1
________________________________________________________________________________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
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 July 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 September 14, 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
PAGE
----
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Combined Balance Sheets
ended July 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Combined Statements of Operations
Three Months and Six Months
Ended July 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Combined Statements of Cash Flows
Six Months Ended July 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. CHANGES IN SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . 9
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
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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)
JULY 31,
1995
ASSETS ---------
------
CURRENT ASSETS:
Cash and cash equivalents $ 359
Receivables: Trade and other 545
Prepaid expenses and other 69
---------
Total current assets 973
PROPERTY AND EQUIPMENT, AT COST 7,812
Less accumulated depreciation, depletion and amortization 2,904
---------
NET PROPERTY AND EQUIPMENT 4,908
OTHER ASSETS 1,079
---------
$ 6,960
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable 252
Accrued expenses 105
Current installments of long-term debt 544
---------
TOTAL CURRENT LIABILITIES 901
Accrued platform abandonment expense 951
Minority interest combined limited partnership 1,016
Long-term debt, excluding current installments 1,390
---------
TOTAL LIABILITIES 4,258
SHAREHOLDERS' EQUITY 2,702
---------
$ 6,960
=========
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)
THREE MONTHS SIX MONTHS
ENDED ENDED
JULY 31, JULY 31,
------------------------ ------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
REVENUES:
Oil and gas leases $ 900 985 1,928 1,921
---------- --------- --------- ---------
TOTAL REVENUES 900 985 1,928 1,921
---------- --------- --------- ---------
COSTS AND EXPENSES:
Lease operating and other production expense 506 373 985 650
Dry hole costs - 7 - 7
Depreciation, depletion and amortization 329 255 677 548
Provisions for abandonment 45 30 90 88
General and administrative 344 262 648 433
---------- --------- --------- ---------
TOTAL COSTS AND EXPENSES 1,224 927 2,400 1,726
---------- --------- --------- ---------
EARNINGS (LOSS) FROM OPERATIONS (324) 58 (472) 195
---------- --------- --------- ---------
OTHER INCOME (EXPENSES):
Interest expense (65) (32) (143) (45)
Interest income 15 10 16 19
Gain on sale of assets 1,197 60 1,202 102
Other (net) (3) 10 (10) 23
Minority interest in earnings of combined
limited partnership (212) (73) (209) (139)
---------- --------- --------- ---------
TOTAL OTHER INCOME(EXPENSES) 932 (25) 856 (40)
---------- --------- --------- ---------
Earnings (loss) from continuing operations 608 33 384 155
State income and franchise taxes 2 2 4 7
---------- --------- --------- ---------
NET EARNINGS (LOSS) 606 31 380 148
========== ========= ========= =========
Net earnings per common and common equivalent
share 0.10 0.01 0.06 0.02
========== ========= ========= =========
Weighted average common and common equivalent
shares outstanding 5,927,760 6,029,293 5,927,760 6,020,038
========== ========= ========= =========
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)
SIX MONTHS
ENDED
JULY 31,
------------------------
1995 1994
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings from continuing operations $ 380 148
Adjustments to reconcile earnings from continuing
operations to net cash used in operating activities:
Depreciation and other amortization 32 13
Depletion of oil and gas producing properties 645 535
Gain on sale of assets (1,202) -
Minority interest in equity of limited partnerships 209 139
(Increase) decrease in accounts and notes receivable 215 -
(Increase) decrease in prepaids and other assets (39) (260)
Increase (decrease) in accounts payable and accrued expenses (30) 281
-------- --------
Net cash provided by (used in) continuing operating activities 210 856
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase) disposition of oil and gas producing properties (152) (3,702)
(Purchase) of other property and equipment - -
(Additions to) deletions from platform abandonment fund
net of deferred liability (160) 22
(Additions to) other assets - (36)
Proceeds from sale of property and equipment 1,766 -
-------- --------
Net cash provided by (used in) investing activities 1,454 (3,716)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings - 2,766
Repayment of long-term borrowings (1,084) (295)
Distribution to limited partners (416) 467
-------- --------
Net cash provided by (used in) financing activities (1,500) 2,938
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 164 78
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 195 340
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 359 418
======== ========
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 six months ended July 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 six months ended July 31, 1995, except for the sale of
certain oil and gas properties and the reduction of bank debt as
described below.
2. Material Changes in Results of Operations.
Oil and Gas Production Segment
For the quarter and six months ended July 31, 1995, revenues
from oil and gas production were approximately $900,000 and
$1,928,000, respectively, as compared to $985,000 and $1,921,000 for
the quarter and six months ended July 31, 1994. Production operating
expenses for the quarter and six months ended July 31, 1995 were
approximately $506,000 and $985,000, respectively, as compared to the
operating expense of $373,000 and $650,000 for the same periods ended
July 31, 1994. The increase in operating expenses results from
additional expenses incurred by the addition of oil and gas properties
acquired in 1994. Revenues did not increase commensurate with
expenses due principally to lower gas prices during the first six
months of 1995. The average price of gas sold during the period ended
July 31, 1995 was $1.65 per MCF as compared to $2.23 per MCF during
the period ended July 31, 1994.
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, 1995 based on the
unit-of-production method were approximately $313,000 and $645,000,
respectively, for 480 and 989 MMCF equivalent units of production.
