<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
December 10, 1997
------------------------------------------------
Date of Report (date of earliest event reported)
PONTOTOC PRODUCTION, INC.
----------------------------------------------------
Exact name of Registrant as Specified in its Charter
Nevada 0-21313 84-1349552
- --------------------------- --------------- ---------------------------
State or Other Jurisdiction Commission File IRS Employer Identification
of Incorporation Number Number
808 East Main, Ada, Oklahoma 74820
----------------------------------------------------------
Address of Principal Executive Offices, Including Zip Code
(580) 436-6100
--------------------------------------------------
Registrant's Telephone Number, Including Area Code
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. The following
financial statements for Pontotoc Production Company, Inc. for the years ended
March 31, 1997 and 1996, and for the six months ended September 30, 1997 and
1996 are filed herewith:
INDEX PAGE
1) AUDITED FINANCIAL STATEMENTS OF PONTOTOC PRODUCTION COMPANY, INC.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS . . . . . . . . 3
FINANCIAL STATEMENTS
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . 4
Statements of Earnings . . . . . . . . . . . . . . . . . . . . . 5
Statements of Stockholders' Equity . . . . . . . . . . . . . . . 6
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . 7-8
Notes to Financial Statements. . . . . . . . . . . . . . . . . . 9-16
2) UNAUDITED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1997 AND 1996
Balance Sheets - Unaudited . . . . . . . . . . . . . . . . . . . 17
Statements of Earnings - Unaudited . . . . . . . . . . . . . . . 18
Statements of Cash Flows - Unaudited . . . . . . . . . . . . . . 19
Note to Financial Statements - Unaudited . . . . . . . . . . . . 20
(b) PRO FORMA FINANCIAL INFORMATION. Unaudited Pro Forma Financial
Statements for Pontotoc Production Company, Inc. and Mahogany Capital, Inc.
as of September 30, 1997 and for the year ended March 31, 1997 and the six
months ended September 30, 1997 are filed herewith on pages 21-25.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, hereunto duly authorized.
PONTOTOC PRODUCTION COMPANY, INC.
Dated: February 19, 1998 By:/s/ James Robby Robson, Jr.
James Robby Robson, Jr., President
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<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Pontotoc Production Company, Inc.
We have audited the accompanying balance sheets of Pontotoc Production
Company, Inc., as of March 31, 1997 and 1996, and the related statements of
earnings, stockholders' equity, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pontotoc Production Company,
Inc., as of March 31, 1997 and 1996, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Grant Thornton LLP
GRANT THORNTON LLP
Oklahoma City, Oklahoma
December 18, 1997
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<PAGE>
PONTOTOC PRODUCTION COMPANY, INC.
BALANCE SHEETS
March 31,
ASSETS 1997 1996
----------- ---------
CURRENT ASSETS
Cash and cash equivalents (note A1) $ 87,499 $ 23,055
Trading securities (note A2) 4,500 -
Accounts receivable, net of allowance
for doubtful accounts of $703 in 1997
and $2,216 in 1996 (note A9) 312,963 192,220
Other (note A3) 6,306 3,163
---------- --------
Total current assets 411,268 218,438
PROPERTY AND EQUIPMENT - AT COST, net (notes
A4, B, and E) 163,091 172,803
OIL AND GAS PROPERTIES - AT COST, net,
using the full cost method (notes A5, C,
D, and E) 1,181,414 547,273
OTHER 3,250 2,400
---------- --------
$1,759,023 $940,914
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 107,981 $ 99,675
Accrued and other current liabilities 24,000 19,666
Income taxes payable (note F) 17,688 31,648
Deferred income taxes (notes A8 and F) 57,685 15,904
Current portion of long-term debt (note E) 107,809 93,676
---------- --------
Total current liabilities 315,163 260,569
LONG-TERM DEBT, less current maturities (note E) 314,994 26,386
DEFERRED INCOME TAXES (notes A8 and F) 252,551 130,638
COMMITMENTS AND CONTINGENCIES (note G) - -
STOCKHOLDERS' EQUITY
Common stock - $.50 par value; authorized,
50,000 shares; issued and outstanding,
10,800 shares 5,400 5,400
Additional paid-in capital 103,899 103,899
Retained earnings 767,016 414,022
---------- --------
876,315 523,321
---------- --------
$1,759,023 $940,914
========== ========
The accompanying notes are an integral part of these statements.
