UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report pursuant to Section 13 or 15(d)
[X] of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1996
OR
Transition Report Pursuant to Section 13 or 15(d) of
[ ] the Securities Exchange Act of 1934
Commission File No. 1-10669
XCL Ltd.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0305643
- ------------------------ ----------------------
(State of Incorporation) (I.R.S. Employer
Identification Number)
110 Rue Jean Lafitte, Lafayette, LA 70508
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
318-237-0325
----------------------------------------------------
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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 [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
269,894,775 shares Common Stock, $.01 par value were
outstanding on August 13, 1996.
<PAGE>
XCL LTD. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
PART I
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
PART II
Item 1. Legal Proceedings 23
Item 4. Submission of Matters to a Vote of Security-Holders 25
Item 6. Exhibits and Reports on Form 8-K. 26
<PAGE>
XCL LTD. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
<CAPTION>
June 30 December 31
Assets 1996 1995
------ ------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 200 $ 1,610
Accounts receivable, net 162 340
Amounts receivable from sale of assets -- 4,151
Subscriptions receivable -- 483
Prepaid expenses 101 205
Assets held for sale -- 4,376
-------- ---------
Total current assets 463 11,165
-------- ---------
Property and equipment:
Oil and gas (full cost method):
Unproved and unevaluated foreign properties 31,150 27,315
Land, at cost 135 135
Other 2,995 3,017
-------- ---------
34,280 30,467
Accumulated depreciation, depletion and
amortization (1,916) (1,845)
-------- ---------
32,364 28,622
-------- ---------
Investments 3,235 5,369
Assets held for sale 24,901 25,395
Deferred charges and other assets 1,596 1,785
-------- --------
Total assets $ 62,559 $ 72,336
======== ========
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable and accrued costs $ 4,696 $ 3,884
Royalty and production taxes payable 21 218
Dividends payable 928 928
Current maturities of limited-recourse debt 4,872 5,229
Collateralized credit facility 17,279 25,115
Other current maturities 658 30
-------- --------
Total current liabilities 28,454 35,404
-------- --------
Long-term debt, net of current maturities 15,000 15,644
Other non-current liabilities 3,167 4,388
Commitments and contingencies (Note 7)
Shareholders' equity (Note 6):
Preferred stock-$1.00 par value; authorized
1,200,000 shares; issued shares of 667,193
at June 30, 1996 and 680,570 at December 31,
1995-liquidation preference of $55.2 million
at June 30, 1996 667 681
Preferred stock subscribed -- 4
Common stock-$.01 par value; authorized
350 million shares; issued shares of
267,826,740 at June 30, 1996 and
256,157,224 at December 31, 1995 2,678 2,561
Common stock held in treasury - $.01 par
value; 1,092,065 shares at June 30,
1996 and 2,514,238 at December 31, 1995 (11) (25)
Additional paid-in capital 224,439 220,364
Accumulated deficit (211,835) (206,685)
-------- --------
Total shareholders' equity 15,938 16,900
-------- --------
Total liabilities and shareholders'
equity $ 62,559 $ 72,336
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
XCL Ltd. and Subsidiaries
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
(Thousands of Dollars, Except Per Share Amounts)
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
1996 1995 1996 1995
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Oil and gas revenues $ 361 $ 724 $ 937 $ 1,402
------- ------- ------- -------
Oil and gas operating expenses:
Operating (including marketing) 85 283 237 564
Depreciation, depletion and amortization 45 638 101 1,296
Depletion - oil and gas assets held for sale 106 -- 382 --
Provision for impairment of oil and gas
properties -- 10,700 -- 10,700
Writedown of investments 1,250 -- 1,250 --
General and administrative 832 1,228 1,907 2,110
Taxes, other than income 13 224 87 350
------- -------- ------ -------
2,331 13,073 3,964 15,020
------- -------- ------ -------
Operating loss (1,970) (12,349) (3,027) (13,618)
------- -------- ------ -------
Other income (expenses):
Interest expense, net of amounts capitalized (571) (1,033) (1,207) (1,389)
Loss on sale of investments (661) -- (661) --
Other, net 140 119 192 132
------- ------- ------ -------
(1,092) (914) (1,676) (1,257)
------- ------- ------ -------
Net loss (3,062) (13,263) (4,703) (14,875)
Preferred stock dividends (416) (2,464) (447) (2,464)
------- ------- ------ -------
Net loss attributable to common stock $ (3,478) $(15,727) $(5,150) $(17,339)
======= ======= ====== =======
Net loss per common and common equivalent share $ (.01) $ (.07) $ (.02) $ (.07)
======= ======= ====== =======
Average number of common and common equivalent
shares outstanding 263,343 236,966 260,061 235,739
