August 11, 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
June 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 June 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 July 31, 1997
-------------------------------------
Transitional Small Business Disclosure Former (check one); Yes No X
----- -----
An exhibit index is located at page 13 of this report.
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Page 1 of 13 Pages
<PAGE>
AVOCA, INCORPORATED
-------------------
I N D E X
---------
Page No.
--------
Part I. Financial Information (Unaudited)
---------------------
Condensed Balance Sheet - June 30, 1997 4
Condensed Statements of Income
Three Months Ended June 30, 1997 and
1996 and Six Months Ended June 30, 1997
and 1996 5
Condensed Statements of Cash Flows
Six Months Ended June 30, 1997
and 1996 6
Notes to Condensed Financial Statements 7
Management's Discussion and Analysis or
Plan of Operation 8-11
Part II. Other Information
-----------------
Exhibits and Reports on Form 8-K 12
Signature 12
Page 2 of 13 Pages
<PAGE>
AVOCA, INCORPORATED
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Page 3 of 13 Pages
<PAGE>
<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Balance Sheet (Unaudited)
June 30, 1997
Assets
Current assets:
<S> <C>
Cash and cash equivalents $ 36,464
Short-term investments 1,455,398
Accounts receivable 12,237
Accrued interest receivable 40,629
Prepaid expenses 17,165
-----------
Total current assets 1,561,893
Property and equipment, less accumulated depreciation and depletion 74,182
Other assets:
Long-term investments 829,224
Avoca Drainage Bonds, $415,000, in default -- at nominal amount 1
-----------
$ 2,465,300
===========
Liabilities and shareholders' equity Current liabilities:
Accounts payable $ 2,092
Income taxes payable 20,317
-----------
Total current liabilities 22,409
Deferred income taxes 13,649
Shareholders' equity:
Common stock, no par value -- authorized, issued and outstanding
830,500 shares 94,483
Retained earnings 2,334,759
-----------
Total shareholders' equity 2,429,242
-----------
$ 2,465,300
===========
See accompanying notes
</TABLE>
Page 4 of 13 Pages
<PAGE>
<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Statements of Income (Unaudited)
Three months ended Six months ended
June 30 June 30
1997 1996 1997 1996
--------- --------- ---------- ---------
Revenue:
<S> <C> <C> <C> <C>
Royalties $ 18,935 $ 60,424 $ 130,653 $ 95,620
Less severance taxes 416 1,007 2,367 2,271
--------- --------- ---------- ---------
18,519 59,417 128,286 93,349
Lease bonuses and delay rentals - - - 37,875
Seismic permits 211,241 - 211,241 -
Interest income 29,287 27,766 58,011 56,076
Rental and other income 21,000 21,000 21,000 21,000
--------- --------- ---------- ---------
280,047 108,183 418,538 208,300
Expenses:
Legal and accounting services 8,613 4,208 12,024 13,772
Consultant fees 9,000 9,000 28,000 23,000
Geological and engineering fees 1,289 1,962 3,875 4,724
Insurance 5,720 5,870 11,492 11,853
Miscellaneous expenses 7,790 5,577 30,573 26,041
--------- --------- ---------- ---------
32,412 26,617 85,964 79,390
--------- --------- ---------- ---------
Income before income taxes 247,635 81,566 332,574 128,910
Income taxes 51,061 27,182 73,888 29,299
--------- --------- ---------- ---------
Net income $ 196,574 $ 54,384 $ 258,686 $ 99,611
========= ========= ========== =========
Net income per share $ .24 $ .07 $ .31 $ .12
========= ======== ========= ========
See accompanying notes.
</TABLE>
Page 5 of 13 Pages
<PAGE>
<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Statements of Cash Flows (Unaudited)
Six months ended
June 30
1997 1996
-------------------------------
Operating activities
<S> <C> <C>
Net income $ 258,686 $ 99,611
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 1,368 1,368
Deferred taxes ( 253) ( 254)
Changes in operating assets and liabilities:
Operating assets 4,004 ( 44,383)
Operating liabilities ( 3,918) ( 36,514)
----------- -----------
Net cash provided by operating activities 259,887 19,828
Investing activities
Maturity of short-term investments 1,236,947 583,987
Purchase of short-term investments ( 322,548) ( 179,895)
Purchase of long-term investments ( 829,224) ( 399,187)
----------- -----------
Net cash provided by investing activities 85,175 4,905
Financing activities
Dividends paid ( 373,725) ( 124,575)
----------- -----------
Net cash used in financing activities ( 373,725) ( 124,575)
----------- -----------
Decrease in cash and cash equivalents ( 28,663) ( 99,842)
Cash and cash equivalents at beginning of period 65,127 204,748
----------- -----------
Cash and cash equivalents at end of period $ 36,464 $ 104,906
=========== ===========
See accompanying notes.
</TABLE>
Page 6 of 13 Pages
<PAGE>
Avoca, Incorporated
Notes to Condensed Financial Statements (Unaudited)
Six months ended June 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 six-month period ended June 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 13 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 second quarter of 1997 as compared with the second quarter of
1996 increased from $54,384 to $196,574.
Seismic permits for the second quarter of 1997 increased by
$211,241 from the granting of two new 3-D seismic permits and the amendment of
an existing 3-D seismic permit. The first permit was granted to Geco-Prakla,
Inc. and covers 318.64 acres held by production from the Bateman Lake Field and
the Ramos Field. The second permit, granted to Burlington Resources Oil & Gas
Co., covers 596 acres on the southwestern part of the island and includes an
option until April 11, 1998 to lease all or part (not less than 298 acres) of
the permitted acreage for mineral development. The amendment extended the term
of the 3-D seismic permit granted last year to Texas Meridian Resources
Exploration, Inc. covering 7,535 acres on the southern part of the island. The
permit includes an option, extended until May 31, 1998, to lease all or part
(not less than 753 acres) of the permitted acreage for mineral development.
