<PAGE> 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 September 30, 1998
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)
(805) 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 September 30, 1998)
<PAGE> 2
FINANCIAL STATEMENTS
PYRAMID OIL COMPANY
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $307,299 $600,994
Trade accounts receivable 108,379 153,821
Crude oil inventory 61,194 61,194
Prepaid expenses 35,794 93,587
Deferred income taxes 79,082 79,853
------------ ------------
TOTAL CURRENT ASSETS 591,748 989,449
------------ ------------
PROPERTY AND EQUIPMENT, at cost
Oil and gas properties and equipment
(successful efforts method) 10,371,852 10,174,516
Drilling and operating equipment 3,177,722 3,177,722
Land, buildings and improvements 921,767 919,117
Automotive, office and other
property and equipment 1,025,169 1,036,073
------------ ------------
15,496,510 15,307,428
Less: accumulated depletion,
depreciation, amortization
and valuation allowance (13,323,093) (13,035,692)
------------ ------------
2,173,417 2,271,736
------------ ------------
$2,765,165 $3,261,185
============ ============
<FN> See Accompanying Notes to Financial Statements.
</TABLE>
<PAGE> 3
PYRAMID OIL COMPANY
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 34,616 $ 44,584
Accrued professional fees 31,573 33,500
Accrued taxes, other than income taxes 15,191 34,569
Accrued payroll and related costs 32,573 25,466
Accrued royalties payable 61,299 75,482
Accrued insurance -- 35,533
Current maturities of long-term debt 17,604 23,399
Line of Credit 37,404 --
------------ ------------
TOTAL CURRENT LIABILITIES 230,260 272,533
------------ ------------
LONG-TERM DEBT, net of current maturities 30,086 45,447
------------ ------------
DEFERRED INCOME AND OTHER TAXES 121,553 122,324
------------ ------------
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 1,311,656 1,749,271
------------ ------------
2,383,266 2,820,881
------------ ------------
$2,765,165 $3,261,185
============ ============
<FN> See Accompanying Notes to Financial Statements.
</TABLE>
<PAGE> 4
PYRAMID OIL COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------- ---------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES $260,173 $388,519 $743,139 $1,242,895
--------- --------- --------- ---------
COSTS AND EXPENSES:
Operating expenses 203,776 273,460 603,639 694,450
General and administrative 78,721 91,497 255,425 304,117
Taxes, other than income
and payroll taxes 16,775 18,688 48,986 49,102
Provision for depletion,
depreciation and
amortization 94,231 107,860 298,099 322,919
Other costs and expenses 3,203 1,743 12,651 11,381
--------- --------- --------- ---------
396,706 493,248 1,218,800 1,381,969
--------- --------- --------- ---------
OPERATING (LOSS) (136,533) (104,729) (475,661) (139,074)
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income 16,430 4,540 26,114 17,093
Other income 8,300 88,144 18,294 124,978
Interest expense (2,222) (2,433) (5,229) (5,814)
--------- --------- --------- ---------
22,508 90,251 36,179 136,257
--------- --------- --------- ---------
INCOME (LOSS) BEFORE
INCOME TAX PROVISION (114,025) (14,478) (436,482) (2,817)
Income tax provision -- -- 1,133 1,148
--------- --------- --------- ---------
NET INCOME (LOSS) $(114,025) $ (14,478) $(437,615) $ (3,965)
========= ========= ========= =========
BASIC INCOME (LOSS)
PER COMMON SHARE ($0.05) ($0.01) ($0.18) $0.00
========= ========= ========= =========
DILUTED INCOME (LOSS)
PER COMMON SHARE ($0.05) ($0.01) ($0.18) $0.00
========= ========= ========= =========
Weighted average number of
common shares outstanding 2,494,430 2,494,430 2,494,430 2,494,430
========= ========= ========= =========
<FN> See Accompanying Notes to Financial Statements.
