May 12, 1997
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
March 31, 1997.
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 March 31, 1997
[ ] 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
- --------------------------------------------------------------------------------
(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 May 1, 1997
--------------------------------------
Transitional Small Business Disclosure Former (check one); Yes No X
----- -----
An exhibit index is located at page 12 of this report.
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Page 1 of 11 Pages
<PAGE>
AVOCA, INCORPORATED
I N D E X
Page No.
--------
Part I. Financial Information (Unaudited)
Condensed Balance Sheet - March 31, 1997 4
Condensed Statements of Income
Three Months Ended March 31, 1997
and 1996 5
Condensed Statements of Cash Flows
Three Months Ended March 31, 1997
and 1996 6
Notes to Condensed Financial Statements 7
Management's Discussion and Analysis or
Plan of Operation 8-9
Part II. Other Information
Submission of Matters to a Vote of
Security Holders 10
Exhibits and Reports on Form 8-K 10
Signature 11
Page 2 of 11 Pages
<PAGE>
AVOCA, INCORPORATED
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Page 3 of 11 Pages
<PAGE>
<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Balance Sheet (Unaudited)
March 31, 1997
Assets
<S> <C>
Current assets:
Cash $ 65,381
Short-term investments 1,390,175
Accounts receivable 50,445
Accrued interest receivable 44,932
Prepaid expenses 11,602
------------
Total current assets 1,562,535
Property and equipment, less accumulated depreciation and depletion 74,866
Other assets:
Long-term investments 639,652
Avoca Drainage Bonds, $415,000, in default -- at nominal amount 1
------------
$ 2,277,054
============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 7,481
Income taxes payable 23,130
------------
Total current liabilities 30,611
Deferred income taxes 13,775
Shareholders' equity:
Common stock, no par value -- authorized, issued and outstanding
830,500 shares 94,483
Retained earnings 2,138,185
------------
Total shareholders' equity 2,232,668
------------
$ 2,277,054
============
See accompanying notes
</TABLE>
Page 4 of 11 Pages
<PAGE>
<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Statements of Income (Unaudited)
Three months ended
March 31
1997 1996
--------------------------------
Revenue:
<S> <C> <C>
Royalties $ 111,718 $ 35,196
Less severance taxes 1,951 1,264
---------- ----------
109,767 33,932
Lease bonuses and delay rentals - 37,875
Interest income 28,724 28,310
---------- ----------
138,491 100,117
Expenses:
Legal and accounting services 3,411 9,564
Consultant fees 19,000 14,000
Geological and engineering fees 2,586 2,762
Insurance 5,772 5,983
Miscellaneous expenses 22,783 20,464
--------- ----------
53,552 52,773
--------- ----------
Income before income taxes 84,939 47,344
Income taxes 22,827 2,117
--------- ----------
Net income $ 62,112 $ 45,227
========= ==========
Net income per share $ .07 $ .05
========= ==========
See accompanying notes.
</TABLE>
Page 5 of 11 Pages
<PAGE>
<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Statements of Cash Flows (Unaudited)
Three months ended
March 31
1997 1996
-------------------------------
Operating activities
<S> <C> <C>
Net income $ 62,112 $ 45,227
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation expense 684 684
Deferred taxes ( 127) ( 127)
Changes in operating assets and liabilities:
Operating assets ( 32,944) ( 12,489)
Operating liabilities 4,284 ( 41,311)
--------- ---------
Net cash provided by (used in) operating activities 34,009 ( 8,016)
Investing activities
Purchase of short-term investments ( 97,372) -
Maturity of short-term investments 722,531 -
Purchase of long-term investments (285,189) -
--------- ---------
Net cash provided by investing activities 339,970 -
Financing activities
Dividends paid (373,725) (124,575)
--------- ---------
Net cash used in financing activities (373,725) (124,575)
--------- ---------
Increase (decrease) in cash and cash equivalents 254 (132,591)
Cash and cash equivalents at beginning of period 65,127 204,748
--------- ---------
Cash and cash equivalents at end of period $ 65,381 $ 72,157
========= =========
See accompanying notes.
</TABLE>
Page 6 of 11 Pages
<PAGE>
Avoca, Incorporated
Notes to Condensed Financial Statements (Unaudited)
Three months ended March 31, 1997
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 included 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 three-month period ended March 31, 1997
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1997. 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, 1996.
