UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended December 31, 2014
|_| Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from __________ to __________
Commission File Number: None
VANGUARD ENERGY CORPORATION
---------------------------------
(Exact name of registrant as specified in its charter)
COLORADO 27-2888719
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(State or other jurisdiction (I.R.S. Employer
of Identification No.)
incorporation or
organization)
2 Blvd Place, Suite 600
1700 Post Oak Blvd.
Houston, Texas 77056
----------------------------
(Address of principal executive offices, including Zip Code)
(713) 627-2500
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(Issuer's telephone number, including area code)
1330 Post Oak Blvd., Suite 1600
Houston, Texas 77056
--------------------------------------------
(Former name or former address if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 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| No |_|
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 (ss.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 |_|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting company. See
the definitions of "large accelerated filer," "accelerated filer,"
"non-accelerated filer," and "smaller reporting company" in Rule 12b-2 of the
Exchange Act.
Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |_|
Smaller reporting company |X|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 973,139 shares of common stock as of
December 31, 2014.
1
FORWARD LOOKING STATEMENTS
The information contained in this Form 10-Q contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as
amended, and the Private Securities Litigation Reform Act of 1995. These
forward-looking statements involve risks and uncertainties, including among
other things, statements regarding our capital needs, business strategy and
expectations. Any statement which does not contain a historical fact may be
deemed to be a forward-looking statement. In some cases, you can identify
forward-looking statements by terminology such as "may", "will", "should",
"expect", "plan", "intend", "anticipate", "believe", "estimate", "predict",
"potential" or "continue", the negative of such terms or other comparable
terminology. In evaluating forward looking statements, you should consider
various factors outlined in our Form 10-K report for the year ended September
30, 2014, filed with the U.S. Securities Exchange Commission ("SEC") and, from
time to time, in other reports we file with the SEC. These factors may cause our
actual results to differ materially from any forward-looking statement. We
disclaim any obligation to publicly update these statements, or disclose any
difference between our actual results and those reflected in these statements.
2
VANGUARD ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
ASSETS 2014 2014
------------- -----------
(Unaudited)
Current assets
Cash and cash equivalents $ 120 $ 39,251
Other assets
- 12,500
------------- -----------
Total current assets
120 51,751
Debt issuance costs
- 83,654
------------- -----------
Total assets $ 120 $ 135,405
============= ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 46,705 $ 578
Accrued interest payable 22,041 702,901
Other liabilities 15,832 8,600
Current portion of notes payable, net of
discount $- and $71,754 146,937 2,923,040
------------- -----------
Total current liabilities 231,515 3,635,119
Commitments and contingencies - -
Stockholders' deficit
Preferred stock, $0.00001 par value; 5,000,000
shares authorized; none issued or outstanding - -
Common stock, $0.00001 par value; 100,000,000
and 50,000,000 shares authorized; 973,139
and 127,114 shares issued and outstanding 973 127
Additional paid-in capital 6,318,920 5,522,204
Accumulated deficit (6,551,288) (9,022,045)
----------- -----------
Total stockholders' deficit (231,395) (3,499,714)
----------- -----------
Total liabilities and stockholders' deficit $ 120 $ 135,405
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
3
VANGUARD ENERGY CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended December 31,
2014 2013
--------------- -------------
(Unaudited) (Unaudited)
Revenues
Oil and gas sales $ - $ 731,266
Costs and expenses
Lease operating expense - 205,398
Production taxes - 33,719
Depreciation, depletion and amortization - 444,728
Asset retirement obligation accretion - 15,717
General and administrative 87,030 240,182
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Total costs and expenses 87,030 939,744
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Loss from operations (87,030) (208,478)
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Other income (expense)
Other income - 431
Interest income - 203
Interest expense (13,140) (448,499)
Furniture and equipment write-down - (20,819)
Gain on debt extinguishment 2,570,927 -
-------------- ----------
Total other income (expense) 2,557,787 (468,684)
-------------- ----------
Net Income (Loss) before income taxes 2,470,757 (677,162)
Provision for income taxes - -
-------------- ----------
Net Income (Loss) 4 2,470,757 (677,162)
============== ==========
Income (Loss) per share:
Basic and diluted $ 2.54 $ (5.31)
Weighted average shares outstanding 973,139 127,415
The accompanying notes are an integral part of these consolidated financial
statements.
