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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, 1998
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 1, 1998 there were 6,177,432 shares of the registrant's common
stock outstanding.
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
RIO GRANDE, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (unaudited)
July 31, 1998
-------------
Assets
Current assets:
Cash and cash equivalents $ 286,986
Trade receivables 552,385
Prepaid expenses 37,247
------------
Total current assets 876,618
------------
Property and equipment, at cost:
Oil and gas properties, successful efforts method 26,825,517
Transportation equipment 92,875
Other depreciable assets 411,055
------------
27,329,447
Less accumulated depreciation, depletion and amortization (18,911,037)
------------
Net property and equipment 8,418,410
------------
Other assets:
Platform abandonment fund 355,843
Other assets, net 414,077
-----------
769,920
$ 10,064,948
============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 752,388
Accrued expenses 567,351
Long-term debt 13,200,970
------------
Total current liabilities 14,520,709
------------
Other accrued expenses 511,675
Minority interest in limited partnership 152,764
Redeemable preferred stock, $0.01 par value; $10
redemption value. Authorized 1,700,000 shares; issued
and outstanding 1,017,500 shares 11,185,613
Common stock of $0.01 par value. Authorized
10,000,000 shares; issued and outstanding
6,073,320 shares 61,774
Deficit (16,367,587)
-----------
Total stockholders' deficit (5,120,200)
-----------
$ 10,064,948
============
See accompanying notes to consolidated financial statements.
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Item 1. FINANCIAL STATEMENTS (continued)
RIO GRANDE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (unaudited)
Three Months Six Months
Ended Ended
July 31, July 31,
------------------------ -------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Oil and gas sales $ 1,127,521 1,804,339 2,307,062 3,738,565
---------- --------- --------- ----------
Costs and expenses:
Lease operating and
other production expense 529,534 936,563 1,289,241 1,772,623
Dry hole costs and lease
abandonments 8,224 63 89,304 63
Depletion of oil and gas
producing properties, including
provision for impairments 148,320 633,823 629,930 1,228,456
Depreciation and other
amortization 53,498 60,532 109,953 117,898
Provisions for abandonment
expense 11,100 10,500 22,200 21,000
General and administrative 372,116 431,712 745,423 804,593
---------- ---------- ----------- ----------
Total costs and expenses 1,122,792 2,073,193 2,886,051 3,944,633
---------- ---------- ----------- ----------
Gain from operations 4,729 (268,854) (578,989) (206,068)
---------- ---------- ---------- ----------
Other income (expense):
Interest expense (383,652) (285,269) (754,787) (546,250)
Interest income 4,480 19,820 4,983 50,969
Gain on sale of assets, net (10,289) 11,775 252,074 11,775
Other, net 3,192 608 2,714 9,934
Minority interest in earnings
of limited partnership (6,676) (9,145) (17,325) (30,945)
----------- --------- ---------- ---------
Total other income
(expense) (392,945) (262,221) (515,341) (504,517)
----------- ---------- ---------- ---------
Loss before income taxes (388,216) (531,065) (1,091,330) (710,585)
Income taxes 1,757 57,176 6,013 59,018
---------- ---------- ---------- ----------
Net loss (389,973) (588,241) (1,097,343) (769,603)
Dividends on preferred stock (266,978) (200,258) (517,414) (400,358)
---------- --------- ----------- ---------
Net loss applicable to common
stock $ (656,951) (788,499) (1,614,757) (1,169,961)
========= ========= =========== ===========
Loss per share,
Basic and diluted $ (0.11) (0.14) (0.26) (0.20)
========= ========= ============ ==========
Common shares outstanding,
Basic and diluted 6,177,432 5,800,592 6,177,432 5,737,401
========== ========== ========= ==========
See accompanying notes to consolidated financial statements.
