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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 June 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 August 1, 1999, 4,681,513 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 June 30, 1999
and March 31, 1999 3
Statement of Earnings - Three Months Ended
June 30, 1999 and 1998 4
Statements of Cash Flows - Three Months Ended
June 30, 1999 and June 30, 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of Operations 7
Part II. Other Information 9
Signature Page 10
2
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PONTOTOC PRODUCTION, INC.
BALANCE SHEETS
June 30, 1999 AND
MARCH 31, 1999
ASSETS June 30,
1999 March 31,
(Unaudited) 1999
------------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 453,460 $ 271,170
Trading securities 2,188 2,188
Accounts receivable, net 360,018 295,542
Other current assets 29,567 29,567
----------- ----------
Total current assets 845,233 598,467
PROPERTY AND EQUIPMENT-AT COST, net 384,776 175,248
OIL AND GAS PROPERTIES-AT COST, net,
using the full cost method 5,196,279 5,587,199
NOTE RECEIVABLE-AFFILIATE 70,000 70,000
OTHER 75,047 9,400
---------- ----------
$6,571,335 $6,440,314
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 70,601 $ 59,181
Accrued and other current liabilities 11,387 51,408
Income taxes payable 65,817 9,809
Deferred income taxes 74,493 74,493
Current portion of long-term debt 2,068,009 2,364,718
---------- ----------
Total current liabilities 2,290,307 2,559,609
LONG-TERM DEBT, less current maturities 26,252 -
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, 4,681,513
and 4,654,513 shares 468 465
Additional paid-in capital 2,124,605 2,018,828
Retained earnings 1,675,980 1,417,498
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3,801,053 3,436,791
---------- ----------
$6,571,335 $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 THREE MONTHS ENDED JUNE 30, 1999
AND JUNE 30, 1998
1999 1998
Operating revenues ---- ----
Oil and gas sales $ 902,969 $ 348,251
Well supervision fees and
overhead reimbursements 21,336 8,938
Other - -
--------- ---------
Total 924,305 357,189
--------- ---------
Operating costs and expenses
Production 432,685 164,329
Depreciation, depletion, and amortization 75,040 38,775
General, administration, and other 86,657 81,233
--------- ---------
594,382 284,337
--------- ---------
Earnings from operations 329,923 72,852
Other income (loss) 66,501 10,751
Interest expense (47,123) (11,409)
--------- ---------
Earnings before income taxes 349,301 72,194
Provision for income taxes (90,819) (13,049)
--------- ---------
$ 258,482 $ 59,145
========= =========
Net Income Per Share $ .06 $ .02
========= =========
Weighted average common shares outstanding 4,681,513 3,807,164
========= =========
The accompanying note is an integral part of these statements.
4
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PONTOTOC PRODUCTION, INC.
STATEMENTS OF CASH FLOWS-UNAUDITED
FOR THE THREE MONTHS ENDED JUNE 30, 1999
AND JUNE 30, 1998
1999 1998
---- ----
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net earnings $ 258,482 $ 58,145
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation, depletion, and amortization 75,040 38,775
Deferred income taxes - -
Gain on sale of property and equipment - -
Change in assets and liabilities
(Increase) decrease in
Trading securities - -
Accounts receivable, net (64,807) 22,001
Other current assets - -
Other assets - -
Increase (decrease) in
Accounts payable - (11,287)
Accrued and other current liabilities (40,021) (475)
Income taxes payable 65,807 (7,446)
--------- ----------
Net cash provided by operating activities 306,252 100,713
Cash flows from investing activities
Issuance of note receivable affiliate - -
Purchase of property and equipment (224,984) (1,257)
Proceeds on sales of property and equipment - -
Oil and gas property dispositions 711,690 -
Oil and gas property addition (380,344) (25,887)
Other (65,647) -
Net cash provided by (used in) --------- ----------
investing activities 40,715 (27,144)
Cash flows from financing activities
Borrowing 41,480 2,050,000
Repayment of borrowings (311,937) (52,842)
Sale of common stock, net of offering costs 105,780 6
--------- ----------
Net cash provided by (used in)
financing activities (164,677) 1,997,164
--------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 182,290 2,070,733
Cash and cash equivalents at beginning of period 271,170 119,332
--------- ----------
Cash and cash equivalents at end of period $ 453,460 $2,190,065
========= ==========
Supplemental Cash Flow Information
Cash paid during the period for:
Interest $ 47,123 $ 11,409
Income taxes 90,819 13,049
The accompanying note is an integral part of these statements.
