SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
Commission file number: 0-12633
TEXOIL, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 88-0177083
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1600 SMITH STREET
SUITE 4000
HOUSTON, TEXAS 77002
(Address of principal executive offices)
(713) 652-5741
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 4,157,073 shares of common stock,
$.01 par value, issued and outstanding at May 13, 1996.
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [X]
Page 1 of 14
TEXOIL, INC.
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of March 31, 1996.................... 3
Consolidated Statement of Income (Loss) and Retained Earnings
(Deficit) for the three months ended March 31, 1996 and 1995.... 4
Consolidated Statement of Cash Flows for the three months
ended March 31, 1996 and 1995................................... 5
Notes to Consolidated Financial Statements......................... 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................... 9
PART II. OTHER INFORMATION.............................................. 12
Page 2 of 14
TEXOIL, INC.
CONSOLIDATED BALANCE SHEET
(unaudited)
MARCH 31,
1996
-----------
ASSETS
------
Current assets:
Cash and cash equivalents ................................................ $ 52,798
Accounts receivable ...................................................... 510,482
Other current assets ..................................................... 25,083
-----------
Total current assets 588,363 Property and equipment, at cost:
Oil and gas properties, net (on the basis of full cost
accounting) ............................................................. 3,634,900
Other equipment, net ..................................................... 1,098
$ 4,224,361
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ................................. $ 1,030,174
Note payable to bank ..................................................... 261,000
Notes payable to stockholders ............................................ 1,162,500
Preferred stock dividends payable ........................................ 69,000
-----------
Total current liabilities ............................................. 2,522,674
Other long-term liabilities ................................................. 213,674
Stockholders' equity:
Series A preferred stock, $.01 par; redeemable and convertible with
liquidation preference of $100 per share plus cumulative accrued unpaid
dividends at annual rate of $12 per share; 10,000,000 shares
authorized; 23,000 shares issued and outstanding ...................... 2,300,000
Common stock, $.01 par; 50,000,000 shares authorized;
4,157,073 shares issued and outstanding ............................... 41,571
Additional paid-in capital ............................................... 4,615,935
Deficit .................................................................. (5,469,493)
-----------
1,488,013
$ 4,224,361
The accompanying notes are an integral part of this statement.
Page 3 of 14
TEXOIL, INC.
CONSOLIDATED STATEMENT OF INCOME (LOSS) AND RETAINED EARNINGS (DEFICIT)
(unaudited)
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1995 1996
----------- -----------
Revenues:
Oil and gas sales ........................... $ 325,330 $ 274,496
----------- -----------
Costs and expenses:
Lease operating expenses .................... 54,760 46,770
Depreciation, depletion and amortization .... 172,545 141,019
Production taxes ............................ 18,212 25,180
General and administrative expenses, net .... 208,899 152,963
Other (income) expenses:
Interest expense ............................ 32,603 39,832
Interest income and other ................... (657) (384)
----------- -----------
486,362 405,380
----------- -----------
Net loss ....................................... (161,032) (130,884)
Dividends on preferred stock ................... (69,000) (69,000)
----------- -----------
Net loss applicable to common stock ............ (230,032) (199,884)
Deficit at beginning of period ................. (4,267,194) (5,269,609)
----------- -----------
Deficit at end of period ....................... $(4,497,226) $(5,469,493)
=========== ===========
Net loss per share of common stock ............. $ (0.06) $ (0.05)
=========== ===========
Average number of shares outstanding ........... 4,058,643 4,146,475
=========== ===========
The accompanying notes are an integral part of this statement.
