<PAGE>
November 8, 1999
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, 1999.
This filing is being effected by direct transmission to the
Commission's EDGAR System.
Sincerely,
/s/ Robert C. Baird, Jr.
---------------------------------
Robert C. Baird, Jr.
President and
Principal Financial Officer
(504) 599-3069
RCB/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, 1999
--------------------------------------------------
[ ] 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.)
228 St. Charles Avenue, Suite 838, New Orleans, Louisiana 70130
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(504) 552-4720
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(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, 1999
--------------------------------------
Transitional Small Business Disclosure Format (check one); Yes No X
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An exhibit index is located at page 14 of this report.
Page 1 of 14
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AVOCA, INCORPORATED
I N D E X
Page No.
Part I. Financial Information (Unaudited)
---------------------
Condensed Balance Sheet - September 30, 1999 4
Condensed Statements of Income
Three Months Ended September 30, 1999
and 1998 and Nine Months Ended
September 30, 1999 and 1998 5
Condensed Statements of Cash Flows
Nine Months Ended September 30, 1999
and 1998 6
Notes to Condensed Financial Statements 7
Management's Discussion and Analysis or
Plan of Operation 8-12
Part II. Other Information
-----------------
Exhibits and Reports on Form 8-K 12
Signature 13
Page 2 of 14
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AVOCA, INCORPORATED
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Page 3 of 14
<PAGE>
<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Balance Sheet (Unaudited)
September 30, 1999
Assets
Current assets:
<S> <C>
Cash $ 52,233
Short-term investments 929,771
Accounts receivable 38,512
Accrued interest receivable 35,074
Prepaid expenses 14,296
----------
Total current assets 1,069,886
Property and equipment, less accumulated depreciation and depletion 72,385
Other assets:
Long-term investments 1,653,180
Avoca Drainage Bonds, $415,000, in default -- at nominal amount 1
----------
$2,795,452
==========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 5,340
Income taxes payable 30,611
----------
Total current liabilities 35,951
Deferred income taxes 12,508
Shareholders' equity:
Common stock, no par value -- authorized, issued and outstanding
830,500 shares 94,483
Retained earnings 2,652,510
----------
Total shareholders' equity 2,746,993
----------
$2,795,452
==========
See accompanying notes
</TABLE>
Page 4 of 14
<PAGE>
<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Statements of Income (Unaudited)
Three months ended Nine months ended
September 30 September 30
1999 1998 1999 1998
----------------------------------------------------------------
Revenue:
<S> <C> <C> <C> <C>
Royalties $ 52,832 $ 40,164 $124,944 $112,247
Less severance taxes 3,050 1,949 6,742 5,218
-------- -------- -------- --------
49,782 38,215 118,202 107,029
Lease bonuses and delay rentals 327,510 46,200 408,855 269,118
Lease option payments - - 79,938 -
Interest income 33,581 34,567 96,688 99,070
Rental and other income 3,145 6,916 26,728 27,916
-------- -------- -------- --------
414,018 125,898 730,411 503,133
Expenses:
Legal and accounting services 2,442 4,006 19,556 19,430
Consultant fees 10,894 11,929 43,482 43,676
Geological and engineering fees 2,216 3,630 6,464 12,291
Insurance 6,192 5,852 18,786 17,088
Miscellaneous expenses 17,893 5,815 49,552 65,408
-------- -------- -------- --------
39,637 31,232 137,840 157,893
Income before income taxes 374,381 94,666 592,571 345,240
Income taxes 138,534 35,724 208,062 115,900
-------- -------- -------- --------
Net income $235,847 $ 58,942 $384,509 $229,340
======== ======== ======== ========
Net income per share $ 0.28 $ 0.07 $ 0.46 $ 0.28
======== ======== ======== ========
</TABLE>
See accompanying notes
Page 5 of 14
<PAGE>
<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Statements of Cash Flows (Unaudited)
Nine months ended
September 30
1999 1998
---------------------------------------
Operating activities
<S> <C> <C>
Net income $ 384,509 $ 229,340
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation expense 2,820 2,052
Deferred taxes (380) (380)
Changes in operating assets and liabilities:
Operating assets (31,172) (1,557)
Operating liabilities 18,418 23,598
---------- ----------
Net cash provided by operating activities 374,195 253,053
Investing activities
Maturity of investments 1,281,687 1,616,624
Purchase of investments (1,652,640) (1,741,021)
Purchase of equipment (625) -
---------- ----------
Net cash provided by (used in) investing activities (371,578) (124,397)
Financing activities
Dividend paid (265,760) (622,875)
---------- ----------
Net cash used in financing activities (265,760) (622,875)
Decrease in cash and cash equivalents (263,143) (494,219)
Cash and cash equivalents at beginning of period 315,376 500,370
---------- ----------
Cash and cash equivalents at end of period $ 52,233 $ 6,151
========== ==========
See accompanying notes
</TABLE>
Page 6 of 14
<PAGE>
Avoca, Incorporated
Notes to Condensed Financial Statements (Unaudited)
Nine months ended September 30, 1999
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,
1999 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1999. 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, 1998.
