-----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, GHYetp6UOZwVd+WmOH00gd5941pBe8mGmcQhBYknvcoFqLqnDvncK3+UyIdavQoH Fi1c6MhHkdhilLkA873ohg== 0000081318-10-000007.txt : 20101115 0000081318-10-000007.hdr.sgml : 20101115 20101112174620 ACCESSION NUMBER: 0000081318-10-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20100930 FILED AS OF DATE: 20101115 DATE AS OF CHANGE: 20101112 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: 101188284 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 pocqtrc.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 September 30, 2010 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-32989 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 Date 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] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. (Class) (Outstanding at November 12,2010) COMMON STOCK WITHOUT PAR VALUE 4,677,728 2 PYRAMID OIL COMPANY FORM 10-Q SEPTEMBER 30, 2010 Table of Contents Page ---- PART I Item 1. Financial Statements Balance Sheets - September 30, 2010 and December 31, 2009 3 Income Statements - Three months ended September 30, 2010 and 2009 5 Nine months ended September 30, 2010 and 2009 7 Condensed - Statements of Cash Flows - Nine months ended September 30, 2010 and 2009 9 Notes to Financial Statements 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 18 Item 3. Quantitative and Qualitative Disclosures About Market Risk 23 Item 4. Controls and Procedures 23 PART II Item 1. Legal Proceedings 24 Item 1A. Risk Factors 24 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 24 Item 3. Defaults Upon Senior Securities 24 Item 4. Removed and Reserved 24 Item 5. Other Information 24 Item 6. Exhibits 24 3 PART I - FINANCIAL STATEMENTS Item 1. Financial Statements PYRAMID OIL COMPANY BALANCE SHEETS ASSETS
September 30, 2010 December 31, (Unaudited) 2009 ------------ ------------ CURRENT ASSETS: Cash and cash equivalents $1,677,586 $1,438,825 Short-term investments 3,110,446 3,344,061 Trade accounts receivable 406,751 375,954 Income taxes receivable 4,200 124,281 Crude oil inventory 63,861 62,760 Prepaid expenses and other assets 107,090 169,595 Deferred income taxes 241,400 196,200 ------------ ------------ TOTAL CURRENT ASSETS 5,611,334 5,711,676 ------------ ------------ PROPERTY AND EQUIPMENT, at cost Oil and gas properties and equipment (successful efforts method) 17,613,326 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 1,183,114 1,160,617 ------------ ------------ 22,362,467 20,803,759 Less: accumulated depletion, depreciation, amortization and valuation allowance (18,329,833) (17,125,834) ------------ ------------ TOTAL PROPERTY AND EQUIPMENT 4,032,634 3,677,925 ------------ ------------ OTHER ASSETS Deposits 250,000 250,000 Deferred income taxes 620,300 485,400 Other assets 17,013 17,013 ------------ ------------ TOTAL OTHER ASSETS 887,313 752,413 ------------ ------------ TOTAL ASSETS $10,531,281 $10,142,014 ============ ============ The Accompanying Notes Are an Integral Part of These Financial Statements.
4 PYRAMID OIL COMPANY BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, 2010 December 31, (Unaudited) 2009 ------------ ------------ CURRENT LIABILITIES: Current debt 905 20,640 Accounts payable $ 160,120 $ 88,170 Accrued professional fees 111,663 138,381 Accrued taxes, other than income taxes 35,661 62,310 Accrued payroll and related costs 72,864 51,606 Accrued royalties payable 172,253 159,933 Accrued insurance -- 54,947 ------------ ------------ TOTAL CURRENT LIABILITIES 553,466 575,987 ------------ ------------ LIABILITY FOR ASSET RETIREMENT OBLIGATION 1,219,013 1,193,324 ------------ ------------ TOTAL LIABILITIES 1,772,479 1,769,311 ------------ ------------ COMMITMENTS (Note 4) 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 1,629,445 1,515,945 Retained earnings 7,129,357 6,856,758 ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 8,758,802 8,372,703 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,531,281 $10,142,014 ============ ============ The Accompanying Notes Are an Integral Part of These Financial Statements.
