws, rules and regulations, however, may result instate agencies, including the assessmentTexas Railroad Commission, the Bureau of administrative, civil or criminal penalties;Land Management (the “BLM”), an agency of the impositionU.S Department of investigatory or remedial obligations;the Interior (“DOI”), the Federal Energy Regulatory Commission (“FERC”), the U.S. Environmental Protection Agency (the “EPA”), the Department of Transportation (“DOT”) and the issuance of injunctions limiting or preventing some or all ofU.S. Occupational Safety and Health Administration (“OSHA”), have legal and regulatory authority and oversight over the operations on the properties in which the Company owns an interest.

Under certain environmental laws and regulations, the operators of the Company properties could be subject to strict, joint and several liability for the removal or remediation of property contamination, whether at a drill site or a waste disposal facility, even when the operators did not cause the contamination or their activities were in compliance with all applicable laws at the time the actions were taken. The Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), also known as the “superfund” law, for example, imposes liability, regardless of fault or the legality of the original conduct, on certain classes of persons for releases into the environment of a “hazardous substance.” Liable persons may include the current or previous owner and operator of a site where a hazardous substance has been disposed and persons who arranged for the disposal of a hazardous substance at a site. Under CERCLA and similar statutes, government authorities or private parties may take actions in response to threats to the public health or the environment or sue responsible persons for the associated costs. In the course of operations, the working interest owner and/or the operator of the Company properties may have generated and may generate materials that could trigger cleanup liabilities. In addition, the Company properties have produced oil and/or natural gas for many years, and previous operators may have disposed or released hydrocarbons, wastes or hazardous substances at the Company properties. The operator of the Company properties or the working interest owners may be responsible for all or part of the costs to clean up any such contamination. Although the Company is not the operator of such properties, its ownership of the properties could cause it to be responsible for all or part of such costs to the extent CERCLA or any similar statute imposes responsibility on such parties as “owners.”

Various state governments and regional organizations comprising state governments already have enacted legislation and promulgated rules restricting greenhouse gases (“GHGs”) emissions or promoting the use of renewable energy, and additional such measures are frequently under consideration. Although it is not possible at this time to estimate how potential future requirements addressing GHG emissions would impact operations on the Company properties and revenue, either directly or indirectly, any future federal, state or local laws or implementing regulations that may be adopted to address GHG emissions could require the operators of our properties to incur new or increased costs to obtain permits, operate and maintain equipment and facilities, install new emission controls, acquire allowances to authorize GHG emissions, pay taxes related to GHG emissions or administer a GHG emissions program. Regulation of GHGs could also result in a reduction in demand for and production of oil and natural gas. Additionally, to the extent that unfavorable weather conditions are exacerbated by global climate change or otherwise, the Company properties may be adversely affected to a greater degree than previously experienced.

We did not incur any material capital expenditures for remediation or pollution control activities for the year ended March 31, 2021.2023. Additionally, as of the date of this report, we are not aware of any environmental issues or claims that will require material capital expenditures during fiscal 2022.2024.

Other Regulation

Other agencies with certain authority over the Company’s business include the Internal Revenue Service (the “IRS”), the SEC and NYSE. Ensuring compliance with the rules, regulations and orders promulgated by such entities requires extensive effort and incremental costs to comply, which affects the Company’s profitability. Because public policy changes are commonplace, and existing laws and regulations are frequently amended, the Company is unable to predict the future cost or impact of compliance. However, the Company does not expect that any of these laws and regulations will affect its operations materially differently than they would affect other companies with similar operations, size and financial strength.

Title to Properties

The leasehold properties we own are subject to royalty, overriding royalty and other outstanding interests customary in the industry. The properties may be subject to burdens such as liens incident to operating agreements and current taxes, development obligations under oil and gas leases and other encumbrances, easements and restrictions. We do not believe any of these burdens will materially interfere with the use of these properties.

Prior to drilling of an oil and natural gas well, it is normal practice in our industry for the person or company acting as the operator of the well to obtain a preliminary title review to ensure there are no obvious defects in title to the well. Frequently, as a result of such examinations, certain curative work must be done to correct defects in the marketability of the title, and such curative work entails expense. Our operators’ failure to cure any title defects may delay or prevent us from utilizing the associated mineral interest. We believe the title to our properties is good and defensible in accordance with standards generally acceptable in the oil and gas industry subject to such exceptions that, in the opinion of counsel employed in the various areas in which we have activities, are not so material as to detract substantially from the use of such properties.

Substantially all of our properties are currently mortgaged under a deed of trust to secure funding through a credit facility.

Insurance

Our operations are subject to all the risks inherent in the exploration for and development and production of oil and gas including blowouts, fires and other casualties. We maintain insurance coverage customary for operations of a similar nature, but losses could arise from uninsured risks or in amounts in excess of existing insurance coverage.

Executive Officers

The following table sets forth certain information concerning the executive officers of the Company as of March 31, 2021.2023.

Set forth below is a description of the principal occupations during at least the past five years of each executive officer of the Company.

Nicholas C. Taylor was elected Chairman of the Board and Chief Executive Officer of the Company in September 2011 and continues to serve in such capacity on a part time basis, as required. He served as Chief Executive Officer, President and Director of the Company from 1983 to 2011. From July 1993 to the present, Mr. Taylor has been involved in the independent practice of law and other business activities. In November 2005 he was appointed by the Speaker of the House to the Texas Ethics Commission and served until February 2010.

Tamala L. McComic, a Certified Public Accountant and Chartered Global Management Accountant, became Controller for the Company in July 2001 and was elected President and Chief Financial Officer in September 2011. She served the Company as Executive Vice President and Chief Financial Officer from 2009 to 2011 and Vice President and Chief Financial Officer from 2003 to 2009. Prior thereto, Ms. McComic served as Treasurer and Assistant Secretary of the Company.

Donna Gail Yanko was appointed to the position of Vice President of the Company in 1990. She has also served as Corporate Secretary sincefrom 1992 to 2021 and from 1986 to 1992 was Assistant Secretary. From 1986 to 2015, on a part-time basis, she assisted the Chairman of the Board of the Company in his personal business activities. Ms. Yanko also served as a director of the Company from 1990 to 2008.

EmployeesStacy D. Hardin joined the Company in 2006 and was elected Corporate Secretary of the Company in September 2021. She has also served the Company as Assistant Treasurer of the Company since 2010 and from 2006 to 2021 was Assistant Secretary. Prior thereto, Ms. Hardin served as Assistant Controller.

Employees

As of March 31, 2021,2023, we had twothree full-time and three part-time employees. We believe that relations with these employees are generally satisfactory. From time to time, we utilize the services of independent geological, land and engineering consultants on a limited basis and expect to continue to do so in the future.

Office Facilities

Our principal offices are located at 415 W. Wall, Suite 475, Midland, Texas 79701 and our telephone number is (432) 682-1119. We believe our facilities are adequate for our current operations and future needs.

Access to Company Reports

Mexco Energy Corporation files annual, quarterly and current reports, proxy statements and other information with the SEC. The SEC maintains an internet website (www.sec.gov) that contains annual, quarterly and current reports, proxy statements and other information that issuers, including Mexco, file electronically with the SEC.

We also maintain an internet website at www.mexcoenergy.com. In the Investor Relations section, our website contains our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other reports and amendments to those reports as soon as reasonably practicable after such material is electronically filed with the SEC. Information on our website is not incorporated by reference into this Form 10-K and should not be considered part of this report or any other filing that we make with the SEC. Additionally, our Code of Business Conduct and Ethics and the charters of our Audit Committee, Compensation Committee and Nominating Committee are posted on our website. Any of these corporate documents as well as any of the SEC filed reports are available in print free of charge to any stockholder who requests them. Requests should be directed to our corporate Secretary by mail to P.O. Box 10502, Midland, Texas 79702 or by email to mexco@sbcglobal.net.

ITEM 1A. RISK FACTORS

There are many factors that affect our business and results of operations, some of which are beyond our control. The following is a description of some of the important factors that could have a material adverse effect on our business, financial position, liquidity and results of operations. Some of the following risks relate principally to the industry in which we operate and to our business. Other risks relate principally to the securities markets and ownership of our common stock.

RISKS RELATED TO OUR BUSINESS AND INDUSTRY

Volatility of oil and gas prices significantly affects our results and profitability.

Prices for oil and natural gas fluctuate widely. We cannot predict future oil and natural gas prices with any certainty. Historically, the markets for oil and gas have been volatile, and they are likely to continue to be volatile. Factors that can cause price fluctuations include the level of global demand for petroleum products; foreign supply and pricing of oil and gas; the abilityactions of the Organization of Petroleum Exporting Countries (“OPEC”)OPEC, its members and other state-controlled oil companies relating to set and maintain oil price and production controls; nature and extent of governmental regulation and taxation, including environmental regulations; level of domestic and international exploration, drilling and production activity; the cost of exploring for, producing and delivering oil and gas; speculative trading in crude oil and natural gas derivative contracts; availability, proximity and capacity of oil and gas pipelines and other transportation facilities; weather conditions; the price and availability of alternative fuels; technological advances affecting energy consumption; national and international pandemics like the COVID-19;pandemics; and, overall political and economic conditions in oil producing countries.