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
XCL Ltd. and Subsidiaries
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
Six Months Ended June 30
------------------------
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (4,703) $ (14,875)
-------- --------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 483 1,296
Provision for impairment of oil and gas
properties -- 10,700
Loss on sale of investments 661 --
Writedown of investments 1,250 --
Change in assets and liabilities:
Accounts receivable 660 1,146
Receivable from joint venture partner -- (3,000)
Prepaid expenses 104 (177)
Accounts payable and accrued expenses 670 336
Accounts payable and accrued expenses
payable by joint venture partner -- 3,000
Royalty and production taxes payable (197) (42)
Other, net 71 254
------ ------
Total adjustments 3,702 13,513
------ ------
Net cash used in operating activities (1,001) (1,362)
------ ------
Cash flows from investing activities:
Capital expenditures (2,410) (6,318)
Investments (194) (890)
Proceeds from sale of assets 9,147 1,709
Other 30 351
------ ------
Net cash provided by (used in)
investing activities 6,573 (5,148)
------ ------
Cash flows from financing activities:
Proceeds from sales of common stock 960 48
Proceeds from sales of treasury stock 251 2,364
Payment for treasury stock (141) --
Proceeds from issuance of preferred stock 282 --
Proceeds from exercise of warrants and options -- 410
Payment of long-term debt (8,239) (248)
Payment of preferred stock dividends -- (250)
Stock issuance costs and other (95) (63)
------ ------
Net cash provided by (used in)
financing activities (6,982) 2,261
------ ------
Net increase (decrease) in cash and cash equivalents (1,410) (4,249)
Cash and cash equivalents at beginning of period 1,610 6,751
------ ------
Cash and cash equivalents at end of period $ 200 $ 2,502
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
XCL LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(1) General
The consolidated financial statements at June 30, 1996, and
for the three months and six months then ended have been prepared
by the Company, without audit, pursuant to the Rules and
Regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such Rules and Regulations. The Company believes
that the disclosures are adequate to make the information
presented herein not misleading. These consolidated financial
statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995. In the
opinion of the Company, all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the
financial position of XCL Ltd. and subsidiaries as of June 30,
1996, and December 31, 1995, and the results of their operations
for the three months and six months ended June 30, 1996 and 1995,
and their cash flows for the six months ended June 30, 1996 and
1995, have been included. The results of the Company's operations
for such interim periods are not necessarily indicative of the
results for the full year. The year-end balance sheet data was
derived from audited financial statements, but all disclosures
required by generally accepted accounting principles are not
included herein.
(2) Liquidity and Capital Resources
The Company has incurred recurring net losses and currently
has a working capital deficit. The Company anticipates
insufficient cash flows from operations to meet its current
obligations, including expenditures required for the development
of the Company's assets. Since 1994, the Company has been able
to meet its financial obligations by obtaining funds from sales
of equity in the Company and sales of various assets. Management
believes that it will be able to continue to meet its financial
obligations and fund the development of its investments through
joint ventures with partners, continued sales of assets and
continued sales of equity instruments. However, as of August 1,
1996, the Company did not have sufficient commitments in place to
insure that the Company's obligations for 1996 could be
satisfied. Included in such obligations are trade payables (net
of disputed amounts) of approximately $1.0 million as of August
1, 1996, of which 59 percent are unpaid in excess of 120 days
from the invoice date. Further, in addition to such trade
payables, as of July 31, 1996, the Company has accrued
liabilities of approximately $3.2 million in dispute with Apache
arising from joint interest billings and cash calls. An audit of
Apache conducted by Company personnel has called into question
approximately $.5 million of charges in one category of costs in
dispute. While the Company believes that certain of the
remaining charges are valid, it does not have sufficient
liquidity to make payment at this time. Until alternative sources
of funds are obtained, substantial doubt exists regarding the
Company's ability to continue as a going concern. Management is
presently pursuing several financing arrangements, which if
consummated, may provide the necessary funds to satisfy its
working capital requirements.