4
VANGUARD ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Month ended December 31,
2014 2013
--------------- --------------
(Unaudited) (Unaudited)
Cash flows from operating activities
Net Income (loss) $ 2,470,757 $ (677,162)
Adjustments to reconcile net income/
(loss) to net cash from operating
activities:
Depreciation, depletion and
amortization - 444,728
Amortization of debt issuance costs 4,107 76,957
Gain on debt extinguishment (2,677,698) -
Asset retirement obligation
accretion - 15,717
Amortization of debt discount 3,523 54,577
Accretion of participation liability - (32,141)
Furniture and equipment write-down - 20,819
Change in operating assets and liabilities:
Accounts receivable - 27,298
Other assets 12,500 (26,025)
Accounts payable 46,127 (43,424)
Accrued interest payable 94,321 -
Other liabilities 7,232 935
---------- ---------
Net cash from operating activities (39,131) (137,721)
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Cash flows from investing activities
Capital expenditures on oil and gas
properties - (496,220)
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Net cash from investing activities - (496,220)
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Cash flows from financing activities
Repayment of note payable - -
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Net cash from financing activities - -
---------- ---------
Net change in cash and cash equivalents (39,131) (633,941)
Cash and cash equivalents
Beginning of period 39,251 1,334,285
---------- ---------
End of period $ 120 $ 700,344
========== ==========
Supplemental cash flow information
Three Month ended December 31,
2014 2013
--------------- -------------
(Unaudited) (Unaudited)
Interest paid $ - $ 352,783
Interest capitalized (non-cash) - 3,677
Noncash investing and financing activities:
Capital expenditures included in accounts
payable - (251,938)
Issuance of shares for settlement of debt 797,562 -
The accompanying notes are an integral part of these consolidated financial
statements.
5
VANGUARD ENERGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
These consolidated financial statements of Vanguard Energy Corporation (Vanguard
or the Company) have been prepared in accordance with accounting principles
generally accepted in the United States of America (U.S. GAAP). In the opinion
of management, these financial statements include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair statement of the
results for the interim periods. Certain information, accounting policies and
footnote disclosures normally included in financial statements prepared in
accordance with U.S. GAAP have been omitted pursuant to Securities and Exchange
Commission (SEC) rules and regulations. These financial statements should be
read along with Vanguard's audited financial statements as of September 30,
2014.
Going Concern -These financial statements have been prepared assuming that the
Company will continue as a going concern, which contemplates, among other
things, the realization of assets and the satisfaction of liabilities in the
normal course of business. The Company has incurred cumulative net losses since
its inception and will require capital for future operating activities to take
place. The Company's ability to raise funding through the future issuances of
debt or common stock is unknown. The obtainment of additional financing, the
successful development of a plan of operations, and its transition, ultimately,
to the attainment of profitable operations are necessary for the Company to
continue operations. The ability to successfully resolve these factors raise
substantial doubt about the Company's ability to continue as a going concern.
Future issuances of the Company's equity or debt securities will be required in
order for the Company to finance operations and continue as a going concern. The
financial statements do not include any adjustments that may result from the
outcome of these aforementioned uncertainties.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
As of December 31, 2014, Vanguard's significant accounting policies were
consistent with those discussed in the audited financial statements as of
September 30, 2014.
Earnings (Loss) Per Share--Basic earnings (loss) per share have been calculated
based upon the weighted-average number of common shares outstanding. Diluted
earnings per share have been calculated based upon the weighted-average number
of common and potential common shares. The calculation of diluted
weighted-average shares outstanding for the three-month periods ended December
31, 2014 and 2013 excludes 149,394 and 192,619 shares, respectively, issuable
pursuant to outstanding warrants, stock options and debt conversion features
because their effect is anti-dilutive.
Reclassifications - Certain amounts previously presented for prior periods have
been reclassified to conform to the current presentation. The reclassifications
had no effect on net loss, working capital or equity previously reported.
6
Recently Issued Accounting Pronouncements - Various accounting standards updates
have been recently issued, most of which represented technical corrections to
the accounting literature or were applicable to specific industries. No new
accounting pronouncements have been issued that are likely to have a material
impact to the Company's consolidated financial statements.
NOTE 3 - SALE OF OIL AND GAS PROPERTIES/PAYMENT OF CONVERTIBLE NOTES
During 2012, the Company sold $8,254,500 of Convertible Promissory Notes. On
March 31, 2014 the Company failed to make the scheduled interest payments on the
notes. As a result, the note holders were entitled to declare the notes in
default, in which case the principal amount of the notes, plus all accrued and
unpaid interest would be immediately due and payable.
