1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2005
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-5525
PYRAMID OIL COMPANY
(Exact name of small business issuer 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
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15 (d) of the Exchange Act during the preceding 12 months (or
for such shorter 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 [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the last practicable date:
COMMON STOCK WITHOUT PAR VALUE 2,494,430
(Class) (Outstanding at September 30, 2005)
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PYRAMID OIL COMPANY
BALANCE SHEETS
ASSETS
September 30, December 31,
2005 2004
(Unaudited) (Audited)
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $1,019,345 $ 816,216
Short-term investments 1,350,000 850,000
Trade accounts receivable 462,981 216,821
Interest receivable 81,873 70,628
Employee loan receivable 7,619 8,801
Crude oil inventory 66,169 66,339
Prepaid expenses 30,355 110,164
Deferred income taxes 25,698 25,698
------------ ------------
TOTAL CURRENT ASSETS 3,044,040 2,164,667
------------ ------------
PROPERTY AND EQUIPMENT, at cost
Oil and gas properties and equipment
(successful efforts method) 11,447,017 11,208,833
Capitalized asset retirement costs 294,600 294,600
Drilling and operating equipment 1,913,509 2,067,006
Land, buildings and improvements 961,902 947,426
Automotive, office and other
property and equipment 968,056 961,519
------------ ------------
15,585,084 15,479,384
Less: accumulated depletion,
depreciation, amortization
and valuation allowance (13,232,570) (13,294,764)
------------ ------------
2,352,514 2,184,620
------------ ------------
OTHER ASSETS
Deposits 250,000 250,000
Other assets 9,547 15,556
Assets held for resale 9,633 9,633
------------ ------------
269,180 275,189
------------ ------------
$5,665,734 $4,624,476
============ ============
The Accompanying Notes Are an Integral Part of These Financial Statements.
3
PYRAMID OIL COMPANY
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
2005 2004
(Unaudited) (Audited)
------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 89,323 $ 62,229
Accrued professional fees 35,565 28,220
Accrued taxes, other than income taxes 13,944 24,090
Accrued payroll and related costs 44,924 214,255
Accrued royalties payable 120,974 85,186
Accrued insurance -- 52,094
Accrued income taxes 38,200 --
Accrued termination costs 282,667 --
Current maturities of long-term debt 51,157 50,740
Deferred income taxes 25,698 25,698
------------ ------------
TOTAL CURRENT LIABILITIES 702,452 542,512
------------ ------------
LONG-TERM DEBT, net of current maturities 25,516 63,972
------------ ------------
LIABILITY FOR TERMINATION COSTS 141,333 --
------------ ------------
LIABILITY FOR ASSET RETIREMENT OBLIGATION 950,360 946,566
------------ ------------
COMMITMENTS (note 3)
STOCKHOLDERS' EQUITY:
Common stock-no par value;
10,000,000 authorized shares;
2,494,430 shares issued and
outstanding 1,071,610 1,071,610
Retained earnings 2,774,463 1,999,816
------------ ------------
3,846,073 3,071,426
------------ ------------
$5,665,734 $4,624,476
============ ============
The Accompanying Notes Are an Integral Part of These Financial Statements.
