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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 September 30, 1999
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
- ------------------------------- ---------------------------------
(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 November 1, 1999, 4,801,513 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
PAGE
NUMBER
Part I. Financial Information
Item 1. Financial Statements
Balance Sheets as of September 30, 1999
and March 31, 1999 3
Statement of Earnings - Six Months Ended
September 30, 1999 and 1998 4
Statement of Earnings - Three Months Ended
September 30, 1999 and 1998 5
Statements of Cash Flows - Three Months Ended
September 30, 1999 and September 30, 1998 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of Operations 8
Part II. Other Information 10
Signature Page 11
2
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PONTOTOC PRODUCTION, INC.
BALANCE SHEETS
SEPTEMBER 30, 1999 (UNAUDITED)
AND MARCH 31, 1999
ASSETS September 30,
1999 March 31,
(Unaudited) 1999
------------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 385,786 $ 271,170
Trading securities 2,188 2,188
Accounts receivable, net 496,605 295,542
Other current assets 29,567 29,567
----------- ----------
Total current assets 914,146 598,467
PROPERTY AND EQUIPMENT-AT COST, net 433,097 175,248
OIL AND GAS PROPERTIES-AT COST, net,
using the full cost method 5,228,346 5,587,199
NOTE RECEIVABLE-AFFILIATE 35,000 70,000
OTHER 127,741 9,400
---------- ----------
$6,738,330 $6,440,314
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 135,711 $ 59,181
Accrued and other current liabilities 23,511 51,408
Income taxes payable 310,098 9,809
Deferred income taxes 74,493 74,493
Current portion of long-term debt 1,007,633 2,364,718
---------- ----------
Total current liabilities 1,551,446 2,559,609
LONG-TERM DEBT, less current maturities 13,268 -
DEFERRED INCOME TAXES 453,723 443,914
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock - $.0001 par value;
authorized 100,000,000 shares;
issued and outstanding, 4,801,513
and 4,654,513 shares 480 465
Additional paid-in capital 2,574,593 2,018,828
Retained earnings 2,144,820 1,417,498
---------- ----------
4,719,893 3,436,791
---------- ----------
$6,738,330 $6,440,314
========== ==========
The accompanying note is an integral part of these statements.
3
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PONTOTOC PRODUCTION, INC.
STATEMENT OF EARNINGS - UNAUDITED
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999
AND SEPTEMBER 30, 1998
1999 1998
Operating revenues ---- ----
Oil and gas sales $1,993,699 $ 955,544
Well supervision fees and
overhead reimbursements 49,914 19,777
Gas gathering 67,829 -
---------- ----------
2,111,442 975,321
---------- ----------
Operating costs and expenses
Production 765,079 394,298
Depreciation, depletion, and amortization 150,070 100,713
General, administration, and other 169,532 255,385
---------- ----------
1,084,681 750,396
Earnings from operations 1,026,765 224,925
Other income (loss) 92,737 33,449
Interest expense (82,078) (63,788)
---------- ----------
Earnings before income taxes 1,037,420 194,586
Provision for income taxes 310,098 54,409
---------- ----------
$ 727,322 $ 140,177
========== ==========
Net Income Per Share:
Basic $ .15 $ .03
========== ==========
Diluted $ .15 $ .03
========== ==========
Weighted average common shares outstanding:
Basic 4,694,190 4,613,293
========== ==========
Diluted 4,837,211 4,613,293
========== ==========
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 SEPTEMBER 30, 1999
AND SEPTEMBER 30, 1998
1999 1998
Operating revenues ---- ----
Oil and gas sales $1,123,110 $ 607,293
Well supervision fees and
overhead reimbursements 28,578 10,839
Gas gathering 35,449 -
---------- ----------
1,187,137 618,132
---------- ----------
Operating costs and expenses
Production 385,411 229,969
Depreciation, depletion, and amortization 75,030 61,938
General, administration, and other 82,871 174,152
---------- ----------
543,312 466,059
---------- ----------
Earnings from operations 643,825 152,073
Other income (loss) 79,253 22,698
Interest expense (34,955) (52,379)
---------- ----------
Earnings before income taxes 688,123 122,392
Provision for income taxes (219,279) (29,863)
---------- ----------
$ 468,844 $ 92,529
========== ==========
Net Income Per Share:
Basic $ .10 $ .02
========== ==========
Diluted $ .10 $ .02
========== ==========
Weighted average common shares outstanding:
Basic 4,719,165 4,613,293
========== ==========
Diluted 4,817,873 4,613,293
========== ==========
The accompanying note is an integral part of these statements.
