<PAGE> 1
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
X / Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
- -- Act of 1934 for the fiscal year ended December 31, 1995
or
/ Transition report pursuant to Section 13 or 15(d) of the Securities
- -- Exchange Act of 1934 for the transition period from to
---------- ----------
Commission file number 0-9219
AVOCA, INCORPORATED
- --------------------------------------------------------------------------------
(Name of small business issuer in its charter)
Louisiana 72-0590868
- -------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P. O. Box 61260, New Orleans, LA. 70161
- -------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (504) 552-4720
-----------------------
Securities registered under Section 12(b) of the Act: Name of each exchange on
Title of each class which registered
None None
- ----------------------------------------------------- ------------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock - No Par Value
(Title of Class)
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 registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No ____
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. X
State issuer's revenues for its most recent fiscal year. $289,902
The aggregate market value of common stock held on March 1, 1996 by
non-affiliates of the registrant was $2,695,480. Such value has been computed
on the basis of the average bid and asked prices of the stock and by excluding,
from the 830,500 shares outstanding on that date, all stock beneficially owned
by officers and directors of the registrant and by beneficial owners of more
than five percent of its stock, even though all such persons may not be
affiliates as defined in SEC Rule 12b-2.
The Company has only one class of common stock, of which 830,500 shares were
outstanding on March 1, 1996.
Parts I and II incorporate by reference information from the Annual Report to
Shareholders for the year ended December 31, 1995. Part III incorporates by
reference information from the Company's Proxy Statement dated February 16,
1996.
Transitional Small Business Disclosure Format (check one): Yes ___ No X
An exhibit index is located on page 16
<PAGE> 2
AVOCA, INCORPORATED
Index to 10-KSB Annual Report
<TABLE>
<CAPTION>
PAGE
PART I
<S> <C> <C>
Item 1: Description of Business 3-8
Item 2: Description of Property 8-9
Item 3: Legal Proceedings 9-10
Item 4: Submission of Matters to a Vote of Security Holders 10
PART II
Item 5: Market for Common Equity
and Related Stockholder Matters 10
Item 6: Management's Discussion and Analysis or Plan of
Operation 10-11
Item 7: Financial Statements 11
Item 8: Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure 11
PART III
Item 9: Directors, Executive Officers, Promoters and
Control Persons; Compliance With Section 16(a)
of the Exchange Act 11
Item 10: Executive Compensation 11
Item 11: Security Ownership of Certain Beneficial Owners
and Management 12
Item 12: Certain Relationships and Related Transactions 12
Item 13: Exhibits and Reports on Form 8-K 12-14
</TABLE>
Page 2 of 15 Pages
<PAGE> 3
PART I
Item 1 Description of Business
Avoca, Incorporated ("the Company") is a Louisiana corporation
formed in 1931. It owns and manages approximately 16,000 acres comprising
virtually all of Avoca Island, which is located about 90 miles west of New
Orleans in St. Mary Parish, Louisiana, adjacent to and immediately southeast of
Morgan City. The island, approximately two-thirds of which is under shallow
water, is rural and virtually undeveloped except for exploration and
development of its oil and gas resources.
Avoca, Incorporated is a passive royalty company that derives most
of its income from royalties, bonuses and delay rentals under oil and gas
leases covering its Avoca Island acreage and interest on its investments. The
following table and accompanying lease map furnish information respecting
mineral leases in effect for the year ended December 31, 1995.
Page 3 of 15 Pages
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MINERAL INCOME
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995
INITIAL
DATE OF RENTAL INCOME RECOGNIZED IN 1995
LESSEE OPERATOR LEASE ACREAGE EXPIRATION PER ACRE LEASE BONUS NET ROYALTIES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cabot Carbon Corporation Black Gold Production 1/19/60 55.770 Termination $ 50 $ -- $ 3
Company of production
Texaco, Inc. Texaco, Inc. 5/17/63 41.900 Termination $ 75 -- 251
of production
Alliance Operating Company Delta Operating Corporation 8/14/87 276.733 Termination $200 -- 95,179
of production
IP Petroleum Company, Inc. IP Petroleum Company, Inc. 10/3/94 860.000 Termination $150 32,250 --
of production
or 10/3/97
if nonproducing
Boo-Ker Oil and Gas Corporation Exchange Oil and Gas Company *10/6/94 185.440 Termination $ -- -- 6,245
of production
------- --------
$32,250 $101,678
======= ========
</TABLE>
*---This lease supersedes a lease dated August 21, 1990 with the same lessee.
Page 4 of 15 Pages
<PAGE> 5
[Map of Avoca Island appears here,
showing property of Avoca, Incorporated,
mineral leases and well locations]
Page 5 of 15 Pages
<PAGE> 6
Item 1 Description of Business (continued)
At December 31, 1995, 1420 acres of the Company's land were
covered by oil and gas leases. Approximately 560 acres were held by production
pursuant to leases providing for royalties ranging from 22.5% to 30%. Two of
the leases (in favor of Boo-Ker Oil and Gas Corporation and Cabot Carbon
Corporation, respectively) covering approximately 241 acres, are expected to
expire for non-production in early 1996. The remaining 860 acres are covered
by a lease granted in 1994 to I. P. Petroleum, Inc., which stipulates a 20%
royalty. In order to encourage I. P. Petroleum to maintain its lease in effect
and conduct drilling operations on Avoca Island, the Company has amended its
lease with that lessee to provide for quarterly delay rentals in lieu of annual
delay rentals.
