1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/X/ Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
/ / For the quarterly period ended June 30, 2006
OR
Transition report pursuant to section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number 0-5525
PYRAMID OIL COMPANY
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-0787340
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2008 - 21ST. STREET,
BAKERSFIELD, CALIFORNIA 93301
(Address of principal executive offices) (Zip Code)
(661) 325-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods 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
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of the period covered by this report.
COMMON STOCK WITHOUT PAR VALUE 3,741,721
(Class) (Outstanding at June 30, 2006)
2
FINANCIAL STATEMENTS
PYRAMID OIL COMPANY
BALANCE SHEETS
ASSETS
June 30, December 31,
2006 2005
(Unaudited) (Audited)
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 587,938 $1,300,475
Short-term investments 1,250,000 1,350,000
Trade accounts receivable 411,596 327,173
Interest receivable 97,080 91,717
Employee loan receivable 8,481 8,015
Crude oil inventory 65,137 58,962
Prepaid expenses 71,736 120,367
Deferred income taxes 60,954 60,954
------------ ------------
TOTAL CURRENT ASSETS 2,552,922 3,317,663
------------ ------------
PROPERTY AND EQUIPMENT, at cost
Oil and gas properties and equipment
(successful efforts method) 13,066,452 11,505,375
Capitalized asset retirement costs 294,600 294,600
Drilling and operating equipment 1,974,073 1,945,882
Land, buildings and improvements 993,765 976,965
Automotive, office and other
property and equipment 1,030,031 961,902
------------ ------------
17,358,921 15,684,724
Less: accumulated depletion,
depreciation, amortization
and valuation allowance (13,443,587) (13,307,424)
------------ ------------
3,915,334 2,377,300
------------ ------------
OTHER ASSETS
Deposits 250,000 250,000
Other assets 10,822 13,178
Assets held for resale 9,633 9,633
------------ ------------
270,455 272,811
------------ ------------
$6,738,711 $5,967,774
============ ============
The Accompanying Notes Are an Integral Part of These Financial Statements.
3
PYRAMID OIL COMPANY
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
2006 2005
(Unaudited) (Audited)
------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 320,068 $ 83,749
Accrued professional fees 8,497 51,741
Accrued taxes, other than income taxes -- 29,151
Accrued payroll and related costs 53,420 51,039
Accrued royalties payable 137,848 115,762
Accrued insurance 18,275 54,826
Accrued income taxes 7,050 54,050
Accrued termination costs 144,024 146,047
Current maturities of long-term debt 41,290 37,073
Deferred income taxes 60,954 60,954
------------ ------------
TOTAL CURRENT LIABILITIES 791,426 684,392
------------ ------------
LONG-TERM DEBT, net of current maturities 30,921 26,858
------------ ------------
LIABILITY FOR TERMINATION COSTS 141,333 141,333
------------ ------------
LIABILITY FOR ASSET RETIREMENT OBLIGATION 965,177 955,169
------------ ------------
COMMITMENTS (Note 3)
STOCKHOLDERS' EQUITY:
Preferred stock-no par value (Note 8);
10,000,000 authorized shares;
no shares issued or outstanding -- --
Common stock-no par value (Note 7 and 8);
50,000,000 authorized shares;
3,741,721 shares issued and
outstanding 1,071,610 1,071,610
Retained earnings 3,738,244 3,088,412
------------ ------------
4,809,854 4,160,022
------------ ------------
$6,738,711 $5,967,774
============ ============
The Accompanying Notes Are an Integral Part of These Financial Statements.
4 PYRAMID OIL COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Six months ended
June 30, June 30,
--------------------- ---------------------
2006 2005 2006 2005
--------- --------- --------- ---------
REVENUES $1,096,664 $865,548 $2,008,875 $1,567,440
--------- --------- --------- ---------
COSTS AND EXPENSES:
Operating expenses 335,703 390,429 680,203 709,034
General and administrative 145,929 119,045 262,306 220,226
Taxes, other than income
and payroll taxes 15,781 18,317 33,128 29,900
Provision for depletion,
depreciation and
amortization 75,571 61,117 136,163 117,647
Accretion expense 5,199 5,075 10,008 9,620
Other costs and expenses 15,581 9,093 24,039 12,749
--------- --------- --------- ---------
593,764 603,076 1,145,847 1,099,176
--------- --------- --------- ---------
OPERATING INCOME 502,900 262,472 863,028 468,264
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income 9,015 3,228 15,933 8,880
Other income 5,419 2,280 9,019 5,880
Interest expense (1,905) ( 361) (2,123) ( 703)
--------- --------- --------- ---------
12,529 5,147 22,829 14,057
--------- --------- --------- ---------
INCOME BEFORE
INCOME TAX PROVISION 515,429 267,619 885,857 482,321
Income tax provision 144,200 800 236,025 1,125
--------- --------- --------- ---------
NET INCOME $ 371,229 $ 266,819 $ 649,832 $ 481,196
========= ========= ========= =========
BASIC INCOME PER
COMMON SHARE $0.10 $0.11 $0.17 $0.19
========= ========= ========= =========
DILUTED INCOME PER
COMMON SHARE $0.10 $0.11 $0.17 $0.19
========= ========= ========= =========
Weighted average number of
common shares outstanding 3,741,721 2,494,430 3,741,721 2,494,430
========= ========= ========= =========
The Accompanying Notes Are an Integral Part of These Financial Statements.
