-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R2BF3flfYZ+rpdUEeeDbuUJqdvTzi8zdn7cfAvL5yyqS2Ut1+6Pta36cLrIHBjJj 9/AaInA2Dv8U/A9gegl4Uw== 0000081318-10-000002.txt : 20100514 0000081318-10-000002.hdr.sgml : 20100514 20100514133517 ACCESSION NUMBER: 0000081318-10-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20100331 FILED AS OF DATE: 20100514 DATE AS OF CHANGE: 20100514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PYRAMID OIL CO CENTRAL INDEX KEY: 0000081318 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 940787340 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-32989 FILM NUMBER: 10832096 BUSINESS ADDRESS: STREET 1: 2008 21ST ST CITY: BAKERSFIELD STATE: CA ZIP: 93301 BUSINESS PHONE: 6613251000 MAIL ADDRESS: STREET 1: P O BOX 832 CITY: BAKERSFIELD STATE: CA ZIP: 93302 10-Q 1 form10qa.txt PYRAMID OIL COMPANY FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2010 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes [ ] No [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] 2 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. (Class) (Outstanding at May 14,2010) COMMON STOCK WITHOUT PAR VALUE 4,677,728 3 PYRAMID OIL COMPANY FORM 10-Q March 31, 2010 Table of Contents Page ---- PART I Item 1. Financial Statements Balance Sheets - March 31, 2010 and December 31, 2009 4 Condensed Statements of Operations - Three months ended March 31, 2010 and 2009 6 Condensed - Statements of Cash Flows - Three months ended March 31, 2010 and 2009 8 Notes to Financial Statements 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Item 3. Quantitative and Qualitative Disclosures About Market Risk 20 Item 4. Controls and Procedures 21 PART II Item 1. Legal Proceedings 22 Item 1A. Risk Factors 22 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 22 Item 3. Defaults Upon Senior Securities 22 Item 4. Removed and Reserved 22 Item 5. Other Information 22 Item 6. Exhibits 22 4 PART I - FINANCIAL INFORMATION Item 1. Financial Statements PYRAMID OIL COMPANY BALANCE SHEETS ASSETS
March 31, December 31, 2010 2009 (Unaudited) (Audited) ------------ ------------ CURRENT ASSETS: Cash and cash equivalents $ 1,083,551 $ 1,438,825 Short-term investments 3,348,487 3,344,061 Trade accounts receivable 585,980 375,954 Income taxes receivable 104,281 124,281 Crude oil inventory 89,177 62,760 Deferred income taxes 196,200 196,200 Prepaid expenses and other assets 141,837 169,595 ------------ ------------ TOTAL CURRENT ASSETS 5,549,513 5,711,676 ------------ ------------ PROPERTY AND EQUIPMENT, at cost Oil and gas properties and equipment (successful efforts method) 16,596,418 16,085,228 Capitalized asset retirement costs 389,463 382,550 Drilling and operating equipment 2,109,993 2,109,993 Land, buildings and improvements 1,066,571 1,065,371 Automotive, office and other property and equipment 1,164,035 1,160,617 ------------ ------------ 21,326,480 20,803,759 Less: accumulated depletion, depreciation, amortization and valuation allowance (17,296,047) (17,125,834) ------------ ------------ TOTAL PROPERTY AND EQUIPMENT 4,030,433 3,677,925 ------------ ------------ OTHER ASSETS Deposits 250,000 250,000 Deferred income taxes 446,850 485,400 Other assets 17,013 17,013 ------------ ------------ TOTAL ASSETS $10,293,809 $10,142,014 ============ ============ The Accompanying Notes are an Integral Part of These Financial Statements.
