UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[root] QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
- ---------
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1996
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
[root] No .
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
At September 13, 1996 there were 5,552,760 shares of the registrant's
common stock outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
RIO GRANDE, INC. AND SUBSIDIARIES
Condensed Combined Balance Sheet
(Dollars in thousands)
(unaudited)
July 31,
1996
-------
Assets
------
Current assets:
Cash and cash equivalents $ 380
Trade receivables 1,107
Prepaid expenses 9
-------
Total current assets 1,496
-------
Property and equipment, at cost 11,638
Less accumulated depreciation, depletion and amortization 3,321
-------
Net property and equipment 8,317
Other assets, net 1,253
-------
$11,066
=======
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable 650
Accrued expenses 167
Current installments of long-term debt 1,475
Note payable 1,405
-------
Total current liabilities 3,697
Accrued platform abandonment expense 1,017
Minority interest in combined limited partnership 122
Long-term debt, excluding current installments 4,758
-------
Total liabilities 9,594
-------
Shareholders' equity
Common stock 56
Additional paid in capital 1,029
Retained earnings 387
-------
Total shareholders' equity 1,472
-------
$11,066
=======
See accompanying notes to condensed combined financial statements.
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Item 1. FINANCIAL STATEMENTS (continued)
RIO GRANDE, INC. AND SUBSIDIARIES
Condensed Combined Statements of Operations
(Dollars in thousands)
(unaudited)
Three Months Six Months
Ended Ended
July 31, July 31,
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Oil and gas sales 1,244 900 2,393 1,928
-------- --------- ------- ---------
Costs and expenses:
Lease operating and other
production expense 606 506 1,147 985
Dry hole costs and lease
abandonments 30 - 190 -
Depreciation, depletion and
amortization 268 329 541 677
Provisions for abandonment
expense 44 45 90 90
General and administrative 348 344 655 648
-------- --------- --------- ---------
Total costs and expenses 1,296 1,224 2,623 2,400
-------- --------- --------- ---------
Loss from operations (52) (324) (230) (472)
-------- --------- --------- ---------
Other income (expenses):
Interest expenses (152) (65) (267) (143)
Interest income 4 15 27 16
Gain on sale of assets 113 1,197 135 1,202
Other (net) (1) (3) - (10)
Minority interest in equity
of combined limited
partnership (16) (212) (45) (209)
-------- -------- --------- ---------
Total other income
(expense) (52) 932 (150) 856
-------- -------- --------- ---------
Earnings (loss) before income
taxes (104) 608 (380) 384
Income taxes 2 2 4 4
--------- --------- --------- ---------
Net earnings (loss) $(106) 606 (384) 380
========= ========= ========= =========
Net earnings per common and
common equivalent share $(0.02) 0.10 (0.07) 0.06
========= ========= ========= =========
Weighted average common and
common equivalent shares
out 5,373,651 5,927,760 5,373,651 5,927,760
========= ========= ========= =========
See accompanying notes to condensed combined financial statements.
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<PAGE>
Item 1. FINANCIAL STATEMENTS (continued)
RIO GRANDE, INC. AND SUBSIDIARIES
Condensed Combined Statements of Cash Flows
(Dollars in thousands)
(unaudited)
Six Months
Ended
July 31,
1996 1995
---- ----
Cash flows from operating activities:
Earnings from continuing operations (384) 380
Adjustments to reconcile earnings from continuing
operations to net cash used in operating activities:
Depreciation and other amortization 90 32
Depletion of oil and gas producing properties 451 645
Provision for abandonment expense 90 90
Gain on sale of assets (135) (1,202)
Minority interest in equity of limited partnership 45 209
(Increase) decrease in trade receivables (471) 215
(Increase) decrease in prepaid expenses 4 (39)
Increase (decrease) in accounts payable and
accrued expenses 113 (30)
Increase (decrease) in accrued platform
abandonment expense (113) -
------- -------
Net cash provided by (used in) continuing
operating activities (310) 300
------- -------
Cash flows from investing activities:
Purchase of oil and gas producing properties (4,482) (152)
Purchase of other property and equipment (49) -
Deletions from (additions to) platform abandonment fund 62 (250)
Deletions from (additions to) other assets (142) -
Proceeds from sale of property and equipment 145 1,766
------- -------
Net cash provided by (used in) investing activities (4,466) 1,364
------- --------
Cash flows from financing activities:
Proceeds from long-term debt 4,189 -
Proceeds from short-term note payable 1,405 -
Repayment of long-term debt (1,637) (1,084)
Distribution to limited partners (45) (416)
------- --------
Net cash provided by (used in) financing activities 3,912 (1,500)
------- --------
Net increase (decrease) in cash and cash equivalents (864) 164
Cash and cash equivalents at beginning of period 1,244 195
------- --------
Cash and cash equivalents at end of period $ 380 359
======= ========
See accompanying notes to condensed combined financial statements.
