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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 June 30, 1998 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, 1998
Common Stock, $.05 par value 1,417,087 shares
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TEXAS VANGUARD OIL COMPANY
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<CAPTION>
INDEX
Page
Number
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Part I: Financial Information
Item 1 - Financial Statements
Condensed Balance Sheets -
June 30, 1998 and December 31, 1997 3
Condensed Statements of Earnings -
Three and six months ended June 30, 1998 and 1997 4
Condensed Statements of Cash Flows -
Six months ended June 30, 1998 and 1997 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
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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
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<CAPTION>
June 30, December 31,
1998 1997
<C> <C> <C>
Current assets:
Cash and temporary investments $ 461,008 1,105,264
Trade accounts receivable 47,559 80,404
--------- ---------
Total current assets 508,567 1,185,668
--------- ---------
Property and equipment, at cost:
Oil and gas properties - successful
efforts method of accounting 2,992,659 2,760,621
Office furniture and vehicles 97,891 97,891
--------- ---------
3,020,550 2,858,512
Less accumulated depreciation, depletion and
amortization (404,706) (344,653)
--------- ---------
Total property and equipment 2,615,844 2,513,859
--------- ---------
Other assets 3,654 5,108
--------- ---------
TOTAL ASSETS $ 3,128,065 3,704,635
--------- ---------
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<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
<C> <C> <C>
Current liabilities:
Trade accounts payable $ 19,829 113,194
Notes payable and current installments
of long-term debt 438,814 944,606
--------- ---------
Total current liabilities 458,643 1,057,800
--------- --------
Deferred tax liability 186,979 122,000
Long-term debt, excluding current installments 633,868 802,396
--------- ---------
Total Liabilities 1,279,490 1,982,196
Stockholders' equity:
Common stock 70,854 70,854
Additional paid-in capital 1,890,005 1,890,005
Retained deficit (112,284) (238,420)
--------- ---------
Total stockholders' equity 1,848,575 1,722,439
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,128,065 3,704,635
--------- ---------
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See accompanying notes to condensed financial statements.
<PAGE>
TEXAS VANGUARD OIL COMPANY
Condensed Statements of Earnings
(Unaudited)
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<CAPTION>
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
<C> <C> <C> <C> <C>
Revenue:
Operating revenue $ 378,185 384,835 780,612 830,941
Other income 1,975 2,887 4,589 5,599
--------- --------- --------- ---------
Total revenue 380,160 387,722 785,201 836,540
--------- --------- --------- ---------
Costs and expenses:
Production cost 168,654 121,500 331,763 261,204
Exploration cost 168 154 560 192
Depreciation, depletion
and amortization 30,514 31,795 62,691 68,276
General and
administrative 72,215 69,620 135,807 131,859
Interest 28,452 35,858 63,265 76,250
Abandonment of leasehold --- 17,500 --- 17,600
--------- --------- --------- ---------
Total costs and expenses 300,003 276,427 594,086 555,381
--------- --------- --------- ---------
Earnings before
federal income taxes 80,157 111,295 191,115 281,159
--------- --------- --------- ---------
Income taxes:
Deferred federal income tax 27,253 --- 64,979 ---
--------- -------- --------- ---------
Net earnings $ 52,904 111,295 126,136 281,159
========= ========= ========= =========
Weighted average number of
shares outstanding 1,417,087 1,417,087 1,417,087 1,417,087
========= ========= ========= =========
Basic and diluted earnings
per share .04 .08 .09 .20
========= ========= ========= =========
</TABLE>
TEXAS VANGUARD OIL COMPANY
Condensed Statements of Cash Flows
(Unaudited)
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<CAPTION>
Six months ended
June 30,
1998 1997
<C> <C> <C>
Net cash flows from operating activities $ 193,286 261,327
Net cash flows from investing activities (163,222) (288,931)
Net cash flows from financing activities (674,320) (333,953)
--------- ---------
Net change in cash and temporary investments (644,256) (361,557)
Cash and temporary investments at
beginning of period 1,105,264 985,238
---------- ---------
Cash and temporary investments at
end of period $ 461,008 623,681
--------- ---------
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
TEXAS VANGUARD OIL COMPANY
Notes to Condensed Financial Statements
(Unaudited)
June 30, 1998
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.
The federal income tax expense of $64,979 for the six month period ended,
June 30, 1998 is a deferred tax liability and does not result in cash outflows.
In addition, the Company has approximately $359,000 of unused net operating
loss carryforwards for federal income tax purposes at December 31, 1997.
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.
<PAGE>
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 $6,650 (2%) and $50,329 (6%) for the
three-month and six-month period ended June 30, 1998 from the comparable
prior year periods primarily as a result of lower oil in 1998 as compared
to 1997. The $47,154 (39%) and $70,559 (27%) increase in production cost
for the three-month and six-month periods ended June 30, 1998 as
compared to 1997 is primarily attributable to an increase in the number
of properties owned and operated by the Company as well as to new equipment
installed by the Company to enhance gas production capabilities.
General and administrative expenses for the six-month period ended June 30,
1998 were comparable to the prior year period as the Company made every
effort to control the level of these type expenses. Interest expense decreased
approximately $7,406 and $12,985 for the three-month and six-month periods
ended June 30, 1998 from the comparable 1997 periods primarily due to
lower average outstanding balances. Depreciation, depletion and amortization
decreased by $5,585 (8%) for the six-month period ended June 30, 1998
for the comparable prior-year period.
LIQUIDITY AND CAPITAL RESOURCES
During the period ended June 30, 1998, 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,
1998 has decreased to 1.11 to 1 from 1.12 to 1 at December 31, 1997. Cash flow
from operations remains positive at $193,286 for the six months ended June 30,
1998. Notes payable decreased by $505,792 and long-term debt decreased by
$168,528 for the six-month period ended June 30, 1998, by using cash on hand
and cash generated from operations.
The worldwide crude oil prices continue to fluctuate in 1998. The Company
cannot predict how prices will vary during the remainder of 1998 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.
YEAR 2000 COMPLIANCE
The Company has considered the impact of Year 2000 issues on its computer
systems and applications and has determined that these systems and
applications are Year 2000 compliant. As such, no Year 2000 conversion
expenditures were incurred in 1997 and the Company expects no Year 2000
conversion expenditures in the future.
PART II.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits: None.
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)
Robert N. Watson, Jr., President
--------------------------------
Robert N. Watson, Jr., President
(Principal Financial and
(Accounting Officer)
Date: August 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 461,008
<SECURITIES> 0
<RECEIVABLES> 47,559
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 508,567
<PP&E> 3,020,550
<DEPRECIATION> 404,706
<TOTAL-ASSETS> 3,128,065
<CURRENT-LIABILITIES> 458,643
<BONDS> 0
<COMMON> 1,417,087
0
0
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<TOTAL-LIABILITY-AND-EQUITY> 3,128,065
<SALES> 780,612
<TOTAL-REVENUES> 785,201
<CGS> 331,763
<TOTAL-COSTS> 331,763
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,265
<INCOME-PRETAX> 191,115
<INCOME-TAX> 64,979
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 126,136
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
<PAGE>
</TABLE>