5 PYRAMID OIL COMPANY INCOME STATEMENT (UNAUDITED) Three months ended September 30,
--------------------------- 2010 2009 ------------ ------------ REVENUES Oil and gas sales $1,099,464 $ 945,413 Gain on sale of fixed assets 320,556 -- ------------ ------------ 1,420,020 945,413 ------------ ------------ COSTS AND EXPENSES: Operating expenses 386,897 346,800 General and administrative 195,838 198,703 Severance award agreement 113,500 -- Taxes, other than income and payroll taxes 39,654 33,809 Valuation allowances -- -- Provision for depletion, depreciation and amortization 151,855 150,209 Accretion expense 6,664 5,898 Other costs and expenses 26,403 18,628 ------------ ------------ 920,811 754,047 ------------ ------------ OPERATING INCOME 499,209 191,366 ------------ ------------ OTHER INCOME (EXPENSE): Interest income 13,521 20,508 Other income 3,600 3,600 Interest expense ( 30) (299) ------------ ------------ 17,091 23,809 ------------ ------------ INCOME BEFORE INCOME TAX PROVISION (BENEFIT) 516,300 215,175 Income tax provision (benefit) Current 47,200 ( 43,499) Deferred 75,300 37,300 ----------- ------------ 122,500 ( 6,199) ------------ ------------ NET INCOME $ 393,800 $ 221,374 ============ ============ The Accompanying Notes are an Integral Part of These Financial Statements.
6 PYRAMID OIL COMPANY INCOME STATEMENT (UNAUDITED) Three months ended September 30,
--------------------------- 2010 2009 ------------ ------------ EARNINGS PER COMMON SHARE Basic Income Per Common Share $ 0.08 $ 0.05 ============ ============ Diluted Income Per Common Share $ 0.08 $ 0.05 ============ ============ Weighted average number of common shares outstanding 4,677,728 4,677,728 ============ ============ Diluted average number of common shares outstanding 4,720,014 4,719,004 ============ ============ The Accompanying Notes are an Integral Part of These Financial Statements.
7 PYRAMID OIL COMPANY INCOME STATEMENT (UNAUDITED) Nine months ended September 30,
--------------------------- 2010 2009 ------------ ------------ REVENUES Oil and gas sales $3,329,594 $2,341,359 Gain on sale of fixed assets 320,556 -- ------------ ------------ 3,650,150 2,341,359 ------------ ------------ COSTS AND EXPENSES: Operating expenses 1,165,209 1,023,339 General and administrative 653,793 653,805 Severance award agreement 113,500 209,935 Taxes, other than income and payroll taxes 97,313 114,593 Valuation allowances 867,468 -- Provision for depletion, depreciation and amortization 498,115 468,665 Accretion expense 18,775 17,696 Other costs and expenses 90,946 88,773 ------------ ------------ 3,505,119 2,576,806 ------------ ------------ OPERATING INCOME (LOSS) 145,031 (235,447) ------------ ------------ OTHER INCOME (EXPENSE): Interest income 29,904 68,378 Other income 9,997 10,800 Interest expense ( 333) (1,072) ------------ ------------ 39,568 78,106 ------------ ------------ INCOME (LOSS) BEFORE INCOME TAX PROVISION (BENEFIT) 184,599 (157,341) Income tax provision (benefit) Current 92,100 (181,082) Deferred (180,100) 30,500 ----------- ------------ ( 88,000) (150,582) ------------ ------------ NET INCOME (LOSS) $ 272,599 $ ( 6,759) ============ ============ The Accompanying Notes are an Integral Part of These Financial Statements.
8 PYRAMID OIL COMPANY INCOME STATEMENT (UNAUDITED) Nine months ended September 30,
--------------------------- 2010 2009 ------------ ------------ EARNINGS PER COMMON SHARE Basic Income (Loss) Per Common Share $ 0.06 $ -- ============ ============ Diluted Income (Loss) Per Common Share $ 0.06 $ -- ============ ============ Weighted average number of common shares outstanding 4,677,728 4,677,728 ============ ============ Diluted average number of common shares outstanding 4,719,276 4,677,728 ============ ============ The Accompanying Notes are an Integral Part of These Financial Statements.