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<PAGE>
PONTOTOC PRODUCTION COMPANY, INC.
STATEMENTS OF EARNINGS
Year ended March 31,
1997 1996
---------- ---------
Operating revenues
Oil and gas sales (notes A7 and A9) $1,082,118 $511,862
Well supervision fees and overhead
reimbursements 112,830 112,484
Other 21,153 9,678
---------- --------
1,216,101 634,024
Operating costs and expenses
Production 373,244 159,775
Depreciation, depletion, and amortization 79,468 47,218
General, administrative, and other 221,296 139,228
---------- --------
674,008 346,221
---------- --------
Earnings from operations 542,093 287,803
Other income (17,325) (21,691)
Interest expense 25,042 11,374
---------- --------
Earnings before income taxes 534,376 298,120
Provision for income taxes 181,382 104,286
---------- --------
NET EARNINGS $ 352,994 $193,834
========== ========
The accompanying notes are an integral part of these statements.
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<PAGE>
PONTOTOC PRODUCTION COMPANY, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
Years ended March 31, 1997 and 1996
Additional
Common stock paid-in Retained
Shares Amount capital earnings Total
------ ------ ---------- -------- --------
Balance at April 1, 1995 10,800 $5,400 $103,899 $220,188 $329,487
Net earnings - - - 193,834 193,834
------ ------ -------- -------- --------
Balance at March 31, 1996 10,800 5,400 103,899 414,022 523,321
Net earnings - - - 352,994 352,994
------ ------ -------- -------- --------
Balance at March 31, 1997 10,800 $5,400 $103,899 $767,016 $876,315
====== ====== ======== ======== ========
The accompanying notes are an integral part of these statements.
-6-
<PAGE>
PONTOTOC PRODUCTION COMPANY, INC.
STATEMENTS OF CASH FLOWS
Year ended March 31,
1997 1996
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net earnings $ 352,994 $ 193,834
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation, depletion, and amortization 79,468 47,218
Deferred income taxes 163,694 72,638
Gain on sale of property and equipment (16,232) -
Net unrealized loss on trading securities 3,950 -
Change in assets and liabilities
(Increase) decrease in
Trading securities (8,450) 56,576
Accounts receivable, net (120,743) (117,969)
Other current assets (3,143) (3,642)
Other assets (850) -
Increase (decrease) in
Accounts payable (18,058) 44,099
Accrued and other current liabilities 4,334 4,031
Income taxes payable (13,960) 26,404
--------- ---------
Net cash provided by operating activities 423,004 323,189
Cash flows from investing activities
Purchase of property and equipment (49,829) (81,711)
Proceeds on sales of property and equipment 34,520 -
Oil and gas property dispositions 154,181 118,578
Oil and gas property additions (800,173) (216,790)
--------- ---------
Net cash used in investing activities (661,301) (179,923)
Cash flows from financing activities
Long-term borrowings 502,600 32,046
Repayment of borrowings (199,859) (152,257)
--------- ---------
Net cash provided by (used in) financing
activities 302,741 (120,211)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 64,444 23,055
Cash and cash equivalents at beginning of year 23,055 -
--------- ---------
Cash and cash equivalents at end of year $ 87,499 $ 23,055
========= =========
-7-
<PAGE>
PONTOTOC PRODUCTION COMPANY, INC.
STATEMENTS OF CASH FLOWS
(Continued)
Year ended March 31,
1997 1996
--------- ---------
Supplemental Cash Flow Information
Cash paid during the year for:
- -----------------------------
Interest $ 25,042 $ 11,374
Income taxes 31,648 5,244
Noncash investing and financing activities:
- ------------------------------------------
During 1997, oil and gas property additions included depreciation on oil field
service equipment of $16,391 and additions of $26,364 financed through
accounts payable.
During 1996, oil and gas property additions included depreciation on oil field
service equipment of $13,478 and additions of $19,020 financed through
accounts payable.
The accompanying notes are an integral part of these statements.
-8-
<PAGE>
PONTOTOC PRODUCTION COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1997 and 1996
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES
The major operations of Pontotoc Production Company, Inc. (the "Company")
consist of exploration, production, and sale of crude oil and natural gas in
the United States with an area of concentration in shallow reserves in the
vicinity of Pontotoc County, Oklahoma. Other business segments are not a
significant factor in the Company's operation.