At June 30, 1996, the Company had an operating cash balance
of $200,000 and a working capital deficit of $28 million, which
includes $4.9 million in limited recourse debt collateralized
only by the Lutcher Moore Tract and $17.3 million in bank debt.
The bank debt is collateralized by the Company's domestic oil and
gas properties and the stock of certain subsidiaries. During
1995, the Company's bank agreement was amended to modify certain
covenant requirements through September 29, 1995. These covenants
were subsequently amended to modify requirements through April 1,
1996, and again amended through September 30, 1996. Should
improvements in the Company's financial position not occur, the
Company would be in violation of its credit agreement subsequent
to October 1, 1996, giving the bank the right to accelerate
payment of the debt after applicable grace periods. Further, the
borrowing base under this credit agreement is determined, in
part, by the value of the Company's domestic proved reserves
which are applicable to properties classified in the balance
sheet as assets held for sale.
The Company did not make an interest payment of $367,000 due
the bank on August 6, 1996, resulting in an event of default
under the terms of the credit agreement. Subsequent to that
date the Company concluded a transaction which generated
sufficient funds and the payment was made on August 14, 1996.
The Company also has $4.9 million of Limited Recourse debt
outstanding which is collateralized by the Lutcher Moore Tract,
of which $2.4 million is due on December 17, 1996. Payments of
principal and interest on the remaining $2.5 million of the
Lutcher Moore limited recourse debt are past due. No action has
been taken by the holders of the debt. Should the Company not be
successful in its attempts to sell the property or refinance the
debt on the property the holders have recourse only to the
property itself, as the Company is not liable for the debt.
The Company's Series A Preferred Stock dividend requirements
are approximately 2.6 million pounds sterling (U.K.) annually and
currently insufficient liquidity exists to continue to pay such
amounts. The Company declared the Series A Preferred Stock
dividend payable June 30, 1995. A portion of this dividend was
paid with shares of Common Stock and approximately $900,000
remains to be paid in cash. As the Company was unable to pay this
dividend by June 30, 1996, the holders of Series A Preferred
Stock can now require Board of Director representation. The
December 31, 1995 dividend payment on the Series A Preferred
Stock has been declared payable in additional shares of Series A
Preferred Stock, however such shares cannot be issued until the
shares allocated to withholding taxes are sold for cash and the
proceeds remitted to the taxing authorities. The Board of
Directors elected not to declare the dividend payable June 30,
1996.
The Company's cash flow forecast for July 1 - December 31,
1996 projects that approximately $11 million of additional
working capital will be required to fund operational activities
and further develop China projects. Management's plans to
obtain the necessary capital include:
o The sale of the Lutcher Moore Tract. The Company is in
ongoing negotiations for the sale of this property. Should
a sale be completed, $4.9 million of the proceeds would be
applied to the limited recourse debt with additional
proceeds used to further prepay bank debt and satisfy
working capital requirements.
o On April 23, 1996, the Company sold in Regulation S
transactions, an additional 30 Units of Common Stock and
Warrants at $15,000 per Unit. The Company received
approximately $349,000 of net proceeds, after deduction of
offering costs and expenses. An aggregate of 1,800,000
shares of Common Stock and Warrants to acquire an additional
1,800,000 shares of Common stock were issued at closing.
o In June and July 1996, the Company sold 970,000 shares of
Common Stock held as Treasury Stock in Regulation S
transactions for net proceeds after fees and discounts of
$146,775.
o Negotiating joint venture agreements with potential partners
to supply the cash needed to pursue various China projects.
Discussions with several potential partners are in progress.
o Until July 29, 1996, the Company was engaged in attempts to
sell its remaining domestic oil and gas properties. On that
day it received service of three lawsuits filed by lessors
of the most productive remaining lease, effectively
thwarting the Company's ability to consummate a sale by
casting doubt as to the Company's rights to certain
interests in the leases and demanding damages. While the
Company believes that the charges are without merit, it is
of the opinion that the property cannot be sold until such
time as the litigation is concluded.