9 PYRAMID OIL COMPANY STATEMENTS OF CASH FLOWS (UNAUDITED) Nine months ended September 30,
--------------------------- 2010 2009 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 272,599 $ ( 6,759) Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: Provision for depletion, depreciation and amortization 498,115 468,665 Gain on sale of fixed assets (320,556) -- Loss on retirement of fixed assets 803 -- Accretion expense 18,775 17,696 Valuation allowances 867,468 -- Severance award agreement 113,500 209,935 Deferred taxes (180,100) 30,500 Changes in assets and liabilities: Decrease (increase) in trade accounts and income taxes receivable 89,284 (234,932) (Increase) decrease in crude oil inventories (1,101) 25,860 Decrease in prepaid expenses 61,605 126,855 Decrease in accounts payable and accrued liabilities ( 2,786) (339,477) --------- --------- Net cash provided by operating activities 1,417,606 298,343 --------- --------- The Accompanying Notes Are an Integral Part of These Financial Statements.
10 PYRAMID OIL COMPANY STATEMENTS OF CASH FLOWS (UNAUDITED) Nine months ended September 30,
--------------------------- 2010 2009 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures $(1,714,181) $ (261,974) Proceeds from sale of fixed assets 320,556 -- Purchases of short-term investments (550,000) (500,000) Redemptions of short-term investments 680,000 -- Increase in short-term investments 103,615 ( 51,644) --------- --------- Net cash (used in) investing activities (1,160,010) (813,618) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Loans to employees (2,900) (1,200) Principal payments from loans to employees 3,800 2,400 Principal payments on long-term debt (19,735) (17,837) --------- -------- Net cash (used in) financing activities (18,835) (16,637) --------- -------- Net increase (decrease) in cash 238,761 (531,912) Cash at beginning of period 1,438,825 1,793,563 --------- --------- Cash at end of period $1,677,586 $1,261,651 ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the nine months for interest $ 303 $ 1,072 ======== ======== Cash paid during the nine months for income taxes $ 1,100 $191,388 ======== ======== The Accompanying Notes Are an Integral Part of These Financial Statements.
11 PYRAMID OIL COMPANY NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 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 September 30, 2010 and December 31, 2009 and the results of its operations and its cash flows for the three and nine month periods ended September 30, 2010 and 2009. The results of operations for an 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. 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 2007. State jurisdictions that remain subject to examination range from 2006 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 740, 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. 12 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. 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. Valuation Allowances The Company has recorded valuation allowances for certain of its oil and gas properties when the undiscounted future net cash flows are less than the net capitalized costs for the property. For the nine months ended September 30, 2010, the Company has recorded a valuation allowance of approximately $867,000 for a well that was drilled and abandoned in the second quarter of 2010. The well was drilled to its objective but did not encounter adequate hydrocarbons to warrant completion of the well. 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 nine months ended September 30, 2010 and 2009. 13 4. Commitments and Contingencies 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. 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 settlement is deemed remote. 5. Income Tax Provision Income tax benefits of $88,000 were realized by the Company for the first nine months of 2010, due primarily to a valuation allowance for the write-down of a certain oil and gas property in the amount of $867,468. Income tax benefits of $150,582 were realized by the Company for the first nine months of 2009, due primarily to a net loss before income tax provision (benefit) for the nine months ended September 30, 2009 and certain adjustments related to a true-up of estimates made to the recently filed 2008 tax returns. Net income tax benefit for the first nine months ended September 30, 2010 was calculated as follows: Federal State Total -------- --------- -------- Current tax provision $ 78,000 $ 14,100 $ 92,100 Deferred tax benefit (140,100) (40,000) (180,100) ------- ------- ------- $( 62,100) $(25,900) $( 88,000) ======= ====== ======= 14 Net income tax benefit for the first nine months ended September 30, 2009 was calculated as follows: Federal State Total -------- --------- -------- Current tax provision $( 76,000) $(11,228) $( 87,228) Tax return true-up (105,311) 11,457 ( 93,854) Deferred tax benefit 26,000 4,500 30,500 ------- ------- ------- $(155,311) $ 