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows.
1. Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less and money market funds to be cash
equivalents.
The Company maintains its cash in bank deposit accounts and money market funds
which, at times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts and believes it is not exposed to any
significant credit risk on such accounts.
2. Trading Securities
Trading securities are carried at fair value with unrealized gains and losses
included in earnings.
3. Futures Contracts
The Company contracts to sell crude oil at future dates at prices based on
then current market prices. Due to wide fluctuations in the market prices for
crude oil, the Company frequently enters into futures contracts to hedge the
price risk associated with anticipated sales. At March 31, 1997, the Company
has entered into futures contracts settling at various dates through August
1997. Gains and losses on these contracts will be recognized concurrently
with the revenues from the associated exposures.
Futures contracts entered into to protect the sales price of oil to be
physically delivered in fiscal year 1998 were settled in fiscal year 1997.
The loss on these futures contracts at March 31, 1997 and 1996 of
approximately $6,300 and $3,200, respectively, has been deferred and will be
recognized concurrently with the revenues from the associated exposures in
1998. These deferred amounts are reflected in other current assets at March
31, 1997.
4. Property and Equipment
Depreciation and amortization are provided in amounts sufficient to relate the
cost of depreciable assets to operations over their estimated service lives
using an accelerated method. Estimated useful lives are as follows:
Furniture, fixtures, and office equipment 5-7 years
Automobiles and trucks 5 years
Buildings 28 years
Leasehold improvements 7 years
Oil field service equipment 5-7 years
-9-
<PAGE>
5. Oil and Gas Properties
The full cost method of accounting is used to account for oil and gas
properties. Under this method of accounting, all costs incident to the
acquisition, exploration, and development of properties (both developed and
undeveloped), including costs of abandoned leaseholds, lease rentals,
unproductive wells, and well drilling and equipment costs, are capitalized.
These costs as well as future development costs on undeveloped properties are
amortized using the units-of-production method. The units-of-production
method is based primarily on estimates of reserve quantities. Due to
uncertainties inherent in this estimation process, it is at least reasonably
possible that reserve quantities will be revised significantly in the near
term. If the Company's unamortized costs exceed the cost center ceiling
(defined as the sum of the present value, discounted at 10%, of estimated
future net revenues from proved reserves, less related income tax effects),
the excess is charged to expense in the year in which the excess occurs.
Generally, no gains or losses are recognized on the sale or disposition of oil
and gas properties. Income in connection with contractual services performed
on wells in which the Company has an economic interest is credited to oil and
gas properties as a component of the full cost pool.
6. Long-Lived Assets
Impairment losses are recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
7. Revenue Recognition
Oil and gas sales are recognized when the product is transported from the well
site. Well supervision fees and overhead reimbursements from producing
properties are recognized when the services are performed.
8. Income Taxes
Deferred income taxes are provided for significant carryforwards and temporary
differences between the tax basis of an asset or liability and its reported
amount in the financial statements that will result in taxable or deductible
amounts in future years. Deferred income tax assets or liabilities are
determined by applying the presently enacted tax rates and laws.
A valuation allowance for deferred tax assets is required when it is more
likely than not that some portion or all of the deferred tax assets will not
be realized. Management believes a valuation allowance is not required for
deferred tax assets.
9. Concentrations of Credit Risk and Major Customers
The Company extends credit to purchasers of oil and natural gas which are
primarily large energy companies. The Company had one purchaser whose
purchases were 89% and 84%, respectively, of total revenues for the years
ended March 31, 1997 and 1996 and were 92% and 85%, respectively, of accounts
receivable at March 31, 1997 and 1996.
10. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates based on management's
knowledge and experience. Actual results could differ from those estimates.
