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 September 30, 2002 Commission File No. 1-10437
TEXAS VANGUARD OIL COMPANY
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(Exact name of registrant as specified in its charter)
Texas 74-2075344
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
9811 Anderson Mill Rd., Suite 202
Austin, Texas 78750
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (512) 331-6781
Not Applicable
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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 of Common Stock Outstanding at September 30, 2002
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$.05 par value 1,416,587 shares
1
TEXAS VANGUARD OIL COMPANY
INDEX
Page No.
Part I. Financial Information
Condensed Balance Sheets -
September 30, 2002 and December 31, 2001 3
Condensed Statements of Earnings -
Three and nine months ended
September 30, 2002 and 2001 4
Condensed Statements of Cash Flows -
Nine months ended September 30, 2002 and 2001 4
Notes to the Condensed Financial Statements 5
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 6
Part II. Other Information 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.
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TEXAS VANGUARD OIL COMPANY
Condensed Balance Sheets
(Unaudited)
Assets
September 30, December 31,
2002 2001
Current assets:
Cash and cash equivalents $ 2,732,726 4,041,292
Trade accounts receivable 120,602 194,360
Other receivables --- 20,000
--------- ---------
Total current assets 2,853,328 4,255,652
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Property and equipment, at cost:
Oil and gas properties - successful
efforts method of accounting 3,801,252 3,641,241
Office furniture and vehicles 204,446 240,019
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4,005,698 3,881,260
Less accumulated depreciation,
depletion and amortization (1,578,710) (1,447,140)
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Total property and equipment 2,426,988 2,434,120
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Other assets 101,000 1,000
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TOTAL ASSETS $ 5,381,316 6,690,772
=========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 96,421 185,240
Gas contract adjustment 255,886 ---
Notes payable and current installments
of long-term debt 3,049,284 4,138,411
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Total current liabilities 3,401,591 4,323,651
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Deferred tax liabilities 158,897 138,402
Long-term debt, excluding
current installments --- 239,640
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Total liabilities 3,560,488 4,701,693
Stockholders' equity:
Common stock 70,829 70,854
Additional paid-in capital 1,888,530 1,890,005
Retained earnings (loss) (138,531) 28,220
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Total stockholders' equity 1,820,828 1,989,079
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 5,381,316 6,690,772
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See accompanying notes to condensed financial statements.
3
TEXAS VANGUARD OIL COMPANY
Condensed Statements of Earnings
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
Revenue:
Operating revenue $ 879,245 1,083,284 2,637,319 3,923,878
Other income 12,869 53,240 39,596 70,887
--------- --------- --------- ---------
Total revenue 892,114 1,136,524 2,676,915 3,994,765
--------- --------- --------- ---------
Costs and expenses:
Production cost 492,435 587,683 1,745,989 1,882,575
Gas contract adjustment 449,557 --- 449,557 ---
Exploration cost 41,843 64,358 53,635 361,617
Depreciation, depletion
and amortization 46,089 60,417 138,685 202,462
General and
administrative 105,741 94,223 335,291 296,931
Abandonment/Impairment
of leaseholds --- 289,500 125,000 1,015,500
Interest 48,783 16,317 96,984 67,490
--------- ---------- --------- ----------
Total costs and expenses 1,184,448 1,112,498 2,945,141 3,826,575
--------- ---------- --------- ----------
Earnings (loss) before
federal income taxes (292,334) 24,026 (268,226) 168,190
--------- --------- --------- ---------
Federal income taxes:
Federal income tax
expense (benefit) (109,672) 8,169 (101,475) 57,185
--------- --------- --------- ---------
Net earnings $(182,662) 15,857 (166,751) 111,005
========= ========= ========= ==========
Weighted average number
of shares outstanding 1,416,701 1,417,087 1,416,957 1,417,087
========= ========= ========= =========
Basic and diluted
earnings(loss) per share (.13) .01 (.12) .08
========= ========= ========= =========
TEXAS VANGUARD OIL COMPANY
Condensed Statements of Cash Flows
(Unaudited)
Nine months ended
September 30,
2002 2001
Net cash provided by operating activities $ 371,139 1,044,285
Net cash used in investing activities (349,439) (524,278)
Net cash used in financing activities (1,330,266) (3,727,309)
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Net change in cash
and cash equivalents (1,308,566) (3,207,302)
Cash and temporary investments at
beginning of period 4,041,292 4,348,022
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Cash and temporary investments at
end of period $ 2,732,726 1,140,720
========= =========
See accompanying notes to condensed financial statements.
