Summary of MEXCO ENERGY CORP

Item 2. 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 can be identified with words and phrases such as "believe," "expect," "anticipate," "should," "estimate," "foresee" or other words and phrases of similar meaning. 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, estimates of future oil and gas prices; estimates of oil and gas reserves; future financial condition or results of operations; and 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. While we have made assumptions that we believe are reasonable, the assumptions that support our forward-looking statements are based upon information that is currently available and is subject to change. All forward-looking statements in the Form 10-Q are qualified in their entirety by the cautionary statement contained in this section. We do not undertake to update, revise or correct any of the forward-looking information.

Liquidity and Capital Resources. Historically, we have funded our operations, acquisitions, exploration and development expenditures from cash generated by operating activities, bank borrowings and issuance of common stock. Our primary financial resource is our base of oil and gas reserves. We pledge our producing oil and gas properties to secure our revolving line of credit.

Our long term strategy is on increasing profit margins while concentrating on obtaining reserves with low cost operations by acquiring and developing primarily gas properties and secondarily oil properties with potential for long-lived production.

For the first six months of fiscal 2009, cash flow from operations was $1,621,064 compared to $590,656 for the first six months of fiscal 2008. This increase was primarily due to an increase in cash provided by oil and gas sales. Cash of $1,231,574 was used for additions to oil and gas properties and $1,650,000 for net reduction in long term debt. Accordingly, net cash decreased $83,378.

During the third quarter of fiscal 2008, we acted as operator and drilled an exploratory well in Loving County, Texas which has been completed. We have acquired right-of-way and are preparing to build a pipeline to enable production and sales of natural gas from this well. Our share of the costs incurred for this project through October 2008 for our 31.25% working interest is approximately $440,000.

On June 6, 2008 we purchased mineral and royalty interests contained in an aggregate of 522 acres with royalties varying from .126% to .385% in 6 producing natural gas wells and 5 proven undeveloped well locations in the Newark East (Barnett-Shale) Field of Tarrant County, Texas for approximately $429,000. There are an additional 6 potential drill sites on this acreage.

Effective July 1, 2008, we purchased a well in Loving County, Texas currently producing from the Lower Cherry Canyon section. We are acting as operator and have re-entered the well to test two other pay horizons. Our share of the costs for our 31.25% working interest through October 2008 is approximately $81,000.

In September 2008, we committed to participate in the drilling of a development well in Limestone County, Texas. This well has been drilled and is in the process of completion. Costs incurred for this project through October 9, 2008 are approximately $22,000.

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In September 2008, we acted as operator and re-entered a well in Ward County, Texas to an approximate depth of 14,000 feet to test the upper and lower Pennsylvanian intervals. Costs incurred for this project through October 2008 for our 25.5% working interest are approximately $72,000. We also own a 2% overriding royalty interest in this well.

On October 16, 2008, we purchased interests in approximately 143 mineral acres amounting to an approximate 10% net royalty in three gas wells located in Johnson County, Texas for approximately $1.275 million. This property contains three (3) development wells in the Newark East (Barnett Shale) Field which have been drilled and are being prepared for production. Approximately 28 of the 143 acres are outside of the drilling and spacing unit for these three wells and are also available for further development. A director and employee of the Company received a finder's fee of 2.5% of the mineral interest purchased in lieu of a cash payment as disclosed on Form 8-K dated October 15, 2008.

We continue to focus our efforts on the acquisition of royalties in areas with significant development potential.

We are participating in several other projects and are reviewing several other 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.

At September 30, 2008, we had working capital of approximately $929,374 compared to working capital of $627,674 at March 31, 2008, an increase of $301,700. This was mainly as a result of an increase in accounts receivable partially offset by an increase in accounts payable and accrued expenses.

Crude oil and natural gas prices have fluctuated significantly in recent years. There have been substantial decreases in recent months. Fluctuations in price have a significant impact on our financial condition and liquidity. However, management is of the opinion that cash flow from operations and funds available from financing will be sufficient to provide adequate liquidity for the current fiscal year.

We have a revolving credit agreement with Bank of America, N.A. ("Bank"), which provides for a credit facility of $5,000,000, subject to a borrowing base determination. In September 2008, the borrowing base was redetermined and increased to $4,900,000 with no monthly commitment reductions. The borrowing base is evaluated annually, on or about September 1. Amounts borrowed under this agreement are collateralized by the common stock of one of our wholly owned subsidiaries and all of our oil and gas properties. Two letters of credit for $50,000 each, in lieu of a plugging bond covering the properties we operate, are outstanding under the facility, one with the Texas Railroad commission and one with the State of New Mexico. Interest under this agreement is payable monthly at prime rate (5.0% and 7.75% at September 30, 2008 and 2007, respectively). This agreement generally restricts our ability to transfer assets or control of the Company, incur debt, extend credit, change the nature of our business, substantially change management personnel or pay cash dividends. The balance outstanding under this agreement as of September 30, 2008 was $950,000 and $1,750,000 as of November 7, 2008.