5
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PONTOTOC PRODUCTION, INC.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
JUNE 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 June 30, 1999 and March 31, 1999, and the results of operations and
cash flows for the three months ended June 30, 1999 and June 30, 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.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE CONSOLIDATED STATEMENTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1998
Operating revenues for the three months ended June 30, 1999 increased
$567,116 (158%) from the first quarter of the prior year due to higher oil and
gas production through acquisitions and recompletions and a 19% increase in
oil prices which were $14.35 per barrel in the first quarter of the last
fiscal year and $17.11 in the first quarter of the current fiscal year.
Production costs for the three months ended June 30, 1999 increased
$268,356 (163%) from the first quarter of the prior year due primarily to the
addition of oil and gas properties.
Depreciation, depletion and amortization for the three months ended June
30, 1999 increased $36,265 (94%) as compared to the same quarter the prior
year due to additional oil and gas properties and equipment.
General and administrative costs for the three months ended June 30, 1999
increased $5,424 (6%) over the first quarter in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $(1,445,074) at June 30, 1999 as
compared to $(1,961,142) at March 31, 1999. The increase in working capital
during the first quarter was primarily attributable to the Company's net
income of $258,482 and an increase in accounts receivable.
During the three months ended June 30, 1999 cash generated by operating
activities was $306,252 compared to cash generated of $100,713 for the three
months ended June 30, 1998. The increase in the amount of cash generated was
primarily due to the increase in net earnings and an increase in accounts
receivable.
Cash flows provided by investing activities during the three months ended
June 30, 1999 were $40,715 compared to $(27,144) for the comparable period of
1998 primarily due to the fact that the Company sold a small portion of its
oil and gas properties for $711,690. This was offset by the purchase of other
oil and gas properties and equipment for $605,328.
Cash flows used in financing activities during the three months ended
June 30, 1999 were $(164,677) compared to $1,997,164 received from financing
activities during the comparable period of 1998. The Company borrowed $41,480
and repaid $311,937 during the three months ended June 30, 1999.
The Company does not have any material commitments for capital
expenditures as of the filing of this Report.
7
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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
should be fully operational by the end of August 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.
8
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
During the three months ended June 30, 1999, the Company issued 13,000
shares of its Common Stock to two persons in exchange for certain oil and gas
properties. 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.
During the three months ended June 30, 1999, the Company issued 14,000
shares of its Common Stock to one person pursuant to a consulting agreement.
With respect to this sale, the Company relied on Section 4(2) of the Act. The
investor signed an 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 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
9
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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: August 11, 1999 By: /s/ James Robby Robson, Jr.
James Robby Robson, Jr.
President
10
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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> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 453,460
<SECURITIES> 2,188
<RECEIVABLES> 360,018
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 845,233
<PP&E> 384,776
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,571,335
<CURRENT-LIABILITIES> 2,290,307
<BONDS> 0
<COMMON> 468
0
0
<OTHER-SE> 3,800,585
<TOTAL-LIABILITY-AND-EQUITY> 6,571,335
<SALES> 902,969
<TOTAL-REVENUES> 924,305
<CGS> 507,725
<TOTAL-COSTS> 507,725
<OTHER-EXPENSES> 86,657
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,123
<INCOME-PRETAX> 349,301
<INCOME-TAX> 90,819
<INCOME-CONTINUING> 258,482
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 258,482
<EPS-BASIC> .06
<EPS-DILUTED> .06
</TABLE>
