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U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-9219
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AVOCA, INCORPORATED
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(Exact name of small business issuer as specified in its charter)
Louisiana 72-0590868
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 61260, New Orleans, Louisiana 70161
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(Address of principal executive offices)
(504) 552-4720
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(Issuer's telephone number)
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(Former name, former address and former
fiscal year, 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
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State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 830,500 shares on July 31,
1995 Transitional Small Business Disclosure Format (check one); Yes No X
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An exhibit index is located at page of this report.
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AVOCA, INCORPORATED
I N D E X
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
Part I. Financial Information (Unaudited)
Condensed Balance Sheet - June 30, 1995 4
Condensed Statements of Income
Three Months Ended June 30, 1995
and 1994 and Six Months Ended
June 30, 1995 and 1994 5
Condensed Statements of Cash Flows
Six Months Ended June 30, 1995
and 1994 6
Notes to Condensed Financial Statements 7
Management's Discussion and Analysis or
Plan of Operation 8-10
Part II. Other Information
Legal Proceedings 11
Exhibits and Reports on Form 8-K 11
Signature 11
</TABLE>
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AVOCA, INCORPORATED
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
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Avoca, Incorporated
Condensed Balance Sheet (Unaudited)
June 30, 1995
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 28,844
Short-term investments 1,251,006
Accounts receivable 16,218
Accrued interest receivable 33,902
Prepaid expenses 16,312
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Total current assets 1,346,282
Property and equipment, less accumulated depreciation and depletion 79,653
Other assets:
Long-term investment, U. S. Government agency securities 722,531
Avoca Drainage Bonds, $415,000, in default -- at nominal amount 1
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$ 2,148,467
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,039
Income taxes payable 3,116
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Total current liabilities 9,155
Deferred income taxes 14,664
Shareholders' equity:
Common stock, no par value -- authorized, issued and outstanding
830,500 shares 94,483
Retained earnings 2,030,165
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Total shareholders' equity 2,124,648
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$ 2,148,467
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</TABLE>
See accompanying notes
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Avoca, Incorporated
Condensed Statements of Income (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1995 1994 1995 1994
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<S> <C> <C> <C> <C>
Revenue:
Royalties $ 25,544 $ 41,163 $ 58,826 $ 84,445
Less severance taxes 1,623 1,693 3,699 3,386
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23,921 39,470 55,127 81,059
Interest income 26,474 19,137 54,492 31,788
Rental and other income 23,400 21,316 23,400 28,520
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73,795 79,923 133,019 141,367
Expenses:
Legal and accounting services 15,933 6,732 23,908 12,036
Consultant fees 8,750 8,750 22,500 17,500
Geological and engineering fees 843 3,507 2,605 5,555
Insurance 6,025 6,682 12,011 12,670
Miscellaneous expenses 5,655 7,480 33,562 28,406
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37,206 33,151 94,586 76,167
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Income before income taxes 36,589 46,772 38,433 65,200
Income taxes 8,915 10,961 2,021 12,467
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Net income $ 27,674 $ 35,811 $ 36,412 $ 52,733
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Net income per share $ .03 $ .04 $ .04 $ .06
========= ========= ========= =========
</TABLE>
See accompanying notes.
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Avoca, Incorporated
Condensed Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
1995 1994
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<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 36,412 $ 52,733
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation expense 1,304 430
Deferred taxes ( 7,135) -
Loss on sale of asset 7,153 -
Changes in operating assets and liabilities:
Operating assets ( 11,342) 5,160
Operating liabilities ( 4,106) ( 32,450)
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Net cash provided by operating activities 22,286 25,873
INVESTING ACTIVITIES
Maturity of short-term investments 1,932,310 965,094
Proceeds from the sale of short-term investments 172,785 -
Purchase of short-term investments ( 1,251,006) ( 1,952,203)
Purchase of long-term investments ( 722,531) -
Proceeds from sale of asset 15,750 -
Purchase of property, plant & equipment ( 31,200) -
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Net cash provided (used) by investing activities 116,108 ( 987,109)
FINANCING ACTIVITIES
Dividends paid ( 124,575) ( 33,220)
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Net cash used in financing activities ( 124,575) ( 33,220)
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Increase (decrease) in cash and cash equivalents 13,819 ( 994,456)
Cash and cash equivalents at beginning of period 15,025 1,090,831
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Cash and cash equivalents at end of period $ 28,844 $ 96,375
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</TABLE>
See accompanying notes.
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Avoca, Incorporated
Notes to Condensed Financial Statements (Unaudited)
Six months ended June 30, 1995
1. BASIS OF ACCOUNTING
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions of Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six-month period
ended June 30, 1995 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1995. For further information, refer
to the financial statements and footnotes thereto included in the Company's
annual shareholders' report incorporated by reference in the Form 10-KSB for
the year ended December 31, 1994.
2. CONTINGENCY
The Company is engaged in litigation against a roofing company and its insurer
to, among other things, recover damages, which are presently unquantified, for
the total loss of the building which was destroyed by fire in 1992. Discovery
is in process on the litigation and a reasonable estimation of the Company's
potential recovery, if any, cannot be determined at this time. The case is
scheduled to go to trial in December of 1995.
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Item 2 - Management's Discussion and
Analysis or Plan of Operation
The unaudited condensed statements of income show that net income for
the second quarter of 1995 as compared with the second quarter of 1994
decreased from $35,811 to $27,674.
Royalty income net of severance taxes for the second quarter of 1995
decreased $15,549 or approximately 39% as compared with the second quarter of
1994. The decrease is attributable to significantly lower prices received from
Delta Operating Company (formerly Alliance Operating Corporation) for gas
production from the Avoca No. 1 well during the second quarter of 1995. Also,
gas production from the well in 1995 was approximately 20% lower than
production for the second quarter of 1994. Only negligible production was
achieved during the second quarter from the Exchange Oil & Gas (formerly
Boo-Ker Oil & Gas) Avoca B-1 well, which was off production during the
comparable period of 1994.