The Company considers its United States Government securities held with a
maturity of three months or less when purchased to be cash equivalents. The
Company's United States Government obligations which do not meet this criteria
are included in, and represent substantially all of, the short-term and
long-term investment balances.
Page 7 of 14
<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 1999, as compared with the third quarter of 1998, increased
from $58,942 to $235,847.
Lease bonuses and delay rentals for the third quarter of 1999 increased
by $281,310, or approximately 609% as a result of the bonus received for the
granting of an oil, gas and mineral lease to CNG Producing Company. The lease,
covering 1,637.55 acres on the southwest part of the island, was granted
pursuant to an option to lease granted in the second quarter of 1999 to Kevin
Caliva & Associates, Inc. and assigned to CNG Producing Company.
Royalty income net of severance taxes increased from $38,215 to $49,782
or approximately 30% because of royalties received from The Meridian Resource &
Exploration Co. on the C.M. Thibodeaux No. 1 well. The C.M. Thibodeaux No. 1
well was placed on production June 15, 1999 from the Operc 5 Sand, went off
production June 25 due to the blowout of the C.M. Thibodeaux No. 2 well and
returned to production August 24 after the successful plugging of the No. 2
well. The C.M. Thibodeaux No. 3 well (a replacement for the No. 2 well) has
been drilled to its total depth and the operator is commencing completion
operations. The operator has advised the Company that its net royalty interest
in the No. 1 and the No. 3 wells is approximately 2.87%.
On August 12, 1999, Burlington Resources Oil and Gas Co. spudded the
Conrad Industries No. 1 well opposite the northeastern part of the island. The
well is presently drilling at about 16,800 feet to a total depth of 19,200 feet.
Avoca, Incorporated will have an interest in this unit.
As compared with the third quarter of 1998, royalty income net of
severance taxes from the Delta Operating Company Avoca No. 1 well decreased
$2,134 or approximately 6% because of a
Page 8 of 14
<PAGE>
20% decline in production. The decrease would have been greater but for a 13%
increase in the average sales price of gas, from $2.25 per Mcf for the three
months ended September 30, 1998 to $2.54 per Mcf for the three months ended
September 30, 1999. The well was shut in August 29, 1999 to treat scale in the
producing formation. According to the well's operator, performance is improving
and an additional treatment is scheduled to further improve performance. Since
the second quarter of 1997, the well has been responsible for virtually all of
the Company's royalty income.
Interest income on U. S. Government and U. S. Government agency
securities decreased slightly due to lower interest rates.
As compared with the third quarter of 1998, total expenses increased
$8,405 or approximately 27%. Decreases in legal and accounting services,
consultant fees and geological and engineering fees offset a slight increase in
insurance and partially offset a $12,078 increase in miscellaneous expenses.
Most of the increase in miscellaneous expenses is attributable to recommencement
of special surface maintenance on the northern part of the island.
The change in income tax expense for the three months ended September
30, 1999 resulted from an increase in taxable income for the third quarter of
1999 as compared to the third quarter of 1998.
Total revenue for the nine month period ended September 30, 1999
increased $227,278 or approximately 45% due to increased income from lease
bonuses and delay rentals, lease option payments and royalty income.
Revenue from lease bonuses and delay rentals for the first nine months
of 1999 increased $139,737 or approximately 52% as compared to the first nine
months of 1998. The increase results
Page 9 of 14
<PAGE>
from a new oil, gas and mineral lease on 1,637.55 acres executed in the third
quarter with CNG Producing Company. No drilling operations were conducted on the
island during the first nine months of 1999.
