<PAGE>
August 12, 1998
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, 1998.
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, 1998
--------------------------------------------------
[ ] 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
--------------------------
(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, 1998
--------------------------------------
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>
AVOCA, INCORPORATED
-------------------
I N D E X
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Page No.
--------
Part I. Financial Information (Unaudited)
---------------------
Condensed Balance Sheet - June 30, 1998 4
Condensed Statements of Income
Three Months Ended June 30, 1998 and
1997 and Six Months Ended June 30, 1998
and 1997 5
Condensed Statements of Cash Flows
Six Months Ended June 30, 1998
and 1997 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 11
Signature 11
<PAGE>
AVOCA, INCORPORATED
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Balance Sheet (Unaudited)
June 30, 1998
Assets
Current assets:
<S> <C>
Cash and cash equivalents $ 225,003
Short-term investments 1,388,424
Accounts receivable 30,301
Accrued interest receivable 28,283
Prepaid expenses 15,173
-----------
Total current assets 1,687,184
Property and equipment, less accumulated depreciation and depletion 71,447
Other assets:
Long-term investments 802,313
Avoca Drainage Bonds, $415,000, in default -- at nominal amount 1
-----------
$ 2,560,945
===========
Liabilities and shareholders' equity Current liabilities:
Accounts payable and accrued expenses $ 3,242
Income taxes payable 74,184
-----------
Total current liabilities 77,426
Deferred income taxes 13,142
Shareholders' equity:
Common stock, no par value -- authorized, issued and outstanding
830,500 shares 94,483
Retained earnings 2,375,894
-----------
Total shareholders' equity 2,470,377
-----------
$ 2,560,945
===========
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Statements of Income (Unaudited)
Three months ended Six months ended
June 30 June 30
1998 1997 1998 1997
------- ------- ------- -------
Revenue:
<S> <C> <C> <C> <C>
Royalties $ 39,495 $ 18,935 $ 72,083 $ 130,653
Less severance taxes 1,967 416 3,269 2,367
------- ------- ------- --------
37,528 18,519 68,814 128,286
Lease bonuses and delay rentals 222,918 - 222,918 -
Seismic permits - 211,241 - 211,241
Interest income 31,845 29,287 64,503 58,011
Rental and other income 21,000 21,000 21,000 21,000
------- ------- -------- -------
313,291 280,047 377,235 418,538
Expenses:
Legal and accounting services 4,583 8,613 15,424 12,024
Consultant fees 10,747 9,000 31,747 28,000
Geological and engineering fees 4,241 1,289 8,661 3,875
Insurance 5,600 5,720 11,236 11,492
Miscellaneous expenses 11,103 7,790 59,593 30,573
------- ------ -------- -------
36,274 32,412 126,661 85,964
------- ------- -------- -------
Income before income taxes 277,017 247,635 250,574 332,574
Income taxes 80,176 51,061 80,176 73,888
------- ------- ------- -------
Net income $ 196,841 $ 196,574 $ 170,398 $ 258,686
======= ======= ======= =======
Net income per share $ .24 $ .24 $ .21 $ .31
====== ====== ====== ======
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Statements of Cash Flows (Unaudited)
Six months ended
June 30
1998 1997
----------------------------------
Operating activities
<S> <C> <C>
Net income $ 170,398 $ 258,686
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 1,368 1,368
Deferred taxes ( 253) ( 253)
Changes in operating assets and liabilities:
Operating assets 683 4,004
Operating liabilities 59,393 ( 3,918)
----------- -----------
Net cash provided by operating activities 231,589 259,887
Investing activities
Maturities of investments 1,276,682 1,236,947
Purchases of investments (1,160,763) (1,151,772)
----------- -----------
Net cash provided by investing activities 115,919 85,175
Financing activities
Dividends paid ( 622,875) ( 373,725)
----------- -----------
Net cash used in financing activities ( 622,875) ( 373,725)
----------- -----------
Decrease in cash and cash equivalents ( 275,367) ( 28,663)
Cash and cash equivalents at beginning of period 500,370 65,127
----------- -----------
Cash and cash equivalents at end of period $ 225,003 $ 36,464
=========== ===========
See accompanying notes.
</TABLE>
<PAGE>
Avoca, Incorporated
Notes to Condensed Financial Statements (Unaudited)
Six months ended June 30, 1998
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, 1998
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. 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, 1997.
The Company considers its United States Government securities held with a
maturity of three months or less when purchased to be cash equivalents.
2. Earnings Per Share
The Company adopted FAS No. 128, Earnings Per Share, in the quarter ended
December 31, 1997. The adoption has no impact on previously reported quarterly
earnings per share amounts. Due to the Company's simple capital structure, basic
and diluted earnings per share are the same.
<PAGE>
Item 2 - Management's Discussion and
Analysis or Plan of Operation
The unaudited statements of income show that net income for
the second quarter of 1998 was $196,841, virtually the same as net income for
the comparable period of 1997.
