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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X]QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2011
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 No. 000-24778
TEXAS VANGUARD OIL COMPANY
(Exact name of registrant as specified in its charter)
Texas 74-2075344
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
9811 Anderson Mill Rd., Suite 202
Austin, Texas 78750
(Address of Principal Executive Offices)
Registrant telephone number, including area code: (512) 331-6781
Check whether the issuer (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] or 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.
See definition of accelerated filer and large accelerated filer in Rule 12b-2
of the Exchange Act.
[ ] Large accelerated filer [ ] Accelerated filer
[ ] Non-accelerated filer [X] Smaller reporting company
Indicate by check mark whether the Registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] or No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at March 31, 2011
1,416,587 shares
TEXAS VANGUARD OIL COMPANY
INDEX
Page
Number
Part I. Financial Information
Item 1 - Financial Statements
Condensed Balance Sheets -
March 31, 2011 and December 31, 2010 3
Condensed Statements of Earnings -
Three months ended March 31, 2011 and 2010 4
Condensed Statements of Cash Flows -
Three months ended March 31, 2011 and 2010 4
Notes to the Condensed Financial Statements 5
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Item 3 Quantitative and Qualitative Disclosures about 6
Market Risk
Item 4 - Controls and Procedures 6
Part II. Other Information 7
Signatures 7
In the opinion of the Registrant, all adjustments (consisting of normal
recurring accruals) necessary to a fair statement of the results of the
interim periods have been included.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TEXAS VANGUARD OIL COMPANY
Condensed Balance Sheets
Assets
March 31, December 31,
2011 2010
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 8,022,380 $ 7,621,018
Trade accounts receivable, net of allowance
for doubtful accounts of $181,592 and
$172,534 in 2011 and 2010, respectively 123,641 155,191
Prepaid expense 5,016 10,277
Prepaid federal income tax 62,213 202,545
--------- ----------
Total current assets 8,213,250 7,989,031
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Property and equipment, at cost:
Oil and gas properties - successful efforts
method of accounting 8,528,660 8,496,841
Office furniture and vehicles 233,035 233,035
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8,761,695 8,729,876
Less accumulated depreciation, depletion and
amortization (4,502,301) (4,393,245)
---------- ----------
Total property and equipment, net 4,259,394 4,336,631
--------- ----------
Other assets 1,000 1,000
--------- ----------
TOTAL ASSETS $12,473,644 $12,326,662
========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 291,565 $ 436,008
Taxes payable 46,461 36,454
Asset retirement obligation, current portion 201,283 184,800
Notes payable 150,000 150,000
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Total current liabilities 689,309 807,262
--------- ----------
Deferred federal income tax liability 292,895 292,895
Asset retirement obligation, less current portion 345,735 353,210
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Total liabilities 1,327,939 1,453,367
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Stockholders' equity:
Common stock, par value $.05; authorized
12,500,000 shares; 1,416,587 issued and
outstanding in 2011 and 2010, respectively 70,828 70,828
Additional paid-in capital 1,888,528 1,888,528
Accumulated earnings 9,186,349 8,913,939
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Total stockholders' equity 11,145,705 10,873,295
--------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,473,644 $12,326,662
========== ===========
See accompanying notes to condensed financial statements.
TEXAS VANGUARD OIL COMPANY
Condensed Statements of Earnings
(Unaudited)
Three months ended
March 31,
2011 2010
Revenue:
Operating revenue $ 1,724,834 $ 1,492,163
Other income 15,528 16,245
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Total revenue 1,740,362 1,508,408
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Costs and expenses:
Production cost 1,045,393 954,918
Depreciation, depletion and amortization 109,055 106,384
General and administrative 153,168 147,873
Impairment in value of oil and gas property -0- 65,000
Interest 939 1,295
Doubtful accounts expense 9,058 7,655
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Total costs and expenses 1,317,613 1,283,125
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Earnings before taxes 422,749 255,283
Federal and state taxes:
Provision for federal income tax 140,332 71,947
Provision for state margin tax 10,007 8,673
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Net earnings $ 272,410 $ 144,663
========= =========
Weighted average number of shares outstanding 1,416,587 1,416,587
========= =========
Basic and diluted earnings per share $ .19 $ .10
========= =========
TEXAS VANGUARD OIL COMPANY
Condensed Statements of Cash Flows
(Unaudited)
Three months ended
March 31,
2011 2010
Net cash provided by operating activities $ 433,180 $ 256,513
Cash flows used in investing activities:
Additions to oil and gas properties (31,818) (71,105)
Purchase of equipment -0- (6,493)
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Net cash used in investing activities (31,818) (77,598)
Net cash used in financing activities --- ---
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Net change in cash and cash equivalents 401,362 178,915
Cash and cash equivalents at beginning
of period 7,621,018 7,192,556
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Cash and cash equivalents at end of
period $ 8,022,380 $ 7,371,471
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See accompanying notes to condensed financial statements.
TEXAS VANGUARD OIL COMPANY
Notes to Condensed Financial Statements
(Unaudited)
March 31, 2011
Note 1: Oil and Gas Properties
Texas Vanguard Oil Company (the Company) follows the "successful efforts"
method of accounting for oil and gas exploration and production operations.
Accordingly, costs incurred in the acquisition and exploratory drilling of
oil and gas properties are initially capitalized and either subsequently
expensed if the properties are determined not to have proved reserves, or
reclassified as a proven property if proved reserves are discovered.
Costs of drilling development wells are capitalized. Geological, geophysical,
carrying and production costs are charged to expense as incurred.
The Company performs a periodic review for impairment of proved properties.
