November 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
September 30, 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 September 30, 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
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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, 1997
--------------------------------------
Transitional Small Business Disclosure Format (check one); Yes No X
----- -----
An exhibit index is located at page 11 of this report.
------
<PAGE>
<TABLE>
<CAPTION>
AVOCA, INCORPORATED
I N D E X
Page No.
--------
Part I. Financial Information (Unaudited)
---------------------
<S> <C>
Condensed Balance Sheet - September 30, 1997 4
Condensed Statements of Income
Three Months Ended September 30, 1997
and 1996 and Nine Months Ended
September 30, 1997 and 1996 5
Condensed Statements of Cash Flows
Nine Months Ended September 30, 1997
and 1996 6
Notes to Condensed Financial Statements 7
Management's Discussion and Analysis or
Plan of Operation 8-10
Part II. Other Information
-----------------
Exhibits and Reports on Form 8-K 11
Signature 11
</TABLE>
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, 1997
Assets
Current assets:
<S> <C>
Cash $ 42,204
Short-term investments 1,463,816
Accounts receivable 25,380
Accrued interest receivable 49,998
Prepaid expenses 10,053
------------
Total current assets 1,591,451
Property and equipment, less accumulated depreciation and depletion 73,499
Other assets:
Long-term investments 829,224
Avoca Drainage Bonds, $415,000, in default -- at nominal amount 1
------------
$ 2,494,175
============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 1,496
Income taxes payable 21,255
------------
Total current liabilities 22,751
Deferred income taxes 13,522
Shareholders' equity:
Common stock, no par value -- authorized, issued and outstanding
830,500 shares 94,483
Retained earnings 2,363,419
------------
Total shareholders' equity 2,457,902
------------
$ 2,494,175
============
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
1997 1996 1997 1996
-------- -------- -------- --------
Revenue:
<S> <C> <C> <C> <C>
Royalties $ 38,400 $ 70,443 $169,053 $166,063
Less severance taxes 1,953 1,203 4,320 3,474
-------- -------- -------- --------
36,447 69,240 164,733 162,589
Lease bonuses and delay rentals 46,200 46,200 46,200 84,075
Seismic permits - 265,205 211,241 265,205
Interest income 33,529 32,092 91,540 88,168
Rental and other income 3,484 4,012 24,484 25,012
-------- -------- -------- --------
119,660 416,749 538,198 625,049
Expenses:
Legal and accounting services 3,779 6,513 15,803 20,285
Consultant fees 9,000 9,000 37,000 32,000
Geological and engineering fees 641 6,428 4,516 11,152
Insurance 5,511 5,747 17,003 17,600
Miscellaneous expenses 5,258 2,779 35,831 28,820
-------- -------- -------- --------
24,189 30,467 110,153 109,857
-------- -------- -------- --------
Income before income taxes 95,471 386,282 428,045 515,192
Income taxes 66,811 119,257 140,699 148,556
-------- -------- -------- --------
Net income $ 28,660 $267,025 $287,346 $366,636
======== ======== ======== ========
Net income per share $ .04 $ .32 $ .35 $ .44
======== ======== ======== ========
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
1997 1996
----------------------------------
Operating activities
<S> <C> <C>
Net income $ 287,346 $ 366,636
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation expense 2,051 2,052
Deferred taxes ( 380) ( 380)
Changes in operating assets and liabilities:
Operating assets ( 11,396) ( 35,624)
Operating liabilities ( 3,576) 49,834
----------- -----------
Net cash provided by operating activities 274,045 382,518
Investing activities
Maturity of short-term investments 1,493,776 583,987
Purchase of short-term investments ( 587,795) ( 339,352)
Purchase of long-term investments ( 829,224) ( 639,169)
------------ -----------
Net cash provided by (used in) investing activities 76,757 ( 394,534)
Financing activities
Dividends paid ( 373,725) ( 124,575)
------------ -----------
Net cash used in financing activities ( 373,725) ( 124,575)
------------ -----------
Decrease in cash and cash equivalents ( 22,923) ( 136,591)
Cash and cash equivalents at beginning of period 65,127 204,748
------------ -----------
Cash and cash equivalents at end of period $ 42,204 $ 68,157
============ ===========
</TABLE>
See accompanying notes.
Page 6 of 12 Pages
<PAGE>
Avoca, Incorporated
Notes to Condensed Financial Statements (Unaudited)
Nine months ended September 30, 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 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,
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 Government 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 unaudited condensed statements of income show that net income for
the third quarter of 1997, as compared with the third quarter of 1996, decreased
from $267,025 to $28,660. The primary reason for the decrease was the absence of
seismic permits during the third quarter of 1997, as compared with $265,205
received from this source during the third quarter of 1996.
