November 13, 1995
Securities and Exchange Commission
450 Fifth St., N.W.
Judiciary Plaza
Washington, D.C. 20549-1004
Via Edgar Electronic Filing System
In Re: File Number 0-9219
------------------
Gentlemen:
Pursuant to regulations of the Securities and Exchange Commission,
submitted herewith for filing on behalf of AVOCA INCORPORATED (the "Company")
is the Company's Report on Form 10-QSB for the period ended September 30, 1995.
This filing is being effected by direct transmission to the Commission's
EDGAR System.
Sincerely,
/s/ Edward B. Grimball
Edward B. Grimball
Executive Vice President &
Chief Financial Officer
(504) 586-7570
EBG/drm
<PAGE>
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 September 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
- --------------------------------------------------------------------------------
(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 Identificaton No.)
incorporation or organization)
P.O. Box 61260, New Orleans, Louisiana 70161
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(504) 552-4720
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(Issuer's telephone number)
- --------------------------------------------------------------------------------
(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
--- ---
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 October 31, 1995
--------------------------------------
Transitional Small Business Disclosure Format (check one); Yes No X
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An exhibit index is located at page 12 of this report.
Page 1 of 12 Pages
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AVOCA, INCORPORATED
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I N D E X
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Page No.
--------
Part I. Financial Information (Unaudited)
---------------------
Condensed Balance Sheet -
September 30, 1995 4
Condensed Statements of Income
Three Months Ended
September 30, 1995 and 1994
and Nine Months Ended September 30,
1995 and 1994 5
Condensed Statements of Cash Flows
Nine Months Ended September 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 12
Signature 12
Page 2 of 12 Pages
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AVOCA, INCORPORATED
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Page 3 of 12 Pages
<PAGE>
<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Balance Sheet (Unaudited)
September 30, 1995
<S> <C>
Assets
Current assets:
Cash $ 64,883
Short-term investments 1,251,006
Accounts receivable 14,283
Accrued interest receivable 34,270
Prepaid expenses 12,799
-----------
Total current assets 1,377,241
Property and equipment, less accumulated depreciation and depletion 78,968
Other assets:
Long-term investment 722,531
Avoca Drainage Bonds, $415,000, in default -- at nominal amount 1
-----------
$ 2,178,741
===========
Liabilities and shareholders' equity Current liabilities:
Accounts payable $ 3,266
Income taxes payable 5,927
-----------
Total current liabilities 9,193
===========
Deferred income taxes 14,536
Shareholders' equity:
Common stock, no par value -- authorized, issued and
outstanding 830,500 shares 94,483
Retained earnings 2,060,529
-----------
Total shareholders' equity 2,155,012
-----------
$ 2,178,741
===========
See accompanying notes
</TABLE>
Page 4 of 12 Pages
<PAGE>
<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Statements of Income (Unaudited)
Three months ended Nine months ended
September 30 September 30
1995 1994 1995 1994
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Revenue:
Royalties $ 25,606 $ 32,517 $ 84,432 $ 116,962
Less severance taxes 1,490 1,738 5,189 5,124
--------- --------- --------- ----------
24,116 30,779 79,243 111,838
Lease bonuses and delay rentals 32,250 - 32,250 -
Interest income 27,423 25,080 81,915 56,868
Rental and other income 8,122 7,568 31,522 36,088
--------- --------- --------- ----------
91,911 63,427 224,930 204,794
Expenses:
Legal and accounting services 21,616 6,487 45,524 18,523
Consultant fees 8,750 8,750 31,250 26,250
Geological and engineering fees 3,262 497 5,867 6,052
Insurance 6,003 5,786 18,014 18,456
Miscellaneous expenses 7,233 4,339 40,795 32,745
--------- --------- --------- ----------
46,864 25,859 141,450 102,026
--------- --------- --------- ----------
Income before income taxes 45,047 37,568 83,480 102,768
Income taxes 14,683 8,525 16,704 20,992
--------- --------- --------- ----------
Net income $ 30,364 $ 29,043 $ 66,776 $ 81,776
========= ========= ========= =========
Net income per share $ .04 $ .04 $ .08 $ .10
========= ========= ========= =========
See accompanying notes.
</TABLE>
Page 5 of 12 Pages
<PAGE>
<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Statements of Cash Flows (Unaudited)
Nine months ended
September 30
1995 1994
----------- -----------
<S> <C> <C>
Operating activities
Net income $ 66,776 $ 81,776
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation expense 1,989 645
Deferred taxes ( 7,263) -
Loss on sale of asset 7,153 -
Changes in operating assets and liabilities:
Operating assets ( 6,262) ( 5,510)
Operating liabilities ( 4,068) ( 29,378)
----------- -----------
Net cash provided by operating activities 58,325 47,533
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) (2,001,397)
Purchase of long-term investment ( 722,531) -
Proceeds from sale of asset 15,750 -
Purchase of property, plant & equipment ( 31,200) -
----------- -----------
Net cash provided (used) by investing activities 116,108 (1,036,303)
Financing activities
Dividends paid ( 124,575) ( 33,220)
----------- -----------
Net cash used in financing activities ( 124,575) ( 33,220)
----------- -----------
Increase (decrease) in cash and cash equivalents 49,858 (1,021,990)
Cash and cash equivalents at beginning of period 15,025 1,090,831
----------- -----------
Cash and cash equivalents at end of period $ 64,883 $ 68,841
=========== ===========
See accompanying notes.