5 PYRAMID OIL COMPANY BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY
March 31 December 31, 2010 2009 (Unaudited) (Audited) ------------ ------------ CURRENT LIABILITIES: Accounts payable $ 49,029 $ 88,170 Accrued professional fees 108,739 138,381 Accrued taxes, other than income taxes 62,310 62,310 Accrued payroll and related costs 65,108 51,606 Accrued royalties payable 197,955 159,933 Accrued insurance 36,326 54,947 Current maturities of long-term debt 14,518 20,640 ------------ ------------ TOTAL CURRENT LIABILITIES 533,985 575,987 ------------ ------------ LIABILITY FOR ASSET RETIREMENT OBLIGATION 1,206,451 1,193,324 ------------ ------------ TOTAL LIABILITIES 1,740,436 1,769,311 ------------ ------------ COMMITMENTS (note 5) STOCKHOLDERS' EQUITY: Preferred stock - no par value; 10,000,000 authorized shares; no shares issued or outstanding -- -- Common stock - no par value; 50,000,000 authorized shares; 4,677,728 shares issued and outstanding 1,515,945 1,515,945 Retained earnings 7,037,428 6,856,758 ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 8,553,373 8,372,703 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,293,809 $10,142,014 ============ ============ The Accompanying Notes are an Integral Part of These Financial Statements.
6 PYRAMID OIL COMPANY STATEMENTS OF OPERATIONS (UNAUDITED) Three months ended March 31,
--------------------------- 2010 2009 ------------ ------------ REVENUES $1,001,739 $ 594,045 ------------ ------------ COSTS AND EXPENSES: Operating expenses 339,920 351,350 General and administrative 207,367 225,304 Taxes, other than income and payroll taxes 27,820 48,298 Provision for depletion, depreciation and amortization 149,387 158,314 Valuation allowances 25,141 -- Accretion expense 6,213 5,866 Other costs and expenses 17,240 24,171 ------------ ------------ 773,088 813,303 ------------ ------------ OPERATING INCOME (LOSS) 228,651 (219,258) ------------ ------------ OTHER INCOME (EXPENSE): Interest income 7,953 26,475 Other income 2,797 3,600 Interest expense (181) (415) ------------ ------------ 10,569 29,660 ------------ ------------ INCOME (LOSS) BEFORE INCOME TAX PROVISION (BENEFIT) 239,220 (189,598) Income tax provision (benefit) Current 20,000 (103,383) Deferred 38,550 103,000 ----------- ------------ 58,550 ( 383) ------------ ------------ NET INCOME (LOSS) $ 180,670 $(189,215) ============ ============ The Accompanying Notes are an Integral Part of These Financial Statements.
7 PYRAMID OIL COMPANY STATEMENTS OF OPERATIONS (UNAUDITED) Three months ended March 31,
--------------------------- 2010 2009 ------------ ------------ EARNINGS PER COMMON SHARE Basic Income (Loss) Per Common Share $ 0.04 $(0.04) ============ ============ Diluted Income (Loss) Per Common Share $ 0.04 $(0.04) ============ ============ Weighted average number of common shares outstanding 4,677,728 4,677,728 ============ ============ Diluted average number of common shares outstanding 4,686,018 4,677,728 ============ ============ The Accompanying Notes are an Integral Part of These Financial Statements.
8 PYRAMID OIL COMPANY STATEMENTS OF CASH FLOWS (UNAUDITED)
Three months ended March 31, 2010 2009 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 180,670 $(189,215) Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: Provision for depletion, depreciation and amortization 149,387 158,314 Valuation allowances 25,141 -- Accretion expense 6,213 5,866 Loss on retirement of fixed assets 803 -- Deferred taxes 38,550 103,000 Changes in assets and liabilities: Increase in trade accounts, interest and income taxes receivable (190,426) (111,384) (Increase) decrease in crude oil inventories (26,417) 12,194 Decrease in prepaid expenses 27,658 28,489 (Decrease) in accounts payable and accrued liabilities (35,880) (225,516) --------- --------- Net cash provided by (used in) operating activities 175,699 (218,252) --------- --------- The Accompanying Notes are an Integral Part of These Financial Statements.
