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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2003 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: None
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 by check mark the Registrant is an accelerated filer (as defined in
Rule 12b-2 of the Act). Yes ___ or No [X]
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 March 31, 2003
Common Stock, $.05 par value 1,416,587 shares
TEXAS VANGUARD OIL COMPANY
INDEX
Page
Number
Part I. Financial Information
Item 1 - Financial Statements
Condensed Balance Sheets -
March 31, 2003 and December 31, 2002 3
Condensed Statements of Earnings -
Three months ended March 31, 2003 and 2002 4
Condensed Statements of Cash Flows -
Three months ended March 31, 2003 and 2002 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
March 31, December 31,
2003 2002
Current assets:
Cash and temporary investments $ 1,827,458 2,671,820
Trade accounts receivable 129,645 143,961
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Total current assets 1,957,103 2,815,781
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Property and equipment, at cost:
Oil and gas properties - successful efforts
method of accounting 3,626,305 3,672,811
Office furniture and vehicles 204,446 204,446
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3,830,751 3,877,257
Less accumulated depreciation, depletion and
amortization (1,675,944) (1,624,865)
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Total property and equipment 2,154,807 2,252,392
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Investments 100,500 100,500
Other assets 1,000 1,000
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TOTAL ASSETS $ 4,213,410 5,169,673
========= ==========
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 151,087 195,115
Taxes payable 60,139 4,973
Notes payable and current installments of
long-term debt 1,040,396 939,664
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Total current liabilities 1,251,622 1,139,752
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Deferred tax liability 186,242 186,242
Long-term debt, excluding current installments 824,781 2,000,000
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Total liabilities 2,262,645 3,325,994
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Stockholders' equity:
Common stock 70,829 70,829
Additional paid-in capital 1,888,530 1,888,530
Accumulated earnings (deficit) (8,594) (115,680)
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Total stockholders' equity 1,950,765 1,843,679
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,213,410 5,169,673
========= ==========
See accompanying notes to condensed financial statements.
TEXAS VANGUARD OIL COMPANY
Condensed Statements of Earnings
(Unaudited)
Three months ended
March 31,
2003 2002
Revenue:
Operating revenue $ 980,413 816,550
Other income 14,880 13,751
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Total revenue 995,293 830,301
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Costs and expenses:
Production cost 585,377 605,435
Exploration cost --- 298
Depreciation, depletion and amortization 51,079 44,141
General and administrative 107,128 123,152
Abandonment of leaseholds 50,000 25,000
Interest 39,456 19,281
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Total costs and expenses 833,040 817,307
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Earnings before
federal income taxes 162,253 12,994
Federal income taxes:
Federal income tax expense 55,166 4,418
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Net earnings $ 107,087 8,576
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Weighted average number of shares outstanding 1,416,587 1,417,087
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Basic and diluted earnings per share $ .08 .01
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TEXAS VANGUARD OIL COMPANY
Condensed Statements of Cash Flows
(Unaudited)
Three months ended
March 31,
2003 2002
Net cash provided by operating activities $ 233,619 26,662
Net cash used in investing activities (3,494) (318,000)
Net cash used in financing activities (1,074,487) (2,709,558)
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Net change in cash and temporary investments (844,362) (3,000,896)
Cash and temporary investments at
beginning of period 2,671,820 4,041,292
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Cash and temporary investments at
end of period $ 1,827,458 1,040,396
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See accompanying notes to condensed financial statements.
TEXAS VANGUARD OIL COMPANY
Notes to Condensed Financial Statements
(Unaudited)
March 31, 2003
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, 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 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.
Statement of Financial Accounting Standards No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure", an amendment of FASB Statement No.
123 provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based compensation. The
Company does not believe that the adoption of this pronouncement will have a
material effect on its financial statements.
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 increased by $163,863 (20%) for the three-month period
ended March 31, 2003 from the comparable prior-year period primarily as a
result of higher oil and gas prices in 2003 as compared to 2002. Production
costs decreased $20,058 (3%) for the three-month period ended March 31,
2003 from the prior year period.
General and administrative expenses for the three-month period ended March 31,
2003 decreased $16,024 (13%) as compared to the prior year period. Interest
expense increased approximately $20,175 (105%) for the three-month period ended
March 31, 2003 from the comparable prior-year period due to higher average
outstanding balances. Depreciation, depletion, and amortization increased by
$6,938 (16%) for the three-month period ended March 31, 2003, 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 period ended March 31, 2003,
the Company provided a provision of $50,000 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 March 31, 2003, 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 March 31, 2003
has decreased to 1.56 to 1 from 2.47 to 1 at December 31, 2002. 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 was $233,619 for the three months
ended March 31, 2003. Notes payable and long-term debt decreased by $1,074,487
for the three-month period ended March 31, 2003, by using cash on hand and cash
generated from operations.
The worldwide crude oil prices continue to fluctuate in 2003. The Company
cannot predict how prices will vary during the remainder of 2003 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.
PART II.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
A. Certificate of Chief Financial Officer and Chief Financial Officer
B. Certification of Periodic Financial Reports
b) Reports on Form 8-K: None.
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)
William G. Watson, President
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William G. Watson, President
(Principal Financial and
(Accounting Officer)
Date: May 13, 2003
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.
May 13, 2003
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 March 31, 2003, 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: May 13, 2003 By/s/ William G. Watson
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William G. Watson, President
(Principal Financial and Accounting Officer)