November 12, 1996
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, 1996.
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, 1996
-------------------------------------------------
[ ] 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
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 61260, New Orleans, Louisiana 70161
--------------------------------------------
(Address of principal executive offices)
(504) 552-4720
---------------------------
(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, 1996
--------------------------------------
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.
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Page 1 of 12 Pages
<PAGE>
AVOCA, INCORPORATED
-------------------
I N D E X
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Page No.
--------
Part I. Financial Information (Unaudited)
---------------------
Condensed Balance Sheet - September 30, 1996 4
Condensed Statements of Income
Three Months Ended September 30, 1996
and 1995 and Nine Months Ended
September 30, 1996 and 1995 5
Condensed Statements of Cash Flows
Nine Months Ended September 30, 1996
and 1995 6
Notes to Condensed Financial Statements 7
Management's Discussion and Analysis or
Plan of Operation 8-11
Part II. Other Information
-----------------
Legal Proceedings 12
Exhibits and Reports on Form 8-K 12
Signature 12
Page 2 of 12 Pages
<PAGE>
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, 1996
Assets
<S> <C>
Current assets:
Cash $ 68,157
Short-term investments 1,746,125
Accounts receivable 29,117
Accrued interest receivable 44,205
Prepaid expenses 10,454
-----------
Total current assets 1,898,058
Property and equipment, less accumulated depreciation and depletion 76,233
Other assets:
Long-term investment 639,169
Avoca Drainage Bonds, $415,000, in default -- at nominal amount 1
-----------
$ 2,613,461
===========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 12,239
Income taxes payable 99,927
-----------
Total current liabilities 112,166
Deferred income taxes 14,029
Shareholders' equity:
Common stock, no par value -- authorized, issued and outstanding
830,500 shares 94,483
Retained earnings 2,392,783
-----------
Total shareholders' equity 2,487,266
-----------
$ 2,613,461
===========
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
1996 1995 1996 1995
--------- --------- --------- ---------
Revenue:
<S> <C> <C> <C> <C>
Royalties $ 70,443 $ 25,606 $ 166,063 $ 84,432
Less severance taxes 1,203 1,490 3,474 5,189
--------- --------- --------- ---------
69,240 24,116 162,589 79,243
Lease bonuses and delay rentals 46,200 32,250 84,075 32,250
Interest income 32,092 27,423 88,168 81,915
Rental and other income 269,217 8,122 290,217 31,522
--------- --------- --------- ---------
416,749 91,911 625,049 224,930
Expenses:
Legal and accounting services 6,513 21,616 20,285 45,524
Consultant fees 9,000 8,750 32,000 31,250
Geological and engineering fees 6,428 3,262 11,152 5,867
Insurance 5,747 6,003 17,600 18,014
Miscellaneous expenses 2,779 7,233 28,820 40,795
--------- --------- --------- ---------
30,467 46,864 109,857 141,450
--------- --------- --------- ---------
Income before income taxes 386,282 45,047 515,192 83,480
Income taxes 119,257 14,683 148,556 16,704
--------- --------- --------- ---------
Net income $ 267,025 $ 30,364 $ 366,636 $ 66,776
========= ========= ========= =========
Net income per share $ .32 $ .04 $ .44 $ .08
========= ========= ========= ========
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
1996 1995
--------------------------------
Operating activities
<S> <C> <C>
Net income $ 366,636 $ 66,776
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 2,052 1,989
Deferred taxes ( 380) ( 7,263)
Loss on sale of asset 7,153
Changes in operating assets and liabilities:
Operating assets ( 35,624) ( 6,262)
Operating liabilities 49,834 ( 4,068)
----------- ----------
Net cash provided by operating activities 382,518 58,325
Investing activities
Maturity of short-term investments 583,987 1,932,310
Proceeds from the sale of short-term investments 172,785
Purchase of short-term investments ( 339,352) (1,251,006)
Purchase of long-term investments ( 639,169) ( 722,531)
Proceeds from sale of asset 15,750
Purchase of property, plant & equipment ( 31,200)
----------- ----------
Net cash provided by (used in) investing activities (394,534) 116,108
Financing activities
Dividends paid ( 124,575) ( 124,575)
----------- ----------
Net cash used in financing activities ( 124,575) ( 124,575)
----------- ----------
Increase (decrease) in cash and cash equivalents ( 136,591) 49,858
Cash and cash equivalents at beginning of period 204,748 15,025
----------- ----------
Cash and cash equivalents at end of period $ 68,157 $ 64,883
=========== ==========
See accompanying notes.