Since 1991, production from the Delta Operating Corporation
(formerly Alliance Operating Company) Avoca No. 1 well in the Ramos Field has
been the Company's largest producing well. Royalties from the Avoca No. 1, in
which Avoca, Incorporated has a net revenue interest of approximately 19%, were
responsible for approximately 94% of the Company's royalty income during 1993,
96% in 1994 and 94% in 1995. Production from the well was 259,513 thousand
cubic feet (Mcf) of gas and 4,158 barrels of condensate in 1995, as compared
with 311,602 Mcf and 5,312 barrels in 1994, and 332,136 Mcf and 5,684 barrels
in 1993.
As noted above, the Company's lease to Boo-Ker Oil and Gas
Corporation is expected to expire in early 1996. The well located on the
leased premises (the Avoca No. B-1, located in the Ramos Field) produced
intermittently in January, May and September of 1995 before going off
production. The operator has commenced plugging and abandonment operations on
the well.
Page 6 of 15 Pages
<PAGE> 7
The Company's share of production from the Bateman Lake Field
tract leased to Texaco, Inc., and from the Ramos Field tract leased to Cabot
Carbon Corporation, has been negligible in recent years.
In addition to information regarding prices, the following table
shows the Company's share of gas produced (in terms of thousand cubic feet) and
oil delivered (in terms of barrels) from the Ramos Field during the last three
years.
<TABLE>
<CAPTION>
COMPANY'S SHARE AVERAGE SALES PRICE
--------------- -------------------
YEAR GAS VOLUME OIL VOLUME PER MCF PER BBL
<S> <C> <C> <C> <C>
1993 67,772 mcf 1,149 bbls $2.26 $18.93
1994 66,647 mcf 1,055 bbls $2.13 $16.75
1995 50,501 mcf 809 bbls $1.73 $18.00
</TABLE>
The Company granted one mineral lease in 1994, but no mineral leases
in 1993 or 1995. Except for reworking operations on the recently abandoned
Avoca B-1 well, no drilling operations were conducted on Avoca Island during
the three year period ended December 31, 1995.
Further information respecting oil and gas operations on the Company's
property appears under the captions "Report to the Shareholders" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 4 and 14 of the Company's 1995 Annual Report to
Shareholders, attached as an exhibit hereto and incorporated herein by
reference. The Company's activities with respect to oil and gas are limited to
the granting of leases and the collection of bonuses, delay rentals and
landowner royalties thereunder. Accordingly, only limited information,
furnished primarily by the Company's lessees, has been included with respect to
oil and gas operations affecting the Company's lands. Complete information
respecting these and related
Page 7 of 15 Pages
<PAGE> 8
matters, such as proved reserves, is unavailable to the Company and cannot be
obtained without unreasonable effort or expense.
Wild game, bird hunting and non-commercial fishing rights on Avoca
Island are leased to Avoca Duck Club. Revenues from these sources were $21,000
in 1995.
The Company has no employees but retains the services of three
individuals as independent contractors. One acts as consultant to the Board of
Directors and assists with the Company's day to day business affairs. The
other two individuals maintain the Company's financial records and watch over
the Company's lands, respectively.
Additional information regarding the Company's business is included
under Item 2 of this report, incorporated herein by reference.
Item 2 Description of Property
The Company owns approximately 16,000 acres comprising virtually all
of Avoca Island. The island, located in St. Mary Parish, Louisiana,
approximately 90 miles west of New Orleans, lies southeast of the greater
Morgan City area, from which it is separated by Bayou Boeuf. There are no
bridges or roads leading to the island. Access is by means of a free ferry
which operates on a regular schedule across Bayou Boeuf (a distance of
approximately 500 feet) and connects the northwest tip of the island with the
Morgan City area. Ferry service is interrupted by periodic mechanical
breakdowns and during periods of high water.
Avoca Island is within the Morgan City Harbor and Terminal District.
Bayou Boeuf and Bayou Chene, which border the island for a distance of
approximately thirteen miles and form its northern, eastern and southern
perimeters, are part of the Gulf section of the Intracoastal Waterway.
Page 8 of 15 Pages
<PAGE> 9
Approximately one-third of the island, located along its northern and
eastern perimeters, is dry ground. The remaining two-thirds is under shallow
water. Avoca Island is rural, and its surface is virtually undeveloped.
Preliminary studies and negotiations were undertaken about ten years
ago with regard to a proposed bridge linking Avoca Island with the mainland.
The project has remained dormant during recent years and its future is
uncertain.
A study conducted with the assistance of LSU's Cooperative Extension
Service in 1991 indicates that aquaculture and tree farming are not
economically feasible and that the island's suitability for farming is limited.
The Company is continuing its search for persons interested in farming or
otherwise using the Avoca Island for agrarian purposes that will preserve the
farmland status of the property and minimize the effect of Section 404 of the
Clean Water Act, under which vast areas have been designated as wetlands
subject to the jurisdiction and permitting requirements of the U.S. Corps of
Engineers.
