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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 March 31, 2000
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 August 15, 2000, 5,176,445 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
(Unaudited) and March 31, 2000 (Audited) 3
Statement of Earnings - Three Months Ended
June 30, 2000 and 1999 (Unaudited) 4
Statements of Cash Flows - Three Months Ended
June 30, 2000 and 1999 5-6
Notes to Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of Operations 9
Part II. Other Information 10
Signature Page 11
2
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PONTOTOC PRODUCTION, INC.
BALANCE SHEETS
JUNE 30, 2000 (UNAUDITED)
AND MARCH 31, 2000 (AUDITED)
ASSETS JUNE 30, MARCH 31,
2000 2000
(UNAUDITED) (AUDITED)
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CURRENT ASSETS
Cash and cash equivalents $ 799,514 $1,773,797
Trading securities 2,230 4,723
Accounts receivable, net 1,294,077 700,376
Other current assets 729,116 17,915
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Total current assets 2,824,937 2,496,811
PROPERTY AND EQUIPMENT-AT COST, net 689,173 397,587
OIL AND GAS PROPERTIES-AT COST, net,
using the full cost method 20,468,642 5,816,147
NOTE RECEIVABLE-AFFILIATE - 7,800
OTHER 164,088 170,461
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$24,146,840 $8,888,806
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 386,723 $ 91,960
Accrued and other current liabilities 123,155 24,239
Income taxes payable 98,771 230,917
Deferred income taxes 479,415 266,146
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Total current liabilities 1,088,064 613,262
LONG-TERM DEBT, less current maturities 9,392,295 -
DEFERRED INCOME TAXES 5,499,029 882,219
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock - $.0001 par value;
authorized 100,000,000 shares;
issued and outstanding, 5,176,445
and 5,176,445 shares 517 517
Additional paid-in capital 3,980,550 3,980,550
Retained earnings 4,186,385 3,412,258
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$24,146,840 $8,888,806
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The accompanying notes are 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, 2000 AND 1999
2000 1999
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Operating revenues
Oil and gas sales $2,027,836 $ 902,969
Well supervision fees and overhead
reimbursements 60,040 21,336
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2,087,876 924,305
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Operating costs and expenses
Production 624,002 432,685
Depreciation, depletion and
amortization 161,892 75,040
General, administration and other 133,654 86,657
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919,548 594,382
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Earnings from operations 1,168,328 329,923
Other income (loss) 8,207 66,501
Interest expense (70,641) (47,123)
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Earnings before income taxes 1,105,894 349,301
Provision for income taxes (331,768) (90,819)
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$ 774,126 $ 258,482
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Net Earnings Per Share
Basic $ .15 $ .06
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Diluted $ .15 $ .06
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Weighted average common shares outstanding
Basic 5,176,445 4,681,513
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Diluted 5,216,818 4,681,513
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The accompanying notes are an integral part of these statements.
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PONTOTOC PRODUCTION, INC.
STATEMENTS OF CASH FLOWS - UNAUDITED
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
2000 1999
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Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net earnings $ 774,126 $ 258,482
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation, depletion and amortization 161,892 75,040
Deferred income taxes 218,954 -
Net loss of investee 5,227 -
Non-cash compensation 3,580 -
Gain on sale of property and equipment (2,485)
Change in assets and liabilities
(Increase) decrease in:
Accounts receivable, net (471,826) (64,476)
Other current assets (575,712) -
Accounts payable 172,913 11,420
Accrued and other current liabilities 85,025 (40,021)
Income taxes payable (132,146) 65,807
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Net cash provided by operating
activities 239,548 306,252
Cash flows from investing activities
Payment of note receivable affiliate 7,800 -
Purchase of property and equipment (236,350) (224,984)
Proceeds on sale of property and equipment 11,413 -
Purchase of business net of cash acquired (9,999,980) -
Oil and gas property dispositions 15,000 711,690
Oil and gas property additions (404,009) (380,344)
Other - (65,647)
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Net cash provided by (used in)
investing activities (10,606,126) 40,715
Cash flows from financing activities
Borrowing 9,893,713 41,480
Repayment of borrowings (501,418) (311,937)
Sale of common stock, net of offering costs - 105,780
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Net cash provided by (used in)
financing activities 9,392,295 (164,677)
NET INCREASE(DECREASE)IN CASH AND CASH EQUIVALENTS (974,283) 182,290
Cash and cash equivalents at beginning
of period 1,773,797 271,170
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Cash and cash equivalents at end of period $ 799,514 $ 453,460
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The accompanying notes are an integral part of these statements.
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Supplemental Cash Flow Information
Cash paid during the period for:
Interest $ 734 $ 47,123
Income taxes 244,961 90,819
Non-cash Investing Activities:
On June 1,2000 the Company purchased all of the capital stock of Oklahoma
Basic Economy Corporation and the working interest of Oklahoma Basic Economy
Corporation's partners for $10,000,000 in cash.