4
TEXAS VANGUARD OIL COMPANY
Notes to Condensed Financial Statements
(Unaudited)
September 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 impairment, 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 or 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 August 2001, the FASB issued Statement 144, Accounting for Impairment or
Disposal of Long-Lived Assets. This Statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. The
Statement will be effective for the Company's fiscal year ending December
2002. The Company does not believe that the adoption of this pronouncement
will have a material effect on its financial statements.
In April 2002, the FASB issued Statement 145, Recision of FASB Statements 4,
44, and 64 and Amendment of FASB 13. This Statement addresses financial
accounting and reporting associated with the extinguishment of certain debts
and leases. The Company does not believe that the adoption of this pro-
nouncement will have a material effect 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.
In October 2002, the FASB issued Statement 147, Acquisitions of Certain
Financial Institutions. This Statement will be effective October 1, 2002,
but will have no effect on the Company's financial statements.
Note 5: Contingency
As previously disclosed the Company has received notification from a customer
regarding a claim of overpayment of $449,557 pursuant to the gas purchase
contract. As of the filing of the September 30, 2002 Form 10-Q, the Company
has satisfied $193,671 of the claim.
5
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 $204,039 (19%) and $1,286,559 (33%) for the
three-month and nine-month periods ended September 30, 2002 from the
comparable prior year periods primarily due to lower gas prices in
conjunction with lower gas volumes from the comparable prior year periods.
Production costs decreased $95,248 (16%) and $136,586 (7%) for the three-month
and nine-month periods ended September 30, 2002 from the comparable prior year
periods.
General and administrative expenses for the three-month and nine-month period
ended September 30, 2002 increased $11,518 (12%) and $38,360 (13%) as compared
to the prior year periods. Interest expense increased approximately $32,466
(199%) and $29,494 (44%) for the three-month and nine-month periods ended
September 30, 2002 from the comparable 2001 periods primarily due to higher
average outstanding balances. Depreciation, depletion and amortization
decreased by $63,777 (32%) for the nine-month period ended September 30,
2002 from the comparable prior-year period. Depreciation, depletion and
amortization varies from year to year 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 nine-month period ended
September 30, 2002, the Company provided a provision of $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 September 30, 2002, the Company's liquidity remained
strong enough to meet its short-term cash needs. The sources of liquidity
and capitol resources are generated from cash on hand, cash provided by
operations and from credit available from financial institutions. Working
capital at September 30, 2002, has decreased to .84 to 1 from .98 to 1 at
December 31, 2001. Cash flow from operations remains positive at $371,139
for the nine months ended September 30, 2002. Notes payable and long-term
debt decreased by $1,330,266 for the nine-month period ended September 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
operations.
6
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits: A. Certificate of Chief Executive Officer and
Chief Financial Officer
B. Certification of Periodic Financial Reports
b) Reports on Form 8-K: Form 8-K filed on October 10, 2002
7
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)
/s/ William G. Watson, President
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William G. Watson, President
(Principal Financial and Accounting Officer)
Date: November 12, 2002
Exhibits:
EXHIBIT A: CERTIFICATE OF CHIEF FINANCIAL OFFICER AND CHIEF FINANCIAL OFFICER
I, William Watson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Texas Vanguard Oil
Company (TVOC).
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report.
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report fairly present, in all
material respects, the financial condition, results of operations and cash
flows of TVOC as of, and for, the periods presented in this quarterly report.
4. Texas Vanguard Oil Company's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in the Exchange Act Rules 13a-14 and 15d-14) for
TVOC and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to TVOC, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of TVOC disclosure controls and procedures
as of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date.
c) presented in this quarterly report our conclusions about the effective-
ness of the disclosure controls and procedures based on our evaluation as
of the Evaluation Date.
5. TVOC's other certifying officers and I have disclosed, based on our
most recent evaluation, to our auditors and the audit committee of TVOC's
board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect TVOC's ability to record, process,
summarize and report financial data and have identified for TVOC's auditors
any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in TVOC's internal controls.
6. TVOC's other certifying officers and I have indicated in this quarterly
report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
November 12, 2002
By /s/ William G. Watson
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William G. Watson, President
(Principal Financial and Accounting Officer)
EXHIBIT B: CERTIFICATION OF PERIODIC FINANCIAL REPORTS
The undersigned hereby certifies that this Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30, 2002, 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 Texas Vanguard Oil Company.
Date: November 12, 2002 By/s/ William G. Watson
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William G. Watson, President
(Principal Financial and Accounting Officer)