As compared with the second quarter of 1997, royalty income
net of severance taxes for the second quarter of 1998 increased $19,009 or
approximately 103% primarily because the Avoca No. 1 well, which was responsible
for most of the company's royalty income, was shut in from March 11, 1997 to
April 29, 1997 for repairs to the purchaser's gas pipeline. The increase would
have been greater than 103% but for income received during the second quarter of
1997 from the now defunct Intercoastal Shipyard No. 2 well. Production from the
Avoca No. 1 well, which increased 172% in comparison with the second quarter of
1997, has been improved by a perforation acid wash treatment in early April,
1998. Second quarter results were also improved by a rise in the price of gas
from $2.13 per Mcf for the three months ended June 30, 1997 to $2.44 per Mcf for
the three months ended June 30, 1998.
No income was received from 3-D seismic permits in the second
quarter of 1998 as compared with $211,241 received from this source during the
comparable period of 1997. In the second quarter of 1997, the Company extended
the term of a 3-D seismic permit granted in 1996 to Texas Meridian Resources
Exploration, Inc. covering 7,535 acres on the southern part of the island. The
permit included an option to lease all or part of the permitted acreage for
mineral development. Texas Meridian exercised the option during the second
quarter of 1998 and the Company received $222,918 in lease bonuses on two new
oil, gas & mineral leases totaling 1,114.59 acres. No income from lease bonuses
was received in the second quarter of 1997.
<PAGE>
Interest income on U.S. Government and U.S. Government agency
securities increased $2,558 or 9% because of higher interest rates and an
increase in funds available for investment.
As compared with the second quarter of 1997, expenses
increased $3,862 or approximately 12%. Increases in miscellaneous expenses
(including $5,609 for special remedial surface maintenance), consultant fees,
and geological & engineering fees were partially offset by decreases in
insurance and in legal and accounting services which reflects a reduction in
attorney's fees.
The change in income tax expense for the three months ended
June 30, 1998 resulted from an increase in taxable income for the second quarter
of 1998 as compared to the second quarter of 1997.
Total revenues for the six month period ended June 30, 1998
decreased $41,303 or approximately 10%. Revenues from royalties net of severance
taxes during the first six months of 1998 decreased $59,472 or approximately
46%, primarily because of the absence of royalty income from the Intercoastal
Shipyard No. 2 well. The well, which ceased production in April 1997,
contributed $54,327 of royalty income during the first six months of 1997.
The above mentioned decrease in net income would have been
greater were it not for the improved performance of the Delta Operating Company
Avoca No. 1 well. Although the average sales price of gas decreased from $3.00
per Mcf for the six months ended June 30, 1997 to $2.43 per Mcf for the six
months ended June 30, 1998, gas production from the Avoca No. 1 well was
approximately 39% higher for the first six months of 1998 as compared with the
comparable period of 1997.
<PAGE>
No income was received from the granting of 3-D seismic
permits for the first six months of 1998 as compared with $211,241 received for
the first six months of 1997.
Revenue from lease bonuses and delay rentals for the first six
months of 1998 was $222,918. No income was received from this source for the
comparable period of 1997. As explained above, the Company entered into two oil,
gas & mineral leases with Texas Meridian Resources Exploration, Inc. in May of
1998.
Interest income on U.S. Government and U.S. Government Agency
securities for the six month period ended June 30, 1998 increased $6,492 or 11%
because of higher interest rates and an increase in funds available for
investment.
Expenses for the six month period ended June 30, 1998
increased $40,697 or 47% as compared to the first six months of 1997. Most of
the $29,020 increase in miscellaneous expense is attributable to the cost of
special remedial surface maintenance on the northern part of the island. The
$3,400 increase in legal and accounting services and the $4,786 increase in
geological and engineering fees results primarily from increased mineral
activity. The $3,747 increase in consulting fees results from a larger bonus
paid to the company's general manager in recognition of commendable results
achieved in 1997, as well as the hiring of a new part-time land manager.
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, gas and
mineral leases, the collection of bonuses, delay rentals and royalties
thereunder, and the leasing of hunting rights. The Company's business is passive
and
<PAGE>
all capital requirements for exploration, development and production of the
Company's mineral resources are funded by its lessees.
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
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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, 1998 /s/ Edward B. Grimall
- ---------------------------------- -----------------------------------------
Edward B. Grimball
President and Principal Financial Officer
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 225,003
<SECURITIES> 1,388,424
<RECEIVABLES> 58,584
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,687,184
<PP&E> 71,447
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,560,945
<CURRENT-LIABILITIES> 77,426
<BONDS> 0
<COMMON> 94,483
0
0
<OTHER-SE> 2,375,894
<TOTAL-LIABILITY-AND-EQUITY> 2,560,945
<SALES> 72,083
<TOTAL-REVENUES> 377,235
<CGS> 0
<TOTAL-COSTS> 3,269
<OTHER-EXPENSES> 126,661
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 250,574
<INCOME-TAX> 80,176
<INCOME-CONTINUING> 170,398
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 170,398
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
