MXC 10-K & 10-Q changes, risk factors and insider trading

The Company is subject to various risks and uncertainties in the ordinary course of business. The following summarizes significant risks and uncertainties that may adversely affect our business, financial condition or results of operations. We could also face additional risks and uncertainties that are not currently known to us or that we currently deem to be immaterial. If any of these risks actually occurs, occur, it could materially harm our business, financial conditioncondition, or results of operationsoperations, and the trading price of our shares could decline. Investors Investors should carefully consider each of the following risk factors and all of the other information set forth in this Annual Report on Form 10-K.

Changes in oil and gascommodity prices impactalso bothaffect estimated future net revenuerevenues and the estimated quantity of proved reserves.reserve Anyquantities, reductionwhich in reserves, including reductions due to price fluctuations,turn can reduce theour borrowing base under our credit facility capacity and adverselylimit affect the amount of cash flow available for capital expenditures and our abilityaccess to obtain additional capital for our exploration and development activities.

Oil and natural gas prices do not necessarily fluctuatemove in directtandem, relationshipand toperiods eachof other. Lowerlow prices or lack oflimited storage or transportation capacity may have an adverseadversely affect on our financial condition dueby to reduction of ourreducing revenues, operating incomeincome, and cash flows;flows, curtailmentcausing production curtailments or shut-in ofshut-ins, our production due to lack of transportation or storage capacity; causerendering certain properties inuneconomic, and limiting our portfolio to become economically unviable; and, limit our financial condition, liquidity,liquidity and/or ability to finance plannedfund capital expenditures and operations.expenditures.

Our results of operations may be negatively impacted by current global political and economic events, including theevolving impositiontrade ofpolicies, tariffs, tariffs.and broader geopolitical instability.

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

In recent years theyears, U.S. Congressfederal hasand state governments have considered or implemented legislation toand reduceregulatory emissionsinitiatives ofaimed GHGs,at GHG emissions, including methane, a primary component of natural gas,methane and carbon dioxide,dioxide. aSuch byproductmeasures, ofincluding the burning of natural gas. Addressing GHGpotential emissions withfees, legislationreporting onrequirements, emissionsor feesperformance standards, could increase operating costs and compliance burdens within the oil and natural gas industry.

FluidsIn resultingaddition, fromproduced crudewater and other fluids associated with oil and natural gas production,production consistingare primarilycommonly disposed of salt-water,through are disposed by underground injection in belowground disposal wells. In recent years, state and federal regulatory agenciesRegulators have increasingly focused on athe possiblepotential connectionlink between fluid injection and increasedinduced seismicity. As a result, seismicstate activity.regulatory Theagencies, including the Texas Railroad CommissionCommission, hashave suspendedimposed restrictions or limitedadditional newpermitting wellrequirements permits for salt wateron saltwater disposal wells,wells particularly in certain areas, including portions of the Permian Basin. IncreasedFurther regulation onof the treatment andfluid disposal ofor fluidsseismicity concerns could increase operating costscosts, limit disposal capacity, and curtailadversely economicalimpact the economic viability of drilling and production drilling.activities.

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

Our future success depends uponon our ability to find, developdevelop, or acquire additional,additional economically recoverable oil and gas reserves. OurProved provedreserves reserves will generally decline as reserves are depleted, except to the extent that wethey canare find,replaced developthrough successful exploration, development, or acquireacquisition replacementactivities. reserves. OneThe offsetavailability toof the obvious benefits afforded by higher product prices especially for small to mid-cap companies in this industry, is that qualityhigh-quality domestic oil and natural gas opportunities is limited, and competition for such assets is intense; as a result, there can be no assurance that we will be able to identify, complete, or integrate acquisitions on acceptable terms, if at all. If we are unable to replace reserves areon hardan toeconomic find.basis, our production, revenues, and long-term business prospects could be adversely affected.

Recovery of undeveloped reserves requires significant capital expenditures and successful drilling.drilling operations. Our reserve dataestimates assumes assume that we can and will make these expenditures will be made and conductthat development activities will be successful; however, these operations successfully. These assumptions, however,assumptions may not prove correct. Delays in the development, increased development of ourcosts, reserves,lower increasescommodity inprices, costscapital to develop such reserves,constraints, or decreasesunsuccessful drilling inresults commodity prices willcould reduce the future net revenuesrevenues, or ourdecrease estimated proved undeveloped reservesreserves, andor mayrender result in somecertain projects uneconomic. becomingIf uneconomical.third-party Inoperators addition, ifor we or the outside operators of our properties choosedo not to spendinvest the capital required to develop these reserves, or if development efforts are unsuccessful, we are not able to successfully develop these reserves, we willmay be required to write-offwrite theseoff such reserves. Any suchresulting write-offs of our reserves could reduce our abilityborrowing to borrow moneycapacity and adversely could reduceaffect the value of our common stock.

