<PAGE>
May 7, 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
March 31, 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 March 31, 1999
--------------------------------------------------
[ ] 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
228 St. Charles Avenue, Suite 838, New Orleans, Louisiana 70130
- --------------------------------------------------------------------------------
(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 May 1, 1999
-------------------------------
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>
AVOCA, INCORPORATED
-------------------
I N D E X
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Page No.
--------
Part I. Financial Information (Unaudited)
---------------------
Condensed Balance Sheet - March 31, 1999 4
Condensed Statements of Operations
Three Months Ended March 31, 1999
and 1998 5
Condensed Statements of Cash Flows
Three Months Ended March 31, 1999
and 1998 6
Notes to Condensed Financial Statements 7
Management's Discussion and Analysis or
Plan of Operation 8-10
Part II. Other Information
-----------------
Submission of Matters to a Vote of
Security Holders 11
Exhibits and Reports on Form 8-K 11
Signature 12
<PAGE>
AVOCA, INCORPORATED
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
<PAGE>
Avoca, Incorporated
Condensed Balance Sheet (Unaudited)
March 31, 1999
Assets
Current assets:
Cash $ 39,730
Short-term investments 1,501,836
Accounts receivable 22,363
Accrued interest receivable 30,678
Prepaid expenses 10,751
-------------
Total current assets 1,605,358
Property and equipment, less accumulated depreciation and depletion 74,265
Other assets:
Long-term investments 714,664
Avoca Drainage Bonds, $415,000, in default -- at nominal amount 1
-------------
$ 2,394,288
=============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 14,030
Income taxes payable 620
-------------
Total current liabilities 14,650
Deferred income taxes 12,761
Shareholders' equity:
Common stock, no par value -- authorized, issued and outstanding
830,500 shares 94,483
Retained earnings 2,272,394
-------------
Total shareholders' equity 2,366,877
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$ 2,394,288
=============
See accompanying notes
<PAGE>
<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Statements of Operations (Unaudited)
Three months ended
March 31
1999 1998
---------- ----------
Revenue:
<S> <C> <C>
Royalties $ 39,341 $ 32,588
Less severance taxes 2,233 1,302
---------- ----------
37,108 31,286
Interest income 31,808 32,658
---------- ----------
68,916 63,944
Expenses:
Legal and accounting services 10,212 10,841
Consultant fees 19,400 21,000
Geological and engineering fees 1,933 4,419
Insurance 6,285 5,637
Miscellaneous expenses 24,869 48,490
---------- ----------
62,699 90,387
---------- ----------
Income (loss) before income taxes 6,217 (26,443)
Income taxes 1,824 -
---------- ----------
Net income (loss) $ 4,393 $ (26,443)
========== ==========
Net income (loss) per share $ .01 $ (.03)
========== ==========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Statements of Cash Flows (Unaudited)
Three months ended
March 31
1999 1998
---------- ------------
<S> <C> <C>
Net income (loss) $ 4,393 $ ( 26,443)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation expense 940 684
Deferred taxes ( 127) ( 127)
Changes in operating assets and liabilities:
Operating assets ( 7,082) 8,663
Operating liabilities ( 2,883) 4,999
----------- -----------
Net cash used in operating activities ( 4,759) ( 12,224)
Investing activities
Purchase of investments ( 165,000) ( 541,567)
Maturity of investments 160,498 697,044
Purchase of equipment ( 625) -
----------- -----------
Net cash provided by (used in) investing activities ( 5,127) 155,477
Financing activities
Dividends paid ( 265,760) ( 622,875)
----------- -----------
Net cash used in financing activities ( 265,760) ( 622,875)
----------- -----------
Decrease in cash and cash equivalents ( 275,646) ( 479,622)
Cash and cash equivalents at beginning of period 315,376 500,370
----------- -----------
Cash at end of period $ 39,730 $ 20,748
=========== ===========
See accompanying notes.
</TABLE>
<PAGE>
Avoca, Incorporated
Notes to Condensed Financial Statements (Unaudited)
Three months ended March 31, 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 three-month period ended March 31, 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.
<PAGE>
Item 2 - Management's Discussion and
Analysis or Plan of Operation
The unaudited condensed statements of operations reflect that net
income for the first quarter of 1999 was $4,393, as compared with a loss of
$26,443 for the first quarter of 1998.