Increases and decreases in prices also affect the amount of cash flow available for capital expenditures and our ability to borrow money or raise additional capital. The amount we can borrow from banks may be subject to redetermination based on changes in prices. In addition, we may have ceiling test writedowns when prices decline. Lower prices may also reduce the amount of crude oil and natural gas that can be produced economically. Thus, we may experience material increases or decreases in reserve quantities solely as a result of price changes and not as a result of drilling or well performance.

Changes in oil and gas prices impact both estimated future net revenue and the estimated quantity of proved reserves. Any reduction in reserves, including reductions due to price fluctuations, can reduce the borrowing base under our credit facility and adversely affect the amount of cash flow available for capital expenditures and our ability to obtain additional capital for our exploration and development activities.

Oil and natural gas prices do not necessarily fluctuate in direct relationship to each other. Lower prices or lack of storage may have an adverse affect on our financial condition due to reduction of our revenues, operating income and cash flows; curtailment or shut-in of our production due to lack of transportation or storage capacity; cause certain properties in our portfolio to become economically unviable; and, limit our financial condition, liquidity, and/or ability to finance planned capital expenditures and operations.

Our results of operations may be negatively impacted by current global events such as the coronavirus outbreak.events.

In December 2019, a novel strain of the coronavirus (“COVID-19”) surfaced and spread around the world, including to the United States. In March 2020, the World Health Organization declared COVID-19 a pandemic, and the President ofThe economies in the United States declaredand certain countries in Europe and Asia have been growing, with resulting improvements in industrial demand and consumer confidence. However, other economies, such as those of certain South American nations, continue to face economic struggles or slowing economic growth. If these conditions worsen, combined with a decline in economic growth in other parts of the COVID-19 outbreakworld, there could be a national emergency. The COVID-19 pandemic has significantly affectedsignificant adverse effect on global financial markets and commodity prices. In addition, continued hostilities in the Middle East and the occurrence or threat of terrorist attacks in the United States or other countries could adversely affect the global economy, disruptedeconomy. Global or national health concerns may adversely affect the Company by (i) reducing demand for its oil, NGLs and gas because of reduced global or national economic activity, (ii) impairing its supply chainschain (for example, by limiting manufacturing of materials used in operations) and created significant volatility and disruption(iii) affecting the health of its workforce, rendering employees unable to work or travel. If the economic climate in the financialUnited States or abroad were to deteriorate, due to inflation, rising interest rates or otherwise, demand for petroleum products could diminish or stagnate, which could depress the prices at which the Company could sell its oil, NGLs and commodity markets.gas, affect the ability of the Company’s vendors, suppliers and customers to continue operations and ultimately decrease the Company’s cash flows and profitability. In addition, the COVID-19 pandemic has resulted in travel restrictions, business closures and the institution of quarantining and other restrictions on movement in many communities. As a result, there has been a significant reduction inreduced worldwide demand for debt and prices ofequity securities issued by oil and natural gas. Asgas companies may make it more difficult for the Company to raise capital to fund its operations or refinance its debt obligations.

Changes in environmental laws could increase our operators’ costs and adversely impact our business, financial condition and cash flows.

President Biden has indicated that he is supportive of, and has issued executive orders promoting various programs and initiatives designed to, among other things, curtail climate change, control the first quarterrelease of calendar year 2021, prices have recovered to pre-pandemic levels, due in part to the accessibility of vaccines, reopening of states after the lockdown,methane from new and optimism about the economic recovery. The continued spread of COVID-19, including vaccine-resistant strains, or repeated deterioration inexisting oil and natural gas prices could result in additional adverse impacts onoperations, and decarbonize electric generation and the Company’s resultstransportation sector. In recent years the U.S. Congress has considered legislation to reduce emissions of operations, cash flows and financial position.

The ability or willingnessGHGs, including methane, a primary component of OPEC and other oil exporting nations to set and maintain production levels has a significant impact on oil and natural gas, commodity prices.

OPEC is an intergovernmental organization that seeks to manageand carbon dioxide, a byproduct of the price and supplyburning of oil on the global energy market. OPEC and certain other oil exporting nations have previously agreed to take measures, including production cuts, to support crude oil prices. A dispute between OPEC and Russia over production cuts resulted in a decision by Saudi Arabia and other Persian Gulf members of OPEC to increase production. In April 2020, OPEC and Russia agreed to certain production cuts. If these cuts are effected, however, they may not offset near-term demand loss attributable to the COVID-19 pandemic and the related economic slowdown. In response to an oversupply of crude oil and corresponding low prices, there has been a significant decline in drilling by U.S. producers starting in mid-March 2020, but domestic supply has continued to exceed demand, which has led to significant operational stress with respect to capacity limitations associated with storage, pipeline and refining infrastructure. As storage capacity becomes fully subscribed, operators may be forced to curtail some portion or all production. Therefore, the impact cannot be reasonably estimated at this time. Volatility due to OPEC actions and other factors affecting the global supply and demand of oil and natural gas may continue.

Governmental actions and political instability may negatively affect drilling and production levels.

The production of oil and natural gas is subject to regulation under a wide range of local, state and federal statutes, rules, orders and regulations. Federal, state and local statutes and regulations require permits for drilling operations, drilling bonds and reports concerning operations. The trend in oil and natural gas regulation has been to increase regulatory restrictions and limitations on such activities. Any changes in, or more stringent enforcement of, these laws and regulations may result in delays or restrictions in permitting or development of projects or more stringent or costly construction, drilling, water management or completion activities or waste handling, storage, transport, remediation, or disposal emission or discharge requirements which could have a material adverse effect on the Company.

gas. For example, the Inflation Reduction Act of 2022 (the “IRA”), which appropriates significant federal funding for renewable energy initiatives and, for the first time ever, imposes a fee on January 20, 2021,GHG emissions from certain facilities, was signed into law in August 2022. The emissions fee and funding provisions of the Biden Administration placed a 60-day moratorium on newlaw could increase operating costs within the oil and gas leasingindustry and drilling permitsaccelerate the transition away from fossil fuels, which could in turn adversely affect our business and results of operations.

Governmental, scientific and public concern over the threat of climate change arising from GHG emissions has resulted in increasing political risks in the United States, including climate change related pledges made by certain candidates elected to public office. President Biden has issued several executive orders focused on federal land, and on January 27, 2021, the Department of Interior acting pursuantaddressing climate change, including items that may impact costs to a Presidential Executive Order suspended the federalproduce, or demand for, oil and gas leasing program indefinitely. However, earlier this month, a federal judge issued an order temporarily blocking the moratorium.gas.

The Biden Administration has also announced that it intends to review the Trump Administration’s 2017 repeal of the 2015 rule regulating hydraulic fracturing activities in federal land under the Presidential Executive Order on Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis.

Lower oil and gas prices and other factors may cause us to record ceiling test writedowns.

Lower oil and gas prices increase the risk of ceiling limitation write-downs. We use the full cost method to account for oil and gas operations. Accordingly, we capitalize the cost to acquire, explore for and develop crude oil and natural gas properties.properties including the cost of abandoned properties, dry holes, geophysical costs and annual lease rentals. Sales or other dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recorded. Depletion of evaluated oil and natural gas properties is computed in the units of production method, whereby capitalized costs are amortized over total proved reserves. Under the full cost accounting rules, the net capitalized cost of crude oil and natural gas properties may not exceed a “ceiling limit” which is based upon the present value of estimated future net cash flows from proved reserves, discounted at 10% plus the lower of cost or fair market value of unproved properties. If net capitalized costs of oil and natural gas properties exceed the ceiling limit, we must charge the amount of the excess against earnings. This is called a “ceiling test writedown.” We use the unweighted arithmetic average first day of the month price for oil and natural gas for the 12-month period preceding the calculation date in estimating discounted future net reserves. Under the accounting rules, we are required to perform a ceiling test each quarter. A ceiling test writedown does not impact cash flow from operating activities, but does reduce stockholders’ equity and earnings. The risk that we will be required to write down the carrying value of oil and natural gas properties increases when oil and natural gas prices are low. We incurred impairment charges during fiscal 2016 and may incur additional impairment charges in the future, particularly if commodity prices decline, which could have a material adverse effect on our results of operations for the periods in which such charges are taken. There were no ceiling test impairments on our oil and gas properties during fiscal 20212023 and 2020.2022.

We must replace reserves we produce.

Our future success depends upon our ability to find, develop or acquire additional, economically recoverable oil and gas reserves. Our proved reserves will generally decline as reserves are depleted, except to the extent that we can find, develop or acquire replacement reserves. One offset to the obvious benefits afforded by higher product prices especially for small to mid-cap companies in this industry, is that quality domestic oil and gas reserves are hard to find.

Approximately 32%26% and 50%37% of our total estimated net proved reserves at March 31, 20212023 and 2020,2022, respectively, were undeveloped, and those reserves may not ultimately be developed.

Recovery of undeveloped reserves requires significant capital expenditures and successful drilling. Our reserve data assumes that we can and will make these expenditures and conduct these operations successfully. These assumptions, however, may not prove correct. IfDelays in the development of our reserves, increases in costs to develop such reserves, or decreases in commodity prices will reduce the future net revenues or our estimated proved undeveloped reserves and may result in some projects becoming uneconomical. In addition, if we or the outside operators of our properties choose not to spend the capital to develop these reserves, or if we are not able to successfully develop these reserves, we will be required to write-off these reserves. Any such write-offs of our reserves could reduce our ability to borrow money and could reduce the value of our common stock.