Information respecting development of oil and gas resources on Avoca
Island is provided under Item 1 of this report, incorporated herein by
reference.
Item 3 Legal Proceedings
The historic Pharr home, owned by the Company and located on the
northwest tip of Avoca Island, burned to the ground while roof work was being
performed by Gibson Roofers, Inc. ("Gibson") in December 1992. After filing a
labor and materialman's lien against 205.7 acres of the Company's property,
Gibson in January, 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
Page 9 of 15 Pages
<PAGE> 10
venue in June, 1993 and refiled in Civil District Court for the Parish of
Orleans, Louisiana. The refiled suit was dismissed for improper venue in
October, 1993.
In January, 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. Avoca also sought damages for Gibson's wrongful
assertion of lien rights against the Company's property. By counterclaim,
Gibson realleged the contract and lien rights it asserted in its earlier suits.
On October 19, 1995, the Company settled its claims against Gibson and its
insurer for $181,000. Gibson's counterclaim was dismissed in December, 1995
pursuant to the Company's motion for summary judgment, but a notice of appeal
has been filed.
Item 4 Submission of Matters to
a Vote of Security Holders
Not Applicable
PART II
Item 5 Market for Common Equity
and Related Stockholder Matters
The information called for by this item appears under the caption
"Stock Prices and Related Security Holder Matters" on page 15 of the Company's
1995 Annual Report to Shareholders, attached as an exhibit hereto and
incorporated herein by reference.
Item 6 Management's Discussion and
Analysis or Plan of Operation
The information called for by this item appears under the captions
"Report to the Shareholders" and "Management's Discussion and Analysis of
Financial Condition and Results of
Page 10 of 15 Pages
<PAGE> 11
Operations" on pages 4 and 14, respectively, of the Company's 1995 Annual
Report to Shareholders, attached as an exhibit hereto and incorporated herein
by reference.
Item 7 Financial Statements
The information called for by this item appears on pages 5 through
13 of the Company's 1995 Annual Report to Shareholders, attached as an exhibit
hereto and incorporated herein by reference.
Item 8 Changes In and Disagreements With
Accountants on Accounting and Financial Disclosure
Not applicable
PART III
Item 9 Directors, Executive Officers,
Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act
The Company has two executive officers, both of whom are
directors: Edward B. Grimball, President, and M. Cleland Powell, III,
Secretary-Treasurer. Information concerning such persons and the Company's
other directors is shown under the caption "Number and Election of Directors"
on pages 3 and 4 of the Company's Proxy Statement dated February 16, 1996,
incorporated herein by reference.
Item 10 Executive Compensation
The information called for by this item appears under the caption
"Information Concerning Management - Executive Compensation" on page 5 of the
Company's Proxy Statement dated February 16, 1996, incorporated herein by
reference.
Page 11 of 15 Pages
<PAGE> 12
Item 11 Security Ownership of Certain
Beneficial Owners and Management
The information called for by this item appears under the caption
"Voting Securities" on pages 2 and 3, and under the caption "Number and
Election of Directors" on page 3, of the Company's Proxy Statement dated
February 16, 1996, incorporated herein by reference.
Item 12 Certain Relationships
and Related Transactions
The information called for by this item appears under the caption
"Information Concerning Management - Certain Relationships" on page 5 of the
Company's Proxy Statement dated February 16, 1996, incorporated herein by
reference.
PART IV
Item 13 Exhibits and Reports on Form 8-K
(a)1. Financial Statements
The following financial statements of Avoca, Incorporated,
included in its 1995 Annual Report to Shareholders, are incorporated by
reference in Part II, Item 7:
Report of Ernst & Young LLP dated January 10, 1996
Balance sheet - December 31, 1995
Statements of Income - years ended
December 31, 1995 and 1994
Statements of Retained Earnings -
years ended December 31, 1995 and 1994
Statements of Cash Flows - years ended
December 31, 1995 and 1994
Notes to Financial Statements -
December 31, 1995
Page 12 of 15 Pages
<PAGE> 13
(a)2. Exhibits required by Item 601 of Regulation S-B:
3.1 Copy of Composite Charter1
3.2 Copy of Charter, dated October 21, 19311
3.3 Copy of amendment to Charter, dated
September 13, 19721
3.4 Copy of amendment to Charter, dated
May 30, 19751
3.5 Copy of amendment to Charter, dated
September 15, 19812
3.6 Copy of amendment to Charter, dated
March 17, 19872
3.7 Copy of Composite Charter (as of
August 14, 1987)2
4.0 Copy of specimen stock certificate1
13. Annual Report to Shareholders for
the year ended December 31, 1995. Except for
the information expressly specifically
incorporated by reference in this Form 10-KSB,
the annual report is provided solely for the
information of the Securities and Exchange
Commission and is not to be deemed filed
as part of the Form 10-KSB.
23. Consent of independent auditors
27. Financial Data Schedule
(b) Reports on Form 8-K
Registrant filed no reports on Form
8-K during the three months ended
December 31, 1995.