5 PYRAMID OIL COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended June 30,
---------------------------
2006 2005
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 649,832 $ 481,196
Adjustments to reconcile net income
to cash provided by (used in)
operating activities:
Provision for depletion,
depreciation and amortization 136,163 117,647
Accretion expense 10,008 9,620
Costs incurred for asset
retirement obligations -- (10,635)
Loss on disposal of fixed assets -- 6,492
Changes in assets and liabilities:
Increase in trade accounts
and interest receivable (89,786) (87,597)
(Increase) Decrease in
crude oil inventories (6,175) 6,532
Decrease in prepaid expenses 48,631 60,458
Increase (decrease) in accounts
Payable and accrued liabilities 102,817 (209,026)
-------- --------
Net cash provided by operating activities 851,490 374,687
-------- --------
The Accompanying Notes Are an Integral Part of These Financial Statements.
6
PYRAMID OIL COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended June 30,
---------------------------
2006 2005
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from redemption of
certificate of deposit $ 100,000 $ --
Increase in deposits (1,380) --
Capital expenditures (1,674,197) (247,786)
-------- --------
Net cash used in investing activities (1,575,577) (247,786)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 252,000 --
Principal payments on line of credit (252,000) --
Loans to employees (3,300) --
Principal payments on loans to employees 6,570 4,884
Proceeds from issuance of long-term debt 32,393 --
Principal payments on long-term debt ( 24,113) ( 25,329)
-------- --------
Net cash provided by (used in)
financing activities 11,550 ( 20,445)
-------- --------
Net (decrease) increase in cash (712,537) 106,456
Cash at beginning of period 1,300,475 816,216
-------- --------
Cash at end of period $ 587,938 $922,672
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the six months for interest $ 2,173 $ 703
======== ========
Cash paid during the six months for income taxes $281,825 $1,125
======== ========
The Accompanying Notes Are an Integral Part of These Financial Statements.
7 PYRAMID OIL COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements include the accounts of Pyramid Oil Company (the
Company). Such financial statements included herein have been prepared by the
Company, without an audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading.
A summary of the Company's significant accounting policies is contained in its
December 31, 2005 Form 10-KSB which is incorporated herein by reference. The
financial data presented herein should be read in conjunction with the
Company's December 31, 2005 financial statements and notes thereto, contained
in the Company's Form 10-KSB.
In the opinion of the Company, the unaudited financial statements, contained
herein, include all adjustments necessary to present fairly the Company's
financial position as of June 30, 2006 and the results of its operations and
its cash flows for the six month periods ended June 30, 2006 and 2005. The
results of operations for an interim period are not necessarily indicative of
the results to be expected for a full year.
(2) DIVIDENDS
No cash dividends were paid during the six months ended June 30, 2006 and
2005.
(3) COMMITMENTS AND CONTINGENCIES
The Company has entered into an employment agreement with the President of the
Company, John H. Alexander. In the event the Mr. Alexander is dismissed, the
Company would incur approximately $600,000 in costs.
(4) INCOME TAX PROVISION
The Company's income tax provision consists mainly of the current provision
for Federal and California income taxes.
8
(5) ASSETS RETIREMENT OBLIGATIONS
The Company recognizes a liability at discounted fair value for the future
retirement of tangible long-lived assets and associated assets retirement cost
associated with the petroleum and natural gas properties. The fair value of
the liability is capitalized as part of the cost of the related asset and
amortized to expense over its useful life. The liability accretes until the
date of expected settlement of the retirement obligations. The related
accretion expense is recognized in the statement of operations. The provision
will be revised for the effect of any changes to timing related to cash flow
or undiscounted abandonment costs. Actual expenditures incurred for the
purpose of site reclamation are charged to the asset retirement obligations to
the extent that the liability exists on the balance sheet. Differences between
the actual costs incurred and the fair value of the liability recorded are
recognized in income in the period the actual costs are incurred.
