<PAGE>

                   U.S. SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                 FORM 10-KSB

             ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                    For the fiscal year ended: March 31, 2000

                      Commission file number: 0-21313


                            PONTOTOC PRODUCTION, INC.
                ---------------------------------------------
                (Name of small business issuer in its Charter)


           Nevada                                          84-1349552
-------------------------------                        ------------------
(State or other jurisdiction of                        (I.R.S. Employer
incorporation or organization)                         Identification No.)

                       808 East Main, Ada, Oklahoma 74820
         -----------------------------------------------------------
         (Address of principal executive offices, including zip code)

                                (580) 436-6100
                          --------------------------
                          (Issuer's telephone number)

Securities Registered Pursuant to Section 12(b) of the Act:  None.

Securities Registered Pursuant to Section 12(g) of the Act:

                        Common Stock, $.0001 Par Value

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]

Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]

The Issuer's revenues for its most recent fiscal year were $4,962,070.

As of June 9, 2000, 5,176,445 shares of the Registrant's common stock were
outstanding, and the aggregate market value of the shares held by non-
affiliates was approximately $26,786,922.

DOCUMENTS INCORPORATED BY REFERENCE: None.

Transitional Small Business Disclosure Format (check one): Yes __   No X

<PAGE>
                                    PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

BACKGROUND

     Pontotoc Production, Inc. (the "Company") was incorporated under the laws
of the State of Nevada on July 1, 1996, under the name Mahogany Capital, Inc.
for the purpose of completing a merger or acquisition with a private entity.

     In September 1996, the Company filed a registration statement with the
Securities and Exchange Commission on Form 10-SB, wherein it registered its
common stock under Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "34 Act").  As a result, the Company became a fully reporting
company under the 34 Act.

     On December 10, 1997, the Company completed a reverse acquisition of 100%
of the outstanding common stock of Pontotoc Production Company, Inc., a Texas
corporation ("PPCI") in exchange for 3,165,000 shares of the Company's Common
Stock which resulted in the shareholders of PPCI acquiring approximately 84.4%
of the shares outstanding in the Company.  In connection with the closing of
this transaction, several shareholders submitted for cancellation a total of
665,000 shares of common stock.  As a result, after the acquisition of PPCI
there were a total of 3,750,000 shares outstanding.

     On December 12, 1997, the Company's shareholders approved a proposal to
change the Company's name to Pontotoc Production, Inc.

     On July 1, 1998, the Company closed on the acquisition of certain oil and
gas properties from Bill G. Cantrell and his affiliated company.  The purchase
price was $2,750,000 in cash and 402,360 restricted shares of the Company's
Common Stock.  Included in the purchase were interests in approximately 82 oil
and gas leases located in the following counties in Oklahoma:  Pontotoc, Coal,
Garvin, and Seminole.  The purchase also included two workover rigs, one
drilling rig, and miscellaneous oil field equipment which relates to the
ongoing production of the oil and gas properties.  The purchase was funded
with $2,050,000 of bank borrowings and $700,000 from the proceeds of a private
offering of common stock and warrants which was partially closed on July 1,
1998.

     On June 1, 2000, the Company closed on the acquisition of Oklahoma Basic
Economy Corporation ("OBEC") and the working interests of OBEC's partners for
$9,900,000 in cash.  The purchase was funded by advances under the Company's
bank credit agreement.  The properties acquired currently produce
approximately 400 net equivalent barrels of oil per day.  Proven reserves on
the properties are estimated to be approximately 7.6 million barrels of oil
equivalent.

     Unless the context otherwise requires, the term "Company" as used herein
refers to the Company and its wholly-owned subsidiary PPCI.

                                      2
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DESCRIPTION OF BUSINESS

     GENERAL

     The Company is engaged in the exploration for and the acquisition,
development and production of oil and natural gas.  The Company focuses on
lower risk, shallow oil and gas properties in the State of Oklahoma.  For the
last several years, the Company has been the most active operator in south-
central Oklahoma.  Since its inception in 1985, the Company's subsidiary has
drilled in excess of 93 wells.  Through drilling, acquisition and
recompletions, the Company's estimated proved reserves have reached 4,558,871
barrels of oil and 14,880,375 mcf of gas with an estimated future net revenue
discounted at 10% of $62,984,012 as of March 31, 2000.

OIL AND GAS OPERATIONS

     The Company's operations are conducted in the State of Oklahoma where the
Company owns producing and non-producing property interests in twenty
counties.  The Company's staff oversees the operations of existing properties,
evaluates property acquisition opportunities and drilling prospects, and
oversees drilling and completion of new wells.  Operations are concentrated on
shallow to medium depth properties generally ranging from 1,500 to 5,000 feet.
The funds necessary for acquisition, exploration and development of properties
are generated through cash flow and bank debt.

     The Company acts as "operator" of 260 wells pursuant to standard industry
Operating Agreements.

MARKETS AND CUSTOMERS

     Marketing of the Company's oil and gas production is influenced by many
factors which are beyond the Company's control and the exact effect of which
cannot be accurately predicted.  These factors include changes in supply and
demand, changes in market prices, regulatory changes, and actions of major
foreign producers.

     The Company sells its oil production to Sun Oil Co. (Sunoco) at the
monthly New York Mercantile Exchange average price per barrel less $.35, and
the majority of its gas to Pontotoc Gathering L.L.C. pursuant to a contract
where the Company receives 80% of the spot price less the cost of
transportation.  Crude oil and condensate production are readily marketable.
Crude oil is cost efficiently transportable from production centers to demand
centers and is, therefore, subject to world-wide supply and demand.  Oil
prices are primarily dependent upon available oil supplies which can vary
significantly depending on production and pricing policies of OPEC and other
major producing countries and on significant events in major producing regions
such as the Persian Gulf War in 1991.

     Deregulation of natural gas pricing and transportation have resulted in
far-reaching and fundamental changes in the producing, transportation and
marketing segments of the natural gas industry.  Gas price decontrol and the
advent of an active spot market for natural gas have resulted in prices
received by the Company being subject to significant fluctuations.  Prices
tend to rise in peak demand periods such as fall and winter and to decline
during lower demand periods.  The Company presently sells most of its gas
through short-term contracts with terms of one year or less which are designed
to obtain the best available prices and deliverabilities.  Virtually all of
the Company's gas contracts provide for prices based on monthly spot prices

                                      3
<PAGE>

for the applicable market area.  These prices are reduced ("netted") by the
costs of gathering and transporting the gas.

     The Company periodically hedges the price of a portion of its crude oil
production by forward selling in the futures markets.

COMPETITION AND REGULATION

     The oil and gas industry is intensely competitive.  The Company competes
with larger more well established oil and gas companies including, on
occasion, major companies.  The significant areas of competition are in
acquiring oil and gas reserves, acquiring leases for drilling or development,
and selling natural gas.  The primary competitive factors for acquisitions are
the price the Company is willing to pay and the financial resources readily
available to the Company to fund acquisitions.  The primary factors which
affect the Company's ability to sell its natural gas include proximity to
markets, proximity to and capacity of natural gas pipelines and transportation
and processing facilities, and quantities of gas which can be aggregated for
sale.  Although both oil and gas are generally readily saleable at market
prices, they compete for market share with each other and with other energy
sources such as coal and nuclear power.

     Oil and gas drilling and production operations are regulated by various
Federal, state and local agencies.  These agencies issue binding rules and
regulations which increase the Company's cost of doing business and which
carry penalties, often substantial, for failure to comply.  It is anticipated
that the aggregate burden on the Company of Federal, state and local
regulation will continue to increase particularly in the area of rapidly
changing environmental laws and regulations.  The Company believes that its
present operations substantially comply with applicable regulations.  To date,
such regulations have not had a material effect on the Company's operations,
or the costs thereof.  There are no known environmental or other regulatory
matters related to the Company's operations which are reasonably expected to
result in material liability to the Company.  The Company does not believe
that capital expenditures related to environmental control facilities or other
regulatory matters will be material in fiscal 2000.

     No prediction can be made as to what legislation or regulations may be
enacted or what additional legislation or regulations may be proposed.

     EMPLOYEES

     The Company currently has 22 full-time and 8 part-time employees.  The
Company is not subject to any collective bargaining agreement and believes
that its relationship with its employees are good.

     RISK FACTORS

     Shareholders and investors in shares of the Company's Common Stock should
consider the following Risk Factors, in addition to other information in this
Report.

     1.  SUCCESS DEPENDENT ON MANAGEMENT. Success of the Company depends on
the active participation of James "Robby" Robson, Jr., the Company's
President.  The Company does not have an employment agreement with Mr. Robson
and the Company  has no "key man" life insurance on Mr. Robson.  The loss of
the services of Mr. Robson would adversely affect the Company's business.

                                      4
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     2.  COMPETITION.  The Company is in an industry characterized by intense
competition. As a result of the Company's small size, the Company is not a
significant factor in the oil and gas exploration and drilling industry.  Many
of the Company's competitors are well established, have been in existence for
significantly longer periods of time than  the Company, have financial,
marketing, and other personnel as well as other resources substantially
greater than the Company.  (See "COMPETITION AND REGULATION.")