4 PYRAMID OIL COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Nine months ended
September 30, September 30,
--------------------- ---------------------
2005 2004 2005 2004
--------- --------- --------- ---------
REVENUES $1,015,138 $702,899 $2,582,578 $1,969,066
--------- --------- --------- ---------
COSTS AND EXPENSES:
Operating expenses 345,483 298,350 1,054,517 939,751
General and administrative 133,549 89,142 353,775 279,779
Taxes, other than income
and payroll taxes 17,171 14,824 47,071 40,278
Provision for depletion,
depreciation and
amortization 58,582 43,789 176,229 133,489
Accretion expense 4,809 4,545 14,429 13,635
Other costs and expenses 5,682 3,052 18,431 14,308
--------- --------- --------- ---------
565,276 453,702 1,664,452 1,421,240
--------- --------- --------- ---------
OPERATING INCOME 449,862 249,197 918,126 547,826
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income 12,656 4,413 21,536 10,681
Gain on sale of fixed assets 291,868 83,703 291,868 221,485
Loss on disposal of assets (2,055) -- (8,547) --
Termination costs (424,000) -- (424,000) --
Other income 3,600 9,727 15,972 16,927
Interest expense ( 280) ( 500) ( 983) ( 563)
--------- --------- --------- ---------
(118,211) 97,343 (104,154) 248,530
--------- --------- --------- ---------
INCOME BEFORE
INCOME TAX PROVISION 331,651 346,540 813,972 796,356
Income tax provision 38,200 -- 39,325 1,125
--------- --------- --------- ---------
NET INCOME $ 293,451 $ 346,540 $ 774,647 $ 795,231
========= ========= ========= =========
BASIC INCOME PER COMMON SHARE $0.12 $0.14 $0.31 $0.32
========= ========= ========= =========
DILUTED INCOME PER
COMMON SHARE $0.12 $0.14 $0.31 $0.32
========= ========= ========= =========
Weighted average number of
common shares outstanding 2,494,430 2,494,430 2,494,430 2,494,430
========= ========= ========= =========
The Accompanying Notes Are an Integral Part of These Financial Statements.
5 PYRAMID OIL COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended
September 30,
---------------------------
2005 2004
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 774,647 $ 795,231
Adjustments to reconcile net income
to cash provided by (used in)
operating activities:
Provision for depletion,
depreciation and amortization 176,229 133,489
Accretion expense 14,429 13,635
Costs incurred for asset
retirement obligations (10,635) (12,763)
Loss on disposal of fixed assets 8,547 --
Gain on sale of fixed assets (291,868) (221,485)
Accrued termination costs 141,333 --
Changes in assets and liabilities:
Increase in trade accounts
and interest receivable (257,405) (90,619)
(Increase) Decrease in
crude oil inventories 170 (13,258)
Decrease in prepaid expenses 79,809 81,668
Increase (decrease) in accounts
payable and accrued liabilities 159,523 (97,054)
-------- --------
Net cash provided by operating activities 794,779 588,844
-------- --------
The Accompanying Notes Are an Integral Part of These Financial Statements.
6
PYRAMID OIL COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended
September 30,
---------------------------
2005 2004
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash deposit with state of California
Division of Oil and Gas $ -- $(250,000)
Purchase of short-term investments (500,000) --
Proceeds from sale of fixed assets 333,143 226,500
Capital expenditures (393,945) (302,375)
-------- --------
Net cash used in investing activities (560,802) (325,875)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit -- 100,000
Principal payments on line of credit -- (100,000)
Proceed from issuance of long-term debt -- 20,690
Principal payments on loans to employees 7,191 --
Principal payments on long-term debt ( 38,039) ( 35,134)
-------- --------
Net cash (used in)
financing activities ( 30,848) ( 14,444)
-------- --------
Net increase in cash 203,129 248,525
Cash at beginning of period 816,216 606,799
-------- --------
Cash at end of period $1,019,345 $855,324
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the nine months for interest $ 983 $ 563
======== ========
Cash paid during the nine months for income taxes $1,125 $1,125
======== ========
The Accompanying Notes Are an Integral Part of These Financial Statements.
7 PYRAMID OIL COMPANY
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
(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, 2004 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, 2004 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 September 30, 2005 and the results of its operations
and its cash flows for the nine month periods ended September 30, 2005 and
2004. 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 nine months ended September 30, 2005
and 2004.
(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 $480,000 in costs. The Company also had an
employment agreement with Mr. Benny Hathaway, Jr., which was renegotiated,
effective September 30, 2005 (see Note 9, Termination of Employment
Agreement).
(4) INCOME TAX PROVISION
The Company's income tax provision consists mainly of current tax for
California and minimum tax for New York. The Company is utilizing its
net operating loss carryforwards to offset Federal income taxes.
8
(5) CHANGE IN ACCOUNTING PRINCIPLE
In accordance with Statement of Financial Accounting Standards No. 143,
''Accounting for Assets Retirement Obligations'', effective January 1, 2003,
the Company changed its method of accounting for asset retirement obligations
(ARO) relating to well abandonment costs from expensing such costs in the year
the wells are abandoned to recording a liability when such costs are incurred
in order to provide a better matching of revenue and expenses and to improve
interim financial reporting.
