Mexco Energy (MXC) - 2024 Q4 - Annual Report

Cautionary Note Regarding Forward-Looking Statements This section outlines the nature of forward-looking statements, their inherent risks, and potential material differences from actual results - Forward-looking statements are identified by words like "could," "should," "expect," "project," "estimate," "believe," "anticipate," "intend," "budget," "plan," "forecast," "predict"[28] - These statements relate to profitability, planned capital expenditures, estimates of oil and gas production, future project dates, future oil and gas prices, reserves, financial condition, results of operations, and business strategy[28] - Actual results may differ materially due to various risks and uncertainties, including success in development, capital expenditure ability, declines in production or prices, debt covenants, acquisitions, weather, transportation, and operating costs[28] PART I Item 1. Business Mexco Energy Corporation is an independent oil and gas company focused on acquisition, exploration, development, and production in the U.S., primarily in West Texas and Southeastern New Mexico - Mexco Energy 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[11][34][200] - Primary business strategies for fiscal 2025 include optimizing cash flows through operating efficiencies and cost reductions, divesting non-core assets, and balancing capital spending with cash flows to minimize borrowings and maintain ample liquidity[1] - The company focuses on acquiring proved reserves that fit well with existing operations or in areas with established production, with an emphasis on producing wells, behind pipe reserves, and high-quality proved undeveloped locations[34] - The majority of activities are centered in West Texas and Southeastern New Mexico, with the Permian Basin accounting for 85% of discounted future net cash flows from proved reserves and 87% of gross revenues[34][64][200] - Company A accounted for 59% of total operating revenues in fiscal 2024 (53% in fiscal 2023)[66] Key Reserve and Valuation Data (March 31, 2024) | Metric | Value | | :-------------------------------- | :------------ | | Total Estimated Proved Reserves | 1.547 MMBOE | | Oil and Natural Gas Liquids Share | 51% | | Natural Gas Share | 49% | | Estimated Present Value (PV-10) | ~$29 million | Oil and Gas Production (Last Five Years) | Year | Oil (Bbls) | Gas (Mcf) | | :--- | :--------- | :-------- | | 2024 | 69,999 | 502,879 | | 2023 | 73,968 | 534,363 | | 2022 | 61,689 | 393,841 | | 2021 | 50,327 | 324,205 | Executive Officers (as of March 31, 2024) | Name | Age | Position | | :---------------- | :-- | :------------------------------------------------- | | Nicholas C. Taylor | 86 | Chairman and Chief Executive Officer | | Tamala L. McComic | 55 | President, Chief Financial Officer, Treasurer, and Assistant Secretary | | Donna Gail Yanko | 79 | Vice President | | Stacy D. Hardin | 59 | Secretary and Assistant Treasurer | Item 1A. Risk Factors This section details significant risks affecting Mexco's business, including the high volatility of oil and gas prices, which impacts profitability, cash flow, and borrowing capacity - Volatility of oil and gas prices significantly affects the company's results, profitability, cash flow for capital expenditures, and ability to borrow money[71] - The company must replace reserves as they are produced, and its future success depends on finding, developing, or acquiring additional economically recoverable oil and gas reserves[48][73] - Approximately 33% of total estimated net proved reserves at March 31, 2024, were undeveloped, requiring significant capital expenditures and successful drilling, which are subject to uncertainties[73][222] - Reliance on third-party operators for non-operating interests means the company cannot control operations, potentially impacting production, revenues, and capital expenditures[49] - Operations are subject to high risks inherent in exploration, development, and production, including blowouts, fires, pollution, and the possibility of non-commercial reservoirs[73] - Changes in environmental laws (e.g., Inflation Reduction Act of 2022) and tax policies could increase costs and adversely impact the business[41][50][72] - The company depends on the continued services of its Chief Executive Officer, Nicholas C. Taylor, and President and Chief Financial Officer, Tamala L. McComic, whose unexpected loss could significantly affect operations[50] - Nicholas C. Taylor's beneficial ownership of approximately 45% of outstanding common stock gives him significant influence over