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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 December 31, 1998
Commission File Number: 0-21313
PONTOTOC PRODUCTION, INC.
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(Exact name of small business issuer as specified in its charter)
Nevada 84-1349552
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(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
808 East Main, Ada, Oklahoma 74820
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(Address of principal executive offices including zip code)
(580) 436-6100
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(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 February 14, 1999, 4,654,524 shares of common stock, $.0001 par value
per share, were outstanding.
Transitional Small Business Disclosure Format (check one): Yes___ No X
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INDEX
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NUMBER
Part I. Financial Information
Item 1. Financial Statements
Balance Sheets as of December 31, 1998
(unaudited) and March 31, 1998 (Audited)........... 3
Statement of Earnings - Nine Months Ended
December 31, 1998 and 1997 (Unaudited)............. 4
Statement of Earnings - Three Months Ended
December 31, 1998 and 1997 (Unaudited)............. 5
Statements of Cash Flows - Nine Months Ended
December 31, 1998 and 1997 (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
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PONTOTOC PRODUCTION, INC.
BALANCE SHEETS
DECEMBER 31, 1998 (UNAUDITED) AND MARCH 31, 1998 (AUDITED)
December 31, March 31,
1998 1998
(Unaudited) (Audited)
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 409,632 $ 119,332
Trading securities 5,250 5,250
Accounts receivable, net 148,778 250,234
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Total current assets 563,660 374,816
PROPERTY AND EQUIPMENT-AT COST, net 162,082 133,774
OIL AND GAS PROPERTIES-AT COST, net,
using the full cost method 4,754,044 1,743,205
OTHER 4,900 4,900
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$5,484,686 $2,256,695
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 60,592 $ 73,907
Accrued and other current liabilities 2,868 24,404
Income taxes payable 162,836 16,423
Deferred income taxes 40,802 40,802
Current portion of long-term debt -0- 1,599
Other 47,460 7,460
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Total current liabilities 314,558 164,595
LONG-TERM DEBT, less current maturities 1,843,493 468,623
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,
4,654,524 and 3,750,000 shares 465 375
Additional paid-in capital 1,517,761 108,924
Retained earnings 1,428,168 1,133,937
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2,946,394 1,243,236
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$5,484,686 $2,256,695
========== ==========
The accompanying note is an integral part of these statements.
3
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PONTOTOC PRODUCTION, INC.
STATEMENT OF EARNINGS - UNAUDITED
For the nine months ended
December 31,
1998 1997
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Operating revenues
Oil and gas sales $1,471,053 $1,223,607
Well supervision fees and overhead
reimbursements 38,595 85,022
Other - 13,433
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1,509,648 1,322,062
Operating costs and expenses
Production 721,559 456,333
Depreciation, depletion, and amortization 162,651 82,137
General, administration, and other 300,624 194,611
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1,184,834 733,081
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Earnings from operations 324,814 588,981
Other income (loss) 238,573 28,597
Interest expense (102,247) (35,559)
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Earnings before income taxes 461,140 582,019
Provision for income taxes 166,908 197,886
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$ 294,232 $ 384,133
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Net Income Per Share $ .06 $ .10
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Weighted average common shares outstanding 4,654,524 3,750,000
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The accompanying note is an integral part of these statements.
4
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PONTOTOC PRODUCTION, INC.
STATEMENT OF EARNINGS - UNAUDITED
For the three months ended
December 31,
1998 1997
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Operating revenues
Oil and gas sales $ 515,508 $ 363,133
Well supervision fees and overhead
reimbursements 18,818 45,742
Other - 4,041
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534,326 412,916
Operating costs and expenses
Production 327,261 52,259
Depreciation, depletion, and amortization 61,938 31,078
General, administration, and other 45,239 68,277
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434,438 151,614
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Earnings from operations 99,888 261,302
Other income (loss) 205,126 22,808
Interest expense (38,459) (13,763)
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Earnings before income taxes 266,555 270,347
Provision for income taxes 78,879 80,997
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$ 187,676 $ 189,350
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Net Income Per Share $ .04 $ .05
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Weighted average common shares outstanding 4,654,524 3,750,000
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The accompanying note is an integral part of these statements.
5
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PONTOTOC PRODUCTION, INC.