With respect to short term requirements to fund the
Company's ongoing general and administrative costs, the Company
believes that working capital will be made available from certain
of its major stockholders or other investors, should the Company
enter into a letter(s) of intent with potential joint venture
participants to provide funds for the Company's further overhead
expenditures and for the capital requirements of the China
projects. By shareholder vote on July 30, 1996, the shareholders
approved an increase of 150,000,000 authorized shares of Common
Stock and 1,200,000 authorized shares of Preferred Stock.
Longer term liquidity is dependent on the Company's
commencement of production in China and continued access to
capital markets, including its ability to issue additional debt
and equity securities, which in certain cases may require the
consent of INCC and holders of the Company's Subordinated Debt
and Preferred Stock.
(3) Supplemental Cash Flow Information
There were no income taxes paid during the six month periods
ended June 30, 1996 and 1995. (See Note 7 herein).
Interest and associated capitalized costs for the three and
six month periods ended June 30 totaled $.8 million and $1.4
million, respectively for 1996 and $.7 million and $1.7 million,
respectively for the corresponding periods in 1995. Interest
paid during the three and six month periods ended June 30, 1996
and 1995 amounted to $.2 million and $1.1 million, and $.7
million and $1.3 million, respectively.
During the six months ended June 30, 1996, the Company
completed the following noncash transactions not reported
elsewhere herein:
o As compensation for services performed resulting in Apache
Corp. purchasing an additional interest in the Zhao Dong
Block the Company issued 50,000 shares of Common Stock (held
in treasury) to EnCap Investments, L.C. ("EnCap") and
EnCap's existing warrant to acquire 500,000 shares of Common
Stock was amended as to exercise price, expiration date and
forced conversion feature to conform the terms of this
warrant to the terms of warrants granted to the Placement
Agent in the Regulation S Unit Offering.
o As compensation for identifying Rauscher Pierce & Clark as
the Placement Agent for the Regulation S Unit Offering,
EnCap earned a four percent stock fee of the gross proceeds
of the Regulation S Unit Offering. In payment of this fee
the Company, during the first quarter, issued 267,264 shares
of Common Stock (held in treasury) in connection with the
initial closing and during the second quarter issued an
aggregate 122,880 shares of Common Stock as compensation for
the subsequent closings.
During the six months ended June 30, 1995, the Company
issued 18,714 shares of Common Stock in payment of interest on
funds escrowed in advance of purchase of Series D Preferred
Stock.
(4) Assets Held for Sale and Investments
Assets Held for Sale
--------------------
Domestic Oil and Gas Properties
- -------------------------------
During the fourth quarter of 1995, in connection with
management's decision to concentrate the Company's resources on
the development of its China investments, a decision was made to
dispose of all of the Company's domestic properties.
Accordingly, the recorded value of the Company's domestic
properties was reduced to their estimated fair market value and
the resulting balances were transferred to assets held for sale.
During the first quarter of 1996, the Company sold two
domestic gas fields producing net proceeds of $5.4 million which
was primarily used to pay interest and prepay principal due on
the Company's bank loan. The Company sold a third property in a
sale completed during the second quarter of 1996 generating gross
proceeds of approximately $3.0 million, of which $2.8 million was
applied to payment of interest and prepayment of principal on the
bank loan.
Until July 29, 1996, the Company was engaged in attempts to
sell its remaining domestic oil and gas properties. On that day
it received service of three lawsuits filed by lessors of the
most productive remaining lease, effectively thwarting the
Company's ability to consummate a sale by casting doubt as to the
Company's rights to certain interests in the leases and demanding
damages. While the Company believes that the charges are without
merit, it is of the opinion that the property cannot be sold
until such time as the litigation is concluded.
Lutcher Moore Tract
- -------------------
During 1993, the Company completed the acquisition of a
group of corporations which together owned 100 percent of a
62,500-acre tract in southeastern Louisiana (the "Lutcher Moore
Tract"). Total consideration of $15.4 million included the
assumption of $9.9 million of limited recourse debt (see Note 5
to the Consolidated Financial Statements), $2.7 million in cash,
the issuance of 3,616,667 shares of Common Stock and warrants to
purchase an additional 4,166,667 shares of Common Stock at $1.00
per share. In connection with the purchase, the Company
capitalized acquisition related costs of $900,000. This property
is being held for sale.