Lease option payments for the first nine months of 1999 increased by
$79,938 because of the granting of two oil, gas and mineral lease options. The
first option, covering 1,459.30 acres on the northwest part of the island,
allows McRae Exploration & Production Inc. to lease all or part (not less than
729.65 acres) on or before December 20, 1999. The second option covering 2,893
acres was granted to Kevin Caliva & Associates, Inc., assigned to CNG Producing
Company and resulted in the oil, gas and mineral lease previously discussed.
Revenues from royalties net of severance taxes for the first nine
months of 1999 increased $11,173 or approximately 10% as a result of royalties
received from the C.M. Thibodeaux No. 1 well. Production volume from the Delta
Avoca No. 1 well was 2% higher for the first nine months of 1999, but the
average natural gas price was 7% lower as compared with the corresponding period
of 1998.
Interest income on U.S. Government and U. S. Government agency
securities decreased $2,382 for the nine month period because of lower interest
rates.
Rental income and other income for the nine months ending September 30,
1999 decreased $1,188 or approximately 4% due to the early renewal of a long
standing surface lease in 1998.
Expenses for the nine months ended September 30, 1999 decreased $20,053
or approximately 13%. The $15,856 decrease in miscellaneous expenses was largely
due to the expenditure of less funds on special surface maintenance operations
on the northern part of Avoca Island than the comparable period of 1998.
Geological and engineering fees were reduced by $5,827 because of a
Page 10 of 14
<PAGE>
decrease in the need for engineering services. Slight increases in insurance and
legal and accounting services offset the slight decrease in consultant fees.
The change in income tax expense for the nine months ended September
30, 1999 resulted from an increase in taxable income for the first nine months
of 1999 as compared to the same period of 1998.
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 and the leasing of hunting rights, the
Company customarily derives essentially all of its other income from bonuses,
delay rentals and royalties under oil, gas and mineral leases of its Avoca
Island acreage. 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.
The Company has completed its assessment of the potential impact that
the Year 2000 (Y2K) issue may have with respect to its operations and financial
position. Due to the nature of the Company's operations, the volume of
accounting transactions is limited and the Company's accounting records are
maintained through manual input to a non-complex financial accounting software
application that is Y2K compliant. The Company has not incurred and does not
expect to incur any significant costs with respect to Y2K issues.
Two independent oil and gas companies represent the source of
substantially all of the Company's royalty income. Management of Avoca,
Incorporated has been informed by these
Page 11 of 14
<PAGE>
companies that the Y2K issue would not have a significant impact on its
respective oil and gas operations.
The Company deals with a limited number of vendors who are primarily
geologists, engineers, attorneys and accountants. Services provided by the
Company's primary vendors are not expected to be significantly disrupted by the
Y2K issue.
Companies, including Avoca, Incorporated, cannot make Y2K Compliance
certifications because the ability of any organization's systems (and the
systems of other outside organizations) to operate reliably after midnight on
December 31, 1999 is dependent upon factors that may be outside the control of,
or unknown to, the organization. While there can be no assurance that the
Company will not be materially adversely affected by Y2K problems, the Company
believes that is has adequately addressed the risks associated with the Y2K
issue.
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.
Page 12 of 14
<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
/s/ Robert C. Baird, Jr.
-----------------------------------------
Robert C. Baird, Jr.
President and Principal Financial Officer
November 2, 1999
-----------------------------------------
Date Signed
Page 13 of 14
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
27 Financial Data Schedule
Page 14 of 14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 52,233
<SECURITIES> 2,582,951
<RECEIVABLES> 73,586
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,069,886
<PP&E> 72,385
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,795,452
<CURRENT-LIABILITIES> 35,951
<BONDS> 0
<COMMON> 94,483
0
0
<OTHER-SE> 2,652,510
<TOTAL-LIABILITY-AND-EQUITY> 2,795,452
<SALES> 124,944
<TOTAL-REVENUES> 730,411
<CGS> 0
<TOTAL-COSTS> 6,742
<OTHER-EXPENSES> 137,840
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 592,571
<INCOME-TAX> 208,062
<INCOME-CONTINUING> 384,509
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 384,509
<EPS-BASIC> .46
<EPS-DILUTED> .46
</TABLE>
