<PAGE>
November 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
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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, 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 September 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
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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 October 31, 1998
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Transitional Small Business Disclosure Format (check one); Yes No X
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An exhibit index is located on page 10 of this report.
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AVOCA, INCORPORATED
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I N D E X
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Page No.
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Part I. Financial Information (Unaudited)
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Condensed Balance Sheet - September 30, 1998 4
Condensed Statements of Income
Three Months Ended September 30, 1998
and 1997 and Nine Months Ended
September 30, 1998 and 1997 5
Condensed Statements of Cash Flows
Nine Months Ended September 30, 1998
and 1997 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 10-11
Signature 11
<PAGE>
AVOCA, INCORPORATED
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Balance Sheet (Unaudited)
September 30, 1998
Assets
Current assets:
<S> <C>
Cash $ 6,151
Short-term investments 1,600,742
Accounts receivable 28,543
Accrued interest receivable 37,393
Prepaid expenses 10,061
-----------
Total current assets 1,682,890
Property and equipment, less accumulated depreciation and depletion 70,763
Other assets:
Long-term investments 830,311
Avoca Drainage Bonds, $415,000, in default -- at nominal amount 1
-----------
$ 2,583,965
===========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses 4,596
Income taxes payable 37,035
-----------
Total current liabilities 41,631
Deferred income taxes 13,015
Shareholders' equity:
Common stock, no par value -- authorized, issued and outstanding
830,500 shares 94,483
Retained earnings 2,434,836
-----------
Total shareholders' equity 2,529,319
-----------
$ 2,583,965
===========
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Statements of Income (Unaudited)
Three months ended Nine months ended
September 30 September 30
1998 1997 1998 1997
-------- -------- --------- ---------
Revenue:
<S> <C> <C> <C> <C>
Royalties $ 40,164 $ 38,400 $ 112,247 $ 169,053
Less severance taxes 1,949 1,953 5,218 4,320
-------- -------- --------- ---------
38,215 36,447 107,029 164,733
Lease bonuses and delay rentals 46,200 46,200 269,118 46,200
Seismic permits - - - 211,241
Interest income 34,567 33,529 99,070 91,540
Rental and other income 6,916 3,484 27,916 24,484
-------- -------- --------- ---------
125,898 119,660 503,133 538,198
Expenses:
Legal and accounting services 4,006 3,779 19,430 15,803
Consultant fees 11,929 9,000 43,676 37,000
Geological and engineering fees 3,630 641 12,291 4,516
Insurance 5,852 5,511 17,088 17,003
Miscellaneous expenses 5,815 5,258 65,408 35,831
-------- -------- --------- ---------
31,232 24,189 157,893 110,153
-------- -------- --------- ---------
Income before income taxes 94,666 95,471 345,240 428,045
Income taxes 35,724 66,811 115,900 140,699
-------- -------- --------- ---------
Net income $ 58,942 $ 28,660 $ 229,340 $ 287,346
======== ======== ========= =========
Net income per share $ .07 $ .04 $ .28 $ .35
======== ======== ========= =========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Statements of Cash Flows (Unaudited)
Nine months ended
September 30
1998 1997
----------------------------------
Operating activities
<S> <C> <C>
Net income $ 229,340 $ 287,346
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation expense 2,052 2,051
Deferred taxes ( 380) ( 380)
Changes in operating assets and liabilities:
Operating assets ( 1,557) ( 11,396)
Operating liabilities 23,598 ( 3,576)
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Net cash provided by operating activities 253,053 274,045
Investing activities
Maturity of investments 1,616,624 1,493,776
Purchase of investments (1,741,021) (1,417,019)
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Net cash provided by (used in) investing activities ( 124,397) 76,757
Financing activities
Dividends paid ( 622,875) ( 373,725)
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Net cash used in financing activities ( 622,875) ( 373,725)
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Decrease in cash and cash equivalents ( 494,219) ( 22,923)
Cash and cash equivalents at beginning of period 500,370 65,127
------------- -----------
Cash and cash equivalents at end of period $ 6,151 $ 42,204
============= ============
See accompanying notes.