Phoenix Lake Tract
------------------
On May 18, 1995, the Company sold its 77.78 percent fee
interest in 11,600 gross acres comprising the Phoenix Lake Tract
retaining 75 percent of its mineral interest underlying those
lands, less and except two tracts covering approximately 77 net
acres in which XCL retained no mineral interest. The purchase
price was comprised of approximately $1.7 million in cash and a
$.5 million reduction in obligations owed by the Company to the
purchaser. No gain or loss was recognized on the sale.
In June 1996, the Company sold its remaining mineral
interest in the Phoenix Lake Tract. The sale price was $417,000
in cash and the Company recorded a $661,000 loss on the sale.
Investments
-----------
Lube Oil Investment
- -------------------
On July 17, 1995, the Company signed a contract with CNPC
United Lube Oil Corporation to form a joint venture company to
engage in the manufacturing, distribution and marketing of
lubricating oil in China and southeast Asian markets. As of June
30, 1996, the Company has invested approximately $1.5 million in
the project. Additional payments totaling $1.8 million are to be
made, the first of which, in the amount of $550,000, is past due.
The Company is in negotiations to reschedule the payments and
expects to reach a satisfactory agreement.
Coalbed Methane Project
- -----------------------
During 1995, the Company signed an agreement with the China
National Administration of Coal Geology, pursuant to which the
parties have commenced cooperation for the exploration and
development of coalbed methane in two areas in China. As of June
30, 1996, the Company has invested approximately $440,000 in the
project.
(5) Debt
Long-term debt at June 30, 1996 consists of the following
(000's):
Current Long-Term
Maturities Portion Total
---------- --------- -----
Collateralized credit facility $ 17,279 $ - $ 17,279
Subordinated debt
(due April 5, 2000) _ 15,000 15,000
Building Mortgage 658 - 658
-------- ------- -------
Total $ 17,937 $ 15,000 $ 32,937
======== ======= =======
Lutcher Moore Group
Limited Recourse Debt $ 4,872 $ - $ 4,872
======== ======= =======
Substantially all of the Company's assets collateralize
certain of these borrowings. Accounts payable and accrued
expenses include interest accrued at June 30, 1996, of
approximately $491,000.
Lutcher Moore Group Limited Recourse Debt :
- ------------------------------------------
Mortgage and Seller Notes.
- --------------------------
At June 30, 1996, approximately $2.4 million of Mortgage
Notes (net of amounts escrowed for payment) and $2.5 million of
Seller Notes were outstanding. In January 1996, the terms of the
Mortgage Notes were modified providing that the remaining
principal (which bears interest at 9.25 percent per annum) is
payable on demand, and if no demand is made, in three monthly
installments of $52,300 each, commencing February 15, 1996, plus
a final payment of all outstanding principal and interest due on
May 16, 1996. In June 1996, upon the payment by the Company of
principal and interest in the aggregate amount of $265,000 the
terms of the Mortgage Notes were again modified providing that
the remaining principal (which bears interest at 9.25 percent per
annum) is payable on demand, and if no demand is made, in five
monthly installments of interest, commencing July 17, 1996, with
a final payment of all outstanding principal and interest due on
December 17, 1996. The Seller Notes bear interest at 8 percent
and payments of principal and interest on the Seller Notes are
past due. No action has been taken by holders of the debt. Should
the Company not be successful in its attempts to sell the
property or refinance the debt on the property, the holders have
recourse only to the property itself, as the Company is not
liable for the debt.