-10-
<PAGE>
NOTE B - PROPERTY AND EQUIPMENT
Major classes of property and equipment consisted of the following at March
31:
1997 1996
--------- ---------
Furniture, fixtures, and office equipment $ 38,879 $ 37,256
Automobiles and trucks 129,292 138,907
Buildings 23,605 30,730
Leasehold improvements 5,281 5,281
Oil field service equipment 221,799 186,380
-------- --------
418,856 398,554
Less accumulated depreciation and
amortization 295,265 265,251
-------- --------
123,591 133,303
Land 39,500 39,500
-------- --------
$163,091 $172,803
======== ========
NOTE C - OIL AND GAS INFORMATION
The costs related to the oil and gas activities of the Company were incurred
as follows:
Year ended March 31,
1997 1996
-------- --------
Property acquisition costs $662,386 $239,636
Development costs $180,542 $ 9,652
The Company had the following aggregate capitalized costs relating to the
Company's oil and gas activities at March 31:
1997 1996
---------- --------
Proved oil and gas properties $1,243,182 $568,627
Unproved oil and gas properties 26,231 12,039
Less accumulated depreciation, depletion,
and amortization (87,999) (33,393)
---------- --------
$1,181,414 $547,273
========== ========
Depreciation, depletion, and amortization expense amounted to $1.00 and $.58
per equivalent barrel of production for the years ended March 31, 1997 and
1996, respectively.
NOTE D - OIL AND GAS RESERVE DATA (UNAUDITED)
The following estimates of proved and proved developed reserve quantities and
related standardized measure of discounted net cash flow are estimates only,
and do not purport to reflect realizable values or fair market values of the
Company's reserves. The Company emphasizes that reserve estimates are
inherently imprecise and that estimates of new discoveries are more imprecise
than those of producing oil and gas properties. Accordingly, these estimates
are expected to change as future information becomes available. All of the
Company's reserves are located in the United States.
-11-
<PAGE>
Proved reserves are estimated reserves of crude oil (including condensate and
natural gas liquids) and natural gas that geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions. Proved
developed reserves are those expected to be recovered through existing wells,
equipment, and operating methods.
The standardized measure of discounted future new cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated
future production of proved oil and gas reserves, less estimated future
expenditures (based on year-end costs) to be incurred in developing and
producing the proved reserves, less estimated future income tax expenses
(based on year-end statutory tax rates, with consideration of future tax rates
already legislated) to be incurred on pretax net cash flows less tax basis of
the properties and available credits, and assuming continuation of existing
economic conditions. The estimated future net cash flows are then discounted
using a rate of 10% a year to reflect the estimated timing of the future cash
flows.
The following summaries of changes in reserves and standardized measure of
discounted future net cash flows were prepared from estimates of proved
reserves developed by an independent petroleum engineer.
Summary of Changes in Proved Reserves
Year ended March 31,
1997 1996
------------------- -----------------
Bbls Mcf Bbls Mcf
Proved developed and undeveloped --------- ------- ------- -------
reserves
Beginning of year 949,589 248,487 755,805 104,352
Extensions and discoveries 10,897 - - -
Purchase of minerals in place 425,696 208,341 218,329 178,335
Production (47,007) (45,660) (24,545) (34,200)
--------- ------- ------- -------
End of year 1,339,175 411,168 949,589 248,487
========= ======= ======= =======
Proved developed reserves
Beginning of year 636,085 248,487 499,390 104,352
End of year 753,284 411,168 636,085 248,487
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<PAGE>
Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves
March 31,
1997 1996
----------- -----------
Future oil and gas revenues $28,517,891 $20,034,428
Future production and development costs (7,396,248) (5,851,123)
----------- -----------
Future net cash flows before income taxes 21,121,643 14,183,305
Future income taxes (7,190,087) (4,907,424)
----------- -----------
Future net cash flows after income taxes 13,931,556 9,275,881
Discounted at 10% for estimated timing of
cash flows (6,007,365) (4,479,455)
----------- -----------
Standardized measure of discounted future net
cash flows $ 7,924,191 $ 4,796,426
=========== ===========
Changes in Standardized Measure of Discounted Future Net Cash Flows
Related to Proved Oil and Gas Reserves
Year Ended March 31,
1997 1996
----------- -----------
Sales and transfers of oil and gas produced,
net of production costs $ (708,874) $ (352,087)
Development costs incurred 180,542 9,652
Extensions and discoveries, less related costs 77,637 -
