Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

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

Unless the context otherwise requires, references to the "Company", "Mexco", "we", "us" or "our" mean Mexco Energy Corporation and its consolidated subsidiaries.

Cautionary Statements Regarding Forward-Looking Statements. Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements are based on management's current expectations, assumptions and beliefs and may be identified by words such as "could", "should", "expect", "project", "estimate", "believe", "anticipate", "intend", "plan", "forecast", "predict", and similar expressions.

Forward-looking statements in this Form 10-Q include, among other things, statements regarding profitability, planned capital expenditures, estimated oil and gas production and reserves, future project dates, future oil and gas prices; future financial condition or results of operations, business strategy, and other plans and objectives for future operations. These statements involve known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the forward-looking statements.

Although we believe the expectations and assumptions reflected in these forward-looking statements are reasonable, they are inherently subject to risks, uncertainties, and changes in circumstances that are difficult to predict. Except as required by the Exchange Act and Securities Act, we undertake no obligation to update or revise any forward-looking statements. Readers should review the consolidated financial statements and related notes, as well as the risk factors, included in our Annual Report on Form 10-K.

Liquidity and Capital Resources. Historically, we have funded our operations, acquisitions, exploration, and development expenditures from cash generated by operating activities, bank borrowings, sales of non-core properties, and issuance of common stock. 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 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.

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

Over the next 12 months, we expect to fund operating costs, planned drilling and completion expenditures, and capital calls as they are made from cash on hand, cash generated by operations, and available borrowings under our credit facility. At September 30, 2026, we had $903,819 in cash and cash equivalents and $1,500,000 available under the facility. After quarter-end borrowings and repayments, $325,000 was outstanding as of November 12, 2026. Beyond the next 12 months, we expect operating cash flow to be our primary source of funding for ongoing development and any remaining capital commitments. Our credit facility matures on March 28, 2029.

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:

		For the Six Months Ended September 30,
		2026				2025				Change
Net cash provided by operating activities		$	2,424,321			$	2,067,549			$	356,772
Net cash used in investing activities		$	(4,091,878	)		$	(870,212	)		$	(3,221,666	)
Net cash used in financing activities		$	(204,600	)		$	(204,600	)		$	-

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. Net cash provided by operating activities was $2,424,321 for the six months ended September 30, 2026 compared to $2,067,549 for the six months ended September 30, 2025, an increase of $356,772. The increase was primarily attributable to a $379,695 increase in net income, a $369,410 change in deferred income taxes, and a $104,877 increase in accounts payable and accrued expenses partially offset by a $507,346 change in accounts receivable. Variations in cash flow from operating activities may affect our level of exploration and development expenditures.

Our expenditures in operating activities consist primarily of production expenses, employee compensation, accounting fees, insurance, and other general and administrative costs incurred to support our oil and natural gas operations and public company reporting obligations. Capitalized acquisition, drilling, and development expenditures are classified as investing activities.

Cash Flow Used in Investing Activities. Cash flow from investing activities is derived from changes in oil and gas property balances. For the six months ended September 30, 2026, net cash used for additions to oil and gas and other properties, net of drilling refunds and proceeds from property sales was $3,991,878 compared to net cash for additions to oil and gas properties net of proceeds from property sales of $670,212 for the six months ended September 30, 2025. The increase in capital expenditures reflects our strategy of acquiring royalty interests and participating in drilling opportunities that management believes will enhance long-term reserves and production. For the six months ended September 30, 2026 and 2025, the Company invested $100,000 and $200,000, respectively, in limited liability companies.

Cash Flow Used in Financing Activities. Cash flow from financing activities is derived from changes in long-term debt and in equity account balances. For the six months ended September 30, 2026 and 2025, the Company expended $204,600 to pay the regular annual dividend.

Accordingly, net cash decreased $1,872,157, leaving cash and cash equivalents on hand of $903,819 as of September 30, 2026.

We had working capital of $2,194,952 as of September 30, 2026 compared to $3,995,456 at March 31, 2026, a decrease of $1,800,504 for the reasons set forth below.