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<PAGE>
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-KSB Report filed for the year ended January 31, 1996 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.
The condensed combined financial statements include the accounts of
Rio Grande, Inc. (the "Company") and its subsidiaries and
majority-owned limited partnership as follows:
Form Ownership Ownership
of Interest Before Interest After
Name Organization February 1, 1996 February 1, 1996
---------------- ------------ ---------------- ----------------
Rio Grande Corporation 100% 100%
Drilling Company
("Drilling")
Rio Grande Corporation 100% 100%
Desert Oil Company
("RG-Desert")
Rio Grande Partnership 80% 100%
Offshore, Ltd.
("Offshore")
Rio Grande Partnership N/A 80%
GulfMex, Ltd.
("GulfMex")
Prior to February 1, 1996, Drilling's ownership interest in the oil
and gas properties acquired by Offshore was 80%. Robert A. Buschman
("Buschman"), H. Wayne Hightower and H. Wayne Hightower, Jr. (the
"Hightowers") owned the remaining 20% interest. As a result of the
Company's 80% ownership interest, Offshore's financial statements were
combined with the Company's financial statements prepared as of
January 31, 1996.
Effective February 1, 1996, Buschman and the Hightowers agreed to
restructure Offshore whereby the aggregate 20% minority limited
partnership interests of Buschman and the Hightowers would be
redeemed, and as a result of in kind distributions, Buschman and the
Hightowers became proportionate working interest owners of the onshore
oil and gas properties previously held by Offshore. All existing
interest in the oil and gas properties located offshore Louisiana held
by Offshore at January 31, 1996, were conveyed to GulfMex, a newly
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Item 1.FINANCIAL STATEMENTS (continued)
formed Texas limited partnership, which has the same proportionate
ownership structure as that of Offshore prior to the restructuring.
Buschman and the Hightowers no longer are limited partners of Offshore
and are now 20% limited partners in GulfMex. Subsequent to January 31,
1996, Offshore is 100% indirectly owned by the Company and GulfMex is
80% indirectly owned by the Company which is reflected in the
condensed combined financial statements prepared subsequent to January
31, 1996. The minority interests of Buschman and the Hightowers, prior
to and after the restructure, are set forth separately in the balance
sheet and the statements of operations of the Company.
All intercompany balances and transactions have been eliminated in the
combined condensed financial statements.
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 six months ended July 31, 1996 are considered
normal and recurring in nature.
The Company utilizes the successful efforts method of accounting for
its oil and gas properties. Under this method, the acquisition costs
of oil and gas properties acquired with proven reserves are
capitalized and amortized on the unit-of-production method as
produced. Development costs or exploratory costs are capitalized and
amortized on the unit-of-production method if proved reserves are
discovered, or expensed if the well is a dry hole.
Earnings 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) Recently Issued Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," which requires adoption of
the disclosure provisions no later than fiscal years beginning after
December 15, 1995. Companies are permitted to continue to account for
such transactions under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," but will be required to
disclose in a note to the financial statements pro forma net income
and, if presented, earnings per share as if the company had applied
the new method of accounting, as outlined in SFAS No. 123. The Company
has not yet determined the effect the new standard will have on net
income and earnings per share should it elect to make such a change.
Adoption of the new standard will have no effect on the Company's cash
flows.
Statement of Financial Accounting Standards No. 121 "Accounting for
the Impairment of Long- Lived Assets and for Long-Lived Assets to be
Disposed Of" 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. This Statement
is effective for financial statements for fiscal years beginning after
December 15, 1995. The effect of adopting this Statement is not
expected to be material to the Company.
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<PAGE>
Item 1. FINANCIAL STATEMENTS (continued)
(3) Acquisition of Oil and Gas Properties
On March 11, 1996, Offshore acquired a 3.125% leasehold interest in a
non-operated producing federal oil and gas lease and platform ("Block
76") located offshore Louisiana for approximately $932,000. On July
30, 1996, Offshore acquired an additional leasehold interest of
1.041667% in Block 76 for $270,000. Effective with that purchase,
Offshore's total leasehold interest in Block 76 is equal to 4.16667%.