Upon adoption of SFAS 143, the Company was required to recognize a liability
for the present value of all legal obligations associated with the retirement
of tangible long-lived assets and an asset retirement cost was capitalized as
part of the carrying value of the associated asset. Upon initial application
of SFAS 143, a cumulative effect of a change in accounting principle was also
required in order to recognize a liability for any existing ARO's adjusted for
cumulative accretion, an increase to the carrying amount of the associated
long-lived asset and accumulated depreciation on the capitalized cost.
Subsequent to initial measurement, liabilities are required to be accreted to
their present value each period and capitalized costs are depreciated over the
estimated useful life of the related assets. Upon settlement of the liability,
the Company will settle the obligation against its recorded amount and will
record any resulting gain or loss. As a result of the adoption of SFAS 143 on
January 1, 2003, the Company recorded a $272,649 increase in the net
capitalized cost of its oil and gas properties.
The effect of these changes for the nine months ending September 30, 2005,
resulted in a decrease in income from continuing operations of $18,840. The
cumulative effect of these changes on years prior to January 1, 2003,
approximately $810,115 ($0.23 per common share), has been charged to
operations in 2003. The effect on net income of this change in accounting
methods is as follows:
Amount Per Share
-------- ---------
Cumulative effect to January 1, 2003 $(810,115) $(0.23)
Effect on nine months ended September 30, 2005 (18,840) --
Effect on nine months ended September 30, 2004 (17,910) --
There are no legally restricted assets for the settlement of asset retirement
obligations. No income tax is applicable to the asset retirement obligation
as of September 30, 2005, because the Company records a valuation allowance on
net operating losses and deductible temporary differences due to the
uncertainty of its realization.
9
A reconciliation of the Company's asset retirement obligations from the
periods presented are as follows:
Amount
-------
Beginning Balance, January 1, 2005 $946,566
Incurred during the period (10,635)
Settled during the period --
Accretion expense 14,429
Revisions in estimates --
-------
Ending Balance, September 30, 2005 $950,360
=======
(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.
(7) CHANGE IN CONTROL OF REGISTRANT
Pyramid Oil Company (the Company) has been notified that J. Ben
Hathaway, Jean Hathaway, Henry Hathaway, and John Hathaway have completed
their sale of 1,388,485 shares of the common stock of the Company
(approximately 56% of the Company's outstanding common stock) to Michael D.
Herman on June 15, 2005.
(8) CHANGE IN DIRECTORS OF REGISTRANT
Effective June 15, 2005, J. Ben Hathaway has resigned as Chairman of the
Board and as a Director of the Company. Mr. Hathaway's resignation as a
director was made in connection with the sale of all of the shares of common
stock of Pyramid Oil Company owned by Mr. Hathaway and his family members.
The Company's Board of Directors, at a board of directors meeting held on
July 19, 2005, elected Mr. Michael D. Herman to fill the vacancy created by
Mr. Hathaway's resignation.
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(9) TERMINATION OF EMPLOYMENT AGREEMENT
The Company has entered into a Termination of Employment Agreement (the
Agreement) with Benny Hathaway, Jr., Vice President of the Company. The
Agreement is effective September 30, 2005, and replaced the Employment
Agreement that had been in effect since February 21, 2002. Mr. Benny Hathaway
has submitted his voluntary resignation which is effective November 11, 2005.
The Agreement provides for a termination payment of $400,000, which may be
paid in three equal annual installments of $133,334, beginning in December
2005. Under the terms of the Agreement, the Company will continue to provide
health insurance until the agreed upon termination payments have been paid,
approximately two years.
(10) IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections. FASB Statement of Accounting Standards (SFAS) 154 establishes
new standards on accounting for changes in accounting principles. Pursuant to
the new rules, all such changes must be accounted for by retrospective
application to the financial statements of prior periods unless it is
impracticable to do so. SFAS 154 completely replaces Accounting Principles
Bulletin (APB) Opinion 20 and SFAS 3, though it carries forward the guidance
in those pronouncements with respect to accounting for changes in estimates,
changes in the reporting entity, and the correction of errors. The Statement
is effective for accounting changes and error corrections made in fiscal years
beginning after December 15, 2005, with early adoption permitted for changes
and corrections made in years beginning after May 2005. Management does not
expect adoption of SFAS No. 154 to have a material impact on the Company's
financial statements.
