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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
- --- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1995
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d)
- --- OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From............to.................
Commission File Number 1-8287
RIO GRANDE, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 74-1973357
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10101 REUNION PLACE, SUITE 210, SAN ANTONIO, TEXAS 78216-4156
(Address of Principal Executive Office) (Zip Code)
ISSUER'S TELEPHONE NUMBER INCLUDING AREA CODE: 210-308-8000
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 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 stock, as of the latest practicable date:
At December 15, 1995 there were 5,552,760 shares of the registrant's
common stock outstanding.
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RIO GRANDE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-QSB
<TABLE>
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PAGE
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PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONDENSED COMBINED BALANCE SHEETS
ended October 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Combined Statements of Operations
Three Months and Nine Months
Ended October 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Combined Statements of Cash Flows
Nine Months Ended October 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Combined Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION:
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ITEM 2. CHANGE IN SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . 10
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RIO GRANDE, INC. AND SUBSIDIARIES
CONDENSED COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 31,
1995
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ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 1,969
Receivables: Trade and other 510
Prepaid expenses and other 10
TOTAL CURRENT ASSETS 2,489
---------------
PROPERTY AND EQUIPMENT, AT COST 8,155
Less accumulated depreciation, depletion and amortization 3,183
---------------
NET PROPERTY AND EQUIPMENT 4,972
OTHER ASSETS 1,218
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$ 8,679
===============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable 449
Accrued expenses 108
Current installments of long-term debt 589
---------------
TOTAL CURRENT LIABILITIES 1,146
Accrued platform abandonment expense 996
Minority interest combined limited partnership 971
Long-term debt, excluding current installments 3,228
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TOTAL LIABILITIES 6,341
SHAREHOLDERS' EQUITY 2,338
---------------
$ 8,679
===============
</TABLE>
See accompanying notes to combined condensed financial statements.
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ITEM 1- FINANCIAL STATEMENTS (CONTINUED)
RIO GRANDE, INC. AND SUBSIDIARIES
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
OCTOBER 31, OCTOBER 31,
------------------------ ----------------------
1995 1994 1995 1994
---------- --------- -------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas leases $ 777 1,213 2,706 3,134
----------- --------- -------- ---------
TOTAL REVENUES 777 1,213 2,706 3,134
----------- --------- -------- ---------
COSTS AND EXPENSES:
Lease operating and other production expense 472 527 1,458 1,178
Dry hole costs 2 1 1 8
Depreciation, depletion and amortization 332 435 1,009 983
Provisions for abandonment 45 30 135 118
General and administrative 329 437 978 869
----------- --------- -------- ---------
TOTAL COSTS AND EXPENSES 1,180 1,430 3,581 3,156
----------- --------- -------- ---------
EARNINGS (LOSS) FROM OPERATIONS (403) (217) (875) (22)
----------- --------- -------- ---------
OTHER INCOME (EXPENSES):
Interest expense (71) (71) (214) (116)
Interest income 20 11 37 30
Gain on sale of assets 47 12 1,249 114
Other (net) 4 (2) (7) 21
Minority interest in earnings of combined limited 41 3 (168) (136)
----------- --------- -------- ---------
TOTAL OTHER INCOME(EXPENSES) 41 (47) 897 (87)
----------- --------- -------- ---------
Earnings (loss) from continuing operations (362) (264) 22 (109)
State income and franchise taxes 2 2 5 6
----------- --------- -------- ---------
NET EARNINGS (LOSS) $ (364) (266) 17 (115)
=========== ========= ======== =========
Net earnings per common and common equivalent share $ (0.06) (0.04) (0.00) (0.02)
=========== ========= ======== =========
Weighted average common and common equivalent shares 5,927,760 6,029,293 5,927,760 6,029,293
=========== ========= ======== =========
</TABLE>
See accompanying notes to combined financial statements.