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

An increaseA in thenegative 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.conditions. TheAs a result, the prices we receive for ourmay oildiffer and gas are typically lower than the relevantfrom benchmark prices,prices such as Thethose of the New York Mercantile Exchange (“NYMEX”). The, with the difference betweenreferred the benchmark price and the price we receive is calledto as a differential. Numerous factorsDifferentials may influencebe localaffected pricing, suchby asa variety of factors, including refinery and pipeline capacity, pipeline capacityspecifications, midstream and specifications, upsets in the midstream or downstream sectors of the industry,disruptions, trade restrictions restrictions, governmental regulations, and governmentalregional regulationsdemand suchconditions. asIn policies of the Trump Administration. Additionally,addition, insufficient pipeline capacity, lack of demand in any given operating areademand, or other regional factors may cause the differentialdifferentials to increasewiden in a particular area compared with othercertain producing areas. During fiscal 2026, 2025,our average differentials averagedwere $2.79$2.97 per Bbl of oil and ($0.30$1.48) per Mcf of gas. IncreasesChanges in thethese differential between the benchmark prices for oil and gas and the wellhead price we receivedifferentials could significantly reducematerially affect our revenues and our cash flow from operations.operations, with favorable differentials increasing realized prices and unfavorable differentials decreasing them.

Drilling and operating activities are high riskhigh-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 gasesgases, 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 that are drilled or re-entered.

We must make capital expenditures to develop our existing reserves and to acquire new reserves. Historically, we have usedfunded ourcapital expenditures through cash flow from operations and borrowings under our credit facility to fund our capital expenditures,; however, lower oil and natural gas prices or production levels may prevent limit these options.funding sources. Volatility in oil and gascommodity prices, the timing of our drilling programsprograms, and drilling results willdirectly affect our cash flow from operations. Lower prices and/or lower production willlevels alsowould decreasereduce revenues and cash flow,flows, thusthereby reducinglimiting the amount of financial resources available to meet ourfund capital requirements,expenditures including reducing the amount available toand pursue our drilling opportunities.

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

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

Competition for oil and gas reserve acquisitions is significant. We may compete with major oil and gas companies, other independent oil and gas companiescompanies, and individual producers and operators, some of which have substantially greater financial and personnel resources substantiallythan inwe excess of those available to us.do. As a result, we may be placed at a competitive disadvantage.disadvantage in acquiring reserves and development opportunities. Our ability to acquire and develop additional properties in the future will depend uponon our ability to selectidentify, evaluate, and acquire suitable producing properties and prospects for future development activities.prospects.

Our operations are subject to all the risks inherent in the explorationexploration, for, and developmentdevelopment, and production of oil and gasgas, including blowouts, fires fires, and other casualties. WeAlthough we maintain insurance coverage customary for operations of a similar nature, butoperations, losses couldmay ariseresult from uninsured risks or from inclaims amountsthat inexceed excess of existingour insurance coverage.coverage limits.

Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including: changes in the valuation of our deferred tax assets and liabilities;liabilities, the tax effects of stock-based compensation;compensation, or changes in tax laws, regulationsregulations, or interpretations thereof.

Our reliance on information technology, including thoseinformation technologies hosted by third parties, exposes us to cyber securitycybersecurity risks that could affect our business, financial conditioncondition, or reputation.

The oil and natural gas industry has become increasingly dependent on digital technologies to conduct certain exploration, development, production, and processing activities, including digital technologies to interpret seismic data, manage drilling rigs, production equipment and gatheringOur systems, conductas reservoirwell modeling and reserves estimation, and process and record financial and operating data. At the same time, cyber incidents, including deliberate attacks or unintentional 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, andas those of our operators, vendors, supplierssuppliers, and other business partners, may becomebe thesubject targetto ofcyberattacks, cyberattacksinformation security breaches, or informationother securitycybersecurity breachesincidents that could result in the unauthorized release,access gathering, monitoring,to, misuse, lossloss, or destruction of proprietary and other information, or other disruption of business activities. In addition, certain cyber incidents, such as surveillance,surveillance or other advanced persistent threats, may remain undetected for anextended extended period.periods. Our systemsexisting forprotective protecting against cyber security risksmeasures may not be sufficient. As cyber incidents continuesufficient to evolve,prevent or detect such incidents, and we may be requiredneed to expend additional resources to enhance our cybersecurity measures, investigate incidents, or remediate vulnerabilities as threats continue to modify or enhance our protective measures or to investigate and remediate any vulnerability to cyber incidents.evolve.