Item 2. Management's Discussion and Analysis or Plan of Operation
IMPACT OF TERMINATION AGREEMENT
As noted above in Footnote (9) Termination of Employment Agreement, during the
third quarter of 2005, the Company recorded a one-time charge of $424,000 for
the estimated costs for termination pay and insurance benefits. The Company's
net income, prior to the charge for termination pay, for the third quarter was
$717,451 (29 cents per share) and year-to-date ending September 30, 2005, was
$1,198,647 (48 cents per share). The termination pay is scheduled to be paid
in three annual installments beginning in December of 2005.
11
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 third quarter of 2005 increased
by approximately $17.20 when compared with the same period for 2004. Average
crude oil prices for the first nine months of 2005 increased by approximately
$11.00 per equivalent barrel when compared with the same period for 2004. At
the end of the third quarter of 2005, crude oil prices had increased by
approximately $27.50 per barrel when compared with crude oil prices at
December 31, 2004.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and short-term investments increased by
approximately $703,00 for the nine months ended September 30, 2005. During
this period, operating activities provided cash of approximately $795,000 and
proceeds from sale of fixed assets provided $333,000. This was offset by
capital expenditures of approximately $394,000 and principal payments on
long-term debt totaling $38,000 during the first nine months of 2005. See the
Statements of Cash Flows for additional detailed information.
FORWARD LOOKING INFORMATION
The Company's 2005 drilling program called for drilling three new
developmental wells in the Company's Carneros Creek field and one Joint
Venture well to the South of the main field area. In May the Company entered
into a contract with a drilling company to drill these wells with a projected
spud or starting date of mid October. The contract provided that the exact
starting date was subject to drilling rig availability. In early November the
Company was informed that it will be approximately January before a drilling
rig is available for these wells. Although the Company planned to have these
wells drilled and on production in 2005, the Company is solely dependant upon
drilling contractors and drilling rig availability.
In mid-September the Company obtained the services of a new operations manager
to supervise and manage the Company's day to day field operations. This
individual has been employed within the oil and gas industry for over twenty
five years and the Company is very pleased with the experience and expertise
this person brings to the Company. Currently this person is fulfilling a
contractual commitment with his prior employer and will begin his employment
with the Company in December.
Management has been in discussions with a bank involving financing for the
Company. Management would like to position the Company with additional
financing which would allow the Company the ability to acquire additional oil
and gas assets, if such assets were to come available, or the further
development of existing Company assets. At this time, there has been no
specific request or commitment by the Bank or by the Company, as to the
amount, terms or conditions of such financing.
12
The Company has provided certain financial and reserve information which the
bank is currently evaluating.
The Company has been looking into the various requirements for qualification
to either the American Stock Exchange (AMEX) or the NASDAQ Exchange.
The Company is continuing its preparations to be in full compliance with the
internal control disclosure requirements of section 404 of the Sarbanes-Oxley
Act. The Company has acquired specific technology and related technical
support to assist in the requirements of section 404. The Company is required
to be in compliance with the Sarbanes-Oxley Act by December 31, 2006.
The Company's management is very pleased with the addition of Mr. Michael D.
Herman to the Company's Board of Directors. Management believes that Mr.
Herman brings to the Company not only sound business experience but also
commitment to the growth of the Company.
Management is seeking to strengthen the Company's technical expertise by
hiring a petroleum reservoir engineer to assist in evaluations of existing
Company properties and prospects for additional oil and gas ventures.
Management believes that with the higher oil prices it is prudent to re-
evaluate all of the Company's oil and gas assets in light of the improved
economic conditions.
Announcements from the Company, including any updates of financial results and
SEC fillings can be found on the Company's WEB site, pyramidoil.com. The
Company uses the Web site to 'post' information about the Company's
activities. This site also provides an e-mail address, info@pyramidoil.com,
for shareholders or prospective shareholders to contact the Company.
