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 (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). Forward-looking statements include statements regarding our plans, beliefs or current expectations and my be signified by the words "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.

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 this 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. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Form 10-K.

Liquidity and Capital Resources. Historically, we have funded our operations, acquisitions, exploration and development expenditures from cash generated by operating activities, bank borrowings 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. In the past two fiscal years, we have obtained additional financing for prospects by selling fractional working interests to industry partners at prices in excess of our cost.

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 three months of fiscal 2010, cash flow from operations was $293,379, a 24% decrease when compared to the corresponding period of fiscal 2009. Cash of $234,224 was used for additions to oil and gas properties and $150,000 for reduction in long term debt. Accordingly, net cash decreased $92,663. This decrease can be primarily attributed to a decrease in cash from oil and gas sales as compared to cash from oil and gas sales in the corresponding period of fiscal 2009.

Effective July 1, 2008, we purchased a well in Loving County, Texas which is capable of producing from the Lower Cherry Canyon section. We are acting as operator and have re-entered the well. We have purchased right-of-way and are constructing a pipeline for transmission and sales of natural gas. Our share of the costs for our 50.2% working interest through June 2009 is approximately $193,000.

We currently hold royalty interests in an aggregate of 522 acres in the Newark East (Barnett-Shale) Field of Tarrant County, Texas. This acreage has 9 producing natural gas wells, 3 proven undeveloped well locations and 6 additional potential drill sites. We subsequently purchased additional royalties in this acreage on March 31, 2009 for approximately $49,000.

We currently hold royalty interests in 122 mineral acres in Tarrant County, Texas. As of March 31, 2009, there were three wells on this acreage producing natural gas into a sales pipeline. In April 2009, two additional wells were completed and began producing natural gas. In July 2009, an additional well was completed and put on production.

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

We are participating in other projects and are reviewing projects in which we may participate. The cost of such projects would be funded, to the extent possible, from existing cash balances and cash flow from operations. The remainder may be funded through borrowings on the credit facility.

At June 30, 2009, we had working capital of approximately $175,166 compared to working capital of $221,989 at March 31, 2009. This was mainly a result of a decrease in accounts receivable and cash and cash equivalents, partially offset by a decrease in accounts payable and accrued expenses.

Crude oil and natural gas prices have fluctuated significantly in recent years. During the second quarter of fiscal 2009, oil and gas prices began trending downward, while drilling, completion and operating costs remained high. The effect of declining product prices on our business is significant. Lower product prices reduce our cash flow from operations and diminish the present value of our oil and gas reserves. Lower product prices also offer us less incentive to assume the drilling risks that are inherent in our business. The volatility of the energy markets make it extremely difficult to predict future oil and natural gas price movements with any certainty. For example, the West Texas Intermediate ("WTI") posted price for crude oil has ranged from a low of $30.28 per bbl in December 2008 to a high of $145.31 per bbl in July 2008. The Henry Hub Spot Market Price ("Henry Hub") for natural gas has ranged from a low of $3.58 per MMBtu in March 2009 to a high of $13.31 per MMBtu in July 2008. On June 30, 2009 the WTI posted price for crude oil was $69.82 per bbl and the Henry Hub spot price for natural gas was $3.72 per MMBtu. Management is of the opinion that cash flow from operations and funds available from financing will be sufficient to provide adequate liquidity for the next fiscal year.

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 June 30, 2009:

                                                   Payments Due In (1):
                                 Total        less than 1 year       1-3 years       3 years
Contractual obligations:
Secured bank line of credit   $ 1,250,000     $               -     $ 1,250,000     $       -

(1) Does not include estimated interest of $35,100 less than 1 year and $105,300 1-3 years.

These amounts represent the balances outstanding under the bank line of credit. These repayments assume that interest will be paid on a monthly basis and that no additional funds will be drawn.

Results of Operations - Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008. Net income decreased from $538,789 for the quarter ended June 30, 2008 to a net loss of $68,003 for the quarter ended June 30, 2009; a decrease of $606,792 as a result of a decrease in operating revenues partially offset by a decrease in production costs.

Oil and gas sales. Revenue from oil and gas sales decreased from $1,672,587 for the first quarter of fiscal 2009 to $653,810 for the same period of fiscal 2010. This decrease of 61% resulted from a decrease in oil and gas prices offset partially by an increase in oil and gas production. Average gas prices decreased from $9.70 per mcf for the first quarter of fiscal 2009 to $3.04 per mcf for the same period of fiscal 2010. Average oil prices decreased from $118.57 per bbl for the first quarter of fiscal 2009 to $53.78 for the same period of fiscal 2010. Oil and gas production quantities were 4,107 barrels ("bbls") and 122,286 thousand cubic feet ("mcf") for the first quarter of fiscal 2009 and 4,331 bbls and 138,418 mcf for the same period of fiscal 2010, an increase of 5% in oil production and 13% in gas production.

Production and exploration. Production costs decreased 28% from $334,988 for the first quarter of fiscal 2009 to $240,973 for the same period of fiscal 2010. This was the result of a decrease in production taxes due to the decrease in oil and gas sales as well as a decrease in lease operating expenses.

Depreciation, depletion and amortization. Depreciation, depletion and amortization expense increased 10%, from $238,844 for the first quarter of fiscal 2009 to $263,462 for the same period of fiscal 2010 primarily due to an increase in oil and gas production partially offset by an increase in oil and gas reserves.

General and administrative expenses. General and administrative expenses decreased 18% from $281,661 for the first quarter of fiscal 2009 to $232,185 for the same period of fiscal 2010. This was primarily due to a decrease in salary and geological expenses as well as a decrease in board of directors' fees.

Interest expense. Interest expense decreased 71% from $33,735 for the first quarter of fiscal 2009 to $9,624 for the same period of fiscal 2010, due to a decrease in borrowings and a decrease in interest rates.