Royalty income net of severance taxes for the second quarter
of 1997 decreased $40,898 or approximately 69% as compared with the second
quarter of 1996. The decrease is attributable to the continuing decline in
production from the Intercoastal Shipyard No. 2 well under the Capital Energy
Inc. lease in the Ramos Field. The well, which was responsible for approximately
50% of the Company's royalty income for the second quarter of 1996, went off
production on April 8, 1997. Following an unsuccessful workover attempt, the
operator is considering additional measures to restore production. The future of
the well is uncertain.
The decrease is also attributable to the shut in of the Delta
Operating Company (formerly Alliance Operating Corporation) Avoca No. 1 well
from March 11, 1997 to April 29, 1997 because of repairs to the purchaser's gas
pipeline. The well returned to successful production on
Page 8 of 13 Pages
<PAGE>
April 30, 1997. Production was 48% lower than the comparable period of 1996, but
the sales price of gas was 13% higher.
Interest income on U.S. Government and U.S. Government agency
securities increased $1,521 or 5% because of higher interest rates and an
increase in funds available for investment.
As compared with the second quarter of 1996, expenses
increased $5,795 or approximately 22%. Increases in legal and accounting
services and miscellaneous expenses were partially offset by slight decreases in
geological and engineering fees and insurance expenses.
The change in income tax expense for the three months ended
June 30, 1997 resulted from an increase in taxable income from the second
quarter of 1997 as compared to the second quarter of 1996.
Total revenue for the six month period ended June 30, 1997
increased $210,238 or approximately 101%. The increase results from substantial
seismic permit income and increases in royalty income and interest income
partially offset by a lack of lease bonus and delay rental income.
Seismic permit income of $211,241 for the six month period
ended June 30, 1997 as compared with no such income in the same period of 1996,
was realized from the granting of two new 3-D seismic permits and the extension
of an existing 3-D permit on Company lands as discussed above.
Revenues from royalties net of severance taxes during the
first six months of 1997 increased $34,937 or approximately 37%, primarily
because of income received from the Intercoastal Shipyard No. 2 well in the
Ramos Field. Gas production from the well as of March 31, 1997 had declined to
approximately 50% of the 1996 year-end production rate and the well ceased
production
Page 9 of 13 Pages
<PAGE>
on April 8, 1997. As discussed above, the operator after an unsuccessful
workover is considering additional measures to restore production, but the
future of the well is uncertain.
Gas production from Delta Operating Company Avoca No. 1 well
for the first six months of 1997 was 4% less than production for the same period
of 1996 because the well was off production for 49 days because of repairs to
the purchaser's gas pipeline. The well returned to production April 30, 1997.
The average sales price per MCF of gas from the Avoca No. 1 well was slightly
higher for the first six months of 1997 than the first six months of 1996. For
the first six months of 1997, it has been responsible for 58% of the Company's
royalty income.
No income was received from lease bonuses and delay rentals
for the first six months of 1997 as compared with $37,875 received for the first
six months of 1996. In the first quarter of 1996, $32,250 was received from I.P.
Petroleum Co., Inc. as a quarterly delay rental payment under its 860 acre
mineral lease. The lease was terminated for non-payment of the quarterly rental
payment due in the second quarter of 1996. The remaining $5,625 was attributable
to a lease bonus received by the Company on its new mineral lease to Capital
Energy, Inc. No drilling operations were commenced during the first six months
of 1997, but 3-D seismic operations are currently taking place on the island.
Interest income on U.S. Government and U.S. Government agency
securities for the six month period ended June 30, 1997 increased $1,935 or 3%
because of higher interest rates and an increase in funds available for
investments.
Expenses for the six month period ended June 30, 1997
increased $6,574 or 8%. The decrease in geological and engineering fees and
legal and accounting services, which reflects a reduction in attorney's fees,
was offset by an increase in consultant fees and miscellaneous expenses.
Page 10 of 13 Pages
<PAGE>
Most of the increase is attributable to an exceptional bonus paid to the
Company's manager in recognition of commendable operating results achieved in
1996.
The change in income tax expense for the six months ended June
30, 1997 resulted from an increase in taxable income for the first six months of
1997 as compared to the first six months of 1996.
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 the
interest, 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 11 of 13 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
August 6, 1997 /s/ Edward B. Grimball
- ------------------- -----------------------
Edward B. Grimball
President and Principal
Financial Officer
Page 12 of 13 Pages
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
27 Financial Data Schedule
Page 13 of 13 Pages
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 36,464
<SECURITIES> 1,455,398
<RECEIVABLES> 12,237
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,561,893
<PP&E> 74,182
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,465,300
<CURRENT-LIABILITIES> 22,409
<BONDS> 0
<COMMON> 94,483
0
0
<OTHER-SE> 2,334,759
<TOTAL-LIABILITY-AND-EQUITY> 2,465,300
<SALES> 130,653
<TOTAL-REVENUES> 418,538
<CGS> 0
<TOTAL-COSTS> 2,367
<OTHER-EXPENSES> 85,964
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 332,574
<INCOME-TAX> 73,888
<INCOME-CONTINUING> 258,686
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 258,686
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