The Company's growth in 2005 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.
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
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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.
Item 4. Controls and Procedures
The Company is a non-accelerated filer and is required to comply with the
internal control disclosure requirements of Section 404 of the Sarbanes-Oxley
Act for fiscal years ending on or after July 15, 2006. The Company is
currently in the documentation phase of its Section 404 compliance and will be
required to comply with these disclosure requirements for its fiscal year
ending December 31, 2006.
ANALYSIS OF SIGNIFICANT CHANGES IN RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 2005
COMPARED TO THE QUARTER ENDED SEPTEMBER 30, 2004
REVENUES
Oil and gas revenues increased by 44% for the three months ended September 30,
2005 when compared with the same period for 2004. Oil and gas revenues
increased by 44% due to higher average crude oil prices for the third quarter
of 2005. The average price of the Company's oil and gas for the third quarter
of 2005 increased by approximately $17.20 per equivalent barrel when compared
to the same period of 2004. The Company's net revenue share of crude oil
production/sales volumes for the third quarter of 2005 remained comparable
with the same period of 2004.
OPERATING EXPENSES
Operating expenses increased by approximately 16% for the third quarter of
2005. The cost to produce an equivalent barrel of crude oil increased
by approximately $2.60 for the third quarter of 2005, for a total cost of
approximately $19.00 per equivalent barrel, when compared with the same period
for 2004. The increase in operating expenses is due to an increase of 8% in
operating parts and supplies, an increase of 7% in fuel costs, and a 4%
increase in waste water disposal and equipment repair and maintenance. This
was offset by a 10% reduction in the cost of outside services.
Operating parts and supplies increased due to numerous deferred repair and
maintenance projects that have been completed, because the funds have become
available as a result of higher crude oil prices. The completion of these
projects should provide for lower costs in the future and also enhance or
maintain current crude oil production levels. Fuel costs, primarily for
Company equipment and vehicles, has increased due to higher per unit costs for
gasoline and diesel fuels. Waste water disposal cost have increased due to
the activities on one of the Company's leases. This property was returned to
production in the third quarter of 2004 due to higher crude oil prices. Thus,
14
there were no waste water disposal charges for this lease in the third quarter
of 2004. Equipment repair and maintenance costs increased due to routine
maintenance and repair on the Company's vehicles and equipment. These costs
are highly variable over time. The reduction in the cost of outside services
is due to the timing of expenditures for well work-overs. Fewer work-overs
were done in the third quarter of 2005 versus the same period for 2004.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased by approximately 50% for the
quarter ended September 30, 2005. The increase in general and administrative
expenses is due primarily to an increase in audit fees of 12% due to the
additional burdens of complying with Sarbanes-Oxley legislation. Legal
services increased by 16% during the third quarter of 2005, due primarily to
activities related to the change in control of the Company. Consulting
services increased by 6% due to work done by an outside geologist and a
petroleum engineer who are evaluating the Company's oil and gas properties for
potential rework or redrilling to enhance crude oil production. Salaries
increased by 5% due to salary increases that were effective in the third
quarter of 2005.
PROVISION FOR DEPLETION, DEPRECIATION AND AMORTIZATION
The provision for depletion, depreciation and amortization increased by 34%
for the third quarter of 2005, when compared with the same period for 2004.
The increase is due primarily to an increase of 30% in depletion charges. The
increase in depletion is due to an increase in the depletion rate due to
an increase in the depletable asset base at January 1, 2005. The depletable
asset base has increased due to the drilling of two new wells one, in 2004 and
one in 2003.
GAIN ON SALE OF FIXED ASSETS
The Company recognized a gain on the sale of fixed assets during the third
quarter of 2005 in the amount of approximately $292,000 with the sale of a
well servicing hoist.
TERMINATION COSTS
Reflects the costs of the termination agreement that was entered into between
the Company and Benny Hathaway, Vice President of the Company. See Note 9 for
additional information about the terms of the termination agreement.
INCOME TAX PROVISION
The Company's income tax provision consists of current taxes for California
and minimum tax for New York. The Company is utilizing its net operating loss
carryforwards to offset Federal income taxes.