Interest income on U.S. Government and U. S. Government agency
securities increased $7,337 or 38% because of higher interest rates. Rental
and other income increased $2,084 or approximately 10% as a result of a new
short term surface lease.
As compared with the second quarter of 1994, expenses increased $4,055
or approximately 12% during the second quarter of 1995 primarily due to an
increase in the need for legal services, including those associated with the
Company's lawsuit against Gibson Roofers Inc. This increase was somewhat
offset by a reduction in geological and engineering fees and miscellaneous
expenses.
The decrease in income tax expenses for the three months ended June
30, 1995 was a result of the decrease in income before income taxes for the
quarter as compared to the second quarter of 1994.
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Total revenue for the six month period ended June 30, 1995 decreased
$8,348 or approximately 6%. The decline is attributable to reduced royalty
income and rental and other income, offset by an increase in interest income on
U.S. Government and U.S. Government agency securities.
Revenues from royalties net of severance taxes during the first six
months of 1995 decreased by $25,932 or approximately 32%, primarily because of
significantly lower prices received from Delta Operating Company for gas
production from the Avoca No. 1 well. Also, gas production from the well in
1995 was approximately 15% lower than production for the first six months of
1994. The operator is attempting to determine the reasons for the lower gas
producing rates. During 1994 and 1995, the Delta Operating Company No. 1 well
was responsible for almost all of the Company's royalty income. The Exchange
Oil and Gas Avoca No. B-1 well, which was off production the first six months
of 1994, produced intermittently during January and for one week in May 1995,
but is again off production. At last report, the operator was contemplating
additional near term remedial work, but the well's future remains uncertain.
No mineral leases were granted and no drilling operations were commenced during
the first six months of 1995.
Interest income on U.S. Government and U.S. Government agency
securities for the six month period ended June 30, 1995 increased $22,704 or
71% because of higher interest rates. Rental and other income for the six
month period ended June 30, 1995 decreased $5,120 or approximately 18% as
compared with the same period of 1994. The decrease results from the timing of
a rental payment under an annual surface lease.
Expenses for the six month period ended June 30, 1995 increased
$18,419 or approximately 24% because of increases in legal, consultant fees and
miscellaneous expenses. In
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January 1995, the Company sold its mobile home which was previously used as
temporary housing for the Company's caretaker for $15,750 and recorded a loss
on the sale of $7,153, which is included in miscellaneous expenses on the
condensed statements of income.
The decrease in income tax expense for the six month period ended June
30, 1995 was a result of the decrease in income before income taxes.
The Company's continued liquidity is evidenced by the fact that
approximately 94% of its assets, as measured by book value, are cash and U.S.
Government agency securities. In addition to interest income, the Company
derives essentially all of its other income from the granting of oil and gas
leases, the collection of bonuses, delay rentals and royalties thereunder and
the leasing of hunting rights. The Company's business is passive and all
capital requirements for exploration, development and production of the
Company's mineral resources are funded by its Lessees.
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Part II - OTHER INFORMATION
Item 1 - Legal Proceedings
As noted in the Company's 10-KSB Report for the fiscal year ended
December 31, 1994, the Company and Gibson Roofers, Inc. ("Gibson") are engaged
in litigation arising from roofing work performed by Gibson on an historic home
owned by the Company. After filing a labor and materialman's lien against
205.7 acres of the Company's property, Gibson on January 22, 1993 filed suit
against Avoca in the 24th Judicial District Court, Jefferson Parish, Louisiana,
to recover the principal sum of $31,759.00 allegedly due under the roofing
contract and to enforce Gibson's alleged lien rights. The suit was dismissed
for improper venue on June 23, 1993 and refiled in Civil District Court for the
Parish of Orleans, Louisiana. The refiled suit was dismissed for improper
venue on October 15, 1993.
On January 27, 1993, Avoca and its insurer, Audubon Insurance Company,
sued Gibson and its insurer, Reliance Insurance Company, in the 16th Judicial
District Court, St. Mary Parish, Louisiana, to recover damages for the total
loss of the building, which burned to the ground while the roofing work was
being performed. Avoca also seeks damages for Gibson's wrongful assertion of
lien rights against the Company's property. By counterclaim, Gibson has
realleged the contract and lien rights it asserted in its earlier suits.
Audubon Insurance Company recently settled with the defendants and its
claims have been dismissed. Avoca's claims against Gibson and its insurer, and
Gibson's counterclaim against Avoca, are set for trial in December, 1995. Item
6 - Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-B:
Exhibit 27 Financial Data Schedule
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(b) Reports on Form 8-K
Reports on Form 8-K: No reports have been filed during the quarter
for which this report is filed.
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.
AVOCA, INCORPORATED
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Registrant
August 4, 1995 /s/ EDWARD B. GRIMBALL
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Edward B. Grimball
President and Principal Financial Officer
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
27 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 28,844
<SECURITIES> 1,251,006
<RECEIVABLES> 16,218
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,346,282
<PP&E> 79,653
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,148,467
<CURRENT-LIABILITIES> 9,155
<BONDS> 0
<COMMON> 94,483
0
0
<OTHER-SE> 2,030,165
<TOTAL-LIABILITY-AND-EQUITY> 2,148,467
<SALES> 55,127
<TOTAL-REVENUES> 133,019
<CGS> 0
<TOTAL-COSTS> 3,699
<OTHER-EXPENSES> 94,586
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 38,433
<INCOME-TAX> 2,021
<INCOME-CONTINUING> 36,412
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,412
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