Information concerning our reserves and future net revenues estimates is inherently uncertain.

Estimates of oil and gas reserves, by necessity, are projections based on engineering data, and there are uncertainties inherent in the interpretation of such data as well as the projection of future rates of production and the timing of development expenditures. Reserve engineering is a subjective process of estimating underground accumulations of oil and gas that are difficult to measure. Estimates of economically recoverable oil and gas reserves and of future net cash flows depend upon a number of variable factors and assumptions, such as future production, oil and gas prices, operating costs, development costs and remedial costs, all of which may vary considerably from actual results. As a result, estimates of the economically recoverable quantities of oil and gas and of future net cash flows expected therefrom may vary substantially. As required by the SEC, the estimated discounted future net cash flows from proved reserves are based on a twelve month un-weighted first-day-of-the-month average oil and gas prices for the twelve months prior to the date of the report. Actual future prices and costs may be materially higher or lower.

An increase in the differential between NYMEX and the reference or regional index price used to price our oil and gas would reduce our cash flow from operations.

Our oil and gas is priced in the local markets where it is produced based on local or regional supply and demand factors. The prices we receive for our oil and gas are typically lower than the relevant benchmark prices, such as The New York Mercantile Exchange (“NYMEX”). The difference between the benchmark price and the price we receive is called a differential. Numerous factors may influence local pricing, such as refinery capacity, pipeline capacity and specifications, upsets in the midstream or downstream sectors of the industry, trade restrictions and governmental regulations. Additionally, insufficient pipeline capacity, lack of demand in any given operating area or other factors may cause the differential to increase in a particular area compared with other producing areas. During fiscal 2021,2023, differentials averaged $0.93$4.57 per Bbl of oil and $0.13($0.28) per Mcf of gas. Increases in the differential between the benchmark prices for oil and gas and the wellhead price we receive could significantly reduce our revenues and our cash flow from operations.

Drilling and operating activities are high risk activities that subject us to a variety of factors that we cannot control.

These factors include availability of workover and drilling rigs, well blowouts, cratering, explosions, fires, formations with abnormal pressures, pollution, releases of toxic gases and other environmental hazards and risks. Any of these operating hazards could result in substantial losses to us. In addition, we incur the risk that no commercially productive reservoirs will be encountered, and there is no assurance that we will recover all or any portion of our investment in wells drilled or re-entered.

Acquisitions are subject to the risks and uncertainties of evaluating reserves and potential liabilities and may be disruptive and difficult to integrate into our business.

We plan to continue growing our reserves through acquisitions. Acquired properties can be subject to significant unknown liabilities. Prior to completing an acquisition, it is generally not feasible to conduct a detailed review of each individual property to be acquired in an acquisition. Even a detailed review or inspection of each property may not reveal all existing or potential liabilities associated with owning or operating the property. Moreover, some potential liabilities, such as environmental liabilities related to groundwater contamination, may not be discovered even when a review or inspection is performed. Our initial reserve estimates for acquired properties may be inaccurate. Downward adjustments to our estimated proved reserves, including reserves added through acquisitions, could require us to write down the carrying value of our oil and gas properties, which would reduce our earnings and our stockholders’ equity. In addition, we may have to assume cleanup or reclamation obligations or other unanticipated liabilities in connection with these acquisitions. The scope and cost of these obligations may ultimately be materially greater than estimated at the time of the acquisition.

We may not be able to fund the capital expenditures that will be required for us to increase reserves and production.

We must make capital expenditures to develop our existing reserves and to discoveracquire new reserves. Historically, we have used our cash flow from operations and borrowings under our credit facility to fund our capital expenditures, however, lower oil and gas prices may prevent these options. Volatility in oil and gas prices, the timing of our drilling programs and drilling results will affect our cash flow from operations. Lower prices and/or lower production will also decrease revenues and cash flow, thus reducing the amount of financial resources available to meet our capital requirements, including reducing the amount available to pursue our drilling opportunities.

The borrowing base under our credit facility will be determined from time to time by the lender. Reductions in estimates of oil and gas reserves could result in a reduction in the borrowing base, which would reduce the amount of financial resources available under the credit facility to meet our capital requirements. Such a reduction could be the result of lower commodity prices and/or production, inability to drill or unfavorable drilling results, changes in oil and gas reserve engineering, the lender’s inability to agree to an adequate borrowing base or adverse changes in the lender’s practices regarding estimation of reserves.

If cash flow from operations or our borrowing base decrease for any reason, our ability to undertake exploration and development activities could be adversely affected. As a result, our ability to replace production may be limited.

Our identified drilling locations are scheduled out over several years, making them susceptible to uncertainties that could materially alter the occurrence or timing of their drilling.

Our management and outside operators have specifically identified and scheduled drilling locations as an estimation of our future multi-year drilling activities on our existing acreage. These drilling locations represent a significant part of our growth strategy. Our ability to drill and develop these locations depends on a number of uncertainties, including crude oil and natural gas prices, the availability of capital, costs, drilling results, regulatory approvals and other factors. If future drilling results in these projects do not establish sufficient reserves to achieve an economic return, we may curtail drilling in these projects. Because of these uncertainties, we do not know if the numerous potential drilling locations we have identified will ever be drilled or if we will be able to produce crude oil or natural gas from these or any other potential drilling locations.

Our business depends on oil and natural gas transportation facilities which are owned by others.

The marketability of our production depends in part on the availability, proximity and capacity of natural gas gathering systems, pipelines and processing facilities. Federal and state regulation of oil and gas production and transportation, tax and energy policies, changes in supply and demand and general economic conditions could all affect our ability to produce and market our oil and gas.

We have limited control over activities on properties we do not operate, which could reduce our production and revenues.

All of our business activities are conducted through joint operating or other agreements under which we own working and royalty interests in natural gas and oil properties in which we do not operate. As a result, we have a limited ability to exercise influence over normal operating procedures, expenditures or future development of underlying properties and their associated costs. The failure of an operator of our wells to adequately perform operations could reduce our revenues and production.

TheAcquiring reserves in the oil and gas industry is highly competitive.

Competition for oil and gas reserve acquisitions is significant. We may compete with major oil and gas companies, other independent oil and gas companies and individual producers and operators, some of which have financial and personnel resources substantially in excess of those available to us. As a result, we may be placed at a competitive disadvantage. Our ability to acquire and develop additional properties in the future will depend upon our ability to select and acquire suitable producing properties and prospects for future development activities. In addition, the oil and gas industry as a whole also competes with other industries in supplying the energy and fuel requirements of industrial, commercial and individual consumers. The price and availability of alternative energy sources could adversely affect our revenue. The market for our oil, gas and natural gas liquids production depends on factors beyond our control, including domestic and foreign political conditions, the overall level of supply of and demand for oil, gas and natural gas liquids, the price of imports of oil and gas, weather conditions, the price and availability of alternative fuels, the proximity and capacity of gas pipelines and other transportation facilities and overall economic conditions.

We may not be insured against all of the operating hazards to which our business is exposed.

Our operations are subject to all the risks inherent in the exploration for, and development and production of oil and gas including blowouts, fires and other casualties. We maintain insurance coverage customary for operations of a similar nature, but losses could arise from uninsured risks or in amounts in excess of existing insurance coverage.

Certain U.S. federal income tax deductions currently available with respect to crude oil and natural gas exploration and development may be eliminated as a result of proposed legislation.

Legislation previously has been proposed that would, if enacted into law, make significant changes to U. S. federal income tax laws, including the elimination of certain key U.S. federal income tax incentives currently available to crude oil and natural gas exploration and production companies. These changes include, but are not limited to: (1) the repeal of the percentage depletion allowance for crude oil and natural gas properties, (2) the elimination of current deductions for intangible drilling and development costs, (3) the elimination of the deduction for certain U.S. domestic production activities, and (4) an extension of the amortization period for certain geological and geophysical expenditures. It is unclear whether any such changes will be enacted and, if enacted, how soon any such changes could become effective. The passage of this type of legislation or any other similar changes in U.S. federal income tax laws could eliminate or postpone certain tax deductions that are currently available with respect to crude oil and natural gas exploration and development, and any such change could have an adverse effect on the value of an investment in our Common Stock as well as our financial position, results of operations and cash flows.

In March 2020, the President of the United States signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), to stabilize the economy during the coronavirus pandemic. The CARES Act temporarily suspends and modifies certain tax laws established by the 2017 tax reform law known as the Tax Cuts and Jobs Act, including, but not limited to, modifications to net operating loss limitations, business interest limitations and alternative minimum tax. The CARES Act did not have a material impact on the Company’s current year provision and the Company’s consolidated financial statements.

A terrorist or cyber-attack or armed conflict could harm our business by decreasing our revenues and increasing our costs.

Terrorist activities, anti-terrorist efforts, cyber-attacks and other armed conflicts involving the United States may adversely affect the United States and global economies and could prevent us from meeting our financial and other obligations. If any of these events occur or escalate, the resulting political instability and societal disruption could reduce overall demand for oil and natural gas, potentially putting downward pressure on demand for our production and causing a reduction in our revenue. Oil and natural gas related facilities could be direct targets of terrorist attacks, and our operations could be adversely impacted if significant infrastructure or facilities used for the production, transportation, processing or marketing of oil and natural gas production are destroyed or damaged.

