<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 December 31, 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 January 15, 2000, 4,845,513 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 December 31, 1999
(Unaudited) and March 31, 1999 (Audited) 3
Statement of Earnings - Nine Months Ended
December 31, 1999 and 1998 (Unaudited) 4
Statement of Earnings - Three Months Ended
December 31, 1999 and 1998 (Unaudited) 5
Statements of Cash Flows - Nine Months Ended
December 31, 1999 and 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
DECEMBER 31, 1999 (UNAUDITED)
AND MARCH 31, 1999 (AUDITED)
ASSETS DECEMBER 31, MARCH 31,
1999 1999
(UNAUDITED) (AUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 645,163 $ 271,170
Trading securities 2,188 2,188
Accounts receivable, net 576,931 295,542
Other current assets 2,292 29,567
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Total current assets 1,226,574 598,467
PROPERTY AND EQUIPMENT-AT COST, net 505,837 175,248
OIL AND GAS PROPERTIES-AT COST, net,
using the full cost method 5,558,793 5,587,199
NOTE RECEIVABLE-AFFILIATE 14,500 70,000
OTHER 151,518 9,400
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$7,457,222 $6,440,314
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 109,022 $ 59,181
Accrued and other current liabilities 26,273 51,408
Income taxes payable 560,274 9,809
Deferred income taxes 74,493 74,493
Current portion of long-term debt 11,125 2,364,718
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Total current liabilities 781,187 2,559,609
LONG-TERM DEBT, less current maturities 755,383 -
DEFERRED INCOME TAXES 453,721 443,914
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock - $.0001 par value;
authorized 100,000,000 shares;
issued and outstanding, 4,845,513
and 4,654,513 shares 485 465
Additional paid-in capital 2,739,588 2,018,828
Retained earnings 2,726,858 1,417,498
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$7,457,222 $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 nine months ended
December 31
1999 1998
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Operating revenues
Oil and gas sales $3,309,977 $1,471,053
Well supervision fees and overhead
reimbursements 87,497 38,595
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3,397,474 1,509,648
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Operating costs and expenses
Production 1,141,843 721,559
Depreciation, depletion and
amortization 225,100 162,651
General, administration and other 255,063 300,624
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1,622,006 1,184,834
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Earnings from operations 1,775,468 324,814
Other income (loss) 195,699 238,573
Interest expense (101,533) (102,247)
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Earnings before income taxes 1,869,634 461,140
Provision for income taxes (560,274) (166,908)
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$1,309,360 $ 294,232
========== ==========
Net Income Per Share
Basic $ .28 $ .06
========== ==========
Diluted $ .27 $ .06
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Weighted average common shares outstanding
Basic 4,734,204 4,654,524
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Diluted 4,933,527 4,654,524
========== ==========
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
1999 1998
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Operating revenues
Oil and gas sales $1,316,078 $ 515,508
Well supervision fees and
overhead reimbursements 37,583 18,818
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1,353,661 534,326
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Operating costs and expenses
Production 376,764 327,261
Depreciation, depletion and
amortization 75,030 61,938
General, administration and other 85,531 45,239
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537,325 434,438
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Earnings from operations 816,336 99,888
Other income (loss) 35,333 205,126
Interest expense (19,455) (38,459)
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Earnings before income taxes 832,214 266,555
Provision for income taxes 250,176 78,879
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$ 582,038 $ 187,676
========== ==========
Net Income Per Share
Basic $ .12 $ .04
========== ==========
Diluted $ .12 $ .04
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Weighted average common shares outstanding
Basic 4,814,230 4,654,524
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Diluted 4,996,364 4,654,524
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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
For the nine months ended
December 31,
1999 1998
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Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net earnings $1,309,360 $ 294,232
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation, depletion and amortization 225,100 162,651
Net earnings in excess of investee
distributions (100,185) -
Change in assets and liabilities
(Increase) decrease in:
Accounts receivable, net (281,389) 101,456
Other current assets 27,275 -
Accounts payable 49,841 (13,315)
Accrued and other current liabilities (25,135) 16,865
Income taxes payable 560,274 146,413
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Net cash provided by operating
activities 1,765,141 708,302
Cash flows from investing activities
Payment of note receivable affiliate 55,500 -
Purchase of property and equipment (318,945) (60,348)
Oil and gas property dispositions 1,052,050 203,601
Oil and gas property additions (1,154,608) (3,345,051)
Other (41,933) -
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Net cash provided by (used in)
investing activities (407,936) (3,201,798)
Cash flows from financing activities
Borrowing 277,076 2,132,168
Repayment of borrowings (1,875,288) (757,302)
Sale of common stock, net of offering
costs 615,000 1,408,929
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Net cash provided by (used in)
financing activities (983,212) 2,783,795
NET INCREASE IN CASH AND CASH EQUIVALENTS 373,993 290,300
Cash and cash equivalents at beginning
of period 271,170 119,332
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Cash and cash equivalents at end of period $ 645,163 $ 409,632
========== ==========
Supplemental Cash Flow Information
Cash paid during the period for:
Interest $ 101,533 $ 102,247
Income taxes - -
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, 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 December 31, 1999 and March 31, 1999, and the results of operations
and cash flows for the nine months ended December 31, 1999 and December 31,
1998, and results of operations for the three months ended December 31, 1999
and December 31, 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.