On April 12, 1996, Offshore acquired various leasehold interests in 31
oil wells located in Mississippi and Louisiana ("Mississippi
Properties") for a net purchase price of approximately
$2,800,000,which includes 23 wells to be operated by Drilling. Due to
the timing of closing the acquisition, the March 1996 revenues and
related lease operating expenses have been recorded as an adjustment
to the acquisition price.
(4) Long-Term Debt
On March 8, 1996, the Company executed a loan agreement with Comerica
Bank - Texas ("Comerica") which provides a new senior credit facility
("Senior Credit Facility") in an aggregate principal amount of up to
$10,000,000, with an initial borrowing facility of $4,967,000 (the
"Borrowing Base"). The Senior Credit Facility was used to refinance
the Company's existing senior indebtedness of $1,575,000 and provide
$900,000 to purchase the 3.125% working interest in Block 76 on March
11, 1996.
On March 26, 1996, the Company acquired various leasehold interests in
three gas wells located in Wheeler County, Texas for a net purchase
price of approximately $370,500, of which approximately $320,500 was
financed with Comerica.
Comerica financed approximately $1,100,000 of the approximate
$2,800,000 acquisition price of the Mississippi Properties on April
12, 1996. Approximately, $300,000 was funded from working capital for
the closing on April 12, 1996. By agreement with the seller, the
remaining balance of approximately $1,405,000 was financed by a
seller's note ("Sellers Note") due with interest on August 30, 1996.
Under terms of the Senior Credit Facility, the Borrowing Base will be
redetermined by the lender each year on February 1, or sooner, if
requested by the Company. In August 1996, the Company requested
Comerica to increase the Borrowing Base to facilitate funding the
Sellers Note due on August 30, 1996. On August 30, 1996, Comerica and
the Company agreed to increase the Borrowing Base to $5,350,000. The
Borrowing Base is determined by the lender, in its sole discretion,
using procedures and standards customary for its petroleum industry
customers, and represents the amount of borrowings which in the
lender's opinion the Company's oil and gas properties will support. On
August 30, 1996, the Sellers Note of approximately $1,451,000 was paid
with $1,200,000 of additional financing from Comerica and $251,000 of
the Company's working capital. As of August 31, 1996, the Company's
outstanding balance under the Senior Credit Facility is $5,350,000.
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<PAGE>
Under the terms of the Senior Credit Facility, the initial monthly
reductions to the Borrowing Base of $82,000 commenced April 1, 1996
and continued to August 1, 1996. On August 30, 1996, Comerica adjusted
the monthly reductions to the Borrowing Base to $75,000 to commence
October 1, 1996 through February 1, 1997. Beginning March 1, 1997, the
Borrowing Base will be subject to monthly reductions of $110,000
through January 1, 1998. When the outstanding principal under the
Senior Credit Facility exceeds the Borrowing Base, the Company must
make principal payments to reduce the outstanding balance equal to or
less then the Borrowing Base. On February 1, 1998, which is the
maturity date of the Senior Credit Facility, the principal then
outstanding shall be due and payable. The interest rate to be charged
on the outstanding principal balance is based on Comerica's prime rate
plus 1%. All of the Company's interests (direct or indirect) in
existing oil and gas properties, miscellaneous assets, and future oil
and gas property acquisitions will serve as collateral for the credit
facility. The Senior Credit Facility contains various restrictions
including, but not limited to, restrictions on payments of dividends
or distributions other than those capital distributions to Buschman
and the Hightowers in GulfMex, maintenance of positive working
capital, and no change in the majority ownership or current President
of the Company.
Comerica's commitment to provide the Company a Senior Credit Facility
required that the Company obtain certain modifications and amendments
from the holders ("Holders") of the 11.50% Subordinated Notes (the
"Notes") dated September 27, 1995 before the Comerica loan agreement
could be concluded. Such consents and amendments were approved by the
Holders on March 8, 1996. The repayment terms of the Notes were
amended to provide for a final maturity on September 30, 2002 (instead
of September 30, 2000) and the quarterly amortization of principal
over four years, commencing in December 1998, at annual rates of
12.5%, 12.5%, 37.5% and 37.5% of the original principal amount
(instead of amortization of principal over three years, commencing in
December 1997, at annual rates of 12.5%, 37.5% and 50% of the original
principal amount).
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, 1996 through the six
months ended July 31, 1996, except for the
acquisition of various oil and gas properties, the
restructuring of subordinated debt and the execution
and funding of a new loan agreement with Comerica
which increased the outstanding debt of the Company
as described herein.