Net change in income taxes (1,546,490) (1,266,190)
Accretion of discount 808,448 417,307
Purchase of minerals in place 4,178,365 3,380,312
Net changes in production costs and other 138,137 120,874
---------- ----------
Net increase 3,127,765 2,309,868
Balance at beginning of year 4,796,426 2,486,558
---------- ----------
Balance at end of year $7,924,191 $4,796,426
========== ==========
NOTE E - LONG-TERM DEBT
Long-term debt consisted of the following at March 31:
1997 1996
-------- --------
Note payable to Citizens Bank of Ada ("Citizens")
bearing interest at 7.0%; payable in monthly
installments of $2,755; collateralized by oil
and gas properties $ - $ 4,214
Note payable to Citizens bearing interest at
8.25%; payable in monthly installments of
$2,758; collateralized by oil and gas properties - 42,006
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<PAGE>
Note payable to Citizens bearing interest at 10.0%;
payable in monthly installments of $533 through
April 2000; collateralized by property and equipment 16,856 21,768
Note payable to Citizens bearing interest at 7.4%;
payable in monthly installments of $302 through May
1998; collateralized by property and equipment 4,036 7,228
Note payable to Citizens bearing interest at 8.75%;
payable in monthly installments of $12,171 through
October 2000; collateralized by oil and gas
properties 395,058 -
Other notes payable 6,853 44,846
-------- --------
422,803 120,062
Less current maturities 107,809 93,676
-------- --------
$314,994 $ 26,386
======== ========
Maturities of long-term debt at March 31, 1997 are as follows:
1998 $107,809
1999 147,450
2000 149,814
2001 17,730
--------
$422,803
========
NOTE F - INCOME TAX EXPENSE
The components of income tax expense are as follows:
Year Ended March 31,
1997 1996
-------- --------
Current
Federal $ 13,223 $ 27,700
State 4,465 3,948
-------- --------
17,688 31,648
Deferred 163,694 72,638
-------- --------
$181,382 $104,286
======== ========
Deferred tax assets and liabilities consisted of the following at March 31:
1997 1996
-------- --------
Assets
Investments $ 4,138 $ -
Alternative minimum tax credit carryforward 7,153 14,668
-------- --------
$ 11,291 $ 14,668
======== ========
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<PAGE>
Liabilities
Conversion from accrual to cash basis $ 68,976 $ 30,572
Property and equipment 6,254 6,254
Oil and gas properties 242,875 119,467
Other 3,422 4,917
-------- --------
$321,527 $161,210
======== ========
The effective tax rate on earnings before income taxes differs from the
federal statutory tax rate. The following summary reconciles taxes at the
federal statutory tax rate with actual taxes for the years ended March 31:
1997 1996
-------- --------
Computed federal tax provision $181,688 $101,361
Increase (decrease) in tax from
Allowable percentage depletion in excess of
depletion for financial statements (16,594) (4,194)
Nondeductible expenses 2,881 2,536
State taxes, net of federal income tax benefit 21,161 11,806
Other (7,754) (7,223)
-------- --------
Provision for income taxes $181,382 $104,286
======== ========
NOTE G - COMMITMENTS AND CONTINGENCIES
1. Leases
The Company conducts its operations from facilities which are leased from an
affiliate under an operating lease. The lease calls for monthly rentals of
$1,000 and is on a month-to-month basis.
The Company leases certain equipment used in operations. This lease is
classified as an operating lease for financial reporting purposes. The lease
term is five years and provides for payments of $2,400 in 1998.
Rent expense for the years ended March 31, 1997 and 1996 was $14,802 and
$12,330, respectively.
2. Other
The Company is involved in various legal actions relating to its operations.
Management believes that losses, if any, arising from such actions will not be
material to the Company's financial position or results of operations.
NOTE H - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments as of March 31, 1997 and 1996 as required
by SFAS No. 107, "Disclosure About Fair Value of Financial Instruments". Such
information, which pertains to the Company's financial instruments, is based
upon the requirements of SFAS No. 107 and does not purport to represent the
aggregate net fair value of the Company. The carrying amounts in the table
are the amounts at which the financial instruments are reported in the
financial statements.
-15-
<PAGE>
All of the Company's financial instruments are held for purposes other than
trading except for trading securities. The carrying amounts of cash and cash
equivalents approximate fair values of such assets. The carrying amounts of
trading securities approximate fair values of such assets as carrying values
are adjusted to quoted market prices. Estimated fair value of fixed rate
long-term debt is the discounted amount of future cash flows using the
Company's current incremental rate of borrowing for similar liabilities.