4,729 $(150,582) ======= ====== ======= Net income tax provision for the three months ended September 30, 2010 was calculated as follows: Federal State Total -------- --------- -------- Current tax provision $ 40,150 $ 7,050 $ 47,200 Deferred tax benefit 58,800 16,500 75,300 ------- ------- ------- $ 98,950 $ 23,550 $ 122,500 ======= ====== ======= Net income tax benefit for the three months ended September 30, 2009 was calculated as follows: Federal State Total -------- --------- -------- Current tax provision $ 39,000 $ 11,355 $ 50,355 Tax return true-up (105,311) 11,457 ( 93,854) Deferred tax benefit 31,800 5,500 37,300 ------- ------- ------- $( 34,511) $ 28,312 $( 6,199) ======= ====== ======= 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 $1,750,000 as of September 30, 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. The first quarter tax provision was based on one quarter of the full year estimate due to the inability to accurately calculate certain tax temporary differences at that time. As of the second quarter such calculations have been made. 6. Severance Award Agreements On September 15, 2010, 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 $113,500 (25,000 shares at $4.54 per share). 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 September 30, 2010, the Company intends to deliver the Company's common shares for the Severance Award; therefore, in accordance with SFAS 123(R), management has classified the share-based compensation as stockholders' equity at September 30, 2010. 15 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. 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 SFAS 123(R), 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. 7. 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. 8. 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 $154,000 during the first nine months of 2010 and $142,000 during the first nine months of 2009. 9. 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. PAGE <16> The following table summarizes the warrant activity for the nine months ended September 30, 2010: Number Weighted-Average (Unaudited) of Warrants Exercise Price ----------- ---------------- Outstanding, December 31, 2009 25,000 $3.20 Granted -- -- Exercised -- -- Cancelled -- -- ------ ---- Outstanding, September 30, 2010 25,000 $3.20 ====== ==== The following summarizes the warrants issued, outstanding and exercisable as of September 30, 2010: Grant Date November, 2008 Strike Price $3.20 Expiration Date November, 2011 Warrants Remaining 25,000 Proceeds if Exercised $80,000 Call Feature None 10. 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; 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 $25,689 during the nine months ended September 30, 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 current debt reported in the condensed consolidated balance sheets approximates fair value because of the short maturity of those instruments. PAGE <17> Note 11. 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 12. 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 6,914 Accretion expense 18,775 --------- Balance at September 30, 2010 $1,219,013 =========
13. Gain on Sale of Fixed Assets On July 28, 2010, the Company entered into a Purchase and Sale Agreement for the sale of a portion of its Texas joint venture leaseholds. Pursuant to the agreement, the Company agreed to sell to the buyers 5% of the working interest of the Company's Texas joint venture, subject to certain prior agreements and encumbrances. The purchase price for the assigned interest is $320,566. After the sale, the Company continues to own a 7.5% working interest in the assets. The Company recognized a gain on the sale of the Texas leasehold interests in the amount of $320,566. The leasehold interests had been previously fully amortized. 18 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 increased by $8.05 per barrel since September 30, 2010. Pyramid owns a 30% interest in an 876-acre joint venture prospect in Menard County, Texas. The Company was notified in late October that a contract operator has been engaged to manage and operate the prospect. It is expected that the first well, which well test the Goem Lime formation, will be drilled before the end of the year. In late September and early October the Company successfully re-drilled two of its older wells in the Mountain View field of Kern County, CA. The first well was completed and the Company is waiting on a down-hole survey to identify and shut off an area of water entry. The second well has been completed and perforated and we are currently conducting initial testing. The Company has plans to do an additional re-drill in the Mountain View field shortly after the first of the year, depending on rig availability. Pyramid and Victory Oil Company have agreed in principle to jointly participate in the drilling of an approximately 4,000-foot test well in the Taft area of Kern County. The Companies