</TABLE>
Page 6 of 12 Pages
<PAGE>
Avoca, Incorporated
Notes to Condensed Financial Statements (Unaudited)
Nine months ended September 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 nine-month period ended September 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's ongoing litigation against a roofing company and its insurer (the
defendants) to, among other things, recover damages for the total loss of a
building which was destroyed by fire in 1992 was settled subsequent to September
30, 1995. On October 19, 1995, the Company entered into a settlement agreement
with the defendants in which the Company has received $181,000. The only
remaining part of the litigation is the roofing company's counterclaim to
recover approximately $32,000 allegedly due under the roofing contract.
Page 7 of 12 Pages
<PAGE>
Item 2 - Management's Discussion and
Analysis or Plan of Operation
The unaudited condensed statements of income show that net income for the
third quarter of 1995 as compared with the third quarter of 1994 increased
slightly from $29,043 to $30,364.
Royalty income net of severance taxes for the third quarter of 1995
decreased $6,663 or approximately 22% as compared with the third quarter of
1994. The decrease is attributable to lower prices received from Delta Operating
Company (formerly Alliance Operating Corporation) for gas production from the
Avoca No. 1 well during the third quarter of 1995. Also, gas production from the
well in 1995 was approximately 7% lower than production for the third quarter of
1994. Only negligible production was achieved from the Exchange Oil & Gas
(formerly Boo-Ker Oil & Gas) Avoca B-1 well before it went off production again
during the third quarter of 1995. The well was off production during the
comparable period of 1994.
Lease bonuses and delay rentals increased by $32,250. In order to encourage
drilling by I. P. Petroleum Co., Inc. on lands held under its lease, the Company
agreed to renew the lease and receive delay rentals on a quarterly payment
basis, with the $32,250 being the first quarterly payment under this
arrangement.
Interest income on U. S. Government agency securities for the third quarter
of 1995 increased $2,343 or 9% in comparison to the third quarter of 1994
because of higher interest rates earned.
As compared with the third quarter of 1994, expenses increased $21,005 or
approximately 81% during the third quarter of 1995 primarily due to an increase
in legal services associated with the Company's lawsuit against Gibson Roofers,
Inc. Geological and engineering fees increased as a result of billings received
during the third quarter for services rendered during prior periods. The
increase in miscellaneous expenses is attributable to a pile driving project to
close off a gap on the southwestern boundary of Avoca Island.
Page 8 of 12 Pages
<PAGE>
The increase in income tax expenses for the three months ended September
30, 1995 resulted primarily from the increase in taxable income and a higher
effective tax rate for the third quarter of 1995 as compared to the third
quarter of 1994.
Total revenue for the nine month period ended September 30, 1995 increased
$20,136 or approximately 10%. The increase is attributable to the I.P. Petroleum
Company, Inc. delay rental payment and an increase in interest income on U.S.
Government and U. S. Government agency securities, offset somewhat by the
decrease in net royalty and rental and other income.
Lease bonuses and delay rental increased by $32,250 due to early payment by
I. P. Petroleum Company, Inc. of the delay rental mentioned above. Interest
income on U. S. Government and U. S. Government agency securities for the nine
month period ended September 30, 1995 increased $25,047 or 44% due to higher
interest rates earned.
Revenues from royalties net of severance taxes during the first nine
months of 1995 decreased by $32,595 or approximately 29%, 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 13% lower than production for the first nine months of 1994.
During 1994 and 1995, the Delta Operating Company No. 1 well was responsible
for almost all of the Company's royalty
Page 9 of 12 Pages
<PAGE>
income. The Exchange Oil and Gas Avoca No. B-1 well, which was off production
for the first nine months of 1994, produced intermittently during January, for
one week in May and two weeks in September of 1995, but is again off production.
At last report, the operator was contemplating plugging and abandonment
operations in the near future.
No mineral leases were granted and no drilling operations were commenced
during the first nine months in 1995.
Rental and other income for the nine month period ended September 30,
1995 decreased $4,566 or approximately 13% 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 nine month period ended September 30, 1995 increased
$39,424 or approximately 39% because of increases in legal and consultant
fees and miscellaneous expenses. In 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 nine month period ended
September 30, 1995 was a result of a decease 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.
Page 10 of 12 Pages
<PAGE>
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 sought 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.
As noted in the Company's 10-QSB Report for the quarter ended March 31,
1995, Audubon Insurance Company has settled with the defendants and its claims
have been dismissed. Avoca's claims against Gibson and its insurer were settled
on October 19, 1995 for $181,000 in cash. The only remaining part of the
litigation is Gibson's counterclaim, which is scheduled for trial in December of
this year.
Page 11 of 12 Pages
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-B:
None.
(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
-------------------
Registrant
/s/ Edward B. Grimball
- ------------------------------------ -----------------------------------------
Edward B. Grimball
President and Principal Financial Officer
Page 12 of 12 Pages
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 64,883
<SECURITIES> 1,251,006
<RECEIVABLES> 14,283
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,377,241
<PP&E> 78,968
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,178,741
<CURRENT-LIABILITIES> 9,193
<BONDS> 0
<COMMON> 94,483
0
0
<OTHER-SE> 2,060,529
<TOTAL-LIABILITY-AND-EQUITY> 2,178,741
<SALES> 79,243
<TOTAL-REVENUES> 224,930
<CGS> 0
<TOTAL-COSTS> 5,189
<OTHER-EXPENSES> 141,450
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 83,480
<INCOME-TAX> 16,704
<INCOME-CONTINUING> 66,776
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,776
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