shareholder matters and business operations[50][104] Item 1B. Unresolved Staff Comments This section states that there are no unresolved staff comments - There are no unresolved staff comments[52][76] Item 1C. Cybersecurity Mexco maintains a cybersecurity program to protect data confidentiality, integrity, and availability, incorporating a risk-based framework with internal and external controls - Mexco maintains a cybersecurity program to protect data, including internal and external controls, risk assessment, and policy implementation[15] - The company has implemented a monitoring and detection system, annual cybersecurity awareness training, and performs tabletop exercises to test its incident response plan (IRP)[77] - The Board, in coordination with the Audit Committee and Chief Financial Officer, is responsible for the oversight of risks from cybersecurity threats[53] - As of the report date, the company is not aware of any previous cybersecurity threats that have materially affected its business strategy, results of operations, or financial condition[53] Item 2. Properties Mexco's properties primarily consist of oil and gas wells and leasehold acreage in the U.S., with interests in approximately 6,800 gross (25.7 net) producing wells and 579,000 gross (2,709 net) acres as of March 31, 2024 - As of March 31, 2024, Mexco had interests in approximately 6,800 gross (25.7 net) producing oil and gas wells and owned leasehold mineral, royalty, and other interests in approximately 579,000 gross (2,709 net) acres[78][80] - During fiscal 2024, the company added proved reserves of 272 MBOE through extensions and discoveries and 44 MBOE through acquisitions, while subtracting 163 MBOE for downward revisions primarily due to decreased crude oil and natural gas prices[5] - Approximately 33% of total estimated net proved reserves at March 31, 2024, were undeveloped, requiring significant capital expenditures and successful drilling[73][222] Proved Reserves and PV-10 Value | Metric | March 31, 2024 | March 31, 2023 | | :-------------------------------- | :------------- | :------------- | | Total net proved reserves (BOE) | 1,547,127 | 1,551,725 | | PV-10 Value | $29,078,000 | $39,473,000 | | Standardized measure of discounted future net cash flows | $24,628,000 | $32,815,000 | Prices Used in Calculating Reserves (per SEC rules) | Commodity | March 31, 2024 | March 31, 2023 | | :-------- | :------------- | :------------- | | Natural gas (per Mcf) | $2.75 | $5.68 | | Oil (per Bbl) | $76.88 | $92.02 | Net Oil and Natural Gas Production, Revenue, and Average Prices | Metric | 2024 | 2023 | | :---------------------- | :---------- | :---------- | | Oil Production (Bbls) | 69,999 | 73,968 | | Oil Revenue | $5,348,257 | $6,522,163 | | Average Oil Price (per Bbl) | $76.40 | $88.18 | | Gas Production (Mcf) | 502,879 | 534,363 | | Gas Revenue | $1,114,390 | $2,858,460 | | Average Gas Price (per Mcf) | $2.22 | $5.35 | | Total BOE | 153,812 | 163,029 | Production Costs | Metric | 2024 | 2023 | | :----------------------------------- | :-------- | :-------- | | Production expenses | $1,029,279 | $1,039,893 | | Production expenses per BOE | $6.69 | $6.38 | | Production and ad valorem taxes | $497,193 | $679,826 | | Production and ad valorem taxes per BOE | $3.23 | $4.17 | Item 3. Legal Proceedings The company may be involved in various incidental legal proceedings and claims but believes that any resulting liability will not materially adversely affect its consolidated financial position, liquidity, capital resources, or future results of operations - The company believes that the amount of liability, if any, ultimately incurred with respect to incidental legal proceedings and claims will not have a material adverse effect on its consolidated financial position, liquidity, capital resources, or future results of operations[81] Item 4. Safety Disclosures This item is not applicable to the company - This item is not applicable[81] PART II Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Mexco's common stock trades on the NYSE American under the symbol "MXC," with 2,226,916 shares issued and 827 shareholders of record as of March 31, 2024 - Mexco's common stock trades on the NYSE American under the symbol "MXC"[82] - As of March 31, 2024, the company had 2,226,916 shares issued and 827 shareholders of record[82] - The company declared a special dividend of $0.10 per common share on April 10, 2023, and a regular annual dividend of $0.10 per common share on April 30, 2024, both requiring written permission from WTNB[82][150][229] - In April 2024, the Board authorized a