TEXAS VANGUARD OIL CO - FORM 10-Q

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - TEXAS VANGUARD OIL CO	Financial_Report.xls
EX-31.1 - EX-31.1 - TEXAS VANGUARD OIL CO	ex31-1.htm
EX-32.1 - EX-32.1 - TEXAS VANGUARD OIL CO	ex32-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended September 30, 2013

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File No. 000-24778

TEXAS VANGUARD OIL COMPANY

(Exact name of registrant as specified in its charter)

Texas		74-2075344
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

9811 Anderson Mill Rd., Suite 202

Austin, Texas 78750

(Address of Principal Executive Offices)

Registrant’s telephone number, including area code: (512) 331-6781

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o.

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 o.

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

o Large accelerated filer o Accelerated filer

o Non-accelerated filer x Smaller reporting company

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x.

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Outstanding at September 30, 2013

1,416,587 shares

Table of Contents

TEXAS VANGUARD OIL COMPANY

TABLE OF CONTENTS

	Page Number
Part I. Financial Information

Item 1 - Financial Statements	3

Condensed Balance Sheets - September 30, 2013 and December 31, 2012	3

Condensed Statements of Earnings -Three and nine months ended September 30, 2013 and 2012	4

Condensed Statements of Cash Flows -Nine months ended September 30, 2013 and 2012	5

Notes to the Condensed Financial Statements	6

Subsequent Events	6

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations	7

Item 3 - Quantitative and Qualitative Disclosures about Market Risk	8

Item 4 - Controls and Procedures	8

Part II. Other Information

Item 6 - Exhibits	9

Signatures	10

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.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TEXAS VANGUARD OIL COMPANY

Condensed Balance Sheets

Assets
	September 30, 2013			December 31, 2012
	(Unaudited)			(Audited)

Current assets:
Cash and cash equivalents (including certificates of deposit of $1,250,000 pledged, in 2013 and 2012)	$	10,191,261		$	9,036,449
Trade accounts receivable, net of allowance for doubtful accounts of $238,084 and $209,554 in 2013 and 2012, respectively		122,453			140,286
Prepaid expense		213,399			36,053
Prepaid federal income tax		-0-			221,468

Total current assets		10,527,113			9,434,256
Property and equipment, at cost:
Oil and gas properties - successful efforts method of accounting		9,493,341			9,447,796
Office furniture and vehicles		156,871			156,871

		9,650,212			9,604,667
Less accumulated depreciation, depletion and amortization		(5,293,780	)		(4,988,052	)

Total property and equipment		4,356,432			4,616,615

Other assets		1,000			1,000

TOTAL ASSETS	$	14,884,545		$	14,051,871

Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable	$	319,304		$	487,590
Taxes payable		173,756			37,813
Asset retirement obligation, current portion		3,807			4,319
Notes payable		150,000			150,000

Total current liabilities		646,867			679,722

Deferred federal income tax liability		331,641			331,641
Asset retirement obligation, less current portion		633,786			624,000

Total liabilities		1,612,294			1,635,363

Stockholders' equity:
Common stock, par value $.05; authorized 12,500,000 shares;1,416,587 issued and outstanding in 2013 and 2012, respectively		70,828			70,828
Additional paid-in capital		1,888,528			1,888,528
Accumulated earnings		11,312,895			10,457,152

Total stockholders' equity		13,272,251			12,416,508

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	14,884,545		$	14,051,871

See accompanying notes to condensed financial statements.

Page 3 of 10

Table of Contents

TEXAS VANGUARD OIL COMPANY

Condensed Statements of Earnings

(Unaudited)

	Three months ended September 30,					Nine months ended September 30,
	2013		2012			2013		2012
Revenue:
Operating revenue	$	1,822,535		1,384,636			4,548,565		5,070,498
Other income		13,835		6,662			40,398		38,019

Total revenue		1,836,370		1,391,298			4,588,963		5,108,517

Costs and expenses:
Production cost		786,279		1,369,887			2,340,125		3,643,254
Depreciation, depletion and amortization		102,359		108,236			307,078		326,434
General and administrative		169,108		140,247			479,367		446,422
Impairment of oil and gas property		-0-		-0-			108,710		12,517
Interest		662		662			2,186		2,088
Doubtful account receivable expense		9,787		1,924			28,530		9,121

Total costs and expenses		1,068,195		1,620,956			3,265,996		4,439,836

Earnings (loss) before taxes		768,175		(229,658	)		1,322,967		668,681

Federal and state taxes:
Provision (benefit) for federal income tax		257,589		(80,804	)		440,837		217,364
Provision for state margin tax		10,559		8,000			26,386		29,374

Net earnings (loss)	$	500,027		(156,854	)		855,744		421,943

Weighted average number of shares outstanding		1,416,587		1,416,587			1,416,587		1,416,587

Basic earnings (loss) per share		.35		(.11	)		.60		.30
Diluted earnings (loss) per share		.35		(.11	)		.60		.30

See accompanying notes to condensed financial statements.

Page 4 of 10

Table of Contents

TEXAS VANGUARD OIL COMPANY

Condensed Statements of Cash Flows

(Unaudited)

	Nine months ended September 30,
	2013			2012
Net cash provided by operating activities	$	1,307,364		$	789,046

Cash flows used in investing activities:
Additions to oil and gas properties		(152,552	)		(446,349	)
Proceeds from sale of equipment		-0-			72,000
Proceeds from sale of oil and gas properties		-0-			15,000

Net cash used in investing activities		(152,552	)		(359,349	)

Net cash used in financing activities		---			---

Net change in cash and cash equivalents		1,154,812			429,697

Cash and cash equivalents at beginning of period		9,036,449			8,575,692

Cash and cash equivalents at end of period	$	10,191,261		$	9,005,389

See accompanying notes to condensed financial statements.