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Item 1. FINANCIAL STATEMENTS (continued)
RIO GRANDE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
Six Months
Ended
July 31,
1998 1997
---- ----
Cash flows from operating activities:
Loss from continuing operations $ (1,097,343) (769,603)
Adjustments to reconcile loss from
continuing operations to net cash
provided by operating activities:
Depreciation and other amortization 109,953 117,898
Depletion of oil and gas producing properties 629,930 1,228,456
Provision for abandonment expense 22,200 21,000
Gain on sale of assets (252,074) (11,775)
Minority interest in earnings of limited
partnership 17,325 30,945
Decrease (increase) in trade receivables 284,458 822,142
Decrease (increase) in prepaid expenses (20,393) (96,197)
Increase (decrease) in accounts payable and
accrued expenses 81,176 481,086
Increase (decrease) in other accrued platform
abandonment expense (2,507) (8,519)
Net cash provided by (used in) continuing operating
activities (227,275) 1,815,433
--------- ---------
Cash flows from investing activities:
Purchase of oil and gas producing properties (268,227) (2,950,174)
Purchase of other property and equipment - (70,035)
Deletions from (additions to) platform abandonment
fund 7,775 64,535
Deletions from (additions to) other assets - (22,180)
Proceeds from sale of property and equipment 495,024 26,017
------- --------
Net cash provided by (used in) investing activities 234,572 (2,951,837)
------- ----------
Cash flows from financing activities:
Proceeds from long-term debt - 552,619
Repayment of long-term debt (50,902) (24,469)
Cash dividends on preferred stock - (220,377)
Proceeds from issuance of common stock - 58,997
Contributions from limited partners - 95,570
Distributions to limited partners (9,542) (61,400)
------- -----------
Net cash provided by (used in) financing activities (60,444) (400,940)
------- ------------
Net increase (decrease) in cash and cash equivalents (53,147) (735,464)
Cash and cash equivalents at beginning of period 340,133 1,045,331
------- -----------
Cash and cash equivalents at end of period $286,986 309,867
======== ==========
See accompanying notes to consolidated financial statements.
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RIO GRANDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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, 1998 are
incorporated herein by reference.
The consolidated financial statements include the accounts of Rio
Grande, Inc. (the "Company") and its subsidiaries and majority-owned
limited partnerships as follows:
Form of Ownership
Name Organization Interest
---- ------------ ----------
Rio Grande Drilling Company Texas Corporation 100%
("Drilling")
Rio Grande Desert Oil Company Nevada Corporation 100%
("RG-Desert")
Rio Grande Offshore, Ltd. Texas Limited Partnership 100%
("Offshore")
Rio Grande GulfMex, Ltd. Texas Limited Partnership 80%
("GulfMex")
As a result of the Company's 80% ownership interest, GulfMex's
financial statements are consolidated with the Company's financial
statements. The minority interests of the outside limited partners 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
consolidation.
In the opinion of management, the consolidated 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, 1998 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.
Capitalized costs of proved properties are periodically reviewed for
impairment on a property by property basis, and, if necessary, an
impairment provision is recognized to reduce the net carrying amount of
such properties to their estimated fair values. Fair values for the
properties are based on
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future net cash flows as reflected by the year end reserve report.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128, "Earnings Per Share", which establishes standards
for computing and presenting earnings per share. This standard,
effective for financial statements issued for periods ending December
15, 1997, replaces the presentation of primary earnings per share with
a presentation of basic earnings per share. This standard requires dual
presentation of basic and diluted earnings per share on the face of the
statement of operations.
Basic net earnings (loss) per common share is computed by dividing net
loss by the weighted average number of common shares outstanding.
Diluted earnings (loss) per share is computed by assuming the issuance
of common shares for all dilutive potential common shares outstanding.
Impairment of Long-Lived Assets
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" requires that long-lived
assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. This new pronouncement was adopted effective February 1,
1996.
The Company recognized an $8.6 million non-cash writedown of oil and
gas properties for the year ended January 31, 1998. The impairment loss
was due primarily as a result of the shift in the reserve
classification of Righthand Creek from proved to probable and possible
based upon the determination that the field's primary source of energy
is fluid expansion and not water drive. The decline in oil prices also
contributed to the present value of future cash flows of proved oil
reserves declining as of January 1, 1998. No adjustment for impairment
has been made to the carrying value of the oil and gas properties
during the six months ended July 31, 1998. The Company believes that
the carrying value of the oil and gas properties approximates the
current market value.
Year 2000
The Company has not addressed the impact of the Year 2000 on its
computer systems and applications. The Company does not expect the cost
of becoming Year 2000 compliant to be significant; however, due to its
current financial condition, no Year 2000 plan has been developed.
Recently Issued Accounting Pronouncement
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" which establishes standards
for the way that public business enterprises report information about
operating segments in annual financial statements and requires that
those enterprises report selected information about operating segments
in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and
services, geographic areas, and major customers. The Company believes
that SFAS No. 131 will not have a material impact on its financial
statements and disclosures.
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<PAGE>
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which established standards of
accounting and reporting for derivative instruments and for hedging
activities. It requires that all derivatives be recognized as either
assets and liabilities in the statement of financial position and
measures these instruments at fair value. This statement is effective
for financial statements for periods beginning June 15, 1999. The
Company believes that SFAS No. 133 will not have a material impact on
its financial statements and disclosures.