</TABLE>
Page 6 of 12 Pages
<PAGE>
Avoca, Incorporated
Notes to Condensed Financial Statements (Unaudited)
Nine months ended September 30, 1996
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,
1996 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1996. 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, 1995.
The Company considers its United States Goverment securities held with a
maturity of three months or less when purchased to be cash equivalents.
Page 7 of 12 Pages
<PAGE>
Item 2 - Management's Discussion and
Analysis or Plan of Operation
The Company enjoyed an exceptional third quarter. As shown by the
unaudited condensed statements of income, net income increased from $30,364 to
$267,025 compared with the third quarter of 1995.
Virtually all of the increase, reflected in the income statements as
rental and other income, comes from the granting of two new 3-D seismic permits,
totaling $265,205. The first permit was granted to Geco-Prakla, Inc. and covers
3073 acres on the western part of Avoca Island. The second permit, granted to
Texas Meridian Resources Exploration, Inc., covers 7535 acres on the southern
part of the island and includes an option until January 10, 1998 to lease all or
part (not less than 753 acres) of the permitted acreage for mineral development.
Royalty income, net of severance taxes, for the third quarter of 1996
increased by $45,124 or approximately 187% as compared with the third quarter of
1995. The increase is attributable to the successful workover of the
Intercoastal Shipyard No. 2 well in the Ramos Field. This well was restored to
production by its operator, Black Gold Production Company, Inc. during the
second quarter of 1996. It produces from the B Sand Unit B under the Capital
Energy, Inc. lease signed in the first quarter of 1996 and originally produced
under a lease to Cabot Carbon Corporation dated January 19, 1960. Production
from this unit is responsible for approximately $41,542 or 60% of the Company's
royalty income for the third quarter of 1996. The increase is also attributable
to significantly higher prices received by Delta Operating Company (formerly
Alliance Operating Corporation) for gas production from the Avoca No. 1 well
during the third quarter of 1996. Although third quarter gas production from the
Avoca No. 1 well was approximately 27% lower than production for the comparable
period of 1995, the average sales price of gas rose from $1.50 per
Page 8 of 12 Pages
<PAGE>
MCF for the three months ended September 30, 1995 to $2.41 per MCF for the three
months ended September 30, 1996. The well was off production September 1st and
2nd for a chemical treatment to clean the producing formation near the wellbore
in order to improve the well's performance. The operator has advised the Company
that the treatment appears to have been successful.
Lease bonuses and delay rentals for the three month period increased
$13,950 or approximately 43% as compared to the third quarter of 1995 as a
result of a new oil, gas and mineral lease that was granted to Burlington
Resources Oil & Gas Co. on August 12, 1996 covering 420 acres on the northern
part of Avoca Island. The lease includes a 90 day option for a 3-D seismic
permit on approximately 7,300 acres of Company property on the northern part of
Avoca Island.
Interest income on U.S. Government and U.S. Government agency
securities increased $4,669 or 17% because of higher interest rates and more
available funds for investment.
As compared with the third quarter of 1995, expenses decreased $16,397
or approximately 35% during the third quarter of 1996 primarily because of
reduced legal fees, specifically those related to the Company's litigation with
Gibson Roofers, Inc. The increase in geological and engineering fees was offset
by lower miscellaneous expenses.
The change in income tax expense for the three months ended September
30, 1996 resulted from an increase in taxable income for the third quarter of
1996 as compared to the third quarter of 1995.
Total revenue for the nine month period ended September 30, 1996
increased $400,119 or approximately 178%. The increase is attributable to a
substantial increase in rental and other income, as well as increased royalty
income, lease bonuses and delay rentals and interest income.