Page 5 of 10

Table of Contents

TEXAS VANGUARD OIL COMPANY

Notes to Condensed Financial Statements

(Unaudited)

September 30, 2013

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.

The Company performs a periodic review for impairment of proved properties. The Company determines if impairment has occurred through either adverse changes or as a result of its periodic review for impairment. Upon abandonment of properties, the reserves are deemed fully depleted and any unamortized costs are recorded in the statement of income under impairment expense. Upon the sale of oil and gas reserves in place, costs less accumulated amortization of such property are removed from the accounts and resulting gain or loss on sale is reflected in operations.

Impairment of unproved properties is assessed periodically and any impairment in value is currently charged to expense. Loss is recognized to the extent that such impairment is indicated. When an entire interest in an unproved property is sold, gain or loss is recognized, taking into consideration any recorded impairment.

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 deposits owned.

Note 4: Recently Issued Accounting Standards

The Company has reviewed the updates issued by the Financial Accounting Standards Board (FASB) during the nine-month period ended September 30, 2013, and determined that the updates are either not applicable to the Company or will not have a material impact upon the Company.

Note 5: Subsequent Event

On October 21, 2013, Texas Vanguard Oil Company sold the oil and gas properties for which the Company serves as operator (the “operated properties”) to Trivista Energy, LLC, for $10,000,000, pursuant to the exercise by Trivista of an option to purchase the assets dated September 13, 2013. See Texas Vanguard’s Reports on Form 8-K dated October 21, 2013 and September 13, 2013.

The purchase price is being paid in two installments. The first payment was received at closing of the purchase on October 21, 2013, with the remainder to be paid on January 3, 2014. Payment of the second installment is secured by a letter of credit issued by Toronto-Dominion Bank. At closing, Texas Vanguard also received a per diem operating fee for operating the wells on the operated properties between the effective date of October 1 and October 21, 2013.

Trivista is a recently organized company which was formed to engage in the oil and gas business. Neither Trivista nor any of its owners, officers or managers has any relationship with Texas Vanguard or its officers, directors or affiliates.

Page 6 of 10

Table of Contents

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 $437,899 (32%) for the three-month period and decreased by $521,933 (10%) for the nine-month period ended September 30, 2013 from the comparable prior year periods. The three-month increase is primarily a result of higher oil sales combined with a higher oil price for the three-month period in 2013 as compared to the same period in 2012. The nine-month decrease is primarily a result of lower gas sales as well as lower commodity prices in 2013 as compared to 2012. Production costs decreased by $583,608 (43%) and $1,303,129 (36%) for the three-month and nine-month periods ended September 30, 2013 as compared to the prior year periods. Decreased production costs for the three month and nine-month periods ended September 30, 2013 as compared to the prior-year periods are largely associated with a decrease in overall field expenses as well as a decrease in workover activity.

General and administrative expenses increased $28,861 (21%) and $32,945 (7%) for the three-month and nine-month periods ended September 30, 2013 as compared to the prior year periods. The increase in general and administrative expenses is due primarily to an increase in legal fees associated with the recent property sale discussed below. Depreciation, depletion, and amortization decreased by $19,356 for the nine-month period ended September 30, 2013 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, changes in price of oil and gas sold, as well as the acquisition, discovery or sale of producing properties. For the three-month and nine-month periods ended September 30, 2013, the Company provided a provision of $-0- and $108,710 for the impairment of value of oil and gas properties due to less than expected production performance of specific wells.

LIQUIDITY AND CAPITAL RESOURCES

During the period ended September 30, 2013, 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 September 30, 2013, has increased to 16.27 to 1 from 13.88 to 1 at December 31, 2012. 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 was $1,307,364 for the nine months ended September 30, 2013. The Company used $152,552 to invest in oil and gas properties in the first nine months of 2013 as compared to $446,349 in the first nine months of 2012.

The worldwide crude oil prices continue to fluctuate in 2013. The Company cannot predict how prices will vary during the remainder of 2013 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.

RECENT PROPERTY SALE

On October 21, 2013, Texas Vanguard Oil Company sold the oil and gas properties for which the Company serves as operator (the “operated properties”) to Trivista Energy, LLC, for $10,000,000, pursuant to the exercise by Trivista of an option to purchase the assets dated September 13, 2013. See Note 5 to the Company’s unaudited financial statement for the period ended September, 30, 2013.

Texas Vanguard’s management is considering the best uses of the cash derived from the purchase, including acquisition of additional properties, distribution to shareholders in the form of a dividend or a self-tender offer. Texas Vanguard continues to own, manage, and receive income from its non-operated oil and gas properties.

Page 7 of 10

Table of Contents

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company does not engage in hedging activities and does not use commodity futures nor forward contracts in its cash management functions.

Item 4. 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, as of September 30, 2013 (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.

Page 8 of 10

Table of Contents

PART II. OTHER INFORMATION

Item 6. Exhibits

Exhibits:	31.1	Rule 13a-14(a)/15d-14(a) Certification
	32.1	18 U.S.C. 1350 Certification
	101.INS	XBRL Instance Document
	101.SCH	XBRL Taxonomy Extension Schema
	101.CAL	Taxonomy Extension Calculation Linkbase
	101.DEF	Taxonomy Extension Definition Linkbase
	101.LAB	Taxonomy Extension Label Linkbase
	101.PRE	Taxonomy Extension Presentation Linkbase

Page 9 of 10

Table of Contents

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)

William G. Watson, President

____________________________________

William G. Watson, President and

Principal Financial and Accounting Officer

Date: November 7, 2013

Page 10 of 10

Attached files

Stock widget

Investing forum

TEXAS VANGUARD OIL CO Reports