     3.  DECLINE IN PRICE OF OIL.  The price of crude oil has historically
been subject to wide fluctuations.  Although crude oil prices were at a
relatively high level during the past fiscal year, there can be no assurance
that such prices will remain at these levels.

     4.  TITLE TO FUTURE ACQUIRED PROPERTIES.   Any interests which the
Company may acquire in undeveloped and non-producing acreage may be in the
form of direct interests in leases, options, or permits with respect to such
acreage.  While the Company will attempt to acquire satisfactory title to such
oil and gas properties, title opinions may not be obtained prior to the time
of acquisition, with the attendant risk that some titles may be defective.
Under such circumstances, future expenditures may be incurred by the Company
for title work or some leasehold properties may be abandoned. In addition,
such leasehold interests may be subject to customary royalty interests, liens
incident to operating agreements, liens for current taxes and other burdens,
minor encumbrances, easements and restrictions, any of which may subject the
Company to future undetermined expenses.

     5.  SPECULATIVE NATURE OF OIL AND GAS EXPLORATION.  Oil and gas
exploration is highly speculative in nature, involves many risks, and
frequently results in unproductive properties.  These risks are significantly
higher for exploratory wells. Therefore, there can be no assurance that the
oil and gas exploration and/or development activities of the Company will be
successful, or that any future production will be profitable.

     6.  OPERATING HAZARDS AND UNINSURED RISKS.  Operations will be subject to
all of the risks normally incident to exploration for and production of oil
and gas, including blowouts, explosions and fires, seepage, and pollution,
each of which could result in damage to or destruction of oil and gas wells or
producing facilities, damage to life and property, environmental damage and
possible legal liability for any or all of such damages.

     7.  COMPETITION FOR SUITABLE PROPERTIES.  There exists substantial
competition in the market for properties suitable for oil and gas exploration.
Established companies may have an advantage over the Company because of
substantially greater resources in terms of number of personnel, finances and
access to technical data to devote to the acquisition of properties.  There
can be no assurance that properties can be obtained or that exploratory work
on any properties acquired in the future will result in commercially produc-
ible reserves, or that any additional properties can be acquired economically.

     8.  GOVERNMENTAL REGULATION AND ENVIRONMENTAL CONTROLS.  Activities of
the Company are subject to extensive federal, state and local laws and
regulations controlling not only the exploration for oil and gas, but also the
possible effects of such activities upon the environment.  Existing as well as
future legislation and regulations could cause additional expense, capital
expenditures, restrictions and delays in the development of properties, the
extent of which cannot be predicted.

                                      5
<PAGE>


     9.  CONTROL BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS.  Management
beneficially owns over 40% of the outstanding Common Stock.  (See Item 11.)

     10.  GENERIC PREFERRED STOCK AUTHORIZED.  The Company's Articles of
Incorporation authorize the issuance of up to 5,000,000 shares of Preferred
Stock, the terms, preferences, rights and restrictions of which may be
established by its Board of Directors.  Other companies on occasion have
issued series of such preferred stock with terms, rights, preferences and
restrictions that could be considered to discourage other persons from
attempting to acquire control of such companies and thereby insulate incumbent
management.  It is possible the Company could issue shares of its Preferred
Stock for such a purpose.  In certain circumstances, the existence of
corporate devices which would inhibit or discourage takeover attempts could
have a depressant effect on the market value of the stock of  a company.  The
Board of Directors has no current plans to issue any shares of Preferred
Stock.

     11.  NO DIVIDENDS.  The Company has paid no dividends on its Common Stock
since  incorporation.  The Company does not anticipate paying dividends on its
Common Stock in the foreseeable future and intends to devote any earnings to
the development of the Company's business.

     12.  COMMON STOCK ELIGIBLE FOR RESALE.  Of the 5,176,445 shares of Common
Stock presently outstanding, approximately 2,897,154 shares are "restricted
securities" and under certain circumstances may be sold in compliance with
Rule 144 adopted under the Securities Act of 1933, as amended.  A majority of
these shares are currently eligible for resale under Rule 144.  Future sales
of such shares will in all likelihood depress the market price of the
Company's Common Stock.

ITEM 2.  DESCRIPTION OF PROPERTY.

     GENERAL

     During the year ended March 31, 2000, the Company drilled six wells and
recompleted 22 wells owning an average of 90% interest in each.  Twenty-six
wells have been successfully completed.  One well was turned into a disposal
well and one well was declared a dry hole.  The Company also purchased seven
additional producing leaseholds located in Pontotoc County, Oklahoma.  Also,
the Company sold its leasehold acreage in Okmulgee County, Oklahoma.  Capital
expenditures for oil and gas activities totaled $1,632,982 in the year ended
March 31, 2000.

     During the year ended March 31, 1999, the Company drilled and/or
completed 12 wells owning an average of 92% interest in each.  Eleven wells
have been successfully completed.  The Company also expanded its producing
properties by purchasing interests in an additional 129 leases located in
Blaine, Caddo, Carter, Custer, Dewey, Gradym, Coal, McClain, Logan, Oklahoma,
Latimer, LeFlore, Pittsburg and Pontotoc Counties, Oklahoma.  Capital
expenditures for oil and gas activities totaled $4,262,264 in the year ended
March 31, 1999.

     During the year ended March 31, 1998, the Company drilled seven wells
owning an average of 95% interest in each.  Seven wells have been successfully
completed.  In addition, the Company installed a waterflood in south central
Oklahoma.  The Company also expanded its  producing property by purchasing
100% interest in 20 wells located in Okmulgee and Creek County, Oklahoma.
Capital expenditures for oil and gas activities totaled $694,903 in the year
ended March 31, 1998.
                                      6
<PAGE>

     ESTIMATED PROVED OIL AND GAS RESERVES AND FUTURE NET REVENUES

     In March 2000, Fletcher Lewis Engineering, an independent petroleum
engineering firm, estimated proved reserves for the Company's properties which
represented 95% of the estimated future value of the estimated reserves.
Remaining were estimated to represent 5%.  At March 31, 2000, oil represented
65% and natural gas represented 35% of the total reserves denominated in
equivalent barrels using a six Mcf of gas to one barrel of oil conversion
ratio.

     The following table sets forth, as of March 31, 2000, information
regarding the Company's proved reserves.  The average price used to calculate
estimated future net revenues was $24.00 per barrel held constant for oil and
$2.28 per Mcf of gas as of March 31, 2000.  Amounts do not include estimates
of future federal and state income taxes.

                                                             Estimated Future
                         Net Oil    Net Gas      Future      Net Revenues
                         (Bbls)       Mcf        Revenues    Discounted at 10%
                       ---------   ---------   -----------   -----------------

Proved Developed       1,784,802   3,199,614   $ 32,192,127     $20,133,478
Producing
Proved Developed          59,789     232,412   $  1,026,811     $   654,165
Non-Producing
Behind-Pipe              946,081   7,042,958   $ 31,851,563     $17,723,428
Proved Undeveloped     1,768,199   4,405,391   $ 43,139,382     $24,472,941
                       ---------  ----------   ------------     -----------
    Total              4,558,871  14,880,375   $108,209,883     $62,984,012


     PRODUCTION, AVERAGE SALES PRICES AND AVERAGE PRODUCTION COSTS

     The Company's net production quantities and average sales price per unit
for the indicated years are set forth below.

                   YEAR ENDED        YEAR ENDED        YEAR ENDED
                 MARCH 31, 2000    MARCH 31, 1999    MARCH 31, 1998
                ----------------   ---------------   ----------------
PRODUCT         VOLUME    PRICE    VOLUME    PRICE   VOLUME    PRICE
-------         -------   ------   -------   ------  ------    ------

Gas (Mcf)       637,387   $ 1.76    87,942   $ 1.58  47,077    $ 1.74
Oil (bbls)      159,113   $22.63   137,436   $13.37  84,870    $19.45


     Average production costs, including production taxes, per unit of
production (using a six to one conversion ratio of Mcfs to barrels) were
$5.78, $6.97 and $5.49 per barrel in the years ended March 31, 2000, 1999 and
1998, respectively.



                                      7
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     PRODUCTIVE WELLS AND DEVELOPED ACREAGE

     Developed acreage at March 31, 2000, totaled 8,652 net and 14,210 gross
acres.  At March 31, 2000, the Company owned working interests in 187 net (224
gross) oil wells and 30 net (36 gross) gas wells.  In addition, the Company
owned royalty and production payment interests in approximately 48 oil and gas
wells.

     UNDEVELOPED ACREAGE

     As of March 31, 2000, the Company had 2,847 undeveloped acres.

     DRILLING AND NEW ZONE RECOMPLETIONS

     The following tables set forth the number of gross and net oil and gas
wells in which the Company has participated in drilling or new zone
recompletions and the results thereof for the periods indicated.