(2) Recent Developments, Capital Resources and Liquidity
Statements in this Annual Report including those contained in the
foregoing discussion and other items herein, concerning the Company
which are (a) statements of plans and objectives for future operations,
(b) statements of future economic performance, or (c) statements of
assumptions or estimates underlying or supporting the foregoing are
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. The ultimate accuracy of forward-looking statements is subject
to a wide range of business risks and changes in circumstances, and
actual results and outcomes often differ from expectations. Any number
of important factors could cause actual results to differ materially
from those in the forward- looking statements herein, including the
following: the timing and extent of changes in crude oil and natural
gas prices; actions of the Company's purchasers and competitors;
changes in the cost or availability of pipelines and other means of
transporting products; state and federal environmental, economic,
safety and other policies and regulations, any changes therein, and any
legal or regulatory delays or other factors beyond the Company's
control; weather conditions affecting the Company's operations or the
areas in which the Company's products are marketed; future well
performance; the extent of the Company's success in acquiring oil and
gas properties and in discovering, developing and producing reserves;
political developments in foreign countries, the conditions of the
capital markets and equity markets during the periods covered by the
forward-looking statements. The Company undertakes no obligation to
publicly release the result of any revisions to any such
forward-looking statements that may be made to reflect the events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
The Company received a Borrowing Base Determination Notice in January
1998 advising the Company that effective February 1, 1998, the
Company's Borrowing Base had been redetermined to be $6,500,000. The
balance of the Company's outstanding indebtedness with Comerica Bank -
Texas (the "Bank"), its senior lender, approximately $13,178,000,
exceeded the Borrowing Base by approximately $6,678,000 (the
"Deficiency"). Under the terms of the Senior Credit Facility, the Bank
gave notice to the Company to either provide the Bank with additional
collateral to increase the Borrowing Base, or reduce the outstanding
balance of the Company's indebtedness to an amount less than or equal
to the redetermined Borrowing Base.
The Company entered into a subsequent letter agreement with the Bank in
March 1998 which extended to the close of business on April 3, 1998 to
eliminate the Deficiency or reach other accommodations with the Bank.
For and in consideration of the extension to April 3, 1998, the Company
agreed to execute certain supplemental documents pertaining to
collateral properties; pay an extension fee of $25,000 on or before
April 3, 1998; terminate its ability to utilize the Eurodollar Rate
Option under the Loan Agreement; increase the applicable interest rate
to prime rate plus three percent; execute a letter waiving compliance
with the working capital covenant for the month of November 1997; pay
the Bank specified legal and engineering expenses and furnish the Bank
with copies of any agreements
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related to any proposed refinancing.
Subsequently, the Company received from the Bank, a "Notice of Defaults
and Events of Default" whereby the Bank declared the entire outstanding
principal balance of the Senior Credit Facility and all interest
accrued thereon to be immediately due and payable. In addition, the
Bank advised the Company that it intended to pursue all remedies
available in law and in equity, including but not limited to,
foreclosure proceedings in order to collect all amounts due. The Bank
also submitted "Letters in Lieu of Transfer Order and Division Order"
to certain purchasers and marketing entities of the Company's oil and
gas products. The Letters in Lieu directed such purchasers to make
payments for the settlement of purchased products for specified oil and
gas properties directly to the Bank.
The Company is continuing to pursue the sales of certain or all of its
oil and gas properties; however, any significant sale of oil and gas
properties outside of a bankruptcy proceeding requires stockholder
approval, which in turn requires the preparation and circulation of a
Proxy Statement or Information Statement and the passage of
approximately twenty days between the mailing of the Statement and the
ability to effectuate any such sale.