- ------------------------------
1 Incorporated by reference from registrant's Form 10 Registration
Statement, filed with the Securities and Exchange Commission on April 29,
1980, Commission file number 0-9219.
Page 13 of 15 Pages
<PAGE> 14
2 Incorporated by reference from registrant's Form 8 Report dated August
14, 1987, Commission file number 0-9219.
Page 14 of 15 Pages
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized. Avoca, Incorporated
By: /s/ Edward B. Grimball
Edward B. Grimball
President and principal executive,
financial and accounting officer
Date: March 19, 1996
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
- ------------------------------
Richard W. Fox, Director
Date: March ______, 1996
/s/ Edward B. Grimball
- ------------------------------
Edward B. Grimball, Director
Date: March 19, 1996
- ------------------------------
Peter V. Guarisco, Director
Date: March ______, 1996
/s/ Guy C. Lyman, Jr.
- ------------------------------
Guy C. Lyman, Jr., Director
Date: March 19, 1996
/s/ M. Cleland Powell, III
- ------------------------------
M. Cleland Powell, III, Director
Date: March 19, 1996
Page 15 of 15 Pages
<PAGE> 16
Exhibit Index
Sequentially
Numbered
Exhibit No. Description Page
3.1 Copy of Composite Charter(1)
3.2 Copy of Charter, dated October 21, 1931(1)
3.3 Copy of amendment to Charter, dated
September 13, 1972(1)
3.4 Copy of amendment to Charter, dated
May 30, 1975(1)
3.5 Copy of amendment to Charter, dated
September 15, 1981(2)
3.6 Copy of amendment to Charter, dated
March 17, 1987(2)
3.7 Copy of Composite Charter (as of
August 14, 1987)(2)
4.0 Copy of specimen stock certificate(1)
13. Annual Report to Shareholders for
the year ended December 31, 1995.
Except for the information expressly
specifically incorporated by
reference in this Form 10-KSB, the
annual report is provided solely for
the information of the Securities
and Exchange Commission and is not
to be deemed filed as part of the
Form 10-KSB.
23. Consent of independent auditors
27. Financial Data Schedule
____________________
(1) Incorporated by reference from registrant's Form 10 Registration Statement,
filed with the Securities and Exchange Commission on April 29, 1980,
Commission file number 0-9219.
(2) Incorporated by reference from registrant's Form 8 Report dated August 14,
1987, Commission file number 0-9219.
<PAGE> 1
EXHIBIT 13
AVOCA ANNUAL REPORT
INCORPORATED ------------------------
1995
<PAGE> 2
[Blank page appears here]
<PAGE> 3
DESCRIPTION OF BUSINESS
Avoca, Incorporated owns and manages approximately 16,000 acres
comprising virtually all of Avoca Island, which is located about 90 miles west
of New Orleans in St. Mary Parish, Louisiana, adjacent to and immediately
southeast of Morgan City. The island is rural and virtually undeveloped except
for exploration and development of its oil and gas resources.
Avoca, Incorporated is largely a passive royalty company which derives
most of its income from royalties, bonuses and delay rentals under oil and gas
leases covering its Avoca Island acreage.
DIRECTORS AND OFFICERS
Richard W. Fox, Guy C. Lyman, Jr.,
Director Director;
Manager, Sandy Run Farm L.L.C.; Attorney,
Formerly Vice President, Milling, Benson, Woodward, Hillyer,
FirstNBC (Trust Pierson & Miller, L.L.P.
Investment Department)
M. Cleland Powell, III,
Edward B. Grimball, Director and
Director and President; Secretary-Treasurer;
Since September, 1990, Senior Vice President,
Chief Financial Officer and Whitney National Bank
Vice President,
(Executive Vice President,
since October, 1991), Whitney National Bank
Peter V. Guarisco,
Director;
President, Hellenic, Inc.
[Picture of drainage pump appears here.]
AVOCA, INCORPORATED 3
<PAGE> 4
REPORT TO THE SHAREHOLDERS
ISSUED PRELIMINARY TO THE SIXTY-FOURTH
ANNUAL MEETING OF SHAREHOLDERS ON MARCH 19, 1996
Dear Shareholders:
During 1995 net royalties from oil and gas production declined 30% to
$101,678 from $144,828 in 1994. Income before an extraordinary item related to
the settlement of the Company's lawsuit against Gibson Roofers, Inc. decreased
to $87,356 from $171,928 in 1994. Net income, including the extraordinary item
of $69,613, decreased slightly to $156,969 from $171,928 in 1994. Annual
per-share earnings before the extraordinary item were $.11 in 1995 compared to
$.21 in 1994. Net income per share after the extraordinary item was $.19 per
share, a slight decrease from $.21 per share in 1994. Dividends per share were
$.15 in both 1995 and 1994.