                                GROSS WELLS

                                  EXPLORATORY           DEVELOPMENT
YEAR ENDED     TOTAL GROSS    -------------------    -----------------
 MARCH 31,       WELLS        OIL     GAS     DRY    OIL    GAS    DRY
-----------    -----------    ---     ---     ---    ---    ---    ---
  2000            28           3       2       1       5    17       0
  1999            12           0       1       0       6     4       1
  1998             7           0       0       0       7     0       0
  1997            14           0       0       0      12     0       2
  1996            18           0       0       0      16     2       0
1985-1995         50           3       1       6      30     5       5
                 ---           -       -       -      --    --       -
                 129           6       4       7      76    28       8

                                 NET WELLS

                                  EXPLORATORY            DEVELOPMENT
YEAR ENDED     TOTAL NET      -------------------     -----------------
 MARCH 31,       WELLS        OIL     GAS     DRY     OIL    GAS     DRY
-----------    ----------     ---     ---     ---     ---   ------   ---
  2000           24.00        2.5     2.00    1      5.00   13.5     0
  1999            8.70        0       0.65    0      4.20    3.1     0.75
  1998            5.80        0       0       0      5.80    0       0
  1997           11.60        0       0       0      9.96    0       1.66
  1996           14.94        0       0       0      13.28   1.66    0
1985-1995        41.50        2.49    0.83    3.32   26.56   4.15    4.15
                 -----        ----    ----    ----   -----   ----    ----
                106.54        4.99    3.48    4.32   64.80   22.41   6.56

PRESENT ACTIVITIES

     On June 1, 2000, the Company closed on the acquisition of Oklahoma Basic
Economy Corporation ("OBEC") and the working interests of OBEC's partners for
$9,900,000 in cash.  The purchase was funded by advances under the Company's
bank credit agreement.  The properties acquired currently produce
approximately 400 net equivalent barrels of oil per day.  Proven reserves on
the properties are estimated to be approximately 7.6 million barrels of oil
equivalent.

                                      8
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OFFICE LEASE

     The Company currently leases approximately 4,500 square feet of office
space for its offices at 808 East Main, Ada, Oklahoma 74820.  The space is
based on a month-to-month basis at a cost of $1,500 per month from an entity
which is partially owned by the families of Todd Robson and James Robson, Sr.
The Company believes that these offices are suitable and adequate to meet its
present and anticipated needs.

ITEM 3.  LEGAL PROCEEDINGS.

     There are no pending legal proceedings in which the Company is a party,
and the Company is not aware of any threatened legal proceedings involving the
Company.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended March 31, 2000.





































                                      9
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                                   PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     (a)  MARKET INFORMATION.  The Company's Common Stock began trading on the
Nasdaq Small-Cap Market on December 13, 1999, under the symbol "PNTU."  Prior
to that time, the Company's Common Stock was traded on the over-the-counter
market and was quoted on the NASD's OTC Bulletin Board.  The following table
sets forth the high and low sale prices for the Company's securities as
reported by the Nasdaq Stock Market since December 13, 1999, and the high and
low bid prices for the prior periods.

             QUARTER ENDED                 HIGH BID     LOW BID
             -------------                 --------     -------

     June 30, 1998                          $4.50       $2.1875
     September 30, 1998                     $4.50       $3.625
     December 31, 1998                      $3.78125    $1.625
     March 31, 1999                         $5.375      $3.50

     June 30, 1999                          $7.19       $5.00
     September 30, 1999                     $8.50       $6.25
     December 31, 1999                      $8.06       $6.25
     March 31, 2000                         $7.50       $6.00

     (b)  HOLDERS.  As of June 9, 2000, the Company had 135 shareholders of
record.  This does not include shareholders who hold stock in their accounts
at broker/dealers.

     (c)  DIVIDENDS.  The Company has never paid a cash dividend on its common
stock and does not expect to pay a cash dividend in the foreseeable future.

     (d)  RECENT SALES OF UNREGISTERED SECURITIES. During the three months
ended March 31, 2000, the Company issued 330,932 shares of its common stock to
51 persons who exercised warrants which were sold in a private offering of
units during October of 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 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

     RESULTS OF OPERATIONS

     This Report contains forward-looking statements that involve a number of
risks and uncertainties.  While these statements represent the Company's
current judgment in the future direction of the business, such risks and
uncertainties could cause actual results to differ materially from any future
performance suggested herein.  The Company undertakes no obligation to
publicly release the result of any revisions to these forward-looking
statements which may be made to reflect events of circumstances after the date
hereof or to reflect the occurrence of unanticipated events.  Certain factors
that could cause results to differ materially from those projected in the
forward-looking statements are set forth under "RISK FACTORS" in Item 1.

                                      10
<PAGE>


YEAR ENDED MARCH 31, 2000 COMPARED TO THE YEAR ENDED MARCH 31, 1999

     Operating revenues for the year ended March 31, 2000, increased
$2,842,640 (134%) from the prior year due to a 549,445 mcf (624%) increase in
gas production and a 21,677 bbls. (16%) increase in oil production which was
achieved by the drilling and successful recompletion of 27 wells through the
year. Also, oil prices received increased 69% ($9.26 per bbl.) and gas prices
received increased 11% (0.18 per mcf).

     Production costs for the year ended March 31, 2000, increased
$472,549(45%) due to the addition of 7 oil and gas properties and the costs
associated with those properties, along with higher production taxes
associated with the increase in oil and gas production.

     Depreciation, depletion and amortization costs of the year ended March
31, 2000, rose $140,094 (63%) as compared to the prior year mainly due to the
addition of oil and gas properties ($1,632,982) and additional property and
equipment ($268,611). General and administrative expenses increased $20,641
(6%) due to the addition of administrative employees.

     YEAR ENDED MARCH 31, 1999 COMPARED TO THE YEAR ENDED MARCH 31, 1998

     Operating revenues for the year ended March 31, 1999, increased $279,947
(15%) from the prior year due primarily to the acquisition of oil and gas
properties.

     Production costs for the year ended March 31, 1999, increased $276,736
(35%) due to the additional oil and gas properties.

     Depreciation, depletion and amortization costs for the year ended March
31, 1999, rose $66,372 (43%) as compared to the prior year due to the addition
of equipment and oil and gas properties.  General and administrative costs
decreased $42,857 (12%) due mainly to a reduction in executive salaries.

     CAPITAL RESOURCES AND LIQUIDITY

     The Company's working capital was $1,883,549 at March 31, 2000, compared
to a (deficit) of ($1,961,142) at March 31, 1999. The increase in working
capital is due to the Company paying off it's long-term debt from proceeds of
warrants exercised and cash provided by operating activities.

     During the year ended March 31, 2000, cash generated by operating
activities was $2,661,997 compared to cash generated of $528,774 for the year
ended March 31, 1999. The increase in the amount of cash generated was
primarily due to the Company's continued recompletion program which increased
gas production by 624% and oil production by 16% together with a 69% increase
in the price of oil.  These factors were the primary contributors to a 603%
increase in net earnings.

     Cash used in investing activities during the year ended March 31, 2000,
was $650,647 compared $3,679,481 for the prior year. The Company paid
$1,534,070 toward the purchase of oil and gas properties and sold $1,088,754
of oil and gas properties which accounts for the decrease.



                                      11
<PAGE>


     Cash used in financing activities during the year ended March 31, 2000,
was ($508,723) compared to $3,302,545 provided by financing activities during
the prior year. The Company repaid $2,646,704 and borrowed $281,986 during the
year. Also the Company had net proceeds of $1,855,995 from the sale of common
stock (warrants exercised associated with the private placement completed
during the prior year).

     The Company has approved a budget of approximately $1,500,000 to drill
approximately 10 new wells and to recomplete 25 to 30 existing wells to
continue its shallow gas program started in the prior year.  Effective June 1,
2000, the Company has a $14,500,000 line of credit with an in-state bank.
Interest on the line of credit is Libor plus 1.75% and is secured by certain
oil and gas properties of the Company.

ITEM 7.  FINANCIAL STATEMENTS.

     The financial statements are set forth on pages F-1 through F-20 hereto.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

     No response required.


































                                      12
<PAGE>

                                   PART III


ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

     The directors and executive officers of the Company and its wholly-owned
subsidiary, their ages and positions held in the Company are as follows:

          NAME               AGE           POSITIONS HELD AND TENURE
          ----               ---           -------------------------

James "Robby" Robson, Jr.    41     President, Chief Executive Officer and
                                    Director

Todd Robson                  37     Vice President, Secretary, Treasurer
                                    and Director

James Robson, Sr.            61     Vice President and Director

Brian K. Gourley             38     Director

Timothy A. Jurek             49     Director

Lyle P. Phillips             62     Director

     There is no family relationship between any Director or Executive Officer
of the Company except that James Robby Robson, Jr. and Todd Robson are
brothers and their father is James Robson, Sr.

     The Company has an audit committee which consists of Brian K. Gourley,
Lyle P. Phillips and Todd Robson.  The audit committee reviews the annual
financial statements, any significant accounting issues, and the scope of the
audit with the independent auditors and discusses with the auditors any other
audit-related matters that may arise.