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ITEM 1- FINANCIAL STATEMENTS (CONTINUED)
RIO GRANDE, INC. AND SUBSIDIARIES
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
OCTOBER 31,
------------------------
1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings from continuing operations $ 17 (115)
Adjustments to reconcile earnings from continuing
operations to net cash used in operating activities:
Depreciation and other amortization 52 26
Depletion of oil and gas producing properties 957 957
Gain on sale of assets (1,249) (114)
Minority interest in equity of limited partnerships 168 136
(Increase) decrease in accounts and notes receivable 249 (196)
(Increase) decrease in prepaids and other assets 20 (34)
Increase (decrease) in accounts payable and accrued expenses 170 740
---------- ---------
Net cash provided by (used in) continuing operating activities 384 1,400
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CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase) disposition of oil and gas producing properties (512) (4,085)
(Purchase) of other property and equipment (33) (213)
(Additions to) deletions from platform abandonment fund
net of deferred liability (119) 30
(Additions to) other assets (147) (48)
Proceeds from sale of property and equipment 1,822 177
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Net cash provided by (used in) investing activities 1,011 (4,139)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 2,031 2,766
Repayment of long-term borrowings (1,232) (511)
Distribution to limited partners (420) 389
---------- ---------
Net cash provided by (used in) financing activities 379 2,644
---------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,774 (95)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 195 340
---------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,969 245
========== =========
</TABLE>
See accompanying notes to combined financial statements.
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ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
RIO GRANDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Accounting Policies
The accounting policies of Rio Grande, Inc. and Subsidiaries as set
forth in the notes to the Company's audited financial statements in the
Form 10-K Report filed for the year ended January 31, 1995, are
incorporated herein by reference. Refer to those notes for additional
details of the Company's financial condition, results of operations and
cash flows. All material items included in those notes have not changed
except as a result of normal transactions in the interim, or any items
which are disclosed in this report.
As a result of the Company's eighty percent (80%) ownership interest
in Rio Grande Offshore, Ltd. ("Offshore"), Offshore's financial statements
are combined with the Company. The minority interests of the limited
partners are set out in the balance sheet and the statement of operations
of the Company.
In the opinion of management, the condensed combined financial
statements reflect all adjustments which are necessary for a fair
presentation of the financial position and results of operations.
Adjustments made for the nine months ended October 31, 1995 are considered
normal and recurring in nature.
The Company adopted the successful efforts method of accounting for
the oil and gas properties purchased. Under this method of accounting,
the acquisition costs of the oil and gas properties applicable to proved
reserves are amortized on the unit-of-production method as produced.
Future development costs or exploratory costs applicable to purchased
properties are capitalized and amortized on the unit-of-production method
if proved reserves are discovered or expensed if the well is a dry hole.
Per share computations are based on the weighted average number of
shares and dilutive common stock equivalents outstanding during the
respective periods. Fully dilutive earnings per share is the same as
earnings per common and common equivalent shares.
(2) Statement of Financial Accounting Standards No. 109 ("Statement 109")
The Company adopted Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes, effective February 1, 1993. Statement
109 requires a change from the deferred method of accounting for income
taxes under APB Opinion 11 to the asset and liability method. Under the
asset and liability method, deferred income taxes are recognized for the
tax consequences resulting from "temporary differences" by applying
enacted statutory tax rates applicable to future years. These "temporary
differences" are associated with differences between the financial
statement amounts and the tax basis of existing assets and liabilities. A
valuation allowance is utilized to reduce deferred tax assets to their
expected realizable amount. A valuation allowance has been established to
decrease total gross deferred tax assets to the amount of the total gross
tax liabilities due to the uncertainties involved in the ultimate
realization of the deferred tax assets.
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ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
(3) Statement of Financial Accounting Standards No. 121 ("Statement 121")
Statement 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related
to those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. Statement 121 is effective
for financial statements for fiscal years beginning after December 15,
1995, although earlier application is recommended. The Company
anticipates that the implementation of Statement 121 will be on an annual
basis upon the receipt of the annual estimate of reserves from the
independent petroleum reserve engineers retained by the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
1. Material Changes in Financial Condition.
There were no material changes in the financial condition of
the Company for the period from the fiscal year ended January 31, 1995
through the nine months ended October 31, 1995, except for the sale of
certain oil and gas properties, the reduction of bank debt, and the
consummation of an offering of subordinated debt, as described below.