A reconciliation of the Company's asset retirement obligations from the
periods presented are as follows:
6 Months 12 Months
Ended Ended
6/30/2006 12/31/2005
--------- ----------
Beginning Balance $955,169 $ 946,566
Incurred during the period -- ( 10,635)
Settled during the period -- --
Accretion expense 10,008 19,238
Revisions in estimates -- --
------- --------
Ending Balance $965,177 $ 955,169
======= ========
(6) DEPOSITS
In April 2004, the Company replaced its $250,000 state of California oil and
gas blanket performance surety bond, with a cash bond in the form of an
irrevocable certificate of deposit in the amount of $250,000.
PAGE <9>
(7) STOCK SPLIT
On March 28, 2006, the Company's Board of Directors approved a 3 for 2 stock
split payable on May 1, 2006, to shareholders of record as of April 17, 2006.
Common Stock
---------
Shares outstanding at December 31, 2005 2,494,430
Shares issued 3 for 2 stock split May 1, 2006 1,247,291
---------
Shares outstanding at June 30, 2006 3,741,721
=========
(8) CHANGE IN AUTHORIZED SHARES
At the Annual Meeting of Shareholders held on June 1, 2006, the Shareholders
approved an amendment to the Company's Articles of Incorporation to increase
the number of authorized shares of Common Stock from 10,000,000 to 50,000,000
and to authorize the issuance of up to 10,000,000 shares of a newly created
class of Preferred Stock.
(9) 2006 EQUITY INCENTIVE PLAN
At the Annual Meeting of Shareholders held on June 1, 2006, the Shareholders
approved the Pyramid Oil Company 2006 Equity Incentive Plan (the Plan). The
Plan authorizes the granting of the following types of awards to persons who
are employees, officers or directors of the Company or its subsidiaries or
who are consultants or advisers to such entities:
INCENTIVE STOCK OPTIONS that are intended to satisfy the
requirements of Section 422 of the Internal Revenue Code of 1986, as
amended, and the regulations thereunder;
NON-QUALIFIED STOCK OPTIONS that are not intended to be incentive
options;
Shares of Common Stock that are subject to specified restrictions;
and
Stock appreciation rights that permit the holder to receive the
excess of the fair market value of the Common Stock on the exercise
date over its fair market value (or a greater specified base value)
on the grant date, either in tandem with options or as separate and
independent grants.
A summary of the plan is contained in the Company's Schedule 14a, Proxy
Statement dated May 10, 2006 which is incorporated herein by reference. A
copy of the Plan is attached as Appendix A to the Proxy Statement. As of the
date of the filing of this Form 10-QSB, no shares have been awarded under this
Plan.
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IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, the FASB issued Interpretation No. 48, Accounting for
Uncertainty in Income Taxes An Interpretation of FASB Statement No. 109, (FIN
48). FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise's financial statements in accordance with FASB
Statement No. 109, Accounting for Income Taxes. FIN 48 also prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in
a tax return that results in a tax benefit. Additionally, FIN 48 provides
guidance on de-recognition, income statement classification of interest and
penalties, accounting in interim periods, disclosure, and transition. This
interpretation is effective for fiscal years beginning after December 15,
2006. The Company is currently evaluating the effect that the application of
FIN 48 will have on its results of operations and financial condition
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
IMPACT OF CHANGING PRICES
The Company's revenue is affected by crude oil prices paid by the major oil
companies. Average crude oil prices for the second quarter of 2006 increased
by approximately $19.30 when compared with the same period for 2005. Average
crude oil prices for the first six months of 2006 increased by approximately
$17.85 per equivalent barrel when compared with the same period for 2005. At
the end of the second quarter of 2006, crude oil prices had increased by
approximately $13.00 per barrel when compared with crude oil prices at
December 31, 2005.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $712,537 for the six months ended June
30, 2006. During the first half of 2006, operating activities provided cash
of $851,490. This was offset by capital expenditures of $1,674,197 and
principal payments on long-term debt totaling $24,113 during the first six
months of 2006. Funds were provided by the redemption of a certificate of
deposit in the amount of $100,000 and proceeds from the issuance of long term
debt in the amount of $32,393. See the Statements of Cash Flows for
additional detailed information.