1997 1996
--------------------- ---------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
--------- ---------- --------- ----------
Financial assets
Cash and cash equivalents $ 87,499 $ 87,499 $ 23,055 $ 23,055
Trading securities 4,500 4,500 - -
Financial liabilities
Fixed rate long-term debt (422,803) (419,196) (120,062) (116,252)
NOTE I - SUBSEQUENT EVENT
On December 10, 1997, the Company was acquired by Mahogany Capital, Inc.
("Mahogany") through exchange of 100% of the issued and outstanding shares of
the Company's common stock for approximately 84% of the then issued and
outstanding shares of Mahogany's common stock.
-16-
<PAGE>
PONTOTOC PRODUCTION COMPANY, INC.
BALANCE SHEETS - UNAUDITED
September 30,
ASSETS 1997 1996
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 145,620 $ 200,283
Trading securities 4,500 21,950
Accounts receivable, net 389,919 241,970
Other 10,517 3,163
---------- ----------
Total current assets 550,556 467,366
PROPERTY AND EQUIPMENT - AT COST, net 127,560 128,828
OIL AND GAS PROPERTIES - AT COST, net, using
the full cost method 1,680,049 517,078
OTHER 4,900 2,400
---------- ----------
$2,363,065 $1,115,672
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 140,671 $ 138,574
Accrued and other current liabilities 24,257 17,482
Income taxes payable 29,239 24,846
Deferred income taxes 74,798 36,819
Current portion of long-term debt 195,059 57,566
---------- ----------
Total current liabilities 464,024 275,287
LONG-TERM DEBT, less current maturities 489,066 16,237
DEFERRED INCOME TAXES 318,877 156,964
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock - $.50 par value; authorized,
50,000 shares; issued and outstanding,
10,800 shares 5,400 5,400
Additional paid-in capital 103,899 103,899
Retained earnings 981,799 557,885
---------- ----------
1,091,098 667,184
---------- ----------
$2,363,065 $1,115,672
========== ==========
The accompanying note is an integral part of these statements.
-17-
<PAGE>
PONTOTOC PRODUCTION COMPANY, INC.
STATEMENTS OF EARNINGS - UNAUDITED
Six months ended September 30,
1997 1996
-------- --------
Operating revenues
Oil and gas sales $880,474 $345,593
Well supervision fees and overhead
reimbursements 39,280 65,481
Other 9,392 8,334
-------- --------
929,146 419,408
Operating costs and expenses
Production 404,074 127,353
Depreciation, depletion, and amortization 51,059 21,853
General, administrative, and other 126,334 73,660
-------- --------
581,467 222,866
-------- --------
Earnings from operations 347,679 196,542
Other income (5,789) (18,782)
Interest expense 21,796 3,322
-------- --------
Earnings before income taxes 331,672 212,002
Provision for income taxes 116,889 68,139
-------- --------
NET EARNINGS $214,783 $143,863
======== ========
The accompanying note is an integral part of these statements.
-18-
<PAGE>
PONTOTOC PRODUCTION COMPANY, INC.
STATEMENTS OF CASH FLOWS - UNAUDITED
Six months ended September 30,
1997 1996
--------- --------
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net earnings $ 214,783 $143,863
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation, depletion, and amortization 95,700 54,027
Deferred income taxes 83,439 47,241
Gain on sale of property and equipment (3,509) (16,232)
Change in assets and liabilities
(Increase) decrease in
Trading securities - (21,950)
Accounts receivable, net (76,956) (49,750)
Other current assets (4,211) -
Other assets (1,650) -
Increase (decrease) in
Accounts payable 32,690 38,899
Accrued and other current liabilities 257 (2,184)
Income taxes payable 11,551 (6,802)
--------- --------
Net cash provided by operating activities 352,094 187,112
Cash flows from investing activities
Purchase of property and equipment (43,073) (17,213)
Proceeds on sales of property and equipment 22,592 34,521
Oil and gas property dispositions 24,322 49,914
Oil and gas property additions (559,136) (30,847)
--------- --------
Net cash provided by (used in) investing
activities (555,295) 36,375
Cash flows from financing activities
Long-term borrowings 440,116 -
Repayment of borrowings (178,794) (46,259)
--------- --------
Net cash provided by (used in) financing
activities 261,322 (46,259)
--------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 58,121 177,228
Cash and cash equivalents at beginning of period 87,499 23,055
--------- --------
Cash and cash equivalents at end of period $ 145,620 $200,283
========= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 21,796 $ 3,322
Income taxes 21,899 27,700
The accompanying note is an integral part of these statements.
