UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM 10-Q

     |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 2006

                                       OR

     |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                        For the transition period from to


                           Commission File No. 0-6994


                            MEXCO ENERGY CORPORATION
             (Exact name of registrant as specified in its charter)

         Colorado                                    84-0627918
(State or other jurisdiction of                    (IRS Employer
  incorporation or organization)                Identification Number)


             214 West Texas Avenue, Suite 1101, Midland, Texas 79701
                    (Address of principal executive offices)


                                 (432) 682-1119
              (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. YES |X| NO |_|

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and large  accelerated  filer" in rule 12b-2 of the Exchange  Act.  (Check
one):

  Large Accelerated Filer |_|  Accelerated Filer |_|   Non-Accelerated Filer |X|

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES |_| NO |X|

The number of shares outstanding of the registrant's common stock as of November
13, 2006 is 1,776,841.


<PAGE>

                            MEXCO ENERGY CORPORATION


                                Table of Contents

                                                                           Page

PART I.  FINANCIAL INFORMATION


  Item 1.  Consolidated Balance Sheets as of September 30, 2006
           (Unaudited) and March 31, 2006                                    3

           Consolidated Statements of Operations (Unaudited) for
           the three months and six months ended September 30, 2006
           and September 30, 2005                                            4

           Consolidated Statements of Cash Flows (Unaudited) for
           the six months ended September 30, 2006 and September 30, 2005    5

           Notes to Consolidated Financial Statements (Unaudited)            6

  Item 2.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations                                        11

  Item 3.  Quantitative and Qualitative Disclosures About Market Risk       13

  Item 4.  Controls and Procedures                                          13


PART II.   OTHER INFORMATION                                                14
---------------------------

  Item 1.  Legal Proceedings
  Item 1A. Risk Factors
  Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
  Item 3.  Defaults upon Senior Securities
  Item 4.  Submission of Matters to a Vote of Security Holders
  Item 5.  Other Information
  Item 6.  Exhibits and Reports on Form 8-K


SIGNATURES                                                                  15


CERTIFICATIONS


                                     Page 2
<PAGE>

                    Mexco Energy Corporation and Subsidiaries
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                    September 30,     March 31,
                                                                        2006            2006
                                                                    ------------    ------------
                                                                    (Unaudited)

<S>                                                                 <C>             <C>
ASSETS
  Current assets
    Cash and cash equivalents                                       $    120,439    $     52,768
    Accounts receivable:
      Oil and gas sales                                                  427,721         429,133
      Trade                                                               22,426             336
      Related parties                                                        139              73
    Prepaid costs and expenses                                            39,472          75,576
                                                                    ------------    ------------
       Total current assets                                              610,197         557,886

    Investment in GazTex, LLC                                             20,509          20,509

    Property and equipment, at cost
      Oil and gas properties, using the full cost method
        ($ 0 and $121,418 excluded from amortization
        as of September 30, 2006 and March 31, 2006, respectively)    19,122,094      18,947,532
      Other                                                               51,412          39,848
                                                                    ------------    ------------
                                                                      19,173,506      18,987,380
      Less accumulated depreciation,
        depletion and amortization                                    10,894,902      10,587,451
                                                                    ------------    ------------
          Property and equipment, net                                  8,278,604       8,399,929
                                                                    ------------    ------------
                                                                    $  8,909,310    $  8,978,324
                                                                    ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
  Current liabilities
    Accounts payable - trade and accrued expenses                   $     91,890    $    118,125
    Income tax payable                                                     3,048              --
                                                                    ------------    ------------
         Total current liabilities                                        94,938         118,125

  Long-term debt                                                         100,000         600,000
  Asset retirement obligation                                            361,683         352,416
  Deferred income tax liability                                          951,768       1,006,736
  Minority interest                                                        2,051           2,051
  Commitments and contingencies

  Stockholders' equity
    Preferred stock - $1.00 par value;
      10,000,000 shares authorized; none outstanding                          --              --
    Common stock - $0.50 par value;
      40,000,000 shares authorized;
      1,810,366 shares issued                                            905,183         888,283
    Additional paid-in capital                                         4,091,037       3,893,588
    Retained earnings                                                  2,620,525       2,262,700
    Treasury stock, at cost (43,525 and 33,525 shares,
      respectively)                                                     (217,875)       (145,575)
                                                                    ------------    ------------
Total stockholders' equity                                             7,398,870       6,898,996
                                                                    ------------    ------------
                                                                    $  8,909,310    $  8,978,324
                                                                    ============    ============
</TABLE>


         The accompanying notes are an integral part of the consolidated
                             financial statements.


                                     Page 3
<PAGE>

                    Mexco Energy Corporation and Subsidiaries
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                 Three Months Ended              Six Months Ended
                                                     September 30                  September 30
                                                 2006           2005           2006           2005
                                              -----------    -----------    -----------    -----------
<S>                                           <C>            <C>            <C>            <C>
Operating revenue:
  Oil and gas sales                           $   773,698    $   933,915    $ 1,551,110    $ 1,736,635
  Other                                             1,890          1,996          2,057          2,369
                                              -----------    -----------    -----------    -----------
    Total operating revenues                      775,588        935,911      1,553,167      1,739,004

Operating expenses:
  Production                                      206,968        249,231        422,597        425,676
  Accretion of asset retirement obligation          6,860          5,780         11,844         11,566
  Depreciation, depletion, and amortization       156,921        138,043        307,450        276,722
  General and administrative                      174,919        180,079        436,412        375,482
                                              -----------    -----------    -----------    -----------
     Total operating expenses                     545,668        573,133      1,178,303      1,089,446
                                              -----------    -----------    -----------    -----------