9 PYRAMID OIL COMPANY STATEMENTS OF CASH FLOWS (UNAUDITED)
Three months ended March 31, 2010 2009 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures $(520,925) $ (89,584) Purchase of short-term investments -- (500,000) Increase in short-term investments ( 4,426) (20,170) ---------- ---------- Net cash used in investing activities (525,351) (609,754) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt ( 6,122) ( 5,888) Loans to employees ( 600) ( 500) Principal payments from loans to employees 1,100 200 ---------- --------- Net cash used in financing activities (5,622) ( 6,188) ---------- --------- Net decrease in cash (355,274) (834,194) Cash at beginning of period 1,438,825 1,793,563 ---------- ---------- Cash at end of period $1,083,551 $ 959,369 ========== ========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the three months for interest $ 181 $ 415 ========= ========== Cash paid during the three months for income taxes $ -- $ 161,987 ========= ========== The Accompanying Notes are an Integral Part of These Financial Statements.
10 PYRAMID OIL COMPANY NOTES TO FINANCIAL STATEMENTS MARCH 31, 2010 (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, 2009 Form 10-K which is incorporated herein by reference. The financial data presented herein should be read in conjunction with the Company's December 31, 2009 financial statements and notes thereto, contained in the Company's Form 10-K. 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 March 31, 2010 and the results of its operations and its cash flows for the three month periods ended March 31, 2010 and 2009. The results of operations for any interim period are not necessarily indicative of the results to be expected for a full year. Income taxes: When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits are classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of income. 11 Earnings (Loss) Per Share Basic earnings (loss) per common share is computed by dividing the net income (loss) applicable to common stock by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per common share is calculated in the same manner, but also considers the impact to net income (loss) and common shares for the potential dilution from our 25,000 outstanding stock warrants. 2. Impact of Recent Accounting Pronouncements In January 2010, the FASB issued Accounting Standards Update 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This guidance amends the disclosure requirements related to recurring and nonrecurring fair value measurements and requires new disclosures on the transfers of assets and liabilities between Level 1 (quoted prices in active market for identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons and the timing of the transfers. Additionally, the guidance requires a roll forward of activities on purchases, sales, issuance and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance became effective for the reporting period beginning January 1, 2010, except for the disclosure on the roll forward activities for Level 3 fair value measurements, which will become effective for the reporting period beginning January 1, 2011. Other than requiring additional disclosures, adoption of this new guidance has not and is not expected to have a significant impact on our consolidated financial statements. The Company's adoption of this updated guidance was not significant to our consolidated financial statements. In February 2010, the FASB issued updated guidance related to subsequent events. As a result of this updated guidance, public filers must still evaluate subsequent events through the issuance date of their financial statements, however, they are not required to disclose the date in which subsequent events were evaluated in their financial statements disclosures. This amended guidance became effective upon its issuance on February 24, 2010 at which time the Company adopted this updated guidance. 3. Dividends No cash dividends were paid during the three months ended March 31, 2010 and 2009. 12 4. Income Taxes The Company adopted FASB ASC 740, Income Taxes (formerly FASB Interpretation 48, Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109) (Topic 740) on January 1, 2007. As a result of the implementation of FASB ASC 740, the company made a comprehensive review of its portfolio of tax positions in accordance with recognition standards established by FASB ASC 740. As a result of the implementation of FASB ASC 740, the Company recognized no material adjustments to liabilities or stockholders equity. The Company files income tax returns in the U.S. federal jurisdiction, California and New York states. With few exceptions, the Company is no longer subject to U.S. federal tax examination for the years before 2006. State jurisdictions that remain subject to examination range from 2005 to 2009. The Company does not believe there will be any material changes in its unrecognized tax positions over the next 12 months. The Company policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of the date of adoption of FASB ASC, the Company did not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the quarter. 