-19-
<PAGE>
PONTOTOC PRODUCTION COMPANY, INC.
NOTE TO FINANCIAL STATEMENTS - UNAUDITED
September 30, 1997 and 1996
NOTE A - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
The major operations of Pontotoc Production Company, Inc. (the "Company")
consist of exploration, production, and sale of crude oil and natural gas in
the United States with an area of concentration in shallow reserves in the
vicinity of Pontotoc County, Oklahoma. Other business segments are not a
significant factor in the Company's operation.
The interim financial statements included herein have been prepared by the
Company without audit. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted; however, the
Company believes that the disclosures are adequate to make the information
presented not misleading. In the opinion of the Company, all adjustments
necessary to present fairly the financial position of Pontotoc Production
Company, Inc., as of September 30, 1997 and 1996, and the results of
operations and cash flows for the six months ended September 30, 1997 and 1996
have been included and are of a normal, recurring nature. The results of
operations for such interim periods are not necessarily indicative of the
results for the full year. It is suggested that these interim financial
statements be read in conjunction with the Company's March 31, 1997 and 1996
audited financial statements.
-20-
<PAGE>
PRO FORMA COMBINED FINANCIAL STATEMENTS - UNAUDITED
The following unaudited pro forma financial statements are derived from the
historical financial statements of Pontotoc Production Company, Inc. and
Mahogany Capital, Inc. and give pro forma effect to their combination on
December 10, 1997. These pro forma statements should be read in conjunction
with those historical financial statements and related notes. The pro forma
financial statements do not purport to be indicative of the results that would
actually have been obtained if the combination had been in effect on the dates
indicated, or that may be obtained in the future.
-21-
<PAGE>
PONTOTOC PRODUCTION COMPANY, INC.
PRO FORMA COMBINED BALANCE SHEET - UNAUDITED
September 30, 1997
Historical Pro forma
------------------- -----------------------
ASSETS Pontotoc Mahogany Adjustments Combined
---------- -------- ----------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 145,620 $ 135 $ 145,755
Trading securities 4,500 - 4,500
Accounts receivable, net 389,919 - 389,919
Other 10,517 - 10,517
---------- ------- ----------
Total current assets 550,556 135 550,691
PROPERTY AND EQUIPMENT, net 127,560 - 127,560
OIL AND GAS PROPERTIES, net 1,680,049 - 1,680,049
OTHER 4,900 187 (187)(a) 4,900
---------- -------- ----------
$2,363,065 $ 322 $2,363,200
========== ======== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Accounts payable $ 140,671 $ 441 $ 141,112
Accrued and other current
liabilities 24,257 - 24,257
Income taxes payable 29,239 - 29,239
Deferred income taxes 74,791 - 74,791
Current portion of long-term
debt 195,059 - 195,059
---------- -------- ----------
Total current liabilities 464,024 441 464,465
LONG-TERM DEBT, less current
maturities 489,066 - 489,066
DEFERRED INCOME TAXES 318,877 - 318,877
STOCKHOLDERS' EQUITY
Common stock 5,400 125 (5,150)(b) 375
Additional paid-in capital 103,899 14,875 (10,156)(b) 108,618
Retained earnings (deficit) 981,799 (15,119) 15,119 (b) 981,799
---------- -------- ---------
1,091,098 (119) 1,090,792
---------- -------- ----------
$2,363,065 $ 322 $2,363,200
========== ======== ==========
The accompanying note is an integral part of these statements.
-22-
<PAGE>
PONTOTOC PRODUCTION COMPANY, INC.