Our reliance on information technology, including those hosted by third parties, exposes us to cyber security risks that could affect our business, financial condition or reputation and increase compliance challenges.reputation.

We rely on information technology systems, including internet sites, computer software, data hosting facilities and other hardware and platforms, some of which are hosted by third parties, to assist in conducting our business. Our information technology systems, as well as those of third parties we use in our operations, may be vulnerable to a variety of evolving cybersecurity risks, such as those involving unauthorized access or control, denial-of-service attacks, malicious software, data privacy breaches by employees, insiders or others with authorized access, cyber or phishing-attacks, ransomware, malware, social engineering, physical breaches or other actions. These cybersecurity threat actors, whether internal or external to us, are becoming more sophisticated and coordinated in their attempts to access the Company’s information technology systems and data, including the information technology systems of cloud providers and other third parties with whom the Company conducts business.

Although we have implemented information technology controls and systems that are designed to protect information and mitigate the risk of data loss and other cybersecurity risks, such measures cannot entirely eliminate cybersecurity threats, and the enhanced controls we have installed may be breached. If our information technology systems cease to function properly or our cybersecurity is breached, we could suffer disruptions to our normal operations. A cyber-attack involving our information systems and related infrastructure, or that of our business associates, could negatively impact our operations in a variety of ways, including, but not limited to, the following:

● Unauthorized access to seismic data, reserves information, strategic information, or other sensitive or proprietary information could have a negative impact on our ability to compete forThe oil and natural gas resources;

● A cyber-attackindustry has become increasingly dependent on a vendordigital technologies to conduct certain exploration, development, production, and processing activities, including digital technologies to interpret seismic data, manage drilling rigs, production equipment and gathering systems, conduct reservoir modeling and reserves estimation, and process and record financial and operating data. At the same time, cyber incidents, including deliberate attacks or service providerunintentional events, have increased. The U.S. government has issued public warnings that indicate energy assets might be specific targets of cyber security threats. Our and our operators’ technologies, systems, networks, and those of vendors, suppliers and other business partners, may become the target of cyberattacks or information security breaches that could result in supply chain disruptions which could delaythe unauthorized release, gathering, monitoring, misuse, loss or halt our major development projects;

● A cyber-attack on third-party gathering, pipeline,destruction of proprietary and other information, or rail transportation systems could delay or prevent our outside operators from transporting and marketing production, resulting in a lossother disruption of revenues;

● A cyber-attack which halts activities at a power generation facility or refinery using natural gas as feed stock could have a significant impact on the natural gas market, resulting in reduced demand for our production, lower natural gas prices, and reduced revenues;

● A deliberate corruption of our financial or operating data could result in events of non-compliance which could then lead to regulatory fines or penalties; and

All of the above could negatively impact our operational and financial results. Additionally,business activities. In addition, certain cyber incidents, such as surveillance, may remain undetected for an extended period. Our systems for protecting against cyber security risks may not be sufficient. As cyber threatsincidents continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. Additionally, the growth of cyber-attacks has resulted in evolving legal and compliance matters which impose significant costs that are likelyvulnerability to increase over time.cyber incidents.

The loss of our chief executive officer or other key personnelpresident could adversely impact our ability to execute our business strategy.

We depend, and will continue to depend in the foreseeable future, upon the continued services of our Chief Executive Officer, Nicholas C. Taylor and our President and Chief Financial Officer, Tamala L. McComic, and other key personnel, who have extensive experience and expertise in evaluating and analyzing producing oil and gas properties and drilling prospects, maximizing production from oil and gas properties and developing and executing acquisitions and financing. As of March 31, 2021,2023, we do not have key-man insurance on the lives of Mr. Taylor and Ms. McComic. The unexpected loss of the services of one or more of these individuals could, therefore, significantly and adversely affect our operations.

We may be affected by one substantial shareholder.

Nicholas C. Taylor beneficially owns approximately 46%44% of the outstanding shares of our common stock. Mr. Taylor is also our Chairman of the Board and Chief Executive Officer. As a result, Mr. Taylor has significant influence in matters voted on by our shareholders, including the election of our Board members. Mr. Taylor participates in all facets of our business and has a significant impact on both our business strategy and daily operations. The retirement, incapacity or death of Mr. Taylor, or any change in the power to vote shares beneficially owned by Mr. Taylor, could result in negative market or industry perception and could have an adverse effect on our business.

RISKS RELATED TO OUR COMMON STOCK

We may issue additional shares of common stock in the future, which could cause dilution to all shareholders.

We may seek to raise additional equity capital in the future. Any issuance of additional shares of our common stock will dilute the percentage ownership interest of all shareholders and may dilute the book value per share of our common stock.

We have not and do not anticipate paying any cash dividends on our common stock in the foreseeable future.

We have paid no cash dividends on our common stock to date and it is not anticipated that any will be paid to holders of our common stock in the foreseeable future. The terms of our existing credit facility restricts the payment of dividends without the prior written consent of the lenders. We currently intend to retain all future earnings to fund the development and growth of our business. Any payment of future dividends will be at the discretion of our board of directors and will depend on, among other things, our earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that our board of directors deems relevant. Stockholders must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize a return on their investment.

Control by our executive officers and directors may limit your ability to influence the outcome of matters requiring stockholder approval and could discourage our potential acquisition by third parties.

As of March 31, 2021,2023, our executive officers and directors beneficially owned approximately 51%47% of our common stock. These stockholders, if acting together, would be able to influence significantly all matters requiring approval by our stockholders, including the election of our board of directors and the approval of mergers or other business combination transactions.

The price of our common stock has been volatile and could continue to fluctuate substantially.

Mexco common stock is traded on the New York Stock Exchange’s NYSE American. The market price of our common stock has and could continue to experience volatility due to reasons unrelated to our operating performance. These reasons include: supply and demand for oil and natural gas; political conditions in oil and natural gas producing regions; demand for our common stock and limited trading volume; investor perception of our industry; fluctuations in commodity prices; variations in our results of operations; legislative or regulatory changes; general trends in the oil and natural gas industry; market conditions and analysts’ estimates; and, other events in the oil and gas industry.

Many of these factors are beyond our control, and we cannot predict their potential effects on the price of our common stock. We cannot assure you that the market price of our common stock will not fluctuate or decline significantly in the future. In addition, the stock markets in general can experience considerable price and volume fluctuations.

Failure of the Company’s internal control over financial reporting could harm its business and financial results.

The management of Mexco is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect Mexco’s transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of the financial statements; providing reasonable assurance that receipts and expenditures are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements would be prevented or detected on a timely basis.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our properties consist primarily of oil and gas wells and our ownership in leasehold acreage, both developed and undeveloped. As of March 31, 2021,2023, we had interests in approximately 6,400 gross (20(18.5 net) producing oil and gas wells and owned leasehold mineral, royalty and other interests in approximately 586,000544,000 gross (3,169(2,768 net) acres.

Oil and Natural Gas Reserves

In accordance with current SEC rules, the average prices used in computing reserves at March 31, 20212023 were $37.42$92.02 per bbl of oil compared to $53.23$74.52 in 2020, a decrease2022, an increase of 30%23%, and $2.29$5.68 per mcf of natural gas compared to $1.66$4.60 in 2020,2022, an increase of 38%23%, such prices are based on the 12-month unweighted arithmetic average market prices for sales of oil and natural gas on the first calendar day of each month during fiscal 2021.2023. The benchmark price of $36.49$87.45 per bbl of oil at March 31, 20212023 versus $52.23$71.72 at March 31, 2020,2022, was adjusted by lease for gravity, transportation fees and regional pricemarket differentials and did not give effect to derivative transactions. The benchmark price of $2.16$5.96 per mcf of natural gas at March 31, 20212023 versus $2.30$4.09 at March 31, 2020,2022, was adjusted by lease for BTU content, transportation fees and regional pricemarket differentials.

For information concerning our costs incurred for oil and gas operations, net revenues from oil and gas production, estimated future net revenues attributable to our oil and gas reserves, present value of future net revenues discounted at 10% and changes therein, see Notes to the Company’s consolidated financial statements.

Proved reserves are estimated reserves of crude oil (including condensate and natural gas liquids) and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those expected to be recovered through existing wells, equipment and operating methods. Proved undeveloped reserves are proved reserves that are expected to be recovered from new wells drilled to known reservoirs on undrilled acreage for which the existence and recoverability of such reserves can be estimated with reasonable certainty, or from existing wells on which a relatively major expenditure is required to establish production.

The engineering report with respect to Mexco’s estimates of proved oil and gas reserves as of March 31, 20212023 and 20202022 is based on evaluations prepared by Russell K. Hall and Associates, Inc. Environmental Engineering Consultants, based in Midland, Texas (“Hall and Associates”), a summary of which is filed as Exhibit 99.1 to this annual report.

Management maintains internal controls designed to provide reasonable assurance that the estimates of proved reserves are computed and reported in accordance with rules and regulations provided by the SEC. As stated above, Mexco retained Hall and Associates to prepare estimates of our oil and gas reserves. Management works closely with this firm, and is responsible for providing accurate operating and technical data to it. Our Chief Financial Officer who has over 25 years experience in the oil and gas industry reviews the final reserves estimate and consults with a degreed geological consultant with extensive geological experience and if necessary, discusses the process used and findings with Alan Neal, the technical person at Hall and Associates responsible for evaluating the proved reserves covered by this report. Mr. Neal is a member of the Society of Petroleum Engineers and has over 35 years of experience in the oil and gas industry. Our Chairman and Chief Executive Officer who has over 45 years of experience in the oil and gas industry also reviews the final reserves estimate.

