TEXAS VANGUARD OIL CO - FORM 10-Q

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EX-32.1 - TEXAS VANGUARD OIL CO	ex32-1.htm
EX-31.1 - TEXAS VANGUARD OIL CO	ex31-1.htm
EXCEL - IDEA: XBRL DOCUMENT - TEXAS VANGUARD OIL CO	Financial_Report.xls

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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 June 30, 2012

o 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’s telephone number, including area code: (512) 331-6781

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 o

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.

o Large accelerated filer o Accelerated filer

o 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 o 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 June 30, 2012

1,416,587 shares

Table of Contents

TEXAS VANGUARD OIL COMPANY

Table of Contents

	Page Number
Part I. Financial Information

Item 1 - Financial Statements	3

Condensed Balance Sheets - June 30, 2012 and December 31, 2011	3

Condensed Statements of Earnings - Three and six months ended June 30, 2012 and 2011	4

Condensed Statements of Cash Flows - Six months ended June 30, 2012 and 2011	5

Notes to the Condensed Financial Statements	6

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations	7

Item 3 – Quantitative and Qualitative Disclosures about Market Risk	7

Item 4 - Controls and Procedures	7

Part II. Other Information

Item 6 – Exhibits	8

Signatures	9

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.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TEXAS VANGUARD OIL COMPANY

Condensed Balance Sheets

	June 30, 2012			December 31, 2011
Assets	(Unaudited)			(Audited)
Current assets:
Cash and cash equivalents	$	9,270,186		$	8,575,692
Trade accounts receivable, net of allowance for doubtful accounts of $216,863 and $209,666 in 2012 and 2011, respectively		202,500			272,819
Prepaid expense		17,839			176,839
Prepaid federal income tax		-0-			27,776
Total current assets		9,490,525			9,053,126

Property and equipment, at cost:
Oil and gas properties - successful efforts method of accounting		9,354,077			9,038,331
Office furniture and vehicles		156,871			233,035
		9,510,948			9,271,366
Less accumulated depreciation, depletion and amortization		(4,927,805	)		(4,815,808	)
Total property and equipment, net		4,583,143			4,455,558
Other assets		1,000			1,000
TOTAL ASSETS	$	14,074,668		$	13,509,684

Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable	$	375,946		$	414,402
Taxes payable		33,582			41,473
Asset retirement obligation, current portion		29,837			78,797
Notes payable		150,000			150,000
Total current liabilities		589,365			684,672

Deferred federal income tax liability		322,149			322,149
Asset retirement obligation, less current portion		555,695			474,201
Total liabilities		1,467,209			1,481,022

Stockholders' equity:
Common stock, par value $.05; authorized 12,500,000 shares; 1,416,587 issued and outstanding in 2012 and 2011, respectively		70,828			70,828
Additional paid-in capital		1,888,528			1,888,528
Accumulated earnings		10,648,103			10,069,306
Total stockholders' equity		12,607,459			12,028,662

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	14,074,668		$	13,509,684

See accompanying notes to condensed financial statements.

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TEXAS VANGUARD OIL COMPANY

Condensed Statements of Earnings

(Unaudited)

	Three months ended				Six months ended
	June 30,				June 30,
	2012		2011		2012		2011
Revenue:
Operating revenue	$	1,756,413	$	1,997,370	$	3,685,862	$	3,722,204
Other income		15,314		11,862		31,357		27,390
Total revenue		1,771,727		2,009,232		3,717,219		3,749,594
Costs and expenses:
Production cost		1,182,905		1,238,410		2,273,367		2,283,803
Depreciation, depletion and amortization		108,236		109,055		218,198		218,110
General and administrative		146,260		138,406		306,175		291,572
Impairment in value of oil and gas property		10,629		-0-		12,517		-0-
Interest		678		567		1,426		1,507
Doubtful account expense		215		17,449		7,197		26,507
Total costs and expenses		1,448,923		1,503,887		2,818,880		2,821,499
Earnings before taxes		322,804		505,345		898,339		928,095

Federal and state taxes:
Provision for federal income tax		106,290		167,889		298,168		308,222
Provision for state margin tax		10,187		11,553		21,374		21,560
Net earnings	$	206,327	$	325,903	$	578,797	$	598,313

Weighted average number of shares outstanding		1,416,587		1,416,587		1,416,587		1,416,587

Basic earnings per share	$	.15		.23	$	.41		.42
Diluted earnings per share	$	.15		.23	$	.41		.42

See accompanying notes to condensed financial statements.