</TABLE>
<PAGE>
Avoca, Incorporated
Notes to Condensed Financial Statements (Unaudited)
Nine months ended September 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 nine-month period ended September 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 third
quarter of 1998, as compared with the third quarter of 1997, increased from
$28,660 to $58,942.
As compared with the third quarter of 1997, royalty income net of
severance taxes for the third quarter of 1998 increased $1,768 or approximately
5% because of higher gas production from the Avoca No. 1 well, which is
responsible for most of the Company's royalty income. Although the average sales
price of gas decreased from $2.37 per Mcf for the three months ended September
30, 1997 to $2.25 per Mcf for the three months ended September 30, 1998, gas
production from the Avoca No. 1 well for the third quarter of 1998 was
approximately 17% higher than the comparable period of 1997.
Lease bonuses and delay rentals for the third quarter of 1998 remain
unchanged from the comparable period of 1997.
Interest income on U.S. Government and U.S. Government agency
securities increased slightly because of higher interest rates and an increase
in funds available for investment.
Rental and other income doubled because a long standing annual surface
lease was renewed early.
As compared with the third quarter of 1997, expenses increased $7,043
or approximately 29%. The $2,929 increase in consultant fees is attributable to
the hiring of a new part-time land manager. Geological and engineering fees
increased $2,989 because of increased mineral activity during the third quarter
of 1998.
The change in income tax expense for the three months ended September
30, 1998 resulted from a slight decrease in taxable income for the third quarter
of 1998 compared to the same period
<PAGE>
of 1997. In addition, the income tax expense for the three months ended
September 30, 1997 reflected 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, 1998
declined $35,065 or approximately 7%. Revenues from royalties net of severance
taxes during the first nine months of 1998 decreased $57,704 or approximately
35%, 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 nine 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 $2.79 per Mcf for
the nine months ended September 30, 1997 to $2.37 per Mcf for the nine months
ended September 30, 1998, gas production from the Avoca No. 1 well was
approximately 30% higher than the comparable period of 1997.
Revenue from lease bonuses and delay rentals for the first nine months
of 1998 increased $222,918 or approximately 483% as compared to the first nine
months of 1997. The increase results from two new oil and gas leases totaling
1,114.59 acres executed in the second quarter of 1998 with Texas Meridian
Resources Exploration, Inc. No drilling operations were conducted on the island
during the first nine months of 1998.
Interest income on U.S. Government and U.S. Government Agency
securities for the nine month period ended September 30, 1998 increased $7,530
or approximately 8% due to higher interest rates and an increase in funds
available for investment.
Rental and other income for the first nine months of 1998 increased
$3,432 or approximately 14% over the comparable period of 1997 due to the early
renewal of a surface lease.
<PAGE>
Expenses for the nine month period ended September 30, 1998 increased
$47,740 or 43% as compared to the first nine months of 1997. The majority of the
$29,577 increase in miscellaneous expense is attributable to the cost of special
remedial surface maintenance on the northern part of Avoca island. The increase
in legal and accounting services, principally legal, and the $7,775 increase in
geological and engineering fees results primarily from the increased need for
these services due to increased mineral activity. The $6,676 increase in
consultant fees results from the hiring of a new part-time land manager and, to
a lesser extent, from the larger bonus paid to the Company's general manager in
recognition of commendable results achieved in 1997.
The change in income tax expense for the nine month period ended
September 30, 1998 resulted from a decrease in taxable income for the nine
months ended September 30, 1998 as compared to the same period 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, 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 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.
<PAGE>
(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
November 3, 1998 /s/ Edward B. Grimball
- ------------------------------ -----------------------------------------
Edward B. Grimball
President and Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,151
<SECURITIES> 1,600,742
<RECEIVABLES> 65,936
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,682,890
<PP&E> 70,763
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,583,965
<CURRENT-LIABILITIES> 41,631
<BONDS> 0
<COMMON> 94,483
0
0
<OTHER-SE> 2,434,836
<TOTAL-LIABILITY-AND-EQUITY> 2,583,965
<SALES> 112,247
<TOTAL-REVENUES> 503,133
<CGS> 0
<TOTAL-COSTS> 5,218
<OTHER-EXPENSES> 157,893
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 345,240
<INCOME-TAX> 115,900
<INCOME-CONTINUING> 229,340
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 229,340
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