Collateralized Credit Facility
- ------------------------------
The INCC Agreement provides for scheduled semiannual
borrowing base determinations by INCC based on a review of
reserve estimates and other factors, with the initial borrowing
base set at $29.2 million. Effective October 31, 1994, the
borrowing base was set at $25.2 million. The net proceeds of $4.1
million from the divestiture of the Mestena Grande Field in
January 1996, were applied to a $2 million principal payment due
January 2, 1996, a principal payment of $1.63 million due April
1, 1996, with the remainder applied to the balance of the
outstanding indebtedness. The net proceeds of $1.325 million from
the sale of the Gonzales Gas Unit sold in March 1996, were
applied to accrued interest through the date of closing and $1.1
million of principal. The net proceeds of $2.79 million from the
sale of the Lopez Gas Units sold in April 1996, were applied to
accrued interest through the date of closing then to principal of
$535,556 due on July 1, 1996, principal of $1.625 million due
October 1, 1996 and the remainder against principal due January
2, 1997. The next scheduled principal payment is due January 2,
1997, in the amount of approximately $1.2 million with quarterly
payments of $1.63 million thereafter.
During 1995, the INCC Agreement was amended to modify
certain covenants and was further amended to modify requirements
through April 1, 1996. The credit agreement was further amended
in April 1996 to modify requirements through September 30, 1996,
and accordingly the full amount of such debt has been reflected
as a current liability. Absent these modifications, the Company
would have been in violation of several covenants and should
improvements in the Company's financial position not occur, the
Company would be in violation of its credit agreement subsequent
to October 1, 1996, giving the bank the right to accelerate
payment of the debt after applicable grace periods. The Company
would need to pursue the sale of other assets, a joint-venture or
the issuance of additional equity securities to fund any such
accelerated payments. Further, the borrowing base under this
credit agreement is determined, in part, by the value of the
Company's domestic proved reserves.
The Company did not make an interest payment of $367,000 due
the bank on August 6, 1996, resulting in an event of default
under the terms of the credit agreement. The company is
attempting to conclude a transaction to generate sufficient funds
to make this payment. Should it not be successful the bank may
assert rights available to it upon an event of default as defined
in the credit agreement.
Secured Subordinated Debt
- -------------------------
The Company issued approximately 6.5 million and 1.6 million
shares of Common Stock in payment of $2.7 million and $1.3
million of interest due on the Secured Subordinated Debt during
the six month periods ended June 30, 1996 and 1995, respectively.
(6) Preferred Stock and Common Stock
As of June 30, 1996, the Company had the following shares of
Preferred Stock issued and outstanding:
Shares Liquidation
------ Value
-----------
Series A 577,803 $ 46,224,240(1)
Series B 44,954 4,495,400
Series E 44,436 4,443,600
__________
(1) 50 pounds sterling (U.K.) per share (U.K. pound
sterling = U.S. $1.60 at June 30, 1996).
Series A Preferred Stock
------------------------
The Company's Series A Preferred Stock dividend requirements
are approximately 2.6 million pounds sterling (U.K.) annually and
currently insufficient liquidity exists to continue to pay such
amounts. Further, the Company's credit agreement restricts
payment of cash dividends. With the approval of its lender, the
Company declared the June 30, 1995 dividend payable in cash, with
such cash to be obtained from the sale of Common Stock. In order
to reduce the cash requirement, effective June 26, 1995, the
Company entered into agreements with three U.S. holders of Series
A Preferred Stock representing approximately 59 percent of the
class pursuant to which they elected to receive their dividends
in Common Stock of the Company. Cash dividends remaining to be
paid with respect to the June 30, 1995 dividend declaration,
aggregate approximately $900,000. As the Company was unable to
pay this dividend by June 30, 1996, the holders of Series A
Preferred Stock can now require Board of Director representation.
On June 11, 1996, the holder of 21,441 shares of Series A
Preferred Stock elected, pursuant to the terms of the Series A
Preferred Stock, to convert such shares into Common Stock of the
Company. In July 1996, the Company issued 450,261 shares of
Common Stock in connection with this conversion.
The December 31, 1995 dividend payment on the Series A
Preferred Stock has been declared payable in additional shares of
Series A Preferred Stock. During 1996, the terms of the Series A
Preferred Stock were amended to allow for payment of the December
31, 1995 and subsequent dividend payments to be made in
additional shares of Series A Preferred Stock. The Board of
Directors correspondingly approved a 250,000 share increase in
the number of shares of Series A Preferred Stock authorized. An
aggregate of 53,932 shares of Series A Preferred Stock are to be
issued for payment of the December 31, 1995 dividend and U.S. and
U.K. withholding taxes, however such shares cannot be issued
until the shares allocated to withholding taxes are sold for cash
and the proceeds remitted to the taxing authorities. The Board
of Directors elected not to declare the dividend payable June 30,
1996.
