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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, 2004 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, 2004
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, 2004 and December 31, 2003 3
Condensed Statements of Earnings -
Three and six months ended June 30, 2004 and 2003 4
Condensed Statements of Cash Flows -
Six months ended June 30, 2004 and 2003 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,
2004 2003
Current assets:
Cash and temporary investments $ 2,098,948 4,414,461
Trade accounts receivable 91,133 119,654
--------- ---------
Total current assets 2,190,081 4,534,115
--------- ---------
Property and equipment, at cost:
Oil and gas properties - successful
efforts method of accounting 4,000,328 4,047,386
Office furniture and vehicles 186,698 186,698
--------- ---------
4,187,026 4,234,084
Less accumulated depreciation, depletion and
amortization (1,900,110) (1,776,411)
--------- ---------
Total property and equipment 2,286,916 2,457,673
--------- ---------
Investments -0- 500
--------- ---------
Other assets 1,000 1,000
--------- ---------
TOTAL ASSETS $ 4,477,997 6,993,288
--------- ---------
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 142,046 269,178
Taxes payable 21,173 192,730
Notes payable and current installments
of long-term debt 1,176,802 874,094
--------- ---------
Total current liabilities 1,340,021 1,336,002
--------- ---------
Deferred tax liability 269,967 269,967
Long-term debt, excluding current installments 17,840 2,832,579
--------- ---------
Total Liabilities 1,627,828 4,438,548
Stockholders' equity:
Common stock 70,829 70,829
Additional paid-in capital 1,888,528 1,888,530
Accumulated earnings 890,812 595,381
--------- ---------
Total stockholders' equity 2,850,169 2,554,740
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,477,997 6,993,288
--------- ---------
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,
2004 2003 2004 2003
Revenue:
Operating revenue $ 1,222,729 1,110,172 2,349,572 2,090,585
Other income 11,272 217,026 41,160 231,906
--------- --------- --------- ---------
Total revenue 1,234,001 1,327,198 2,390,732 2,322,491
--------- --------- --------- ---------
Costs and expenses:
Production cost 863,352 556,670 1,513,024 1,142,047
Exploration cost 216 120 12,287 120
Depreciation, depletion
and amortization 63,976 57,190 123,698 108,268
General and
administrative 105,570 103,914 211,517 211,043
Abandonment of leaseholds -0- 51,348 51,808 101,348
Interest 14,408 24,154 30,795 63,610
--------- --------- --------- ---------
Total costs and expenses 1,047,522 793,396 1,943,129 1,626,436
--------- --------- --------- ---------
Earnings before
federal income taxes 186,479 533,802 447,603 696,055
--------- --------- --------- ---------
Income taxes:
Deferred federal income tax 63,390 113,493 152,172 168,659
--------- -------- --------- ---------
Net earnings $ 123,089 420,309 295,431 527,396
========= ========= ========= =========
Weighted average number of
shares outstanding 1,416,587 1,416,587 1,416,587 1,416,587
========= ========= ========= =========
Basic and diluted earnings
per share .09 .30 .21 .37
========= ========= ========= =========
TEXAS VANGUARD OIL COMPANY
Condensed Statements of Cash Flows
(Unaudited)
Six months ended
June 30,
2004 2003
Net cash provided by operating activities $ 200,768 869,565
Net cash used in investing activities (4,250) (37,397)
Net cash used in financing activities (2,512,031) (1,208,099)
----------- -----------
Net change in cash and temporary investments (2,315,513) (375,931)
Cash and temporary investments at
beginning of period 4,414,461 2,671,820
---------- ----------
Cash and temporary investments at
end of period $ 2,098,948 2,295,889
========= =========
See accompanying notes to condensed financial statements.
TEXAS VANGUARD OIL COMPANY
Notes to Condensed Financial Statements
(Unaudited)
June 30, 2004
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
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 $112,557 (10%) and $258,987 (12%) for the
three-month and six-month periods ended June 30, 2004 from the comparable prior
year periods primarily as a result of higher oil and gas prices in 2004 as
compared to 2003. Production costs increased by $306,682 (55%) and $370,977
(32%) for the three-month and six-month periods ended June 30, 2004 as
compared to the prior year periods. Increased production costs in the
second quarter of 2004 were largely associated with workover activities.
General and administrative expenses increased $1,656 (2%) and $474 (.2%)
for the three-month and six-month periods ended June 30, 2004 as compared to
the prior year periods. Interest expense decreased approximately $9,746 (40%)
and $32,815 (52%) for the three-month and six-month periods ended June 30, 2004,
from the comparable prior year periods primarily due to lower average
outstanding balances during the current year periods. Depreciation,
depletion and amortization increased by $15,430 (14%) for the six-month
period ended June 30, 2004 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, 2004, the Company provided a provision of $-0- and $51,808
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.
A successful re-entry in the second quarter of 2004 in which Texas Vanguard Oil
Company was a participant should begin to be reflected in the Companys revenue
stream during the third quarter of 2004.
LIQUIDITY AND CAPITAL RESOURCES
During the period ended June 30, 2004, 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,
2004 has decreased to 1.63 to 1 from 3.39 to 1 at December 31, 2003. The
Company continued its 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
$200,768 for the six months ended June 30, 2004. Notes payable and long-term
debt decreased by $2,512,031 for the six-month period ended June 30, 2004,
by using cash on hand and cash generated from operations.
The worldwide crude oil prices continue to fluctuate in 2004. The Company
cannot predict how prices will vary during the remainder of 2004 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: 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 10, 2004
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-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-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;
c) Designed such internal control over financial reporting, or caused such
internal control to be designed under our supervision to provide
reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles; and
d) 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 10, 2004
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-Q for the quarter ended June 30, 2004, 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 10, 2004 By/s/ William G. Watson
--------------------------
William G. Watson, President
Principal Financial and Accounting Officer