We depend, and will continue to depend in the foreseeable future, upon the continued services of our Chief Executive Officer, Nicholas C. TaylorTaylor, and our President and Chief Financial Officer, Tamala L. McComic, who have extensive experience and expertise in evaluating and analyzing producing oil and gas properties and drilling prospects, maximizing production from oil and gas propertiesproperties, and developing and and executing acquisitions and financing. As of March 31, 2025,2026, we do not have key-man insurance onfor the lives of Mr. Taylor and Ms. McComic. McComic. The unexpected loss of the services of one or more of these individuals could, therefore,could significantly and adversely affect our operations.

Nicholas C. Taylor beneficially owns approximately 46% of the outstanding shares of our common stock.stock Mr.and Taylorserves is alsoas our Chairman of the Board and Chief Executive Officer.Officer, giving As a result, Mr. Taylor hashim 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 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 couldadversely have an adverse effect onaffect our business.

As of March 31, 2025,2026, our executive officers and directors beneficially owned approximately 49% of our common stock. These stockholders, if acting together, would be able to significantly 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.

Mexco common stock is traded on the New York Stock Exchange’s NYSE American. TheOur common stock has a relatively low trading volume, and the market price of our common stock has experienced, and could continue to experienceexperience, volatility due to reasonsfactors 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,and other events in the oil and gas industry.

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 flowsflows, and should be read in conjunction with our consolidated financial statements and and notes thereto included elsewhere in this Form 10-K.

Historically, we have funded our operations, acquisitions, explorationexploration, and development expendituresactivities fromthrough cash generatedflows byfrom operating activities, bankborrowings borrowings,under our credit facility, sales of non-core propertiesproperties, and issuanceissuances of common stock. Our primary financialsource resourceof long-term value is our base of oil and gas reserves. Wereserve havebase. pledged ourOur producing oil and gas properties toare securepledged as collateral under our credit facility. We do not have any delivery contractual commitments to provide adeliver fixed and determinable quantityquantities of our oil and gas under any existing contract or agreement.agreements.

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

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 asset account balances. Cash flow provided by our operating activities for the year ended March 31, 20252026 was $4,269,621$3,779,152 in comparison to $4,433,935 $4,269,621 for the year ended March 31, 2024.2025. This decrease of $164,314$490,469 in our cash flow from operating activities consisted of an increase in our non-cash expenses of $156,176$245,850; a decrease in income tax payable of $179,147; an increase in our accounts receivable of $533,564$47,152; ana increasedecrease of $52,861$102,146 of our accounts payable and accrued expenses; and,expenses, anand increasea decrease in our net income for the current year of $367,416.$406,646. Variations in cash flow from operating activities may impact affect our level of exploration and development expenditures.

Our expenditures in operating activities consist primarily of drilling expenses, production expensesexpenses, and engineering services. Our expenses also consist ofinclude employee compensation, accounting, insuranceinsurance, and other general and administrative expenses that we have incurred in order to addresssupport the 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, 2025, we had2026, net cash of $3,154,575 used for additions to oil and gas propertiesproperties, net of drilling refunds and aproceeds $1,000,000from investmentproperty sales, was $2,109,157 compared to $3,154,575 in twofiscal 2025. Cash used for an investment in a limited liability companiescompany was $427,429, compared to $3,016,499$1,000,000 andin $400,000,fiscal respectively, for the year ended March 31, 2024.2025.

Cash Flow Used in Financing Activities. Cash flow from financing activities is derived from our changes in long-term debt and in equity account balances. Net cash flow used in our financing activities was $834,575$216,970 for the year ended March 31, 20252026, compared to net cash$834,575 flow used in our financing activities of $779,723 for the year ended March 31, 2024.2025. During the year ended March 31, 2026, we expended $204,600 to pay the annual dividend and $12,370 to amend our credit facility. During the year ended March 31, 2025, we expended $209,000 to pay the annual dividend,dividend expendedand $703,216 to purchase 57,766 shares of our stock for the treasury account, and received proceeds of $77,641 for the exercise of employee stock options. During the year ended March 31, 2024, we expended $213,600 to pay the annual dividend, expended $585,035 to purchase 50,101 shares of our stock for the treasury account, and received proceeds of $19,662 for$77,641 from the exercise of employee and director stock options.

Accordingly, net cash decreasedincreased $719,529,$1,022,021, leaving cash and cash equivalents on hand of $1,753,955$2,775,976 as of March 31, 2025.2026.

