August 9, 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 June 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 June 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
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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
----- -----
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 May 1, 1996
------------------------------
Transitional Small Business Disclosure Former (check one); Yes No X
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An exhibit index is located at page 13 of this report.
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Page 1 of 13
<PAGE>
AVOCA, INCORPORATED
-------------------
I N D E X
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Page No.
--------
Part I. Financial Information (Unaudited)
---------------------
Condensed Balance Sheet - June 30, 1996 4
CondensedStatements of Income
Three Months Ended June 30,
1996 and 1995 and Six Months
Ended June 30, 1996 and 1995 5
Condensed Statements of Cash Flows
Six Months Ended June 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 13
<PAGE>
AVOCA, INCORPORATED
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Page 3 of 13
<PAGE>
<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Balance Sheet (Unaudited)
June 30, 1996
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 104,906
Short-term investments 1,586,668
Accounts receivable 35,684
Accrued interest receivable 38,935
Prepaid expenses 17,916
-----------
Total current assets 1,784,109
Property and equipment, less accumulated depreciation and depletion 76,917
Other assets:
Long-term investment 399,187
Avoca Drainage Bonds, $415,000, in default -- at nominal amount 1
-----------
$ 2,260,214
===========
Liabilities and shareholders' equity Current liabilities:
Accounts payable $ 11,274
Income taxes payable 14,544
-----------
Total current liabilities 25,818
Deferred income taxes 14,155
Shareholders' equity:
Common stock, no par value -- authorized, issued and outstanding
830,500 shares 94,483
Retained earnings 2,125,758
-----------
Total shareholders' equity 2,220,241
-----------
$ 2,260,214
===========
See accompanying notes
</TABLE>
Page 4 of 13
<PAGE>
<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Statements of Income (Unaudited)
Three months ended Six months ended
June 30 June 30
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Royalties $ 60,424 $ 25,544 $ 95,620 $ 58,826
Less severance taxes 1,007 1,623 2,271 3,699
--------- --------- --------- ---------
59,417 23,921 93,349 55,127
Lease bonuses and delay rentals - - 37,875 -
Interest income 27,766 26,474 56,076 54,492
Rental and other income 21,000 23,400 21,000 23,400
--------- --------- --------- ---------
108,183 73,795 208,300 133,019
Expenses:
Legal and accounting services 4,208 15,933 13,772 23,908
Consultant fees 9,000 8,750 23,000 22,500
Geological and engineering fees 1,962 843 4,724 2,605
Insurance 5,870 6,025 11,853 12,011
Miscellaneous expenses 5,577 5,655 26,041 33,562
--------- --------- --------- ---------
26,617 37,206 79,390 94,586
--------- --------- --------- ---------
Income before income taxes 81,566 36,589 128,910 38,433
Income taxes 27,182 8,915 29,299 2,021
--------- --------- --------- ---------
Net income $ 54,384 $ 27,674 $ 99,611 $ 36,412
========= ========= ========= =========
Net income per share $ .07 $ .03 $ .12 $ .04
========= ========= ========= =========
See accompanying notes.
</TABLE>
Page 5 of 13
<PAGE>
<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Statements of Cash Flows (Unaudited)
Six months ended
June 30
1996 1995
--------------------------------
Operating activities
<S> <C> <C>
Net income $ 99,611 $ 36,412
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 1,368 1,304
Deferred taxes ( 254) ( 7,135)
Loss on sale of asset - 7,153
Changes in operating assets and liabilities:
Operating assets ( 44,383) ( 11,342)
Operating liabilities ( 36,514) ( 4,106)
---------- ----------
Net cash provided by operating activities 19,828 22,286
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 ( 179,895) (1,251,006)
Purchase of long-term investments ( 399,187) ( 722,531)
Proceeds from sale of asset - 15,750
Purchase of property, plant & equipment - ( 31,200)
---------- -----------
Net cash provided by investing activities 4,905 116,108
Financing activities
Dividends paid ( 124,575) ( 124,575)
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Net cash used in financing activities ( 124,575) ( 124,575)
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Increase (decrease) in cash and cash equivalents ( 99,842) 13,819
Cash and cash equivalents at beginning of period 204,748 15,025
---------- -----------
Cash and cash equivalents at end of period $ 104,906 $ 28,844
========== ===========
See accompanying notes.
</TABLE>
Page 6 of 13
<PAGE>
Avoca, Incorporated
Notes to Condensed Financial Statements (Unaudited)
Six months ended June 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 six-month period ended June 30, 1996
are not necessarily indicative of the results that may be expected for the year
ending 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 13
<PAGE>
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 1996 as compared with the second quarter of
1995 increased from $27,674 to $54,384.
Royalty income net of severance taxes for the second quarter
of 1996 increased $35,496 or approximately 148% as compared with the second
quarter of 1995. The increase is attributable to the successful workover of the
Intercoastal Shipyard No. 2 well in the Ramos Field. This well, operated by
Black Gold Production Company, Inc., produces from the B Sand Unit B under the
Capital Energy, Inc. lease signed in the first quarter of 1996 and formerly
produced under a lease to Cabot Carbon Corporation dated January 19, 1960.