15
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2005
COMPARED TO THE SIX MONTHS ENDED SEPTEMBER 30, 2004
REVENUES
Oil and gas revenues increased by approximately 31% for the nine months ended
September 30, 2005 when compared with the same period for 2004. Oil and gas
revenues increased by 31% due to higher average crude oil prices for the first
nine months of 2005. The average price of the Company's oil and gas for the
first nine months of 2005 increased by approximately $11.00 per equivalent
barrel when compared with the same period for 2004. The Company's net revenue
share of crude oil production/sales volumes for the nine months ended
September 30, 2005 remained comparable with the same period of 2004.
OPERATING EXPENSES
Operating expenses increased by approximately 12% for the nine months ended
September 30, 2005, when compared with the same period for 2004. The cost to
produce an equivalent barrel of crude oil increased by approximately $2.00 per
barrel for the nine months ended September 30, 2005, for a total cost of
approximately $19.00 per equivalent barrel, when compared with the same period
for 2004. The increase in operating costs for the first nine months of 2005
is primarily the result of activity on one of the Company's oil and gas
properties and higher costs for operating parts and supples and equipment
fuel.
Operating expenses have increased by approximately 8% on the Company's
Delaney-Tunnell lease during the first nine months of 2005. This lease was
shut-in during the same period of 2004. This lease had been shut-in for
approximately three years due to the cost of disposing of produced waste
water. This lease was returned to production during the fourth quarter of
2004 due to higher crude oil prices.
Operating parts and supplies increased by 4% and equipment fuel increased by
3% for the nine months ended September 30, 2005. Operating parts and supplies
increased due to numerous deferred repair and maintenance projects that have
been completed, because the funds have become available as a result of higher
crude oil prices. The completion of these projects should provide for lower
costs in the future and also enhance or maintain current crude oil production
levels. Fuel costs, primarily for Company equipment and vehicles, has
increased due to the higher per unit costs for gasoline and diesel fuels.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by approximately 26% for the
nine months ended September 30, 2005. The increase in general and
administrative expenses is due to an increase in audit fees of 11% due to the
additional burdens of complying with Sarbanes-Oxley legislation. Legal
services increased by 7% due primarily to activities related to the change in
16
the control of the Company. Consulting services increased by 4% due to work
done by an outside geologist and a petroleum engineer who are evaluating the
Company's oil and gas properties for potential rework or redrilling to enhance
crude oil production. Salaries increased by 2% due to salary increases that
were effective in the third quarter of 2005.
PROVISION FOR DEPLETION, DEPRECIATION AND AMORTIZATION
The provision for depletion, depreciation and amortization increased by 32%
for the nine months ended September 30, 2005, when compared with the same
period for 2004. The increase is due primarily to an increase of 30% in
depletion charges. The increase in depletion is due to an increase in the
depletion rate due to an increase in the depletable asset base at January 1,
2005. The depletable asset base had increased due to the drilling of two new
wells, one in 2004 and one in 2003.
GAIN ON SALE OF FIXED ASSETS
The Company recognized a gain on the sale of fixed assets during the third
quarter of 2005 in the amount of approximately $292,000 with the sale of a
well servicing hoist. The Company also sold a well servicing hoist in the
first quarter of 2004 for a gain of approximately $134,000 and another well
servicing hoist in the third quarter of 2004 for a gain of approximately
$56,000. The Company also sold another piece of equipment from the category
of assets held for resale for a gain of $28,000. All of the assets sold in
2005 and 2004 had little or no net book values.
TERMINATION COSTS
Reflects the costs of the termination agreement that was entered into between
the Company and Benny Hathaway, Vice President of the Company. See Note 9 for
additional information about the terms of the termination agreement.
INCOME TAX PROVISION
The Company's income tax provision consists mostly of current taxes for
California and minimum taxes for New York. The Company is utilizing its
net operating loss carryforwards to offset Federal income taxes.
17
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
None
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
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: November 14, 2005
JOHN H. ALEXANDER
---------------------
John H. Alexander
President
Dated: November 14, 2005
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: November 14, 2005
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: November 14, 2005
By: LEE G. CHRISTIANSON
------------------------
Lee G. Christianson
Chief Financial Officer