Numerous uncertainties exist in estimating quantities of proved reserves. Reserve estimates are imprecise and subjective and may change at any time as additional information becomes available. Furthermore, estimates of oil and gas reserves are projections based on engineering data. There are uncertainties inherent in the interpretation of this data as well as the projection of future rates of production. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation. Actual future production, oil and gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable oil and gas reserves will most likely vary from the assumptions and estimates. Any significant variance could materially affect the estimated quantities and value of our oil and gas reserves, which in turn may adversely affect our cash flow, results of operations and the availability of capital resources.

Per the current SEC rules, the prices used to calculate our proved reserves and the present value of proved reserves set forth herein are made using the 12-month unweighted arithmetic average of the first-day-of-the-month price. All prices are held constant throughout the life of the properties. Actual future prices and costs may be materially higher or lower than those as of the date of the estimate. The timing of both the production and the expenses with respect to the development and production of oil and gas properties will affect the timing of future net cash flows from proved reserves and their present value. Except to the extent that we acquire additional properties containing proved reserves or conduct successful exploration and development activities, or both, our proved reserves will decline as reserves are produced.

Our estimated proved oil and gas reserves and present value of estimated future net revenues from proved oil and gas reserves in the periods ended March 31 are summarized below.

PROVED RESERVES

During fiscal 2021,2023, we added proved reserves of 139101 thousand BOE (“MBOE”) through extensions and discoveries, subtracted 23added 52 MBOE through sales of oil and gas properties andacquisitions, subtracted 54 MBOE for downward revisions of previous estimates of 324 MBOE.estimates. Such downward revisions are primarily the result of reserves written off due to the five-year limitation.limitation and the change in the timing of new development. They are primarily workingroyalty interests on leases in a unit in the Wolfcamp B Zone in UptonLoving, Pecos and ReaganWard Counties, Texas which are on a lease held by production and still in place to be developed in the future.

During the fiscal year ending March 31, 2021,2023, we had a working or royalty interest in the development of 3559 wells converting reserves of approximately 83,200186,000 BOE from proved undeveloped to proved developed – producing with capital cost of approximately $947,000.$3,612,000.

Oil and gas prices significantly impact the calculation of the PV-10 and the standardized measure of discounted future net cash flows. The present value of future net cash flows does not purport to be an estimate of the fair market value of the Company’s proved reserves. An estimate of fair value would also take into account, among other things, anticipated changes in future prices and costs, the expected recovery of reserves in excess of proved reserves and a discount factor more representative of the time value of money and the risks inherent in producing oil and gas. Future prices received for production and costs may vary, perhaps significantly, from the prices and costs assumed for purposes of these estimates. The 10% discount factor used to calculate present value, which is required by Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 932, “Extractive Activities – Oil and Gas”, may not necessarily be the most appropriate discount rate. The present value, no matter what discount rate is used, is materially affected by assumptions as to timing of future production, which may prove to be inaccurate.

We have not filed any other oil or gas reserve estimates or included any such estimates in reports to other federal or foreign governmental authority or agency during the year ended March 31, 2021,2023, and no major discovery is believed to have caused a significant change in our estimates of proved reserves since that date.

Drilling Activities

The following table sets forth our drilling activity in wells in which we own a working interest for the years ended March 31:

The information contained in the foregoing table should not be considered indicative of future drilling performance, nor should it be assumed that there is any necessary correlation between the number of productive wells drilled and the amount of oil and gas that may ultimately be recovered by us. The net numbers above represent Mexco’s working interest in the gross wells.

In addition to the working interests mentioned above, other operators drilled 5785 gross wells (.13(.04 net wells) on company-owned minerals and royalties at no expense to the Company. We expect the production of our mineral interests will increase as operators continue to drill, complete and develop our acreage. We expect to capitalize on this development, which requires no capital expenditure funding from us, and believe the anticipated aggregate royalty receipts will enable us to grow our cash flows. A number of the horizontal wells in which the Company participates involve longer lateral which are more efficient and have greater estimated ultimate recovery.

Productive Wells and Acreage

Productive wells consist of producing wells and wells capable of production, including gas wells awaiting pipeline connections. Wells that are completed in more than one producing zone are counted as one well. As of March 31, 2021,2023, we held an interest in approximately 6,400 gross (20(18.5 net) productive wells, including approximately 5,1005,200 wells in which we held an overriding or royalty interest and 1,100 wells in which we held a working interest.

A gross acre is an acre in which an interest is owned. A net acre is deemed to exist when the sum of fractional ownership interests in gross acres equals one. The number of net acres is the sum of the fractional interests owned in gross acres. The following table sets forth the approximate developed acreage in which we held a leasehold mineral or other interest as of March 31, 2021:2023:

Net Production, Unit Prices and Costs

The following table summarizes our net oil and natural gas production, the average sales price per barrel (“bbl”) of oil and per thousand cubic feet (“mcf”) of natural gas produced and the average production (lifting) cost per unit of production for the years ended March 31:

ITEM 3. LEGAL PROCEEDINGS

We may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business. We are not aware of any legal or governmental proceedings against us, or contemplated to be brought against us, under various environmental protection statutes or other regulations to which we are subject.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

Not applicable.

PART II

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

In September 2003, our common stock began trading on the NYSE American, formerly the American Stock Exchange and more recently the NYSE MKT, under the symbol “MXC”. Prior to September 2003, the Company’s common stock was traded on the over-the-counter bulletin board market under the symbol “MEXC”. The registrar and transfer agent is Issuer Direct Corporation, 500 Perimeter Park Drive, Suite D, Morrisville, North Carolina, 27560 (Tel: 877-481-4014). The following table sets forth certain information as to the high and low sales price quoted for Mexco’s common stock on the NYSE American.

On June 14, 2021,March 31, 2023, the closing sales price of our common stock on the NYSE American was $8.85$11.38 per share.

Stockholders

As of March 31, 2021,2023, we had 2,143,6662,221,416 shares issued and 856849 shareholders of record which does not include shareholders for whom shares are held in a “nominee” or “street” name.

Dividends

We have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings and other cash resources, if any, for the operation and development of our business and do not anticipate paying any cash dividends on our common stock Of these issued shares, 85,416 are held in the foreseeable future.treasury.

Dividends

As of March 31, 2023, the Company had never paid a cash dividend to the Company’s shareholders. Payment of any future dividends will beare at the discretion of our Board of Directors after taking into account many factors, including our financial condition, operating results, current and anticipated cash needs and plans for expansion. In addition, our current bank loan prohibits us from paying cash dividends on our common stock without written permission.

Subsequently, on April 10, 2023, the Company announced that its Board of Directors declared a special dividend of $0.10 per common share to its shareholders of record at the close of business on May 1, 2023. The special dividend was paid on May 15, 2023. The Company obtained written permission from WTNB prior to declaring the special dividend.

The Company can provide no assurance that dividends will be authorized or declared in the future or as to the amount or type of any future dividends. Our board of directors’ determination with respect to any such dividends, including the record date, the payment date and the actual amount of the dividend, will depend upon our profitability and financial condition, contractual restrictions, restrictions imposed by applicable law and other factors that the board deems relevant at the time of such determination.

Securities Authorized for Issuance Under Compensation Plans

The following table includes certain information about our Employee Incentive Stock Plan as of March 31, 2021,2023, which has been approved by our stockholders.

Issuer Repurchases

In September 2020,2022, the Boardboard of Directorsdirectors authorized the use of up to $250,000 to repurchase shares of our common stock for the treasury account. This program does not have an expiration date.date and may be modified, suspended or terminated at any time by the board of directors. Under the repurchase program, shares of common stock may be purchased from time to time through open market purchases or other transactions. The amount and timing of repurchases will be subject to the availability of stock, prevailing market conditions, the trading price of the stock, our financial performance and other conditions. Repurchases may also be made from time-to-time in connection with the settlement of our share-based compensation awards. Repurchases will be funded from cash flow from operations.

The following table provides information related to repurchases of our common stock for the treasury account during the year ended March 31, 2023:

During the year ended March 31, 2023, the Company repurchased 18,416 shares for the treasury account at an aggregate cost of $244,494, an average price of $13.28 per share. There were no shares of our common stock repurchased for the treasury account during the fiscal yearsyear ended March 31, 2021 and 2020.2022.

Subsequently, in April 2023, the Company’s Board of Directors authorized the use of up to $1,000,000 to repurchase shares of the Company’s common stock, par value, $0.50, for the treasury account. This authorization replaced the previously authorized $250,000 common stock repurchase program which had $5,506 remaining at the time it was replaced.

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (“IRA 2022”). The IRA 2022, among other tax provisions, establishes a 1% excise tax on stock repurchases made by publicly traded U.S. corporations, effective for stock repurchases after December 31, 2022. The IRA 2022 does provide for certain exceptions for repurchases of stock including an exception as long as the aggregate value of the repurchases for the tax year does not exceed $1,000,000.

ITEM6. RESERVED

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to provide information relevant to an understanding of our financial condition, changes in our financial condition and our results of operations and cash flows and should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this Form 10-K.