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Table of Contents

TEXAS VANGUARD OIL COMPANY

Condensed Statements of Cash Flows

(Unaudited)

	Six months ended
	June 30,
	2012			2011
Net cash provided by operating activities	$	1,031,415		$	912,078

Cash flows used in investing activities:
Additions to oil and gas properties		(423,921	)		(88,269	)
Proceeds from sale of equipment		72,000			-0-
Proceeds from sale of oil and gas properties		15,000			10,000
Net cash used in investing activities		(336,921	)		(78,269	)

Net cash used in financing activities		-			-
Net change in cash and cash equivalents		694,494			833,809

Cash and cash equivalents at beginning of period		8,575,692			7,621,018
Cash and cash equivalents at end of period	$	9,270,186		$	8,454,827

See accompanying notes to condensed financial statements.

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TEXAS VANGUARD OIL COMPANY

Notes to Condensed Financial Statements

(Unaudited)

June 30, 2012

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 Financial Accounting Standards Board (FASB) did not issue any Updates during the first or second quarters of 2012.

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Item 2. Management's 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 decreased by $240,957 (12%) and $36,342 (1%) for the three-month and six-month periods ended June 30, 2012, from the comparable prior year periods primarily as a result of less oil and gas sales as well as lower commodity prices in 2012 as compared to 2011. Production costs decreased by $55,505 (4%) and $10,436 (.5%) for the three-month and six-month periods ended June 30, 2012, from the comparable prior year periods. Decreased production costs for the three-month and six-month periods ended June 30, 2012 as compared to the prior-year periods are largely associated with a decrease in overall field expenses.

General and administrative expenses increased $7,854 (6%) and $14,603 (5%) for the three-month and six-month periods ended June 30, 2012, as compared to the prior year periods. Depreciation, depletion, and amortization remained almost constant increasing by $88 for the six-month period ended June 30, 2012, 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. For the three-month and six-month periods ended June 30, 2012, the Company provided a provision of $10,629 and $12,517 for the impairment of value of oil and gas properties due to less than expected production performance of specific wells and for wells that were plugged and abandoned.

LIQUIDITY AND CAPITAL RESOURCES

During the period ended June 30, 2012, 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 June 30, 2012, has increased to 16.10 to 1 from 13.22 to 1 at December 31, 2011. Management believes that oil and gas property investing activities in 2012 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 2012 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 $1,031,415 for the six months ended June 30, 2012. The Company used $423,921 to invest in oil and gas properties in the first six months of 2012, compared to $88,269 in the first six months of 2011. During the second quarter ended June 30, 2011, the Company sold three operated oil and gas properties. The Company sells selected properties when it is more economical to sell rather than produce them.

The worldwide crude oil prices continue to fluctuate in 2012. The Company cannot predict how prices will vary during the remainder of 2012 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 June 30, 2012 (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.

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PART II. OTHER INFORMATION

Item 6. Exhibits

Exhibits:	31.1	Rule 13a-14(a)/15d-14(a) Certification
	32.1	18 U.S.C. 1350 Certification
	101.INS	XBRL Instance Document
	101.SCH	XBRL Taxonomy Extension Schema
	101.CAL	Taxonomy Extension Calculation Linkbase
	101.DEF	Taxonomy Extension Definition Linkbase
	101.LAB	Taxonomy Extension Label Linkbase
	101.PRE	Taxonomy Extension Presentation Linkbase

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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.

	TEXAS VANGUARD OIL COMPANY
	(Registrant)

	William G. Watson, President
	William G. Watson, President and
	(Chief Executive Officer and Chief Financial Officer)
Date: August 7, 2012

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