new $1,000,000 common stock repurchase program, replacing the previous one, and subsequently repurchased 13,766 shares for $188,637[21][187][229] - Stock repurchases are subject to a 1% excise tax under the Inflation Reduction Act of 2022 for repurchases exceeding $1,000,000 annually, effective after December 31, 2022[21][187] Common Stock High and Low Sales Price (NYSE American) | Period | High ($) | Low ($) | | :---------------------- | :------- | :------ | | April - June 2023 | 13.84 | 10.49 | | July - September 2023 | 13.63 | 10.49 | | October - December 2023 | 13.50 | 10.49 | | January - March 2024 | 10.49 | 10.49 | Issuer Repurchases of Common Stock | Fiscal Year | Shares Repurchased | Aggregate Cost ($) | Average Price Per Share ($) | | :---------- | :----------------- | :----------------- | :-------------------------- | | 2024 | 50,101 | 585,035 | 11.68 | | 2023 | 18,416 | 244,494 | 13.28 | Item 6. Reserved This item is reserved - This item is reserved[85] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Mexco's net income decreased by 71% in fiscal 2024 to $1,344,952, primarily due to a 31% decrease in oil and natural gas sales revenue, driven by lower commodity prices and production volumes - Net income decreased by 71% to $1,344,952 for the year ended March 31, 2024, compared to $4,662,702 in fiscal 2023, primarily due to decreased operating revenues from lower oil and natural gas prices and production[89][174] - Total operating revenues decreased by 31% to $6,604,884 in fiscal 2024 from $9,557,289 in fiscal 2023[174] - Production costs decreased by 11% to $1,526,472 in fiscal 2024, primarily due to a decrease in production taxes resulting from lower oil and gas revenues[18] - Depreciation, depletion, and amortization (DD&A) expense increased by 6% to $1,969,742 in fiscal 2024, mainly due to an increase in the full cost pool amortization and a decrease in oil and gas reserves, partially offset by decreased production[18] - General and administrative expenses increased by 11% to $1,243,548 in fiscal 2024, driven by higher employee stock option compensation, salaries, contract services, and accounting fees[18] - The company participated in the drilling and completion of 52 wells (51 horizontal, 1 vertical) in fiscal 2024, expending approximately $2,000,000[117] - The company acquired various royalty and mineral interests in Texas, Colorado, and Louisiana during fiscal 2024, totaling over $1.7 million[22] - The company uses the full cost method of accounting for oil and gas operations, capitalizing all acquisition, exploration, and development costs, and performs quarterly ceiling tests for impairment[120][147][178] Cash Flow Summary | Activity | 2024 | 2023 | Change | | :------------------------ | :------------ | :------------ | :------------ | | Net cash provided by operating activities | $4,433,935 | $6,515,895 | $(2,081,960) | | Net cash used in investing activities | $(3,416,499) | $(5,441,075) | $(2,024,576) | | Net cash used in financing activities | $(779,723) | $(209,815) | $569,908 | | Net increase in cash and cash equivalents | $237,713 | $865,005 | $(627,292) | | Cash and cash equivalents at end of year | $2,473,484 | $2,235,771 | $237,713 | Oil and Natural Gas Sales Performance | Metric | 2024 | 2023 | % Difference | | :---------------------- | :---------- | :---------- | :----------- | | Oil Revenue | $5,348,257 | $6,522,163 | (18.0)% | | Oil Volume (bbls) | 69,999 | 73,968 | (5.4)% | | Average Oil Price (per bbl) | $76.40 | $88.18 | (13.4)% | | Gas Revenue | $1,114,390 | $2,858,460 | (61.0)% | | Gas Volume (mcf) | 502,879 | 534,363 | (5.9)% | | Average Gas Price (per mcf) | $2.22 | $5.35 | (58.5)% | Item 7A. Quantitative and Qualitative Disclosures About Market Risk Mexco's primary market risks are fluctuations in commodity prices (oil and natural gas) and interest rates, with significant impacts on financial condition and operating results - The primary sources of market risk for Mexco include fluctuations in commodity prices (crude oil and natural gas) and interest rates[122] - The company's largest credit risk associated with any single oil and gas purchaser was $480,836, or 48% of total oil and gas receivables, at March 31, 2024, but no significant credit losses have been experienced historically[122] - NYMEX West Texas Intermediate (WTI) crude oil prices ranged from $63.10/bbl to $89.66/bbl, and Henry Hub natural gas prices ranged from $1.25/MMBtu to $3.34/MMBtu during the last twelve months[118][122] Impact of Commodity Price Changes on Pretax Income (Fiscal 2024) | Commodity | Price Change | Impact on Pretax