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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 2002 Commission File No. 1-10437
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) (Zip Code)
Registrant's telephone number, including area code (512) 331-6781
Former name, address and fiscal year, if changed since last report:
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 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 30, 2002
Common Stock, $.05 par value 1,417,087 shares
TEXAS VANGUARD OIL COMPANY
INDEX
Page
Number
Part I: Financial Information
Item 1 - Financial Statements
Condensed Balance Sheets -
June 30, 2002 and December 31, 2001 3
Condensed Statements of Earnings -
Three and six months ended June 30, 2002 and 2001 4
Condensed Statements of Cash Flows -
Six months ended June 30, 2002 and 2001 4
Notes to the Condensed Financial Statements 5
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Part II. Other Information 7
Signatures 8
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
(Unaudited)
Assets
June 30, December 31,
2002 2001
Current assets:
Cash and temporary investments $ 2,813,456 4,041,292
Trade accounts receivable 173,757 194,360
Other receivables --- 20,000
--------- ---------
Total current assets 2,987,213 4,255,652
--------- ---------
Property and equipment, at cost:
Oil and gas properties - successful
efforts method of accounting 3,735,770 3,641,241
Office furniture and vehicles 240,019 240,019
--------- ---------
3,975,789 3,881,260
Less accumulated depreciation, depletion and
amortization (1,539,736) (1,447,140)
--------- ---------
Total property and equipment 2,436,053 2,434,120
--------- ---------
Other assets 101,000 1,000
--------- ---------
TOTAL ASSETS $ 5,524,266 6,690,772
--------- ---------
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 91,802 185,240
Income tax payable 8,197 ---
Notes payable and current installments
of long-term debt 3,139,829 4,138,411
--------- ---------
Total current liabilities 3,239,828 4,323,651
--------- --------
Deferred tax liability 260,373 138,402
Long-term debt, excluding current installments 19,075 239,640
--------- ---------
Total Liabilities 3,519,276 4,701,693
Stockholders' equity:
Common stock 70,854 70,854
Additional paid-in capital 1,890,005 1,890,005
Retained earnings 44,131 28,220
--------- ---------
Total stockholders' equity 2,004,990 1,989,079
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,524,266 6,690,772
--------- ---------
See accompanying notes to condensed financial statements.
TEXAS VANGUARD OIL COMPANY
Condensed Statements of Earnings
(Unaudited)
Three months ended Six months ended
June 30, June 30,
2002 2001 2002 2001
Revenue:
Operating revenue $ 941,526 1,339,283 1,758,074 2,840,594
Other income 12,975 10,425 26,727 17,647
--------- --------- --------- ---------
Total revenue 954,501 1,349,708 1,784,801 2,858,241
--------- --------- --------- ---------
Costs and expenses:
Production cost 659,577 710,856 1,265,012 1,294,891
Exploration cost 36 165,636 333 297,259
Depreciation, depletion
and amortization 48,456 66,566 92,596 142,045
General and
administrative 106,398 101,393 229,551 202,710
Abandonment of leaseholds 100,000 215,000 125,000 726,000
Interest 28,920 19,926 48,201 51,173
--------- --------- --------- ---------
Total costs and expenses 943,387 1,279,377 1,760,693 2,714,078
--------- --------- --------- ---------
Earnings before
federal income taxes 11,114 70,331 24,108 144,163
--------- --------- --------- ---------
Income taxes:
Deferred federal income tax 3,779 23,912 8,197 49,015
--------- -------- --------- ---------
Net earnings $ 7,335 46,419 15,911 95,148
========= ========= ========= =========
Weighted average number of
shares outstanding 1,417,087 1,417,087 1,417,087 1,417,087
========= ========= ========= =========
Basic and diluted earnings
per share -0- .03 .01 .07
========= ========= ========= =========
TEXAS VANGUARD OIL COMPANY
Condensed Statements of Cash Flows
(Unaudited)
Six months ended
June 30,
2002 2001
Net cash provided by operating activities $ 310,838 841,609
Net cash used in investing activities (319,529) (214,043)
Net cash used in financing activities (1,219,145) (3,701,186)
--------- -----------
Net change in cash and temporary investments (1,227,836) (3,073,620)
Cash and temporary investments at
beginning of period 4,041,292 4,348,022
---------- ----------
Cash and temporary investments at
end of period $ 2,813,456 1,274,402
========= =========
See accompanying notes to condensed financial statements.