     Set forth below are the names of all Directors and Executive Officers of
the Company, all positions and offices with the Company held by each such
person, the period during which he has served as such, and the principal
occupations and employment of such persons during at least the last five
years:

     JAMES "ROBBY" ROBSON, JR. - President, Chief Executive Officer and
Director.  Mr. Robson has served as the President, Chief Executive Officer and
a Director of the Company since December 1997, and has held these same
positions with Pontotoc  Production Company, Inc., the Company's wholly-owned
subsidiary, since January 1987.  From January 1985 through January 1987, he
worked as a consultant for Pontotoc Production Company, Inc.  From April 1982
until January 1985, he served as the President of Robco Oil Co.  From August
1981 until March 1982 he served as Vice President of Marketing for Daner Oil
Co., Inc.  From March 1981 until August 1981, he was a free agent running back
with the Pittsburgh Steelers.  Mr. Robson attended Youngstown State University
from 1977 until 1981.



                                      13
<PAGE>


     TODD ROBSON - Vice President, Secretary, Treasurer and Director.  Mr.
Robson has served as Vice President, Secretary and a Director of the Company
since December 1997, and has held these same positions with Pontotoc
Production Company, Inc., the Company's wholly-owned subsidiary, since January
1987.  From January 1985 until January 1987, he served as President and a
Director of Pontotoc Production Company, Inc.  From January 1983 until January
1985, he was Vice President of Marketing for Robco Oil Co., Inc.

     JAMES ROBSON, SR. - Vice President and Director.  Mr Robson has served as
Vice President and Director of the Company since December 1997, and has held
these same positions with Pontotoc Production Company, Inc., the Company's
wholly-owned subsidiary, since January 1985.   From April 1982 until January
1985, he served as Vice President of Operations for Robco Oil Co., Inc.

     BRIAN K. GOURLEY - Director.  Mr. Gourley has served as a Director of the
Company since January 1998.  He has served as Chief Operating Officer and a
Partner of  BetterBody Company, Ada, Oklahoma, a company engaged in orthopedic
manufacturing, since January 1998.  From April 1989 until January 1997, he
served as Vice President of Operations and a Partner of Look, Inc., a company
engaged in manufacturing medical eye implant devices.  From April 1986 until
April 1989, he was the Production Engineering Manager and Chief Engineer of
Electrovert USA Corp.

     TIMOTHY A. JUREK - Director.  Mr. Jurek has served as a Director of the
Company since September 1999.  He has served as the President of Pontotoc
Gathering LLC since March 1999.  He worked as a project engineer for Conoco
from 1978 until 1981.  In 1981, he formed Western States Gas, the first of
five natural gas gathering and marketing companies which Mr. Jurek founded and
operated between 1981 and 1999.  He has provided independent consulting
services to the gas industry, been involved with acquisitions and mergers,
served as an officer and director and has been a member of gas industry
associations.

     LYLE P. PHILLIPS - Director.  Mr. Phillips has served as a Director of
the Company since September 1999.  Mr. Phillips has been a private investor
since August 1993.  From September 1989 to August 1993, he served as Vice
Chairman and as a director of First Continental Bank & Trust Co.  From March
1991 until December 1992, he also served as the President and CEO of First
Continental Bank & Trust.  From September 1981 to June 1988, Mr. Phillips
served as Vice Chairman, President and CEO of Kustom Electronics.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

     Based solely on a review of Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year, and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year and certain written representations, no persons who were either a
Director, Officer or beneficial owner of more than 10% of the Company's Common
Stock, failed to file on a timely basis reports required by Section  16(a) of
the Exchange Act during the most recent fiscal year.

ITEM 10.  EXECUTIVE COMPENSATION.

     The following table sets forth information regarding the executive
compensation for the Company's President and each other executive officer
whose total annual salary and bonus exceeded $100,000 for the year ended March
31, 2000, 1999 and 1998:

                                      14
<PAGE>


                                  SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                                                           LONG-TERM COMPENSATION
                                                   -----------------------------------
                           ANNUAL COMPENSATION         AWARDS        PAYOUTS
                          -----------------------  ----------------- --------
                                                            SECURI-
                                                             TIES
                                                            UNDERLY-
                                           OTHER     RE-      ING               ALL
                                           ANNUAL  STRICTED OPTIONS/           OTHER
NAME AND PRINCIPAL                         COMPEN-  STOCK     SARs     LTIP    COMPEN-
     POSITION       YEAR  SALARY   BONUS   SATION  AWARD(S) (NUMBER)  PAYOUTS  SATION
------------------  ----  -------  -----   ------  -------- --------  -------  ------
<S>                 <C>   <C>      <C>     <C>     <C>      <C>       <C>      <C>
James "Robby"       2000  $50,160    --    $6,561     --       --        --      --
 Robson, Jr.,       1999  $36,500    --    $3,504     --       --        --      --
 President                                 <FN1>
                    1998  $84,000    --    $4,806     --       --        --      --
                                           <FN1>
_______________
<FN>
<FN1>  Represents dues paid to Oak Hill Country Club.
</FN>
</TABLE>
STOCK OPTION PLAN

     During November 1997, the Board of Directors adopted a Stock Option Plan
(the "Plan"), and on November 12, 1997, the Corporation's shareholders
approved the Plan.  The Plan authorizes the issuance of options to purchase up
to 500,000 shares of the Company's Common Stock.

     The Plan allows the Board to grant stock options from time to time to
employees, officers, directors and consultants of the Company.  The Board has
the power to determine at the time that the option is granted whether the
option will  be an Incentive Stock Option (an option which qualifies under
Section 422 of the Internal Revenue Code of 1986) or an option which is not an
Incentive Stock Option.  Vesting provisions are determined by the Board at the
time options are granted.  The option price for any option will be no less
than the fair market value of the Common Stock on the date the option is
granted.

     Since all options granted under the Plan must have an exercise price no
less than the fair market value on the date of grant, the Company will not
record any expense upon the grant of options, regardless of whether or not
they are incentive stock options for stock options granted to employees.  In
accordance with FASB Interpretation No. 44 of APB25, Accounting for Stock
Issued to Employees, stock options granted to non-employees subsequent to
December 15, 1998 are measured at the fair value of the options.  The
Interpretation requires accounting recognition attributable to the service
period remaining subsequent to July 1, 2000.  Generally, there will be no
federal income tax consequences to the Company in connection with Incentive
Stock Options granted under the Plan.  With regard to options that are not
Incentive Stock Options, the Company will ordinarily be entitled to deductions
for income tax purposes of the amount that option holders report as ordinary
income upon the exercise of such options, in the year such income is reported.

                                      15
<PAGE>
     As of March 31, 2000, 92,500 options were outstanding.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The following table sets forth, as of May 31, 2000, the stock ownership
of each person known by the Company to be the beneficial owner of five percent
or more of the Company's Common Stock, each director individually, and all
officers and directors as a group.  Each person has sole voting and investment
power over the shares except as noted.

                                     AMOUNT AND
  NAME AND ADDRESS                 NATURE OF BENE-          PERCENT
OF BENEFICIAL OWNERS               FICIAL OWNERSHIP         OF CLASS
-------------------------          ----------------         --------

James "Robby" Robson, Jr.                572,797              11.1%
1500 East 17th Street
Ada, Oklahoma 74820

Todd Robson                              570,161              11.0%
701 South Shumard
Ada, Oklahoma 74820

James Robson, Sr.                        580,851              11.2%
Route 4, Box 437
Ada, Oklahoma 74820

Brian K. Gourley                          58,671               1.1%
305 North Lake Drive
Ada, Oklahoma 74820

Lyle P. Phillips                         299,000 (1)           5.8%
11420 High Drive
Leawood, Kansas  66211

Timothy A. Jurek                          25,000                .5%
1345 East 29th Street
Tulsa, Oklahoma  74114

All Directors and Executive            2,106,480              40.7%
Officers as a Group (6
Persons)
______________

(1)  Includes 256,000 shares held by a revocable trust of Mr. Phillips; 25,000
shares held by a revocable trust of Mr. Phillips' wife; and 18,000 shares held
by a trust of which Mr. Phillips' wife serves as trustee.

     The Company knows of no arrangement or understanding, the operation of
which may at a subsequent date result in a change of control of the Company.





                                      16
<PAGE>


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     During March 1999, the Company and Timothy A. Jurek (who has
approximately 20 years experience in building and operating natural gas
gathering and marketing companies) formed Pontotoc Gathering LLC for the
purpose of building a gas line which could be used to transport and market gas
from the Company's existing and future wells in Pontotoc County.  The Company
and Mr. Jurek are each 45% owners of this LLC and two employees of the LLC own
the other 10%.  During September 1999 Mr. Jurek was added to the Company's
Board of Directors.

     During the year ended March 31, 2000, the Company recognized
approximately $113,000 in income from Pontotoc Gathering LLC.  During 1999,
the Company loaned $70,000 to this LLC under a note agreement which requires
monthly payments of interest at 10% and matures on April 30, 2001.  During the
year ended March 31, 2000, the Company received principal payments of $63,700
on this note, leaving an outstanding balance at March 31, 2000 of $6,300.