Income ($) | | :-------- | :----------- | :---------------------- | | Oil | +$10/bbl | +$699,990 | | Oil | -$10/bbl | -$699,990 | | Gas | +$1/mcf | +$502,879 | | Gas | -$1/mcf | -$502,879 | Item 8. Financial Statements and Supplementary Data This item incorporates by reference the consolidated financial statements and notes from pages F2 through F21 of the report - The information required by this item appears on pages F2 through F21 of this report and is incorporated herein by reference[94] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures This section states that there are no changes in or disagreements with accountants on accounting and financial disclosures - There are no changes in or disagreements with accountants on accounting and financial disclosures[95] Item 9A. Controls and Procedures Management, including the CEO and CFO, assessed the effectiveness of internal control over financial reporting as of March 31, 2024, using the COSO 2013 framework and concluded it was effective - The chief executive officer and chief financial officer concluded that the company's internal control over financial reporting was effective as of March 31, 2024, based on the COSO 2013 "Internal Control - Integrated Framework"[123] - Disclosure controls and procedures were reviewed and evaluated, and concluded to be effective as of March 31, 2024[123] - No changes in the company's internal control over financial reporting occurred during the year ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[9] Item 9B. Other Information This item states that there is no other information to disclose - None[19][154] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspection This item is not applicable - Not applicable[154] PART III Item 10. Directors, Executive Officers and Corporate Governance This item incorporates by reference information regarding directors, executive officers, and corporate governance from the company's Proxy Statement for the 2024 Annual Meeting of Stockholders - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the Proxy Statement for the 2024 Annual Meeting of Stockholders[154] Item 11. Executive Compensation This item incorporates by reference information regarding executive compensation from the company's Proxy Statement - Information regarding executive compensation is incorporated by reference from the Proxy Statement[125] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This item incorporates by reference information regarding security ownership and related stockholder matters from the company's Proxy Statement - Information regarding security ownership of certain beneficial owners and management and related stockholder matters is incorporated by reference from the Proxy Statement[97][155] Item 13. Certain Relationships and Related Transactions, and Director Independence This item incorporates by reference information regarding certain relationships, related transactions, and director independence from the company's Proxy Statement - Information regarding certain relationships and related transactions, and director independence is incorporated by reference from the Proxy Statement[126] Item 14. Principal Accounting Fees and Services This item incorporates by reference information regarding principal accounting fees and services from the company's Proxy Statement - Information regarding principal accounting fees and services is incorporated by reference from the Proxy Statement[156] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists the consolidated financial statements and schedules filed as part of the 10-K, noting that all schedules have been omitted as not applicable or already included - A list of the consolidated financial statements filed as part of this Form 10-K is set forth on F-1 of this report[157] - All financial statement schedules have been omitted because they are not applicable, not required, or the information is set forth in the consolidated financial statements or related notes[157] - An index to exhibits is provided on page F22 of this report[157][225] Item 16. 