</TABLE>
<PAGE> 5 PYRAMID OIL COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(437,615) $ ( 3,965)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Provision for depletion,
depreciation and amortization 298,099 322,919
Gain on sale of fixed assets -- (77,294)
Changes in assets and liabilities:
Decrease in trade accounts receivable 45,442 80,004
Decrease in prepaid expenses 57,793 65,675
Decrease in accounts payable
and accrued liabilities (73,882) (91,324)
--------- ---------
Net cash(used in)provided by
operating activities (110,163) 296,015
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (199,780) (503,568)
Proceeds from sale of property and equipment -- 223,700
--------- ---------
Net cash used in investing activities (199,780) (279,868)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 100,000 30,000
Principal payments on line of credit (62,596) (30,000)
Principal payments on long-term debt (21,156) (53,604)
--------- ---------
Net cash provided by (used in)
financing activities 16,248 (53,604)
--------- ---------
Net decrease in cash and cash equivalents (293,695) (37,457)
Cash and cash equivalents at beginning of period 600,994 682,043
--------- ---------
Cash and cash equivalents at end of period $307,299 $644,586
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the nine months for interest $5,229 $5,814
========= =========
Cash paid during the nine months for income taxes $1,133 $1,148
========= =========
<FN> See Accompanying Notes to Financial Statements.
</TABLE>
<PAGE> 6
PYRAMID OIL COMPANY
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(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, 1997 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, 1997 financial statements and notes thereto, contained
in the Company's Form 10-KSB.
In the opinion of the Company, the unaudited financial statements, contained
herein, include all adjustments necessary to present fairly the Company's
financial position as of September 30, 1998, the results of its operations for
the three and nine months periods ended September 30, 1998 and 1997, and its
cash flows for the nine months ended June 30, 1998 and 1997. The results of
operations for an interim period are not necessarily indicative of the results
to be expected for a full year.
(2) DIVIDENDS
No cash dividends were paid during the nine months ended September 30, 1998
and 1997.
(3) COMMITMENTS
Pursuant to a specific oil and gas lease with respect to the Carneros Creek
field, the Company is obligated to drill at least one well per year on this
lease. If the price of oil reaches $20 per barrel or above and continues for
a period of 60 consecutive days, the Company will thereafter be obligated to
drill at least one well per quarter on this lease. The price of oil on this
lease was approximately $12.25 per barrel at November 13, 1998.
Failure to drill the necessary well(s) will result in the potential
relinquishment of any undrilled or unproven acreage on this specific lease.
Any relinquishment would not affect wells already drilled and producing on
this lease. The Company drilled and completed a well on this lease during the
<PAGE> 7
first half of 1997. The cost of drilling and completing a well can vary
significantly. The Company's total costs of drilling and completing the one
well on this lease in 1997 were approximately $256,000. Due to the continuing
low crude oil prices, the Company plans to secure a waiver for the commitment
to drill a well on this lease for 1998.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
IMPACT OF CHANGING PRICES
The Company's revenue is directly influenced by crude oil prices posted by
major oil companies. Crude oil prices plummeted during the first quarter of
1998 and have remained at depressed levels throughout the first nine months of
1998. In June of 1998, crude oil prices sunk to levels not experienced for
decades. Average crude oil prices for the third quarter of 1998 decreased by
approximately $5.00 per equivalent barrel over third quarter 1997 crude
prices. Average crude oil prices for the first nine months of 1998 have
decreased by approximately $6.20 per equivalent barrel as compared with the
same period for 1997. During the first nine months of 1998, the Company
experienced forty-eight separate price changes. For the same period of 1997
the Company experienced thirty-three price changes. At the end of the third
quarter of 1998, crude oil prices had decreased by approximately $1.25 since
December 31, 1997. The Company cannot predict the future course of crude oil
prices.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $293,695 for the nine months ended
September 30, 1998. During the first nine months of 1998 operating
activities decreased cash flows by $110,163, along with capital spending for
the first nine months of 1998 of $199,780 and principal payments on long-term
debt of $21,156 offset by net proceeds of $37,404 from the Company's line of
credit. Capital expenditures for 1998 includes the re-drilling of one of the
Company's existing wells. See the Statements of Cash Flows for additional
detailed information.