We had working capital of $3,995,456 as of March 31, 2026, compared to $2,469,664 as of March 31, 20252025, comparedan to working capitalincrease of $3,259,200 as of March 31, 2024, a decrease of $789,536$1,525,792 for the reasons set forth below.

Oil and Natural Gas Property Development.Development

New Participations in Fiscal 2025.2026. The Company participated in the development of 3557 horizontal wells and one vertical well at a cost of approximately $1,100,000 $1,250,000 for the year ending March 31, 2025.2026. SeventeenTwenty of these wells have not been completed. Twenty-nineFifty-one of these wells are in the Delaware Basin located in the western portion of the Permian Basin in Lea and Eddy Counties, New Mexico;Mexico. threeThe remaining wells are in theGlasscock, Midland BasinMidland, locatedand inWard theCounties, eastern portion of the Permian Basin in Reagan County, Texas; and, the remaining three horizontal wells are in Grady County, Oklahoma.Texas.

Mexco expended approximately $207,000$230,000 to participate in the drilling and completion of five horizontal wells in the Bone Spring formation of the Delaware Basin in LeaEddy County, New Mexico. In November 2024,2025, two of these wells were completed with initial average production rates of 1,194 barrels of oil, 2,924 barrels of water, and 1,819,000 cubic feet of gas per day, or 1,497 BOE per day. In February 2026, the remaining three wells were completed with initial average production rates of 1,106 barrels of oil, 2,583974 barrels of wateroil, 2,971 barrels of water, and 1,165,000 1,417,000 cubic feet of gas per day, or 1,3001,210 BOE per day. Mexco’s working interest in these wells is .5%.

Mexco expended approximately $293,000$79,000 to drill and complete fourtwo horizontal wells in the WolfcampBone SandSpring formation of the Delaware Basin in Lea County, County, New Mexico. In NovemberAugust 2024,2025, these wells were completed with initial average production rates of 1,089741 barrels of oil, 4,716 3,276 barrels of water water, and 3,601,0001,110,000 cubic feet of gas per day, or 1,689926 BOE per day. Mexco’s working interest in these wells is .3%.

Mexco expended approximately $117,000$155,000 forto participate in the drilling and completion of twothree horizontal wells in the Bone SpringWolfcamp Sand formation Formation of the Delaware Basin in Lea County, New Mexico. Mexco’s working interest in these wells is .5%. In MarchDecember 2025, these wells were completed with initial average production rates of 1,734 827 barrels of oil, 3,1713,483 barrels of waterwater, and 3,229,0002,354,000 cubic feet of gas per day, or 2,2721,219 BOE per day. Mexco’s working interest in these wells is .52%.

Mexco expended approximately $32,000$65,000 to participate in an exploratory vertical well in the FusselmanEllenburger Formationformation of IrionWard County, Texas. ThisIn November 2025, this well was determined to be noncommercial and was plugged and abandoned.noncommercial.

TheIn CompanyDecember 2025, Mexco expended approximately $107,000$406,000 forto participate in the drilling and completion costs of two horizontal development wells in the BoneWolfcamp Spring SandXY formation of the Delaware Basin in LeaEddy County, New Mexico that the Company participated in drilling during fiscal 2024.Mexico. Mexco’s working interest in these wells is .53%. In July 2024, these wells were completed with initial average production rates of 1,402 barrels of oil, 2,009 barrels of water and 2,168,000 cubic feet of gas per day, or 1,763 BOE per day.2.1%.

TheIn CompanyDecember 2025, Mexco expended approximately $207,000$46,000 forto participate in the drilling and completion costs of foursix horizontialhorizontal wells in the Bone Spring Sand formation of the Delaware Basin in Lea County, New Mexico that the Company participated in drilling during fiscal 2024.Mexico. Mexco’s working interest in these wells is .45%. In October 2024, these wells were completed with initial average production rates of 893 barrels of oil, 2,990 barrels of water and 1,161,000 cubic feet of gas per day, or 1,087 BOE per day..04%.

Acquisitions. In October 2024,May 2025, the Company acquired a .5% royalty interest(mineral) interests in 3 producing2 wells operated by MewbourneChevron Oil Company and locatedCorporation in Eddy Pecos County, New Mexico,Texas for a purchase price of $260,000.$40,000. This acquisition was effective NovemberApril 1, 20242025 and includes acreage for further future development.

