1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/X/ Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2002
OR
/ / Transition report pursuant to section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number 0-5525
PYRAMID OIL COMPANY
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-0787340
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2008 - 21ST. STREET,
BAKERSFIELD, CALIFORNIA 93301
(Address of principal executive offices) (Zip Code)
(661) 325-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of the period covered by this report.
COMMON STOCK WITHOUT PAR VALUE 2,494,430
(Class) (Outstanding at March 31, 2002)
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FINANCIAL STATEMENTS
PYRAMID OIL COMPANY
BALANCE SHEETS
ASSETS
March 31, December 31,
2002 2001
(Unaudited) (Audited)
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 550,098 $ 614,416
Short-term investments 850,000 850,000
Trade accounts receivable 128,465 109,993
Interest receivable 56,304 51,488
Crude oil inventory 66,696 47,555
Prepaid expenses 68,932 93,590
Deferred income taxes 16,510 15,490
------------ ------------
TOTAL CURRENT ASSETS 1,737,005 1,782,532
------------ ------------
PROPERTY AND EQUIPMENT, at cost
Oil and gas properties and equipment
(successful efforts method) 10,293,558 10,293,558
Drilling and operating equipment 2,778,454 2,872,762
Land, buildings and improvements 936,681 936,681
Automotive, office and other
property and equipment 933,090 933,090
------------ ------------
14,941,783 15,036,091
Less: accumulated depletion,
depreciation, amortization
and valuation allowance (13,444,130) (13,497,392)
------------ ------------
1,497,653 1,538,699
------------ ------------
$3,234,658 $3,321,231
============ ============
The Accompanying Notes are an Integral Part of These Financial Statements.
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PYRAMID OIL COMPANY
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31 December 31,
2002 2001
(Unaudited) (Audited)
------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 55,297 $ 54,057
Accrued professional fees 10,250 15,500
Accrued taxes, other than income taxes 30,717 30,717
Accrued payroll and related costs 45,653 36,351
Accrued royalties payable 58,970 59,548
Accrued insurance 27,648 40,689
Current maturities of long-term debt 13,334 15,409
------------ ------------
TOTAL CURRENT LIABILITIES 241,869 252,271
------------ ------------
LONG-TERM DEBT, net of current maturities 21,112 24,445
------------ ------------
DEFERRED INCOME AND OTHER TAXES 16,510 15,490
------------ ------------
COMMITMENTS (note 3)
STOCKHOLDERS' EQUITY:
Common stock-no par value;
10,000,000 authorized shares;
2,494,430 shares issued and
outstanding 1,071,610 1,071,610
Retained earnings 1,883,557 1,957,415
------------ ------------
2,955,167 3,029,025
------------ ------------
$3,234,658 $3,321,231
============ ============
The Accompanying Notes are an Integral Part of These Financial Statements.
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PYRAMID OIL COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended March 31,
---------------------------
2002 2001
------------ ------------
REVENUES $283,283 $446,678
------------ ------------
COSTS AND EXPENSES:
Operating expenses 228,444 274,734
Exploration costs 3,099 --
General and administrative 90,761 93,586
Taxes, other than income
and payroll taxes 14,856 12,127
Provision for depletion,
depreciation and amortization 39,647 47,855
Other costs and expenses 2,065 580
------------ ------------
378,872 428,882
------------ ------------
OPERATING (LOSS) INCOME (95,589) 17,796
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 11,059 9,673
Gain on settlement -- 395,708
Gain on sale of assets -- 18,138
Loss on disposal of assets (10,100) --
Other income 21,113 6,524
Interest expense ( 16) (1,232)
------------ ------------
22,056 428,811
------------ ------------
INCOME (LOSS) BEFORE INCOME
TAX PROVISION (73,533) 446,607
Income tax provision 325 225
------------ ------------
NET (LOSS) INCOME $(73,858) $446,382
============ ============
BASIC (LOSS) INCOME PER COMMON SHARE ($0.03) $0.18
============ ============
DILUTED (LOSS) INCOME PER COMMON SHARE ($0.03) $0.18
============ ============
Weighted average number of
common shares outstanding 2,494,430 2,494,430
============ ============
The Accompanying Notes are an Integral Part of These Financial Statements.