11
FORWARD LOOKING INFORMATION
Crude oil prices have increased by approximately seventy-five cents per barrel
as of August 11, 2006, when compared to prices at June 30, 2006.
Management is pleased to announce that Pyramid Oil Company has qualified and
been accepted to trade on the American Stock Exchange (AMEX) under the new
symbol PDO. The Company begins trading on the American Stock Exchange, Monday
August 21, 2006 (AMEX symbol PDO).
The Company's 2006 plans for drilling several new wells and re-drilling
existing wells is waiting on a contract drilling rig. The Company is
dependant upon drilling contractors and drilling rig availability when it
comes to new wells or re-drills. The Company does not own or operate a
drilling rig.
During the second quarter of 2006, the company completed three of the new
wells drilled in the first quarter. The Company is pleased with the
production results from the Anderson #6 and Santa Fe #18 wells. Production
from the two wells averaged approximately 50 barrels per day in July 2006.
Results from the Company's Santa Fe #17 well are mixed at this time. The well
crossed a fault during drilling and the zones are deeper than expected. The
first test of the well indicated that the lowest zone in the well is wet and
non-productive at that depth. There are several different upper zones in the
well that will be tested later this year.
Results from the Company's joint venture well with E&B Natural Resources are
disappointing. The well was perforated and fraced during the second quarter
of 2006. Although the zone that was present in this well contained gas and
hydrocarbons, after testing, the formation appears to be too tight to produce
economically. Currently the Company and E & B are discussing the future of
this project.
The Company's growth in 2006 will be highly dependant on the amount of success
the Company has in its operations and capital investments, including the
outcome of wells that have not yet been drilled. The Company's capital
investment program may be modified during the year due to explorations and
development successes or failures, market conditions and other variables. The
production and sales of oil and gas involves many complex processes that are
subject to numerous uncertainties, including reservoir risk, mechanical
failures, human error and market conditions.
The Company has positioned itself, over the past several years, to withstand
various types of economic uncertainties, with a program of consolidating
operations on certain producing properties and concentrating on properties
that provide the major revenue sources. The drilling of a new well and
several limited work-overs of certain wells have allowed the Company to
maintain its crude oil reserves for the last three years. The Company expects
to maintain its reserve base in 2006, by drilling new wells and routine
maintenance of its existing wells.
12
The Company may be subject to future costs necessary for compliance with the
new implementation of air and water environmental quality requirements of the
various state and federal governmental agencies. The requirements and costs
are unknown at this time, but management believes that costs could be
significant in some cases. As the scope of the requirements become more
clearly defined, management may be better equipped to determine the true costs
to the Company.
The Company continues to absorb the costs for various state and local fees and
permits under new environmental programs, the sum of which were not material
during 2005. The Company retains outside consultants to assist the Company in
maintaining compliance with these regulations. The Company is actively
pursuing an ongoing policy of upgrading and restoring older properties to
comply with current and proposed environmental regulations. The costs of
upgrading and restoring older properties to comply with environmental
regulations have not been determined. Management believes that these costs
will not have a material adverse effect upon its financial position or results
of operations.
Portions of the Quarterly Report, including Management's Discussion and
Analysis, contain forward-looking statements within the meaning of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the Company's actual results
and performance in future periods to be materially different from any future
results or performance suggested in forward-looking statements in this
release. Such forward-looking statements speak only as of the date of this
report and the Company expressly disclaims any obligation to update or revise
any forward-looking statements found herein to reflect any changes in Company
expectations or results or any change in events. Factors that could cause
results to differ materially include, but are not limited to: the timing and
extent of changes in commodity prices of oil, gas and electricity,
environmental risk, drilling and operational costs, uncertainties about
estimates of reserves and government regulations.
13
Item 4. CONTROLS AND PROCEDURES
Based on their evaluation of the Company's disclosure controls and procedures
as of a date within 90 days of the filing of this Report, the Chief Executive
Officer and Chief Financial Officer have concluded that such controls and
procedures are effective. There were no significant changes in the Company's
internal controls or in other factors that could significantly affect such
controls subsequent to the date of their evaluation.
ANALYSIS OF SIGNIFICANT CHANGES IN RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 2006
COMPARED TO THE QUARTER ENDED JUNE 30, 2005
REVENUES
Oil and gas revenues increased by 27% for the three months ended June 30, 2006
when compared with the same period for 2005. Oil and gas revenues increased
by 39% due to higher average crude oil prices for the second quarter of 2006.