2. Material Changes in Results of Operations.
Oil and Gas Production Segment
For the quarter and nine months ended October 31, 1995,
revenues from oil and gas production were approximately $777,000 and
$2,706,000, respectively, as compared to $1,213,000 and $3,134,000 for
the quarter and nine months ended October 31, 1994. Production
operating expenses for the quarter and nine months ended October 31,
1995 were approximately $472,000 and $1,458,000, respectively, as
compared to the operating expense of $527,000 and $1,178,000 for the
same periods ended October 31, 1994. The increase in operating
expenses results from additional expenses attributable to oil and gas
properties acquired in July 1994 and significant recompletion costs to
improve the production from those oil and gas properties. The
decrease in production revenues resulted primarily from the sale by
Offshore of an oil and gas property located offshore Louisiana
effective April 1, 1995. During the nine month period ended October
31, 1994, this offshore property accounted for approximately $465,000
in revenues and $48,000 in operating expenses, as compared to $88,000
of production revenues and $7,000 in operating expenses generated
during the nine month period ended October 31, 1995.
The Company utilizes the successful efforts method of
accounting for its oil and gas properties. Amortization expenses for
the quarter and nine months ended October 31, 1995 based on the
unit-of-production method were approximately $312,000 and $957,000,
respectively, for 407,000 and 1,374,000 MMCF equivalent units of
production. Amortization expenses for the quarter and nine months
ended October 31, 1994, were approximately $422,000 and $957,000 for
507,000 and 1,961,000 MMCF equivalent units of production,
respectively.
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Interest expense for the quarter and nine months ended October
31, 1995 was approximately $71,000 and $214,000, respectively.
Interest expense for the quarter and nine months ended October 31,
1994 was approximately $71,000 and $116,000, respectively. For the
quarter ended October 31, 1995 interest expense increased due to the
addition of $2,600,000 debt with the acquisition of oil and gas
properties in July 1994 and the issuance on September 27, 1995 of
$2,000,000 of 11.50% subordinated notes to finance a development
program on certain oil and gas properties located in Texas. The
average interest rate incurred on senior debt during the period ended
October 31, 1995 was approximately 10.50%.
Offshore completed the sale of its interest in a certain oil
and gas property located offshore Louisiana in May 1995. The
Company's decision to sell its interest in this offshore property was
motivated by several factors, principally the planned suspension of
production from the property pending completion of a development
program by the operator and majority interest owner of this property,
projected development costs of approximately $300,000 to the Company's
interest, and management's belief that the Company's resources could
be more productively employed in development efforts associated with
other properties owned and operated by the Company.
In July, 1995, Offshore sold additional oil and gas properties
located in West Texas. The consolidated revenues generated by these
properties were $38,000 for the nine months ended October 31, 1995 and
$48,000 for the nine months ended October 31, 1994. The related
direct operating expenses for the respective periods were $16,000 and
$21,000.
Rio Grande Drilling Company, as an eighty percent (80%)
partner, received cash distributions of $1,032,000 and $184,000 from
the sale of the referenced offshore and West Texas properties,
respectively. From the proceeds of these sales, $800,000 and
$170,000, respectively, were applied to reduce bank indebtedness. The
interest expense applicable to the $970,000 reduction in bank debt for
the nine months ended October 31, 1995 and 1994 was $45,000 and
$55,000, respectively. The amortization of leasehold costs applicable
to those oil and gas properties for the nine months ended October 31,
1995 and 1994 was $25,000 and $80,000, respectively.
General and administrative expenses for the quarter and nine
months ended October 31, 1995 were approximately $329,000 and
$978,000, respectively, as compared to $437,000 and $869,000 for the
quarter and nine months ended October 31, 1994. The increase in
general and administrative expenses is the result of the addition of
office space and employees necessary to operate the additional oil and
gas properties acquired in 1994. As the operator of these oil and gas
properties, the Company charges participating working interest owners,
including an affiliated limited partnership, for overhead based on the
Council of Petroleum Accountants Societies ("COPAS") monthly rates.
COPAS overhead rates are charged on an individual well basis to
reimburse the operator for general costs of executive and
administrative functions incurred by the corporate office for
operating wells. General and administrative expenses were not reduced
significantly by charges to other working interest owners since the
Company is the majority owner of the operated oil and gas properties.