5. Commitments In February 2002, the Company entered into an employment agreement with John H. Alexander pursuant to which Mr. Alexander agreed to serve as the Company's Vice President. On June 3, 2004, Mr. Alexander was appointed as the Company's President and Chief Executive Officer. The employment agreement is for an initial term of six years, which term automatically renews annually if written notice is not tendered. Pursuant to the employment agreement, the Company may terminate Mr. Alexander's employment with or without cause at any time before its term expires upon providing written notice. In the event the Company terminates Mr. Alexander's employment without cause, Mr. Alexander would be entitled to receive a severance amount equal to his annual base salary and benefits for the balance of the term of his employment agreement. In the event of termination by reason of Mr. Alexander's death or permanent disability, his legal representative will be entitled to receive his annual salary and benefits for the remaining term of his employment agreement. In the event of, or termination following, a change in control of the Company, as defined in the agreement, Mr. Alexander would be entitled to receive his annual salary and benefits for the remainder of the term of his agreement. In the event that Mr. Alexander is terminated the Company would incur approximately $600,000 in costs. 13 The Company has been notified by the United States Environmental Protection Agency (EPA) of a final settlement offer to settle its potential liability as a generator of waste containing hazardous substances that was disposed of at a waste disposal site in Santa Barbara County. The Company has responded to the EPA by indicating that the waste contained petroleum products that fall within the exception to the definition of hazardous substances for petroleum-related substances of the pertinent EPA regulations. Management has concluded that under both Federal and State regulations no reasonable basis exists for any valid claim against the Company. As such, the likelihood of any adverse settlement is deemed remote. 6. Income Tax Provision The Company recognized an income tax provision of $58,550 for the first quarter of 2010 compared to an income tax benefit of $383 for the same period in 2009. Income tax benefits were realized by the Company in the first quarter of 2009, due primarily to net operating loss carrybacks. Income tax provision for the first quarter of 2010 was calculated as follows: Federal State Total -------- --------- -------- Current tax provision $ 17,000 $ 3,000 $ 20,000 Deferred tax provision 29,950 8,600 38,550 ------- ------- ------- $ 46,950 $ 11,600 $ 58,550 ======= ====== ======= Deferred income taxes are recognized using the asset and liability method by applying income tax rates to cumulative temporary differences based on when and how they are expected to affect the tax returns. Deferred tax assets and liabilities are adjusted for income tax rate changes. Deferred income tax assets have been offset by a valuation allowance of $1,766,000 as of March 31, 2010. Management reviews deferred income taxes regularly throughout the year, and accordingly makes any necessary adjustments to properly reflect the valuation allowance based upon current financial trends and projected results. 7. Severance Award Agreements On June 4, 2009, the Company and John Alexander entered into a Severance Award Agreement pursuant to which the Company awarded Mr. Alexander a supplemental payment in connection with his future severance of employment with the Company and recorded an increase to stockholders' equity of $209,935. Pursuant to the Severance Award Agreement and following the termination of Mr. 14 Alexander's employment, he will be entitled to receive (at the Company's option) 25,000 shares of the Company's common stock or the then-fair market value of the shares. As of June 30, 2009, the Company intends to deliver the Company's common shares for the Severance Award; therefore, in accordance with FASB ASC Topic 718, Compensation-Stock Compensation, management has classified the share-based compensation as stockholders' equity at June 30, 2009. On December 30, 2008, the Company and John Alexander entered into a Severance Award Agreement pursuant to which the Company awarded Mr. Alexander a supplemental payment in connection with his future severance of employment with the Company and recorded an increase to stockholders' equity of $100,000. Pursuant to the Severance Award Agreement and following the termination of Mr. Alexander's employment, he will be entitled to receive (at the Company's option) 25,000 shares of the Company's common stock or the then-fair market value of the shares. As of December 31, 2008, the Company intends to deliver the Company's common shares for the Severance Award; therefore, in accordance with FASB ASC Topic 718, Compensation-Stock Compensation, management has classified the share-based compensation as stockholders' equity at December 31, 2008. 