5 PYRAMID OIL COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended March 31,
---------------------------
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $( 73,858) $446,382
Adjustments to reconcile net (loss)
income to cash provided by
(used in) operating activities:
Provision for depletion,
depreciation and amortization 39,647 47,855
Exploration cost 3,099 --
Gain on sales of fixed assets -- (18,138)
Loss on disposal of fixed assets 10,100 --
Changes in assets and liabilities:
Increase in trade accounts
and interest receivable (23,288) (10,883)
(Increase) decrease in crude oil inventories (19,141) 1,276
Decrease in prepaid expenses 24,658 23,283
Decrease in accounts payable
and accrued liabilities ( 8,327) (21,912)
--------- ---------
Net cash (used in) provided by
operating activities ( 47,110) 467,863
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 11,800) --
Proceeds from sales of fixed assets -- 20,300
Net change in short-term investments -- (500,000)
--------- ---------
Net cash used in investing activities ( 11,800) (479,700)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt ( 5,408) (15,734)
--------- ---------
Net cash used in financing activities ( 5,408) (15,734)
--------- ---------
Net decrease in cash ( 64,318) (27,571)
Cash at beginning of period 614,416 151,727
--------- ---------
Cash at end of period $550,098 $124,156
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the three months for interest $ 16 $1,232
========= =========
Cash paid during the three months for income taxes $ 325 $ 225
========= =========
The Accompanying Notes are an Integral Part of These Financial Statements.
6 PYRAMID OIL COMPANY
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002
(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, 2001 Form 10-KSB which is incorporated herein by reference. The
financial data presented herein should be read in conjunction with the
Company's December 31, 2001 financial statements and notes thereto, contained
in the Company's Form 10-KSB.
In the opinion of the Company, the unaudited financial statements, contained
herein, include all adjustments necessary to present fairly the Company's
financial position as of March 31, 2002 and the results of its operations and
its cash flows for the three month periods ended March 31, 2002 and 2001. The
results of operations for any interim period are not necessarily indicative of
the results to be expected for a full year.
(2) DIVIDENDS
No cash dividends were paid during the three months ended March 31, 2002 and
2001.
(3) COMMITMENTS
During 1998, the Company entered into a joint venture project, with several
other oil and gas companies, to explore for and develop potential natural gas
reserves in the Solano County area of California. This project is employing
3-D seismic technology and exploratory drilling, in hopes of finding and
developing natural gas reserves on approximately 3,200 acres of leased ground.
The Company's position is that of a non-operator.
Drilling operations on the first well began early in the first quarter of
2000. This well encountered substantial mechanical problems prior to reaching
its intended depth and was abandoned due to these problems. The Company
participated in the drilling of a second well on this lease in the fourth
quarter of 2000. This well was abandoned due to insufficient gas reserves.
The Company has not made any decisions about participating in any future
proposed exploration wells on this project. The Company expended
approximately $18,000 for its share of costs on the first well during 1999,
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and expended an additional $15,000 during 2000. The Company expended
approximately $18,000 for its share of costs on the second well during 2000.
These costs are recorded in Operating Costs on the Statements of Operations.
The Company agreed to participate in the drilling of a third natural gas well
in conjunction with the same operator in a new prospect area located in
Solano County. This well commenced drilling in the fourth quarter of 2001 and
was abandoned due to inadequate gas reserves. The Company's share of the
prospect fee and drilling costs for this new well were approximately $36,000
during the fourth quarter of 2001 and $3,100 in the first quarter of 2002.
The costs for the third well are recorded in Costs and Expenses on the
Statements of Operations. A fourth well has not been proposed by the joint
venture operator.
The Company has entered into various employment agreements with key executive
employees. In the event the key executives are dismissed, the Company would
incur approximately $508,000 in costs.