Page 4 of 14
TEXOIL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1995 1996
--------- ---------
Operating activities:
Net loss ................................................. $(161,032) $(130,884)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation, depletion and amortization .............. 172,545 141,019
Non-cash compensation expense ......................... -- 28,860
Decrease (increase) in accounts receivable ............ 24,401 (84,456)
Decrease in other current assets ...................... 28,706 10,454
Increase (decrease) in accounts payable ............... (182,941) 352,103
Increase in advances from joint
interest owners ..................................... 66,500 --
Increase (decrease) in other long-term liabilities .... 2,708 (2,962)
--------- ---------
Net cash provided by (used in) operating activities (49,113) 314,134
--------- ---------
Investing activities:
Capital expenditures ..................................... (170,129) (232,750)
--------- ---------
Net cash used in investing activities ............. (170,129) (232,750)
--------- ---------
Financing activities:
Proceeds from borrowings ................................. 140,000 100,000
Payments on borrowings ................................... (25,000) (62,000)
Preferred stock dividends paid ........................... (69,000) (69,000)
--------- ---------
Net cash provided by (used in) financing activities 46,000 (31,000)
--------- ---------
Net increase (decrease) in cash and cash
equivalents ................................................ (173,242) 50,384
Cash and cash equivalents at beginning of period ............ 200,790 2,414
--------- ---------
Cash and cash equivalents at end of period .................. $ 27,548 $ 52,798
========= =========
The accompanying notes are an integral part of this statement.
Page 5 of 14
TEXOIL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - ACCOUNTING POLICIES:
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to interim financial reporting as prescribed
by the Securities and Exchange Commission. All adjustments, which, in the
opinion of management, are necessary for a fair presentation of the results for
the interim periods have been reflected in the accompanying unaudited financial
statements. For further information regarding accounting policies, refer to the
Company's audited financial statements for the years ended December 31, 1994 and
1995 included in its 1995 Annual Report on Form 10- KSB. The average number of
shares outstanding reflected in the net loss per share of common stock for the
three months ended March 31, 1996 gives effect to the 1995 Stock Compensation
Plan (the "1995 Plan"), which provided for the issuance of shares of common
stock to certain employees and consultants whose cash compensation was reduced
by 30% effective April 1, 1995.
NOTE 2 - GOING CONCERN UNCERTAINTY AND MANAGEMENT PLANS:
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has suffered
recurring operating losses and cash flow and working capital deficits that raise
substantial doubt about its ability to meet its current and future expenditure
obligations necessary to fully evaluate and develop its oil and gas properties
and to continue as a going concern. Accordingly, management has determined that
the Company should seek additional debt and equity capital in order to meet its
current working capital requirements and to fully pursue new exploration
opportunities in accordance with its business plan. The Company has also
undertaken both capital raising and possible merger efforts. The Company entered
into a non-binding letter of intent to merge into Fortune Petroleum Corporation
on April 17, 1996. Negotiations toward the execution of a definitive merger
agreement were terminated by Texoil, Inc. on May 2, 1996 (see "Management's
Discussion and Analysis of Financial Condition and Results of Operations - Going
Concern Uncertainty and Management's Plans"). In May 1996, four members of the
Company's six member board of directors have lent approximately $1.1 million to
the Company, the proceeds of which will be applied to pay trade and other
accounts payable, repay the Company's loan from its bank, to pay the March 31,
1996 quarterly dividend on the Series A Preferred Stock, and to fund the
Company's share of 3-D seismic survey costs on the Company's exploration
prospects. It is expected that final documentation of the loans will be on
substantially the following terms. The financing is structured as a 12%
convertible promissory note (the "Note") in the principal amount of $1.1
million, and common stock purchase warrants entitling the individuals to
purchase from the Company, for a period of five (5) years, 1,100,000 shares of
Texoil, Inc. common stock at an exercise price of $1.3125 per share (the
"Warrants"). The Note will mature 12 months following the date of the Note with
interest payable monthly in arrears and prepayment rights at any time, subject
to the right of the holder to
Page 6 of 14
convert the Note to common stock at $0.80 per share. The Note will be
collateralized by a first priority security interest in all the Company's oil
and gas reserves. It is anticipated that the Note and related documentation will
also preclude the Company from incurring any additional indebtedness for
borrowed money without the noteholder's consent. The exercise price of the
Warrants and the conversion price of the Note is to be adjusted pro rata in the
event of any common stock dividend, stock split, recapitalization or similar
event and weighted-average adjusted in the event of any issuance of common stock
(or common stock derivatives) at a price (or exercise or conversion price) per
share less than the exercise price of the Warrants or the conversion price of
the Note. The Company's unaudited consolidated financial statements do not
reflect any adjustments that might result from this transaction.
