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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 September 30, 2012

or

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
(State or other jurisdiction of
incorporation or organization)
74-2075344
(IRS Employer
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 September 30, 2012
1,416,587 shares

 
TEXAS VANGUARD OIL COMPANY
 
TABLE OF CONTENTS
 
 
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
           
   
September 30,
   
December 31,
 
   
2012
   
2011
 
   
(Unaudited)
   
(Audited)
 
Current assets:
           
   Cash and cash equivalents
  $ 9,005,389     $ 8,575,692  
   Trade accounts receivable, net of allowance for doubtful accounts
      of $218,787 and $209,666 in 2012 and 2011, respectively
    152,369       272,819  
   Prepaid expense
    139,072       176,839  
   Prepaid federal income tax
    194,412       27,776  
   Total current assets
    9,491,242       9,053,126  
                 
Property and equipment, at cost:
               
   Oil and gas properties - successful efforts method of accounting
    9,376,505       9,038,331  
   Office furniture and vehicles
    156,871       233,035  
   
    9,533,376       9,271,366  
   Less accumulated depreciation, depletion and amortization
    (5,036,042 )     (4,815,808 )
   Total property and equipment
    4,497,334       4,455,558  
Other assets
    1,000       1,000  
   TOTAL ASSETS
  $ 13,989,576     $ 13,509,684  
                 
Liabilities and Stockholders' Equity
               
Current liabilities:
               
   Trade accounts payable
  $ 447,655     $ 414,402  
   Taxes payable
    30,190       41,473  
   Asset retirement obligation, current portion
    4,837       78,797  
   Notes payable
    150,000       150,000  
   Total current liabilities
    632,682       684,672  
Deferred federal income tax liability
    322,149       322,149  
Asset retirement obligation, less current portion
    584,140       474,201  
   Total liabilities
    1,538,971       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
    10,491,249       10,069,306  
   Total stockholders' equity
    12,450,605       12,028,662  
                 
   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 13,989,576     $ 13,509,684  

See accompanying notes to condensed financial statements.
 
 
Page 3 of 9

 
TEXAS VANGUARD OIL COMPANY
Condensed Statements of Earnings
(Unaudited)
 
   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2012
   
2011
   
2012
   
2011
 
Revenue:
                       
   Operating revenue
  $ 1,384,636       1,710,700       5,070,498       5,432,904  
   Other income
    6,662       13,604       38,019       40,994  
   Total revenue
    1,391,298       1,724,304       5,108,517       5,473,898  
Costs and expenses:
                               
   Production cost
    1,369,887       958,033       3,643,254       3,241,836  
   Depreciation, depletion and amortization
    108,236       109,055       326,434       327,165  
   General and administrative
    140,247       132,776       446,422       424,348  
   Impairment of oil and gas property
    -0-       -0-       12,517       -0-  
   Interest
    662       1,003       2,088       2,510  
   Doubtful account receivable expense
    1,924       (15,743 )     9,121       10,764  
   Total costs and expenses
    1,620,956       1,185,124       4,439,836       4,006,623  
   Earnings (loss) before taxes
    (229,658 )     539,180       668,681       1,467,275  
                                 
Federal and state taxes:
                               
   Provision (benefit) for federal income tax
    (80,804 )     179,950       217,364       488,172  
   Provision for state margin tax
    8,000       9,915       29,374       31,475  
   Net earnings (loss)
  $ (156,854 )     349,315       421,943       947,628  
                                 
Weighted average number of shares outstanding
    1,416,587       1,416,587       1,416,587       1,416,587  
                                 
Basic earnings (loss) per share
    (.11 )     .25       .30       .67  
Diluted earnings (loss) per share
    (.11 )     .25       .30       .67  
 
See accompanying notes to condensed financial statements.
 
 
Page 4 of 9


TEXAS VANGUARD OIL COMPANY
Condensed Statements of Cash Flows
(Unaudited)
 
   
Nine months ended
 
   
September 30,
 
   
2012
   
2011
 
Net cash provided by operating activities
  $ 789,046     $ 1,253,932  
                 
Cash flows used in investing activities:
               
   Additions to oil and gas properties
    (446,349 )     (391,896 )
   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
    (359,349 )     (381,896 )
                 
Net cash used in financing activities
    ---       ---  
Net change in cash and cash equivalents
    429,697       872,036  
                 
Cash and cash equivalents at beginning of period
    8,575,692       7,621,018  
Cash and cash equivalents at end of period
  $ 9,005,389     $ 8,493,054  

See accompanying notes to condensed financial statements.
 
 
Page 5 of 9


TEXAS VANGUARD OIL COMPANY
 
Notes to Condensed Financial Statements
(Unaudited)

September 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. The Company has reviewed the updates issued by the Financial Accounting Standards Board (FASB) during the three-month period ended September 30, 2012, and determined that the updates are either not applicable to the Company or will not have a material impact upon the Company.

 
Page 6 of 9

 
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 $326,064 (19%) and $362,406 (7%) for the three-month and nine-month periods ended September 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 increased by $411,854 (43%) and $401,418 (12%) for the three-month and nine-month periods ended September 30, 2011 as compared to the prior year periods.  Increased production costs for the three month and nine-month periods ended September 30, 2012 as compared to the prior-year periods is largely associated with an increase in workover activity.

General and administrative expenses increased $7,471 (6%) and $22,074 (5%) for the three-month and nine-month periods ended September 30, 2012 as compared to the prior year periods. Depreciation, depletion, and amortization remained almost constant decreasing by $731 for the nine-month period ended September 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 nine-month periods ended September 30, 2012, the Company provided a provision of $-0- 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 September 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 September 30, 2012, has increased to 15.00 to 1 from 13.22 to 1 at December 31, 2010. The Company continued its policy of making strategic investments in producing oil and gas properties in the same or similar fields to properties already operated by the Company, which are primarily financed with short term notes payable and cash from operations. Cash flow from operations was $789,046 for the nine months ended September 30, 2012.  The Company used $446,349 to invest in oil and gas properties in the first nine months of 2012 as compared to $391,896 in the first nine months of 2011.

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.

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 September 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.

 
Page 7 of 9


PART II. OTHER INFORMATION

Item 6. Exhibits
 
Exhibits:
31.1
 
32.1
 
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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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)
 
       
Date: November 6, 2012
By:
/s/ William G. Watson, President  
    William G. Watson, President and  
    Principal Financial and Accounting Officer  
       



 
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