The Company determines if impairment has occurred through either adverse
changes or as a result of its periodic review for impairment. Upon
abandonment of properties, the reserves are deemed fully depleted and any
unamortized costs are recorded in the statement of income under impairment
expense. Upon the sale of oil and gas reserves in place, costs less
accumulated amortization of such property are removed from the accounts
and resulting gain or loss on sale is reflected in operations.
Impairment of unproved properties is assessed periodically and any impairment
in value is currently charged to expense. Loss is recognized to the extent
that such impairment is indicated. When an entire interest in an unproved
property is sold, gain or loss is recognized, taking into consideration
any recorded impairment.
Depreciation, depletion and amortization of proved oil and gas property
costs, including related equipment and facilities, are provided using the
units-of-production method.
Note 2: Income Taxes
The Company uses the "asset and liability method" of income tax accounting
which bases the amount of current and future taxes payable on the events
recognized in the financial statements and on tax laws existing at the balance
sheet date. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes enactment date.
Note 3: Statement of Cash Flows
Cash and cash equivalents as used in the Condensed Statements of Cash Flows
include cash in banks and certificates of deposits owned.
Note 4: Recently Issued Accounting Standards
The Company has reviewed the Update issued by the Financial Accounting
Standards Board (FASB) during the first quarter of 2011 and determined
that the Update is not applicable to the Company.
Item 2. Managements Discussion and Analysis of Results of Operations and
Financial Condition.
The following information is provided in compliance with SEC guidelines to
explain financial information shown in the Condensed Financial Statements.
RESULTS OF OPERATIONS
Operating revenues increased by $232,671 (16%) for the three-month period
ended March 31, 2011 from the comparable prior-year period primarily
as a result of higher oil and gas prices in 2011 as compared to
2010. Production costs increased $90,475 (9%) for the three-month period
ended March 31, 2011 from the prior year period. Increased production
costs for the three-month period ended March 31, 2011 as compared to
the prior-year period are largely associated with an increase in
in overall field expenses as well as an increased participation
in non-operated properties and the costs associated therewith.
General and administrative expenses for the three-month period ended
March 31, 2011 increased $5,295 (4%) as compared to the prior year
period. Interest expense decreased $356 for the three-month period ended
March 31, 2011 from the comparable prior-year period. Depreciation,
depletion and amortization increased by $2,671 (3%) for the three-month
period ended March 31, 2011 from the comparable prior-year period.
Depreciation, depletion and amortization varies from period to period
because of changes in reserve estimates, changes in quantities of oil and
gas produced, changes in price of oil and gas sold, as well as the
acquisition, discovery, or sale of producing properties.
LIQUIDITY AND CAPITAL RESOURCES
During the period ended March 31, 2011, the Company's liquidity remained strong
enough to meet its short-term cash needs. The sources of liquidity and capital
resources are generated from cash on hand, cash provided by operations and from
credit available from financial institutions. Working capital at March 31, 2011
increased to 11.92 to 1 from 9.90 to 1 at December 31, 2010. Management
believes that oil and gas property investing activities in 2011 can be financed
through cash on hand, cash from operating activities, and bank borrowings.
The Company anticipates continued investments in proven oil and gas properties
in 2011 when they can be purchased at prices that will provide a short pay back
period. If bank credit is not available, the Company may not be able to continue
its policy of continued investment in strategic oil and gas properties.
Cash flow provided by operations was $433,180 for the three months ended
March 31, 2011. The Company used $31,818 to invest in oil and gas properties
in the first three months of 2011 as compared to $71,105 in the first
three months of 2010.
The worldwide crude oil prices continue to fluctuate in 2011. The Company
cannot predict how prices will vary during the remainder of 2011 and what
effect they will ultimately have on the Company, but management believes
that the Company will be able to generate sufficient cash from operations
to service its bank debt and provide for maintaining current production of
its oil and gas properties.
Inflation is not anticipated to have a significant impact on the Company's
operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company does not engage in hedging activities and does not use
commodity futures nor forward contracts in its cash management functions.
Our financial condition, results of operations and capital resources are
highly dependent upon the prevailing market prices of, and demand for,
oil and natural gas. These commodity prices are subject to wide fluctuations
and market uncertainties due to a variety of factors that are beyond our
control. We cannot predict future oil and natural gas prices with any
degree of certainty. Sustained declines in oil and natural gas prices may
adversely affect our financial condition and results of operations, and
may also reduce the amount of net oil and natural gas reserves that we
can produce economically.
Item 4: Controls and Procedures
Under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer, we conducted
an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in Rules 13a-14(c) and
15d-14(c) under the Securities Exchange Act of 1934, as of March 31, 2011
(the "Evaluation Date"). Based upon this evaluation, our principal financial
and accounting officer concluded as of the Evaluation Date that our disclosure
controls and procedures were effective such that the material information
required to be included in our Securities and Exchange Commission (SEC)
reports is recorded, processed, summarized, and reported within the time
periods specified in SEC rules and forms relating to the Company, including
our consolidated subsidiaries, and was made known to them by others within
those entities, particularly during the period when this report was being
prepared.
In addition, there were no significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to
the Evaluation Date.
PART II. OTHER INFORMATION
Item 6. Exhibits
Exhibits: 31.1 Rule 13a-14(a)/15d-14(a) Certification
32.1 18 U.S.C. Section 1350 Certification
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.
TEXAS VANGUARD OIL COMPANY
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(Registrant)
William G. Watson, President
--------------------------------
William G. Watson, President
(Chief Executive Officer and
Chief Financial Officer)
Date: May 9, 2011
