<PAGE>
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission File Number: 0-21313
PONTOTOC PRODUCTION, INC.
----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 84-1349552
- ------------------------------- --------------------------------
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
808 East Main, Ada, Oklahoma 74820
----------------------------------------------------------
(Address of principal executive offices including zip code)
(580) 436-6100
--------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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___
As of November 14, 1998, 4,654,524 shares of common stock, $.0001 par value
per share, were outstanding.
Transitional Small Business Disclosure Format (check one): Yes___ No X
<PAGE>
<PAGE>
INDEX
PAGE
NUMBER
Part I. Financial Information
Item 1. Financial Statements
Balance Sheets as of September 30, 1998
(unaudited) and March 31, 1998 (Audited)........... 3
Statement of Earnings - Six Months Ended
September 30, 1998 (Unaudited)..................... 4
Statement of Earnings - Three Months Ended
September 30, 1998 (Unaudited)..................... 5
Statements of Cash Flows - Six Months Ended
September 30, 1998 (Unaudited)..................... 6
Notes to Financial Statements (Unaudited).......... 7
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of
Operations......................................... 8
Part II. Other Information...................................... 10
Signature ....................................................... 10
2
<PAGE>
<PAGE>
PONTOTOC PRODUCTION, INC.
BALANCE SHEETS
SEPTEMBER 30, 1998 (UNAUDITED) AND MARCH 31, 1998 (AUDITED)
September 30, March 31,
1998 1998
(Unaudited) (Audited)
------------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 177,147 $ 119,332
Trading securities 5,250 5,250
Accounts receivable, net 235,561 250,234
---------- ----------
Total current assets 417,958 374,816
PROPERTY AND EQUIPMENT-AT COST, net 164,206 133,774
OIL AND GAS PROPERTIES-AT COST, net,
using the full cost method 4,539,968 1,743,205
OTHER 4,900 4,900
---------- ----------
$5,127,032 $2,256,695
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 39,795 $ 73,907
Accrued and other current liabilities 1,437 24,404
Income taxes payable 50,337 16,423
Deferred income taxes 40,802 40,802
Current portion of long-term debt 565 1,599
Other 7,460 7,460
---------- ----------
Total current liabilities 140,396 164,595
LONG-TERM DEBT, less current maturities 1,925,058 468,623
DEFERRED INCOME TAXES 380,241 380,241
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock - $.0001 par value;
authorized 100,000,000 shares;
issued and outstanding, 4,613,293
and 3,750,000 shares 461 375
Additional paid-in capital 1,406,765 108,924
Retained earnings 1,274,111 1,133,937
---------- ----------
2,681,337 1,243,236
---------- ----------
$5,127,032 $2,256,695
========== ==========
The accompanying note is an integral part of these statements.
3
<PAGE>
<PAGE>
PONTOTOC PRODUCTION, INC.
STATEMENT OF EARNINGS - UNAUDITED
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
---------- ----------
OPERATING REVENUES:
Oil and gas sales $ 607,293 $ 451,683
Well supervision fees and overhead
reimbursements 10,839 19,169
Other - 4,743
---------- ----------
618,132 475,595
OPERATING COSTS AND EXPENSES:
Production 229,969 199,613
Depreciation, depletion, and
amortization 61,938 25,427
General, administration, and other 174,152 64,051
---------- ----------
466,059 289,091
---------- ----------
Earnings from operations 152,073 186,504
Other income (loss) 22,698 2,970
Interest expense (52,379) (11,051)
---------- ----------
Earnings before income taxes 122,392 178,423
Provision for income taxes 29,863 48,903
---------- ----------
$ 92,529 $ 129,520
========== ==========
Net Income Per Share $ .02 $ .03
========== ==========
Weighted average common shares
outstanding 4,613,293 3,750,000
========== ==========
The accompanying note is an integral part of these statements.
4
<PAGE>
<PAGE>
PONTOTOC PRODUCTION, INC.