2. Material Changes in Results of Operations.
Oil and Gas Production Segment
For the quarter and six months ended July 31, 1996,
revenues from oil and gas production were
approximately $1,244,000 and $2,393,000,
respectively, as compared to $900,000 and $1,928,000,
for the quarter and six months ended July 31, 1995.
Production operating expenses for the quarter and six
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<PAGE>
months ended July 31, 1996 were approximately
$606,000 and $1,147,000, respectively, as compared to
the production operating expenses of $506,000 and
$985,000, respectively, for the quarter and six
months ended July 31, 1995. The increase in revenues
is due primarily to additional revenues of
approximately $627,000 earned as the result of the
oil and gas properties acquired in March and April
1996. The increase in production operating expenses
is due to the additional properties acquired during
the first quarter of 1996 but was partially offset by
reduced production operating expenses on existing
properties.
The Company utilizes the successful efforts method of
accounting for its oil and gas properties.
Amortization expenses for the quarter and six months
ended July 31, 1996 based on the unit-of-production
method were approximately $232,000 and $451,000,
respectively, for 464 and 855 MMCF equivalent units
of production. Amortization expenses for the quarter
and six months ended July 31, 1995, were
approximately $313,000 and $645,000, respectively,
for 480 and 989 MMCF equivalent units of production.
Interest expense for the quarter and six months ended
July 31, 1996 was approximately $152,000 and
$267,000, respectively. Interest expense for the
quarter and six months ended July 31, 1995 was
approximately $65,000 and $143,000, respectively. For
the quarter and the six months ended July 31, 1996,
interest expense increased due to the addition of
approximate $2,600,000 bank debt which was used for
the acquisition of oil and gas properties during the
period ended July 31, 1996, the $1,405,000 Sellers
Note executed in April 1996, and the issuance in
September 1995 of approximately $2,000,000, 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 quarter and six months ended July 31, 1996
was approximately 9.75% and 10.0%, respectively.
Recent Operating Developments
The Company operates a number of wells in the KWB
Field in West Texas, in which Offshore has
approximately 80% of the working interest. The
Company initiated a pilot secondary recovery
waterflood project in that field by drilling a pilot
development well and converting surrounding
production wells to water injection wells. The
waterflood pilot test was initially delayed in
December 1995 but the water injection has been
proceeding since January 1996. While the water
injection wells are causing a build-up in reservoir
pressure, no material additional incremental oil
production has been experienced in the pilot
development well since the well was initially
drilled.
The Company expected that it would take from six
months to one year before any noticeable increase in
secondary recovery production, if any, would be
realized. If the waterflood pilot proves successful,
the projected number of additional development wells
drilled would be 29 with projected development costs
to the Company of approximately $5,800,000 and a
projected increase in reserves of 1,100,000 bbls of
oil equivalent. Should the waterflood pilot prove to
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<PAGE>
be economical, the Company would likely abandon the
field. The Company anticipates that the sale of
salvageable equipment would exceed plugging and
abandonment expense for the existing production and
water injection wells. The Company has expended
approximately $263,000 to date for the KWB pilot
waterflood.
The Company attempted reworking three gas wells in
Wheeler County, Texas during 1996 by recompleting the
wells in the Granite Wash production intervals.
Although drilling logs and information gathered from
adjacent gas wells which produced in the same horizon
indicated good production potential, the Company
encountered unexpected conditions in the wellbore
which caused an incursion of water. The Company's
effort to remedy the water incursion in the targeted
production intervals proved unsuccessful. Two of the
gas wells are producing from the Granite Wash, but
the production is marginally economical. To date the
Company has expended approximately $438,000 for the
workover and completion efforts of these wells, of
which approximately $382,000 has been expensed as dry
hole costs.
On April 30, 1996, production from Block 76 was
suspended due to mechanical problems incurred with
the production equipment. In late June 1996, the
operator of Block 76 began a major workover to the
well which was successfully completed in mid-July
1996. The total cost for the workover was budgeted at
approximately $1.6 million, however the actual
workover cost incurred was approximately $2,200,000
of which the Company's share was approximately
$70,000. Production from Block 76 has been restored
to the level of production prior to the shut-in.
Liquidity and Capital Resources
In March 1996, the Company entered into a commitment
letter with a new lender to replace the Company's
then existing bank indebtedness of approximately
$1,575,000. The commitment letter required that the
Company obtain certain modifications and amendments
from the Holders before the new credit facility could
be concluded. Such consents and amendments were
approved by the Holders on March 8, 1996. As amended,
the Notes provide for a final maturity on September
30, 2002 (instead of September 30, 2000) and the
quarterly amortization of principal over four years,
commencing in December 1998, at annual rates of
12.5%, 12.5%, 37.5% and 37.5% of the original
principal amount (instead of amortization of
principal over three years, commencing in December
1997, at annual rates of 12.5%, 37.5% and 50% of the
original principal amount). In addition to other
provisions amended, the exercise price of the
warrants granted was reduced from $.40 per share to
$.20 per share.