Liquidity and Capital Resources and Commitments

Historically, we have funded our operations, acquisitions, exploration and development expenditures from cash generated by operating activities, bank borrowings, sales of non-core properties and issuance of common stock. Our primary financial resource is our base of oil and gas reserves. We have pledged our producing oil and gas properties to secure our credit facilty.facility. We do not have any delivery commitments to provide a fixed and determinable quantity of our oil and gas under any existing contract or agreement.

Due to the current commodity price environment, we are applying financial discipline to all aspects of our business. In order to meet obligations and to optimize allocation of resources, we may continue to sell non-core assets.

Our long-term strategy is on increasing profit margins while concentrating on obtaining reserves with low-cost operations by acquiring and developing oil and gas properties with potential for long-lived production. We focus our efforts on the acquisition of royalties and working interests and non-operated properties in areas with significant development potential.

Cash Flows

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

Cash Flow Provided by Operating Activities. Cash flow from operating activities is primarily derived from the production of our crude oil and natural gas reserves and changes in the balances of non-cash accounts, receivables, payables or other non-energy property asset account balances. Cash flow provided by our operating activities for the year ended March 31, 20212023 was $710,047$6,515,895 in comparison to $864,960$3,744,407 for the year ended March 31, 2020. Changes2022. This increase of $2,771,488 in our cash flow operating activities for the year ended March 31, 2021 in comparison to the year ended March 31, 2020 were ($154,913) and consisted of an increase in our non-cash expenses of $4,979; an increase$565,838; a decrease in our accounts receivable of $431,992; an increase$594,673; a decrease of $48,052$128,615 in our accounts payable and accrued expenses; a decrease in other assets of $30.421; and, an increase in our net income for the current year compared to a net loss the prior year of $255,410.$1,807,636. Variations in cash flow from operating activities may impact our level of exploration and development expenditures.

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

Cash Flow Used in Investing Activities. Cash flow from investing activities is derived from changes in oil and gas property balances. For the year ended March 31, 2021,2023, we had net cash of $1,337,624$5,014,357 used for additions to oil and gas properties and a $50,000$425,000 investment in atwo limited liability companycompanies compared to $1,591,565$1,635,024 and $150,000,$75,000, respectively, for the year ended March 31, 2020.2022.

Cash Flow Provided byUsed in Financing Activities. Cash flow from financing activities is derived from our changes in long-term debt and in equity account balances. CashNet cash flow provided byused in our financing activities was $701,009$209,815 for the year ended March 31, 20212023 compared to $782,734net cash flow used in our financing activities of $721,430 for the year ended March 31, 2020.2022. During the years ended March 31, 2021 and 2020, we received advances of $935,000 and $1,285,000, respectively, from our credit facility. For the year ended March 31, 20212023, we received advances and March 31, 2020, we made payments of $550,000$675,000 on our credit facility, received proceeds of $16,700 from the exercise of director stock options, received payment of $30,179 form a director for profits on purchase of stock within the six-month window of a previous stock sale, expended $244,494 for the purchase of 18,416 shares of our stock for the treasury and, $490,000, respectively, onexpended $12,200 for the renewal of our credit facility. ForDuring the year ended March 31, 2021,2022, we received advances of $275,000 and made payments of $1,455,000 on our credit facility and received proceeds of $247,435$458,570 for the exercise of employee and director stock options and $68,574 under the paycheck protection program (PPP).options.

Accordingly, net cash increased $23,432,$865,005, leaving cash and cash equivalents on hand of $57,813$2,235,771 as of March 31, 2021.2023.

We had working capital of $618,960$3,475,776 as of March 31, 20212023 compared to working capital of $186,785$2,469,776 as of March 31, 2020,2022, an increase of $409,849$1,006,000 for the reasons set forth below.

Oil and Natural Gas Property DevelopmentDevelopment.

New Participations in Fiscal 2023. The Company participated in the drilling and completion of 2250 horizontal wells at a cost of approximately $1,030,000 for$4,200,000, of which $3,750,000 was expended during the fiscal year ending March 31, 2021,2023. Eighteen of which 12these wells have not been completed. AllThirty-nine 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.Mexico and twelve are in the Midland Basin located in the eastern portion of the Permian Basin in Reagan County, Texas.

In addition to the above working interests, there were 5785 gross wells (.13(.04 net wells) drilled by other operators on Mexco’s royalty interests and 50 gross wells (.29 net wells) obtained through acquisitions.

Participations in Fiscal 2021. In April 2022, Mexco participatedexpended approximately $176,000 to participate 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%.

Mexco participated in the drilling and completion of four 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 with aggregate costs of approximately $370,000. Mexco’s working interest in these wells is 1.2%. These wells were completed in March and April 2021 with initial average production rates of 1,044 barrels of oil, 4,686 barrels of water and 2,898,000 cubic feet of gas per day, or 1,527 barrels of oil equivalent per day.

Mexco expended $271,000 to participate in the drilling and completion 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%. These wells were completed in February 2021 with initial average production rates of 1,126 barrels of oil, 2,036 barrels of water and 2,108,000 cubic feet of gas per day, or 1,477 barrels of oil equivalent per day.

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 with aggregate costs of approximately $74,000. Mexco’s working interest in these wells is 1.2%.52%. Subsequently, in April 2021,May 2023, Mexco expended another $108,000approximately $211,000 to complete these wells.

The CompanyMexco expended $28,500 for its shareapproximately $1,196,000 to participate in the drilling and completion of twothree horizontal wells in the 3rd Bone SpringWolfcamp Sand formation of the DelawareMidland Basin located in the westerneastern portion of the Permian Basin in Reagan County, Texas. Mexco’s working interest in these wells is 3.2%. These wells were completed in October 2022 with initial average production rates of 507 barrels of oil, 2,147 barrels of water and 2,147,000 cubic feet of gas per day, or, 560 barrels of oil equivalent per day.

Mexco expended approximately $681,000 to participate in the drilling and completion of eight horizontal wells in the Wolfcamp Sand formation of the Delaware Basin in Lea County, New Mexico. Mexco’s working interest in these wells is .1%.52%. Subsequently, theseThese wells were completed in April 2021February and March 2023 with initial average production rates of 1,2251,011 barrels of oil, 3,8914,581 barrels of water and 2,905,0003,577,000 cubic feet of gas per day, or 1,7091,607 barrels of oil equivalent per day. Also in April 2021, the Company expended $11,400 to participate in the drilling of two additional wells on this acreage.

Mexco invested approximately $49,000 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%. These wells are planned to be drilled during fiscal 2022.

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 $67,000. Mexco’s working interest in these wells is .56%. Subsequently, in May 2021, Mexco expended approximately $109,000$607,000 to complete these wells.

The Company also participatedparticipate in the drilling and completion of three vertical wells in Winkler County, Texas at an aggregate cost of $12,400. Mexco’s working interest in these wells is .41%. These wells, operated by Blackbeard Operating, LLC are currently producing.

Completion of Wells Drilled in Fiscal 2020. The Company expended approximately $270,000 which was the balance of the completion costs of 22a horizontal wells located in Lea and Eddy Counties, New Mexico which were drilled during fiscal 2020. As of January 2021, all of these wells have been completed and are currently producing.

Sales of Properties. Effective 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.

Participations Subsequent to Fiscal 2021. In May 2021, Mexco expended approximately $28,000 to participate in the drilling of two horizontal wellswell in the Wolfcamp Sand formation of the Delaware Basin located in the western portion of the PermianMidland Basin in LeaReagan County, New Mexico.Texas. Mexco’s working interest in these wellsthis well is .37%5.1%. This well was completed in October 2022 with initial average production rates of 295 barrels of oil, 1,313 barrels of water and 237,000 cubic feet of gas per day, or, 335 barrels of oil equivalent per day.

In May 2021, Mexco expended approximately $70,000$649,000 to participate in the drilling and completion of four horizontal wells in the Lower Wolfcamp ShaleBone Spring formation of the Delaware Basin in Eddy County, New Mexico. Mexco’s working interest in these wells is .44%2.1%. These wells began producing in October 2022 with initial average production rates of 1,154 barrels of oil, 2,887 barrels of water and 2,966,000 cubic feet of gas per day, or, 1,648 barrels of oil equivalent per day.

Mexco expended approximately $84,000 to participate in the drilling and completion of two horizontal wells in the Penn Shale formation of the Delaware Basin in Lea County, New Mexico. Mexco’s working interest in these wells is .22%. These wells began producing in January 2023 with initial average production rates of 1,367 barrels of oil, 3,900 barrels of water and 1,786,000 cubic feet of gas per day, or, 1,665 barrels of oil equivalent per day.

Mexco expended approximately $30,000 to participate in the drilling and completion of two horizontal wells in the Bone Spring formation of the Delaware Basin in Lea County, New Mexico. Mexco’s working interest in these wells is .1%. These wells began producing in February 2023 with initial average production rates of 622 barrels of oil, 1,991 barrels of water and 262,000 cubic feet of gas per day, or, 666 barrels of oil equivalent per day.

Mexco expended approximately $93,000 to participate in the drilling and completion of eight horizontal wells in the Spraberry trend of the Midland Basin in Reagan County, Texas. Mexco’s working interest in these wells is approximately .11%. These wells began producing in December 2022.