Restored production from this unit is responsible for approximately $30,000 of
the Company's royalty income for the second quarter of 1996. The increase is
also attributable to significantly higher prices received from Delta Operating
Company (formerly Alliance Operating Corporation) for gas production from the
Avoca No. 1 well during the second quarter of 1996. Although second quarter gas
production from the Avoca No. 1 well was approximately 19% lower than production
for the comparable period of 1995, the average sales price of gas rose from
$1.53 per MCF for the three months ended June 30, 1995 to $2.51 per MCF for the
three months ended June 30, 1996.
Interest income on U.S. Government and U.S. Government agency
securities increased $1,292 or 5% because of higher interest rates and more
available funds for investment. Rental and other income decreased $2,400 or
approximately 10% as a result of the expiration of a short term surface lease.
As compared with the second quarter of 1995, expenses
decreased $10,589 or approximately 28% during the second quarter of 1996 because
of reduced legal fees, specifically those related to the Company's litigation
with Gibson Roofers, Inc.
Page 8 of 13
<PAGE>
The change in income tax expense for the three months ended
June 30, 1996 resulted from an increase in taxable income for the second quarter
of 1996 as compared to the second quarter of 1995.
Total revenue for the six month period ended June 30, 1996
increased $75,281 or approximately 57%. The increase is attributable to
increased royalty income, lease bonuses and delay rentals, and interest income
substantially offsetting a slight decline in rental and other income.
Revenues from royalties net of severance taxes during the
first six months of 1996 increased $38,222 or approximately 69%, primarily
because of income received from the successful workover of the Intercoastal
Shipyard No. 2 well in the Ramos Field. This new royalty income is the result of
a 45.029 acre oil, gas and mineral lease signed in the first quarter of 1996
with Capital Energy, Inc. The lease covers acreage in the B Sand Unit B
producing unit formerly under a lease to Cabot Carbon Corporation dated January
19, 1960.
Significantly higher prices received from Delta Operating
Company for gas production from the Avoca No. 1 well during the first six months
of 1996 also contributed to higher royalty income as compared to the first six
months of 1995. The average sales price per MCF was $2.60 and $1.53 respectively
for the six months ended June 30, 1996 and 1995. Gas production from the well in
1996 was approximately 29% lower than production for the first six months of
1995. The operator is attempting to determine the reasons for the lower
production rates. During 1995, the Delta Operating Company No. 1 well was
responsible for almost all of the Company's royalty income. To date in 1996, it
has been responsible for 68% of the Company's royalty income.
Lease bonuses and delay rentals for the first six months of
1996 increased by $37,875, of which $32,250 was received in the first quarter of
1996 from I. P. Petroleum Co., Inc. as a quarterly delay rental payment under
its 860 acre mineral lease. The lease, which originally
Page 9 of 13
<PAGE>
provided for a delay rental of $129,000 payable annually, was amended in 1995 to
provide for payment of the delay rental amount on a quarterly basis. The lease
has been terminated for non-payment of the quarterly rental payment due in the
second quarter of 1996. The remaining increase of $5,625 is attributable to a
lease bonus received by the Company on its new mineral lease to Capital Energy,
Inc. as mentioned above. No drilling operations were commenced during the first
six months of 1996.
Interest income on U.S. Government and U.S. Government agency
securities for the six month period ended June 30, 1996 increased $1,584 or 3%
because of higher interest rates. Rental and other income for the six month
period ended June 30, 1996 decreased $2,400 or approximately 10% as a result of
the expiration of a short term surface lease.
Expenses for the six month period ended June 30, 1996
decreased $15,196 or approximately 16% because of a substantial decrease in
legal fees and miscellaneous expenses. Expenses for the corresponding period of
1995 included $4,293 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.
The change in income tax expense for the six months ended June
30, 1996 resulted from an increase in taxable income for the first six months of
1996 as compared to the first six months of 1995.
The Company's continued liquidity is evidenced by the fact
that approximately 93% 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 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
Page 10 of 13
<PAGE>
requirements for exploration, development and production of the Company's
mineral resources are funded by its Lessees.
Page 11 of 13
<PAGE>
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings
Information regarding the Company's litigation with Gibson
Roofers, Inc., arising from roofing work performed by Gibson on an historic home
owned by the Company, is included in the Company's 10-KSB Report for the fiscal
year ended December 31, 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.
(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
August 7, 1996 /s/ Edward B. Grimball
- ----------------------------- -----------------------
Date Edward B. Grimball
President and Principal
Financial Officer
/113816
Page 12 of 13
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
27 Financial Data Schedule
Page 13 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 104,906
<SECURITIES> 1,586,668
<RECEIVABLES> 35,684
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,784,109
<PP&E> 76,917
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,260,214
<CURRENT-LIABILITIES> 25,818
<BONDS> 0
0
0
<COMMON> 94,483
<OTHER-SE> 2,125,758
<TOTAL-LIABILITY-AND-EQUITY> 2,260,214
<SALES> 93,349
<TOTAL-REVENUES> 208,300
<CGS> 0
<TOTAL-COSTS> 2,271
<OTHER-EXPENSES> 79,390
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 128,910
<INCOME-TAX> 29,299
<INCOME-CONTINUING> 99,611
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 99,611
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