The average price of the Company's oil and gas for the second quarter of 2006
increased by approximately $19.30 per equivalent barrel when compared to the
same period of 2005. Revenues decreased by 12% due to lower crude oil
production/shipments. The Company's net revenue share of crude oil
production/sales decreased by approximately 2,300 barrels for the second
quarter of 2006. The decrease in sales volumes is due to a temporary decline
in production on three leases offset by an increase in production on the
Anderson lease due to the drilling and completion of a new well that was put
on production in May of 2006.
OPERATING EXPENSES
Operating expenses decreased by approximately 14% for the second quarter of
2006. However, the cost to produce an equivalent barrel of crude oil
increased by approximately fifty cents (total cost of approximately $19.50
per equivalent barrel) for the second quarter of 2006 when compared with the
second quarter of 2005. The increase in the per unit cost to produce a barrel
of crude oil is due primarily to lower production volumes.
The decrease in operating expenses for the second quarter of 2006 was due
primarily to an adjustment to the ending crude oil inventory value. The
Company adjusts the carrying value of its crude oil inventory at the end of
each quarter based on quarter ending volumes and costs of production. The
difference between the inventory adjustment at the end of the second quarter
of 2006 compared with the adjustment recorded at the end of the second quarter
of 2005 resulted in a decrease of approximately 8% in operating expenses. Work
that was performed during the second quarter of 2005 on the Company's Anderson
lease also accounted for a decrease of 6% in operating expenses. The Company
performed a frac job on one of the Anderson wells in the Carneros Creek field
in the second quarter of 2005. The Company fraced the Anderson #6 well and
the Santa Fe #18 wells that were drilled in 2006, but the costs related to
these procedure were capitalized.
14
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased by approximately 23% for the
second quarter of 2006 when compared with the same period for 2005. The
increase in general and administrative expenses is due primarily to an
increase in outside consulting fees of 11% due to the hiring of a petroleum
engineer on a part-time basis. Audit fees also increased by 5% due to
additional costs of compliance with Sarbanes-Oxley requirements.
PROVISION FOR DEPLETION, DEPRECIATION AND AMORTIZATION
The provision for depletion, depreciation and amortization increased by 24%
for the second quarter of 2006, when compared with the same period for 2005.
The increase is due primarily to a 25% increase in depletion of the Companies
oil and gas properties. The increase in depletion is due primarily to an
increase in depletion on two of the Company's oil and gas properties, the
Santa Fe Energy and Anderson leases. The increase on these two properties is
due primarily to higher crude oil production due to the completion of two new
wells in the second quarter of 2006.
INCOME TAX PROVISION
The Company's income tax provision consists mainly of current estimated taxes
for Federal and California state income taxes. The increase in taxes for the
second quarter of 2006 is due to the fact that the Company has utilized all of
its Federal net operating loss carryforwards.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2006
COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2005
REVENUES
Oil and gas revenues increased by 28% for the six months ended June 30, 2006
when compared with the same period for 2005. Oil and gas revenues increased
by approximately 38% due to higher average crude oil prices for the first half
of 2006. The average price of the Company's oil and gas for the first six
months of 2006 increased by approximately $17.85 per equivalent barrel when
compared with the same period for 2005. The Company's net revenue share of
crude oil production/sales decreased by approximately 3,800 barrels for the
six months ended June 30, 2006. The decrease in sales volumes is due to a
temporary decline in production on three leases offset by an increase in
production on the Anderson lease due to the drilling and completion of a new
well that was put on production in May of 2006
15
OPERATING EXPENSES
Operating expenses decreased by approximately 4% for the six months ended
June 30, 2006, when compared with the same period for 2005. The cost to
produce an equivalent barrel of crude oil increased by approximately $1.30 per
barrel (total cost of approximately $20.15 per equivalent barrel) for the six
months ended June 30, 2006. The increase in the per unit cost to produce a
barrel of crude oil is due primarily to lower production volumes.
Work that was performed during the second quarter of 2005 on the Company's
Anderson lease accounted for a decrease of 3.5% in operating expenses. The
Company performed a frac job on one of its Anderson wells in the Carneros
Creek field in the second quarter of 2005. The Company fraced the Anderson #6
well and the Santa Fe #18 wells that were drilled in 2006, but the costs
related to these procedure were capitalized.