In October 2024,2025, the Company acquired royalty interests in 83 producing wells operated by MarathonExpand OilEnergy and locatedCorporation in LiveCaddo OakParish, County, Texas,Louisiana for a purchase price of $20,000$31,300; royalty interests in 614 producing wells operated by SWNDiamondback ProductionEnergy, Company, LLC and locatedInc. in DeSotoMartin County, Texas Parish,for Louisiana,a purchase price of $44,300; royalty interests in 3 producing wells operated by Permian Resources Corporation in Eddy County, New Mexico for a purchase price of $25,000$6,800; and overriding royalty interests in 104 producing wells operated by Ovintiv,Tap Inc.Rock and locatedResources in Upton Eddy County, New Texas,Mexico for a purchase price of $65,000;$240,300. and, royalty interests in 12 producing wells operated by Pioneer Natural Resources and located in Reagan and Upton Counties, Texas, for a purchase price of $65,000. All of theseThese acquisitions were effective November 1, 2024. 2025.

Also,Also in OctoberDecember 2024 and effective November 1, 2024,2025, the Company acquired various smalladditional royalty interests in overthe 4003 producing wells operated by Petro-HuntExpand Corporation,Energy Hess Bakken Investments II, LLC, Marathon Oil, WPX Energy, and othersCorporation in Caddo multipleParish, counties throughout the states of Nebraska, North Dakota, South Dakota, and MontanaLouisiana for a purchase price of $188,000.$22,300 and effective January 1, 2026.

Pricing. Crude oil and natural gas prices generally remained volatile duringover the last year. The volatility of the energy markets makes it extremely difficult difficult to predict future oil and natural gas price movements with any certainty. For example, in the last twelve months, the NYMEX West Texas Intermediate (“WTI”) posted price for crude oil has ranged from a low of $61.73$51.25 per bbl in SeptemberDecember 20242025 to a high of $82.89 $98.86 per bbl in AprilMarch 2024.2025. The Henry Hub Spot Market Price (“Henry Hub”) for natural gas has ranged from a low of $1.21$2.65 per MMBtu in NovemberJune 2024and October 2025 to a high of $9.86$30.72 per MMBtu in January 2025.2026, reflecting a temporary price spike during a period of severe weather and significant market volatility.

On March 31, 20252026, the WTI posted price for crude oil was $67.46$97.36 per bbl and the Henry Hub spot price for natural gas was $4.11$2.88 per MMBtu. See Results of Operations below for realized prices. Pipeline capacity constraints and maintenance in the Permian Basin area hashave contributed to a wider difference between the WaHaWaha Hub and the Henry HubHub, and at times realized prices were negative.

We had net income of $1,305,722 for the year ended March 31, 2026, compared to $1,712,368 for the year ended March 31, 2025 compared to $1,344,952 for the year ended March 31, 2024,2025, a 27%24% increasedecrease, primarily as a result of ana increasedecrease in operating revenues partially offset by ana increasedecrease in operating expenses that isas further explained below.

Oil and natural gas sales. Revenue from oil and natural gas sales was $6,548,048 for the year ended March 31, 2026, an 8% decrease from $7,116,485 for the year ended March 31, 2025, a 10% increase from $6,462,647 for the year ended March 31, 2024.2025. This resulted from an increase in oil and natural gas production volumes and natural gas prices, partially offset by a decrease in oil production volumes and natural gasoil prices. The following table sets forth our oil and natural gas revenues, production quantitiesquantities, and average prices received during the fiscal years ended March 31:

OtherIncome operatingfrom revenues.investments Otherin revenuesLLCs. Income from investments in LLCs increased 70%51% to $241,581$329,102 in fiscal 20252026 from $142,237$217,627 in fiscal 2024.2025. This Thisincrease resulted primarily from anhigher increase in incomeearnings from one of ourthe Company’s limited liability company investments.companies.

Interest income. Interest income on corporate funds decreasedincreased 46%23% to $89,341 in fiscal 2026 from $72,629 in fiscal 2025 from $135,476 in fiscal 2024.2025. This decreaseincrease resulted from usingan theincrease corporatein fundsour forinvestment propertyfund acquisitions and purchase of treasury stock.balances.

Production and exploration. Production costs were $1,428,353 in fiscal 2026, an 11% decrease from $1,605,096 in fiscal 2025, a 5% increase from $1,526,472 in fiscal 2024.2025. This is the result of ana increasedecrease in lease operating expenses on wells in which we own a working interest and a decrease in production taxes due to anthe increase decrease in oil and gas revenues and an increase in lease operating expenses on new wells in which we own an interest.revenues.