Page 9 of 12 Pages
<PAGE>
Rental and other income for the nine month period ended September 30,
1996 increased $258,695 or approximately 821% primarily as a result of the
signing of two new 3-D seismic permits on Company lands as discussed above.
Revenues from royalties, net of severance taxes, during the first nine
months of 1996 increased $83,346 or approximately 105%, primarily because of
income received from the successful workover of the Intercoastal Shipyard No. 2
well in the Ramos Field. The Company began to receive royalty income during the
second quarter of 1996 from the B Sand Unit B under its 45.029 acre oil, gas and
mineral lease signed in the first quarter of 1996 with Capital Energy, Inc.
Significantly higher prices received from Delta Operating Company for
gas production from the Avoca No. 1 well during the first nine months of 1996
also contributed to higher royalty income as compared to the first nine months
of 1995. The average sales price per MCF was $2.54 and $1.52, respectively, for
the nine months ended September 30, 1996 and 1995. Gas production from the well
in 1996 was approximately 26% lower than production for the first nine months of
1995. During 1995, the Delta Operating Company No. 1 well was responsible for
almost all of the Company's royalty income. For the first nine months of 1996,
it has been responsible for 56% of the Company's royalty income.
Lease bonuses and delay rentals for the first nine months of 1996
increased by $51,825, of which $46,200 was received as a lease bonus in the
third quarter from Burlington Resources Oil & Gas Co. The remaining increase of
$5,625 is attributable to a lease bonus received during the first quarter from
Capital Energy, Inc. No drilling operations were commenced during the first nine
months of 1996.
Page 10 of 12 Pages
<PAGE>
Interest income on U.S. Government and U.S. Government agency
securities for the nine month period ended September 30, 1996 increased $6,253
or 8% because of higher interest rates and the availability of more funds for
investment.
Expenses for the nine month period ended September 30, 1996 decreased
$31,593 or approximately 22% because of a substantial decrease in legal fees and
miscellaneous expenses offset by an increase in geological and engineering fees.
Expenses for the corresponding period of 1995 included $21,642 of legal fees
pertaining to the Company's litigation with Gibson Roofers, Inc. and a loss of
$7,153 recorded as a miscellaneous expense on the sale of a mobile home formerly
occupied by the Company's caretaker. Geological and engineering fees increased
by $5,285 because of more need for these professional services.
The change in income tax expense for the nine months ended September
30, 1996 resulted from an increase in taxable income for the first nine months
of 1996 as compared to the first nine months of 1995.
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 and U.S. Government agency securities. In addition to interest
income, the Company customarily 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 11 of 12 Pages
<PAGE>
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings
As noted in previous reports, an historic home owned by the Company
burned to the ground during the course of roofing work performed by Gibson
Roofers, Inc. The Company sued Gibson and its insurer for total loss of the
building. Gibson counterclaimed for recovery under its roofing contract.
Having settled its claims against Gibson, the Company moved for summary
judgment on Gibson's counterclaim. The trial court granted the motion and
dismissed the counterclaim. Gibson's appeal was dismissed during the third
quarter of 1996, thus finally bringing the litigation to an end.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-B:
Exhibit 27 - Financial Data Schedule.
(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
November 6, 1996 /s/ Edward B. Grimball
- -------------------------------- -----------------------------------------
Date Edward B. Grimball
President and Principal Financial Officer
/121260
Page 12 of 12 Pages
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 68,157
<SECURITIES> 1,746,125
<RECEIVABLES> 29,117
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,898,058
<PP&E> 76,233
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,613,461
<CURRENT-LIABILITIES> 112,166
<BONDS> 0
<COMMON> 94,483
0
0
<OTHER-SE> 2,392,783
<TOTAL-LIABILITY-AND-EQUITY> 2,613,461
<SALES> 162,589
<TOTAL-REVENUES> 625,049
<CGS> 0
<TOTAL-COSTS> 3,474
<OTHER-EXPENSES> 109,857
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 515,192
<INCOME-TAX> 148,556
<INCOME-CONTINUING> 366,636
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 366,636
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
</TABLE>
