[LETTERHEAD OF MILLING BENSON WOODWARD L.L.P.]
August 10, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549-1004
Via Edgar Electronic Filing System
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 June 30, 2000.
This filing is being effected by direct transmission to the
Commission's EDGAR System.
Sincerely,
/s/ Robert C. Baird, Jr.
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Robert C. Baird, Jr.
President and Principal
Financial Officer
(504) 599-3069
RCB/kj
Enclosures
<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, 2000
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[ ] 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
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(Exact name of small business issuer as specified in its charter)
Louisiana 72-0590868
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
228 St. Charles Avenue, Suite 838, New Orleans, Louisiana 70130
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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
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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, 2000
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Transitional Small Business Disclosure Former (check one); Yes No X
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An exhibit index is located at page 13 of this report.
Page 1 of 13
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AVOCA, INCORPORATED
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I N D E X
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Page No.
Part I. Financial Information (Unaudited)
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Condensed Balance Sheet - June 30, 2000 4
Condensed Statements of Income
Three Months Ended June 30, 2000
and 1999 and Six Months Ended
June 30, 2000 and 1999 5
Condensed Statements of Cash Flows
Six Months Ended June 30, 2000
and 1999 6
Notes to Condensed Financial Statements 7
Management's Discussion and Analysis or
Plan of Operation 8-11
Part II. Other Information
-----------------
Legal Proceedings 11-12
Exhibits and Reports on Form 8-K 12
Signature 12
Page 2 of 13
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AVOCA, INCORPORATED
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Page 3 of 13
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<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Balance Sheet (Unaudited)
June 30, 2000
Assets
Current assets:
<S> <C>
Cash and cash equivalents $ 43,420
Short-term investments 1,601,055
Accounts receivable 154,969
Accrued interest receivable 41,181
Prepaid expenses 21,178
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Total current assets 1,861,803
Property and equipment, less accumulated depreciation and depletion 71,138
Other assets:
Long-term investments 1,049,727
Avoca Drainage Bonds, $415,000, in default -- at nominal amount 1
-
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$2,982,669
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Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 3,000
Income taxes payable 39,630
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Total current liabilities 42,630
Deferred income taxes 12,128
Shareholders' equity:
Common stock, no par value -- authorized, issued and outstanding
830,500 shares 94,483
Retained earnings 2,833,428
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Total shareholders' equity 2,927,911
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$2,982,669
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See accompanying notes
</TABLE>
Page 4 of 13
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<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Statements of Income (Unaudited)
Three months ended Six months ended
June 30 June 30
2000 1999 2000 1999
--------- --------- --------- --------
Revenue:
<S> <C> <C> <C> <C>
Royalties $ 361,544 $ 32,771 $ 678,143 $ 72,112
Less severance taxes 14,189 1,459 30,417 3,692
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347,355 31,312 647,726 68,420
Lease option payments - 79,938 - 79,938
Delay rentals 81,345 81,345 81,345 81,345
Interest income 36,470 31,299 71,177 63,107
Rental income 25,298 23,583 25,308 23,583
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490,468 247,477 825,556 316,393
Expenses:
Legal and accounting services 23,313 6,902 48,119 17,114
Consultant fees 12,300 11,188 35,125 30,588
Geological and engineering fees 2,324 4,315 12,255 6,248
Insurance 6,549 6,309 13,059 12,594
Miscellaneous expenses 8,720 6,790 38,573 31,659
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53,206 35,504 147,131 98,203
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Income before income taxes 437,262 211,973 678,425 218,190
Income taxes 137,053 67,704 210,657 69,528
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Net income $ 300,209 $ 144,269 $ 467,768 $ 148,662
========= ========= ========= =========
Net income per share $ 0.36 $ 0.17 $ 0.56 $ 0.18
========= ========= ========= =========
See accompanying notes
</TABLE>
Page 5 of 13
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<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Statements of Cash Flows (Unaudited)
Six months ending
June 30
2000 1999
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Operating activities
<S> <C> <C>
Net income $ 467,768 $ 148,662
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation expense 2,194 1,880
Deferred taxes (253) (253)
Changes in operating assets and liabilities:
Operating assets (59,174) 376
Operating liabilities 25,715 17,533
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Net cash provided by operating activities 436,250 168,198
Investing activities
Purchase of investments (648,416) (903,453)
Maturity of investments 199,938 729,427
Purchase of equipment - (625)
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Net cash used in investing activities (448,478) (174,651)
Financing activities
Dividends paid (705,925) (265,760)
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Net cash used in financing activities (705,925) (265,760)
Decrease in cash and cash equivalents (718,153) (272,213)
Cash and cash equivalents at beginning of period 761,573 315,376
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Cash and cash equivalents at end of period $ 43,420 $ 43,163
========= =========
See accompanying notes
</TABLE>
Page 6 of 13
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Avoca, Incorporated
Notes to Condensed Financial Statements (Unaudited)
Six months ended June 30 , 2000
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 normal and recurring
adjustments and accruals considered necessary for a fair presentation have been
included. Operating results for the six-month period ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000. 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,
1999.
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
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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 2000 as compared with the second quarter of 1999 increased
from $144,269 to $300,209.
Royalty income, net of severance taxes, increased from $31,312 to $347,355
or approximately 1,009% primarily because of royalties received from The
Meridian Resources & Exploration Company on the C.M. Thibodaux No. 1 & No. 3
wells in the Ramos Field, across Bayou Chene just north of the eastern end of
Avoca Island. The 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.
Thibodaux No. 2 well and returned to production August 24 after the successful
plugging of the No. 2 well. The No. 3 well (a replacement for the No. 2 well)
went on production from the Operc B sand in early November 1999. The Company's
net revenue interest in both wells, which were responsible for 83% of the
Company's second quarter of fiscal 2000 royalty income, is approximately 2.87%.