Operating profit                                  229,920        362,778        374,864        649,558

Other income (expense):
  Interest income                                   2,107            196          2,400            363
  Interest expense                                 (6,359)       (26,891)       (16,458)       (56,874)
                                              -----------    -----------    -----------    -----------

     Net other expense                             (4,252)       (26,695)       (14,058)       (56,511)
                                              -----------    -----------    -----------    -----------

Earnings before income taxes and minority
  interest                                        225,668        336,083        360,806        593,047

Income tax expense:
  Current                                          22,539         67,501         62,784        141,943
  Deferred                                         72,692        (12,799)       (54,968)        12,630
                                              -----------    -----------    -----------    -----------
                                                   95,231         54,702          7,816        154,573

Income before minority interest                   130,437        281,381        352,990        438,474

Minority interest in loss of subsidiary                97          4,342          4,835          8,167
                                              -----------    -----------    -----------    -----------

Net income                                    $   130,534    $   285,723    $   357,825    $   446,641
                                              ===========    ===========    ===========    ===========

Net income per common share:

Basic:                                        $      0.07    $      0.16    $      0.21    $      0.26
Diluted:                                      $      0.07    $      0.15    $      0.20    $      0.24
</TABLE>


         The accompanying notes are an integral part of the consolidated
                             financial statements.


                                     Page 4
<PAGE>

                    Mexco Energy Corporation and Subsidiaries
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     For the Six Months Ended September 30,
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                 2006          2005
                                                               ---------    ---------
<S>                                                            <C>          <C>
Cash flows from operating activities:
  Net income                                                   $ 357,825    $ 446,641
  Adjustments to reconcile net income to net
    cash provided by operating activities:
      Increase (decrease) in deferred income taxes               (54,968)      12,630
      Stock-based compensation                                    55,598        9,748
      Common stock issued to director                             14,100           --
      Depreciation, depletion and amortization                   307,450      276,722
      Accretion of asset retirement obligations                   11,844       11,566
      Minority interest in loss of subsidiary                     (4,835)      (8,167)
      Increase in accounts receivable                            (20,744)    (124,735)
      Decrease (increase) in prepaid expenses                     36,105      (50,315)
      Increase in income taxes payable                             3,048       83,260
      Increase (decrease) in accounts payable
        and accrued expenses                                     (14,860)      13,219
                                                               ---------    ---------

         Net cash provided by operating activities               690,563      670,569

Cash flows from investing activities:
  Additions to oil and gas properties                           (213,213)    (356,492)
  Additions to other property and equipment                      (11,564)          --
  Proceeds from sale of oil and gas properties and equipment      24,700       14,533
                                                               ---------    ---------

         Net cash used in investing activities                  (200,077)    (341,959)

Cash flows from financing activities:
  Proceeds from exercise of stock options                        104,650           --
  Repurchase of stock                                            (32,300)          --
  Reduction of long-term debt                                   (500,000)    (390,000)
  Minority interest contributions                                  4,835        8,167
                                                               ---------    ---------
         Net cash used in financing activities                  (422,815)    (381,833)
                                                               ---------    ---------

Net increase (decrease) in cash and cash equivalents              67,671      (53,223)

Cash and cash equivalents at beginning of year                    52,768       85,209
                                                               ---------    ---------

Cash and cash equivalents at end of period                     $ 120,439    $  31,986
                                                               =========    =========

  Interest paid                                                $  19,317    $  60,770
  Income taxes paid                                            $      --    $  58,683

Supplemental disclosure of non-cash financing activities:
   Cashless exercise of stock options and repurchase
     of treasury shares                                        $  40,000           --
</TABLE>


         The accompanying notes are an integral part of the consolidated
                             financial statements.


                                     Page 5
<PAGE>

                     MEXCO ENERGY CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1.  Nature of Operations

Mexco Energy Corporation (a Colorado Corporation),  its wholly owned subsidiary,
Forman Energy Corporation,  and its 90% owned subsidiary,  OBTX, LLC (a Delaware
Limited  Liability  Company)  (collectively,  the  "Company") are engaged in the
exploration,  development  and production of natural gas, crude oil,  condensate
and natural gas  liquids  (NGLs).  Although  most of the  Company's  oil and gas
interests are centered in West Texas, the Company owns producing  properties and
undeveloped  acreage in ten states.  Although  most of the Company's oil and gas
interests are operated by others,  the Company  operates  several  properties in
which it owns an interest.

In the opinion of management,  the accompanying unaudited consolidated financial
statements  contain  all  adjustments   (consisting  only  of  normal  recurring
accruals)  necessary to present fairly the financial  position of the Company as
of September 30, 2006,  and the results of its operations and cash flows for the
interim periods ended September 30, 2006 and 2005. The results of operations for
the  periods  presented  are not  necessarily  indicative  of the  results to be
expected for a full year.  The accounting  policies  followed by the Company are
set forth in more  detail  in Note A of the  "Notes  to  Consolidated  Financial
Statements"  in the  Company's  annual  report  on  Form  10-K  filed  with  the
Securities and Exchange  Commission  ("SEC").  Certain  information and footnote
disclosures  normally  included in financial  statements  prepared in accordance
with accounting  principles  generally  accepted in the United States of America
have been  condensed  or  omitted  in this Form 10-Q  pursuant  to the rules and
regulations of the Securities and Exchange Commission.  However, the disclosures
herein are adequate to make the  information  presented  not  misleading.  It is
suggested  that  these  financial  statements  be read in  conjunction  with the
financial statements and notes thereto included in the Form 10-K.