The decrease is also attributable to a third quarter reduction in
royalty income net of severance taxes of $32,793, or approximately 47%, as
compared with the comparable period of 1996. The decrease occurred because the
Intercoastal Shipyard No. 2 well under the Capital Energy Inc. lease has been
off production since April 8, 1997. The well was responsible for approximately
60% of the Company's royalty income for the third quarter of 1996. Although the
operator has informed the Company that it intends to reenter the well in an
attempt to reestablish production, the future of the well remains uncertain.
The above mentioned decrease in net income would have been greater were
it not for improved performance of the Delta Operating Company (formerly
Alliance Operating Corporation) Avoca No. 1 well. Although the average sales
price of gas decreased from $2.53 per MCF for the three months ended September
30, 1996 to $2.37 per MCF for the three months ended September 30, 1997, gas
production from the Avoca No. 1 well for the third quarter of 1997 was
approximately 49% higher than the comparable period of 1996.
Lease bonuses and delay rentals for the third quarter of 1997 remain
unchanged from the comparable period of 1996.
Page 8 of 12 Pages
<PAGE>
As compared with the third quarter of 1996, expenses decreased $6,278
or approximately 21% because reduced legal fees and geological and engineering
fees offset an increase in miscellaneous expenses.
The change in income tax expense for the three months ended September
30, 1997 resulted from a decrease in taxable income for the third quarter of
1996. The effective tax rate for the three months ended September 30, 1997
increased to reflect a revision in the Company's estimated effective tax rate
for the year ended September 30, 1997.
Total revenue for the nine month period ended September 30, 1997
declined $ 86,851, or approximately 14%, because of a decrease in lease bonuses
and delay rentals and seismic permits.
Income from seismic permits for the nine month period ended September
30, 1997 decreased $53,964, or approximately 20%, because fewer acres were
permitted for 3-D seismic exploration than during the corresponding period of
1996.
Lease bonuses and delay rentals for the first nine months of 1997
decreased by $37,875, or approximately 45%, of which $32,250 was a quarterly
delay rental received from I.P. Petroleum Co. during the first quarter of 1996.
The lease was terminated for non-payment of the quarterly rental payment due in
the second quarter of 1996. The remaining decrease of $5,625 is attributable to
a lease bonus received during the first quarter of 1996 from Capital Energy,
Inc. Acreage under this lease is held by the Intercoastal Shipyard No. 2 well
discussed above. No drilling operations were conducted during the first nine
months of 1997 although extensive 3-D seismic operations were conducted on Avoca
Island.
Revenues from royalties net of severance taxes during the first nine
months of 1997 increased $2,144, or approximately 1%, because of increased gas
production from the Delta Operating Company No. 1 well, offset by reduced
production from the Intercoastal Shipyard No. 2 well that
Page 9 of 12 Pages
<PAGE>
ceased production April 8, 1997. Gas production from the Delta Operating Company
No. 1 well for the first nine months of 1997 was approximately 11% higher than
production for the comparable period of 1996, and the average sales price of gas
rose slightly from $2.77 per MCF for the nine months ended September 30, 1996 to
$2.79 per MCF for the nine months ended September 30, 1997. For the first nine
months of 1997, the well was responsible for 67% of the Company's royalty
income.
Interest income on U.S. Government and U.S. Government agency
securities for the nine months ended September 30, 1997 increased $3,372, or
approximately 4%, due to higher interest rates.
Expenses for the nine month period ended September 30, 1997 were
virtually unchanged from 1996. Decreases in geological and engineering fees and
in legal and accounting services, which reflect a reduction in professional
fees, were offset by an increase in consultant fees and miscellaneous expenses.
The income tax expense for the nine months ended September 30, 1997 is
33% of income before income taxes, which is the expected income tax rate of
1997.
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,
seismic permits, the collection of bonus and delay rentals and royalties
thereunder, and the leasing of hunting rights. The Company's business is passive
and all capital requirements for exploration, development and production of the
Company's mineral resources are funded by its lessees.
Page 10 of 12 Pages
<PAGE>
Part II - OTHER INFORMATION
Item 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
/s/ Edward B. Grimball
-----------------------------------------
Edward B. Grimball
President and Principal Financial Officer
Page 11 of 12 Pages
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
27 Financial Data Schedule
Page 12 of 12 Pages
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 42,204
<SECURITIES> 1,463,816
<RECEIVABLES> 25,380
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,591,451
<PP&E> 73,499
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,494,175
<CURRENT-LIABILITIES> 22,751
<BONDS> 0
<COMMON> 94,483
0
0
<OTHER-SE> 2,363,419
<TOTAL-LIABILITY-AND-EQUITY> 2,494,175
<SALES> 164,733
<TOTAL-REVENUES> 538,198
<CGS> 0
<TOTAL-COSTS> 4,320
<OTHER-EXPENSES> 110,153
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 428,045
<INCOME-TAX> 140,699
<INCOME-CONTINUING> 287,346
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 287,346
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