The transaction described above provides sufficient funding for Texoil's share
of 3-D seismic survey costs on its exploration prospects. However, if the 3-D
seismic interpretation successfully leads to the recommendation to drill
exploratory well(s), this transaction is not sufficient to meet the Company's
share of land and drilling costs which are anticipated to be incurred commencing
in the fourth quarter of 1996. The Company currently plans to sell an
additional 10% working interest in the Greens Lake Prospect to an unaffiliated
third party. Should the Company be unsuccessful in subsequently obtaining either
a capital infusion or in completing a merger, management would further dispose
of selected assets with the intent of generating sufficient funds to develop its
remaining oil and gas properties and to support its existing operations through
December 31, 1996. The Company would, however, in that instance be required to
significantly reduce its proposed level of investment in new exploration
opportunities as well as to take measures to address its working capital
deficit. There can be no assurance, however, that the Company would either
generate sufficient funds from the sale of selected assets or be successful in
addressing its working capital deficit.
NOTE 3 - NOTES PAYABLE:
Indebtedness at March 31, 1996 includes $261,000 outstanding under a revolving
credit/term loan agreement with a bank dated December 31, 1994 bearing interest
at a rate of 1 1/4% above the bank's prime rate (8.25% at March 31, 1996), and
$1,162,500 outstanding under promissory notes due to four of the Company's
stockholders bearing interest at 2% above the bank's prime rate.
The borrowing base of the credit/term loan was established at $575,000 in
December 1994 and was to decline to $95,000 and $0 at December 1996 and 1997,
respectively. The credit/term loan was subsequently paid off on May 6, 1996 from
the proceeds of a cash infusion by four of the Company's six directors (see Note
2). The revolving credit/term loan agreement had previously been secured by
substantially all of the Company's producing oil and gas properties, been
guaranteed by a member of the Company's board of directors, and contained
certain financial covenants related to maintenance of working capital (current
assets, plus unevaluated property costs anticipated to be recovered currently,
must exceed current liabilities) and stockholders' equity (at least $2,300,000).
The Company was not in compliance with such covenants as of March 31, 1996 and
had requested and received a
Page 7 of 14
waiver from the bank with respect to these covenants through the earlier of the
filing date of its first quarter 10-QSB or May 31, 1996. Accordingly, the
outstanding balance due at March 31, 1996, prior to pay-off of the credit/term
loan, has been classified as current in the accompanying unaudited consolidated
balance sheet.
The notes payable to stockholders represent the unpaid portion of borrowings
aggregating $2,187,500 that the Company made from a total of nine individuals
(five of whom are stockholders) during 1993, 1994, 1995 and 1996 in order to
finance its working capital needs. In accordance with the terms of the
underlying loan agreements, $800,000 of such borrowings was repaid upon closing
of the public offering in June 1994 and $225,000 was repaid by the due date,
resulting in a balance of $1,162,500 at March 31, 1996. Of such amount, the
noteholders of all but $12,500 (which was repaid on April 1, 1996) agreed to
extend the maturity of their notes to the earlier of the date of execution by
the Company of any letter of intent to merge the Company with another party, or
effective control of the Company changes to another party, or June 1, 1996.
Management anticipates that additional extensions of maturity will be obtained
from the noteholders.
The Series A Preferred Stock is convertible into common stock at any time with
the number of shares issuable determined by dividing the liquidation value of
the surrendered preferred stock by $3.00, being the price attributable to one
share of common stock in the Company's "unit" public offering in the second
quarter of 1994. Series A Preferred Stock dividends of $3.00 per share for the
quarter ending March 31, 1996 have been declared and paid.
Page 8 of 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 COMPARED
TO THREE MONTHS ENDED MARCH 31, 1996
Texoil recorded net losses of $161,032 and $130,884 in the three month periods
ended March 31, 1995 and 1996, respectively. The reduction in the Company's
comparative net losses resulted from the following factors:
Decrease (increase)
IN NET LOSS
-------------------
Decrease in oil and gas production
income (revenues less lease operating
expenses and production taxes) ............................. $(49,812)
Decrease in depreciation, depletion and
amortization expense ....................................... 31,526
Decrease in net general and
administrative expenses .................................... 55,936
Other, net .................................................. (7,502)
--------
$ 30,148
--------
The decrease in oil and gas production income is primarily attributable to a 45%
decrease in production volumes occurring primarily at the Company's Main Pass
Block 3 Field, where two wells that previously produced are currently shut-in
pending further evaluation, and at the non-operated S. W. Lake Boeuf Field,
where natural decline in the Ariel No. 1 Well production is taking effect. This
was partially offset by an 11% increase and a 150% increase, respectively, in
the average oil and gas prices experienced during the first quarter of 1996.