     The Company sells its natural gas to the LLC on an 80/20 contract which
means that the Company receives 80% of the spot price less the cost of
transportation.   Prior to setting up this LLC the Company received
approximately 55% of the spot price less the cost of transportation.

     Management believes that the terms of the transactions with Pontotoc
Gathering LLC are at least as favorable as those which could be obtained from
nonaffiliated parties.
































                                    17
<PAGE>


                                   PART IV

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

     (a)  3.  EXHIBITS.

EXHIBIT
NUMBER      DESCRIPTION                   LOCATION

 3.1        Articles of Incorporation,    Incorporated by reference to
            as Amended                    Exhibit 2.1 to the Registrant's
                                          Form 10-SB Registration State-
                                          filed on September 5, 1996

 3.2        Bylaws                        Incorporated by reference to
                                          Exhibit 2 to the Registrant's
                                          Form 10-SB Registration State-
                                          ment filed on September 5, 1996

10.1        Share Exchange Agreement      Incorporated by reference to
            with Pontotoc Production      the Registrant's Form 8-K dated
            Company, Inc. dated           December 10, 1997, and filed
            December 10, 1997             December 23, 1997

21          Subsidiaries of the           Filed herewith electronically
            Registrant

27          Financial Data Schedule       Filed herewith electronically


     (b) REPORTS ON FORM 8-K.  No Reports on Form 8-K were filed for the last
quarter of the fiscal year covered by this Report.

























                                      18
<PAGE>


                        INDEX TO FINANCIAL STATEMENTS


                                                              PAGE(S)

Report of Independent Certified Public Accountants . . . . .   F-2

Financial Statements:

     Balance Sheets, March 31, 2000 and 1999 . . . . . . . .   F-3

     Statements of Earnings for the years
     ended March 31, 2000 and 1999. . . . . . . . . . . . . .  F-4

     Statement of Stockholders' Equity
     for the years ended March 31, 2000 and 1999. . . . . . .  F-5

     Statements of Cash Flows for the years
     ended March 31, 2000 and 1999. . . . . . . . . . . . . .  F-6

     Notes to Financial Statements. . . . . . . . . . . . . .  F-8 - F-20


































                                     F-1
<PAGE>




                 Report of Independent Certified Public Accountants


Board of Directors
Pontotoc Production, Inc.

We have audited the accompanying balance sheets of Pontotoc Production, Inc.,
as of March 31, 2000 and 1999, and the related statements of earnings,
stockholders' equity, and cash flows for the years then ended.  These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pontotoc Production, Inc., as
of March 31, 2000 and 1999, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.




/s/ Grant Thornton LLP

GRANT THORNTON LLP

Oklahoma City, Oklahoma
May 12, 2000




















                                      F-2
<PAGE>


                           PONTOTOC PRODUCTION, INC.

                                BALANCE SHEETS

                                   March 31,

     ASSETS                                         2000           1999
                                                 ----------     ----------
CURRENT ASSETS
  Cash and cash equivalents (note A1)            $1,773,797     $  271,170
  Trading securities (note A2)                        4,723          2,188
  Accounts receivable, net of allowance
   for doubtful accounts of $1,361 in
   2000 and 1999 (note A8)                          700,376        295,542
  Other current assets (note A3)                     17,915         29,567
                                                 ----------     ----------
     Total current assets                         2,496,811        598,467

PROPERTY AND EQUIPMENT - AT COST, net
 (notes A4 and B)                                   397,587        175,248
OIL AND GAS PROPERTIES - AT COST, net,
 using the full cost method (notes A5,
 C, D, and E)                                     5,816,147      5,587,199
NOTE RECEIVABLE - AFFILIATE (note J)                  7,800         70,000
OTHER (note J)                                      170,461          9,400
                                                 ----------     ----------
                                                 $8,888,806     $6,440,314
                                                 ==========     ==========

     LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
 Accounts payable                                $   91,960     $   59,181
 Accrued and other current liabilities               24,239         51,408
    Income taxes payable (note F)                   230,917          9,809
    Deferred income taxes (note F)                  266,146         74,493
    Current portion of long-term debt (note E)            -      2,364,718
                                                 ----------     ----------
          Total current liabilities                 613,262      2,559,609

DEFERRED INCOME TAXES (note F)                      882,219        443,914

COMMITMENTS AND CONTINGENCIES (note G)                    -              -

STOCKHOLDERS' EQUITY (note K)
 Common stock - $.0001 par value; authorized,
  100,000,000 shares; issued and outstanding,
  5,176,445 shares in 2000 and 4,654,513
  shares in 1999                                        517            465
 Preferred stock - $.0001 par value;
  authorized, 5,000,000 shares; issued and
  outstanding, none                                       -              -
 Additional paid-in capital                       3,980,550      2,018,828
 Retained earnings                                3,412,258      1,417,498
                                                 ----------     ----------
                                                  7,393,325      3,436,791
                                                 ----------     ----------
                                                 $8,888,806     $6,440,314
                                                 ==========     ==========

The accompanying notes are an integral part of these statements.

                                      F-3
<PAGE>

                           PONTOTOC PRODUCTION, INC.

                            STATEMENTS OF EARNINGS

                              Year ended March 31,

                                                    2000          1999
                                                 ----------     ----------
Operating revenues
 Oil and gas sales (note A8)                     $4,832,805     $2,034,087
 Well supervision fees and overhead
  reimbursements                                    129,265         85,343
                                                 ----------     ----------
                                                  4,962,070      2,119,430

Operating costs and expenses
 Production                                       1,533,360      1,060,811
 Depreciation, depletion, and amortization          361,552        221,458
 General, administrative, and other                 340,522        319,881
                                                 ----------     ----------
                                                  2,235,434      1,602,150
                                                 ----------     ----------
     Earnings from operations                     2,726,636        517,280

Other income                                        226,336         14,453
Interest expense                                   (107,146)      (148,449)
                                                 ----------     ----------
     Earnings before income taxes                 2,845,826        383,284

Provision for income taxes (note F)                 851,066         99,723
                                                 ----------     ----------
     NET EARNINGS                                $1,994,760     $  283,561
                                                 ==========     ==========

Earnings per share - basic (note A9)             $      .41     $      .06
                                                 ==========     ==========

Earnings per share - diluted (note A9)           $      .40     $      .06
                                                 ==========     ==========

Weighted average number of common
 shares outstanding:
  Basic                                           4,823,521      4,420,761
                                                 ==========     ==========
  Diluted                                         5,009,576      4,471,346
                                                 ==========     ==========











The accompanying notes are an integral part of these statements.

                                      F-4
<PAGE>

                            PONTOTOC PRODUCTION, INC.

                        STATEMENT OF STOCKHOLDERS' EQUITY

                       Years ended March 31, 2000 and 1999

<TABLE>
<CAPTION>
                                                    Additional
                                   Common stock      paid-in      Retained
                                Shares     Amount    capital      earnings     Total
                               ---------   -------  ----------   ----------  ----------
<S>                            <C>         <C>      <C>          <C>         <C>
Balance at April 1, 1998       3,750,000   $  375   $  108,924   $1,133,937  $1,243,236

Issuance of common stock,
net of offering costs of
approximately $103,000           904,513       90    1,909,904            -   1,909,994

Net earnings                           -        -            -      283,561     283,561
                               ---------   -------  ----------   ----------  ----------

Balance at March 31, 1999      4,654,513       465   2,018,828    1,417,498   3,436,791

Issuance of common stock         521,932        52   1,961,722            -   1,961,774

Net earnings                           -         -           -    1,994,760   1,994,760
                               ---------   -------  ----------   ----------  ----------

Balance at March 31, 2000      5,176,445   $   517  $3,980,550   $3,412,258  $7,393,325
                               =========   =======  ==========   ==========  ==========
</TABLE>





























The accompanying notes are an integral part of this statement.

                                      F-5
<PAGE>



                            PONTOTOC PRODUCTION, INC.

                            STATEMENTS OF CASH FLOWS

                              Year ended March 31,

                                                    2000           1999
                                                 -----------    -----------
Increase (Decrease) in Cash and Cash
 Equivalents

Cash flows from operating activities
 Net earnings                                    $ 1,994,760    $   283,561
 Adjustments to reconcile net earnings
  to net cash provided by operating
  activities
   Depreciation, depletion, and amortization         361,552        221,458
   Deferred income taxes                             629,958         97,364
   Net earnings in excess of distributions
    from investees                                  (113,451)
   Amortization of consulting agreement               14,316              -
   Change in assets and liabilities
    (Increase) decrease in
     Trading securities                               (2,535)         3,062
     Accounts receivable, net                       (404,834)       (45,308)
     Other assets                                       (154)       (29,567)
    Increase (decrease) in
     Accounts payable                                (11,554)       (14,726)
     Accrued and other current liabilities           (27,169)        19,544
     Income taxes payable                            221,108         (6,614)
                                                 -----------    -----------
      Net cash provided by operating activities    2,661,997        528,774

Cash flows from investing activities
 Proceeds from note receivable - affiliate            63,700              -
 Issuance of note receivable - affiliate              (1,500)       (70,000)
 Purchase of property and equipment                 (267,531)       (40,095)
 Proceeds on sales of property and equipment       1,088,754        195,433
 Oil and gas property additions                   (1,534,070)    (3,760,319)
 Other                                                     -         (4,500)
                                                 -----------    -----------
      Net cash used in investing activities         (650,647)    (3,679,481)

Cash flows from financing activities
 Borrowings                                          281,986      2,715,250
 Repayment of borrowings                          (2,646,704)      (820,754)
 Issuance of common stock, net of offering costs   1,855,995      1,408,049
                                                 -----------    -----------
      Net cash provided by (used in) financing
       activities                                   (508,723)     3,302,545

      NET INCREASE IN CASH AND CASH EQUIVALENTS    1,502,627        151,838

Cash and cash equivalents at beginning of year       271,170        119,332
                                                 -----------    -----------
Cash and cash equivalents at end of year         $ 1,773,797    $   271,170
                                                 ===========    ===========


                                      F-6
<PAGE>



                             P0NTOTOC PRODUCTION, INC.