Production from the Delta Operating Corporation (formerly Alliance
Operating Company) Avoca No. 1 well in the Ramos Field was reported at
approximately 4,158 barrels of condensate and 259,513 thousand cubic feet (Mcf)
of gas in 1995 as compared to 5,312 barrels of condensate and 311,602 Mcf in
1994. The No. 1 well reportedly continues to produce water, as it has from
inception of production, at a fairly constant rate of approximately 300 barrels
per day. According to the operator of the well, the current wellhead flowing
pressure is 3,175 pounds per square inch gauge (psig) as compared to 4,500 psig
on November 3, 1994. The average 1995 sales prices from Delta No. 1 Avoca well
were approximately $1.73 per Mcf of gas and $18.00 per barrel of condensate as
compared to $2.13 per Mcf of gas and $16.75 per barrel of condensate in 1994.
The Avoca No. 1 well now produces over 94% of the Company's oil and gas royalty
income.
The Exchange Oil & Gas (formerly Boo-Ker Oil & Gas) Avoca No. B-1
well, also in the Ramos Field, produced intermittently during January, May and
September of 1995 before going off production. The operator has commenced
plugging and abandonment operations on the well.
As previously reported, the Company filed suit in 1993 seeking
recovery for loss of the historic Pharr home, which burned to the ground while
roof work was being performed in December 1992. On October 19, 1995, the
Company entered into a settlement agreement with Gibson Roofers, Inc. and its
insurer in which the Company has received $181,000 in cash. The proceeds were
recorded as an extraordinary item net of taxes, attorney fees and expenses in
the 1995 statement of income.
No new mineral leases were granted and no new wells were drilled on
the Island in 1995. In order to encourage I P Petroleum Company's interest in
development of Avoca Island's mineral resources, the Company agreed to amend
its lease with that company to provide for quarterly rather than annual delay
rentals. One quarterly payment was received during 1995. A complete list of
mineral leases is found inside the back cover of this annual report.
The Company is deeply saddened by the death of John J. Zollinger, Jr.,
an Avoca director since 1970. His counsel and tireless efforts on the
Company's behalf will be missed both by his fellow board members and the Avoca
shareholders.
Respectfully submitted,
/s/ Edward B. Grimball
Edward B. Grimball
President
February 8, 1996
4 AVOCA, INCORPORATED
<PAGE> 5
Report of Ernst & Young LLP,
Independent Auditors
The Board of Directors
Avoca, Incorporated
We have audited the accompanying balance sheet of Avoca, Incorporated
as of December 31, 1995, and the related statements of income, retained
earnings, and cash flows for each of the two years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Avoca, Incorporated
at December 31, 1995, and the results of its operations and its cash flows for
each of the two years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
New Orleans, Louisiana
January 10, 1996
AVOCA, INCORPORATED 5
<PAGE> 6
BALANCE SHEET
<TABLE>
<CAPTION>
December 31
1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 204,748
Short-term investments 1,268,229
Accounts receivable 15,449
Accrued interest receivable 27,409
Prepaid expenses 5,294
-----------
TOTAL CURRENT ASSETS 1,521,129
PROPERTY AND EQUIPMENT
Land and land improvements 613,751
Buildings 57,450
-----------
671,201
Less accumulated depreciation and depletion 592,916
-----------
78,285
OTHER ASSETS
Long-term investments 722,531
Avoca Drainage Bonds, $415,000, in default --
at nominal amount 1
-----------
$ 2,321,946
===========
</TABLE>
6 AVOCA, INCORPORATED
<PAGE> 7
<TABLE>
<CAPTION>
December 31
1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS'EQUITY
CURRENT LIABILITES
Accounts payable and accrued expenses $ 25,508
Dividends payable 124,575
Income taxes payable 36,824
-----------
TOTAL CURRENT LIABILITIES 186,907
DEFERRED INCOME TAXES 14,409
SHAREHOLDERS'EQUITY
Common stock, no par value -- authorized,
issued and outstanding 830,500 shares
(no change during the year) 94,483
Retained earnings 2,026,147
-----------
TOTAL SHAREHOLDERS'EQUITY 2,120,630
-----------
$ 2,321,946
===========
</TABLE>
[Picture of fishing boat appears here]
See accompanying notes.
AVOCA, INCORPORATED 7
<PAGE> 8
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUE:
Royalties $ 107,969 $ 152,159
Less severance taxes 6,291 7,331
---------- ---------
101,678 144,828
Lease bonuses and delay rentals 32,250 129,010
Interest income 111,537 84,703
Rental income 33,600 34,910
Other 10,837 10,065
---------- ---------
289,902 403,516
EXPENSES:
Attorney fees and expenses 19,237 21,247
Auditing fees 15,000 15,600
Bookkeeping and clerical services 5,000 5,000
Consultant fees 40,000 35,000
Directors' fees 6,500 4,250
Geological and engineering fees and expenses 6,243 7,304
Insurance 23,937 24,563
Office and miscellaneous expenses 30,204 23,233
Taxes, other than income taxes 23,742 24,396
Repairs and cleanup expenses 4,116 1,280
---------- ---------
173,979 161,873
---------- ---------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 115,923 241,643
INCOME TAXES 28,567 69,715
---------- ---------
INCOME BEFORE EXTRAORDINARY ITEM 87,356 171,928
EXTRAORDINARY ITEM,
NET OF INCOME TAXES OF $ 44,507 69,613 -
---------- ---------
NET INCOME $ 156,969 $ 171,928
========== =========
EARNINGS PER SHARE:
Income before extraordinary item $ .11 $ .21
Extraordinary item .08 -
------- -------
Net income $ .19 $ .21
======= =======
DIVIDENDS PER SHARE $ .15 $ .15
======= ======
</TABLE>
See accompanying notes.