The Company's new Senior Credit Facility provides for
up to $10,000,000 in borrowings, subject to
limitations on availability as a result of the
Borrowing Base determination. Under the Senior Credit
Facility, the initial borrowing base ("Borrowing
Base") was $4,967,000. The Borrowing Base will be
redetermined by the lender each year on February 1 or
sooner, if specially requested by the Company. The
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Borrowing Base is an amount as determined by the
lender, at its sole discretion, using procedures and
standards customary for its petroleum industry
customers, as the amount which the Company's oil and
gas properties will support the principal balance
outstanding under the Senior Credit Facility. In
August 1996, the Company requested an increase of the
Borrowing Base. Effective August 30, 1996, the
Borrowing Base was increased to $5,350,000. Initial
proceeds from the Borrowing Base were used to
refinance the Company's existing senior indebtedness
of $1,575,000 on March 11, 1996 and provide $900,000
to purchase a 3.125% working interest in Block 76
located offshore Louisiana. The Block 76 acquisition
increased the Company's net proved gas reserves by
927,000 mcf. Block 76 consists of only one offshore
well and therefore presents a greater degree of risk
than the acquisition of multiple properties.
On March 26, 1996, Offshore acquired leasehold
interests in three gas wells located in Wheeler
County, Texas for a net purchase price of
approximately $370,500. Funds of $320,500 from the
Borrowing Base and working capital of $50,000 were
used by the Company to make the acquisition of these
wells. The total net proved reserves acquired by this
acquisition were 3,000 bbls oil and condensate and
868,000 mcf gas. Drilling operates these gas wells.
On April 12, 1996, Offshore acquired the Mississippi
Properties, which includes 23 wells operated by
Drilling, for an acquisition price of approximately
$2,800,000. The total net proved reserves acquired
were 725,000 bbls oil and condensate. At closing, the
Company funded half of the acquisition price with
approximately $1,100,000 from the Borrowing Base and
approximately $300,000 of working capital. By
agreement with the seller, the remaining half of the
acquisition price of approximately $1,405,000 was
financed by the Sellers Note payable with interest at
prime on August 30, 1996.
On July 31, 1996, Offshore acquired an additional
1.041667% working interest in Block 76 for $270,000
which was financed by Comerica. This additional
working interest increased the Company's net proved
gas reserves by approximately 300,000 mcf.
Under the terms of the Senior Credit Facility,
monthly reductions to the Borrowing Base of $82,000
commenced April 1, 1996 and continued through August
1, 1996. Beginning October 1, 1996 through February
1, 1997, the Borrowing Base will be subject to
monthly reductions of $75,000. Beginning March 1,
1997, the Borrowing Base will be subject to monthly
reductions of $110,000 through January 1, 1998. When
the outstanding principal under the Senior Credit
Facility exceeds the Borrowing Base, the Company must
make principal payments to reduce the outstanding
balance equal to or less then the Borrowing Base. On
February 1, 1998, which is the maturity date of the
Senior Credit Facility, the principal debt then
outstanding shall be due and payable. The interest
rate to be charged on the outstanding principal
balance is based on the lender's prime rate plus 1%.
All of the Company's interests (direct and indirect)
in existing oil and gas properties, miscellaneous
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assets, and future oil and gas property acquisitions
serve as collateral for the Senior Credit Facility.
The Senior Credit Facility contains various
restrictions including, but not limited to,
restrictions on payments of dividends or
distributions other than capital distributions to
Buschman and the Hightowers in GulfMex, maintenance
of positive working capital, and no change in the
majority ownership or the President of the Company.
The Company's ability to meet its current financial
commitments, including those imposed by the Senior
Credit Facility and other existing debt agreements,
and to have access to additional working capital to
operate and develop its existing oil and gas
properties is principally dependent on the market
prices for oil and natural gas, the production levels
of the Company's properties, and the success of the
development program commenced by the Company. As of
August 31, 1996, the Company's outstanding borrowings
under the Senior Credit Facility equated to the
Borrowing Base, and thus no additional borrowing
capacity exists under the Senior Credit Facility. To
supplement internally generated funds and permit the
Company to expand its acquisition and development
efforts, the Company continues to evaluate sources of
additional financing, which could include additional
indebtedness, equity infusion, off balance sheet
financing, or some combination of the above. However,
the Company has no commitment for additional
financing and there can be no assurance that the
Company will be successful in obtaining financing
when and as required. If the Company is unable to
obtain additional financing when needed, it would
consider, among other alternatives, sale of certain
of its leasehold interests for additional capital,
the curtailment of property acquisitions or
development activities until internally generated
funds become available, or other strategic
alternatives in an effort to meet its financial
requirements.