                        STATEMENTS OF CASH FLOWS - CONTINUED

                                Year ended March 31,

                                                    2000           1999
                                                 -----------    -----------

Supplemental Cash Flow Information

Cash paid during the year for:

    Interest                                     $   107,146    $   148,449
    Income taxes                                           -          8,973

Noncash investing and financing activities:

During 2000, a consulting agreement was financed through the issuance of
14,000 shares of common stock with a fair value of $50,120.  Under this
agreement, consulting services are provided for 42 months which resulted in an
expense in the current year of $14,316.

During 2000 and 1999, property and equipment and oil and gas property
additions of $55,659 and $501,945 were financed through the issuance of 13,000
and 439,513 shares of common stock, respectively.

During 2000 and 1999, depreciation expense on oil field service equipment of
$14,382 and $23,686, respectively, was capitalized to oil and gas properties.
During 2000, property and equipment and oil and gas property additions of
$44,333 were financed through accounts payable.





























The accompanying notes are an integral part of these statements.

                                      F-7
<PAGE>
                            PONTOTOC PRODUCTION, INC.

                        NOTES TO FINANCIAL STATEMENTS

                           March 31, 2000 and 1999

NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES

On December 10, 1997, Pontotoc Production Company, Inc. ("Pontotoc"), an
existing oil and gas exploration company, was acquired by Mahogany Capital,
Inc. ("Mahogany"), a nonoperating public shell corporation, through exchange
of 100% of the issued and outstanding shares of Pontotoc's common stock for
approximately 84% of the outstanding shares of Mahogany's common stock.
Mahogany's legal name was changed to Pontotoc Production, Inc. (the
"Company").  The acquisition was considered to be a capital transaction, in
substance equivalent to the issuance of stock by Pontotoc for the net monetary
assets of Mahogany, accompanied by a recapitalization of Pontotoc.  Common
stock and additional paid-in capital were restated to reflect this
recapitalization.

The major operations of 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.

A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows.

1.    Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less and money market funds to be cash
equivalents.

The Company maintains its cash in bank deposit accounts and money market funds
which may not be federally insured.  The Company has not experienced any
losses in such accounts and believes it is not exposed to any significant
credit risk on such accounts.

At March 31, 2000, the Company had cash and cash equivalents of approximately
$1,684,000 at one financial institution.

2.    Investments

Trading securities are carried at fair value with unrealized gains and losses
included in earnings.

Investments in affiliated companies and joint ventures owned 20% to 50% or
which the Company is able to exercise significant influence over operations
are accounted for on the equity method.  Accordingly, the consolidated
statements of earnings include the Company's share of the affiliated entities'
net earnings.







                                      F-8
<PAGE>



                            PONTOTOC PRODUCTION, INC.

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED

                            March 31, 2000 and 1999

NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES - CONTINUED

3.    Futures Contracts

The Company contracts to sell crude oil at future dates at prices based on
then-current market prices.  Due to wide fluctuations in the market prices for
crude oil, the Company frequently enters into futures contracts to hedge the
price risk associated with anticipated sales.  Gains and losses on these
contracts are deferred and recognized concurrently with the revenues from the
associated exposures.  At March 31, 2000, the Company has entered into futures
contracts settling at various dates through July 2000.

The losses on these futures contracts at March 31, 2000 and 1999 of
approximately $6,300 and $29,600, respectively, have been deferred and are
reflected in other current assets.

4.    Property and Equipment

Depreciation and amortization are provided in amounts sufficient to relate the
cost of depreciable assets to operations over their estimated service lives
using an accelerated method.  Estimated useful lives are as follows:

         Furniture, fixtures, and office equipment    5-7 years
         Automobiles and trucks                         5 years
         Leasehold improvements                         7 years
         Oil field service equipment                  5-7 years

Impairment losses are recorded on property and equipment when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount.

5.    Oil and Gas Properties

The full cost method of accounting is used to account for oil and gas
properties.  Under this method of accounting, all costs incident to the
acquisition, exploration, and development of properties (both developed and
undeveloped), including costs of abandoned leaseholds, lease rentals,
unproductive wells, and well drilling and equipment costs, are capitalized.
These costs as well as estimated future development costs on proved
undeveloped properties are amortized using the units-of-production method.
The units-of-production method is based primarily on estimates of reserve
quantities.  Due to uncertainties inherent in this estimation process, it is
at least reasonably possible that reserve quantities will be revised
significantly in the near term.  If the Company's unamortized costs exceed the
cost center ceiling (defined as the sum of the present value, discounted at
10%, of estimated future net revenues from proved reserves, less related
income tax effects), the excess is charged to expense in the year in which the
excess occurs.  Generally, no gains or losses are recognized on the sale or
disposition of oil and gas properties.  Income in connection with contractual
services performed on wells in which the Company has an economic interest is
credited to oil and gas properties as a component of the full cost pool.




                                     F-9
<PAGE>



                            PONTOTOC PRODUCTION, INC.

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED

                            March 31, 2000 and 1999

NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES - CONTINUED

6.    Revenue Recognition

Oil and gas sales are recognized when the product is transported from the well
site.  Well supervision fees and overhead reimbursements from producing
properties are recognized when the services are performed.

7.    Income Taxes

Deferred income taxes are provided for significant carryforwards and temporary
differences between the tax basis of an asset or liability and its reported
amount in the financial statements that will result in taxable or deductible
amounts in future years.  Deferred income tax assets or liabilities are
determined by applying the presently enacted tax rates and laws.

A valuation allowance for deferred tax assets is required when it is more
likely than not that some portion or all of the deferred tax assets will not
be realized.  Management believes a valuation allowance is not required for
deferred tax assets at March 31, 1999.

8.    Concentrations of Credit Risk and Major Customers

The Company extends credit to purchasers of oil and natural gas which are
primarily large energy companies.  The Company had two purchasers whose
purchases were approximately 72% and 19% of total revenues for the year ended
March 31, 2000.  Additionally, the Company had two purchasers whose purchases
were approximately 56% and 29% of accounts receivable at March 31, 2000.  The
Company had one purchaser whose purchases were 87% of total revenues, and were
approximately 65% of accounts receivable at March 31, 1999.

9.    Earnings Per Share

Basic earnings per common share are based upon the weighted average number of
common shares outstanding.  Diluted earnings per common share are based on the
assumption that all of the common stock options and purchase warrants are
converted into common shares using the treasury stock method.  There are no
differences in net earnings for purposes of computing basic and diluted
earnings per share as conversion of the common stock options and purchase
warrants would have no effect on net earnings.

The following table sets forth the computation of weighted average shares
outstanding, basic and diluted, for the years ended March 31:

                                               2000        1999
                                            ---------    ---------
   Weighted average shares outstanding      4,823,521    4,420,761
   Effect of dilutive securities -
    common stock purchase warrants            159,685       50,585
   Effect of dilutive securities -
    stock options                              26,370            -
                                            ---------    ---------
   Weighted average shares outstanding -
    assuming dilution                       5,009,576    4,471,346
                                            =========    =========
                                   F-10
<PAGE>

                            PONTOTOC PRODUCTION, INC.

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED

                            March 31, 2000 and 1999

NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES - CONTINUED

Options to purchase 50,000 shares of common stock at $8.50 per share were
outstanding during a portion of fiscal year 2000 but were not included in the
computation of diluted earnings per share because the exercise price was
greater than the average market price of the common shares and, therefore, the
effect would be anti-dilutive.

10.    Use of Estimates

In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates based on management's
knowledge and experience.  Actual results could differ from those estimates.

11.    Recently Issued Accounting Pronouncement

In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which
requires an entity to recognize derivates as assets or liabilities in the
balance sheet and measure them at fair value.  The Company will adopt
Statement No. 133 in the first quarter of fiscal 2001; however, the effect of
adoption has not been determined.