8. Incentive and Retention Plan On January 9, 2007, the Company's Board of Directors adopted an Incentive and Retention Plan pursuant to which the Company's officers and other employees selected by the Company's Compensation Committee are entitled to receive payments if they are employed by the Company as of the date of a 'Corporate Transaction,' as defined in the Incentive and Retention Plan. A 'Corporate Transaction' includes certain mergers involving the Company, sales of Company assets, and other changes in the control of the Company, as specified in the Incentive and Retention Plan. In general, the amount that is payable to each plan participant will equal the number of plan units that have been granted to him or her, multiplied by the increase in the value of the Company between January 9, 2007 and the date of a Corporate Transaction. There has been no Corporate Transaction since the adoption of the Incentive and Retention Plan. 9. Related-party Transaction Effective January 1, 1990, John H. Alexander, an officer and director of the Company participated with a group of investors that acquired the mineral and fee interest on one of the Company's oil and gas leases (Santa Fe Energy lease) in the Carneros Creek field after the Company declined to participate. The thirty-three percent interest owned by Mr. Alexander represents a minority interest in the investor group. Royalties on oil and gas production from this property paid to the investor group approximated $52,000 during the first quarter of 2010 and $36,000 during the first quarter of 2009. 15 10. Warrants Issued The Company issued warrants to purchase common shares of the Company as compensation for consulting services. The value of warrants issued for compensation is accounted for as a non-cash expense to the Company at the fair value of the warrants issued. The Company values the warrants at fair value as calculated by using the Black-Scholes option-pricing model. The following table summarizes the warrant activity for the nine months ended March 31, 2010: Number Weighted-Average (Unaudited) of Warrants Exercise Price ----------- ---------------- Outstanding, December 31, 2009 25,000 $3.20 Granted -- -- Exercised -- -- Cancelled -- -- ------ ---- Outstanding, March 31, 2010 25,000 $3.20 ====== ==== The following summarizes the warrants issued, outstanding and exercisable as of March 31, 2010: Grant Date November, 2008 Strike Price $3.20 Expiration Date November, 2010 Warrants Remaining 25,000 Proceeds if Exercised $80,000 Call Feature None 11. Fair Value Effective January 1, 2009, we adopted FASB ASC 820 (formerly SFAS No. 157) for our nonfinancial assets and nonfinancial liabilities measured on a non-recurring basis. We adopted the provisions of FASB ASC 820 for measuring the fair value of our financial assets and liabilities during 2008. As defined in FASB ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We utilize market data or assumptions that we believe market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. FASB ASC 820 establishes a three-tiered fair value hierarchy which prioritizes the inputs used in measuring fair value as follows: Level 1 - Observable inputs such as quoted prices in active markets; this included the Company's short-term investments. 16 Level 2 - Inputs, other than quoted prices, that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active; and Level 3 - Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. Included in this category is the Company's determination of the value of its asset retirement obligation liability. The obligation has increased $13,127 during the three months ended March 31, 2010 as a result of normal accretion expense and the drilling of a new well in the first quarter of 2010. The carrying amount of our cash and equivalents, accounts receivable, accrued current liabilities, accounts payable and long term debt reported in the condensed consolidated balance sheets approximates fair value because of the short maturity of those instruments. Note 12. Registration Statement on Form S-3 The Company filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission (SEC) on December 22,2009, that became effective on January 14, 2010. The registration statement is designed to provide the Company the flexibility to offer and sell from time to time up to $20 million of the Company's common stock. The Company may offer and sell such securities through one or more methods of distribution, subject to market conditions and the Company's capital needs. The terms of any offering under the shelf registration statement will be established at the time of such offering and will be described in a prospectus supplement filed with the SEC prior to the completion of the offering. The Company has not filed any supplemental prospectus with the SEC or sold any common stock under this registration statement. Note 13. Subsequent Events During the second quarter of 2010, the Company commenced drilling of a horizontal well on one of its Mountain View properties in Kern County, California. The well was drilled to its objective but did not encounter adequate hydrocarbons to warrant completion of the well. At March 31, 2010, the Company recorded a valuation allowance of $25,141 for certain costs that had been incurred prior to the drilling of this well. The Company is projecting that an additional valuation allowance of approximately $830,000 will be required in the second quarter of 2010 to reflect the costs incurred for the drilling of this well. PAGE <17> Note 14. 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. There are no legally restricted assets for the settlement of asset retirement obligations. A reconciliation of the Company's asset retirement obligations from the periods presented are as follows:
Balance at December 31, 2009 $1,193,324 Incurred during the period -- Additions for new wells 6,942 Accretion expense 6,185 --------- Balance at March 31, 2010 $1,206,451 =========
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations FORWARD LOOKING INFORMATION Looking forward into the balance of fiscal 2010, crude oil prices have decreased by $8.15 per barrel. During the first quarter, the Company commenced a program of increased drilling activity on its Kern County, California leases. The first well in the program was successfully drilled in January on the Company's Anderson property in the Carneros Creek field. This well was drilled to approximately 3,300 feet, logged and completed, and is now producing at a rate of approximately 25 barrels per day. A second prospect, a horizontal well drilled during April in the Company's Mountain View field, did not encounter hydrocarbons at levels sufficient to justify completion. The well did, however, provide new geologic information about the Mountain View field, where the Company currently operates approximately 30 wells. During the third PAGE <18> fiscal quarter the Company intends to commence drilling an additional Kern County prospect, which will either be a new well or a re-drilling of an existing well. During the first quarter, the original well in the Company's Texas natural gas joint venture was horizontally re-drilled into the Eagle Ford formation with a 4,500-foot lateral leg. The well was stimulated with a multi-stage hydraulic frac, and testing showed oil production in the range of 100-barrels per day. In late April, drilling operations were begun on a second Eagle Ford formation horizontal well on the joint venture's farmout property. Results from this well will be provided after completion and testing. Management continues to seek and evaluate opportunities within the energy sector to enhance the value of the Company. Pyramid's growth during the balance of 2010 will be highly dependant on the level 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 exploration 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 2010 by drilling new wells and routine maintenance of its existing wells. 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 2009 and the first quarter of 2010. 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. 19 CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS 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. ANALYSIS OF SIGNIFICANT CHANGES IN RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2010 COMPARED TO THE QUARTER ENDED MARCH 31, 2009 REVENUES The increase in revenues of $407,694 is due primarily to higher average prices for the first quarter of 2010. Oil and gas revenues increased by 69% for the three months ended March 31, 2010 when compared with the same period for 2009. Oil and gas revenues increased by 82% due to higher average crude oil prices for the first quarter of 2010. The average price of the Company's oil and gas for the first quarter of 2010 increased by approximately $36.73 per equivalent barrel when compared to the same period of 2009. Revenues decreased by approximately 13% due to lower crude oil production/sales. The Company's net revenue share of crude oil production decreased by approximately 2,000 barrels for the first three months of 2010. The decrease in crude oil production is primarily the result of the decline in production on the Company's Anderson lease. OPERATING EXPENSES Operating expenses decreased by $11,430 for the first quarter of 2010. Operating expenses decreased by 3% for the first quarter of 2010. The cost to produce an equivalent barrel of crude oil during the first quarter of 2010 was approximately $25.64 per barrel, an increase of approximately $2.68 per barrel when compared with production costs for the first quarter of 2009. The decrease in lease operating expenses is caused by many factors. These include lower costs for labor, contract operations and inventory change. This was offset by higher costs for waste water disposal, parts and supplies, production equipment repair and maintenance, equipment fuel and equipment rental costs. 