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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, 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:
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, 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 -
June 30, 2003 and December 31, 2002 3
Condensed Statements of Earnings -
Three and six months ended June 30, 2003 and 2002 4
Condensed Statements of Cash Flows -
Six months ended June 30, 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
Item 3 - Controls and Procedures 7
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,
2003 2002
Current assets:
Cash and temporary investments $ 2,295,889 2,671,820
Trade accounts receivable 121,855 143,961
--------- ---------
Total current assets 2,417,744 2,815,781
--------- ---------
Property and equipment, at cost:
Oil and gas properties - successful
efforts method of accounting 3,608,859 3,672,811
Office furniture and vehicles 204,446 204,446
--------- ---------
3,813,305 3,877,257
Less accumulated depreciation, depletion and
amortization (1,733,133) (1,624,865)
--------- ---------
Total property and equipment 2,080,172 2,252,392
--------- ---------
Investments 100,500 100,500
--------- ---------
Other assets 1,000 1,000
--------- ---------
TOTAL ASSETS $ 4,599,416 5,169,673
--------- ---------
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 141,876 195,115
Taxes payable 168,659 4,973
Notes payable and current installments
of long-term debt 998,668 939,664
--------- ---------
Total current liabilities 1,309,203 1,139,752
--------- --------
Deferred tax liability 186,242 186,242
Long-term debt, excluding current installments 732,897 2,000,000
--------- ---------
Total Liabilities 2,228,342 3,325,994
Stockholders' equity:
Common stock 70,854 70,854
Additional paid-in capital 1,888,530 1,888,530
Retained earnings 411,715 (115,680)
--------- ---------
Total stockholders' equity 2,371,074 1,843,679
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,599,416 5,169,673
--------- ---------
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,
2003 2002 2003 2002
Revenue:
Operating revenue $ 1,110,172 941,526 2,090,585 1,758,074
Other income 217,026 12,975 231,906 26,727
--------- --------- --------- ---------
Total revenue 1,327,198 954,501 2,322,491 1,784,801
--------- --------- --------- ---------
Costs and expenses:
Production cost 556,670 659,577 1,142,047 1,265,012
Exploration cost 120 36 120 333
Depreciation, depletion
and amortization 57,190 48,456 108,268 92,596
General and
administrative 103,914 106,398 211,043 229,551
Abandonment of leaseholds 51,348 100,000 101,348 125,000
Interest 24,154 28,920 63,610 48,201
--------- --------- --------- ---------
Total costs and expenses 793,396 943,387 1,626,436 1,760,693
--------- --------- --------- ---------
Earnings before
federal income taxes 533,802 11,114 696,055 24,108
--------- --------- --------- ---------
Income taxes:
Deferred federal income tax 113,493 3,779 168,659 8,197
--------- -------- --------- ---------
Net earnings $ 420,309 7,335 527,396 15,911
========= ========= ========= =========
Weighted average number of
shares outstanding 1,416,587 1,417,087 1,416,587 1,417,087
========= ========= ========= =========
Basic and diluted earnings
per share .30 .01 .37 .01
========= ========= ========= =========
TEXAS VANGUARD OIL COMPANY
Condensed Statements of Cash Flows
(Unaudited)
Six months ended
June 30,
2003 2002
Net cash provided by operating activities $ 869,565 310,838
Net cash used in investing activities (37,397) (319,529)
Net cash used in financing activities (1,208,099) (1,219,145)
----------- -----------
Net change in cash and temporary investments (375,931) (1,227,836)
Cash and temporary investments at
beginning of period 2,671,820 4,041,292
---------- ----------
Cash and temporary investments at
end of period $ 2,295,889 2,813,456
========= =========
See accompanying notes to condensed financial statements.
TEXAS VANGUARD OIL COMPANY
Notes to Condensed Financial Statements
(Unaudited)
June 30, 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 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 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.
In April 2003, the FASB issued Statement 149, Amendment to SFAS 133 on
Derivative Instruments and Hedging Activities. This Statement addresses
financial accounting and reporting for derivative instruments, including
derivative instruments embedded in other contracts. The Company does not
anticipate that the adoption of the provisions of this pronouncement will
have a material effect on its financial statements.
In May 2003, the FASB issued Statement 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This
Statement established standards for the manner in which an issuer may classify
and measure certain financial instruments with characteristics of both
liabilities and equity. The Company does not anticipate that the adoption
of the provisions 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 $168,646 (18%) and $332,511 (19%) for the
three-month and six-month period ended June 30, 2003 from the comparable prior
year periods primarily as a result of higher oil and gas prices in 2003 as
compared to 2002. Production costs decreased by $102,907 (16%) and $122,965
(10%) for the three-month and six-month periods ended June 30, 2003 as
compared to the prior year periods.
General and administrative expenses decreased $2,484 (2%) and $18,508 (8%)
for the three-month and six-month periods ended June 30, 2003 as compared to
the prior year periods. Interest expense decreased approximately $4,766 (16%)
for the three-month period ended June 30, 2003, from the comparable 2002 period
primarily due to lower average outstanding balances. Interest expense
increased $15,409 (32%) for the six-month period ended June 30, 2003, from the
comparable 2002 periods due to higher average outstanding balances.Depreciation,
depletion and amortization increased by $15,672 (17%) for the six-month period
ended June 30, 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
and six-month periods ended June 30, 2003, the Company provided a provision
of $51,348 and $101,348 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, 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 June 30,
2003 has decreased to 1.85 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 remains positive at
$869,565 for the six months ended June 30, 2003. Notes payable and long-term
debt decreased by $1,208,099 for the six-month period ended June 30, 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
operatons.
Item 3: 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, within 90 days of the
filing date of this report (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. We have not identified any significant deficiencies
or material weaknesses in our internal controls, and therefore, there were
no corrective actions taken.
PART II.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits: 31.1 Certificate of the Principal Financial and
Accounting Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
32.1 Certificate of the Principal Financial and
Accounting Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
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
--------------------------
(Registrant)
/s/William G. Watson, President
------------------------------------
William G. Watson, President
(Principal Financial and
(Accounting Officer)
Date: August 12, 2003
Exhibits:
EXHIBIT 31.1: CERTIFICATE OF THE PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
PURSUANT TO SECTION 302, OF THE SARBANES-OXLEY ACT OF 2002
I, William Watson, certify that:
1. I have reviewed this quarterly report on Form 10-QSB 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-15(e) and 15d-15(e) for
TVOC and we have:
a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the periods covered by
this report based on such evaluation; and
c) Disclosed in this report any change in TVOC's internal control over
financial reporting that occurred during TVOC's most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect,
TVOC's internal control over financial reporting; and
5. TVOC's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
TVOC's auditors and the audit committee of TVOC's board of directors:
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
like to adversely affect TVOC's ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in TVOC's internal controls over
financial reporting.
August 12, 2003
By /s/ William G. Watson
- ------------------------
William G. Watson, President
Principal Financial and Accounting Officer
EXHIBIT 32.1: CERTIFICATE OF THE PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Texas Vanguard oil Company, (the
"Company") on Form 10-QSB for the quarter ended June 30, 2003, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
William G. Watson, the Principal Financial and Accounting Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report complies with the requirements of Section 13 (a) or 15 (d) of
the Securities Exchange Act of 1934; and
2. The information contained in this Report fairly presents, in all material
respects, the financial conditions and results of operations of the Company.
Date: August 12, 2003 By/s/ William G. Watson
--------------------------
William G. Watson, President
Principal Financial and Accounting Officer