NOTE B - PROPERTY AND EQUIPMENT

Major classes of property and equipment consisted of the following at March
31:

                                                      2000        1999
                                                    --------    --------

   Furniture, fixtures, and office equipment        $ 80,015    $ 45,789
   Automobiles and trucks                            243,498     155,114
   Leasehold improvements                              7,261       7,261
   Oil field service equipment                       300,935     300,935
                                                    --------    --------
                                                     631,709     509,099
     Less accumulated depreciation and
      amortization                                   419,622     373,351
                                                    --------    --------
                                                     212,087     135,748
   Land                                              185,500      39,500
                                                    --------    --------
                                                    $397,587    $175,248
                                                    ========    ========








                                     F-11
<PAGE>




                            PONTOTOC PRODUCTION, INC.

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED

                            March 31, 2000 and 1999

NOTE C - OIL AND GAS INFORMATION

Costs related to the oil and gas activities of the Company were incurred as
follows:

                                                    Year ended March 31,
                                                 -------------------------
                                                    2000           1999
                                                 ----------     ----------
     Property acquisition costs                  $  557,572     $3,761,791
     Development costs                            1,075,410        282,828

The Company had the following aggregate capitalized costs relating to the
Company's oil and gas activities at March 31:

                                                    2000           1999
                                                 ----------     ----------
     Proved oil and gas properties               $6,567,544     $6,008,933
     Less accumulated depreciation,
      depletion, and amortization                   751,397        421,734
                                                 ----------     ----------
                                                 $5,816,147     $5,587,199
                                                 ==========     ==========

Depreciation, depletion, and amortization expense of oil and gas properties
amounted to $1.24 and $1.32 per equivalent barrel of production for the years
ended March 31, 2000 and 1999, respectively.

NOTE D - OIL AND GAS RESERVE DATA (UNAUDITED)

The following estimates of proved reserve quantities and related standardized
measure of discounted net cash flows are estimates only, and do not purport to
reflect realizable values or fair market values of the Company's reserves.
The Company emphasizes that reserve estimates are inherently imprecise and
that estimates of new discoveries are more imprecise than those of producing
oil and gas properties. Accordingly, these estimates are expected to change as
future information becomes available.  All of the Company's reserves are
located in the United States.

Proved reserves are estimated reserves of crude oil (including condensate and
natural gas liquids) and natural gas that geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions.  Proved
developed reserves are those expected to be recovered through existing wells,
equipment, and operating methods.

The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated
future production of proved oil and gas reserves, less estimated future
expenditures (based on year-end costs) to be incurred in developing and
producing the proved reserves, less estimated future income tax expenses
(based on year-end statutory tax rates, with consideration of future tax rates
already legislated) to be incurred on pretax net cash flows less tax basis of
the properties and available credits, and assuming continuation of existing

                                      F-12
<PAGE>


                            PONTOTOC PRODUCTION, INC.

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED

                            March 31, 2000 and 1999

NOTE D - OIL AND GAS RESERVE DATA (UNAUDITED) (CONTINUED)

economic conditions.  The estimated future net cash flows are then discounted
using a rate of 10% a year to reflect the estimated timing of the future cash
flows.

The following summaries of changes in reserves and standardized measure of
discounted future net cash flows were prepared from estimates of proved
reserves developed by an independent petroleum engineer.

                      Summary of Changes in Proved Reserves

                                            Year ended March 31,
                                  ------------------------------------------
                                           2000                  1999
                                  ---------------------  -------------------
                                     Bbls        Mcf       Bbls        Mcf
                                  ---------   ---------  ---------  --------
Proved developed and undeveloped
 reserves
  Beginning of year              4,287,264   9,483,050   1,526,072    478,371
  Extensions and discoveries       169,786   1,006,052     375,108  1,570,848
  Purchase of minerals in place    361,231   2,298,029   2,554,298  7,628,178
  Sale of minerals in place       (389,816) (1,664,883)    (28,335)  (136,632)
  Production                      (159,113)   (637,387)   (137,436)   (87,942)
  Revisions of estimates           289,519   4,395,514      (2,443)    30,227
                                 ---------  ----------   ---------  ---------
     End of year                 4,558,871  14,880,375   4,287,264  9,483,050
                                 =========  ==========   =========  =========

Proved developed reserves
 Beginning of year               2,811,300   8,226,484     966,134    478,371
 End of year                     2,790,672  10,474,984   2,811,300  8,226,484

             Standardized Measure of Discounted Future Net Cash Flows
                     Relating to Proved Oil and Gas Reserves

                                                          March 31,
                                                ---------------------------
                                                    2000           1999
                                                ------------   ------------
Future oil and gas revenues                     $142,992,581   $ 82,804,402
Future production and development costs          (34,782,698)   (24,230,176)
                                                ------------   ------------
Future net cash flows before income taxes        108,209,883     58,574,226
Future income taxes                              (35,883,801)   (18,341,880)
                                                ------------   ------------
Future net cash flows after income taxes          72,326,082     40,232,346
Discounted at 10% for estimated timing of
 cash flows                                      (29,560,394)   (17,098,747)
                                                ------------   ------------
Standardized measure of discounted future
 net cash flows                                 $ 42,765,688   $ 23,133,599
                                                ============   ============

                                     F-13
<PAGE>

                            PONTOTOC PRODUCTION, INC.

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED

                            March 31, 2000 and 1999

NOTE D - OIL AND GAS RESERVE DATA (UNAUDITED) - CONTINUED

      Changes in Standardized Measure of Discounted Future Net Cash Flows
                      Related to Proved Oil and Gas Reserves

                                                    Year ended March 31,
                                                ---------------------------
                                                    2000           1999
                                                ------------   ------------
Sales and transfers of oil and gas
 produced, net of production costs              $ (3,299,445)  $   (973,276)
Development costs incurred during year
 which were previously estimated                   1,075,410         18,303
Extensions and discoveries, net of related
 development costs                                 2,802,453      2,348,716
Net change in income taxes                       (10,372,362)    (6,980,359)
Accretion of discount                              3,664,728      1,075,627
Purchase of minerals in place                      6,586,269     16,974,683
Sale of minerals in place                         (3,856,612)      (196,437)
Net changes in production rates and other          1,422,425      4,110,318
Revisions in quantity estimates                    9,290,864          8,121
Net change in sales and transfer prices,
 net of related production costs                  12,318,359       (442,145)
                                                ------------   ------------
     Net increase                                 19,632,089     15,943,551

  Balance at beginning of year                    23,133,599      7,190,048
                                                ------------   ------------
  Balance at end of year                        $ 42,765,688   $ 23,133,599
                                                ============   ============

NOTE E - LONG-TERM DEBT

Long-term debt consisted of the following at March 31:

                                                    2000           1999
                                                ------------   ------------

Note payable to BancOne, Oklahoma,
 N.A. ("BancOne") bearing interest at bank
 prime (7.75% at March 31, 1999); paid
 off in fiscal 2000; collateralized by
 oil and gas properties                         $          -   $  2,364,718
  Less current maturities                                  -      2,364,718
                                                ------------   ------------
                                                $          -   $          -
                                                ============   ============

The note payable to BancOne is subject to the provisions of a credit
agreement, covenants of which provide for, among other things, current ratio,
debt service ratios, and tangible net worth requirements, as defined.

                                      F-14
<PAGE>




                            PONTOTOC PRODUCTION, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                             March 31, 2000 and 1999

NOTE F - INCOME TAXES

The components of income tax expense were as follows:

                                                    Year ended March 31,
                                                 -------------------------
                                                    2000           1999
                                                 ----------     ----------
     Current
      Federal                                    $  172,678     $    2,359
      State                                          48,430              -
                                                 ----------     ----------
                                                    221,108          2,359
     Deferred                                       629,958         97,364
                                                 ----------     ----------
                                                 $  851,066     $   99,723
                                                 ==========     ==========

Deferred tax assets and liabilities consisted of the following at March 31:

                                                    2000           1999
                                                 ----------     ----------

     Assets
      Investments                                $        -     $   21,397
      Other                                               -          1,366
                                                 ----------     ----------
                                                 $        -     $   22,763
                                                 ==========     ==========

     Liabilities
      Conversion from accrual to cash basis      $  233,126     $   73,217
      Investment                                     33,019              -
      Property and equipment                          6,254          6,254
      Oil and gas properties                        875,966        461,699
                                                 ----------     ----------
                                                 $1,148,365     $  541,170
                                                 ==========     ==========

The effective tax rate on earnings before income taxes differs from the
federal statutory tax rate.  The following summary reconciles taxes at the
federal statutory tax rate with actual taxes for the years ended March 31:

                                                    2000           1999
                                                 ----------     ----------
     Computed federal tax provision              $  967,581     $  130,317
     Increase (decrease) in tax from
      Allowable percentage depletion in
       excess of tax basis                         (136,437)       (29,597)
      Nondeductible expenses                          2,287          3,672
      Effect of graduated rates, tax credits,
       and other                                     17,635         (4,669)
                                                 ----------     ----------
         Provision for income taxes              $  851,066     $   99,723
                                                 ==========     ==========

                                    F-15
<PAGE>

                           PONTOTOC PRODUCTION, INC.