Fair market value of assets acquired $14,611,105
Less liabilities assumed (4,611,125)
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Cash paid net of cash acquired $ 9,999,980
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The accompanying notes are an integral part of these statements.
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PONTOTOC PRODUCTION, INC.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
JUNE 30, 2000
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, 2000 and March 31, 2000, and the results of operations and
cash flows for the three months ended June 30, 2000 and 1999, 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, 2000 audited financial statements.
NOTE B - COMMON SHARE OUTSTANDING AND EARNINGS PER COMMON SHARE
The following reconciles earnings (numerator) and shares (denominator) used in
the computation of basic and diluted earnings per share:
Three Months Ended June 30
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2000 1999
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Numerator
Net Earnings $774,126 $258,482
Denominator
Weighted average shares outstanding,
basic 5,176,445 4,681,513
Effect of dilutive securities
Stock Options 40,373 -
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Denominator for earnings per share
assuming dilution 5,216,818 4,681,513
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Earnings per share, basic $0.15 $0.06
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Earnings per share, assuming dilution $0.15 $0.06
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NOTE C - ACQUISITIONS
On June 1, 2000, the Company closed on the acquisition of Oklahoma Basic
Economy Corporation ("OBEC") and the working interest of OBEC's partners for
$10,000,000. Included in the purchase were interests in approximately 49 oil
and gas leases located in the following counties: Pontotoc, Pottawatomie, and
Seminole. The purchase also included two workover rigs, and miscellaneous oil
field equipment which relates to the ongoing production of the oil and gas
properties.
The following presents unaudited pro forma results of operations for the three
months ended June 30, 2000 and 1999 as if the acquisition had been consummated
immediately prior to April 1, 2000 and 1999. These pro forma results are not
necessarily indicative of future results.
Pro Forma (Unaudited)
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Three Months Ended
June 30,
2000 1999
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Revenues $2,891,028 $1,630,482
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Net Income $1,216,740 $ 396,434
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Earnings per common share
Basic $ .24 $ .08
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Diluted $ .23 $ .08
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE CONSOLIDATED STATEMENTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000, COMPARED TO THE THREE MONTHS ENDED JUNE
30, 1999
Operating revenue for the three months ended June 30, 2000, increased
$1,163,571(126%)from the first quarter of 1999 due to higher oil and gas
production. On June 1, 2000, the Company closed on the acquisition of OBEC
and the working interests of OBEC's partners. Included in the purchase were
interests in approximately 49 oil and gas leases. Also, there was a 54%
increase in oil prices from $17.11 in the first quarter of the last fiscal
year and $26.39 in the first quarter of the current year.
Other income decreased $58,294 from the comparable period in 1999 due to
a decrease in the Company's share of revenues from their investment in
Pontotoc Gathering LLC.
Production costs for the three months ended June 30, 2000, increased
$191,317(44%) from the first quarter of the prior year due primarily to the
additional oil and gas properties from the OBEC acquisition.
Depreciation, depletion and amortization increased $86,852 (116%) as
compared to the same quarter the prior year due to additional oil and gas
properties and equipment acquired in the OBEC acquisition.
General and administrative costs increased $46,997 (54%) over the first
quarter in the prior year due to an increase in investor relation and contract
expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $1,736,873 at June 30, 2000, as
compared to $1,883,549 at March 31, 2000.
During the three months ended June 30, 2000, cash generated by operating
activities was $239,548 compared to cash generated of $306,252 for the three
months ended June 30, 1999.
Cash flows used in investing activities during the three months ended
June 30, 2000, were $(10,606,126) compared to $40,715 provided by investing
activities for the comparable period of 1999. During the first quarter of
2000, the Company spent $404,009 on the purchase of additional oil and gas
properties and $10,000,000 on the purchase of all of the outstanding stock of
OBEC and the working interest of OBEC's partners. Also, the company purchased
$236,350 of property and equipment.
Cash flows from financing activities during the three months ended
June 30, 2000 were $9,392,295 compared to $(164,677) used in financing
activities during the comparable period of 1999. The Company borrowed
$9,893,713 and repaid $501,418 during the three months ended June 30, 2000.
The Company does not have any material commitments for capital
expenditures as of the filing of this Report.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
On June 1, 2000, the Company granted 77,800 stock options to key employees
under their 1997 Stock Option Plan. The exercise price was $7.75 and they
expire June 1, 2005.
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
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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, 2000 By:/s/ James Robby Robson
James Robby Robson, Jr.
President
Date: August 11, 2000 By:/s/ Todd Robson
Todd Robson, Treasurer (Chief
Financial and Accounting Officer)
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EXHIBIT INDEX
EXHIBIT METHOD OF FILING
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27. FINANCIAL DATA SCHEDULE Filed herewith electronically