On August 11, 1998, the Company was notified that the Bank initiated
foreclosure proceedings with regard to the Company's Texas properties
by posting the properties for foreclosure. Under applicable law, such
foreclosure was scheduled to occur on September 1, 1998. The Bank did
not foreclose on the Texas properties on September 1, 1998. The Company
is continuing its discussions with the Bank in an effort to identify
and conclude an alternative transaction which might address and resolve
in a consensual manner the Company's default under the Senior Credit
Facility. However, while those discussions are continuing, no agreement
has been reached and no assurance can be given that any agreement will
be reached which would cause the Bank to refrain from again pursuing
foreclosure on all of the Company's Texas properties, which represented
approximately sixteen percent (16%) of the Company's revenues for the
six months ended July 31, 1998, and/or pursuing remedies available to
the Bank with respect to any of the Company's other oil and gas
properties pledged as collateral for the loan. In addition to
evaluating and pursuing alternative transactions in an effort to
address the Bank's requirements, the Company continues to consider
other alternatives, including, but not limited to, non-traditional
financing transactions or seeking protection under the federal
bankruptcy laws. No assurances can be given that the Company can
identify a transaction acceptable to the Bank or that if any such
transaction can be identified, that it can be documented and concluded
successfully or in a timely manner. Any of the transactions or
occurrences described above would likely result in nominal or no value
being afforded to the interests of existing holders of the Company's
common stock.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
1. Material Changes in Financial Condition
For the six months ended July 31, 1998, the Company
incurred a net loss from operations before dividends
on preferred stock of approximately $1,097,000 as
compared to a net loss of approximately $770,000 for
the six months ended July 31, 1997. This significant
change is due primarily to decreased revenues
associated with reduced production levels and lower
oil prices as compared to 1997. Dividends of
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<PAGE>
approximately $517,000 have been accrued for the
benefit of preferred stockholders during the six
months ended July 31, 1998. The quarterly dividends
payable from August 1, 1997 through August 1, 1998 to
Koch on the Series A , Series B and Series C
Preferred Stock have not been paid.
The Company is currently in default under the terms
of its Senior Credit Facility with the Bank. The
principal balance of the Company's current
outstanding indebtedness with the Bank is
approximately $13,178,000.
On August 11, 1998, the Company was notified that the
Bank initiated foreclosure proceedings with regard to
the Company's Texas properties by posting the
properties for foreclosure. Under applicable law,
such foreclosure was scheduled to occur on September
1, 1998. The Bank did not foreclose on the Texas
properties on September 1, 1998. The Company is
continuing its discussions with the Bank in an effort
to identify and conclude an alternative transaction
which might address and resolve in a consensual
manner the Company's default under the Senior Credit
Facility. However, while those discussions are
continuing, no agreement has been reached and no
assurance can be given that any agreement will be
reached which would cause the Bank to refrain from
again pursuing foreclosure on all of the Company's
Texas properties, which represented approximately
sixteen percent (16%) of the Company's revenues for
the six months ended July 31, 1998, and/or pursuing
remedies available to the Bank with respect to any of
the Company's other oil and gas properties pledged as
collateral for the loan. In addition to evaluating
and pursuing alternative transactions in an effort to
address the Bank's requirements, the Company
continues to consider other alternatives, including,
but not limited to, non-traditional financing
transactions or seeking protection under the federal
bankruptcy laws. No assurances can be given that the
Company can identify a transaction acceptable to the
Bank or that if any such transaction can be
identified, that it can be documented and concluded
successfully or in a timely manner. Any of the
transactions or occurrences described above would
likely result in nominal or no value being afforded
to the interests of existing holders of the Company's
common stock.
2. Material Changes in Results of Operations
Revenues and Lease Operating Expenses
Oil and gas sales decreased from approximately
$3,739,000 for the six months ended July 31, 1997 to
approximately $2,307,000 for the six months ended
July 31, 1998. This decrease is due principally to a
significant drop in the average unit price of oil
from approximately $20 per bbl in the first six
months of 1997 to approximately $16 per bbl in the
same period in 1998.
Lease operating expenses have decreased from
approximately $1.8 million in 1997 to approximately
$1.3 million in 1998. Due to limited working capital
availability during the six months ended July 31,
1998, the Company has incurred only those
recompletion and operating expenses which are
necessary to maintain leasehold interests and key
producing properties.
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Depletion of Oil and Gas Producing Properties
The Company amortizes as depletion expense the
capitalized acquisition costs and the capitalized
cost of exploratory wells that find proved reserves
or the development costs that increase proved
reserves by the unit-of-production method. The
unit-of-production method assigns a pro rata portion
of the capitalized cost to each unit of reserves. The
amortization of the capitalized costs of proved
producing reserves may be computed either on a
property-by-property basis or with reference to some
reasonable aggregation of properties in the same
field area.
The Company revises the unit-of- production rate
annually based on the estimates of remaining proved
reserves prepared by independent petroleum reserve
engineers. Reserve estimates for producing oil and
gas properties are inherently imprecise and may,
therefore, change dramatically from year to year.
SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long- Lived Assets to be
Disposed Of" requires that long-lived assets and
certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
This new pronouncement was adopted effective February
1, 1996.