Mexco expended $16,000 to participate in the drilling and completion of three horizontal wells in the Bone Spring formation of the Delaware Basin in Eddy County, New Mexico. Mexco’s working interest in these wells is .05%. These wells were subsequently completed in May 2023 with initial average production rates of 437 barrels of oil, 983 barrels of water and 603,000 cubic feet of gas per day, or, 538 barrels of oil equivalent per day.

In February 2023, Mexco expended approximately $31,000 to participate in the drilling and completion of seven horizontal wells in the Bone Spring formation of the Delaware Basin in Lea County, New Mexico. Mexco’s working interest in these wells is approximately .03%. These wells are currently being completed.

In January 2023, Mexco expended $180,000 to participate in the drilling of four horizontal wells in the Wolfcamp Sand formation of the Delaware Basin in Lea County, New Mexico. Mexco’s working interest in these wells is approximately .52%. These wells are currently awaiting completion operations.

In March 2023, Mexco expended approximately $60,000 to participate in the drilling of two horizontal wells in the Penn Shale formation of the Delaware Basin in Lea County, New Mexico. Mexco’s working interest in these wells is approximately .285%. These wells began drilling in April 2023.

In October 2022, the Company made an approximately 2% equity investment commitment in a limited liability company amounting to $2,000,000 of which $400,000 has been funded to date. 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.

Completion of Wells Drilled in Fiscal 2023. The Company expended approximately $329,000 for the completion costs of 8 horizontal wells located in Lea County, New Mexico that the Company participated in drilling during fiscal 2022. The first 4 of these wells began producing in May 2022 and the remaining 4 were completed in November 2022 with initial average production rates of 1,168 barrels of oil, 3,797 barrels of water and 2,621,000 cubic feet of gas per day, or, 1,605 barrels of oil equivalent per day.

Acquisitions in Fiscal 2023. The Company acquired various royalty (mineral) interests in 22 wells and several additional potential locations for development operated by Chesapeake Energy Corporation and located in the Eagleford area of Dimmit County, Texas for a purchase price of $939,000 which was effective April 1, 2022.

The Company also acquired, for a purchase price of $117,200, royalty interests covering 28 producing wells in 6 counties in the Haynesville trend area of Louisiana and 5 counties in Texas.

Subsequent Participations. In May 2023, Mexco expended approximately $133,000 to participate in the drilling of four horizontal wells in the Wolfcamp Sand formation of the Delaware Basin in Lea County, New Mexico.

Mexco expended approximately $68,000 to participate in the drilling of two horizontal wells in the Penn Shale formation of the Delaware Basin in Lea County, New Mexico.

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.

Markets. 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 negative $41.25$62.72 per bbl in April 2020March 2023 to a high of $62.07$118.09 per bbl in March 2021.June 2022. The Henry Hub Spot Market Price (“Henry Hub”) for natural gas has ranged from a low of $1.33$1.93 per MMBtu in September 2020March 2023 to a high of $23.86$9.85 per MMBtu in February 2021.August 2022.

On March 31, 20212023 the WTI posted price for crude oil was $55.14$71.65 per bbl and the Henry Hub spot price for natural gas was $2.52$2.10 per MMBtu. See Results of Operations below for realized prices.

Results of Operations

Fiscal 20212023 Compared to Fiscal 20202022

We had net income of $155,932$4,662,702 for the year ended March 31, 20212023 compared to a net loss of $99,478$2,855,066 for the year ended March 31, 2020. This is primarily the2022, a 63% increase as a result of an increase in operating revenues due to an increase in oil and natural gas salesprices and a decreaseproduction partially offset by an increase in operating expenses partially offset by a decrease in oil sales asthat is further explained below.

Oil and natural gas sales. Revenue from oil and natural gas sales was $2,773,779$9,380,623 for the year ended March 31, 2021,2023, a 2%44% increase from $2,720,353$6,525,264 for the year ended March 31, 2020.2022. This resulted from an increase in oil and natural gas production volumes and an increase in oil and natural gas prices partially due to improved availability of pipeline capacities of natural gas. This increase was 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 fiscal years ended March 31:

Production and exploration. Production costs were $871,963$1,719,719 in fiscal 2021,2023, a 5% decrease34% increase from $914,649$1,281,112 in fiscal 2020.2022. This was primarily the result of an increase in production taxes and marketing charges as 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 becauseresult of the depressedincrease in oil prices.and gas revenues.

Depreciation, depletion and amortization. Depreciation, depletion and amortization (“DD&A”) expense was $906,361$1,854,047 in fiscal 2021,2023, a 6%38% increase from $853,801$1,345,435 in fiscal 2020.2022. This was primarily due to an increase in oil and gas production and a decrease in oil and gas reserves partially offset by a decreasean increase in the full cost pool amortization base.and a decrease in the oil and gas reserves.

General and administrative expenses. General and administrative expenses were $833,431$1,120,691 for the year ended March 31, 2021, a 17% decrease2023, an 18% increase from $1,006,531$949,079 for the year ended March 31, 2020.2022. This was primarily due to a decreasean increase in employee stock option compensation, salaries and contract services, engineering feeslegal and accounting fees.

Interest expense. Interest expense was $53,232$13,097 in fiscal 2021,2023, a 41% increase51% decrease from $37,656$26,512 in fiscal 2020,2022, due to an increase in borrowings partially offset by a decrease in interest rate.borrowings.

PPP loan forgiveness. PPP loan forgiveness in the amount of $68,957 for the fiscal year ended March 31, 2021 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.

Income taxes. There was no federal income tax for fiscal 20212023 or fiscal 2020. The effective tax rate for fiscal 2021 and fiscal 2020 was 0%.2022. 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. State income tax was $164,510 in fiscal 2023, a 61% increase from $102,356 in fiscal 2022, due to the increase in oil and natural gas sales. The effective tax rate for fiscal 2023 and fiscal 2022 was 3.4% and 3.5%, respectively.

Contractual Obligations

We have no off-balance sheet debt or unrecorded obligations and have not guaranteed the debt of any other party. The following table summarizes future payments we are obligated to make based on agreements in place as of March 31, 2021:2023:

Alternative Capital Resources

Although we have primarily used cash from operating activities, the sales of assets and funding from the credit facility as our primary capital resources, we have in the past, and could in the future, use alternative capital resources. These could include joint ventures, carried working interests and issuances of our common stock through a private placement or public offering.

Other Matters

Critical Accounting Policies and Estimates

In preparing financial statements, management makes 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. On an ongoing basis, management reviews its estimates, including those related to litigation, environmental liabilities, income taxes, fair value and determination of proved reserves. Changes in facts and circumstances may result in revised estimates and actual results may differ from these estimates.

The following represents those policies that management believes are particularly important to the financial statements and that require the use of estimates and assumptions to describe matters that are inherently uncertain.

Full Cost Method of Accounting for Crude Oil and Natural Gas Activities. SEC Regulation S-X defines the financial accounting and reporting standards for companies engaged in crude oil and natural gas activities. Two methods are prescribed: the successful efforts method and the full cost method. We have chosen to follow the full cost method under which all costs associated with property acquisition, exploration and development are capitalized. We also capitalize internal costs that can be directly identified with acquisition, exploration and development activities and do not include any costs related to production, general corporate overhead or similar activities. The carrying amount of oil and gas properties also includes estimated asset retirement costs recorded based on the fair value of the asset retirement obligation (“ARO”) when incurred.

Gain or loss on the sale or other disposition of oil and gas properties is not recognized, unless the sale would significantly alter the relationship between capitalized costs and proved reserves of oil and natural gas attributable to a country. Under the successful efforts method, geological and geophysical costs and costs of carrying and retaining undeveloped properties are charged to expense as incurred. Costs of drilling exploratory wells that do not result in proved reserves are charged to expense. Depreciation, depletion, amortization and impairment of crude oil and natural gas properties are generally calculated on a well by well or lease or field basis versus the “full cost” pool basis. Additionally, gain or loss is generally recognized on all sales of crude oil and natural gas properties under the successful efforts method. As a result our financial statements will differ from companies that apply the successful efforts method since we will generally reflect a higher level of capitalized costs as well as a higher DD&A rate on our crude oil and natural gas properties.

At the time it was adopted, management believed that the full cost method would be preferable, as earnings tend to be less volatile than under the successful efforts method. However, the full cost method makes us more susceptible to significant non-cash charges during times of volatile commodity prices because the full cost pool may be impaired when prices are low. These charges are not recoverable when prices return to higher levels. Our crude oil and natural gas reserves have a relatively long life. However, temporary drops in commodity prices can have a material impact on our business including impact from the full cost method of accounting.

Ceiling Test. Companies that use the full cost method of accounting for oil and gas exploration and development activities are required to perform a ceiling test each quarter. The full cost ceiling test is an impairment test to determine a limit, or ceiling, on the book value of oil and gas properties. That limit is basically the after-tax present value of the future net cash flows from proved crude oil and natural gas reserves plus the lower of cost or fair market value of unproved properties. If net capitalized costs of crude oil and natural gas properties exceed the ceiling limit, we must charge the amount of the excess to earnings. This is called a “ceiling limitation write-down.” This impairment to our oil and gas properties does not impact cash flow from operating activities, but does reduce our stockholders’ equity and reported earnings.