The No. 1 well currently produces at the approximate rate of 5,600 Mcf of gas,
530 barrels of condensate and 26,300 gallons of natural gas liquids per day. The
No. 3 well currently produces at the approximate rate of 15,300 Mcf of gas, 370
barrels of condensate and 17,000 gallons of natural gas liquids per day. On July
25, 2000, Meridian Resources moved a rig on location to drill the Avoca #47-1
well, which will bottom hole in Section 47 on the northeast end of Avoca Island.
Meridian Resources advises that it still plans to spud an additional well before
the end of the year in Section 5 on the southwest part of the island.
Burlington Resources Oil & Gas Company's Conrad Industries No. 1 well in
the Wyandotte Field opposite the northern part of Avoca Island was placed on
production April 29, 2000 and generated $37,109 in royalty income, net of
severance taxes, in the second quarter. The current
Page 8 of 13
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average daily production is 5,261 Mcf of gas and 109 barrels of condensate.
According to the operator, Avoca's participation in the unit will be
approximately 28.72%.
From the second quarter of 1997 until the fourth quarter of 1999, the Delta
Operating Corporation (formerly Alliance Operating Company) Avoca No. 1 well,
also in the Ramos Field, was responsible for virtually all of the Company's
royalty income. As compared with the second quarter of 1999, royalty income, net
of severance taxes, from the Avoca No. 1 well increased slightly as a result of
a 47% increase in the average sales price of gas which compensated for a 31%
decline in gas production. According to the well's operator, an acid treatment
to the well's producing formation is scheduled after Meridian Resources spuds
its above-mentioned Avoca #47-1 well.
Interest income on U.S. Government and U.S. Government agency securities
increased $5,171 or approximately 17% because of the availability of increased
funds for investment and slightly higher interest rates.
Rental income increased $1,715 because of a CPI adjustment of the annual
rental on the Company's surface lease with the Avoca Duck Club in addition to
the granting of a new short-term surface lease.
As compared with the second quarter of 1999, total expenses increased
$17,702 or approximately 50%. Of the $16,411 increase in legal and accounting
services, $15,461 is attributable to legal fees thus far expended in the
Singleton lawsuit described under Part II, Item 1 of this report, incorporated
herein by reference. The Singleton lawsuit is also responsible for the $1,930
increase in miscellaneous expenses. Consultant fees increased primarily because
of additional compensation earned by the company's general manager and land
manager. Geological
Page 9 of 13
<PAGE>
and engineering fees were reduced by $1,991 because of a decrease in the need
for such services during the second quarter of 2000.
The change in income tax expense for the three months ended June 30, 2000
resulted from an increase in taxable income for the second quarter of 2000 as
compared to the second quarter of 1999.
Total revenue for the six-month period ended June 30, 2000 increased
$509,163 or approximately 161%. The increase resulted from a substantial
increase in royalty income and slight increases in interest income and rental
income, which more than offset the absence of income from lease option payments.
Royalty income, net of severance taxes, for the first six months of 2000
was $579,306 or approximately 847% higher than the corresponding period of 1999.
The primary reason for the increase is the new royalty income from the Thibodaux
No. 1 & No. 2 wells and the Conrad Industries #1 well previously discussed.
Interest income on U. S. Government and U. S. Government agency securities
increased $8,070 or approximately 13% because of the availability of increased
funds for investment and slightly higher interest rates.
Rental income for the six months ending June 30, 2000 increased $1,725 or
approximately 7% as a result of the CPI adjustment and new short-term surface
lease discussed above.
Expenses for the six-month period ended June 30, 2000 increased $48,928 or
approximately 50%. Of the $31,005 increase in legal and accounting services,
$28,580 is attributable to legal fees connected to the above-mentioned Singleton
lawsuit and to unitization proceedings on the Burlington Conrad Industries No. 1
well. Consultant fees increased primarily because of additional
Page 10 of 13
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compensation earned by the Company's general manager and its land manager on
Avoca Island. Increased mineral activity, including unitization proceedings,
resulted in a $6,007 increase in geological and engineering fees. The $6,914
increase is miscellaneous expenses is primarily attributable to the Singleton
lawsuit.
The change in income tax expense for the six months ended June 30, 2000
resulted from an increase in taxable income for the first six months of 2000 as
compared to the like period of 1999.
The Company's continued liquidity is evidenced by the fact that
approximately 90% 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.
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings
As noted in the Company's 10-KSB report for 1999, Avoca, Incorporated on
December 29, 1999 filed in the 16th Judicial District Court for the Parish of
St. Mary (Docket No. 105195) a lawsuit to evict a former lessee, Ernest
Singleton, from a small parcel of land (less than 10 acres) located in the
northeast part of Avoca Island. The parcel is included in The Meridian Resource
& Exploration, Inc.'s 647.504 acre unit for the C.M. Thibodaux Nos. 1 and 3
wells.
Page 11 of 13
<PAGE>
The defendant, individually and on behalf of numerous other heirs of John
Singleton, has filed a Reconventional Demand and Petition in Nullity asserting
ownership of the parcel (and other lands not claimed by the Company) on the
ground that a 1970 court judgment which recognized the Company's title to the
disputed area is a nullity. The Company has responded with peremptory exceptions
of prescription and res judicata.
On June 7, 2000, the court rendered judgment in favor of the Company on the
eviction proceedings and ordered Ernest Singleton to vacate the premises. A
notice of appeal has been filed, and all other issues in the lawsuit remain
unresolved.
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
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Registrant
August 7, 2000 /s/ Robert C. Baird, Jr.
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Robert C. Baird, Jr.
President and Principal
Financial Officer
Page 12 of 13
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EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
27 Financial Data Schedule
Page 13 of 13
