[LETTERHEAD OF MILLING BENSON WOODWARD L.L.P.]
November 8, 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 September 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 September 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 October 31, 2000
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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.
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Page 1 of 14
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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, 2000 4
Condensed Statements of Income
Three Months Ended September 30, 2000
and 1999 and Nine Months Ended
September 30, 2000 and 1999 5
Condensed Statements of Cash Flows
Nine Months Ended September 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
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Legal Proceedings 12
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
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<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Balance Sheet (Unaudited)
September 30, 2000
Assets
Current assets:
<S> <C>
Cash and cash equivalents $ 64,310
Short-term investments 2,368,859
Accounts receivable 183,248
Accrued interest receivable 44,370
Prepaid expenses 19,749
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Total current assets 2,680,536
Property and equipment, less accumulated depreciation and depletion 70,041
Other assets:
Long-term investments 900,000
Avoca Drainage Bonds, $415,000, in default -- at nominal amount 1
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$3,650,578
==========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 4,150
Income taxes payable 97,641
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Total current liabilities 101,791
Deferred income taxes 12,001
Shareholders' equity:
Common stock, no par value -- authorized, issued and outstanding
830,500 shares 94,483
Retained earnings 3,442,303
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Total shareholders' equity 3,536,786
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$3,650,578
==========
See accompanying notes
</TABLE>
Page 4 of 14
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<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Statements of Income (Unaudited)
Three months ended Nine months ended
September 30 September 30
2000 1999 2000 1999
--------- -------- ---------- ---------
Revenue:
<S> <C> <C> <C> <C>
Royalties $ 562,885 $ 52,832 $1,241,028 $ 124,944
Less severance taxes 10,876 3,050 41,293 6,742
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552,009 49,782 1,199,735 118,202
Lease bonuses and delay rentals 359,110 327,510 440,455 408,855
Lease option payments - - - 79,938
Interest income 45,711 33,581 116,888 96,688
Rental and other income 7,346 3,145 32,654 26,728
--------- -------- ---------- ---------
964,176 414,018 1,789,732 730,411
Expenses:
Legal and accounting services 9,331 2,442 57,450 19,556
Consultant fees 12,050 10,894 47,175 43,482
Geological and engineering fees 1,046 2,216 13,301 6,464
Insurance 6,792 6,192 19,851 18,786
Miscellaneous expenses 13,198 17,893 51,771 49,552
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42,417 39,637 189,548 137,840
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Income before income taxes 921,759 374,381 1,600,184 592,571
Income taxes 312,884 138,534 523,541 208,062
--------- -------- ---------- ---------
Net income $ 608,875 $235,847 $1,076,643 $ 384,509
========= ======== ========== =========
Net income per share $ 0.74 $ 0.28 $ 1.30 $ 0.46
======= ======= ======= ======
See accompanying notes
</TABLE>
Page 5 of 14
<PAGE>
<TABLE>
<CAPTION>
Avoca, Incorporated
Condensed Statements of Cash Flows (Unaudited)
Nine months ending
September 30
2000 1999
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Operating activities
<S> <C> <C>
Net income $1,076,643 $ 384,509
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation expense 3,291 2,820
Deferred taxes (380) (380)
Changes in operating assets and liabilities:
Operating assets (89,213) (31,172)
Operating liabilities 84,876 18,418
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Net cash provided by operating activities 1,075,217 374,195
Investing activities
Purchase of investments (1,615,679) (1,652,640)
Maturity of investments 549,124 1,281,687
Purchase of equipment - (625)
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Net cash used in investing activities (1,066,555) (371,578)
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 (697,263) (263,143)
Cash and cash equivalents at beginning of period 761,573 315,376
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Cash and cash equivalents at end of period $ 64,310 $ 52,233
========== =========
See accompanying notes
</TABLE>
Page 6 of 14
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Avoca, Incorporated
Notes to Condensed Financial Statements (Unaudited)
Nine months ended September 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 nine-month period ended September 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 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 2000 as compared with the third quarter of 1999 increased
from $235,847 to $608,875.
Royalty income, net of severance taxes, increased from $49,782 to
$552,009 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, 1999 due to the blowout of the
C. M. Thibodaux No. 2 well and returned to production August 24, 1999 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
approximately 70% of the Company's royalty income for the third quarter of 2000,
is approximately 2.87%. The No. 1 well during September 2000 produced at the
approximate rate of 5,317 Mcf of gas and 532 barrels of condensate per day. The
No. 3 well during September 2000 produced at the approximate rate of 16,518 Mcf
of gas and 300 barrels of condensate per day.