Liquidity and Capital Resources
As a result of the sale of the offshore property and West
Texas properties and the resulting reduction of $970,000 in the
Company's bank indebtedness, the Company's bank lender restructured
the Company's monthly principal and interest payments through May 31,
1996. The restructured monthly payments of principal and interest are
$50,000 through August 1995, $55,000
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through December 1995 and $61,000 through May 1996, the maturity date
for the bank debt. The bank, at its sole discretion, has the option
to renew or extend the maturity date of the Company's bank
indebtedness. As of October 31, 1995, the outstanding principal
balance of the bank indebtedness was approximately $1,750,000. It is
expected that the principal balance remaining on the bank indebtedness
will be approximately $1.4 million at May 31, 1996, the current
maturity date. No assurances can be given that the Bank will agree to
renew, extend or restructure the Company's bank debt.
The Company consummated on September 27, 1995 a private
offering of 11.50% Subordinated Notes for a total principal amount of
$2,000,000 combined with the issuance of Warrants to the debt holders
which provide for the purchase of up to 1,338,160 shares of Class A
Common Stock, par value $.01 per share, of the Company at an exercise
price of $0.40 per share. Interest on the subordinated notes is
payable quarterly with quarterly principal installments equal to
3.125%, 9.375% and 12.5% of the original principal amount of the
subordinated notes payable during the third, fourth and fifth years,
respectively. The subordinated notes mature on September 30, 2000.
The subordinated notes were issued primarily to finance further
development and production enhancements to certain West Texas oil and
gas properties acquired by the Company in 1994. The Company has
commenced the contemplated plan of development and workover to certain
oil and gas properties with certain of the $1,852,000 net proceeds
provided to the Company by the private offering.
The Company's ability to meet its current financial
commitments and to have access to additional working capital to
operate and develop its existing oil and gas properties is dependent
on the market prices for oil and natural gas, the production levels of
the specific properties, and the success of the development program
commenced by the Company. No assurances can be given that the
Company's current development efforts will be successful or that the
Company will be able to meet its current obligations or secure
additional working capital for further development of existing
properties or acquisition of additional properties.
The Company is not obligated to provide a fixed or
determinable quantity of oil or gas in the future under any existing
contracts, agreements or any hedge or swap arrangements.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
The Company consummated on September 27, 1995 a private
offering of 11.50% Subordinated Notes for a total principal
amount of $2,000,000 combined with the issuance of Warrants to
the debt holders which provide for the purchase of Class A
Common Stock, par value $.01 per share, of the Company at an
exercise price of $0.40 per share. A more detailed
explanation can be obtained from the Form 8-K filed on October
19, 1995.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 4.1 Note Purchase Agreement, dated
September 27, 1995, by and among the
Company, Rio Grande Drilling
Company, and the various purchasers
of 11.50% Subordinated Notes due
September 30, 2000.
Exhibit 4.2 Form of Common Stock Purchase
Warrant issued in connection with
the Offering described in this
report.
Exhibit 99.1 Private Offering Memorandum of the
Company dated August 27, 1995.
(b) Reports on Form 8-K
1) Explanation of consummation of a private
offering of 11.50% subordinated notes in the
total amount of $2,000,000 and the issuance
of Warrants equivalent to 1,388,160 shares of
Class A Common Stock - October 19, 1995.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
issuer has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
RIO GRANDE, INC.
Date: December 14, 1995 By: /s/ Guy R. Buschman
-------------------------------------------
Guy R. Buschman, President
Date: December 14, 1995 By: /s/ Gary Scheele
-------------------------------------------
Gary Scheele, Secretary and Treasurer
(principal financial officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR PERIOD ENDED 10/31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FORM 10-QSB.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-START> FEB-01-1995
<PERIOD-END> OCT-31-1995
<CASH> 1,969
<SECURITIES> 0
<RECEIVABLES> 510
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,489
<PP&E> 8,155
<DEPRECIATION> 3,183
<TOTAL-ASSETS> 8,679
<CURRENT-LIABILITIES> 1,146
<BONDS> 0
<COMMON> 56
0
0
<OTHER-SE> 2,282
<TOTAL-LIABILITY-AND-EQUITY> 8,679
<SALES> 2,706
<TOTAL-REVENUES> 2,706
<CGS> 0
<TOTAL-COSTS> 3,581
<OTHER-EXPENSES> (1,111)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 214
<INCOME-PRETAX> 22
<INCOME-TAX> 5
<INCOME-CONTINUING> 17
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.00
</TABLE>