5
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PONTOTOC PRODUCTION, INC.
STATEMENTS OF CASH FLOWS-UNAUDITED
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
AND SEPTEMBER 30, 1998
1999 1998
---- ----
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net earnings $ 727,322 $ 140,177
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation, depletion, and amortization 150,070 100,713
Net earnings in excess of investee distribu-
tions (67,869)
Change in assets and liabilities
(Increase) decrease in
Accounts receivable, net (201,063) 14,673
Increase (decrease) in
Accounts payable 76,530 (34,112)
Accrued and other current liabilities (27,897) (24,001)
Income taxes payable 310,098 33,914
---------- ----------
Net cash provided by operating activities 967,191 231,364
Cash flows from investing activities
Payment of note receivable affiliate 35,000 -
Purchase of property and equipment (288,761) (50,652)
Oil and gas property dispositions 1,052,050 -
Oil and gas property additions (756,695) (2,877,256)
Other (352) -
Net cash provided by (used in) ---------- ----------
investing activities 41,242 (2,927,908)
Cash flows from financing activities
Borrowing 277,076 2,132,169
Repayment of borrowings (1,620,893) (675,737)
Sale of common stock, net of offering costs 450,000 1,297,927
---------- ----------
Net cash provided by (used in)
financing activities (893,817) 2,754,359
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 114,616 57,815
Cash and cash equivalents at beginning of period 271,170 119,332
---------- ----------
Cash and cash equivalents at end of period $ 385,786 $ 177,147
========== ==========
Supplemental Cash Flow Information
Cash paid during the period for:
Interest $ 82,078 $ 63,788
Income taxes 0 54,409
The accompanying note is an integral part of these statements.
6
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PONTOTOC PRODUCTION, INC.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 1999
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 September 30, 1999 and March 31, 1999, and the results of
operations and cash flows for the six months ended September 30, 1999 and
1998, 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, 1999 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 SEPTEMBER 30, 1999, COMPARED TO THE
THREE MONTHS ENDED SEPTEMBER 30, 1998
Operating revenue for the three months ended September 30, 1999,
increased $569,005 (92%) from the comparable period of 1998 due to higher oil
and gas production from recompletions and acquisitions and higher oil and gas
prices. This increase also included $35,449 which represents the Company's
45% interest in the net income from Pontotoc Gathering LLC which was formed in
late March 1999 because the Company was starting to produce significant
quantities of gas in a new area.
Production costs for the three months ended September 30, 1999, increased
$155,442 (68%) from the comparable period of 1998 due to increased workovers
and operating costs for oil and gas properties acquired since July 1, 1998.
Depreciation, depletion and amortization increased $13,092 (21%) as
compared to the same period in the prior year, due to a higher level of oil
and gas production in the most recent period.
General and administrative costs decreased $91,281 (52%) for the three
months ended September 30, 1999, from the comparable period of 1998 primarily
because of the engineering, accounting, legal and other costs incurred during
the three months ended September 30, 1998, for a significant acquisition of
oil and gas properties.
RESULTS OF OPERATIONS - SIX MONTHS ENDED SEPTEMBER 30, 1999, COMPARED TO SIX
MONTHS ENDED SEPTEMBER 30, 1998
Operating revenue for the six months ended September 30, 1999, increased
$1,136,121 (116%) from the comparable period of 1998 due to recompletions,
higher oil and gas production and higher commodity prices. This increase also
included $67,829 which represents the Company's 45% interest in the net income
from Pontotoc Gathering LLC which was formed in late March 1999 because the
Company was starting to produce significant quantities of gas in a new area.