Based upon the evaluation of the net carrying values
of the Company's oil and gas properties relative to
future net cash flows, a charge of approximately $8.6
million to depletion expense was recorded as
impairment loss for the fiscal year ended January 31,
1998.
Since the Company significantly reduced the net
carrying values of its oil and gas properties as of
January 31, 1998, the unit-of-production rate for the
current fiscal year more closely approximates the
depletion of the remaining producing reserves of the
Company. Depletion expense for the six months ended
July 31, 1998 was approximately $630,000 as compared
to approximately $1.2 million for the six months
ended July 31, 1997.
Sales Contract
In August 1997, the Company, on behalf of Offshore,
entered into a commodity futures oil swap agreement
("Oil Swap Agreement") with Koch Oil Company. That
Oil Swap Agreement was made pursuant to an existing
Master Commodity Swap Agreement between the Company
and Koch, at no current cost to the Company, and is
termed a "Costless Put/Call Collar Option," covering
the period between February 1, 1998 and January 31,
1999. The Oil Swap Agreement is based upon 400
barrels oil per day and establishes settlement dates
on the last day of each calendar month during the
contract period. It sets a floating price equal to
Koch Oil Company's monthly average LLS posting plus
$1.50, and strike prices of $18.20 for put options
and $19.97 for call options. On any settlement date,
if the floating price is less than
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the put option strike price, then Koch must pay the
Company the price difference, multiplied by the
determination quantity for the month. On any
settlement date, if the floating price exceeds the
call option strike price, the Company must pay Koch
the difference, multiplied by the determination
quantity for the month.
Except as described above, the Company is not
obligated to provide a fixed or determinable quantity
of oil and gas in the future under any existing
contracts, agreements, hedge or swap arrangements.
Sale of Leasehold Interests
The Company is currently negotiating the sales of
certain or all of its oil and gas properties;
however, any significant sale of oil and gas
properties outside of a bankruptcy proceeding
requires stockholder approval, which in turn requires
the preparation and circulation of a Proxy Statement
or Information Statement and the passage of
approximately twenty days between the mailing of the
Statement and the ability to effectuate any such
sale. The Company has retained Energy Spectrum
Advisors, Inc. ("ESA") to assist the Company in
selling the oil and gas properties. ESA prepared a
sales brochure which details the terms and conditions
of the proposed sale and has provided a list of
prospective buyers for the Company's leasehold
interests.
The Company is obligated to pay ESA a sales fee equal
to the greater of $100,000 or $50,000 plus one
percent (1%) of the total sales consideration
received from its sale of the leasehold interests
which ESA assists in selling. In addition, ESA shall
receive a maximum of $15,000 as reimbursement for
expenses incurred pursuant to their assistance in
selling the properties, which includes the expense of
printing the sales brochure.
No assurances can be given that the Company can
identify a transaction acceptable to the Bank or that
if any such transaction can be identified, that it
can be documented and concluded successfully or in a
timely manner. Any sales or other transactions
effectuated would likely result in nominal or no
value being afforded to the interests of existing
holders of the Company's common stock.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES
None.
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Item 3. DEFAULTS UPON SENIOR SECURITIES
Series A Preferred Stock
The cash dividends of $187,500 each due on August 1, 1997
through August 1, 1998 on Series A Preferred Stock have not
been paid.
Series B Preferred Stock
The stock dividends of 17,500 shares of Series C Preferred
Stock each due on August 1, 1997 through August 1, 1998 on the
Series B Preferred Stock have not been issued.
Series C Preferred Stock
The cash dividends due on August 1, 1997 through August 1,
1998 on Series C Preferred Stock have not been paid.
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) 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.
None.
(b) Reports on Form 8-K
None.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Not Applicable.
(b) Exhibits
None.
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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 14, 1998 By: /s/ Guy R. Buschman
----------------------
Guy R. Buschman, President
Date: September 14, 1998 By: /s/ Gary Scheele
-------------------
Gary Scheele, Secretary and Treasurer
(principal financial officer)
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<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
(incorporated herein by reference from January 31, 1997 Form 10-KSB).
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).
4(i) Certificate of Designation, Preferences and Rights of Series A
Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock
of Rio Grande, Inc. dated January 15, 1997 (incorporated herein by
reference from January 31, 1997 Form 8-K).
4(j) Preferred Stock Purchase Agreement between Koch Exploration Company and
Rio Grande, Inc. dated January 16, 1997 (incorporated herein by
reference from January 31, 1997 Form 8-K).