Series B Preferred Stock
------------------------
On May 16, 1995, the Company received notice from the Series
B Preferred holder exercising its redemption rights. The Company
has elected to redeem in shares of Common Stock ("Redemption
Stock") and the holder has exercised its option to have the
Company sell its shares of Redemption Stock. The aggregate
redemption price is $5 million, plus accrued dividends from
January 1, 1995 to the date of redemption. The Company has
registered 5.3 million shares for sale and has reserved
additional shares should the sale of the registered shares not be
sufficient to fulfill the redemption obligation. Approximately
5,046 shares had been redeemed at June 30, 1996, from the sale of
approximately 1.62 million shares of Redemption Stock. Proceeds
are first allocated to accrued dividends, with the remainder
applied toward redemption of shares of the Series B Preferred
Stock. During July 1996, an additional 331,800 shares of
Redemption Stock were sold and the proceeds applied against
accrued dividends. By letter dated April 5, 1996, the holder has
advised the Company that it is not satisfied with the rate at
which the Series B shares are being redeemed and that unless the
rate of redemption is accelerated, the holder may no longer
extend the time in which the redemption is to be completed. The
Company is currently negotiating with representatives of CIDC to
provide for an orderly liquidation of the Redemption Stock, and
in connection with said negotiations the parties have prepared a
draft memorandum of understanding, which will, subject to further
agreement, set forth reasonable best efforts targets for the
sales of the Redemption Stock.
Series E Preferred Stock
------------------------
The June 30, 1996 dividend on the Series E Preferred Stock
was declared payable in additional shares of Series E Preferred
Stock. In July 1996, the Company issued 2,218 shares of Series E
Preferred Stock in payment of this dividend.
(7) Commitments and Contingencies and Subsequent Events
Other commitments, contingencies and subsequent events
include:
o The Company acquired the rights to the exploration,
development and production of the Zhao Dong Block by
executing a Production Sharing Agreement with CNODC in
February 1993. Under the terms of the Production
Sharing Agreement, the Company and Apache are
responsible for all exploration costs. If a commercial
discovery is made, and if CNODC exercises its option to
participate in the development of the field, all
development and operating costs and related oil and gas
production will be shared up to 51 percent by CNODC
and the remainder by the Company and Apache.
In March 1994, the Company farmed out a one-third
interest in its contract rights for the Zhao Dong Block
to Apache. To further reduce the Company's exploration
capital requirements and accelerate the development of
the Zhao Dong Block, the Company signed an agreement on
May 10, 1995, with Apache (approved by Chinese
authorities on August 10, 1995) pursuant to which
Apache became obligated to pay 100 percent of the costs
to drill and test two wildcat wells and one appraisal
well on the Zhao Dong Block, with a requirement to pay
for a third wildcat well, if Apache elected to
participate in the second phase of the Production
Sharing Agreement. In January 1996, Apache so elected
and therefore will pay the drilling and testing costs
of a third wildcat well. The amounts advanced by Apache
are recoverable from revenues generated from Zhao Dong
Block production. Future expenditures beyond those
described above will be borne 50 percent each by the
Company and Apache. Pursuant to this agreement Apache
also purchased an additional 16.67 percent interest in
the foreign contractor's share of the oil and gas
reserves of the "C" Field. Payment for this purchase
will be computed and made to the Company from time to
time as each segment of the field is placed on
production in order to insure that the Company will
receive the full market value of the 16.67 percent
interest. In consideration of the above described
payments, Apache assumed operatorship of the Zhao Dong
Block and increased its interest in the Zhao Dong Block
from 33.33 percent to 50 percent of the foreign
contractor's share of the Zhao Dong Block.