The decrease in depreciation, depletion and amortization ("DD&A") expense was
due largely to the decrease in oil and gas production volumes noted above.
However, the decrease in the DD&A expense was somewhat offset by an increase in
the DD&A rate. For the three months ended March 31, 1996, the Company's DD&A
rate was $10.77 per barrel of oil equivalent ("BOE") compared to $7.60 per BOE
in the first quarter of 1995. The increased DD&A rates in the first quarter of
1996 reflect relatively higher cost additions associated with an as yet
unsuccessful workover attempt on the S.L. 12503 No. 1 Well at the Main Pass
Block 3 Area, and with a dry hole drilled on the Company's Buras Landing
Prospect in the second and third quarters of 1995.
The decrease in net general and administrative expenses was due primarily to
reductions in salary due to a reduction in the number of employees subsequent to
March 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
GOING CONCERN UNCERTAINTY AND MANAGEMENT'S PLANS. The Company has suffered
recurring operating losses and cash flow and working capital deficits that raise
substantial doubt about its ability to
Page 9 of 14
continue as a going concern. The board of directors, acting on January 31, 1996,
formed a special committee of its board of directors charged with seeking out
and considering significant transactions to maximize shareholder value,
including mergers and/or an equity infusion of capital. Further, the board,
acting on or about February 22, 1996, engaged the services of Southcoast Capital
Corporation to provide financial advisory services in connection with the
solicitation of possible financial transactions, mergers and or acquisitions.
Southcoast Capital contacted over twenty industry participants on behalf of the
Company and has completed its engagement.
On April 17, 1996, Texoil, Inc. entered into a non-binding letter of intent to
merge the Company into Fortune Petroleum Corporation ("Fortune"). The terms of
the transaction, subsequently terminated as described below, called for Texoil
shareholders to receive one share of Fortune common stock for every 3.2 Texoil,
Inc. shares, up to a maximum of 1,845,000 Fortune common shares. The Company's
preferred shareholders would have exchanged their preferred shares for Texoil
common shares prior to the merger and been part of the transaction.
Approximately $1.1 million of debt owed to certain Texoil shareholders would
have also been converted to Fortune common shares. In addition, Fortune had
agreed to lend to Texoil on a secured basis the Company's share of the 3-D
seismic costs on Texoil's three large exploration prospects, estimated at
approximately $1 million over a six month period. Subsequently, merger
negotiations with Fortune were terminated after the deadline for negotiations
and execution of a merger agreement between Fortune and Texoil expired at 5 p.m.
May 2, 1996. The Fortune letter of intent also provided for the payment of
liquidated damages in the amount of $50,000 if the board of directors of either
party failed to approve the merger transaction on the terms substantially as set
forth in the letter of intent. Each party has claimed that the other owes the
liquidated damages payment and settlement negotiations have been initiated.
Management cannot predict the outcome of this dispute.
In May 1996, four members of the Company's six member board of directors have
lent approximately $1.1 million to the Company, the proceeds of which will be
applied to pay trade and other accounts payable, repay the Company's loan from
its bank, to pay the March 31, 1996 quarterly dividend on the Series A Preferred
Stock, and to fund the Company's share of 3-D seismic survey costs on the
Company's exploration prospects. While execution of the contracts defining this
transaction is presently pending, it is expected that final documentation of the
loans will be on substantially the following terms. The financing is structured
as a 12% convertible promissory note (the "Note") in the principal amount of
$1.1 million, and common stock purchase warrants entitling the individuals to
purchase from the Company, for a period of five (5) years, 1,100,000 shares of
Texoil, Inc. common stock at an exercise price of $1.3125 per share (the
"Warrants"). The Note will mature 12 months following the date of the Note with
interest payable monthly in arrears and prepayment rights at any time, subject
to the right of the holder to convert the Note to common stock at $0.80 per
share. The Note will be collateralized by a first priority security interest in
all the Company's oil and gas reserves. It is anticipated that the Note and
related documentation will also preclude the Company from incurring any
additional indebtedness for borrowed money without the noteholder's consent. The
exercise price of the Warrants and the conversion price of the Note is to be
adjusted pro rata in the event of any common stock dividend, stock split,
recapitalization or similar event and weighted-average adjusted in the event of
any issuance of common stock (or common stock derivatives) at a price (or
exercise or conversion price) per share less than the exercise price of the
Warrants or the conversion price of the Note. The Company's unaudited
consolidated financial statements do not reflect any adjustments that might
result from this transaction.