The Company's inability to make the interest payment to the note holders was the
result of the expenditure of considerable capital to work over some of the
Company's wells. The costs of that work far exceeded the Company's expectations
and yet the work was required in order to get the wells back into production.
This depleted the Company's cash position far below its expectations. Further,
although the initial work on those wells was successful in boosting production
momentarily, further complications resulted in lower production than
anticipated, which was not adequate to replenish the cash expended and enable
the Company to make required interest payments.
With a view to paying its note holders, the Company, on June 17, 2014, sold its
oil and gas properties to Vast Exploration, Inc. for $5,500,000, after obtaining
approvals from the holders of a majority of the Company's outstanding shares of
common stock and approvals of a majority of note holders. An impairment charge
of $880,213 was recognized during the quarter ended March 31, 2014 for the
amount by which the carrying value of the Company's oil and gas properties
exceeded the estimated net proceeds from the planned sale. The Company adjusted
the impairment charge by $(18,634) during the quarter ended June 30, 2014 based
on final closing of the transaction.
The Company used the proceeds from the sale to:
Pay holders of the convertible notes $5,259,706
Purchase the net profits interest held by
Vanguard Net Profits, LLC 230,619
Pay legal and closing costs 9,675
--------------
$5,500,000
A loss on early extinguishment of debt totaling $380,539 was recognized during
the quarter ended June 30, 2014 for the write-off of a portion of the debt
issuance costs and debt issuance discount associated with the debt repayment.
7
In consideration for accepting less than the full amount due on the notes, and
releasing their lien on the Company's oil and gas properties, holders of notes
in the principal of amount of $2,847,857 as a group, agreed to receive 860,380
shares of the Company's stock in payment of the remaining balances on their
notes, plus accrued interest. The Company issued the additional shares as
payment for the notes and accrued interest in the quarter ended December 31,
2014 and recognized a gain on the extinguishment of this debt totaling
$2,570,927.
At December 31, 2014, convertible notes totaling $146,937 remain outstanding
together with accrued interest of $22,041.
NOTE 4 - INCOME TAXES
The Company estimates its annual effective income tax rate in recording its
quarterly provision for income taxes in the various jurisdictions in which the
Company operates. Statutory tax rate changes and other significant or unusual
items are recognized as discrete items in the quarter in which they occur. The
Company recorded no income tax expense for the three month period ended December
31, 2014 because the Company estimates it will record no income tax expense for
the year ended September 30, 2015. The Company has a valuation allowance that
fully offsets net deferred tax assets.
NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION
Three Months Ended December 31,
2014 2013
---- ----
Interest paid $ -- $352,783
Interest capitalized (non-cash) -- 3,677
Noncash investing and financing activities:
Capital expenditures included in accounts
payable -- (251,938)
Issuance of shares for settlement of debt 797,562 --
* * * * *
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
OPERATION
We have fully depleted our resources and have no assets of operational value. We
are seeking an opportunity to merge with another company that might provide us
with operational and financial capabilities to meet unpaid obligations and to
justify a market for our stock. Absent achieving such a transaction in the near
future, our viability is in doubt.
ITEM 4. CONTROLS AND PROCEDURES.
(a) We maintain a system of controls and procedures designed to ensure that
information required to be disclosed in reports filed or submitted under the
Securities Exchange Act of 1934, as amended ("1934 Act"), is recorded,
processed, summarized and reported within time periods specified in the SEC's
rules and forms and to ensure that information required to be disclosed by us in
the reports that we file or submit under the 1934 Act is accumulated and
communicated to our management, including our Principal Executive and Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.
As of December 31, 2014, our Principal Executive and Financial Officer evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures. Based on that evaluation, our Principal Executive and Financial
Officer concluded that our disclosure controls and procedures were effective.
(b) Changes in Internal Controls. There were no changes in our internal
control over financial reporting during the three month period ended December
31, 2014 that materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART II
ITEM 6. EXHIBITS
Exhibits
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act.
9
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.
VANGUARD ENERGY CORPORATION
Date: February 18, 2015 By: /s/ Warren Dillard
----------------------------
Warren Dillard,
Chief Executive, Financial and
Accounting Officer
10