TEXAS VANGUARD OIL CO - FORM 10-Q - August 13, 2013

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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 June 30, 2013

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 74-2075344
(State or other jurisdiction of 
incorporation or organization)
(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 June 30, 2013
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
  
   
June 30,
    
December 31,
  
   
2013
    
2012
  
   
(Unaudited)
    
(Audited)
  
Current assets:
            
   Cash and cash equivalents
   $ 9,581,262     $ 9,036,449  
   Trade accounts receivable, net of allowance for doubtful accounts of $228,297 and $209,554 in 2013 and 2012, respectively
     160,110       140,286  
   Prepaid expense
     52,161       36,053  
   Prepaid federal income tax
     38,220       221,468  
   Total current assets
     9,831,753       9,434,256  
Property and equipment, at cost:
                
   Oil and gas properties - successful efforts method of accounting
     9,389,589       9,447,796  
   Office furniture and vehicles
     156,871       156,871  
      9,546,460       9,604,667  
   Less accumulated depreciation, depletion and amortization
     (5,192,771 )     (4,988,052 )
   Total property and equipment, net
     4,353,689       4,616,615  
Other assets
     1,000       1,000  
   TOTAL ASSETS
   $ 14,186,442     $ 14,051,871  
                 
Liabilities and Stockholders' Equity
  
Current liabilities:
                
   Trade accounts payable
   $ 282,168     $ 487,590  
   Taxes payable
     15,828       37,813  
   Asset retirement obligation, current portion
     3,807       4,319  
   Notes payable
     150,000       150,000  
   Total current liabilities
     451,803       679,722  
Deferred federal income tax liability
     331,641       331,641  
Asset retirement obligation, less current portion
     630,773       624,000  
   Total liabilities
     1,414,217       1,635,363  
Stockholders' equity:
                
   Common stock, par value $.05; authorized 12,500,000 shares;
   1,416,587 issued and outstanding in 2013 and 2012, respectively
     70,828       70,828  
   Additional paid-in capital
     1,888,528       1,888,528  
   Accumulated earnings
     10,812,869       10,457,152  
   Total stockholders' equity
     12,772,225       12,416,508  
                 
   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
   $ 14,186,442     $ 14,051,871  
 
See accompanying notes to condensed financial statements.
 
 
Page 3 of 10
 
TEXAS VANGUARD OIL COMPANY
Condensed Statements of Earnings
(Unaudited)
 
   
Three months ended
    
Six months ended
  
   
June 30,
    
June 30,
  
   
2013
    
2012
    
2013
    
2012
  
Revenue:
                        
   Operating revenue
   $ 1,256,864     $ 1,756,413     $ 2,726,030     $ 3,685,862  
   Other income
     13,444       15,314       26,563       31,357  
   Total revenue
     1,270,308       1,771,727       2,752,593       3,717,219  
Costs and expenses:
                                
   Production cost
     755,357       1,182,905       1,553,846       2,273,367  
   Depreciation, depletion and amortization
     102,359       108,236       204,719       218,198  
   General and administrative
     148,504       146,260       310,258       306,175  
   Impairment in value of oil and gas property
     108,710       10,629       108,710       12,517  
   Interest
     654       678       1,525       1,426  
   Doubtful account expense
     59       215       18,743       7,197  
   Total costs and expenses
     1,115,643       1,448,923       2,197,801       2,818,880  
   Earnings before taxes
     154,665       322,804       554,792       898,339  
                                 
Federal and state taxes:
                                
   Provision for federal income tax
     50,103       106,290       183,248       298,168  
   Provision for state margin tax
     7,304       10,187       15,827       21,374  
   Net earnings
   $ 97,258     $ 206,327     $ 355,717     $ 578,797  
                                 
Weighted average number of shares outstanding
     1,416,587       1,416,587       1,416,587       1,416,587  
                                 
Basic earnings per share
   $ .07     $ .15     $ .25     $ .41  
Diluted earnings per share
   $ .07     $ .15     $ .25     $ .41  
 
See accompanying notes to condensed financial statements.
 
 
Page 4 of 10
 
TEXAS VANGUARD OIL COMPANY
Condensed Statements of Cash Flows
(Unaudited)
 
   
Six months ended
  
   
June 30,
  
   
2013
    
2012
  
Net cash provided by operating activities
   $ 592,263     $ 1,031,415  
                 
Cash flows used in investing activities:
                
   Additions to oil and gas properties
     (47,450 )     (423,921 )
   Proceeds from sale of equipment
     ---       72,000  
   Proceeds from sale of oil and gas properties
     ---       15,000  
Net cash used in investing activities
     (47,450 )     (336,921 )
                 
Net cash used in financing activities
     ---       ---  
Net change in cash and cash equivalents
     544,813       694,494  
                 
Cash and cash equivalents at beginning of period
     9,036,449       8,575,692  
Cash and cash equivalents at end of period
   $ 9,581,262     $ 9,270,186  
 
See accompanying notes to condensed financial statements.
 
 
Page 5 of 10
 
TEXAS VANGUARD OIL COMPANY
Notes to Condensed Financial Statements
(Unaudited)

June 30, 2013
 
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 updates issued by the Financial Accounting Standards Board (FASB) during the six-month period ended June 30, 2013, 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 10

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  $499,549  (28%) and $959,832 (26%) for the three-month and six-month periods ended June 30, 2013, from the comparable prior year periods primarily as a result of less oil and gas sales as well as lower commodity prices in 2013 as compared to 2012.  Production costs decreased by $427,548 (36%) and $719,521 (32%) for the three-month and six-month periods ended June 30, 2013, from the comparable prior year periods. Decreased production costs for the three-month and six-month  periods ended  June  30, 2013 as compared to the prior-year periods are largely associated with a decrease in overall field expenses as well as a decrease in workover activity.

General and administrative expenses increased $2,244 (2%) and $4,083 (1%) for the three-month and six-month periods ended June 30, 2013, as compared to the prior year periods. Depreciation, depletion, and amortization decreased by $13,479 (6%) for the six-month period ended June 30, 2013, 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, 2013, the Company provided a provision of $108,710 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, 2013, 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, 2013, has increased to 21.76 to 1 from 13.88 to 1 at December 31, 2012. Management believes that oil and gas property investing activities in 2013 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 2013 when they can be purchased at prices that will provide a short payback 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 $592,263 for the six months ended June 30, 2013. The Company used $47,450 to invest in oil and gas properties in the first six months of 2013, compared to $423,921 in the first six months of 2012.

The worldwide crude oil prices continue to fluctuate in 2013. The Company cannot predict how prices will vary during the remainder of 2013 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.
 
 
Page 7 of 10

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, 2013 (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 8 of 10

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

 
 
 
Page 9 of 10


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 6, 2013
 

 
 
Page 10 of 10
 

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