PRO FORMA STATEMENT OF EARNINGS - UNAUDITED
Historical
--------------------
Pontotoc Mahogany
---------- ---------
Inception
(June 14,
For the 1996)
Year Ended to Pro Forma
March 31, March 31, --------------------
1997 1997 Adjustments Combined
---------- -------- ----------- ----------
Operating revenues
Oil and gas sales $1,082,118 $ - $1,082,118
Well supervision and overhead
reimbursements 112,830 - 112,830
Other 21,153 - 21,153
---------- -------- ----------
1,216,101 - 1,216,101
Operating costs and expenses
Production 373,244 - 373,244
Depreciation, depletion, and
amortization 79,468 38 (38)(a) 79,468
General, administrative, and
other 221,296 13,218 234,514
---------- -------- ---------
674,008 13,256 687,226
---------- -------- ----------
Earnings (loss) from
operations 542,093 (13,256) 528,875
Other income (17,325) - (17,325)
Interest expense 25,042 - 25,042
---------- -------- ----------
Earnings (loss) before
income taxes 534,376 (13,256) 521,158
Provision for income taxes 181,382 - (4,494)(c) 176,888
---------- -------- ----------
NET EARNINGS (LOSS) $ 352,994 $(13,256) $ 344,270
========== ======== ==========
Weighted average common shares
outstanding 3,750,000
==========
Pro forma earnings per share $ .09
==========
The accompanying notes are an integral part of these statements.
-23-
<PAGE>
PONTOTOC PRODUCTION COMPANY, INC.
PRO FORMA STATEMENT OF EARNINGS - UNAUDITED
For the six months ended September 30, 1997
Historical Pro forma
------------------- ---------------------
Pontotoc Mahogany Adjustments Combined
-------- --------- ----------- --------
Operating revenues
Oil and gas sales $880,474 $ - $880,474
Well supervision and overhead
reimbursements 39,280 - 39,280
Other 9,392 - 9,392
-------- ------- ---------
929,146 - 929,146
Operating costs and expenses
Production 404,074 - 404,074
Depreciation, depletion, and
amortization 51,059 25 (25)(a) 51,059
General, administrative, and
other 126,334 1,838 128,172
-------- ------ ---------
581,467 1,863 583,305
-------- ------ ---------
Earnings (loss) from
operations 347,679 (1,863) 345,841
Other income (5,789) - (5,789)
Interest expense 21,796 - 21,796
-------- ------ ---------
Earnings (loss) before
income taxes 331,672 (1,863) 329,834
Provision for income taxes 116,889 - (4,745)(c) 112,144
-------- ------- ---------
NET EARNINGS (LOSS) $214,783 $(1,863) $ 217,690
======== ======= =========
Weighted average common shares
outstanding 3,750,000
=========
Pro forma earnings per share $ .06
=========
The accompanying notes are an integral part of these statements.
-24-
<PAGE>
PONTOTOC PRODUCTION COMPANY, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS - UNAUDITED
NOTE A - BASIS OF PRESENTATION
On December 10, 1997, Pontotoc Production Company, Inc. ("Pontotoc") was
acquired by Mahogany Capital, Inc. ("Mahogany"), a nonoperating public shell
corporation, through exchange of 100% of the issued and outstanding shares of
Pontotoc's common stock for approximately 84% of the then issued and
outstanding shares of Mahogany's common stock. Mahogany's legal name was
changed to Pontotoc Production, Inc. The acquisition is considered to be a
capital transaction, in substance equivalent to the issuance of stock by
Pontotoc for the net monetary assets of Mahogany, accompanied by a
recapitalization of Pontotoc. The accompanying pro forma combined balance
sheet has been presented as if the acquisition occurred on September 30, 1997
and the accompanying pro forma combined statements of earnings for the year
ended March 31, 1997 and the six months ended September 30, 1997 have been
prepared as if the acquisition was consummated on April 1, 1996.
NOTE B - PRO FORMA ADJUSTMENTS
Pro forma adjustments are necessary to reflect the assumed effect of the
combination on the balance sheet as of September 30, 1997 and statements of
earnings assuming the acquisition was consummated on April 1, 1996. The
accompanying pro forma balance sheet and statements of earnings reflect the
following adjustments:
(a) To eliminate organization costs and related amortization expense on
Mahogany.
(b) To eliminate Mahogany equity and deficit as of September 30, 1997,
record the recapitalization of Pontotoc with 3,165,000 shares of $.0001 par
value common stock, and the issuance of 585,000 shares of $.0001 par value
common stock for the net assets of Mahogany.
(c) To record estimated income tax benefit at consolidated effective rate.
-25-