Amortization expenses for the quarter and six months ended July 31,
1994, were approximately $248,000 and $555,000 for 403 and 796 MMCF
equivalent units of production, respectively.
Interest expense for the quarter and six months ended July 31,
1995 was approximately $65,000 and $143,000, respectively. Interest
expense for the quarter and six months ended July 31, 1994 was
approximately $32,000 and $45,000, respectively. Interest expense
increased due to the additional debt incurred with the acquisition of
oil and gas properties in 1994.
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In May 1995, Rio Grande Offshore, Ltd. sold its interest in a
certain oil and gas property located offshore Louisiana. The
consolidated revenues generated by this property were $95,000 for the
six months ended July 31, 1995 and $324,000 for the comparable period
ended July 31, 1994. The related direct operating expenses for the
respective periods were $4,000 and $25,000. In July, 1995, Rio Grande
Offshore, Ltd. sold additional oil and gas properties located in West
Texas. The consolidated revenues generated by these properties were
$38,000 for the six months ended July 31, 1995 and $27,000 for the six
months ended July 31, 1994. The related direct operating expenses for
the respective periods were $16,000 and $15,000.
Rio Grande Drilling Company, as an eighty percent (80%)
partner, received cash distributions of $1,032,000 and $184,000 from
the sale of these oil and gas properties. From the proceeds of these
sales, $800,000 and $170,000, respectively, applied to reduce bank
indebtedness. The interest expense applicable to the $970,000
reduction in bank debt for the six months ended July 31, 1995 and 1994
was $40,000 and $60,000, respectively. The amortization of leasehold
costs applicable to those oil and gas properties for the six months
ended July 31, 1995 and 1994 was $26,000 and $52,000, respectively.
Pro Forma Statements of Operations for the six months ended July 31,
1995 and 1994 which exclude the revenues and expenses applicable to
the oil and gas properties sold have been included as Exhibit 99(a)
the Form 10-QSB.
General and administrative expenses for the quarter and six
months ended July 31, 1995 were approximately $344,000 and $648,000,
respectively, as compared to $262,000 and $433,000 for the quarter
and six months ended July 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
In May 1995, Rio Grande Offshore, Ltd. sold its interest in a
certain oil and gas property located offshore of Louisiana. Proceeds
from the sale of this property were approximately $1,290,000, which
resulted in a gain on sale to the partnership of approximately
$1,129,000. Rio Grande Drilling Company, as an eighty percent (80%)
partner, received a cash distribution of approximately $1,032,000 from
the sale of which $800,000 was applied as a principal payment on the
Company's outstanding debt. In July 1995, Rio Grande Offshore, Ltd.
sold its interest in certain oil and gas properties located in West
Texas. Proceeds from the sale of these properties were approximately
$184,000 to the Company of which $170,000 was applied as a reduction
to the Company's debt. The Company's bank lender restructured the
Company's monthly principal and interest payments through May 31, 1996
as a result of the $970,000 reduction in bank debt. The restructured
monthly payments of principal and interest are $50,000 through August
1995, $55,000 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
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Company's bank indebtedness. 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.
Lower gas prices are the primary reason for the decline in the
Company's financial performance during the quarter and six months
ended July 31, 1995. Approximately seventy percent (70%) of the
Company's sales production volume is from gas. The average gas price
for the first six months of 1995 was approximately fifty-eight cents
per MCF less than the average for the first six months of 1994. 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 and the production levels of the specific
properties. The production levels of the existing oil and gas
properties have remained relatively stable. At current levels of
production, if market prices, particularly natural gas prices, decline
materially from current levels, no assurances can be given that the
Company will be able to meet its current obligations or secure
additional working capital for 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
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
On August 7, 1995, the Company commenced selling through a
CONFIDENTIAL PRIVATE OFFERING MEMORANDUM, 11.50% SUBORDINATED
NOTES and WARRANTS to purchase Class A Common Stock, par value
$.01 of the Company's common stock at $.40 per share. The
Company is offering a minimum of 60 units for a total of
$1,500,000 and a maximum of 80 units for a total of $2,000,000
in principal amount of subordinated notes. A minimum of
979,860 and a maximum of 1,388,160 shares of Common Stock
shall be subject to the Warrants. The Company is offering the
Subordinated Debt and Warrants to finance a development
program on certain oil and gas properties in which the Company
has an interest.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
E-2 Exhibit 10(v) - 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.
E-21 Exhibit 10(w) - Consulting Agreement dated
August 10, 1995, between Hobby A. Abshier and
Rio Grande, Inc.
E-23 Exhibit 99(a) - Pro Forma Condensed Combined
Statements of Operations for the six months
ended July 31, 1994 and 1995.
(b) Reports on Form 8-K
None.
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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: September 14, 1995 By: /s/ Guy R. Buschman
-------------------------
Guy R. Buschman, President
Date: September 14, 1995 By: s/ Gary Scheele
-------------------------
Gary Scheele, Secretary
and Treasurer
(principal financial officer)
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INDEX TO EXHIBITS
The following exhibits are numbered in accordance with Item 601 of Regulation
S-B.
Exhibit 10(v) - 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.
Exhibit 10(w) - Consulting Agreement dated August 10, 1995, between
Hobby A. Abshier and Rio Grande, Inc.
Exhibit 99(a) - Pro Forma Condensed Combined Statements of Operations
for the six months ended July 31, 1994 and 1995.