are presently in the process of finalizing the terms of the joint venture that may involve drilling up to four wells during the next 12 to 18 months. Pyramid will be the operator of the project. Victory Oil Company is a 75-year-old privately owned company with a number of producing properties in Kern County. The Company was well prepared for, and is effectively managing, the present economic downturn, as management positioned the Company with no debt and significant cash reserves. Management continues to believe that during the next 12 months there will be an expanding range of opportunities to invest in oil and gas assets at more attractive valuations than have been available during the past several years. The Company's growth in 2010 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 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. 19 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 for the nine months ended September 30, 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. CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS Portions of this 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. 20 ANALYSIS OF SIGNIFICANT CHANGES IN RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 2010 COMPARED TO THE QUARTER ENDED SEPTEMBER 30, 2009 REVENUES The increase in oil and gas sales of $154,051 is due primarily to higher average prices for the third quarter of 2010 and slightly higher crude oil production. The average price of the Company's oil and gas for the third quarter of 2010 increased by $9.30 per equivalent barrel when compared to the same period for 2009. On July 28, 2010, the Company entered into a Purchase and Sale Agreement for the sale of a portion of its Texas joint venture leaseholds. Pursuant to the agreement, the Company agreed to sell to the buyers 5% of the working interest of the Company's Texas joint venture, subject to certain prior agreements and encumbrances. The purchase price for the assigned interest is $320,566. After the sale, the Company continues to own a 7.5% working interest in the assets. The Company recognized a gain on the sale of the Texas leasehold interests in the amount of $320,566. The leasehold interests had been previously fully amortized. OPERATING EXPENSES Operating expenses increased by $40,097 for the third quarter of 2010. The cost to produce an equivalent barrel of crude oil during the third quarter of 2010 was $25.78 per barrel, an increase of $2.32 per barrel when compared with production costs for the third quarter of 2009. The increase in lease operating expenses is caused by many factors. These include higher costs for parts and supplies, labor and contract operations. This was offset by the quarterly adjustment for inventory change. Inventory change decreased by $23,696 when compared with the same period of 2009. Inventory volumes were lower by 1,000 barrels at September 30, 2009 as compared with the inventory volumes at June 30, 2009. The inventory volumes at September 30, 2010 were lower by approximately 100 barrels when compared with the total volume at June 30, 2010. Parts and supplies increased by $23,221 due to an increase in lease and well maintenance activities. Company labor increased by $18,822 due primarily to an increase in both regular and overtime hours worked. Contract operations increased by $9,073 due to increased activity on the Texas joint venture. GENERAL AND ADMINISTRATIVE General and administrative expenses decreased by $2,865 for the third quarter of 2010 when compared with the same period for 2009. Accounting services decreased by $27,525 due primarily to lower projected audit fees for the third quarter of 2010 when compared with the same period of 2009. This was offset by higher fees of $13,305 for consulting services. Consulting services increased due primarily to fees paid to a third-party geologist who is reviewing the Company's oil and gas properties for potential well drilling locations. The remaining unfavorable variance of $11,355 is comprised of many different items, none of which were significant individually. 21 PROVISION FOR DEPLETION, DEPRECIATION AND AMORTIZATION The provision for depletion, depreciation and amortization increased by $1,646 for the three months ended September 30, 2010. The is due primarily to an increase in depletion of the Company's oil and gas properties. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2009 REVENUES The increase in revenues of $988,235 is due primarily to higher average prices for the first nine months of 2010 and slightly higher crude oil production. The average price of the Company's oil and gas for the first nine months of 2010 increased by $21.78 per equivalent barrel when compared to the same period for 2009. On July 28, 2010, the Company entered into a Purchase and Sale Agreement for the sale of a portion of its Texas joint venture leaseholds. Pursuant to the agreement, the Company agreed to sell to the buyers 5% of the working interest of the Company's Texas joint venture, subject to certain prior agreements and encumbrances. The purchase price for the assigned interest is $320,566. After the sale, the Company continues to own a 7.5% working interest in the assets. The Company recognized a gain on the sale of the Texas leasehold interests in the amount of $320,566. The leasehold interests had been previously fully amortized. OPERATING EXPENSES Operating expenses increased by $141,870 for the nine months ended September 30, 2010. The cost to produce an equivalent barrel of crude oil during the nine months ended September 30, 2010 was $25.97 per barrel, an increase of $3.05 per barrel when compared with production costs for the same period of 2009. The increase in lease operating expenses is caused by many factors. These include higher costs for parts and supplies, waste water disposal, production equipment repair and maintenance, equipment rental and insurance. Parts and supplies increased by $63,351 due to an increase in lease and well maintenance activities during the first nine months of 2010. Waste water disposal increased by $22,661 due to higher costs at the Company's Delaney Tunnell lease. Production equipment repair and maintenance increased by $17,891 due to an increase in maintenance activities. Equipment rental increased by $16,471 due primarily to maintenance activities on the Company's Mullaney lease and the rental of a crude oil storage tank in the second quarter of 2010 for a new well that was drilled on the Anderson lease in the first quarter of 2010. Insurance expense increased by $14,027 due to higher costs for workers' compensation and employee health insurance premiums. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses increased by a nominal amount for the first nine months of 2010 when compared with the same period of 2009. There were several offsetting changes during the nine months ended September 30, 2010. Major variances included the following. Accounting services decreased by $52,263 due primarily to lower audit fees. Officers salaries decreased by $25,000 for the nine months ended September 30, 2010. During June of 2009, the Board of Directors approved the payment of a bonus of $25,000 to Mr. Alexander, President. No bonuses were paid during the first nine months of 2010. These were offset by higher costs for consulting services, legal fees and administrative salaries. 22 Consulting services increased by $28,071 due to fees paid to a third-party geologist that is reviewing the Company's oil and gas properties for potential well drilling locations. Legal services increased by $18,656 due primarily to services related to the Company's filing of its proxy for the 2010 annual meeting. Administrative salaries increased by $18,278 due to the hiring of a part-time employee effective August 1, 2009. PROVISION FOR DEPLETION, DEPRECIATION AND AMORTIZATION The provision for depletion, depreciation and amortization increased by $29,450 for the nine months ended September 30, 2010 when compared with the same period for 2009. The increase is due primarily to an increase in depletion of the Company's oil and gas properties. The per barrel depletion rates for 2010 are higher than the comparable rates for 2009. VALUATION ALLOWANCES 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. During the first nine months of 2010, the Company recorded a valuation allowance of $867,468 for the costs that had been incurred for the drilling of this well. LIQUIDITY AND CAPITAL RESOURCES Cash increased by $238,761 for the nine months ended September 30, 2010. During the nine months ended September 30, 2010, operating activities provided cash of $1,417,606. Cash was provided by the redemption of short-term investments in the amount of $680,000 and proceeds from the sale of fixed assets of $320,556. Cash was used for the purchase of short-term investments of $550,000, capital spending of $1,714,181 and payments on long-term debt of $19,735. See the Statements of Cash Flows for additional detailed information. The Company had available a line of credit of $500,000 and short-term investments of $3,110,446 that provided additional liquidity during the first nine months of 2010. 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 first nine of 2010 increased by approximately 42% ($74.22 per equivalent barrel) when compared with the same period of 2009. The Company cannot predict the future course of crude oil prices. 23 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable 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 three months ended September 30, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 24 PYRAMID OIL COMPANY 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 None Item 5. - Other Information - None Item 6. - Exhibits a. Exhibits 10.1 Severance Award Agreement dated September 21, 2010 between the Registrant and John H. Alexander. 