TEXAS VANGUARD OIL COMPANY
Notes to Condensed Financial Statements
(Unaudited)
June 30, 2002
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.
Costs related to acquiring unproved lease and royalty acreage are periodically
assessed for possible impairment of value. If the assessment indicates impair-
ment, the costs are charged to expense.
Depreciation, depletion and amortization of proved oil and gas property costs,
including related equipment and facilities, is 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 deposit owned.
Note 4: Recently Issued Accounting Standards
In September 2001, the FASB issued Statement 143, Asset Retirement Obligations.
This Statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. The Statement will be effective for the Company's
fiscal year beginning after June 15, 2002. The Company is currently evaluating
the effect that adoption of the provisions of SFAS 143 will have on its
financial statements.
In July 2002, the FASB issued Statement 146, Accounting For Costs Associated
with Exit or Disposal Activities. This Statement requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal
plan. Statement 146 is to be applied prospectively to exit or disposal
activities initiated after December 31, 2002. The Company does not anticipate
that the adoption of the provisions of SFAS 146 will have a material impact
on the financial statements at adoption.
Note 5: Contingency
As disclosed in previously filed 8-K's dated June 14, 2002 and July 31, 2002,
the Company has received notification from a customer regarding a claim of
overpayment for gas deliveries due to meter manipulation.
The customer is making a claim of overpayment of approximately $350,000. The
Company has notified the customer that it is not aware of any meter
manipulation and has initiated an internal investigation.
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 $397,757 (30%) and $1,082,520 (38%) for the
three-month and six-month period ended June 30, 2002 from the comparable prior
year periods primarily as a result of lower oil prices in 2002 as compared
to 2001. Production costs decreased by $51,279 (7%) and $29,879 (2%) for the
three-month and six-month periods ended June 30, 2002 as compared to the prior
year periods.
General and administrative expenses increased $5,005 (5%) and $26,841 (13%)
for the three-month and six-month periods ended June 30, 2002 as compared to
the prior year periods. Interest expense increased approximately $8,994 (45%)
for the three-month period ended June 30, 2002, from the comparable 2001 period
primarily due to higher average outstanding balances. Interest expense
decreased $2,972 (6%) for the six-month period ended June 30, 2002, from the
comparable 2001 periods due to lower average outstanding balances. Depreciation,
depletion and amortization decreased by $49,449 (35%) for the six-month period
ended June 30, 2002 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, as well as
the acquisition, discovery or sale of producing properties. For the three-month
and six-month periods ended June 30, 2002, the Company provided a provision
of $100,000 and $125,000 for the impairment of value of oil and gas properties
due to less than expected production history of specific wells and for wells
that were plugged and abandoned.
LIQUIDITY AND CAPITAL RESOURCES
During the period ended June 30, 2002, 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,
2002 has decreased to .92 to 1 from .98 to 1 at December 31, 2001. The
Company continued it's 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 remains positive at
$310,838 for the six months ended June 30, 2002. Notes payable and long-term
debt decreased by $1,219,145 for the six-month period ended June 30, 2002,
by using cash on hand and cash generated from operations.
The worldwide crude oil prices continue to fluctuate in 2002. The Company
cannot predict how prices will vary during the remainder of 2002 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
operatons.
PART II.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits: A. Certification of Reporting Officer
b) Reports on Form 8-K: Form 8-K filed on June 14, 2002 and July 31, 2002
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)
/s/ Robert N. Watson, Jr., President
------------------------------------
Robert N. Watson, Jr., President
(Principal Financial and
(Accounting Officer)
Date: August 13, 2002
Exhibits:
EXHIBIT A: CERTIFICATION OF REPORTING OFFICER
The undersigned hereby certifies that this Quarterly Report on Form 10-QSB
fully complies with the requirements of Section 13 (a) or 15 (d) of the
Securities Exchange Act of 1934 and that the information contained in this
report fairly presents, in all material respects, the financial conditions
and results of operations of the Registrant.
Date: August 13, 2002 By /s/ Robert N. Watson, Jr.
Robert N. Watson, Jr., President
(Principal Financial and Accounting Officer