Certain reclassifications have been made to the financial information
presented for the second quarter of 1999 to conform with the third quarter
1999 presentation.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE CONSOLIDATED STATEMENTS OF OPERATIONS
RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 1999, COMPARED TO THE
THREE MONTHS ENDED DECEMBER 31, 1998
Operating revenue for the three months ended December 31, 1999, increased
$819,335 (153%) from the comparable period of 1998 due to higher oil and gas
production from recompletions (85% gas 15% oil) and higher oil prices (93%
increase from comparable period).
Other income decreased $169,793 from the comparable period in 1998.
Included in the three months ended 1998 were proceeds from sales of properties
which subsequently were transferred to the Full Cost Pool, while the three
months ended December 31, 1999 includes the Company's share of net income
($32,556) from its 45% interest in Pontotoc Gathering LLC, which was formed in
late March 1999 to transport the Company's gas that has become a significant
part of the Company's operations.
Production costs for the three months ended December 31, 1999, increased
$49,503 (15%) from the comparable period of 1998 due to additional oil and gas
properties being put on line.
Depreciation, depletion and amortization increased $13,092 (21%) as
compared to the same period in the prior year.
General and administrative costs increased $40,292 (89%) due to the
addition of Officer and Directors insurance, application fee to NASDAQ and the
increase in Officer's and other administrative salaries.
RESULTS OF OPERATIONS - NINE MONTHS ENDED DECEMBER 31, 1999, COMPARED TO NINE
MONTHS ENDED DECEMBER 31, 1998
Operating revenue for the nine months ended December 31, 1999, increased
$1,887,826 (125%) from the comparable period of 1998 due to higher oil and gas
production thru drilling, recompletions and an increase in oil prices (54%).
Other income decreased $42,874 for the nine months ended December 31,
1999, compared to the same period in prior year. The nine months ended
December 31, 1998 included proceeds from sales of properties which were
subsequently transferred to the Full Cost Pool. Included in the nine months
ended December 31, 1999, was the Company's share of net income ($100,185) from
its 45% interest in Pontotoc Gathering LLC.
Production costs for the nine months ended December 31, 1999, increased
$420,284 (58%) due mainly to the costs associated with the additional oil and
gas properties acquired since July 1998.
Depreciation, depletion and amortization increased $62,449 (38%) 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 nine months ended December 31,
1999, decreased $45,561 (15%) due primarily to a decrease in legal,
engineering, accounting and other costs incurred during the nine months ended
December 31, 1998, for a significant acquisition of oil and gas properties.
8
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LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $445,387 at December 31, 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 nine month period and the Company
has finalized a two year extension on its long-term debt with an effective
date of November 1, 1999.
During the nine months ended December 31, 1999, cash generated by
operating activities was $1,765,141 compared to cash generated of $708,302 for
the nine months ended December 31, 1998. This increase in the amount of cash
generated was due primarily to the $1,015,128 increase in net earnings.
Cash flows used in investing activities during the nine months ended
December 31, 1999, were $(407,936) compared to $(3,201,798) 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 $1,154,608 on the purchase
and/or addition of oil and gas properties. Also, the Company purchased
$318,945 of property and equipment.
Cash flows from financing activities during the nine months ended
December 31, 1999 were $(983,212) compared to $2,783,795 during the comparable
period of 1998. The Company repaid a total of $1,875,288 in debt and borrowed
$277,076 during the nine months ended December 31, 1999, and also received
$615,000 from the sale of common stock pursuant to the exercising of warrants.
9
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
During the three months ended December 31, 1999, the Company issued
44,000 shares of its common stock to 7 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 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
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: January 27, 2000 By:/s/ James Robby Robson
James Robby Robson, Jr.
President
Date: January 27, 2000 By:/s/ Todd Robson
Todd Robson, Treasurer (Chief
Financial and Accounting Officer)
11
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<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 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-31-2000
<PERIOD-END> DEC-31-1999
<CASH> 645,163
<SECURITIES> 2,188
<RECEIVABLES> 576,931
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,226,574
<PP&E> 505,837
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,457,222
<CURRENT-LIABILITIES> 781,187
<BONDS> 0
<COMMON> 485
0
0
<OTHER-SE> 5,466,446
<TOTAL-LIABILITY-AND-EQUITY> 7,457,222
<SALES> 3,309,977
<TOTAL-REVENUES> 3,497,659
<CGS> 1,366,943
<TOTAL-COSTS> 1,366,943
<OTHER-EXPENSES> 255,063
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (101,533)
<INCOME-PRETAX> 1,869,634
<INCOME-TAX> 560,274
<INCOME-CONTINUING> 1,309,360
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,309,360
<EPS-BASIC> .28
<EPS-DILUTED> .27
</TABLE>