The Company adjusts the carrying value of its crude oil inventory at the end
of each quarter based on quarter ending volumes and costs of production. The
difference between the inventory adjustments recorded during the first six
months of 2006 compared with the adjustments recorded during the same period
of 2005, resulted in a decrease of approximately 2% in operating expenses.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by approximately 19% for the
six months ended June 30, 2006. The increase in general and administrative
expenses is due primarily to an increase in outside consulting fees of 10% due
to the hiring of a petroleum engineer on a part-time basis. Travel and
lodging expenses increased by 3% due to additional travel by the Company's CEO
and reimbursement of expenses for travel by Board members on matters related
to Company business. Salaries increased by 2% due to salary increases that
were effective July 1, 2005.
PROVISION FOR DEPLETION, DEPRECIATION AND AMORTIZATION
The provision for depletion, depreciation and amortization increased by 16%
for the six months ended June 30, 2006, when compared with the same period for
2005. The increase is due primarily to a 16% increase in depletion of the
Companies oil and gas properties. The increase in depletion is due primarily
to an increase in depletion on two of the Company's oil and gas properties,
the Santa Fe Energy and Anderson leases. The increase on these two properties
is due primarily to higher crude oil production due to the completion of two
new wells in the second quarter of 2006.
INCOME TAX PROVISION
The Company's income tax provision consists mainly of current estimated taxes
for Federal and California state income taxes. The increase in taxes for the
second quarter of 2006 is due to the fact that the Company has utilized all of
its Federal net operating loss carryforwards.
16
PYRAMID OIL COMPANY
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings
None
Item 2. - Changes in Securities
None
Item 3. - Defaults Upon Senior Securities
None
Item 4. - Submission of Matters to a Vote of Security Holders
On June 1, 2006, the Company held its Annual Meeting of Shareholders in
Bakersfield, California. Four items were voted on during the meeting: (1)
election of Directors; (2) approval of Auditors; (3) approval of an amendment
to the Articles of Incorporation to increase the number of authorized shares
of Common Stock from 10,000,000 to 50,000,000 and to authorize the issuance of
up to 10,000,000 shares of a newly created class of Preferred Stock; (4)
approval of the Pyramid Oil Company 2006 Equity Incentive Plan.
The shareholders elected John H. Alexander, Michael D. Herman, Thomas W. Ladd,
Gary L. Ronning and John E. Turco to serve as the Company's Directors until
the next scheduled Annual Meeting. The shareholders approved the selection of
Singer Lewak Greenbaum & Goldstein, LLP as auditors for 2006. The
shareholders also approved the Amendment of the Articles of Incorporation and
the 2006 Equity Incentive Plan. Each item is fully described in the Company's
Proxy dated May 10,2006.
Item 5. - Other Information -
None
Item 6. - Exhibits and Reports on Form 8-K -
a. Exhibits
99.1 Written Statement of the Chief Executive Officer Pursuant
to 18 U.S.C. Section 1350
99.2 Written Statement of the Chief Financial Officer Pursuant
to 18 U.S.C. Section 1350
17
b. The following Form 8-K's were filed during the three months ended
June 30, 2006:
April 3, 2006 Press Release - Pyramid Oil Company Announces Stock Split
April 17, 2006 - Amendment to Articles of Incorporation for Stock Split
May 4, 2006 Press Release - Pyramid Oil Company Announces Substantial
Results from New Wells
18
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
PYRAMID OIL COMPANY
(registrant)
Dated: August 14, 2006
JOHN H. ALEXANDER
---------------------
John H. Alexander
President
Dated: August 14, 2006
LEE G. CHRISTIANSON
---------------------
Lee G. Christianson
Chief Financial Officer
PAGE <19>
Certification By Principal Executive Officer Pursuant
to Rule 13A-14 or 15D-14 of the SEC Exchange Act of 1934,
As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, John H. Alexander, the President of Pyramid Oil Company (the registrant),
certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Pyramid Oil
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
PAGE <20>
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: August 14, 2006
By: JOHN H. ALEXANDER
-----------------------
John H. Alexander
Chief Executive Officer
PAGE <21>
Certification By Principal Financial Officer Pursuant
to Rule 13A-14 or 15D-14 of the SEC Exchange Act of 1934,
As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Lee G. Christianson, the Chief Financial Officer of Pyramid Oil Company
(the registrant), certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Pyramid Oil
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
PAGE <22>
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: August 14, 2006
By: LEE G. CHRISTIANSON
------------------------
Lee G. Christianson
Chief Financial Officer