2.  Summary of Significant Accounting Policies

Principles of Consolidation.  The consolidated  financial statements include the
accounts of Mexco Energy  Corporation  and its wholly  owned and majority  owned
subsidiaries.  All significant  intercompany balances and transactions have been
eliminated.

Estimates and Assumptions.  In preparing financial statements in conformity with
accounting  principles  generally  accepted  in the  United  States of  America,
management is required to make informed  judgments and estimates 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. Although management believes its estimates and assumptions are
reasonable,   actual  results  may  differ   materially  from  those  estimates.
Significant estimates affecting these financial statements include the estimated
quantities  of  proved  oil and gas  reserves,  the  related  present  value  of
estimated future net cash flows and the future  development,  dismantlement  and
abandonment costs.

Stock-based  Compensation.  On  December  16,  2004,  the  Financial  Accounting
Standards  Board  issued  Statement of Financial  Accounting  Standards  No. 123
(revised 2004),  "Share-Based Payment" ("SFAS 123(R)").  Among other items, SFAS
123(R)  eliminates  the  use of  Accounting  Principles  Board  Opinion  No.  25
"Accounting  for Stock Issued to Employees"  ("APB 25") and the intrinsic  value
method of accounting for equity compensation and requires companies to recognize
the cost of  employee  services  received  in  exchange  for  awards  of  equity
instruments  based  on the  grant  date  fair  value of  those  awards  in their
financial  statements.  We elected to use the  modified  prospective  method for
adoption,  which requires  compensation  expense to be recorded for all unvested
stock options and other equity-based compensation beginning in the first quarter
of adoption. For all unvested options outstanding as of April 1, 2006 (the first
day of the Company's  fiscal year),  the  previously  measured but  unrecognized
compensation expense based on the fair value at the original grant date, will be
recognized in our financial  statements over the remaining  vesting period.  For
equity-based  compensation  awards  granted or modified  subsequent  to April 1,
2006,  compensation  expense  based  on the  fair  value at the date of grant or
modification  will be recognized in our  financial  statements  over the vesting
period. The Company recognizes the fair value of stock-based compensation awards
as wages in the Consolidated  Statements of Operations based on a graded-vesting
schedule over the vesting  period.  We utilize the Binomial option pricing model
to measure the fair value of stock options. Prior to the adoption of SFAS 123(R)
we followed the intrinsic  value method in accordance with APB 25 to account for
employee stock-based compensation.

The adoption of SFAS 123(R) resulted in the recognition of compensation  expense
of  $21,497  or $.01 per share,  and  $34,101  or $.01 per share in General  and
Administrative  expense in the  Consolidated  Statements of  Operations  for the
three months and the six months ended September 30, 2006. In accordance with the
modified  prospective  application  method of SFAS 123(R),  prior period amounts
have not been restated to reflect the  recognition of  stock-based  compensation
costs.  The total  cost  related to  non-vested  awards  not yet  recognized  at
September  30,  2006  totals  approximately  $210,636  which is  expected  to be
recognized over a weighted average of 2.01 years.


                                     Page 6
<PAGE>

In  periods  ending  prior to April 1, 2006 the  income  tax  benefits  from the
exercise of stock  options  were  classified  as net cash  provided by operating
activities pursuant to Emerging Issues Task Force Issue No. 00-15.  However, for
periods  beginning  after April 1, 2006 pursuant to SFAS 123(R),  the excess tax
benefits  are  required  to be  reported  in  net  cash  provided  by  financing
activities.

Prior to April 1, 2006,  we accounted for our employee  stock options  utilizing
the intrinsic value method prescribed by APB 25 and related interpretations. The
following pro forma information,  as required by SFAS 123(R), as amended by SFAS
148,  presents  net income and earnings  per share  information  as if the stock
options  issued since  February 2, 1999 were  accounted for using the fair value
method.  The fair value of stock  options  issued for each year was estimated at
the date of grant using the Binomial option pricing model.

The  following are pro forma net income and earnings per share for the three and
six months ended  September 30, 2005, as if  stock-based  compensation  had been
recorded  at the  estimated  fair value of stock  awards at the grant  date,  as
prescribed by SFAS No. 123, Accounting for Stock-Based Compensations:

                                        Three Months Ended  Six Months Ended
                                           September 30       September 30
                                               2005               2005
                                           ------------       ------------

Net income, as reported                    $    285,723       $    446,641
Deduct: Stock-based employee
         compensation expense determined
         under fair value based method
         (SFAS 123), net of tax                 (13,196)           (42,294)
                                           ------------       ------------

     Net income, pro forma                 $    272,527       $    404,347
                                           ============       ============

Basic earnings per share:
     As reported                           $       0.16       $       0.26
     Pro forma                             $       0.16       $       0.23

Diluted earnings per share:
     As reported                           $       0.15       $       0.24
     Pro forma                             $       0.14       $       0.21

The Company  adopted  the 1997  Incentive  Stock Plan  during  fiscal 1998 which
provides  options to purchase  350,000 shares of authorized but unissued  common
stock of the  Company.  The option  price is the market  value of the  Company's
common stock at date of grant.  Options are  exercisable  25% annually  from the
date of the grant and the  options  expire 10 years from the date of grant.  The
1997 Plan provides that restricted  stock awards may be granted with a condition
to attain a specified  goal. The purchase price will be at least $5.00 per share
of restricted stock.