STATEMENTS OF CASH FLOWS - UNAUDITED
NINE MONTHS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
December 31, December 31,
1998 1997
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Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net earnings $ 294,232 $ 384,133
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation, depletion, and amortization 162,651 82,137
Deferred income taxes - 80,330
Gain on sale of property and equipment - 28,597
Change in assets and liabilities
(Increase) decrease in
Trading securities - 161
Accounts receivable, net 101,456 (81,362)
Other current assets - (31,464)
Other assets - (1,650)
Increase (decrease) in
Accounts payable (13,315) (7,597)
Accrued and other current liabilities 16,865 38,044
Income taxes payable 146,413 2,774
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Net cash provided by operating
activities 708,302 494,103
Cash flows from investing activities
Purchase of property and equipment (60,348) (43,135)
Proceeds on sales of property and equipment - 58,285
Oil and gas property dispositions - 10,000
Oil and gas property addition (3,141,450) (635,870)
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Net cash provided by (used in)
investing activities (3,201,798) (610,720)
Cash flows from financing activities
Issuance of Common Stock 1,408,929 -
Long-term borrowings 2,132,169 440,100
Repayment of borrowings (757,302) (288,937)
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Net cash provided by (used in)
financing activities 2,783,796 151,163
NET INCREASE IN CASH AND CASH EQUIVALENTS 290,300 34,546
Cash and cash equivalents at beginning of period 119,332 87,499
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Cash and cash equivalents at end of period $ 409,632 $ 122,045
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Supplemental Cash Flow Information
Cash paid during the period for:
Interest $ 102,247 $ 35,559
Income taxes 166,908 5,480
The accompanying note is an integral part of these statements.
6
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PONTOTOC PRODUCTION, INC.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
DECEMBER 31, 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 Pontotoc Production,
Inc. as of December 31, 1998 and March 31, 1998 the results of operations and
cash flows for the nine months ended December 31, 1998 and 1997, 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, 1998 audited financial statements.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE CONSOLIDATED STATEMENTS OF OPERATIONS
RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THE
THREE MONTHS ENDED DECEMBER 31, 1997
Operating revenues for the first three months ended December 31, 1998,
increased $121,411 (29%) from the third quarter 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 38% due to
a decline in the price of oil of approximately 37% from the prior year.
Production costs for the three months ended December 31, 1998, increased
$275,002 (526%) from the comparable period of 1997 due to additional
properties and increased workover on these properties which were purchased in
July 1998.
Depreciation, depletion and amortization increased $30,860 (99%) as
compared to the same quarter the prior year due to the addition of oil and gas
properties and equipment.
General and administrative costs decreased $23,038 (34%) due primarily to
a decrease in executive salaries.
RESULTS OF OPERATIONS - NINE MONTHS ENDED DECEMBER 31, 1998, COMPARED TO THE
NINE MONTHS ENDED DECEMBER 31, 1997
Operating revenues increased $187,586 (14%) for the nine months ended
December 31, 1998, due to the acquisition of additional properties at the
beginning of July 1998. Without the addition of these properties the revenue
would have declined approximately 33% due to the decline in the price of oil
of approximately 31% from the prior year.
Production costs for the nine months ended December 31, 1998, increased
$262,226 (58%) from the comparable period of 1997.
Depreciation, depletion and amortization increased $80,514 (98%) 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 $106,013 (54%) due primarily
to the 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's working capital was $249,012 at December 31, 1998, as
compared to $210,221 at March 31, 1998. The increase in working capital is
primarily due to a sale of a 10% working interest in two different leaseholds.
During the nine months ended December 31, 1998, cash generated by
operating activities was $708,302 compared to cash generated of $494,103 for
the nine months ended December 31, 1997. The increase in the amount of cash
generated was primarily due to the increase in additional oil and gas
properties and the sale of a 10% working interest in two leaseholds.
8
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Cash flows used in investing activities during the nine months ended
December 31, 1998, were $(3,141,450) compared to $(610,720) for the comparable
period of 1997, due to the acquisition of the oil and gas properties and
equipment of Bill G. Cantrell in July 1998.
Cash flows from financing activities during the nine months ended
December 31, 1998, were $2,783,796 compared to $151,163 during the comparable
period of 1997. The Company borrowed a total of $2,132,169 during the nine
months ended December 31, 1998, and also issued $1,408,929 of Common Stock and
repaid $757,302 toward its loan. These proceeds were used to close the
acquisition of all the oil and gas properties and equipment of Bill G.
Cantrell in July 1998.
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
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
SALES OF RESTRICTED SECURITIES. During the three months ended December
31, 1998, the Company sold 9 Units, each Unit consisting of 8,000 shares of
Common Stock and 8,000 Warrants to purchase Common Stock, to 9 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: February 11, 1998 By:/s/ James Robby Robson, Jr.
James Robby Robson, Jr.
President
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EXHIBIT INDEX
EXHIBIT METHOD OF FILING
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27. FINANCIAL DATA SCHEDULE Filed herewith electronically
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited balance sheets and unaudited statements of earnings found on pages 3
and 4 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> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 409,632
<SECURITIES> 5,250
<RECEIVABLES> 148,778
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 563,660
<PP&E> 162,082
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,484,686
<CURRENT-LIABILITIES> 314,558
<BONDS> 0
<COMMON> 465
0
0
<OTHER-SE> 2,946,394
<TOTAL-LIABILITY-AND-EQUITY> 5,484,686
<SALES> 1,471,053
<TOTAL-REVENUES> 1,471,053
<CGS> 721,559
<TOTAL-COSTS> 721,559
<OTHER-EXPENSES> 463,275
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 102,247
<INCOME-PRETAX> 461,140
<INCOME-TAX> 166,908
<INCOME-CONTINUING> 294,232
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 294,232
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