On July 27, 2000, Meridian spudded the Avoca #47-1 well, which has
bottom holed in Section 47 on the northeast end of Avoca Island. Meridian
announced on September 27, 2000 that its current logging of the #47-1 well
indicates pay sand totaling over 175 feet in five separate Operc sands. Meridian
has run casing in the well to a depth of 19,770 feet and is currently completing
the well.
Page 8 of 14
<PAGE>
On August 30, 2000 Meridian spudded the Avoca #5-1 well in Section 5 on
the southwest part of the island, approximately 3.5 miles southwest of the Avoca
#47-1 well. On November 6, 2000, a Meridian representative advised the Company
by telephone that the Avoca #5-1 had reached a total depth in a side track hole
of 18,817 feet and is being abandoned as a dry hole.
Burlington Resources Oil & Gas Company's Conrad Industries No. 1 well,
located in the Wyandotte Field opposite the northern part of Avoca Island, was
placed on production April 29, 2000 and generated $121,192 in royalty income,
net of severance taxes, in the third quarter of 2000. The current average daily
production was 5,261 Mcf of gas and 109 barrels of condensate when the well
"watered out" on August 20, 2000. Burlington has advised the Company that it
plans to sidetrack the well in an attempt to restore production. Avoca's net
revenue interest in the unit is approximately 6.30%.
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 third quarter of 1999, royalty
income, net of severance taxes, from the Avoca No. 1 well increased $11,055 or
approximately 31% as a result of a 78% increase in the average sales price of
gas, which offset a 40% decline in gas production. According to the well's
operator, a recently completed acid treatment to the well's producing formation
has improved its performance.
Lease bonuses and delay rentals for the three-month period increased
$31,600 as compared to the third quarter of 1999 as a result of the exercise by
McRae Exploration & Production, Inc. of its option to take down an oil, gas and
mineral lease on 158 acres on the northern part of the island.
Page 9 of 14
<PAGE>
Interest income on U.S. Government and U.S. Government agency
securities increased $12,130 or approximately 36% because of the availability of
increased funds for investment and slightly higher interest rates.
As compared with the third quarter of 1999, total expenses increased
$2,780 or approximately 7%. Increases in legal and accounting serv ices
(primarily attributable to the litigation discussed in Part II of this report),
consultant fees and insurance were partially offset by decreases in geological
and engineering fees and miscellaneous expenses.
The change in income tax expense for the three months ended September
30, 2000 resulted from an increase in taxable income for the third quarter of
2000 as compared to the third quarter of 1999.
Total revenue for the nine-month period ended September 30, 2000
increased $1,059,321 or approximately 145%. The increase resulted from a
substantial increase in royalty income and modest increases in lease bonuses and
delay rentals, interest income and rental and other income, which more than
offset the absence of income from lease option payments.
Royalty income, net of severance taxes, for the first nine months of
2000 was $1,199,735 or approximately 915% higher than the corresponding period
of 1999. The primary reason for the increase is the production from the
Thibodaux No. 1 & No. 2 wells and the Conrad Industries #1 well previously
discussed.
Lease bonuses and rental income increased $31,600 because of the new
McRae lease, discussed above.
Page 10 of 14
<PAGE>
Interest income on U.S. Government and U.S. Government agency
securities increased $20,200 or approximately 21% because of the availability of
increased funds for investment and slightly higher interest rates.
Expenses for the nine-month period ended September 30, 2000 increased
$51,708 or approximately 38%. Of the $37,894 increase in legal and accounting
services, $32,292 is attributable to legal fees relating to the lawsuit
described under Part II, Item 1 of this report, incorporated herein by
reference, and to unitization proceedings on the Burlington Conrad Industries
No. 1 well. Consultant fees increased primarily because of additional
compensation earned by the Company's general manager and its land manager on
Avoca Island. Increased mineral activity, including unitization proceedings,
resulted in a $6,837 increase in geological and engineering fees.
The change in income tax expense for the nine months ended September
30, 2000 resulted from an increase in taxable income for the first nine months
of 2000 as compared to the like period of 1999.
The Company's continued liquidity is evidenced by the fact that
approximately 91% 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.
Page 11 of 14
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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.
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.
Page 12 of 14
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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
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Registrant
November 9 , 2000 /s/ Robert C. Baird, Jr.
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Robert C. Baird, Jr.
President and Principal Financial Officer
Page 13 of 14
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EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
27 Financial Data Schedule
Page 14 of 14