In fiscal 2005, the Company  adopted the 2004  Incentive  Stock Plan to replace,
modify and  extend  the  termination  date of the 1997  Incentive  Stock Plan to
September 14, 2009.  This new plan provides for the award of stock options up to
375,000  shares of which  125,000  may be the  subject of stock  grants  without
restrictions  and without  payment by the  recipient  and stock  awards of up to
125,000 shares with restrictions including payment for the shares and employment
of not less than three years from the date of the award.  The terms of the stock
options  are  similar to those of the 1997 Plan except that the term of the Plan
is five years from the date of its adoption.

In  accordance  with both Plans,  upon the exercise of stock  options new shares
will be issued.  The Company can repurchase  shares  exercised under these Plans
and  anticipates  repurchasing  approximately  30,000  shares  for the  treasury
account during fiscal 2007. Through the six months ended September 30, 2006, the
Company  repurchased  10,000  shares for the  treasury at an  aggregate  cost of
$72,300.  The Plan also  provides for the granting of stock  awards.  During the
quarter  ended  September 30, 2006,  the Company  granted a stock award of 2,000
shares to a director of the Company.


                                     Page 7
<PAGE>

The fair value of each stock  option is estimated on the date of grant using the
Binomial valuation model that uses the assumptions noted in the following table.
Because the Binomial  valuation  model  incorporates  ranges of assumptions  for
inputs,  those  ranges  are  disclosed.   Expected  volatilities  are  based  on
historical  volatility of the Company's stock over the expected  vesting term of
48 months and other factors. The Company uses historical data to estimate option
exercise and employee termination within the valuation model; separate groups of
individuals  that have  similar  historical  exercise  behavior  are  considered
separately  for  valuation  purposes.  The expected  term of options  granted is
derived from the output of the option  valuation model and represents the period
of time that  options  granted are expected to be  outstanding;  the range given
below results from certain groups of individuals  exhibiting different behavior.
The  risk-free  rate for periods  within the  contractual  life of the option is
based on the U.S.  Treasury  yield curve in effect at the time of grant.  As the
Company  has  never  declared  dividends,  no  dividend  yield  is  used  in the
calculation.  Actual  value  realized,  if  any,  is  dependent  on  the  future
performance of the Company's  common stock and overall stock market  conditions.
There is no assurance  the value  realized by an optionee will be at or near the
value estimated by the Binomial model.

Included in the  following  table is a summary of the  grant-date  fair value of
stock options granted and the related  assumptions.  All such amounts  represent
the weighted average amounts for each period.

                                     For the six months
                                     ended September 30,
                                           2006
                                         -------
Grant-date fair value                 $       5.15
Volatility factor                            71.46%
Dividend yield                                  --
Risk-free interest rate                       5.07%
Expected term (in years)                         5

No options were granted during the six months ended September 30, 2005.

No  forfeiture  rate is  assumed  for stock  options  granted  to  directors  or
employees due to the forfeiture  rate history for these types of awards.  Option
awards are  generally  granted  with an exercise  price equal to the fair market
price of the  Company's  stock  at the  date of  grant.  For the  quarter  ended
September 30, 2006,  18,200 stock options were forfeited due to the  termination
of consulting agreements with two of our consultants. The Company has no present
expectation  for this to occur in the future on the  options  outstanding  as of
September 30, 2006.

The following table is a summary of activity of stock options for the six months
ended September 30, 2006:

<TABLE>
<CAPTION>
                                                 Weighted Average
                                                    Exercise           Weighted         Aggregate
                                    Number of         Price         Average Contract    Intrinsic
                                     Shares         Per Share         Life in Years       Value
                                    ---------    ----------------   -----------------   ----------

<S>                                 <C>          <C>                <C>                 <C>
Outstanding at March 31, 2006         350,000    $           5.89
  Granted                              35,000                8.24
  Exercised                           (31,800)               4.55
  Forfeited or Expired                (18,200)               6.75
                                    ---------    ----------------
Outstanding at September 30, 2006     335,000    $           6.22                4.46   $   25,050
                                    =========    ================   =================   ==========


Exercisable at September 30, 2006     270,250    $           5.93                4.19   $   97,523
                                    =========    ================   =================   ==========
</TABLE>

Outstanding  options at September  30, 2006 expire  between  April 2008 and July
2014 and have exercise prices ranging from $4.00 to $8.24.

The  following  table  summarizes   information  about  options  outstanding  at
September 30, 2006:



<TABLE>
<CAPTION>
                                            Weighted Average        Weighted Average      Aggregate
                              Number of      Exercise Price       Remaining Contractual   Intrinsic
Range of Exercise Prices       Options         Per Share               Life in Years        Value
------------------------      ---------    ----------------       ---------------------   ---------

<S>                            <C>              <C>               <C>                     <C>
   $ 4.00 - 5.24                61,000          $      4.00

     5.25 - 6.49               109,000                 5.60

     6.50 - 7.74               100,000                 7.07

     7.75 - 8.24                65,000                 8.01
                              --------          -----------
   $ 4.00 - 8.24               335,000                $6.22                 4.46          $  25,050
                              ========          ===========        =============          =========
</TABLE>


                                     Page 8
<PAGE>

The  following  table  summarizes   information  about  options  exercisable  at
September 30, 2006:

                                             Weighted Average      Aggregate
                              Number         Exercise Price        Intrinsic
Range of Exercise Prices   Exercisable          Per Share            Value
------------------------   -----------      -----------------      ---------
   $  4.00 - 5.24               61,000       $      4.00
      5.25 - 6.49               94,250              5.53
      6.50 - 7.74               85,000              7.11
      7.75 - 8.24               30,000              7.75
                            ----------       -----------
   $  4.00 - 8.24              270,250       $      5.93           $  97,523
                            ==========       ===========           =========

Stockholders' Equity. The following is a summary of the changes in the Company's
common shares outstanding for the first half of 2006:

                                                     For the six months ended
                                                       September 30, 2006
                                                     ------------------------
Shares outstanding, beginning of period                     1,776,566
Exercise of stock options                                      31,800
Grant of stock awards                                           2,000
                                                            ---------
Shares outstanding, end of period                           1,810,366
                                                            =========

During the six months ended September 30, 2006, the Company  repurchased  10,000
shares for the treasury at an aggregate cost of $72,300.