8 AVOCA, INCORPORATED
<PAGE> 9
STATEMENTS OF RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RETAINED EARNINGS:
Balance at beginning of year $ 1,993,753 $ 1,946,400
Net income for the year 156,969 171,928
----------- -----------
2,150,722 2,118,328
Cash dividends:
1995 - $ .15 per share 124,575
1994 - $ .15 per share 124,575
----------- -----------
BALANCE AT END OF YEAR $ 2,026,147 $ 1,993,753
=========== ===========
</TABLE>
[Picture of oil well equipment appears here.]
See accompanying notes.
AVOCA, INCORPORATED 9
<PAGE> 10
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 156,969 $ 171,928
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense 2,672 1,140
Loss on disposition of asset 7,153 -
Deferred income taxes (7,390) (2,100)
Gain from litigation settlement (181,000 -
Change in operating assets and liabilities:
Accounts receivable 42 12,603
Accrued interest receivable 6,142 (19,189)
Income taxes 37,497 12,379
Prepaid expenses 81 (633)
Accounts payable and accrued expenses 12,247 (28,713)
----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 34,413 147,415
INVESTING ACTIVITIES
Purchase of short-term investments (1,935,247) (3,166,241)
Maturity of short-term investments 2,772,113 2,026,240
Purchase of long-term investments (722,531) -
Purchase of property and equipment (31,200) (50,000)
Proceeds from sale of property and equipment 15,750 -
Litigation settlement proceeds 181,000 -
----------- -----------
NET CASH PROVIDED BY (USED)
INVESTING ACTIVITIES 279,885 (1,190,001)
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 189,723 (1,075,806)
Cash and cash equivalents at beginning of year 15,025 1,090,831
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 204,748 $ 15,025
=========== ===========
</TABLE>
See accompanying notes.
10 AVOCA, INCORPORATED
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
GENERAL: Avoca, Incorporated (the Company) owns and leases land, located in
St. Mary Parish, Louisiana, to unaffiliated parties for oil and gas
exploration. Mineral income in the accompanying financial statements is derived
from lease bonuses, delay rentals and royalties received from oil and gas
production related to these leases. Estimates of proved reserves related to the
leases are not available. Included in rental income is any revenue derived from
issuing seismic permits on the land.
CASH EQUIVALENTS: Cash equivalents consist of United States Government
Treasury bills with a maturity of three months or less from date of purchase.
INVESTMENTS: Short-term investments consist of United States Government
Treasury bills with a maturity of greater than three months but less than one
year from date of purchase and a United States Agency note due in 1996.
Long-term investments consist of a United States Agency note due in 1997.
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity when the Company has
the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost including accrued
interest. At December 31, 1995 all short-term and long-term investments were
classified as held- to-maturity. The fair value of the investments approximated
the carrying value at December 31, 1995.
PROPERTY AND EQUIPMENT: Land is carried at cost less amounts received for the
sale of rights-of-way and similar servitudes. Land improvements and buildings
are carried at cost and depreciated over their estimated useful life of 30
years.
INCOME TAXES: The Company accounts for income taxes using the liability
method.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
NOTE B--INCOME TAXES
The components of income tax expense for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
1995 1994
--------------------
<S> <C> <C> <C>
Current:
Federal $32,875 $67,380
State 3,082 4,435
--------------------
Total current 35,957 71,815
Deferred :
Federal (6,757) (1,970)
State (633) (130)
--------------------
Total deferred (7,390) (2,100)
--------------------
$28,567 $69,715
====================
</TABLE>
The deferred income tax liability of $14,409 relates to a difference between
the accounting and income tax basis of property and equipment.
The Company paid income taxes of $42,967 and $59,436 in 1995 and 1994,
respectively.
AVOCA, INCORPORATED 11
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE B--INCOME TAXES (CONTINUED)
The reconciliations between the federal statutory income tax rate and the
Company's effective income tax rate, based on income before income taxes and
extraordinary item, for the years ended December 31, 1995 and 1994, are as
follows:
<TABLE>
<CAPTION>
1995 1994
AMOUNT RATE AMOUNT RATE
------------------------------------------
<S> <C> <C> <C> <C>
Tax expense based on federal statutory rate $28,460 24.6% $76,155 31.5%
Statutory percentage depletion (5,506) (4.8) ( 7,190) (3.2)
State income taxes (net of federal income tax
deduction) 3,450 2.9 2,940 1.2
Other (2,164) (1.9) (2,190) (0.6)
------------------------------------------
Income taxes $28,567 24.6% $69,715 28.9%
==========================================
</TABLE>
[Picture of bird appears here.]
12 AVOCA, INCORPORATED
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE C--MAJOR CUSTOMERS
The net royalties received from one independent oil and gas exploration company
accounted for 94% and 96% of the total net royalties recorded for the years
ended December 31, 1995 and 1994, respectively. Substantially all of the lease
bonus and delay rental revenue in 1995 and 1994 was the result of a lease with
one company.