The transaction described above provides sufficient funding for Texoil's share
of 3-D seismic survey costs on its exploratory prospects. However, if the 3-D
seismic interpretation successfully leads to the recommendation to drill
exploratory well(s), this transaction is not sufficient to meet the
Page 10 of 14
Company's share of land and drilling costs which are anticipated to be incurred
commencing in the fourth quarter of 1996. The Company currently plans to
sell an additional 10% working interest in the Greens Lake Prospect to an
unaffiliated third party. Should the Company be unsuccessful in subsequently
obtaining either a capital infusion or in completing a merger, management would
further dispose of selected assets with the intent of generating sufficient
funds to develop its remaining oil and gas properties and to support its
existing operations through December 31, 1996. The Company would, however, in
that instance be required to significantly reduce its proposed level of
investment in new exploration opportunities as well as to take measures to
address its working capital deficit. There can be no assurance, however, that
the Company would either generate sufficient funds from the sale of selected
assets or be successful in addressing its working capital deficit.
CASH FLOW FROM OPERATIONS. Texoil's net cash flow from operations resulted in a
deficit of $49,113 and a surplus of $314,134 for the three month periods ended
March 31, 1995 and 1996, respectively. The change in the Company's operating
cash flow in the first quarter of 1996 primarily reflects the accumulation of
vendor payables as a result of limited working capital after the payment of
required capital expenditures. The accumulated vendor payables as of March 31,
1996 were subsequently paid with proceeds from the May 1996 financing described
above (see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Going Concern Uncertainty and Management's Plans" and
"Notes to Colsolidated Financial Statements"). The Company expects general and
administrative expenses to generally decrease during the remainder of 1996, in
part due to a further reduction in the number of employees.
CASH FLOW FROM FINANCING. Texoil had a revolving credit/term loan agreement with
First Interstate Bank of Texas, N.A. ("FIBOT") amounting to $261,000 at March
31, 1996 which was paid off on May 6, 1996. The revolving credit/term loan
agreement, dated December 31, 1994, provided for interest on borrowings at a
rate of 1 1/4% above FIBOT's prime rate and was secured by substantially all of
Texoil's oil and gas producing properties. The revolving credit/term loan
agreement contained certain financial covenants related to maintenance of
working capital (current assets, plus unevaluated property costs anticipated to
be recovered currently, must exceed current liabilities) and stockholders'
equity (at least $2,300,000). The Company was not in compliance with such
covenants as of March 31, 1996 and a waiver was obtained from FIBOT with respect
to these covenants until the earlier of the filing date of this 10-QSB or May
31, 1996. As a requirement for providing this waiver, a major shareholder and
director, T. W. Hoehn, Jr., had personally guaranteed the repayment of the
balance of the loan.
On April 2, 1993, the Board of Directors authorized the Company to incur
additional, short-term borrowings from a combination of its chairman, other
stockholders and unrelated private investors. As of March 31, 1994, the Company
had borrowed $1,837,500 from these persons in order to finance the Company's
working capital needs prior to completion of the Public Offering in June 1994.