STATEMENT OF EARNINGS - UNAUDITED
FOR THE SIX MONTHS ENDED
SEPTEMBER 30,
1998 1997
---------- ----------
OPERATING REVENUES:
Oil and gas sales $ 955,544 $ 880,474
Well supervision fees and overhead
reimbursements 19,777 39,280
Other - 9,392
---------- ----------
975,321 929,146
OPERATING COSTS AND EXPENSES:
Production 394,298 404,074
Depreciation, depletion, and
amortization 100,713 51,059
General, administration, and other 255,385 126,334
---------- ----------
750,396 581,467
---------- ----------
Earnings from operations 224,925 347,679
Other income (loss) 33,449 5,789
Interest expense (63,788) (21,796)
---------- ----------
Earnings before income taxes 194,586 331,672
Provision for income taxes 54,409 116,889
---------- ----------
$ 140,177 $ 214,783
========== ==========
Net Income Per Share $ .03 $ .04
========== ==========
Weighted average common shares
outstanding 4,613,293 3,750,000
========== ==========
The accompanying note is an integral part of these statements.
5
<PAGE>
<PAGE>
PONTOTOC PRODUCTION, INC.
STATEMENTS OF CASH FLOWS - UNAUDITED
FOR THE SIX MONTHS ENDED
SEPTEMBER 30,
1998 1997
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 140,177 $ 214,783
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation, depletion, and amortization 100,713 95,700
Deferred income taxes - 83,439
Gain on sale of property and equipment - (3,509)
Change in assets and liabilities:
(Increase) decrease in:
Trading securities - -
Accounts receivable, net 14,673 (76,956)
Other current assets - (4,211)
Other assets - (1,650)
Increase (decrease) in:
Accounts payable (34,112) 32,690
Accrued and other current liabilities (24,001) 257
Income taxes payable 33,914 11,551
---------- ----------
Net cash provided by operating activities 231,364 352,094
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (50,652) (43,073)
Proceeds on sales of property and equipment - 22,592
Oil and gas property dispositions - 24,322
Oil and gas property addition (2,877,256) (559,136)
---------- ----------
Net cash provided by (used in)
investing activities (2,927,908) (555,295)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock 1,297,927 -
Long-term borrowings 2,132,169 440,116
Repayment of borrowings (675,737) (178,794)
---------- ----------
Net cash provided by (used in)
financing activities 2,754,359 261,322
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 57,815 58,121
Cash and cash equivalents at beginning of period 119,332 87,499
---------- ----------
Cash and cash equivalents at end of period $ 177,147 $ 145,620
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID DURING THE PERIOD FOR:
Interest $ 63,788 $ 21,796
Income taxes 54,409 21,899
The accompanying note is an integral part of these statements.
6
<PAGE>
<PAGE>
PONTOTOC PRODUCTION, INC.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 1998
NOTE A - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
The major operations of Pontotoc Production, 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 the Company
as of September 30, 1998 and March 31, 1998, and the results of operations and
cash flows for the periods reported 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 audited
financial statements included in the Company's Annual Report on Form 10-KSB
for the year ended March 31, 1998.
7
<PAGE>
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE
THREE MONTHS ENDED SEPTEMBER 30, 1997
Operating revenues for the three months ended September 30, 1998,
increased $142,537 (30%) from the comparable period of 1997 due to the
acquisition of additional properties at the beginning of July 1998. Without
the addition of these properties the revenues would have declined
approximately 31_% due to a decline in the price of oil of approximately
27.5% from the prior year.
Production costs for the three months ended September 30, 1998 increased
$30,356 (15%) from the comparable period of 1997 due to the additional
properties acquired at the beginning of July 1998.
Depreciation, depletion and amortization increased $36,511 (144%) as
compared to the same period in the prior year due to the oil and gas
properties and equipment which were acquired in July 1998.
General and administrative costs increased $110,101 (172%) due primarily
to increased accounting, legal, professional and engineering costs associated
with the acquisition of the Bill G. Cantrell properties and the legal and
accounting costs associated with being a public company.
RESULTS OF OPERATIONS - SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE
SIX MONTHS ENDED SEPTEMBER 30, 1997
Operating revenues for the six months ended September 30, 1998, increased
$46,175 (5%) from the comparable period of 1997 due to the acquisition of
additional properties at the beginning of July 1998. Without the addition of
these properties the revenues would have declined approximately 28% due to a
decline in the price of oil of approximately 27.5% from the prior year.