Oil and Natural Gas Property Development

New Participations in Fiscal 2027. The Company currently plans to participate in the drilling and completion of 55 horizontal wells at an estimated cost of approximately $1,300,000 for the fiscal year ending March 31, 2027. Fifty of these wells are in the Delaware Basin located in the western portion of the Permian Basin in Lea and Eddy Counties, New Mexico. The remaining wells are in Reeves County, Texas.

In May 2026, Mexco expended approximately $400,000 to participate in the drilling and completion of five horizontal wells in the Wolfcamp A formation of the Delaware Basin in Reeves County, Texas. Mexco's working interest in these wells is .8%.

In July 2026, the Company expended approximately $70,000 to drill and complete three horizontal wells in the Bone Spring formation of the Delaware Basin in Lea County, New Mexico.

Completion of Wells Drilled in Fiscal 2026. The Company also expects to expend approximately $500,000 for the completion of 20 horizontal wells in which the Company participated during fiscal 2026.

The Company expended approximately $330,000 for additional drilling and completion costs of five horizontal wells in the Wolfcamp B formation in the Spraberry trend area of the Midland Basin in Midland and Glasscock Counties, Texas that the Company participated in drilling during fiscal 2026. Mexco's working interest in these wells is 1.9%.

Two horizontal wells in the Wolfcamp XY formation of the Delaware Basin in Eddy County, New Mexico in which the Company participated during fiscal 2026 were completed in April 2026 with initial average production rates of 607 barrels of oil, 1,295 barrels of water, and 2,170,000 cubic feet of gas per day, or 969 BOE per day. Mexco's working interest in these wells is approximately 2.1%.

Subsequently, in October 2026, the Company expended approximately $50,000 to drill four horizontal wells in the Bone Spring formation of the Delaware Basin in Lea County, New Mexico.

Investments. In October 2022, the Company made an approximately 2% equity investment commitment in a limited liability company amounting to $2,000,000, which has been fully funded as of July 2025. The limited liability company is capitalized at approximately $100 million to purchase mineral interests in the Utica and Marcellus formations in the state of Ohio. In October 2025, the Company expended $200,000 to exercise its option to participate in a voluntary optional cash call to increase its capitalized investment. In December 2025, the Company expended an additional $27,429 to exercise its option to acquire its share of the non-consenting interests from the October cash call. As of September 30, 2026, this LLC has returned $734,451 or 33% of the total investment.

In July 2026, the Company made an approximately 1% equity investment commitment in another limited liability company amounting to $1,000,000 of which $100,000 has been funded through September 30, 2026. The limited liability company is capitalized at approximately $100 million to acquire non-cost bearing mineral and royalty interests in the Utica Shale play in the state of Ohio.

As of September 30, 2026, the Company had funded $100,000 of its $1,000,000 capital commitment to this limited liability company, leaving an unfunded commitment of $900,000. The remaining commitment is payable as capital calls are made.

Acquisitions. In April 2026, the Company acquired royalty and overriding royalty interests in 82 producing wells in Weld County, Colorado for an aggregate purchase price of $690,900. These acquisitions were effective May 1, 2026.

In April 2026, the Company acquired royalty interests in 62 producing wells in Atascosa, Howard, LaSalle, Martin, and Yoakum Counties, Texas, and additional royalty interests in 3 properties in which we already owned an interest in Howard County, Texas for an aggregate purchase price of $337,700. These acquisitions were effective May 1, 2026.

In June 2026, the Company acquired royalty and overriding royalty interests in 32 producing wells in Adams and Larimer Counties, Colorado for an aggregate purchase price of $377,600. These acquisitions are effective July 1, 2026.

In June 2026, the Company acquired royalty interests in 30 producing wells in Karnes, McMullen, Panola, and Winkler Counties, Texas for an aggregate purchase price of $408,700. These acquisitions are effective July 1, 2026.

In June 2026, the Company acquired royalty interests in 9 producing wells and additional royalty interests in 8 properties in which we already owned an interest in Caddo and DeSoto Parishes, Louisiana for an aggregate purchase price of $266,200. These acquisitions are effective July 1, 2026.

In June 2026, the Company acquired overriding royalty interests in 185 producing wells in Ashtabula County, Ohio for a purchase price of $14,100. These acquisitions are effective July 1, 2026.