10-K Summary This item states that there is no 10-K summary - None[157] Signatures This section contains the official signatures of the company's Chairman, CEO, President, and CFO, certifying the report's submission - The report was signed on June 27, 2024, by Nicholas C. Taylor (Chairman of the Board and Chief Executive Officer) and Tamala L. McComic (President and Chief Financial Officer)[10][127] Glossary of Abbreviations and Terms This section defines key abbreviations and terms used throughout the Form 10-K report, particularly those common in the oil and gas industry - This section provides definitions for abbreviations and terms commonly used in the oil and gas industry and throughout the Form 10-K report[25][32][128] - Key terms defined include BOE (Barrels of oil equivalent), Mcf (One thousand cubic feet of natural gas), MMBOE (One million barrels of oil equivalent), PV-10 (Discounted future net cash flows before income tax), Proved reserves, and Working interest[25][132][137][158][161][162][166][167] Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm Weaver and Tidwell, L.L.P. audited Mexco Energy Corporation's consolidated financial statements for the periods ended March 31, 2024 and 2023, and issued an unqualified opinion - Weaver and Tidwell, L.L.P. (PCAOB ID 410) issued an unqualified opinion on the consolidated financial statements for the periods ended March 31, 2024 and 2023[140][142][170] - The estimation of proved reserves impacting the recognition and valuation of depletion expense and impairment of oil and gas properties was identified as a critical audit matter due to high subjectivity and complex auditor judgment[140][171] Consolidated Balance Sheets The consolidated balance sheets show total assets increased to $19,058,854 as of March 31, 2024, from $17,820,289 in 2023, primarily driven by an increase in oil and gas properties, net - Oil and gas properties, using the full cost method, increased to $48,304,585 in 2024 from $45,391,634 in 2023[173] - A deferred income tax liability of $311,661 was recognized in 2024, compared to none in 2023[173] Consolidated Balance Sheet Highlights | Metric | March 31, 2024 | March 31, 2023 | | :--------------------------- | :------------- | :------------- | | Total Current Assets | $3,689,320 | $3,734,039 | | Property and Equipment, Net | $14,241,674 | $13,298,465 | | Investment – Cost Basis | $1,100,000 | $700,000 | | Total Assets | $19,058,854 | $17,820,289 | | Total Current Liabilities | $430,120 | $258,263 | | Total Long-Term Liabilities | $1,000,469 | $729,539 | | Total Liabilities | $1,430,589 | $987,802 | | Total Stockholders' Equity | $17,628,265 | $16,832,487 | Consolidated Statements of Operations The consolidated statements of operations show a significant decrease in net income by 71% to $1,344,952 in fiscal 2024 from $4,662,702 in fiscal 2023, primarily driven by a 31% decrease in total operating revenues - Oil sales decreased by 18% and natural gas sales decreased by 61% in 2024, contributing to the overall revenue decline[174] - Interest income increased significantly to $135,476 in 2024 from $8,009 in 2023[174] Consolidated Statements of Operations Highlights | Metric | 2024 | 2023 | Change (%) | | :--------------------------- | :---------- | :---------- | :--------- | | Total Operating Revenues | $6,604,884 | $9,557,289 | (31)% | | Total Operating Expenses | $4,769,630 | $4,724,989 | 1% | | Operating Income | $1,835,254 | $4,832,300 | (62)% | | Net Other Income (Expenses) | $130,242 | $(5,088) | N/A | | Income Before Income Taxes | $1,965,496 | $4,827,212 | (59)% | | Total Income Tax Expense | $620,544 | $164,510 | 277% | | Net Income | $1,344,952 | $4,662,702 | (71)% | | Basic EPS | $0.64 | $2.17 | (70)% | | Diluted EPS | $0.62 | $2.11 | (71)% | Consolidated Statements of Changes in Stockholders' Equity The consolidated statements of changes in stockholders' equity show an increase in total stockholders' equity to $17,628,265 as of March 31, 2024, from $16,832,487 in 2023 - Common stock shares issued increased by 5,500 in 2024 and 5,000 in 2023[175] - Shares held in treasury increased by 50,101 in 2024 and 18,416 in 2023 due to stock repurchases[175] Changes in Stockholders' Equity | Metric | March 31, 2024 | March 31, 2023 | | :--------------------------- | :------------- | :------------- | | Total Stockholders' Equity (Beginning) | $16,832,487 | $12,224,616 | | Net Income | $1,344,952 | $4,662,702 | | Stock-based Compensation | $229,799 | $142,783 | | Dividends Paid | $(213,600) | $0 | | Acquisition of Treasury Stock | $(585,035) | $(244,494) | | Total Stockholders' Equity (End) | $17,628,265 | $16,832,487 | Consolidated Statements of Cash Flows The consolidated statements of cash flows indicate a net increase in cash and cash equivalents of $237,713 in fiscal 2024, resulting in an ending balance of $2,473,484 - Cash flow from operating activities decreased by $2,081,960 in fiscal 2024, primarily due to a decrease in net income[86][145] - Net cash used in investing activities decreased by $2,024,576, with additions to oil and gas properties decreasing to $(3,349,326) in 2024[86][145] - Net