Total revenues, net of severance taxes, rose from $63,944 to $68,916
due to a 19% increase in royalty income from the Avoca No. 1 well. Since the
second quarter of 1997, the well has been responsible for virtually all of the
Company's royalty income. Although the average sales price of gas decreased from
$2.43 per Mcf for the three months ended March 31, 1998 to $2.02 per Mcf for the
three months ended March 31, 1999, gas production from the Avoca No. 1 well for
the first quarter of 1999 was approximately 24% higher than the comparable
period of 1998. The operator has informed the Company that the increase in gas
production results from a successful chemical treatment to clean the
perforations and the producing formation near the well bore in September of
1998.
The Meridian Resource & Exploration Company, Inc. recently drilled a
deep gas well (Meridian Resources-Thibodaux No. 1 well) in the Ramos Field,
across Bayou Chene just north of the eastern end of Avoca Island. According to
the operator, the well encountered three objective sands and found all three
productive of gas. The Operc B Sand from 17,704' to 17,828' has 79' of net gas
sand by measured depth. The Operc 3 Sand from 18,309' to 18,372' has 29' of net
gas sand by measured depth. The Operc 5 Sand from 19,128' to 19,192' has 48' of
net gas sand by electric log measurements. The participation of Avoca,
Incorporated in this unit has not formally been determined.
Interest income, derived from U.S. Government and U.S. Government
agency securities, decreased slightly because of lower interest rates.
<PAGE>
As compared with the first quarter of 1998, total expenses decreased
$27,688 or approximately 31%. Reduced remedial maintenance operations on the
northern part of Avoca Island resulted in a $23,621 decrease in miscellaneous
expenses. Geological and engineering fees were reduced by $2,486 because of a
decreased need for these services during the first qurter of 1999. The $1,600
decrease in consultant fees results from the smaller bonus paid to the Company's
general manager in recognition of results achieved in 1998, which partially
offset fees paid to the Company's new part-time land manager.
The change in income tax expense for the three months ended March 31,
1999 resulted from an increase in taxable income for the first quarter of 1999
as compared to the first quarter 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. The Company is largely a passive royalty company, which derives most
of its income from royalties, bonus and delay rentals under oil and gas leases
covering its Avoca Island acreage.
<PAGE>
One independent oil and gas company represents the source of
substantially all of the Company's royalty income. Management of Avoca,
Incorporated has been informed by this company that the Y2K issue would not have
a significant impact on their 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.
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.
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 it has adequately addressed the risks associated with the Y2K
issue.
<PAGE>
Part II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on March 16,
1999. Management's proposal to fix at five the number of directors to be elected
for the ensuing year was approved by the following vote:
For Against Abstain Broker Nonvotes
------- ------- ------- ---------------
666,579 65 2,466 -0-
Messrs. Baird, Fox, Lyman, Powell and Tucker were elected directors
for the ensuing year by the following vote:
Withhold
For Vote Broker Nonvotes
------- -------- ---------------
Robert C. Baird, Jr. 668,368 742 -0-
Richard W. Fox 668,388 722 -0-
Guy C. Lyman, Jr. 668,368 742 -0-
M. Cleland Powell, III 668,368 742 -0-
J. Scott Tucker 668,388 722 -0-
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:
Two reports were filed during the quarter for which this
report is filed. The first, dated February 4, 1999, dealt with the decision of
Ernst & Young LLP not to stand for reappointment as the Company's independent
accountants. The second, dated March 23, 1999, dealt with engagement of Arthur
Andersen LLP as the Company's independent accountants for 1999.
<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
May 3, 1999 /s/ Robert C. Baird, Jr.
- ------------------------------ -------------------------------
Robert C. Baird, Jr.
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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 39,730
<SECURITIES> 1,501,836
<RECEIVABLES> 53,041
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,605,358
<PP&E> 74,265
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,394,288
<CURRENT-LIABILITIES> 14,650
<BONDS> 0
<COMMON> 94,483
0
0
<OTHER-SE> 2,272,394
<TOTAL-LIABILITY-AND-EQUITY> 2,394,288
<SALES> 39,341
<TOTAL-REVENUES> 68,916
<CGS> 0
<TOTAL-COSTS> 2,233
<OTHER-EXPENSES> 62,699
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,217
<INCOME-TAX> 1,824
<INCOME-CONTINUING> 4,393
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,393
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