(4) OTHER INCOME
In 1996, the Company filed a lawsuit in Kern County Superior Court, against
Mr. Russell R. Simonson, alleging a breach of a contractual agreement. The
lawsuit went to trial in 1997 and the trial court ruled that the Defendant
twice breached terms of an agreement, and the court awarded the Company
damages, interest and attorney's fees. The Defendant appealed the trial
court's decision and the matter was reviewed by the California Appeals Court.
In November 2000, the Appeals Court again ruled in favor of the Company,
upholding the original award of damages, interest and attorney's fees. On
March 5, 2001, the Company recorded a gain and received payment from the
Defendant in the amount of $395,708, concluding this matter.
The Company disposed of a well servicing rig in the first Quarter of 2002 with
a net book value of $10,100. The Company received approximately $16,000 as a
settlement of lease oil antitrust litigation, also in the first quarter of
2002. The Company sold various surplus equipment and it's interest in a
non-producing oil and gas lease during the first quarter of 2001 for a gain of
approximately $18,000. These assets had little or no net book value.
(5) SUBSEQUENT EVENT
The Company has tentatively agreed to acquire the remaining 36.5% working
interest in three oil and gas properties that the Company operates in
the Carneros Creek field (the Company currently owns approximately 63.5% of
the working interest) for a fair market value of approximately $217,000,
effective April 1, 2002. The 36.5% working interest is being acquired from a
group of investors that acquired the working interest through the settlement
of litigation with the prior working interest owner and immediately offered
the working interests to the Company. Mr. John H. Alexander, an officer and
Director of the Company, has a minority interest in the group of investors,
which acquired the interests through the litigation settlement. Mr. Alexander
did not participate in any voting on this issue during the Board meeting
concerning the acquisition of this working interest.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
IMPACT OF CHANGING PRICES
The Company's revenue is affected by crude oil prices paid by the major oil
companies. Average crude oil prices for the first quarter of 2002 decreased
by approximately $5.88 per equivalent barrel when compared with the same
period for 2001. During the first quarter of 2002 the Company experienced 24
separate price changes compared with 16 price changes during the same period
for 2001. The Company cannot predict the future course of crude oil prices.
LIQUIDITY AND CAPITAL RESOURCES
Cash decreased by $64,318 for the three months ended March 31, 2002. During
the first quarter of 2002, operating activities reduced cash by $47,110.
Capital spending of $11,800 and principal payments on long-term debt totaling
$5,408, reduced cash for the first quarter of 2002. See the Statements of
Cash Flows for additional detailed information. A $100,000 line of credit,
unused at March 31, 2002, provided additional liquidity during the first
quarter of 2002.
FORWARD LOOKING INFORMATION
The Company's average crude oil price has increased by approximately $4.00 per
barrel since March 31, 2002.
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.
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ANALYSIS OF SIGNIFICANT CHANGES IN RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2002
COMPARED TO THE QUARTER ENDED MARCH 31, 2001
REVENUES
Oil and gas revenue decreased by 37% for the three months ended March 31, 2002
when compared with the same period for 2001. Oil and gas revenue decreased by
22% due to lower average crude oil prices for the first quarter of 2002.
The average price of the Company's oil and gas for the first quarter of 2002
decreased by approximately $5.90 per equivalent barrel when compared to the
same period of 2001. Revenues decreased by 15% due to lower production of
crude oil. The Company's net revenue share of crude oil production decreased
by approximately thirty barrels per day for the first three months of 2002.
During the first quarter of 2002, one of the Company's leases was shut-in
because it was uneconomic due to the lower crude oil prices. This lease
accounted for approximately half of the decline in crude oil production for
the first quarter of 2002.
OPERATING EXPENSES
Operating expenses decreased by 10% for the first quarter of 2002. The cost
to produce an equivalent barrel of crude oil increased by approximately ninety
cents per barrel when compared with the first quarter of 2001. One of the
Company's oil and gas leases was shut-in during the first quarter of 2002, as
noted above, which resulted in a 7% decrease in operating expenses for the
first quarter of 2002.