During the last ten years, crude oil prices have fluctuated dramatically.
Thus the Company has continued with its approach of focusing on its most
profitable properties to optimize the Company's resources. Cost reductions
and consolidations in all areas of operations have been maintained to conserve
capital. In prior years, the Company shut-in or reduced operations on certain
other oil and gas properties that were uneconomic. During 1996 and continuing
into 1997, certain of these properties were returned to production due to
favorable crude oil prices during 1996 and the first quarter of 1997. During
the first nine months of 1998, the Company has shut-in certain oil and gas
properties that are unprofitable at current price levels.
<PAGE> 8
FORWARD LOOKING INFORMATION
Crude oil prices continue to remain unstable and unpredictable. Current
forecasts by industry analysts predict that the current price levels will
persist into the fourth quarter of this year. With the continuing crude oil
market instability, management feels that it must continue to reduce costs.
The Company has reduced field personnel in an effort to reduce operating
costs. The majority of all developmental and capital expenditures are being
deferred at this time. During the second quarter of 1998, the Company
re-drilled an existing well. This well is currently producing approximately
thirty barrels of crude oil per day during the third quarter of 1998. This
well was returned to production at the end of June 1998.
The Company has reviewed the compliance of its computer systems for year 2000
readiness. The Company's main accounting software is scheduled by it's third-
party vendor to be compliant with the year 2000 in the second quarter of 1999.
There is no additional cost for this update to the Company's main accounting
software. All of the Company's hardware and it's network software, with the
exception of the network file server, is currently compliant with the year
2000. The Company's network file server will either be replaced or upgraded
to comply with the year 2000. The Company does not believe that the efforts
and the costs to be fully compliant for the year 2000 will be material. The
Company is not aware of any third-party issues regarding year 2000 readiness.
The Company has no computer systems that interface electronically with third-
party computer systems. The Company does not have any electronic micro-
controllers for any of it's equipment that is used for it's field operations.
The Company has not identified any potential material lost revenue as a result
of any non-compliance with the year 2000 issues. In the worst case scenario,
the Company is of the opinion that the existing computer systems will be
adequate come January 1, 2000. However, the Company continues to believe that
it will be fully compliant with the year 2000 issues.
ANALYSIS OF SIGNIFICANT CHANGES IN RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1998
COMPARED TO THE QUARTER ENDED SEPTEMBER 30, 1997
REVENUES
Oil and gas sales decreased by 33% for the three months ended September 30,
1998 when compared with the same period for 1997. Oil and gas sales decreased
by 30.6% due to significantly lower average crude oil prices for the third
quarter of 1998. The average price of the Company's oil and gas for the third
quarter of 1998 decreased by approximately $5.00 per equivalent barrel
compared to the same period for 1997. Oil and gas sales also decreased by
2.4% due to lower crude oil production during the third quarter of 1998. The
Company's net revenue share of crude oil production decreased by less than ten
barrels per day during the third quarter of 1998. The decrease in
<PAGE> 9
production is primarily the result of certain oil and gas properties, which
are uneconomic at current price levels, being shut-in during third quarter
1998.
OPERATING EXPENSES
Operating expenses decreased by 25.5% for the third quarter of 1998. The
average cost to produce an equivalent barrel of crude oil decreased by
approximately $2.70 per barrel for the third quarter of 1998 when
compared with the third quarter of 1997. The decrease in operating costs is
due primarily to the shut-in of certain unprofitable oil and gas properties,
reductions in field personnel and a general reduction in costs due to lower
levels of activities in all cost categories.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased by 14% for the third quarter of
1998 when compared with the same period for 1997. Professional fees decreased
by 7% for the quarter ended September 30, 1998 due to lower costs for legal
services. The Company is a plaintiff in a continuing legal action, that
generated the increase in legal fees for 1997. The Company has decreased the
costs of communications by 3% due to a new contract with its cellular phone
provider which features lower rates.
