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. 10 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