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased by 3% for the first three
months of 2002 when compared with the same period for 2001. Legal fees
decreased by 4% for the first quarter of 2002 due to the resolution of a
lawsuit that was filed by the Company in 1996. The Company received a
favorable judgement in 1997 which was appealed by the defendant. The legal
costs for the first quarter of 2001 were all related to the efforts directed
at the appeal process (see Other Income below).
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PROVISION FOR DEPLETION, DEPRECIATION AND AMORTIZATION
The provision for depletion, depreciation and amortization decreased by 17%
for the first quarter of 2002, when compared with the same period for 2001.
The decrease is due primarily to the decrease in the depletion rate. The
depletion rate decreased as a result of the estimated oil and gas reserves
decreasing in an amount much less than the decline in the depletable base of
the oil and gas properties. The estimated reserves did not decline in
relation to the depletable base due to revisions to these estimates which
offset the decline in production.
OTHER INCOME
In 1996, the Company filed a lawsuit in Kern County Superior Court, against
Mr. Russell R. Simonson, alleging a breach of a contractual agreement. The
lawsuit went to trial in 1997 and the trial court ruled that the Defendant
twice breached terms of an agreement, and the court awarded the Company
damages, interest and attorney's fees. The Defendant appealed the trial
court's decision and the matter was reviewed by the California Appeals Court.
In November 2000, the Appeals Court again ruled in favor of the Company,
upholding the original award of damages, interest and attorney's fees. On
March 5, 2001, the Company recorded a gain and received payment from the
Defendant in the amount of $395,708, concluding this matter.
The Company disposed of a well servicing rig in the first Quarter of 2002 with
a net book value of $10,100. The Company received approximately $16,000 as a
settlement of lease oil antitrust litigation, also in the first quarter of
2002. The Company sold various surplus equipment and it's interest in a
non-producing oil and gas lease during the first quarter of 2001 for a gain of
approximately $18,000. These assets had little or no net book value.
INCOME TAX PROVISION
The Company's income tax provision consists mainly of current minimum taxes
for California and New York. The Company is utilizing its significant net
operating loss carryforwards to offset Federal income taxes.
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NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued Statements of Financial Accounting Standards No.
141 ("FAS 141") "Business Combinations" and No. 142 ("FAS 142") "Goodwill and
Other Intangible Assets". These statements eliminate the pooling of interests
method of accounting for business combinations as of June 30, 2001 and
eliminate the amortization of goodwill for all fiscal years beginning after
December 15, 2001. Goodwill will be accounted for under an impairment-only
method after this date. The Company is required to adopt FAS 141 and 142 with
respect to existing goodwill on January 1, 2002. The adoption of these
Statements did not have any impact on the Company's financial position,
results of operations or cash flows.
In June 2001, the FASB issued Statement of Financial Accounting Standards No.
143 ("FAS 143") "Accounting for Asset Retirement Obligations". This Statement
addresses financial accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the associated retirement
costs. Asset retirement obligations will be initially measured at fair value.
These obligations will be discounted and accretion expense will be recognized
using the credit adjusted risk-free interest rate. The Company is required to
adopt FAS 143 on January 1, 2003. The Company is assessing the impact FAS 143
will have on its financial statements.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144 ("FAS 144") "Accounting for the Impairment or Disposal of Long-Lived
Assets". This Statement supercedes previous statements related to impairment.
The requirements to allocate goodwill to long-lived assets to be tested for
impairment is eliminated. A primary asset approach to determine a cash flow
estimation period is established. The Company is required to adopt FAS 144 on
January 1, 2002. The adoption of this Statements did not have any impact on
the Company's financial position, results of operations or cash flows
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PYRAMID OIL COMPANY
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings
None
Item 2. - Changes in Securities
None
Item 3. - Defaults Upon Senior Securities
None
Item 4. - Submission of Matters to a Vote of Security Holders
None
Item 5. - Other Information -
None
Item 6. - Exhibits and Reports on Form 8-K -
No Form 8-K's were filed during the three months
ended March 31, 2002.
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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, 2002 J. BEN HATHAWAY
---------------------
J. Ben Hathaway
President
Dated: May 14, 2002 JOHN H. ALEXANDER
---------------------
John H. Alexander
Vice President