OTHER INCOME
The decrease in other income is due primarily to a gain of $57,000 on the sale
of one of the Company's well servicing rigs during the quarter ended September
30, 1997. No such sale of fixed assets has occurred in 1998. Also, other
income for the quarter ended September 30, 1997, included a gain of $23,000
from the sale of production supplies and scrap metal.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997
REVENUES
Oil and gas sales decreased by 40.2% for the nine months ended September 30,
1998 when compared with the same period for 1997. Oil and gas sales decreased
by 33.7% due to lower average crude oil prices for the first half of 1998.
The average price of the Company's oil and gas for the first nine months of
1998 decreased by approximately $6.20 per equivalent barrel when compared with
the same period for 1997. The remaining decline in revenues of 6.5% is due to
lower production of crude oil. The Company's net revenue interest share of
oil and gas production decreased by approximately seventeen barrels per day
for the nine months ended September 30, 1998. The decrease in production is
<PAGE> 10
primarily the result of certain oil and gas properties, which are uneconomic
at current price levels, being shut-in during the first nine months of 1998.
OPERATING EXPENSES
Operating expenses decreased by 13% for the nine months ended September 30,
1998. The cost to produce an equivalent barrel of crude oil decreased by
approximately seventy cents per barrel for the nine months ended September 30,
1998.
During the first and second quarters of 1997, the Company devoted a portion of
its labor, supplies and fuel resources to the drilling of one oil well and
remedial work on a second well. The costs associated with the drilling and
remedial well work were capitalized as Oil and Gas Properties and Equipment.
In 1998, the Company again, capitalized costs associated with the redrill of
an existing well. However, the costs capitalized in 1998 were lower than the
costs capitalized in 1997. The result of the differences in the costs
capitalized between 1998 and 1997 was to increase costs for 1998 by 8% when
compared with the costs that were capitalized in 1997. This was offset by a
21% decrease in other costs due primarily to the shut-in of certain
unprofitable oil and gas properties, reductions in maintenance activities on
company owned equipment, reductions in field personnel and a general reduction
in costs due to lower levels of activities in all cost categories.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased by 16% for the first nine
months of 1998 when compared with the same period for 1997. Professional fees
decreased by 10% for the nine months ended September 30, 1998 due to lower
costs for legal services. The Company is a plaintiff in a continuing legal
action, that generated the increase in legal fees for 1997.
OTHER INCOME
The decrease in other income is due primarily to a gain of $77,000 on the sale
of five of the Company's well servicing rigs during the nine months ended
September 30, 1997. No such sale of fixed assets has occurred in 1998. Also,
other income for the nine months ended September 30, 1997, included a gain of
$30,000 from the sale of production supplies and scrap metal.
<PAGE> 11
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 September 30, 1998.
<PAGE> 12
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 13, 1998 J. BEN HATHAWAY
---------------------
J. Ben Hathaway
President
Dated: November 13, 1998 JOHN H. ALEXANDER
---------------------
John H. Alexander
Vice President
<PAGE> 13
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 307,299
<SECURITIES> 0
<RECEIVABLES> 112,379
<ALLOWANCES> 4,000
<INVENTORY> 61,194
<CURRENT-ASSETS> 591,748
<PP&E> 15,496,510
<DEPRECIATION> 13,323,093
<TOTAL-ASSETS> 2,765,165
<CURRENT-LIABILITIES> 230,260
<BONDS> 0
0
0
<COMMON> 1,071,610
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,765,165
<SALES> 743,139
<TOTAL-REVENUES> 787,547
<CGS> 901,738
<TOTAL-COSTS> 1,206,149
<OTHER-EXPENSES> 12,651
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,229
<INCOME-PRETAX> (436,482)
<INCOME-TAX> 1,133
<INCOME-CONTINUING> (437,615)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (437,615)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