NOTE D--RELATED PARTY TRANSACTIONS
A member of the Board of Directors is a partner in the law firm which serves as
legal counsel for the Company. Fees paid to this law firm were $66,626 and
$21,247 for the years ended December 31, 1995 and 1994, respectively.
NOTE E--OIL AND GAS QUANTITIES PRODUCED
The following table reflects the Company's share of the oil and gas volumes
produced from leases held under production during each of the last two years:
<TABLE>
<CAPTION>
PRODUCTION
------------------
OIL GAS
(BBLS) (MCFS)
------------------
<S> <C> <C>
1995 809 50,501
1994 1,055 66,647
</TABLE>
NOTE F--LITIGATION SETTLEMENT
In 1995, the Company settled for $181,000 its ongoing litigation against a
roofing company and its insurer to recover damages for the total loss of a
building which was destroyed by fire in 1992. The Company recognized the
proceeds, net of related legal expenses of $66,880 and income taxes of $44,507,
as an extraordinary item in the statement of income. The roofing company's
counterclaim to receive approximately $32,000 allegedly due under the roofing
contract was dismissed in December 1995 in favor of the Company, but may be
appealed.
NOTE G--COMMITMENT
The Company has a lease with the Avoca Duck Club (the Club), an unrelated
entity, to allow the members of the Club use of the island for the purpose of
hunting wild game and birds, and for noncommercial fishing. The terms of the
lease commenced June 1, 1994 for a period of ten years with the Club having two
ten-year options to extend the lease. Under the terms of the lease, the Club
constructed a new building including a separate apartment for the exclusive use
of the Company's caretaker of the island. This building replaced the building
destroyed by fire in December 1992. During 1994, under the terms of the lease,
the Company contributed $50,000, which represents the approximate cost to
construct the apartment.
If the Company elects to exercise its unrestricted, unconditional and
absolutely discretionary right to terminate the lease before the end of its
term, the Company must reimburse the Club for its unamortized cost of the
building (excluding the Company's cash contribution), based on straight-line
depreciation over 30 years. Under the lease, the Club's unamortized cost of the
building will be reduced over time to an ultimate reimbursable amount not less
than $80,000.
AVOCA, INCORPORATED 13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's continued liquidity is evidenced by the fact that more than 94%
of its assets, as measured by book value, are cash and cash equivalents, U.S.
Government and U.S. Government agency securities. Current liabilities at year
end were $186,907, including a $124,575 dividend declared in December 1995 but
not paid until January 1996. The Company's business is largely passive and
consequently all capital requirements for exploration, development and
production of the Company's mineral resources are funded by its lessees.
Current financial resources and anticipated net income are expected to be
adequate to meet cash requirements in the year ahead.
1995 AS COMPARED TO 1994
Revenue for 1995 before an extraordinary item decreased by $113,614 despite a
$26,834 increase in interest income. The decrease results from a 30% decline
in royalty income and a reduction in the delay rental received under the I P
Petroleum Company lease. The lease, under which the Company received an annual
delay of $129,000 in 1994, was amended during 1995 to provide for quarterly
delay rentals, with the result that the Company received only $32,250 (one
quarterly payment) from this source in 1995.
The Delta Operating Corporation (formerly Alliance Operating Company)
Avoca No. 1 well in the Ramos Field was responsible for approximately 94% of
the Company's royalty income in 1995. Total gas and condensate recoveries from
the Avoca No. 1 well (in which the Company has a net revenue interest of
approximately 19%) decreased from 311,602 thousand cubic feet (Mcf) of gas and
5,312 barrels of condensate in 1994 to 259,513 Mcf of gas and 4,158 barrels of
condensate in 1995. According to the operator of the well, the decline in
production is due to minor down hole mechanical difficulties and a slight
decline in wellhead flowing pressure. The operator indicates that additional
testing will be performed later in 1996 to identify the exact problem.
The Exchange Oil & Gas (formerly Boo-Ker Oil & Gas) Avoca No. B-1
well, also located in the Ramos Field, produced intermittently during January
of 1995, for one week in May and for two weeks in September when it ceased
production. The operator has commenced plugging and abandonment operations on
the Avoca No. B-1 well.
Lease bonuses and delay rentals decreased from $129,010 in 1994 to
$32,250 in 1995. As noted above, the decrease results from amendment of the I
P Petroleum Company lease (dated October 3, 1994) to provide for quarterly
delay rentals in lieu of annual delay rentals. This was done to encourage the
lessee to maintain the lease in effect and conduct drilling operations on Avoca
Island. Interest income increased by $26,834 or approximately 32% primarily
because of higher rates paid on U.S. Government and U.S. Government Agency
securities.
Overall expenses were $12,106 or approximately 7% higher in 1995 than
in 1994. Consultant fees increased $5,000 on account of a merit based bonus
paid to the consultant who manages the Company's daily affairs. Director's
fees increased $2,250 because the Board of Directors held an additional meeting
in 1995. The $6,971 increase in office and miscellaneous expenses results
primarily from a $7,153 loss incurred on the sale of a mobile home provided by
the Company as temporary housing for the Company's caretaker on the Island.