Production costs for the six months ended September 30, 1999, increased
$370,781 (94%) due mainly to the costs associated with the oil and gas
properties acquired since July 1, 1998.
Depreciation, depletion and amortization increased $49,357 (49%) as
compared to the same period in the prior year, due to a higher level of oil
and gas production in the most recent period.
General and administrative costs for the six months ended September 30,
1998, decreased $85,853 (34%) from the comparable period of 1998 primarily
because of the engineering, accounting, legal and other costs incurred during
the three months ended September 30, 1998, for a significant acquisition of
oil and gas properties.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $(637,300) at September 30, 1999, as
compared to $(1,961,142) at March 31, 1999. The increase in working capital
is primarily due to the net earnings for the six month period. The Company is
in the process of finalizing a two year extension on its long-term debt with
8
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an effective date of November 1, 1999. If these new maturities were reflected
at September 30, 1999, the Company's working capital would increase to
$346,480.
During the six months ended September 30, 1999, cash generated by
operating activities was $967,191 compared to cash generated of $231,364 for
the six months ended September 30, 1998. The increase in the amount of cash
generated was due primarily to the $587,145 increase in net earnings.
Cash flows used in investing activities during the six months ended
September 30, 1999, were $41,242 compared to $(2,927,908) for the comparable
period of 1998. During this period in 1999 the Company recorded $1,052,050
from the sale of oil and gas properties and spent $756,695 on the purchase of
oil and gas properties. The Company also purchased $288,761 of property and
equipment.
Cash flows from financing activities during the six months ended
September 30, 1999, were $(893,817) compared to $2,754,037 during the
comparable period of 1998. The Company repaid a total of $1,620,893 in
borrowings and borrowed $277,076 during the six months ended September 30,
1999, and also received $450,000 from the sale of common stock pursuant to the
exercise of warrants.
YEAR 2000 COMPLIANCE
The Company has reviewed its computer operations and has identified all
computers and systems that are not year 2000 compliant. As a result of this
review the Company has purchased a new oil and gas accounting software system
which is year 2000 compliant. The cost of this software including training is
approximately $18,000. This new software was installed in early July 1999 and
is expected to be fully operational by December 1, 1999.
The Company has reviewed its vendors and suppliers and determined that it
does not have any material vendors or suppliers. The Company's bank has
advised the Company that it is year 2000 compliant. The Company has two
material customers, Sun Oil which buys the Company's oil and Pontotoc
Gathering LLC which buys the Company's gas. Both of these customers have
advised the Company that they are year 2000 compliant.
9
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
During the three months ended September 30, 1999, the Company issued
120,000 shares of its common stock to 12 persons who exercised warrants which
were sold in a private offering of units during 1998. With respect to these
transactions, the Company relied on Section 4(2) of the Act. Each person was
provided with information on the Company and each person executed a
Subscription Agreement in which he represented that he was purchasing the
shares for investment only and not for the purpose of resale or distribution.
The appropriate restrictive legend was placed on the certificate 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
10
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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 8, 1999 By:/s/ James Robby Robson, Jr.
James Robby Robson, Jr.
President
Date: November 8, 1999 By:/s/ Todd Robson
Todd Robson, Treasurer (Chief
Financial and Accounting Officer)
11
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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 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> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 385,786
<SECURITIES> 2,188
<RECEIVABLES> 496,605
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 914,146
<PP&E> 433,097
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,738,330
<CURRENT-LIABILITIES> 1,551,446
<BONDS> 0
<COMMON> 480
0
0
<OTHER-SE> 4,719,413
<TOTAL-LIABILITY-AND-EQUITY> 6,738,330
<SALES> 1,993,699
<TOTAL-REVENUES> 2,111,442
<CGS> 765,079
<TOTAL-COSTS> 765,079
<OTHER-EXPENSES> 169,532
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (82,078)
<INCOME-PRETAX> 1,037,420
<INCOME-TAX> 310,098
<INCOME-CONTINUING> 727,322
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 727,322
<EPS-BASIC> .15
<EPS-DILUTED> .15
</TABLE>