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.
Forward-looking Statements
Forward-looking statements in this Quarterly Report
are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995.
There are certain important factors that could cause
results to differ materially from those anticipated
by some of the statements made above. Investors are
cautioned that all forward-looking statements involve
risks and uncertainty. In addition to the factors
discussed above, among the other factors that could
cause actual results to differ materially are the
following: market dynamics, availability of
financing, production levels, and success of
development programs. Additional information
concerning those and other factors are contained in
the Company's Securities and Exchange Commission
filings, including but not limited to the Form
10-KSB, copies of which are available from the
Company without charge.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS None.
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Item 2. CHANGES IN SECURITIES
On September 16, 1996, the Company amended its Certificate of
Incorporation to provide that the Company had the authority to
issue a total of 12,000,000 shares of Common Stock and
3,000,000 shares of Preferred Stock. The amendment was
approved by the Company's stockholders at the Annual Meeting
held July 1, 1996, as reported under Item 4 of Part II of this
report. The full text of the amendment is attached as an
exhibit to this report.
Item 3. DEFAULTS UPON SENIOR SECURITIES None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders was held on July 1, 1996.
The slate of directors recommended by the Management of the
Company were: Robert A. Buschman, Guy Bob Buschman, John G.
Hurd, H. M. Shearin, Jr., Hobby A. Abshier and Ralph F. Cox.
1. Approval of the selection of the slate of Directors
to serve for a term of one year or to the date of
the next annual meeting.
Shareholders present or entitled to vote for
the approval of the slate of Directors as
presented by management, voted 4,666,329
shares in favor of slate of the Directors.
The shareholders voted as follows:
For Against Abstained Not Voted
Robert A. Buschman 4,666,329 1,500 0 884,931
Guy Bob Buschman 4,666,329 1,500 0 884,931
John G. Hurd 4,666,329 1,500 0 884,931
H. M. Shearin, Jr. 4,666,329 1,500 0 884,931
Hobby A. Abshier 4,666,329 1,500 0 884,931
Ralph F. Cox 4,666,329 1,500 0 884,931
2. Approval of the total number of authorized shares the
Company will have authority to issue to 12,000,000
shares of Common Stock and 3,000,000 shares of
Preferred Stock.
Shareholders present or entitled to vote for
the approval of the increase in total shares
voted 4,149,484 shares in favor which
constituted more than a majority of the
total number of shares entitled to vote on
this matter. The shareholders voted as
follows:
For: 4,149,484 Against: 2,400 Abstained: 960 Not Voted: 1,399,916
3. Approval of the selection of KPMG Peat Marwick as
the Company's auditors for the fiscal year
commencing February 1, 1996.
Shareholders present or entitled to vote for
the resolution voted 4,666,389 shares in
favor of the resolution which constituted
more than a majority of the total number of
shares entitled to vote on this matter. The
shareholders voted as follows:
For: 4,666,389 Against: 1,300 Abstained: 140 Not Voted: 884,931
-13-
<PAGE>
Item 5. OTHER INFORMATION None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits listed on the accompanying Index to
Exhibits on page E-1 are filed as part of this Form
10-QSB. The Company will furnish a copy of any
exhibit to a requesting shareholder upon payment of a
fee of $.25 per page.
(b) Reports on Form 8-K
June 26, 1996 Financial Statements - Statements of
Revenues and Direct Operating Expenses
of certain oil and gas properties of
Belle Oil, Inc. Pro Forma Financial
Information - Pro Forma Condensed
Combined Statements of Operations.
-14-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
RIO GRANDE, INC.
Date: September 16, 1996 By: /s/ Guy R. Buschman
----------------------
Guy R. Buschman, President
Date: September 16, 1996 By: /s/ Gary Scheele
---------------
Gary Scheele, Secretary and Treasurer
(principal financial officer)
-15-
<PAGE>
INDEX TO EXHIBITS
The following exhibits are numbered in accordance with Item 601 of Regulation
S-B:
3(a) Certificate of Incorporation of the Company (incorporated by reference
to Exhibit 3(a) to Form 8-K dated December 29, 1986 (File No. 1-8287).