31.1 Certification of the Registrant's Principal Executive Officer under Exchange Act Rules 13a-14(a) and 15d-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 15d-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. 25 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 12, 2010 JOHN H. ALEXANDER --------------------- John H. Alexander President Dated: November 12, 2010 LEE G. CHRISTIANSON --------------------- Lee G. Christianson Chief Financial Officer EX-10.1 2 severancesep.txt SEVERANCE AWARD AGREEMENT 1 EXHIBIT 10.1 SEVERANCE AWARD AGREEMENT This Severance Award Agreement (this 'Agreement') is dated as of September 21, 2010, by and between and Pyramid Oil Company, a California corporation (the 'Company'), and John Alexander ('Executive') and together, the 'Parties'. 1. AWARD. In consideration of the many years of service that Executive has performed for and on behalf of the Company, the Company hereby awards to Executive a supplemental payment in connection with his future severance of employment with the Company which is in addition to any other benefits under any plans or agreements with the Company or which he has the right to receive or which the Company may elect to grant to him at such time. 2. NATURE OF AWARD. On the Payment Date, as hereafter defined, Executive shall receive at the option of the Company (i) 25,000 shares (as amended for any stock split, stock dividend or similar recapitalization occurring after September 21, 2010) of the Company common stock (the 'Stock'); or (ii) the highest market value of the Stock during the period from the date of termination of employment until the Payment Date. However, if the Company's outstanding stock or substantially all of its property is acquired by another Company (the 'Purchaser') for cash or property other than stock, the amount to be paid on the Payment Date shall be that amount that is paid or distributed in the transaction with respect to 25,000 shares of the Company common stock. If the Company is acquired for the stock of the Purchaser or for both stock and other property, the Stock shall consist of the shares of the Purchaser issued in the transaction with respect to 25,000 shares of the Company common stock and the amount payable on the Payment Date shall be such Purchaser's shares or their fair market value in cash and any other property issued in the transaction in which the Purchaser acquired the Company. 3. PAYMENT DATE. The Payment Date shall be either the date that is the first day after six months have elapsed from the date of the severance of Executive's employment with the Company or, if the Executive dies prior to end of such period, the seventh day after the date of his death, whichever is shorter. 4. EXISTENCE OF THE COMPANY. If the Company shall not be in existence on the Payment Date or if the Purchaser has not assumed the obligations of the Company to Executive under this Agreement, the amount of cash and/or securities that Executive is entitled to receive on the Payment Date shall be placed in escrow for the benefit of Executive. 5. ELECTION TO ISSUE STOCK; EXECUTIVE'S OPTION. If the Company elects to issue the Stock to the Executive rather than to pay the fair market value of the Stock to the Executive, such Stock shall be registered at the Company expense before the issuance of the Stock or, if that is not possible for any reason, as soon as may be practicable. Notwithstanding the forgoing, if the Stock is not registered within 90 days from the date of its issuance, the Executive will have the option to sell the Stock to the Company at its fair market value on the date that the Executive gives notice of the exercise of the option. 6. DETERMINATION OF FAIR MARKET VALUE. For purposes of this Agreement, the fair market value of the Stock shall be determined as follows: 2 a. If the stock of the Company is listed on a securities exchange or is regularly quoted by a recognized securities dealer, and selling prices are reported, its fair market value shall be the closing price of such stock on the date the value is to be determined, but if selling prices are not reported, its fair market value shall be the mean between the high bid and low asked prices for such stock on the date the value is to be determined (or if there are no quoted prices for the date of grant, then for the last preceding business day on which there were quoted prices). b. In the absence of an established market for the stock, the fair market value thereof shall be determined in good faith by the Board of Directors of the Company, with reference to the Company's net worth, prospective earning power, dividend-paying capacity, and other relevant factors, including the goodwill of the Company, the economic outlook in the Company's industry, the Company's position in the industry, the Company's management, and the values of stock of other corporations in the same or a similar line of business. 