No changes  were made to the  common  shares  outstanding  during the six months
ended September 30, 2005.

Asset Retirement Obligations.  The Company's asset retirement obligations relate
to the plugging and abandonment of oil and gas  properties.  The fair value of a
liability for an asset  retirement  obligation is required to be recorded in the
period in which it is incurred  with a  corresponding  increase in the  carrying
amount of the related long-lived asset.

The asset  retirement  obligations  are  recorded  at fair  value and  accretion
expense,  recognized  over the life of the property,  increases the liability to
its  expected  settlement  value.  If the  fair  value  of the  estimated  asset
retirement  obligation  changes,  an  adjustment  is recorded for both the asset
retirement obligation and the asset retirement cost.

The following table provides a rollforward of the asset  retirement  obligations
for the first six months of fiscal 2007:

<TABLE>
<S>                                                                        <C>
Carrying amount of asset retirement obligations as of April 1, 2006        $ 372,956
Liabilities incurred                                                          39,323
Liabilities settled                                                          (41,900)
Accretion expense                                                             11,844
                                                                           ---------
Carrying amount of asset retirement obligations as of September 30, 2006     382,223
Less: Current portion                                                         20,540
                                                                           ---------
Non-current asset retirement obligation                                    $ 361,683
                                                                           =========
</TABLE>


The non-current portion of the asset retirement obligation, which is included on
the consolidated  balance sheet, was $361,683 at September 30, 2006. The current
portion of the asset retirement  obligation as of September 30, 2006 was $20,540
and is included on the consolidated  balance sheet in accounts payable and other
accrued  expenses.  Accretion expense was $11,844 and $11,566 for the six months
ended September 30, 2006 and 2005, respectively.

Oil and Gas Costs.  The cost of certain  oil and gas leases that the Company has
acquired,  but not evaluated has been excluded in computing  amortization of the
full cost pool.  The Company will begin to amortize  these  properties  when the
projects are  evaluated.  For the quarter ended  September 30, 2006, the Company
has decided not to pursue the project in Stark  County,  North Dakota due to the
high costs and risks  related to this area.  Prior to September  30,  2006,  the
amount related to the project was being excluded from the full cost amortization
base. This amount has been added to the full cost  amortization  base during the
second quarter and is included in the  amortization  calculation  therefore;  no
costs are currently being excluded from the full cost amortization base.


                                     Page 9
<PAGE>

Earnings Per Share.  Basic earnings per share is computed by dividing net income
by the weighted average number of common shares  outstanding  during the period.
Diluted  earnings  per share is computed by dividing  net income by the weighted
average  number of common  shares and dilutive  potential  common  shares (stock
options) outstanding during the period. The following is a reconciliation of the
number of shares used in the calculation of basic earnings per share and diluted
earnings per share for the three and six month periods ended  September 30, 2006
and 2005.

<TABLE>
<CAPTION>
                                          Three Months Ended        Six Months Ended
                                             September 30             September 30
                                            2006       2005         2006       2005
                                         ---------   ---------   ---------   ---------
<S>                                      <C>         <C>         <C>         <C>
Weighted average number of
    common shares outstanding            1,751,755   1,733,041   1,737,422   1,733,041
Incremental shares from the assumed
    exercise of dilutive stock options      51,645     180,669      63,129     162,166
                                         ---------   ---------   ---------   ---------
Dilutive potential common shares         1,803,400   1,913,710   1,800,551   1,895,207
                                         =========   =========   =========   =========
</TABLE>


Certain options to purchase shares of Mexco's common stock are excluded from the
dilution   calculations  because  the  options  are  antidilutive.   During  the
three-month and six-month  periods ended September 30, 2006,  125,000 and 45,000
shares,  respectively,  were  excluded  from  the  diluted  earnings  per  share
calculations.  No options  were  excluded  from the diluted  earnings  per share
calculations during the three-months and six-months ended September 30, 2005.

Income Taxes.  The Company  recognizes  deferred tax assets and  liabilities for
future tax consequences of temporary differences between the carrying amounts of
assets and liabilities and their  respective tax bases.  Deferred tax assets and
liabilities  are measured  using  enacted tax rates  applicable  to the years in
which those  differences are expected to be settled.  The effect on deferred tax
assets and  liabilities  of a change in tax rates is recognized in net income in
the period that includes the enactment  date. The effective  income tax rate for
the six months ended  September 30, 2005 was 26%. The effective  income tax rate
for the six months ended  September  30, 2006 was 2% as a result of the decrease
of deferred income taxes due to a revision of an estimate of statutory depletion
and a net operating loss carryforward.