Depreciation, depletion and amortization. Depreciation, depletion and amortization (“DD&A”) expense was $2,523,827 in fiscal 2026, a 3% increase from $2,452,694 in fiscal 2025, a 25% increase from $1,969,742 in fiscal 2024.2025. This was primarily due to an increase in oilgas andproduction, naturalpartially offset by an increase in gas productionreserves and a decrease in oilthe andfull naturalcost gasamortization reserves.base.

General and administrative expenses. General and administrative expenses were $1,306,275 for the year ended March 31, 2026, a 1% decrease from $1,320,074 for the year ended March 31, 2025, a 6% increase from $1,243,548 for the year ended March 31, 2024.2025. This was primarily due to an increase in salariesaccounting and contract engineering services, office expense, engineering services and legal expenses partially offset by a decrease in contract services and employee stock option compensation.

Income taxes. Income tax for fiscal 20252026 was $304,330$379,043 compared to $620,544$304,330 for fiscal 2024.2025. ThisThe wascombined primarily due to a decrease in state income taxesfederal and the reconciliation to the federal tax return. Thestate effective tax rate for statefiscal and federal taxes combined for fiscal 20252026 and fiscal 20242025 was 15%22.5% and 32%,15.1%, respectively. TheSee decreaseNote in5 the– Income effective tax rate is primarily the result of state income taxes, primarily in New Mexico, the impact of permanent differences between book and taxable income, and the reconciliationTaxes to the federalNotes tax return.to Consolidated Financial Statements for additional information.

We have no off-balance sheet debt or unrecorded obligationsobligations, and we have not guaranteed the debt of any other party. The following table summarizes summarizes future payments we are obligated to make based on agreements in place as of March 31, 20252026:

Although we have primarily used cash from operating activities, the salessale of assetsassets, 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 interestsinterests, and issuances of our common stock through a private placement or public offering.

In preparing financial statements, management makes informed judgments, estimatesestimates, 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 valuevalue, and determination of proved reserves. Changes in facts and circumstances may result in revised estimatesestimates, and actual results may differ from these estimates.

The following representspolicies are 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.uncertain matters.

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, explorationexploration, and development are capitalized. We also capitalize internal costs that can be directly identified with acquisition, explorationexploration, and development activities and do not includeexclude any costs related to production, general corporate overheadoverhead, or similar activities. The carrying amount amount of oil and gas properties also includes estimated asset retirement costs recorded based on the fair value of the asset retirement obligation obligation (“ARO”) when incurred.

Sales of oil and natural gas properties, whether or not currently being amortized currently,amortized, are accounted for as adjustments ofto capitalized costs. Gain or loss on the sale or other disposition of oil and gas properties is not recognized,recognized unless the sale would significantly alter the relationship between capitalized costs and proved reserves of oil and natural gas. This includes any sales of properties such as Term assignmentsAssignments and Assignments, BillBills of SalesSale and Conveyances.

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, amortizationamortization, and impairment of crude oil and natural gas properties are generally calculated on a well by well,well-by-well, lease, or field basis versusrather than 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 those of companies that that apply the successful efforts methodmethod, since we will generally reflect a higher level of capitalized costs as well asand a higher DD&A rate 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 timesperiods of volatile commodity pricesprice volatility because the full cost pool may be impaired when prices are low. These charges are not recoverable when prices prices return to higher levels. Our crude oil and natural gas reserves have a relatively long life. However, temporary drops in commodity prices prices can have a material impact on our businessbusiness, including the 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 toof our oil and gas properties does not impactaffect cash flow from operating activities, but does reduce our stockholders’ equity and reported earnings.

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 includeare statementsbased regardingon our plans, beliefs ormanagement’s current expectationsexpectations, assumptions and beliefs and may be signifiedidentified by thewords wordssuch as “could”, “should”, “expect”, “project”, “estimate”, “believe”, “anticipate”, “intend”, “budget”, “plan”, “forecast”, “predict” , and other similar expressions. Forward-looking statements appear throughout this Form 10-Q with respect to, among other things: 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. Forward-looking statements involve known and unknown risks and uncertainties that could cause actual results to differ materially from those contained in any forward-looking statement.

Liquidity and Capital Resources. Historically, we have funded our operations, acquisitions, explorationexploration, and development expenditures from cash cash generated by operating activities, bank borrowings, sales of non-core propertiesproperties, 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 itsour 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 royaltiesroyalty and working working interests inand non-operated properties in areas with significant development potential.