In August 2026, the Company acquired royalty interests in 42 wells in Columbia, Lafayette, and Van Buren Counties, Arkansas for a purchase price of $39,800. This acquisition was effective September 1, 2026.

In August 2026, the Company acquired royalty and overriding royalty interests in 48 producing wells in Claiborne, DeSoto, Evangeline, and Iberville Parishes, Louisiana for a purchase price of $62,100. This acquisition was effective September 1, 2026.

In August 2026, the Company acquired royalty and overriding royalty interests in 48 producing wells in Eddy County, New Mexico for a purchase price of $50,800. This acquisition was effective September 1, 2026.

In August 2026, the Company acquired royalty and overriding royalty interests in 122 producing wells in Andrews, Dewitt, Ector, Gaines, Gonzales, Henderson, Hidalgo, LaSalle, Live Oak, Martin, and Yoakum Counties, Texas for an aggregate purchase price of $919,600. These acquisitions were effective September 1, 2026.

All of our acquisitions were funded from existing cash resources.

Subsequently, in October 2026, the Company acquired royalty and overriding royalty interests in 977 producing wells in Weld County, Colorado; DeSoto Parish, Louisiana; Uinta County, Wyoming; and various counties in the state of Texas for an aggregate purchase price of $1,191,700. All of these acquisitions are effective November 1, 2026.

Other Projects. 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.

Pricing. Crude oil and natural gas prices 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 Plains Marketing West Texas Intermediate ("WTI") Area #1 posted price for crude oil has ranged from a low of $51.25 per bbl in December 2025 to a high of $108.93 per bbl in April 2026. The Henry Hub Spot Market Price ("Henry Hub") for natural gas has ranged from a low of $2.54 per MMBtu in April 2026 to a high of $30.72 per MMBtu in January 2026, reflecting a temporary price spike during a period of severe weather and significant market volatility.

On September 30, 2026, the WTI posted price for crude oil was $86.40 and the Henry Hub spot price for natural gas was $3.02 per MMBtu. See Results of Operations below for realized prices. Pipeline capacity constraints and maintenance in the Permian Basin area have contributed to a wider difference between the Waha Hub and the Henry Hub, and at times prices were negative.

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 our future payments we are obligated to make based on agreements in place as of September 30, 2026:

		Payments due in:
		Total				less than 1 year				1 - 3 years				over 3 years
Contractual obligations:
Leases (1)		$	50,267			$	50,267			$	-			$	-

(1)

The lease amount represents the monthly rent amount for our principal office space in Midland, Texas under a 36-month lease agreement expiring July 31, 2027. Of this total obligation for the remainder of the lease, our majority shareholder will pay $8,479 within 1 year for his portion of the shared office space.

Results of Operations - Three Months Ended September 30, 2026 Compared to Three Months Ended September 30, 2025. There was net income of $444,087 for the quarter ended September 30, 2026 compared to net income of $323,506 for the quarter ended September 30, 2025. This was the result of an increase in operating revenues partially offset by an increase in operating expenses, which is further explained below.

Oil and gas sales. Revenue from oil and gas sales was $2,116,397 for the second quarter of fiscal 2027, a 30% increase from $1,624,566 for the same period of fiscal 2026. This resulted from an increase in oil and gas prices and an increase in oil and gas production. The following table sets forth our oil and natural gas revenues, production quantities and average prices received during the three months ended September 30:

		2026				2025				% Difference
Oil:
Revenue		$	1,756,033			$	1,302,105				34.9	%
Volume (bbls)			20,187				20,114				0.4	%
Average Price (per bbl)		$	86.99			$	64.74				34.4	%
Gas:
Revenue		$	360,364			$	322,461				11.8	%
Volume (mcf)			184,631				171,058				7.9	%
Average Price (per mcf)		$	1.95			$	1.89				3.2	%

Income from investments in LLCs. Income from investments in LLCs decreased 32% to $71,193 for the quarter ended September 30, 2026 from $105,103 for the quarter ended September 30, 2025. This decrease resulted primarily from lower earnings from the Company's limited liability companies.