20 Labor costs decreased by approximately $21,000 due to the capitalization of labor associated with the drilling of the Anderson No. 10 well in the first quarter of 2010. Contract operations decreased by approximately $9,500 due to lower activity for the Texas gas prospect. Inventory change decreased by approximately $39,000 as compared with the same period of 2009. Inventory values were higher at March 31, 2010 as compared with the same period in 2009. Waste water disposal increased by approximately $17,500 due to higher costs at the Company's Delaney Tunnell lease. Parts and supplies increased by approximately $16,500 due to an increase in maintenance activities. Production equipment repair and maintenance increased by approximately $11,500 due to an increase in maintenance activities. Equipment fuel increased by approximately $5,000 due to higher overall maintenance activities and higher prices for gasoline and diesel during the first quarter of 2010. Equipment rental costs increase by approximately $5,000 due primarily to maintenance activities on the Company's Mullaney lease. GENERAL AND ADMINISTRATIVE General and administrative expenses decreased by $17,937. Accounting services decreased by approximately $30,000. This was offset by an increase in salaries of approximately $6,500. PROVISION FOR DEPLETION, DEPRECIATION AND AMORTIZATION The provision for depletion, depreciation and amortization decreased by $8,927 for the first quarter of 2010, when compared with the same period for 2009. The decrease is due primarily to a decrease in depletion of the Companies oil and gas properties. The decrease in depletion is due primarily to a decrease in crude oil production for the first quarter of 2010. VALUATION ALLOWANCES The valuation allowance of $25,141 at March 31, 2010, reflects the write-down of certain costs related to a horizontal well that was drilled in the second quarter of 2010 that did not encounter adequate hydrocarbons to warrant completion of the well. See Note 13 for additional information. Item 3. Quantitative and Qualitative Disclosures about Market Risk Not Applicable 21 Item 4. Controls and Procedures Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) are effective to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. There was no change in our internal control over financial reporting that occurred during the quarter ended March 31, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 22 PART II - OTHER INFORMATION Item 1. - Legal Proceedings None Item 1A. - Risk Factors See the risk factors that are included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009. Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds None Item 3. - Defaults Upon Senior Securities None Item 4. - Removed and Reserved Item 5. - Other Information None Item 6. - Exhibits a. Exhibits 31.1 Certification of the Registrant's Principal Executive Officer under Exchange Act Rules 13a-14(a) and 15-d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of the Registrant's Principal Financial Officer under Exchange Act Rules 13a-14(a) and 15-d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of the Registrant's Principal Executive Officer under 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of the Registrant's Principal Financial Officer under 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 23 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: May 14, 2010 JOHN H. ALEXANDER --------------------- John H. Alexander President Dated: May 14, 2010 LEE G. CHRISTIANSON --------------------- Lee G. Christianson Chief Financial Officer EX-31 2 certqtra.txt OFFICER CERTIFICATIONS PAGE <1> Exhibit 31.1 Certification By Principal Executive Officer Pursuant to 15 U.S.C. - 7241 - as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, John H. Alexander, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Pyramid Oil Company; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and PAGE <2> 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: May 14, 2010 By: JOHN H. ALEXANDER ----------------------- John H. Alexander Chief Executive Officer PAGE <3> Exhibit 31.2 Certification By Principal Financial Officer Pursuant to 15 U.S.C. - 7241 - as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Lee G. Christianson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Pyramid Oil Company; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and PAGE <4> 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; 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 over financial reporting. Dated: May 14, 2010 By: LEE G. CHRISTIANSON ------------------------ Lee G. Christianson Chief Financial Officer PAGE <5> Exhibit 32.1 Pyramid Oil Company Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to Section 906 Of The Sarbanes-Oxley Act of 2002 Solely for the purposes of complying with 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, I, the undersigned President of Pyramid Oil Company (the "Company"), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2010 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: May 14, 2010 JOHN H. ALEXANDER ----------------- John H. Alexander President PAGE <6> Exhibit 32.2 Pyramid Oil Company Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to Section 906 Of The Sarbanes-Oxley Act of 2002 Solely for the purposes of complying with 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, I, the undersigned Chief Financial Officer of Pyramid Oil Company (the "Company"), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2010 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 14, 2010 LEE G. CHRISTIANSON ------------------- Lee G. Christianson Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----