Changes in the net funds provided by or (used in) each of our operating, investinginvesting, 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, payablespayables, or other non-energy property asset account balances. CashNet flowcash provided by our operating activities was $1,451,247 for the ninethree months ended DecemberJune 31,30, 20252026 wascompared $2,930,832 in comparison to $2,941,115 $1,363,277 for the ninethree months ended DecemberJune 31,30, 2024.2025, Thisan decreaseincrease of $10,283$87,970. inThe ourincrease cashwas flowprimarily operatingattributable activitiesto consisteda of an$259,114 increase in ournet income, a $60,634 increase in net non-cash expenses,adjustments, anand a $26,135 increase in accounts payables and accrued expenses. These increases were partially offset by a decrease in our accounts receivable of $481,198; a decrease of $376,035 of our accounts payable and accrued expenses$135,552 and income tax payable; and, a decrease in our net income for the current nine months of $461,668.$132,519. Variations in cash flow from operating activities may impactaffect 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 ofinclude employee compensation, accounting, insuranceinsurance, and other general and administrative expenses that we have incurred in order to addresssupport the normal and necessary business activities of a public company in the crude oil and natural gas production industry.

Cash Flow Flow Used in Investing Activities. Cash flow from investing activities is derived from changes in oil and gas property balances. For the nine three months ended DecemberJune 31,30, 2025, we had2026, net cash of $2,212,547 used for additions to oil and gas propertiesproperties, andnet ourof investmentdrilling inrefunds was $2,729,750 the limited liability company compared to $3,670,019net cash for additions to oil and gas properties net of proceeds from property sales of $365,910 for the ninethree months ended June December30, 31,2025. 2024.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.

Cash Flow Flow ProvidedUsed byin Financing Activities. Cash flow from financing activities is derived from our changes in long-term debt and in equity account account balances. Net cash flow used in our financing activities was $204,600 for the ninethree months ended DecemberJune 31,30, 2026 and 2025 compared to cash flow used in our financing activities of $834,575 for the nine months ended December 31, 2024. During the nine months ended December 31, 2025, we expended $204,600 to pay the regular annual dividend. During the nine months ended December 31, 2024, we expended $209,000 to pay the regular annual dividend and $703,216 to purchase 57,766 shares of our stock for the treasury account and received $77,641 from the exercise of stock options.

Accordingly, net cash increaseddecreased $513,685,$1,483,103, leaving cash and cash equivalents on hand of $2,267,640$1,292,873 as of DecemberJune 31,30, 2025.2026.

At DecemberWe 31, 2025, we had working capital of $3,186,231$2,721,592 as of June 30, 2026 compared to working capital of $2,469,664$3,995,456 at March 31, 2025,2026, ana increasedecrease of $716,567$1,273,864 for the reasons set forth below.

New Participations Participations in Fiscal 2026.2027. The Company currently plans to participate in the drilling and completion of fifty53 horizontal wells and one verticalat well at an estimated cost of approximately $1,700,000$1,300,000 for the fiscal year ending March 31, 2026.2027. Forty-fiveForty-eight of these wells are in the Delaware Delaware Basin located in the western portion of the Permian Basin in Lea and Eddy Counties,County, New Mexico. The remaining wells are in Glasscock, Midland,Reeves and Ward Counties,County, Texas.

In May December 2025,2026, Mexco expended approximately $404,000$400,000 to participate in the drilling and completion of twofive horizontal development wells in the Wolfcamp XYA formation of the Delaware Basin in EddyReeves County, New Mexico.Texas. Mexco’s working interest in these wells is 2.1%..8%.

Completion of Wells Drilled in Fiscal 2025.2026. The Company expendedalso expects to expend approximately $150,000$500,000 for the completion of seventeen20 horizontal wells in which the Company participated during fiscal 2025. These wells, located in Delaware Basin of Lea County, New Mexico, have been completed and turned to production.2026.

Investments. In October 2022, the Company made an approximately 2% equity investment commitment in a limited liability company amounting to $2,000,000, which was fully funded as of July 2025. The limited liability company is capitalized at approximately $100 million to purchaseacquire mineral interests in the Utica and Marcellus areasformations in the state of Ohio. In October 2025, the Company expended $200,000 to exercise its option option to participate in a voluntary optional cash call to increase its capitalized investment. And inIn December 2025, the Company expended an additional $27,429 to exercise its option to acquire its share of the non-consentnon-consenting interests from the October cash call. As of DecemberJune 30, 31,2026, 2025, this LLC has returned $476,635$668,364, or 21%30% of the total investment.

Subsequently,Acquisitions. inIn JanuaryApril 2026, the Company acquired royalty interests in 382 producing wells operated by ConocoPhillips and located in KarnesWeld County, TexasColorado for a an aggregate purchase price of $27,800.$690,900. ThisThese acquisitionacquisitions iswere effective JanuaryMay 1, 2026.