3(b) Bylaws of the Company (incorporated by reference to Exhibit 3(b) to
Form 8-K dated December 29, 1986 (File No. 1-8287).
3(c) Certificate of Amendment of Certificate of Incorporation of the
Company (E-3).
4(a) Specimen stock certificate (incorporated by reference to Exhibit 4(a)
to Form 8-K dated December 29, 1986 (File No. 1-8287).
4(b) Specimen Stock Purchase Warrant (incorporated by reference to Exhibit
4(b) to form 8-K dated December 29, 1986 (File No. 1- 8287).
4(c) 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 (incorporated herein
by reference from October 31, 1995 Form 10-QSB).
4(d) Form of Common Stock Purchase Warrant issued in connection with the
Offering described in this report (incorporated herein by reference
from October 31, 1995 Form 10-QSB).
4(e) Amendments to Note Purchase Agreement, by and among the Company,
Drilling and the Holders (incorporated herein by reference from March
26, 1996 Form 8-K).
4(f) Amendments to Notes, by and among the Company and the Holders
(incorporated herein by reference from March 26, 1996 Form 8-K).
4(g) Consents to Proposed Transactions by the Holders to the Company
(incorporated herein by reference from March 26, 1996 Form 8-K).
4(h) Amendment to Warrant Agreement among the Company and the Holders
(incorporated herein by reference from March 26, 1996 Form 8-K).
10(a) Asset Purchase Agreement dated June 26, 1992 by and between SHV Oil
and Gas Company and Rio Grande Drilling Company.
10(b) Agreement of Limited Partnership dated June 25, 1992 for Rio Grande
Offshore, Ltd. between Rio Grande Drilling Company, Robert A.
Buschman, H. Wayne Hightower and H. W. Hightower, Jr.
10(c) Loan Agreement by and between International Bank of Commerce and Rio
Grande Drilling Company dated June 26, 1992.
E-1
<PAGE>
10(d) Purchase and Sale Agreement dated May 24, 1995, between Newfield
Exploration Company and Rio Grande Offshore, Ltd. for the sale of
Ewing Bank Blocks 947/903 and Ship Shoal Block 356 at a sales price of
$1,200,000 (incorporated by reference from July 31, 1995 Form 10-QSB).
10(e) Consulting Agreement dated August 10, 1995, between Hobby A. Abshier
and Rio Grande, Inc. (incorporated by reference from July 31, 1995
Form 10-QSB).
10(f) Closing Agreement between Fortune Petroleum Corporation, Pendragon
Resources, L.L.C. and Rio Grande Offshore, Ltd. dated March 6, 1996
for the acquisition of South Timbalier Block 76 (incorporated by
reference from March 26, 1996 Form 8-K).
10(g) Loan Agreement between Comerica Bank-Texas, Rio Grande, Inc. and Rio
Grande Drilling Company dated March 8, 1996 for a senior credit
facility of $10,000,000 (incorporated herein by reference from March
26, 1996 Form 8-K).
10(h) Purchase and Sale Agreement between Belle Oil, Inc., Belle
Exploration, Inc., Louisiana Well Service Co., Alton J. Ogden, Jr.,
Alton J. Ogden, Sr., Jeff L. Burkhalter and Rio Grande Offshore, Ltd.
(incorporated herein by reference from April 29, 1996 Form 8-K).
27 Financial Data Schedule (E-6).
99(a) Private Offering Memorandum of the Company dated August 27, 1995
(incorporated herein by reference from October 31, 1995 Form 10-QSB).
E-2
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
RIO GRANDE, INC.
Rio Grande, Inc. (the "Corporation"), a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation has duly
adopted a resolution setting forth the following proposed
amendment to the Certificate of Incorporation of the
Corporation, declaring said amendment to be advisable and
providing for such amendment to be submitted to a vote of
the stockholders of the Corporation. The resolution setting
forth the proposed amendment is set forth below:
RESOLVED: That Section 4 of the Corporation's Certificate of
Incorporation be amended to read, in its entirety, as
follows:
4. The total number of shares of stock which the
Corporation shall have authority to issue is
15,000,000 shares, consisting of (a) 12,000,000
shares of Common Stock, par value of $.0l per
share (the "Common Stock"), and (b) 3,000,000
shares of preferred stock, par value $.0l per
share (the "Preferred Stock").