Investment  in  GazTex,  LLC.  The  Company's  long-term  assets  consist  of an
investment in GazTex,  LLC, a Russian company owned 50% by OBTX, LLC,  accounted
for by the equity method.  OBTX, LLC is a Delaware limited  liability company in
which Mexco owns 90% of the interest,  with the  remaining  10% divided  equally
among three individuals, one of whom is Arden Grover, a director of Mexco Energy
Corporation.  The investment  balance of $20,509  represents the cash balance of
our investment in GaxTex,  LLC. The 10% interest in OBTX, LLC is included in the
Company's  financial  statements as a minority  interest.  OBTX,  LLC,  plans to
participate in any Russian venture entered into and own a 50% interest.  For the
six months ended September 30, 2006, the Company expensed  approximately $48,000
in consulting costs for the evaluation of potential Russian projects. No further
expenses are expected in the foreseeable future.

Long Term  Liabilities.  Long term debt consists of 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.  On September 26, 2006,
the borrowing base was  redetermined  and set at $4,225,000  bearing interest at
prime rate plus zero percent,  per annum.  As of September 30, 2006, the balance
outstanding under this agreement was $100,000 and matures on September 30, 2008.
Amounts borrowed under this agreement are  collateralized by the common stock of
the Company's wholly owned subsidiary and substantially all of the Company's oil
and gas properties.

Recent  Accounting  Pronouncements.  In  June  2006,  the  Financial  Accounting
Standards  Board  ("FASB")  issued   Interpretation   No.  48,  "Accounting  for
Uncertainty  in Income Taxes" (FIN 48). FIN 48 prescribes a more likely than not
threshold for financial statement  recognition and measurement of a tax position
taken or expected to be taken in a tax return. This Interpretation also provides
guidance on derecognition  of income tax assets and liabilities,  classification
of current  and  deferred  income tax assets  and  liabilities,  accounting  for
interest and penalties  associated  with tax  positions,  accounting  for income
taxes in interim  periods and income tax  disclosures.  This  interpretation  is
effective  for  the  Company  as of  April  1,  2007.  Management  is  currently
evaluating the impact of FIN 48 on our financial statements.

In September 2006, the FASB issued Statement of Financial  Accounting  Standards
No. 157, "Fair Value  Measurements"  ("SFAS 157"),  which provides  guidance for
using fair value to measure assets and liabilities.  The pronouncement clarifies
(1) the extent to which companies  measure assets and liabilities at fair value;
(2) the  information  used to measure  fair value;  and (3) the effect that fair
value  measurements  have on  earnings.  SFAS 157 will  apply  whenever  another
standard  requires (or  permits)  assets or  liabilities  to be measured at fair
value.  SFAS 157 is effective as of the  beginning of our 2009 fiscal year.  The
Company  does not expect the  adoption of SFAS 157 to have a material  impact on
its consolidated financial position or results of operations.


                                    Page 10
<PAGE>

In  September  2006,  the  SEC  issued  Staff   Accounting   Bulletin  No.  108,
"Considering  the Effects of Prior Year  Misstatements in Current Year Financial
Statements" ("SAB 108"). SAB 108 provides guidance for quantifying and assessing
the materiality of misstatements of financial statements,  including uncorrected
misstatements that were not material to prior years' financial  statements.  SAB
108 is effective  for fiscal years ending after  November 15, 2006.  The Company
does not expect SAB 108 to have a material effect on its consolidated  financial
statements and related disclosures.

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
"believes," "expects," "anticipates," "should," "estimates," "foresees" or other
words  and  phrases  of  similar  meaning.   Forward-looking  statements  appear
throughout this Form 10-Q and include statements regarding our plans, beliefs or
current expectations 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, our sources of funding have been
from operating activities and bank financing.

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 2007,  cash flow from operations was $690,563
compared to $670,569 for the first six months of fiscal 2006. The cash flow from
operations  for the first six months of fiscal 2007  included  the effects of an
increase in accounts  receivable and a decrease in prepaid expenses and accounts
payable  and  accrued  expenses.  Cash of  $224,777  was used for  additions  to
property and equipment,  cash of $32,300 was used for a stock repurchase for the
treasury  account,  cash of  $500,000  was used to pay on the line of credit and
cash of $104,650  was  received as proceeds  from  exercises  of stock  options.
Accordingly, net cash increased $67,671.

Through September 30, 2006, we reviewed a number of possible projects in Russia.
Any  projects  reviewed  have  been  discontinued  and  expensed.   We  expensed
approximately  $83,000  for the first six months of fiscal  2006 and $48,000 for
the first six months of fiscal  2007  related to  Russian  projects.  No further
expenses are expected in the foreseeable future.

In September 2006, we purchased a wellbore for reentry in Roosevelt County,  New
Mexico for  approximately  $25,000.  We have spent  approximately  an additional
$170,000 on this well and are in the process of testing the well.

In  October  2006,  we  purchased  various  royalty  and  working  interests  in
Freestone, Leon and Panola Counties, Texas containing approximately 21,950 gross
acres and 86 net acres for approximately $65,000.

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

We 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 discussed below.

At September 30, 2006, we had working capital of approximately $515,259 compared
to working  capital of $439,761 at March 31, 2006, an increase of $75,498 due to
an increase in cash and cash  equivalents and a decrease in accounts payable and
accrued expenses.

The prices of natural gas and crude oil have fluctuated  significantly in recent
years as well as 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  for its  working  capital  requirements  and capital
expenditures for at least the next twelve months.


                                    Page 11
<PAGE>

Long-Term Debt. 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.  On September 26, 2006,  the borrowing  base was
redetermined and set at $4,225,000 with no monthly commitment reductions.  As of
September 30, 2006, the balance  outstanding  under this agreement was $100,000.
The borrowing base is evaluated annually, on or about August 1. Amounts borrowed
under this agreement are  collateralized by the common stock of our wholly owned
subsidiary and all oil and gas  properties.  A letter of credit for $50,000,  in
lieu of a  plugging  bond  with  the  Texas  Railroad  Commission  covering  the
properties we operate,  is also outstanding  under the facility.  Interest under
this  agreement  is payable  monthly at prime rate (8.25% and 6.75% at September
30, 2006 and 2005, 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.