                  NOTES TO FINANCIAL STATEMENTS - CONTINUED

                            March 31, 2000 and 1999

NOTE G - COMMITMENTS AND CONTINGENCIES

1.    Leases

The Company conducts its operations from facilities which are leased from an
affiliate under an operating lease.  The lease provides for monthly rentals of
$1,500 effective April 1, 2000 and is on a month-to-month basis.

Rent expense for the years ended March 31, 2000 and 1999 was $11,000 and
$12,918, respectively.

2.    Other

The Company is involved in various legal actions relating to its operations.
Management believes that losses, if any, arising from such actions will not be
material to the Company's financial position or results of operations.

NOTE H - FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of
each class of financial instruments as of March 31, 2000 and 1999.  Such
information, which pertains to the Company's financial instruments, does not
purport to represent the aggregate net fair value of the Company.  The
carrying amounts in the table are the amounts at which the financial
instruments are reported in the financial statements.

All of the Company's financial instruments are held for purposes other than
trading except for trading securities.  The carrying amounts of cash and cash
equivalents approximate fair values of such assets. The carrying amounts of
trading securities approximate fair values of such assets as carrying values
are adjusted to quoted market prices.  The fair value of note receivable -
affiliate is estimated by using the current rates at which similar loans would
be made to borrowers with similar credit ratings and for the same remaining
maturities.  The carrying amount of variable rate debt approximates fair value
because interest rates adjust to market rates.

                                      2000                      1999
                             -----------------------  -----------------------
                              Carrying    Estimated    Carrying    Estimated
                               amount     fair value    amount     fair value
                             ----------   ----------  ----------   ----------
Financial assets
 Cash and cash equivalents   $1,773,797   $1,773,797  $  271,170   $  271,170
 Trading securities               4,723        4,723       2,188        2,188
 Note receivable - affiliates     7,800        7,800      70,000       70,000

Financial liabilities
 Variable rate long-term debt         -            -  (2,364,718)  (2,364,718)







                                     F-16

<PAGE>


                            PONTOTOC PRODUCTION, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                             March 31, 2000 and 1999

NOTE I - PROPERTY ACQUISITIONS

Effective July 1, 1998, the Company acquired oil and gas properties and
equipment from an Oklahoma oil and gas operator for approximately $2,750,000
and 402,000 shares of common stock.  The acquisition has been accounted for
using the purchase method, and the operations of the acquired properties are
included subsequent to July 1, 1998.  The purchase price of approximately
$3,168,500 was allocated to the assets, primarily oil and gas properties,
acquired on the basis of their estimated fair value.

The following summarized pro forma, unaudited, information for the year ended
March 31, 1999 assumes the acquisition had occurred on April 1, 1998:

             Revenues                              $2,395,787
             Net earnings                             360,122
             Basic and diluted earnings per share         .08

NOTE J - RELATED PARTY TRANSACTION

During 1999, the Company acquired a 45% ownership interest in a natural gas
gathering company for $4,500 which is reflected in other assets.  During 2000,
the Company recognized approximately $113,000 in income from the investment in
the gas gathering company which is reflected in other income.

During 1999, the Company loaned $70,000 to the gas gathering company under a
note agreement which requires monthly payments of interest at 10% and matures
on April 30, 2001.  During 2000, the Company received principal payments of
$63,700 on this note, leaving an outstanding balance at March 31, 2000 of
$6,300.

During 2000, the Company advanced an employee $1,500.  The loan matures on
July 1, 2001, earns interest at 8%, and requires monthly payment of $105
beginning on May 1, 2000.

NOTE K - STOCKHOLDERS' EQUITY

During 2000, common stock purchase warrants relating to 494,932 common shares
were exercised at $3.75 per share, for a total of $1,855,995.

In June 1999, the Company issued 8,000 shares of common stock having an
estimated fair value of $4.72 per share in conjunction with the acquisition of
certain oil and gas properties.

In April 1999, the Company issued 5,000 shares of common stock having an
estimated fair value of $3.58 per share in conjunction with the acquisition of
certain oil and gas properties.






                                    F-17
<PAGE>



                           PONTOTOC PRODUCTION, INC.

                  NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           March 31, 2000 and 1999

NOTE K - STOCKHOLDERS' EQUITY - CONTINUED

In April 1999, the Company issued 14,000 shares of common stock having an
estimated fair value of $3.58 per share in conjunction with a consulting
agreement.  The award is amortized over the service period of the agreement
(42 months) and resulted in approximately $14,000 of consulting expense in
2000.

During May 1998, the Company issued 37,153 shares of common stock in exchange
for oil and gas properties.  The common stock was valued at $2.25 per share
based on the estimated fair value of the oil and gas properties acquired.

In July 1998, the Company issued 402,360 shares of common stock having an
estimated fair value of $1.04 per share in conjunction with the acquisition of
certain oil and gas properties (see Note I).  The fair value was estimated
based on the fair value of common stock and common stock purchase warrants
being sold through a private placement occurring at approximately the same
time.

The Company completed a private placement in October 1998 of 465,000 shares of
common stock and 465,000 common stock purchase warrants, for $1,408,049, which
is net of offering costs of approximately $103,000.  The warrants are
exercisable at $3.75 per share at any time through February 1, 2000.

The Board of Directors is authorized to issue the Company's preferred stock in
series and is further authorized to establish the relative rights and
preferences for each series, including voting rights and common stock
conversion rights.

NOTE L - STOCK OPTIONS

In April 1999, the Company approved a stock option plan for issuance of up to
500,000 shares of stock to key employees and directors of the Company.  The
stock options vest immediately.

The Company uses the intrinsic value method to account for its stock option
plan in which compensation is recognized only when the fair value of each
option exceeds its exercise price at the date of grant.  Accordingly, no
compensation cost has been recognized for the options issued.  Had
compensation costs been determined based on fair value of the options at the
grant dates, the Company's net income and income per share would have been
decreased to the pro forma amounts for the year ended March 31, 2000.

     Net income
      As reported                               $1,994,760
      Pro forma                                 $1,743,160

     Income per share
      As reported, basic and diluted            $      .41
      Pro forma - basic                         $      .36
      Pro forma - diluted                       $      .35




                                     F-18
<PAGE>


                            PONTOTOC PRODUCTION, INC.

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED

                              March 31, 2000 and 1999

NOTE L - STOCK OPTIONS - CONTINUED

The fair value of each grant is estimated on the date of grant using the
Black-Scholes options-pricing model with the following weighted-average
assumptions used for grants in 2000:  no expected dividends; expected
volatility of 57.1%; risk-free interest rate of 5.2%; and expected lives of
five years.  The exercise price of all options equaled or exceeded market
price of the stock at the date of grant.

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable.  In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.

A summary of the status of the Company's stock options as of March 31, 2000
and changes during the year then ending is presented below.

                                                       Weighted
                                                       average
                                                       exercise
                                            Shares      price
                                            -------    --------

     Outstanding at beginning of year             -      $   -
     Granted                                101,000       5.00
     Exercised                                    -          -
     Forfeited                                8,500       5.00
                                            -------      -----
     Outstanding at end of year              92,500      $5.00
                                            =======      =====

     Options exercisable at year end         92,500      $5.00
                                            =======      =====

     Weighted average fair value of
      options granted during the year                    $2.72

The following table summarizes information about stock options outstanding at
March 31, 2000:

                                                     Weighted-
                                                     average      Weighted-
                                                     remaining    average
                                        Number      contractual   exercise
                                      outstanding      life        price
                                      -----------   -----------   --------

                                         92,500      4.00 years     $5.00

                                      F-19
<PAGE>


                             PONTOTOC PRODUCTION, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                              March 31, 2000 and 1999

NOTE M - SUBSEQUENT EVENT

In May 2000, the Company signed a letter of intent to acquire Oklahoma Basic
Economy Corp. ("OBEC"), whose sole assets were oil and gas properties, in a
business combination accounted for as a purchase effective June 1, 2000.  The
purchase price was approximately $9,900,000 and is to be funded by advances
under the bank credit agreement.  The results of the operations of OBEC will
be included with the results of the Company from June 1, 2000.













































                                    F-20
<PAGE>



                                SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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.

Date: June 13, 2000                  PONTOTOC PRODUCTION, INC.


                                     By:/s/ James Robby Robson, Jr.
                                        James "Robby" Robson, Jr., President

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

        SIGNATURE                       TITLE                     DATE



/s/ James Robby Robson, Jr.     President (Chief Executive     June 13, 2000
James "Robby" Robson, Jr.       Officer) and Director



/s/ Todd Robson                 Vice President, Secretary,     June 13, 2000
Todd Robson                     Treasurer (Chief Finan-
                                ancial and Accounting
                                Officer) and Director


/s/ James Robson, Sr.           Vice President and Director    June 13, 2000
James Robson, Sr.



/s/ Brian K. Gourley            Director                       June 13, 2000
Brian K. Gourley



/s/ Timothy A. Jurek            Director                       June 13, 2000
Timothy A. Jurek



/s/ Lyle P. Phillips            Director                       June 13, 2000
Lyle P. Phillips