The Board of Directors of the Corporation (the
"Board of Directors") is expressly authorized, at
any time and from time to time, to fix, by
resolution or resolutions, the following
provisions for shares of any class or classes of
Preferred Stock of the Corporation or any series
of any class of Preferred Stock:
(a) the designation of such class or series, the
number of shares to constitute such class or
series and the stated value thereof if
different from the par value thereof;
(b) whether the shares of such class or series
shall have voting rights, which may (i) be
general or limited, (ii) subject to
applicable law or regulation including,
without limitation, the rules of any
securities exchange on which securities of
any class of the Corporation may be listed,
permit more than one vote per share, or (iii)
E-3
<PAGE>
vary among stockholders of the same class
based upon such factors as the Board of
Directors may determine including, without
limitation, the size of a stockholder's
position and/or the length of time with
respect to which such position has been held;
(c) the dividends, if any, payable on such class
or series, whether any such dividends shall
be cumulative, and, if so, from what dates,
the conditions and dates upon which such
dividends shall be payable, the preference or
relation which such dividends shall bear to
the dividends payable on any shares of stock
of any other class or any other series of the
same class;
(d) whether the shares of such class or series
shall be subject to redemption by the
Corporation, and, if so, the times, prices
and other conditions of such redemption;
(e) the amount or amounts payable upon shares of
such class or series upon, and the rights of
the holders of such class or series in, the
voluntary or involuntary liquidation,
dissolution or winding up, or upon any
distribution of the assets, of the
Corporation;
(f) whether the shares of such class or series
shall be subject to the operation of a
retirement or sinking fund and, if so, the
extent to and manner in which any such
retirement or sinking fund shall be applied
to the purchase or redemption of the shares
of such class or series for retirement or
other corporate purposes and the terms and
provisions relative to the operation thereof;
(g) whether the shares of such class or series
shall be convertible into, or exchangeable
for, shares of stock of any other class or
any other series of the same class or any
other securities (including the Common Stock)
and, if so, the price or prices or the rate
or rates of conversion or exchange and the
method, if any, of adjusting the same, and
any other terms and conditions of conversion
or exchange;
(h) the limitations and restrictions, if any, to
be effective while any shares of such class
or series are outstanding upon the payment of
dividends or the making of other
distributions on, and upon the purchase,
redemption or other acquisition by the
Corporation of, the Common Stock or shares of
stock of any other class or any other series
of the same class;
(i) the conditions or restrictions, if any, upon
the creation of indebtedness of the
Corporation or upon the issuance of any
additional stock, including additional shares
E-4
<PAGE>
of such class or series or of any other
series of the same class or of any other
class;
(j) the ranking (be it pari passu, junior or
senior) of each class or series vis-a-vis any
other class or series of any class of the
Preferred Stock as to the payment of
dividends, the distribution of assets and all
other matters; and
(k) any other powers, preferences and relative,
participating, optional and other special
rights, and any qualifications limitations
and restrictions thereof, insofar as they are
not inconsistent with the provisions of this
Certificate of Incorporation, to the full
extent permitted in accordance with the laws
of the State of Delaware.
The powers, preferences and relative,
participating, optional and other special rights
of each class or series of the Preferred Stock,
and the qualifications, limitations or
restrictions thereof, if any, may differ from
those of any and all other classes or series at
any time outstanding.
SECOND: That pursuant to such resolution of the Board of Directors,
such resolution was submitted to a vote of the stockholders
of the Corporation in accordance with the General
Corporation Law of Delaware and the necessary number of
shares as required by statute voted in favor of the
amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Guy Bob Buschman, President, and Gary Scheele, Secretary, this day of
September, 1996.
RIO GRANDE, INC.
By: /s/
___________________
Guy Bob Buschman, President
ATTEST:
/s/
__________________________
Gary Scheele, Secretary
E-5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(This schedule contains summary financial information extracted from
this July 31, 1996 Form 10-QSB)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Jan-31-1997
<PERIOD-END> Jul-31-1996
<CASH> 380180
<SECURITIES> 0
<RECEIVABLES> 1107150
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1496562
<PP&E> 11637773
<DEPRECIATION> 3320932
<TOTAL-ASSETS> 11066883
<CURRENT-LIABILITIES> 3697817
<BONDS> 4757951
0
0
<COMMON> 55528
<OTHER-SE> 1416578
<TOTAL-LIABILITY-AND-EQUITY> 11066883
<SALES> 2393156
<TOTAL-REVENUES> 2393156
<CGS> 1968657
<TOTAL-COSTS> 2623579
<OTHER-EXPENSES> 655222
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 266780
<INCOME-PRETAX> (380432)
<INCOME-TAX> 3891
<INCOME-CONTINUING> (384323)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (384323)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