Results of  Operations  - Three Months Ended  September  30, 2006 and 2005.  Net
income  decreased  from  $285,723 for the quarter  ended  September  30, 2005 to
$130,534  for the quarter  ended  September  30, 2006, a decrease of $155,189 or
54%.

Oil and gas sales  decreased from $933,915 for the second quarter of fiscal 2006
to $773,701 for the same period of fiscal 2007. This decrease of 17% or $160,214
resulted  from a  decrease  in gas  price  and  oil and  gas  production  offset
partially by an increase in oil price.  Average gas prices  decreased from $7.25
per mcf for the  second  quarter  of  fiscal  2006 to $5.76 per mcf for the same
period of fiscal 2007,  while average oil prices  increased  from $58.59 per bbl
for the second  quarter of fiscal  2006 to $66.09 for the same  period of fiscal
2007. Oil and gas production  quantities were 4,227 barrels  ("bbls") and 94,609
thousand cubic feet ("mcf") for the second quarter of fiscal 2006 and 3,664 bbls
and 88,442 mcf for the same period of fiscal 2007, a natural decline decrease of
13% in oil production and 7% in gas production.

Production  costs  decreased from $249,231 for the second quarter of fiscal 2006
to $206,968 for the same period of fiscal 2007. This was the result of decreased
repairs to operated  wells during the second  quarter and  decreased  production
taxes due to the decrease in oil and gas sales.

General and  administrative  expenses  decreased 3% from $180,079 for the second
quarter of fiscal 2006 to $174,919 for the same period of fiscal  2007.  This is
due to  discontinuing  the Russian  venture  partially  offset by an increase in
director's fees.


                                    Page 12
<PAGE>

Depreciation,  depletion and amortization  based on production and other methods
increased  14%, from $138,043 for the second  quarter of fiscal 2006 to $156,921
for the same period of fiscal 2007 primarily due to an increase to the full cost
pool amortization base and a decrease in reserves.

Interest  expense  decreased  76% from $26,891 for the second  quarter of fiscal
2006 to  $6,359  for the same  period  of  fiscal  2007,  due to a  decrease  in
borrowings partially offset by increased interest rates.

Effective tax rate  increased  from 16% for the second quarter of fiscal 2006 to
42% for the same period of fiscal 2007, an increase of $40,529 as a result of an
increase  in the  deferred  income  tax  expense  due to the  exercise  of stock
options.

Results of Operations - Six Months Ended September 30, 2006 and 2005. Net income
decreased from $446,641 for the six months ended  September 30, 2005 to $357,825
for the same period of fiscal 2007, a decrease of $88,816 or 20%.

Oil and gas sales  decreased from  $1,736,635 for the six months ended September
30, 2005 to $1,551,110 for the same period of fiscal 2007. This decrease of 11%,
or $185,525,  resulted  from a decrease in gas price and gas  production  offset
partially  by an  increase in oil price and oil  production.  Average gas prices
decreased  from $6.74 per mcf for the first six months ended  September 30, 2005
to $5.84 per mcf for the same period of fiscal  2007,  while  average oil prices
increased  from $53.46 per bbl for the first six months of fiscal 2006 to $65.34
for the same period of fiscal 2007. Oil and gas production quantities were 8,478
barrels  ("bbls")  and  190,331  thousand  cubic feet  ("mcf") for the first six
months  ended  September  30,  2005 and 8,530 bbls and  171,625 mcf for the same
period of fiscal  2007,  an increase  of 1% in oil  production.  Gas  production
decreased 10% as a result of natural decline.

Production  costs  decreased  from  $425,676  for the  first  six  months  ended
September 30, 2005 to $422,597 for the same period of fiscal 2007.  This was the
result of decreased production taxes due to the decrease in oil and gas sales.

General and  administrative  expenses  increased 16% from $375,482 for the first
six months  ended  September  30, 2005 to $436,412 for the same period of fiscal
2007. This is primarily the result of an increase in consulting services related
to our Russian  activities,  an increase in  director's  fees and the effects of
applying SFAS 123(R) for employee stock option compensation.

Depreciation,  depletion and amortization  based on production and other methods
increased  11%, from $276,722 for the first six months ended  September 30, 2005
to $307,450 for the same period of fiscal 2007  primarily  due to an increase to
the full cost pool amortization base and a decrease in reserves.

Interest  expense  decreased  71% from  $56,874  for the first six months  ended
September  30,  2005 to  $16,458  for the same  period of  fiscal  2007 due to a
decrease in borrowings.

Effective tax rate decreased  from 26% for the first six months ended  September
30, 2005 to 2% for the same period of fiscal  2007,  a decrease of $146,757 as a
result of the decrease of deferred income taxes due to a revision of an estimate
of statutory depletion and a net operating loss carryforward.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

The primary  sources of market  risk for us include  fluctuations  in  commodity
prices and interest rate fluctuations. At September 30, 2006, we had not entered
into any hedge  arrangements,  commodity  swap  agreements,  commodity  futures,
options or other similar agreements relating to crude oil and natural gas.

At September 30, 2006, we had an outstanding  loan balance of $100,000 under our
$5.0 million revolving credit agreement, which bears interest at the prime rate,
which varies from time to time. If the interest rate on our bank debt  increases
or decreases by one percentage  point,  our annual pretax income would change by
$1,000 based on the outstanding balance at September 30, 2006.