Interest income. Interest income on corporate funds decreased 81% to $3,861 for the quarter ended September 30, 2026 from $20,126 for the quarter ended September 30, 2025. This decrease resulted from a change in our average cash balances.

Production and exploration. Production costs were $454,907 for the three months ended September 30, 2026, a 23% increase from $369,093 for the three months ended September 30, 2025. This was primarily due to an increase in lease operating expenses on wells in which we own a working interest.

Depreciation, depletion and amortization. Depreciation, depletion and amortization expense was $715,175 for the three months ended September 30, 2026, an 8% increase from $662,647 for the three months ended September 30, 2025. This was primarily due to an increase in oil and gas production volumes and an increase in the full cost amortization base partially offset by an increase in oil and gas reserves.

General and administrative expenses. General and administrative expenses were $368,903 for the three months ended September 30, 2026, an 11% increase from $332,264 for the three months ended September 30, 2025. This was primarily due to an increase in legal fees, subscriptions and dues, and costs related to the shareholders' annual meeting partially offset by a decrease in stock option compensation.

Income taxes. Income tax for the three months ended September 30, 2026 was $202,328 compared to $58,235 for the three months ended September 30, 2025. The combined federal and state effective tax rate for the three months ended September 30, 2026 and 2025 was 31% and 15%, respectively. See Note 7 - Income Taxes to the Notes to Consolidated Financial Statements for additional information.

Results of Operations - Six Months Ended September 30, 2026 Compared to Six Months Ended September 30, 2025. For the six months ended September 30, 2026, there was net income of $945,152 compared to net income of $565,457 for the six months ended September 30, 2025. This was the result of an increase in operating revenues partially offset by an increase in operating expenses that is further explained below.

Oil and gas sales. Revenue from oil and gas sales was $4,094,555 for the six months ended September 30, 2026, a 21% increase from $3,379,300 for the six months ended September 30, 2025. This resulted from an increase in oil prices partially offset by a decrease in gas prices and oil and gas production. The following table sets forth our oil and natural gas revenues, production quantities and average prices received during the six months ended September 30:

		2026				2025				% Difference
Oil:
Revenue		$	3,567,216			$	2,698,042				32.2	%
Volume (bbls)			38,989				42,124				(7.4	%)
Average Price (per bbl)		$	91.49			$	64.05				42.8	%
Gas:
Revenue		$	527,339			$	681,258				(22.6	%)
Volume (mcf)			340,058				340,963				(0.3	%)
Average Price (per mcf)		$	1.55			$	2.00				(22.5	%)

Income from investments in LLCs. Income from investments in LLCs increased 15% to $186,447 for the six months ended September 30, 2026 from $162,339 for the six months ended September 30, 2025. This increase resulted primarily from higher earnings from the Company's limited liability companies.

Interest income. Interest income on corporate funds decreased 46% to $18,713 for the six months ended September 30, 2026 from $34,657 for the six months ended September 30, 2025. This decrease resulted from a change in our average cash balances.

Production and exploration. Production costs were $865,913 for the six months ended September 30, 2026, a 12% increase from $773,863 for the six months ended September 30, 2025. This was primarily the result of an increase in lease operating expenses on wells in which we own a working interest.

Depreciation, depletion and amortization. Depreciation, depletion and amortization expense was $1,321,696 for the six months ended September 30, 2026, a 1% decrease from $1,337,917 for the six months ended September 30, 2025, primarily due to a decrease in oil and gas production volumes and an increase in oil and gas reserves partially offset by an increase in full cost amortization base.

General and administrative expenses. General and administrative expenses were $758,732 for the six months ended September 30, 2026, a 4% increase from $726,701 for the six months ended September 30, 2025. This was primarily due to an increase in legal fees, subscriptions and dues, and accounting fees partially offset by a decrease in stock option compensation.

Income taxes. Income tax for the six months ended September 30, 2026 was $397,638 compared to $161,466 for the six months ended September 30, 2025. The combined federal and state effective tax rate for the six months ended September 30, 2026 and 2025 was 30% and 22%, respectively. See Note 7 - Income Taxes to the Notes to Consolidated Financial Statements for additional information.