cash used in financing activities increased by $569,908, driven by dividend payments of $(213,600) and increased acquisition of treasury stock of $(585,035) in 2024[86][145] Consolidated Statements of Cash Flows Summary | Activity | 2024 | 2023 | | :------------------------ | :------------ | :------------ | | Net cash provided by operating activities | $4,433,935 | $6,515,895 | | Net cash used in investing activities | $(3,416,499) | $(5,441,075) | | Net cash used in financing activities | $(779,723) | $(209,815) | | Net increase in cash and cash equivalents | $237,713 | $865,005 | | Cash and cash equivalents at end of year | $2,473,484 | $2,235,771 | Notes to Consolidated Financial Statements The notes provide detailed information on Mexco's accounting policies, including the full cost method for oil and gas properties, revenue recognition, and asset retirement obligations 1. Nature of Operations This note describes Mexco Energy Corporation's core business as an independent oil and gas company focused on acquisition, exploration, development, and production in the U.S., with all interests operated by third parties - Mexco Energy Corporation and its wholly owned subsidiaries are engaged in the acquisition, exploration, development, and production of crude oil, natural gas, condensate, and natural gas liquids (NGLs) in the United States[200] - All of the company's oil and gas interests are operated by others[200] 2. Summary of Significant Accounting Policies This note outlines Mexco's key accounting policies, including the full cost method for oil and gas properties, revenue recognition, asset retirement obligations, and investments in LLCs - The company uses the full cost method of accounting for oil and gas properties, capitalizing all costs associated with acquisition, exploration, and development activities[147][178] - A quarterly "ceiling test" is performed to determine impairment, where net capitalized costs of oil and gas properties cannot exceed the after-tax present value of future net cash flows from proved reserves[178] - Revenues from royalty and non-operated working interest properties are recorded under the cash receipts approach, with accruals for earned but not received revenue[178] - The fair value of a liability for an Asset Retirement Obligation (ARO) is recorded when incurred, and the capitalized cost is depreciated using the units of production method[178] - The company accounts for investments of less than 3% in limited liability companies at cost[202] - ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures," is effective for annual periods beginning after December 15, 2024, and the company is evaluating its impact[179] 3. Long-Term Debt This note details the company's credit facility with West Texas National Bank, including its $2.5 million limit, maturity date, and covenants, particularly the restriction on cash dividends - The company has a loan agreement with West Texas National Bank (WTNB) providing a credit facility of $2,500,000, with a maturity date extended to March 28, 2026[203] - There was no balance outstanding on the credit facility as of March 31, 2024[150][204] - The agreement contains customary covenants, including limitations on change in control, disposition of assets, mergers, and financial covenants such as Senior Debt/EBITDA ratios and minimum interest coverage ratios[150] - The agreement prohibits the company from paying cash dividends on its common stock without prior written permission from WTNB[150] 4. Asset Retirement Obligations This note provides a rollforward of the company's asset retirement obligations, detailing changes in carrying amount, liabilities incurred, settled, and accretion expense Rollforward of Asset Retirement Obligations | Metric | 2024 | 2023 | | :-------------------------------------- | :---------- | :---------- | | Carrying amount, beginning of year | $730,276 | $735,512 | | Liabilities incurred | $7,617 | $23,492 | | Liabilities settled | $(48,954) | $(59,260) | | Accretion expense | $29,869 | $30,532 | | Carrying amount, end of year | $718,808 | $730,276 | | Less: Current portion | $30,000 | $20,000 | | Non-Current asset retirement obligation | $688,808 | $710,276 | 5. Income Taxes This note presents the breakdown of income tax expense, effective tax rates, and the impact of the Inflation Reduction Act of 2022, along with statutory depletion and net operating loss carryforwards - The Inflation Reduction Act of 2022 (IRA 2022) imposes a 15% corporate alternative minimum tax and a 1% excise tax on stock repurchases, but did not impact the company's current year tax