Production costs for the six months ended September 30, 1998 decreased
$9,776 (2%) from the comparable period of 1997.
Depreciation, depletion and amortization increased $49,654 (97%) as
compared to the same period in the prior year due to the oil and gas
properties and equipment which were acquired in July 1998.
General and administrative costs increased $129,051 (102%) due primarily
to increased accounting, legal, professional and engineering costs associated
with the acquisition of the Bill G. Cantrell properties and the legal and
accounting costs associated with being a public company.
LIQUIDITY AND CAPITAL RESOURCES
The Company' working capital was $277,562 at September 30, 1998, as
compared to $210,221 at March 31, 1998. The increase in working capital is
primarily due to the net earnings for the six month period.
During the six months ended September 30, 1998, cash generated by
operating activities was $231,364 compared to cash generated of $352,094 for
the six months ended September 30, 1997. The decrease in the amount of cash
generated was primarily due to the $74,606 decrease in net earnings.
8
<PAGE>
<PAGE>
Cash flows used in investing activities during the six months ended
September 30, 1998, were $2,927,908 compared to $555,295 for the comparable
period of 1997.
Cash flows from financing activities during the six months ended
September 30, 1998, were $2,754,359 compared to $261,322 during the comparable
period of 1997. The Company borrowed a total of $2,132,169 during the six
months ended September 30, 1998, and also received $1,297,927 from the sale of
Common Stock. These proceeds were used to close the acquisition of all the
oil and gas properties and equipment of Bill G. Cantrell in July 1998. The
Company also repaid $675,000 towards an outstanding loan.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code
in existing computer systems as the year 2000 approaches. The Company has
assessed these issues as they relate to the Company, and the Company believes
that the year 2000 problem will not be material to the Company.
9
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
SALES OF RESTRICTED SECURITIES. During the three months ended September
30, 1998, the Company sold approximately 53 Units, each Unit consisting of
8,000 shares of Common Stock and 8,000 Warrants to purchase Common Stock, to
39 accredited investors and 18 non-accredited investors at a purchase price of
$26,000 per Unit. Each Warrant is exercisable to purchase one share of
Common Stock at $3.75 per share until February 1, 2000. In connection with
such sales the Company paid cash commissions to Capital West Investment Group
in the amount of $98,800.
With respect to these sales, the Company relied on Section 4(2) of the
Act, and Rule 506 of Regulation D promulgated thereunder. The investors were
given a copy of a Private Placement Memorandum containing information
concerning the Company, a Form D was filed with the SEC and the Company
complied with the other applicable requirements of Rule 506. All investors
signed subscription agreements in which they represented that they were
purchasing the units for investment only and not for the purpose of resale and
distribution. The appropriate restrictive legends were placed on the
certificates and stop transfer orders were issued to the transfer agent.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits have been filed with this report:
Exhibit 27 - Financial Data Schedule
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, thereunto duly authorized.
PONTOTOC PRODUCTION, INC.
Date: November 13, 1998 By:/s/ James Robby Robson, Jr.
James Robby Robson, Jr.
President
10
<PAGE>
<PAGE>
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
- ------- -----------------------------
27. FINANCIAL DATA SCHEDULE Filed herewith electronically
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited condensed consolidated balance sheets and unaudited condensed
consolidated statements of income found on pages 3, 4 and 5 of the Company's
Form 10-QSB for the year to date, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1998
<CASH> 177,147
<SECURITIES> 5,250
<RECEIVABLES> 235,561
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 417,958
<PP&E> 164,206
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,127,032
<CURRENT-LIABILITIES> 140,396
<BONDS> 0
<COMMON> 461
0
0
<OTHER-SE> 2,680,876
<TOTAL-LIABILITY-AND-EQUITY> 5,127,032
<SALES> 955,544
<TOTAL-REVENUES> 975,321
<CGS> 495,011
<TOTAL-COSTS> 495,011
<OTHER-EXPENSES> 255,385
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 194,586
<INCOME-TAX> 54,409
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 140,177
<EPS-PRIMARY> .03
<EPS-DILUTED> 0
</TABLE>