The $2,836 increase in repairs and cleanup expenses is attributable to a pile
driving project to close off a gap on the southwestern boundary of Avoca
Island. These increases were partially offset by slight decreases in
attorney's fees, auditing fees, geological and engineering fees, insurance
expense and taxes other than income taxes.
In comparison with 1994 (including the income tax related to the
extraordinary item), income tax expense for 1995 increased by $3,359 as a
result of a higher effective tax rate.
Income before extraordinary item decreased by $84,572 or approximately
49%, in comparison with the prior year, but income after the extraordinary item
only decreased $14,959 from 1994. Net income per share before extraordinary
item was $.11 in 1995 as compared to $.21 per share in 1994. Net income per
share after the extraordinary item for 1995 was $.19 per share. Dividends per
share were $.15 in 1995 and 1994. Future dividends will be paid based on
operating income which in large measure is related to the amount of royalty
income received.
Further information regarding the Company's financial condition and
results of operations is contained in the President's message on page 4.
14 AVOCA, INCORPORATED
<PAGE> 15
STOCK PRICES AND RELATED SECURITY HOLDER MATTERS
As of January 8, 1996, there were approximately 848 holders of record of the
Company's stock, which is traded in the over-the-counter market.
The following table shows the range of high and low bid quotations for
the Company's stock for each quarterly period during the last two years, as
quoted by the National Quotation Bureau, Incorporated. Such quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commissions and may
not necessarily reflect actual transactions. The table also shows the amount
and frequency of cash dividends declared by the Company during the same period.
<TABLE>
<CAPTION>
PERIOD HIGH LOW DECLARED RECORD DATE DATE PAID AMOUNT
<S> <C> <C> <C> <C> <C> <C>
1995
First Quarter $6.50 $5.50
Second Quarter 6.25 5.50
Third Quarter 6.25 5.50
Fourth Quarter 6.50 5.75 12-12-95 1-5-96 1-19-96 $.15
1994
First Quarter $6.25 $5.25
Second Quarter 7.25 5.25
Third Quarter 7.25 5.50
Fourth Quarter 7.37 5.50 12-22-94 1-5-95 1-19-95 $.15
</TABLE>
AVOCA
INCORPORATED
The Company will furnish without charge a copy of its 1995 Annual Report on
form 10-KSB to be filed with the Securities and Exchange Commission, including
the financial statements thereto, to any record or beneficial owner of its
Common Stock as of February 8, 1996. Requests for the report must be in
writing addressed to Avoca, Incorporated, P.O. Box 61260, New Orleans,
Louisiana 70161, Attention: M. Cleland Powell. If made by a person who was not
a shareholder of record on February 8, 1996, the request must include a good
faith representation that such person was a beneficial owner of Common Stock on
that date. Copies of any exhibits to the Form 10-KSB will be furnished upon
payment of $.20 per page plus postage to cover the cost of furnishing such
copies.
AVOCA, INCORPORATED 15
<PAGE> 16
[Map of Avoca Island appears here,
showing property of Avoca,
Incorporated, mineral leases and
well locations]
<PAGE> 17
MINERAL INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
INITIAL
DATE OF RENTAL INCOME RECOGNIZED IN 1995
LESSEE OPERATOR LEASE ACREAGE EXPIRATION PER ACRE LEASE BONUS NET ROYALTIES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cabot Carbon Corporation Black Gold Production 1/19/60 55.770 Termination $ 50 $ -- $ 3
Company of production
Texaco, Inc. Texaco, Inc. 5/17/63 41.900 Termination $ 75 -- 251
of production
Alliance Operating Company Delta Operating Corporation 8/14/87 276.733 Termination $200 -- 95,179
of production
IP Petroleum Company, Inc. IP Petroleum Company, Inc. 10/3/94 860.000 Termination $150 32,250 --
of production
or 10/3/97
if nonproducing
Boo-Ker Oil and Gas Corporation Exchange Oil and Gas Company *10/6/94 185.440 Termination $ -- -- 6,245
of production
------- --------
$32,250 $101,678
======= ========
</TABLE>
*---This lease supersedes a lease dated August 21, 1990 with the same lessee.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-KSB) of Avoca, Incorporated of our report dated January 10, 1996, included
in the 1995 Annual Report to Shareholders of Avoca, Incorporated.
/s/ Ernst & Young LLP
New Orleans, Louisiana
January 10, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 204,748
<SECURITIES> 1,268,229
<RECEIVABLES> 15,449
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,521,129
<PP&E> 78,285
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,321,946
<CURRENT-LIABILITIES> 186,907
<BONDS> 0
<COMMON> 94,483
0
0
<OTHER-SE> 2,026,147
<TOTAL-LIABILITY-AND-EQUITY> 2,321,946
<SALES> 101,678
<TOTAL-REVENUES> 289,902
<CGS> 0
<TOTAL-COSTS> 6,291
<OTHER-EXPENSES> 173,979
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 115,923
<INCOME-TAX> 28,567
<INCOME-CONTINUING> 87,356
<DISCONTINUED> 0
<EXTRAORDINARY> 69,613
<CHANGES> 0
<NET-INCOME> 156,969
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