7. GENERAL PROVISIONS. a. SEVERABILITY. If any provision of this Agreement or any part of any such provision is held under any circumstances to be invalid or unenforceable in any jurisdiction, then (i) such provision or part thereof shall, with respect to such circumstances and in such jurisdiction, be deemed amended to conform to applicable laws so as to be valid and enforceable to the fullest possible extent, (ii) the invalidity or unenforceability of such provision or part thereof under such circumstances and in such jurisdiction shall not affect the validity or enforceability of such provision or part thereof under any other circumstances or in any other jurisdiction, and (iii) the invalidity or unenforceability of such provision or part thereof shall not affect the validity or enforceability of the remainder of such provision or the validity or enforceability of any other provision of this Agreement. Each provision of this Agreement is separable from every other provision of this Agreement, and each part of each provision of this Agreement is separable from every other part of such provision. b. GOVERNING LAW; VENUE. This Agreement shall be construed in accordance with, and governed in all respects by, the laws of the State of California (without giving effect to principles of conflicts of laws). Any legal action or other legal proceeding relating to this Agreement or the enforcement of any provision of this Agreement may be brought or otherwise commenced in any state or federal court located in the County of Kern in the State of California. c. WAIVER OF JURY TRIAL. THE PARTIES IRREVOCABLY WAIVE THE RIGHT TO A JURY TRIAL IN CONNECTION WITH ANY LEGAL PROCEEDING RELATING TO THIS AGREEMENT OR THE ENFORCEMENT OF ANY PROVISION OF THIS AGREEMENT. d. WAIVER. No failure of any of the Parties to exercise any power, right or privilege under this Agreement, and no delay on the part of any of the Parties in exercising any power, right or privilege under this Agreement, shall operate as a waiver of such power, right or privilege; and no single or partial exercise of any such power, right or privilege shall preclude any other or further exercise thereof or of any other power, right or privilege. Neither of the Parties shall be deemed to have waived any claim arising out of this Agreement, or any power, right or privilege under this Agreement, unless the waiver of such claim, power, right or privilege is expressly set forth in a written instrument duly executed and delivered, and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given. 3 e. NONTRANFERABILITY. The rights of the Executive under this Agreement are not transferable except by will or the laws of descent and distribution unless the prior written consent of the Company is obtained. f. CAPTIONS. The captions contained in this Agreement are for convenience of reference only, shall not be deemed to be a part of this Agreement and shall not be referred to in connection with the construction or interpretation of this Agreement. g. AMENDMENT. This Agreement may not be amended, modified, altered or supplemented other than by means of a written instrument duly executed and delivered on behalf of the Parties. h. NOTICES. Any notice, demand or request required or permitted to be given by either of the Parties pursuant to the terms of this Agreement shall be given in writing by hand delivery, by facsimile (at the telephone number set forth below) or three days after sending such notice by certified or registered mail to address set forth below in the case of notice to the Company. COMPANY EXECUTIVE Pyramid Oil Company John Alexander By: /S/ MICHAEL D. HERMAN Name: /s/JOHN ALEXANDER ----------------------- ----------------- Name: MICHAEL D. HERMAN Address: P O Box 832 Bakersfield, CA 93302 Title: Chairman of the Board Tel: (661) 325-1000 Fax: (661) 325-0100 Address: 2008 21 Street - P O Box 832 Bakersfield, CA 93302 Tel: (661) 325-1000 Fax: (661) 325-0100 EX-31.1 3 ceo302cert10qc.txt CEO CERTIFICATION SECTION 302 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: November 12, 2010 By: JOHN H. ALEXANDER ----------------------- John H. Alexander Chief Executive Officer EX-31.2 4 cfocert30210qc.txt CFO CERTIFICATION SECTION 302 1 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 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 controls over financial reporting. Dated: November 12, 2010 By: LEE G. CHRISTIANSON ------------------------ Lee G. Christianson Chief Financial Officer EX-32.1 5 ceocert90610qc.txt CEO CERTIFICATION SECTION 906 1 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 September 30, 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: November 12, 2010 JOHN H. ALEXANDER ----------------- John H. Alexander President EX-32.2 6 cfocert90610qc.txt CFO CERTIFICATION SECTION 906 1 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 September 30, 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: November 12, 2010 LEE G. CHRISTIANSON ------------------- Lee G. Christianson Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----