Results of Operations - Three Months Ended September 30, 2008 and 2007. Net income increased from a net loss of $8,756 for the quarter ended September 30, 2007 to a net profit of $511,115 for the quarter ended September 30, 2008, an increase of $519,871 as a result of an increase in oil and gas sales.

Oil and gas sales. Revenue from oil and gas sales increased from $839,947 for the second quarter of fiscal 2008 to $1,595,209 for the same period of fiscal 2009. This increase of 90% or $755,262 resulted from an increase in oil and gas prices and production. Revenues from oil and gas royalty interests accounted for approximately 36% of our total revenues for the second quarter of fiscal 2009 compared to 23% for the second quarter of fiscal 2008. Average gas prices increased from $5.97 per mcf for the second quarter of fiscal 2008 to $8.78 per mcf for the same period of fiscal 2009. Average oil prices also increased from $70.53 per bbl for the second quarter of fiscal 2008 to $116.07 for the same period of fiscal 2009. Oil and gas production quantities were 4,441 barrels ("bbls") and 88,266 thousand cubic feet ("mcf") for the second quarter of fiscal 2008 and 4,606 bbls and 120,856 mcf for the same period of fiscal 2009, an increase of 4% in oil production and 37% in gas production.

Production and exploration. Production costs decreased 23% from $467,336 for the second quarter of fiscal 2008 to $357,753 for the same period of fiscal 2009. This was the result of an approximate 82% decrease in repairs and maintenance to operated wells in the El Cinco field partially offset by an increase in production taxes due to increased revenues.

Depreciation, depletion and amortization. Depreciation, depletion and amortization expense increased 31%, from $183,797 for the second quarter of fiscal 2008 to $240,962 for the same period of fiscal 2009, primarily due to an increase to the full cost pool amortization base and an increase in production.

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General and administrative expenses. General and administrative expenses increased 11% from $178,918 for the second quarter of fiscal 2008 to $199,239 for the same period of fiscal 2009. This was due to an increase in salaries, consulting services and fees.

Interest expense. Interest expense decreased 2% from $20,345 for the second quarter of fiscal 2008 to $19,854 for the same period of fiscal 2009, due to a decrease in the interest rate, partially offset by increased borrowings.

Results of Operations - Six Months Ended September 30, 2008 and 2007. Net income increased from $26,049 for the six months ended September 30, 2007 to $1,049,904 for the same period of fiscal 2009, an increase of $1,023,855 or 3930%.

Oil and gas sales. Revenue from oil and gas sales increased from $1,690,092 for the six months ended September 30, 2007 to $3,267,797 for the same period of fiscal 2009. This increase of 93%, or $1,577,705, resulted from an increase in oil and gas prices and gas production. Revenues from oil and gas royalty interests accounted for approximately 37% of our total revenues for the six months ended September 30, 2008 compared to 24% for the same period of fiscal 2008. Average gas prices increased from $6.35 per mcf for the first six months ended September 30, 2007 to $9.24 per mcf for the same period of fiscal 2009. Average oil prices also increased from $64.95 per bbl for the first six months of fiscal 2008 to $117.25 for the same period of fiscal 2009. Oil and gas production quantities were 8,833 bbls and 175,805 mcf for the first six months ended September 30, 2007 and 8,713 bbls and 243,143 mcf for the same period of fiscal 2009, an increase of 38% in gas production and a decrease of 1% in oil production.

Production and exploration. Production costs decreased 13% from $800,386 for the first six months ended September 30, 2007 to $692,741 for the same period of fiscal 2009. This was the result of an approximate 81% decrease in repairs and maintenance to operated wells in the El Cinco field partially offset by an increase in production taxes due to increased revenues.

Depreciation, depletion and amortization. Depreciation, depletion and amortization expense increased 35%, from $356,681 for the first six months ended September 30, 2007 to $479,807 for the same period of fiscal 2009 primarily due to an increase to the full cost pool amortization base and an increase in production.

General and administrative expenses. General and administrative expenses increased 7% from $448,543 for the first six months ended September 30, 2007 to $480,900 for the same period of fiscal 2009. This was due to an increase in salary expense, consulting services and fees.

Interest expense. Interest expense increased 50% from $35,694 for the first six months ended September 30, 2007 to $53,589 for the same period of fiscal 2009 due to an increase in borrowings, partially offset by a decrease in interest rates.