provision or consolidated financial statements[182] - As of March 31, 2024, the company has a statutory depletion carryforward of approximately $5,400,000 (does not expire) and a net operating loss carryforward of approximately $720,000 (begins expiring in 2040)[207] Income Tax Expense | Expense Category | 2024 | 2023 | | :----------------------- | :---------- | :---------- | | Current Federal | $189,254 | $0 | | Current State | $119,629 | $164,510 | | Total Current Income Tax Expense | $308,883 | $164,510 | | Deferred Federal | $311,661 | $0 | | Total Deferred Income Tax Expense | $311,661 | $0 | | Total Income Tax Expense | $620,544 | $164,510 | Effective Income Tax Rate | Year | Effective Income Tax Rate | | :--- | :------------------------ | | 2024 | 31.6% | | 2023 | 3.4% | 6. Major Customers This note identifies a major customer accounting for 59% of fiscal 2024 operating revenues and 48% of receivables, while noting management's belief in a ready market for production - In fiscal 2024, one purchaser accounted for 59% of total operating revenues and 48% of total oil and natural gas accounts receivable[153] - Management believes the loss of any one purchaser would not have an adverse effect on the company's ability to sell its oil and gas production, as a ready market exists[153] 7. Oil and Natural Gas Costs This note details capitalized costs for oil and gas properties, including acquisition, exploration, and development, and provides depreciation, depletion, and amortization expense per BOE - Depreciation, depletion, and amortization (DD&A) amounted to $12.81 per BOE of production for fiscal 2024, compared to $14.56 per BOE for fiscal 2023[185] Capitalized Costs for Oil and Gas Properties | Cost Category | 2024 | 2023 | | :----------------------------- | :---------- | :---------- | | Property acquisition costs (Proved) | $1,826,266 | $1,053,442 | | Exploration | $153,039 | $0 | | Development | $1,363,529 | $4,282,499 | | Capitalized Asset Retirement Obligations | $7,617 | $23,492 | | Total Costs | $3,350,451 | $5,359,433 | 8. Income Per Common Share This note provides the calculation of basic and diluted income per common share, including the impact of dilutive stock options and those excluded due to anti-dilutive effects - 93,000 shares relating to stock options were excluded from the computation of diluted net income for fiscal 2024 because their inclusion would be anti-dilutive (weighted average exercise price of $13.12)[186] Income Per Common Share Calculation | Metric | 2024 | 2023 | | :-------------------------------------- | :---------- | :---------- | | Net Income | $1,344,952 | $4,662,702 | | Weighted avg. common shares outstanding – basic | 2,114,360 | 2,146,491 | | Effect of the assumed exercise of dilutive stock options | 46,650 | 62,172 | | Weighted avg. common shares outstanding – diluted | 2,161,010 | 2,208,663 | | Basic Income per common share | $0.64 | $2.17 | | Diluted Income per common share | $0.62 | $2.11 | 9. Stockholders' Equity This note details the Board's authorization of a new $1 million stock repurchase program in April 2024 and the shares repurchased during fiscal 2024 - The Board of Directors authorized a new $1,000,000 common stock repurchase program in April 2024, replacing the previously authorized program[187][229] - During fiscal 2024, the company repurchased 50,101 shares for the treasury account at an aggregate cost of $585,035 (average price of $11.68 per share)[187] 10. Stock-based Compensation This note describes the 2019 Employee Incentive Stock Plan, detailing stock option grants, compensation expense, and a summary of stock option activity and valuation assumptions - The 2019 Employee Incentive Stock Plan provides for the award of stock options up to 200,000 shares[213] - The company granted 32,000 stock options in fiscal 2024 and 31,000 in fiscal 2023[213] - Compensation expense related to vesting stock options was $229,799 in fiscal 2024 and $142,783 in fiscal 2023[213] Stock Option Activity Summary | Metric | 2024 | 2023 | | :-------------------------------------- | :---------- | :---------- | | Outstanding at April 1 | 139,250 | 114,250 | | Granted | 32,000 | 31,000 | | Exercised | (5,500) | (5,000) | | Forfeited or Expired | - | (1,000) | | Outstanding at March 31 | 165,750 | 139,250 | | Weighted Average Exercise Price (Outstanding) | $9.36 | $8.36 | | Weighted Average Remaining Contract Life (Years) | 6.62 | 7.04 | | Intrinsic Value (Outstanding) | $103,275 | $419,853 | Stock Option Valuation Assumptions (Binomial Model) | Assumption | 2024 | 2023 | | :------------------ | :------- | :------- | | Grant-date fair value | $8.73 | $12.44 | | Volatility factor | 56.52% | 57.3% | | Risk-free interest rate | 3.44% | 3.15% | | Expected term (years) | 6.25 | 6.25 | 11. Related Party Transactions This note outlines related party transactions, primarily involving shared office and administrative expenses reimbursed by the principal stockholder - Related party transactions primarily involve shared office expenditures and administrative/operating expenses paid on behalf of the principal stockholder[215] - Total amounts billed to and reimbursed by the principal stockholder for shared office and administrative/operating expenses were $23,379 in 2024 and $47,055 in 2023[215] 12. Leases This note details the company's operating lease for office space in Midland, Texas, including its expiration date and future minimum lease payments - The company leases approximately 4,160 rentable square feet of office space in Midland, Texas, with the current amended lease expiring on July 31, 2024[216] - Future minimum lease payments as of March 31, 2024, under non-cancellable operating leases total $19,413, due in fiscal year ended March 31, 2025[193][217] Operating Lease Assets and Liabilities (March 31, 2024) | Metric | Amount ($) | | :-------------------------------------- | :--------- | | Operating lease right-of-use asset | 19,263 | | Operating lease liability, current | 19,263 | | Operating lease liability, long term | - | | Total lease liabilities | 19,263 | 13. Oil and Gas Reserve Data (Unaudited) This note presents unaudited estimates of proved oil and gas reserves, including prices used, changes in reserves, proved undeveloped reserves, and the standardized measure of discounted future net cash flows - Estimates of the company's proved oil and gas reserves were prepared by Russell K. Hall and Associates, Inc. in accordance with SEC guidelines[218] - The company's total estimated proved reserves at March 31, 2024, were approximately 1.547 MBOE, with 51% oil and natural gas liquids and 49% natural gas[220] - At March 31, 2024, estimated Proved Undeveloped Reserves (PUDs) were 508 MBOE, accounting for 33% of total proved reserves, primarily consisting of projected 64 new wells[222] Prices Utilized in Reserve Estimates (before adjustments) | Commodity | 2024 | 2023 | % Change | | :------------------ | :------ | :------ | :------- | | Oil per Bbl | $73.96 | $87.45 | (15)% | | Natural gas per MMBtu | $2.45 | $5.96 | (59)% | Changes in Proved Reserves (Oil Bbls and Natural Gas Mcf) | Metric | Oil (Bbls) | Natural Gas (Mcf) | | :----------------------------------- | :--------- | :---------------- | | As of March 31, 2023 | 727,000 | 4,949,000 | | Revision of previous estimates (2024) | (86,000) | (463,000) | | Purchase of minerals in place (2024) | 24,000 | 121,000 | | Extensions and discoveries (2024) | 199,000 | 437,000 | | Sales of minerals in place (2024) | (3,000) | (4,000) | | Production (2024) | (70,000) | (503,000) | | As of March 31, 2024 | 791,000 | 4,537,000 | Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Reserves | Metric | 2024 | 2023 | | :-------------------------------------- | :------------ | :------------ | | Future cash inflows | $73,290,000 | $94,972,000 | | Future production costs and taxes | $(21,634,000) | $(23,800,000) | | Future development costs | $(5,481,000) | $(4,280,000) | | Future income taxes | $(7,067,000) | $(11,284,000) | | Future net cash flows | $39,108,000 | $55,608,000 | | Annual 10% discount | $(14,480,000) | $(22,793,000) | | Standardized measure, end of year | $24,628,000 | $32,815,000 | 14. Subsequent Events This note details significant events occurring after the fiscal year-end, including dividend declarations, share repurchases, royalty interest acquisitions, stock option exercises, and investments in drilling activities - On April 30, 2024, the Board of Directors declared a regular annual dividend of $0.10 per common share, paid on June 4, 2024[229] - In April 2024, the Board authorized a new $1,000,000 share repurchase program and subsequently repurchased 13,766 shares for $188,637[229] - In April 2024, the company acquired small royalty (mineral) interests in 21 wells in Reeves County, Texas, for $158,000[229] - In April 2024, stock options covering 12,367 shares were exercised, generating proceeds of $77,641[229] - In April 2024, Mexco expended approximately $207,800 to participate in the drilling of nine horizontal wells in the Delaware Basin, Lea County, New Mexico[229] - In May 2024, the company funded another $200,000 toward its $2,000,000 equity investment in a limited liability company[229]