Pricing. Crude oil and natural gas prices generally remained volatile during the last year. The volatility of the energy markets makes it extremely difficult 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 $51.25 per bbl in December 2025 to a high of $76.02 $108.93 per bbl in JanuaryApril 2025.2026. The Henry Hub Spot Market Price (“Henry Hub”) for natural gas has ranged from a low of $2.65 $2.54 per MMBtu in JuneApril and October 20252026 to a high of $9.86$30.72 per MMBtu in January 2025.2026, reflecting a temporary price spike during a period of severe weather and significant market volatility.

On June December 31,30, 2025,2026, the WTI posted price for crude oil was $53.40$65.48 and the Henry Hub spot price for natural gas was $4.00$3.34 per MMBtu. See Results of Operations below for realized prices. Pipeline capacity constraints and maintenance in the Permian Basin area hashave contributed to a a wider difference between the WaHa Hub and the Henry HubHub, and at times prices were negative. These conditions adversely impacted realized prices during certain periods and contributed to variability in operating results.

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 DecemberJune 31,30, 20252026:

Results of of Operations – Three Months Ended DecemberJune 31,30, 20252026 andCompared 2024.to Three Months Ended June 30, 2025. For the quarter ended DecemberJune 31,30, 2026, 2025,net thereincome was $501,065 compared to net income of $50,245 compared to $469,133$241,951 for the quarter ended DecemberJune 31,30, 20242025. asThis awas the result of an increase in operating revenues and a decrease in operating revenuesexpenses, and an increase in income taxes partially offset by a decrease in operating expenses thatwhich is further explained below.

Oil and gas sales. Revenue from oil and gas sales was $4,681,094$1,978,158 for the nine monthsquarter ended DecemberJune 31,30, 2025,2026, a 10%13% decreaseincrease from $5,212,313$1,754,734 for for the samequarter periodended ofJune fiscal30, 2025. This primarily resulted from an increase in oil prices partially offset by a decrease in gas prices and a decrease in oil priceand andgas production volume partially offset by an increase in natural gas price and production volume.volumes. The following table sets forth our oil and natural gas revenue,revenues, production quantities, quantities and average prices received during the ninethree months ended DecemberJune 3130:

InterestIncome income.from Interestinvestments incomein onLLCs. corporateIncome fundsfrom investments in LLCs increased 101% to $58,610$115,254 for the nine monthsquarter ended DecemberJune 31,30, 2025,2026 from $50,891 $57,236 for the nine monthsquarter ended DecemberJune 31,30, 2024.2025. This increase resulted primarily from anhigher increaseearnings infrom ourone investmentof fundthe balances.Company’s limited liability companies.

Production and exploration. Production costs were $1,076,435$411,006 for the ninethree months ended DecemberJune 31,30, 2025,2026, ana 18%1.5% decreaseincrease from $1,311,066$404,770 for the nine three months ended DecemberJune 31,30, 2024.2025. This was primarily thedue resultto ofan a decreaseincrease in lease operating expenses on wells in which we own a working interest and a decrease in production taxes due to the decrease in oil revenue partially offset by the increase gas revenue.interest.

Depreciation, depletion and amortization. Depreciation, depletion and amortizationDD&A expense was $2,002,182$606,521 for the ninefirst monthsquarter endedof Decemberfiscal 31, 2025,2027, a 14%10% increasedecrease from $1,760,409$675,270 for the ninefirst monthsquarter endedof Decemberfiscal 31, 2024,2026, primarily due to a decrease in oil and gas reserves production volumes and an increase in natural gas production reserves partially offset by a decrease in oil productionreserves and aan decreaseincrease in the full cost pool amortization base.

General and and administrative expenses. General and administrative expenses were $1,044,225$389,829 for the ninethree months ended DecemberJune 31,30, 2025,2026, a .2%1% increasedecrease from $1,042,084$394,437 for the ninethree months ended DecemberJune 31,30, 2024.2025. This was primarily due to a decrease in stock option compensation and salaries partially offset by an increase in accountingengineering, accounting, and engineeringlegal services, insurance and salaries partially offset by a decrease in contract services and stock option compensation.fees.

Income taxes. Income tax expensefor the three months ended June 30, 2026 was $195,310 compared to $103,231 for the ninethree months ended DecemberJune 31, 2025 was $225,572 compared to $200,034 for the nine months30, ended December 31, 2024.2025. The combined federal and state effective tax rate for the ninethree months ended DecemberJune 31,30, 2026 and 2025 and 2024 was 27%28% and 16%,30%, respectively. See Note 7 – Income Taxes to the Notes to Consolidated Financial Statements for additional information.