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 11 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 first quarter of 1997, as compared with the first quarter of
1996, increased from $45,227 to $62,112.
Royalty income net of severance taxes for the first quarter of
1997 increased $75,835 or approximately 223%. 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 during the second quarter of 1996 by
its operator, Black Gold Production Company, Inc., and produces from the B Sand
Unit B under the Capital Energy, Inc. lease signed in the first quarter of 1996.
Production from this unit is responsible for approximately $47,524 or 43% of the
Company's royalty income for the first quarter of 1997. Review of the operator's
production records since year-end shows that daily gas production from the well
as of March 31, 1997 has declined to approximately 50% of the 1996 year-end
production rate, and the future of the well is in doubt.
The increase in net royalty income is also attributable to
significantly higher prices received by Delta Operating Company (formerly
Alliance Operating Corporation) for higher gas production from the Avoca No. 1
well during the first quarter of 1997. First quarter gas production from the
Avoca No. 1 well was approximately 39% higher than production for the comparable
period of 1996, and the average sales price of gas rose from $2.64 per MCF for
the three months ended March 31, 1996 to $3.55 per MCF for the three months
ended March 31, 1997. The well was off production March 2 and 3 for a time
release chemical treatment to prevent scaling in the formation. It returned to
successful production until March 11 when it was shut-in for repairs to the
purchaser's gas pipeline which should be completed by the middle of April.
No income was received from lease bonuses or delay rentals
during the first quarter of 1997 as compared to $37,875 received during the
first quarter of 1996. In the first quarter of
Page 8 of 11 Pages
<PAGE>
1996, the Company received a quarterly rental payment of $32,250 from I.P.
Petroleum, but that lease was terminated for non-payment of rentals during the
second quarter of 1996. Also in the first quarter of 1996, the Company received
a $5,625 bonus on a mineral lease to Capital Energy, Inc. Acreage under that
lease is now held by production from the above-mentioned Intercoastal Shipyard
No. 2 well.
As compared with the first quarter of 1996, expenses increased
$779 or approximately 1%. The decrease in legal and accounting services, which
reflects a reduction in attorneys' fees, was offset by an increase in consultant
fees and miscellaneous expenses. Most of the increase is attributable to an
exceptional bonus paid to the Company's manager in recognition of commendable
results achieved in 1996.
The change in income tax expense for the three months ended
March 31, 1997 resulted from an increase in taxable income for the first quarter
of 1997 as compared to the first quarter of 1996.
The Company's continued liquidity is evidenced by the fact
that approximately 92% of its assets, as measured by book value, are cash and
U.S. Government and U.S. Government agency securities. In addition to interest,
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 9 of 11 Pages
<PAGE>
Part II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on March
18, 1997. Management's proposal to fix at five the number of directors to be
elected for the ensuing year was approved by the following vote:
For Against Abstain Broker Nonvotes
--- ------- ------- ---------------
663,878 -0- 22,790 -0-
Messrs. Fox, Grimball, Guarisco, Lyman and Powell were elected
directors for the ensuing year by the following vote:
<TABLE>
<CAPTION>
Withhold
For Vote Broker Nonvotes
<S> <C> <C> <C>
Richard W. Fox 680,212 6,475 -0-
Edward B. Grimball 680,212 6,475 -0-
Peter V. Guarisco 680,212 6,475 -0-
Guy C. Lyman, Jr. 669,070 17,538 -0-
M. Cleland Powell, III 680,196 6,475 -0-
</TABLE>
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.
Page 10 of 11 Pages
<PAGE>
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
May 2, 1997 /s/ Edward B. Grimball
-------------------------------- -----------------------------------------
Edward B. Grimball
President and Principal Financial Officer
Page 11 of 11 Pages
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------------------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 65,381
<SECURITIES> 1,390,175
<RECEIVABLES> 50,445
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,562,535
<PP&E> 74,866
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,277,054
<CURRENT-LIABILITIES> 30,611
<BONDS> 0
<COMMON> 94,483
0
0
<OTHER-SE> 2,138,185
<TOTAL-LIABILITY-AND-EQUITY> 2,277,054
<SALES> 111,718
<TOTAL-REVENUES> 138,491
<CGS> 0
<TOTAL-COSTS> 1,951
<OTHER-EXPENSES> 53,552
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 84,939
<INCOME-TAX> 22,827
<INCOME-CONTINUING> 62,112
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62,112
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