The risk that we will be required to write down the carrying value of crude oil and natural gas properties increases when crude oil and natural gas prices are depressed or volatile. In addition, write-downs may occur if we experience substantial downward adjustments to our estimated proved reserves or if purchasers cancel long-term contracts for natural gas production. An expense recorded in one period may not be reversed in a subsequent period even though higher crude oil and natural gas prices may have increased the ceiling applicable to the subsequent period.

Estimates of our proved reserves are based on the quantities of oil and gas that engineering and geological analysis demonstrates, with reasonable certainty, to be recoverable from established reservoirs in the future under current operating and economic parameters. Our reserve estimates and the projected cash flows are derived from these reserve estimates, in accordance with SEC guidelines by an independent engineering firm based in part on data provided by us. The accuracy of a reserve estimate is a function of the quality and quantity of available data, the interpretation of that data, the accuracy of various mandated economic assumptions, and the judgment of the persons preparing the estimate. Estimates prepared by other third parties may be higher or lower than those included herein. Because these estimates depend on many assumptions, all of which may substantially differ from future actual results, reserve estimates will be different from the quantities of oil and gas that are ultimately recovered. In addition, results of drilling, testing and production after the date of an estimate may justify material revisions to the estimate.

It should not be assumed that the present value of future net cash flows is the current market value of our estimated proved reserves. In accordance with SEC requirements, the cost ceiling represents the present value (discounted at 10%) of net cash flows from sales of future production using the average price over the prior 12-month period.

The estimates of proved reserves materially impact DD&A expense. If the estimates of proved reserves decline, the rate at which we record DD&A expense will increase, reducing future net income. Such a decline may result from lower market prices, which may make it uneconomic to drill for and produce higher cost projects.

Use of Estimates. In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, 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 year end 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 our oil and natural gas reserves, which is used to compute DD&A and impairment of oil and gas properties, is the most significant of the estimates and assumptions that affect these reported results.

Excluded Costs. Oil and gas properties include costs that are excluded from capitalized costs being amortized. These amounts represent investments in unproved properties and major development projects. These costs are excluded until proved reserves are found or until it is determined that the costs are impaired. All costs excluded are reviewed at least quarterly to determine if impairment has occurred. The amount of any impairment is transferred to the capitalized costs being amortized (the DD&A pool). Impairments transferred to the DD&A pool increase the DD&A rate.

Revenue Recognition - Revenue from Contracts with Customers. Revenues from our royalty and non-operated working interest properties are recorded under the cash receipts approach as directly received from the remitters’ statement accompanying the revenue check. Since the revenue checks are generally received two to fourthree months after the production month, the Company accrues for revenue earned but not received by estimating production volumes and product prices. Any identified differences between its revenue estimates and actual revenue received historically have not been significant.

The Company records transportation and processing costs that are incurred after control of its product has transferred to the customer as a reduction of “Natural gas sales” on the Consolidated Statement of Operations.

Asset Retirement Obligations. The estimated costs of plugging, restoration and removal of facilities are accrued. The fair value of a liability for an asset’s retirement obligation is recorded in the period in which it is incurred and the corresponding cost capitalized by increasing the carrying amount of the related long-lived asset. The liability is accreted to its then present value each period, and the capitalized cost is depreciated by the units of production method. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized. For all periods presented, we have included estimated future costs of abandonment and dismantlement in the full cost amortization base and amortize these costs as a component of our depletion expense.

Gas Balancing. Gas imbalances are accounted for under the sales method whereby revenues are recognized based on production sold. A liability is recorded when our excess takes of natural gas volumes exceed our estimated remaining recoverable reserves (over produced). No receivables are recorded for those wells where Mexco has taken less than its ownership share of gas production (under produced).

Stock-based Compensation. We use the Binomial option pricing model to estimate the fair value of stock-based compensation expenses at grant date. This expense is recognized as compensation expense in our financial statements over the vesting period. We recognize the fair value of stock-based compensation awards as wages in the Consolidated Statements of Operations based on a graded-vesting schedule over the vesting period.

Accounts Receivable. Our accounts receivable includes trade receivables from joint interest owners and oil and gas purchasers. Credit is extended based on an evaluation of a customer’s financial condition and, generally, is uncollateralized. Accounts receivable under joint operating agreements have a right of offset against future oil and gas revenues if a producing well is completed. The collectability of receivables is assessed and an allowance is made for any doubtful accounts. The allowance for doubtful accounts is determined based on our previous loss history.

Income Taxes. The Company recognizes deferred tax assets and liabilities for future tax consequences of temporary differences between the carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applicable to the years in which those differences are expected to be settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in net income in the period that includes the enactment date. Any interest and penalties are recorded as interest expense and general and administrative expense, respectively.

Other Property and Equipment. Provisions for depreciation of office furniture and equipment are computed on the straight-line method based on estimated useful lives of three to ten years.

Investments. The Company accounts for investments of less than 1% in3% of any limited liability companies usingat cost. The Company has no control of the cost method.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.

Reclassifications. Certain amounts in prior periods’ consolidated financial statements have been reclassified to conform with the current period’s presentation. These reclassifications had no effect on previously reported results of operations, retained earnings or net cash flows.

Leases. The 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.

Operating lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company’s lease does not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate used at adoption was 6.0%3.75%. Significant judgement is required when determining the incremental borrowing rate. The Company chose not to discount because the difference is not significant. Rent expense for lease payments is recognized on a straight-line basis over the lease term.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary source of market risk for us includes fluctuations in commodity prices and interest rates. All of our financial instruments are for purposes other than trading.

Interest Rate Risk. At March 31, 2021, we had an outstanding loan balance of $1,180,000 under our credit agreement, which bears interest 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. If the interest rate on our bank debt increases or decreases by one percentage point our annual pretax income would change by $11,800 based on the outstanding balance at March 31, 2021.

Credit Risk. Credit risk is the risk of loss as a result of nonperformance by other parties of their contractual obligations. Our primary credit risk is related to oil and gas production sold to various purchasers and the receivables are generally not collateralized. At March 31, 2021,2023, our largest credit risk associated with any single purchaser was $440,715$634,672 or 71%46% of our total oil and gas receivables. We have not experienced any significant credit losses.

Energy Price Risk. Our most significant market risk is the pricing applicable to our crude oil and natural gas and crude oil production. Our financial condition, results of operations, and capital resources are highly dependent upon the prevailing market prices of, and demand for, oil and natural gas. Prices for oil and natural gas fluctuate widely. We cannot predict future oil and natural gas prices with any certainty. Pricing for oil and natural gas production has been volatile and unpredictable for several years, and we expect this volatility to continue in the future.

Factors that can cause price fluctuations include the level of global demand for petroleum products, foreign and domestic supply of oil and gas, the establishment of and compliance with production quotas by oil-exporting countries, weather conditions, the price and availability of alternative fuels and overall political and economic conditions in oil producing and consuming countries.

Oil prices dropped sharply in early March 2020, and then continued to decline reaching levels below zero dollars per barrel. This was a result of multiple factors affecting supply and demand in global oil and gas markets, including the announcement of price reductions and production increases by OPEC members and other oil exporting nations and the ongoing COVID-19 pandemic. Oil and natural gas prices are expected to continue to be volatile as a result of the changes in oil and natural gas production, inventories and demand, as well as national and international economic performance. We cannot predict when prices will stabilize.

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$62.72 per bbl in April 2020March 2023 to a high of $62.07$118.09 per bbl in March 2021.June 2022. The Henry Hub Spot Market Price (“Henry Hub”) for natural gas has ranged from a low of $1.33$1.93 per MMBtu in September 2020March 2023 to a high of $23.86$9.85 per MMBtu in February 2021.August 2022. On March 31, 20212023 the WTI posted price for crude oil was $55.14$71.65 per bbl and the Henry Hub spot price for natural gas was $2.52$2.10 per MMBtu. See Results of Operations above for the Company’s realized prices during the fiscal year. Subsequently, on June 21, 2023, the WTI posted price for crude oil was $68.51 and the Henry Hub posted price for natural gas was $2.24.

Declines in oil and natural gas prices will materially adversely affect our financial condition, liquidity, ability to obtain financing and operating results. Changes in oil and gas prices impact both estimated future net revenue and the estimated quantity of proved reserves. Any reduction in reserves, including reductions due to price fluctuations, can reduce the borrowing base under our credit facility and adversely affect the amount of cash flow available for capital expenditures and our ability to obtain additional capital for our acquisition, exploration and development activities. In addition, a noncash write-down of our oil and gas properties could be required under full cost accounting rules if prices declined significantly, even if it is only for a short period of time. See Critical Accounting Policies and Estimates — Ceiling Test under Item 7 of this report on Form 10-K. Lower prices may also reduce the amount of crude oil and natural gas that can be produced economically. Thus, we may experience material increases or decreases in reserve quantities solely as a result of price changes and not as a result of drilling or well performance.

Similarly, any improvements in oil and gas prices can have a favorable impact on our financial condition, results of operations and capital resources. Oil and natural gas prices do not necessarily fluctuate in direct relationship to each other. If the average oil price had increased or decreased by ten dollars per barrel for fiscal 2021,2023, our oil revenuepretax income would have changed by $503,270.$739,680. If the average gas price had increased or decreased by one dollar per mcf for fiscal 2021, natural gas revenue2023, pretax income would have changed by $324,205.$534,363.