As approved by the Board of Directors, interest has been paid on such
outstanding borrowings at a rate of 2% per annum over FIBOT's prime rate (8.25%
at March 31, 1996). As an incentive for the Company's chairman, the other
stockholders and the private investors to enter into these loan arrangements,
the Company issued such individuals warrants to purchase 154,375 shares of the
Company's common stock (exercisable through May 26, 1996) at an exercise price
equal to the per share Public Offering price attributable to one share of common
stock included in the public "unit" offering, being $3.00 per share. In
accordance with the terms of the underlying loan agreements, $800,000 of such
borrowings was repaid subsequent to closing of the Public Offering in June 1994,
an additional $200,000 was repaid by the due date, resulting in a balance of
$837,500 as of December 31, 1994. Net borrowings of an additional $325,000 were
made under the bridge loan program during 1995 and during the first quarter of
1996 (without issuance of additional common stock purchase warrants). Of the
noteholders who were owed the aggregate balance outstanding of
Page 11 of 14
$1,162,500 at March 31, 1996, noteholders of all but $12,500 (which was repaid
at April 1, 1996) have agreed to extend the maturity of their notes to the
earlier of the date of execution by the Company of any letter of intent to merge
the Company with another party, or effective control of the Company changes to
another party, or June 1, 1996.
Subsequent to March 31, 1996, the Company received cash of $1.1 million
associated with the financing provided by four members of the board of directors
described above (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Going Concern Uncertainty and Management's
Plans" and "Notes to Financial Statements").
The Series A Preferred Stock is convertible into common stock at any time with
the number of shares issuable determined by dividing the liquidation value of
the surrendered preferred stock by $3.00, being the price attributable to one
share of common stock in the Company's "unit" public offering in the second
quarter of 1994. Series A Preferred Stock dividends of $3.00 per share for the
quarter ending March 31, 1996 have been declared and paid.
CAPITAL EXPENDITURES. Texoil's net capital expenditures totaled $170,129 and
$232,750 in the three month periods ended March 31, 1995 and 1996, respectively.
The latter amount is comprised primarily of costs incurred in an as yet
unsuccessful workover attempt at the Company's Main Pass Block 3 Area, leasehold
costs on Texoil's 3-D seismic exploration prospects, and capitalized general and
administrative costs.
FUTURE CAPITAL REQUIREMENTS. In addition to the $1.1 million financing provided
by four members of the board of directors in May 1996, described above, an
additional capital infusion of at least $2 million (or other financing or
transactional arrangements as discussed above under "- Going Concern Uncertainty
and Management Plans") will be required in order for Texoil to make anticipated
further capital expenditures during 1996 relating to its participation in a
series of exploration prospects in South Louisiana and Texas. In order to reduce
future capital requirements, the Company currently plans to sell an additional
10% working interest in the Greens Lake Prospect to an unaffiliated third party.
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
As described in Management's Discussion & Analysis of Financial
Condition and Results of Operations, on May 2, 1996, the Company
terminated the negotiations to merge the Company into Fortune
Petroleum Corporation.
Effective May 1, 1996, the Company received the resignations of
Walter L. Williams, Chairman of the Board and Chief Executive
Officer of the Company and John L. Graves, President and Chief
Operating Officer of the Company. Mr. Williams and Mr. Graves will
continue to serve as two of the six members of Texoil's Board of
Directors. Mr. Williams received ninety (90) days severance pay. Mr.
Graves received sixty (60) days severance
Page 12 of 14
pay. Mr. Williams will continue to assist the Company in a
non-managerial capacity during a transition period. Mr. Graves is
providing consulting services to the Company on selected land and
public reporting matters during a transition period. Execution of a
contract defining this consulting arrangement is presently pending.
A successor to Mr. Williams has not been named. Ruben Medrano, the
Company's former Vice President - Operations, succeeded Mr. Graves
as President. Mr. T. W. Hoehn, Jr., a member of the board of
directors and who, with Mr. Williams, co-founded the Company, has
been elected to an unpaid position as Vice President of the Company.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K
1. Report on Form 8-K, dated February 5, 1996, reporting the
board of directors' decision to seek "significant
transactions," including equity financing, merger and/or asset
sale transactions.
2. Report on Form 8-K, dated April 17, 1996, reporting the
execution of a non-binding letter of intent to merge the
Company into Fortune Petroleum Corporation.
Page 13 of 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TEXOIL, INC.
Date: MAY 15, 1996 By: /s/ RUBEN MEDRANO
------------ -------------------
Ruben Medrano
President
Page 14 of 14