Credit Risk.  Credit risk is the risk of loss as a result of  nonperformance  by
other  parties of their  contractual  obligations.  Our  primary  credit risk is
related to oil and gas production sold to various purchasers and the receivables
generally are  uncollateralized.  At September 30, 2006, our largest credit risk
associated  with any single  purchaser was $53,001.  We have not experienced any
significant credit losses.

Volatility  of Oil and Gas Prices.  Our revenues,  operating  results and future
rate of growth are highly  dependent upon the  prevailing  market prices of, and
demand for,  oil and natural  gas.  These  commodity  prices are subject to wide
fluctuations  and market  uncertainties  due to a variety  of  factors  that are
beyond  our  control.  These  factors  include  the level of global  demand  for
petroleum  products,  foreign  supply of oil and gas, the  establishment  of and
compliance  with  production   quotas  by  oil  exporting   countries,   weather
conditions,  the  price and  availability  of  alternative  fuels,  and  overall
economic conditions, both foreign and domestic. We cannot predict future oil and
gas  prices  with any degree of  certainty.  Sustained  weakness  in oil and gas
prices may adversely  affect our ability to obtain  capital for our  exploration
and development  activities and may require a reduction in the carrying value of
our oil and gas properties.  Similarly, an improvement in oil and gas prices can
have a favorable  impact on our financial  condition,  results of operations and
capital  resources.  If the average oil price had  increased or decreased by one
dollar per barrel for the first six  months of fiscal  2007,  our pretax  income
would  have  changed  by  $8,530.  If the  average  gas price had  increased  or
decreased  by ten cents per mcf for the first  six  months of fiscal  2007,  our
pretax income would have changed by $17,163.

Item 4.  Controls and Procedures

We maintain controls and procedures designed to ensure that information required
to be  disclosed  by us in  reports  filed or  submitted  under  the  Securities
Exchange Act of 1934 is recorded, processed,  summarized and reported within the
time periods  specified in the  Securities  and  Exchange  Commission  rules and
forms.  At the end of the period  covered  by this  report,  we  carried  out an
evaluation,  under the  supervision  and with the  participation  of management,
including  the Chief  Executive  Officer  and Chief  Financial  Officer,  of the
effectiveness  of the  design  and  operation  of our  disclosure  controls  and
procedures pursuant to Securities  Exchange Act Rule 13a-15(b).  Based upon that
evaluation,  the Chief Executive  Officer and Chief Financial  Officer concluded
that its disclosure controls and procedures are effective.

No changes in the Company's  internal control over financial  reporting occurred
during the quarter ended  September 30, 2006 that have materially  affected,  or
are reasonably likely to materially  affect, our internal control over financial
reporting.

                                    Page 13
<PAGE>

PART II - OTHER INFORMATION

Item  1. Legal Proceedings
      Although we may, from time to time,  be involved in litigation  and claims
      arising out of our operations in the normal course of business, we are not
      currently a party to any material legal proceedings.  In addition,  we are
      not  aware  of any  legal  or  governmental  proceedings  against  us,  or
      contemplated  to  be  brought  against  us,  under  various  environmental
      protection statutes or other regulations to which we are subject.

Item  1A.Risk Factors
      There  have  been  no  material  changes  to  the  information  previously
      disclosed  in Item 1A.  "Risk  Factors" in our 2006 Annual  Report on Form
      10-K.

Item  2. Unregistered Sales of Equity Securities and Use of Proceeds
      None.

Item  3. Defaults Upon Senior Securities
      None.

Item  4. Submission of Matters to a Vote of Security Holders
      Our annual  meeting was held on September 14, 2006.  Following are the two
      proposals voted on at the meeting and the results of each:

<TABLE>
<CAPTION>
      Proposal #1 was the election of the following directors:    Votes For:    Votes Withheld:
                           <S>                                    <C>                 <C>
                           Thomas R. Craddick                     1,505,261           1,804
                           Thomas Graham, Jr.                     1,504,883           2,182
                           Arden R. Grover                        1,505,037           2,028
                           Jeffry A. Smith                        1,494,295          12,770
                           Donna Gail Yanko                       1,505,305           1,760
                           Jack D. Ladd                           1,505,437           1,628
                           Nicholas C. Taylor                     1,505,283           1,782
</TABLE>


      Proposal  #2 was  to  ratify  the  selection  of  Grant  Thornton,  LLP as
      independent  registered  public  accounting  firm for the  Company for the
      fiscal year ended March 31, 2007. Votes for were 1,504,795,  votes against
      were 124 and votes abstained were 2,146.

Item  5. Other Information
      None.

Item  6. Exhibits and Reports on Form 8-K
      None.

Exhibits

31.1  Certification of the Chief Executive Officer of Mexco Energy Corporation

31.2  Certification of the Chief Financial Officer of Mexco Energy Corporation

32.1  Certification of the Chief Executive  Officer and Chief Financial  Officer
      of Mexco Energy Corporation pursuant to 18 U.S.C. ss.1350


                                    Page 14
<PAGE>

                                   SIGNATURES

Pursuant to the  requirements  of the  Securities  and Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                        MEXCO ENERGY CORPORATION
                                        (Registrant)


Dated: November 13, 2006                /s/ Nicholas C. Taylor
                                        ----------------------------------
                                        Nicholas C. Taylor
                                        President


Dated: November 13, 2006                /s/ Tamala L. McComic
                                        ----------------------------------
                                        Tamala L. McComic
                                        Vice President, Treasurer and
                                          Assistant Secretary


                                    Page 15