4(k) Registration Rights Agreement between Rio Grande, Inc. and Koch
Exploration Company dated January 16, 1997 (incorporated herein by
reference from January 31, 1997 Form 8-K).
E-1
<PAGE>
4(l) Stockholders Agreement between Robert A. Buschman, Guy Bob Buschman,
Rio Grande, Inc., and Koch Exploration Company dated January 16, 1997
(incorporated herein by reference from January 31, 1997 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 (incorporated herein by
reference from July 31, 1992 Form 10-Q).
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. (incorporated herein by
reference from July 31, 1992 Form 10-Q).
10(c) Loan Agreement by and between International Bank of Commerce and Rio
Grande Drilling Company dated June 26, 1992 (incorporated herein by
reference from July 31, 1992 Form 10-Q).
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).
10(i) Engagement letter between Reid Investment Corporation and Rio Grande,
Inc. dated August 28, 1996, as exclusive agent to sell equity in Rio
Grande, Inc. (incorporated herein by reference from October 31, 1996
Form 10-QSB).
10(j) Purchase and Sale Agreement between Brechtel Energy Corporation, et al
and Rio Grande Offshore, Ltd. dated November 20, 1996 for the
acquisition of oil and gas properties located in the Righthand Creek
Field, Allen Parish, Louisiana (incorporated herein by reference from
October 31, 1996 Form 10-QSB).
10(k) First Amendment to Loan Agreement between Rio Grande, Inc., Rio Grande
Drilling Company and Comerica Bank - Texas dated January 15, 1997
(incorporated herein by reference from January 31, 1997 Form 8-K).
10(l) Employment Agreement between Rio Grande, Inc., Rio Grande Drilling
Company and Guy Bob
E-2
<PAGE>
Buschman dated January 16, 1997 (incorporated herein by reference from
January 31, 1997 Form 8- K).
10(m) Employment Agreement between Rio Grande, Inc., Rio Grande Drilling
Company and Gary Scheele dated January 16, 1997 (incorporated herein by
reference from January 31, 1997 Form 8-K).
10(n) Master Commodity Swap Agreement between Rio Grande, Inc. and Koch Oil
Company dated January 16, 1997 (incorporated herein by reference from
January 31, 1997 Form 8-K).
10(o) Participation Agreement between Mortimer Exploration Company and Rio
Grande Offshore, Ltd. for the Texas/Louisiana Yegua Project dated March
10, 1997 with attached amended letter agreement (incorporated herein by
reference from Form 10-KSB from January 31, 1997).
10(p) Confirmation of Costless Collar Put/Call Option subject to Master
Commodity Swap Agreement between Koch Oil Company and Rio Grande, Inc.,
dated August 15, 1997 (incorporated herein by reference from July 31,
1997 Form 10-QSB).
10(q) Letter Agreement between Comerica Bank - Texas and Rio Grande, Inc. and
Rio Grande Drilling Company dated December 22, 1997 (incorporated
herein by reference from October 31, 1997 Form 10-QSB).
22 The following list sets forth the name of each subsidiary or affiliate
of the Company, with the State of incorporation as noted which are
wholly-owned by the Company (except as noted):
Rio Grande Drilling Company, Texas corporation Rio Grande
Desert Oil Company, Nevada corporation Rio Grande Offshore,
Ltd., a Texas limited partnership Rio Grande GulfMex, Ltd., a
Texas limited partnership (80% interest)
27 Financial Data Schedule (E-4).
99(a) Private Offering Memorandum of the Company dated August 27, 1995
(incorporated herein by reference from October 31, 1995 Form 10-QSB).
99(b) Comerica Bank - Texas letter dated February 18, 1998, regarding waiver
letter concerning non-compliance with working capital covenant for
month of November (incorporated herein by reference from March 25, 1998
Form 8-K).
99(c) Comerica Bank - Texas letter dated March 5, 1998, regarding Borrowing
Base Deficiency Deferral/Waiver Letter concerning non-compliance with
working capital covenant for month of December (incorporated herein by
reference from March 25, 1998 Form 8-K).
99(d) Thompson & Knight, attorneys for Comerica Bank - Texas, letter dated
July 8, 1998 regarding notice of default of Company to terms of the
Senior Credit Facility and notice that all outstanding indebtedness is
immediately due and payable (incorporated herein by reference from July
23, 1998 Form 8-K).
E-3
<PAGE>
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(This schedule contains summary financial information extracted from this
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</LEGEND>
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<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> JUL-31-1998
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