The Production Sharing Agreement includes the following
additional principal terms:
The Production Sharing Agreement is basically divided
into three periods: the Exploration period, the
Development period and the Production period. Work to
be performed and expenditures to be incurred during the
Exploration period, which consists of three phases
totaling seven years from May 1, 1993, are the
exclusive responsibility of the Contractor (the Company
and Apache as a group). The Contractor's obligations
in the three exploration phases are as follows:
1. During the first three years, the Contractor is
required to drill three wildcat wells, perform
seismic data acquisition and processing and expend
a minimum of $6 million (The Contractor has
drilled two wildcat wells, satisfied the seismic
acquisition and minimum expenditure requirements
and has received an extension allowing the
drilling of the third wildcat well during the
first year of the second exploration phase.);
2. During the next two years, the Contractor is
required to drill two wildcat wells, perform
seismic data acquisition and processing and expend
a minimum of $4 million (The Contractor has
elected to proceed with the second phase of the
Contract. The seismic data acquisition
requirement for the second phase has been
satisfied.);
3. During the last two years, the Contractor is
required to drill two wildcat wells and expend a
minimum of $4 million.
The Production Sharing Agreement may be terminated by
the Contractor at the end of each phase of the
Exploration period, without further obligation.
o On December 1, 1995, the Company submitted certain
accounting disputes to arbitration arising from
Apache's operations at the Zhao Dong Block. In the
initial submission, the Company disputed certain
amounts charged to the Company by Apache in the August,
September and October 1995 joint interest billings and
the November and December 1995 cash calls. Amounts
involved in later months joint interest billings and
cash calls were subsequently added to the submission.
As of July 31, 1996, the total amount in dispute and
claimed by Apache to be owed by the Company was $3.2
million. An audit of Apache by Company personnel called
into question approximately $500,000 of charges in one
category of costs in dispute. While the Company
believes that certain charges are valid, and has fully
provided for them in the consolidated financial
statements, it does not have sufficient liquidity to
make payment at this time.
o The Company has future commitments of $1.8 million
associated with its joint venture contract to enter the
lubricating oil business in China. Additional payments
totaling $1.8 million are to be made, the first of
which, in the amount of $550,000, is past due. The
Company is in negotiations to reschedule the payments
and expects to reach a satisfactory agreement.
o During 1992, the Company received notice, and amendment
thereto, of a proposed assessment for state income and
franchise taxes. During December 1993, the Company and
two of its wholly-owned subsidiaries, XCL-Texas, Inc.
and XCL Acquisitions, Inc. were sued in separate law
suits entitled Ralph Slaughter, Secretary of the
Department of Revenue and Taxation, State of Louisiana
vs. Exploration Company of Louisiana, Inc. (15th
Judicial District, Parish of Lafayette, Louisiana,
Docket No. 93-5449); Ralph Slaughter, Secretary of the
Department of Revenue and Taxation, State of Louisiana
vs. XCL-Texas, Incorporated (15th Judicial District,
Parish of Lafayette, Louisiana, Docket No. 93-5450);
and Ralph Slaughter, Secretary of the Department of
Revenue and Taxation, State of Louisiana vs. XCL
Acquisitions, Inc. (15th Judicial District, Parish of
Lafayette, Louisiana, Docket No. 93-5337) by the
Louisiana Department of Revenue for Louisiana State
corporate franchise and income taxes. The claims
relate to assessments for the 1987 through 1991 fiscal
years. The aggregate amount of the assessments as of
December 31, 1995, including penalties and interest, is
approximately $2.25 million. The Company believes that
this contingency has been adequately provided for in
the consolidated financial statements. The law suits
are all in their initial stages. The Company has filed
answers to each of these suits and intends to defend
them vigorously. The Company believes it has
meritorious defenses and has instructed its counsel to
contest these claims.
o In connection with a lawsuit entitled The Elia G.
Gonzalez Mineral Trust, et al vs. Edwin L. Cox, et al
which was settled and dismissed on December 31, 1993,
two groups of non-participating royalty owners filed
interventions. The court ordered the interventions
stricken. During 1994, the first group appealed and
the second group filed a new lawsuit. The Company
settled the new lawsuit filed by the second group with
its share of the settlement being $20,000. During
December 1994, the appellate court affirmed the trial
court's decision to deny the intervention to the first
group. The Company, in March 1995, was named as a third
party defendant by the original lessor who had been
previously sued by the nonparticipating royalty owners
comprising the first group. Management believes that
the outcome of the lawsuit will not have a material
adverse effect on the Company's liquidity or results of
operations. The Company intends to defend vigorously
all claims asserted by the first group in its lawsuit.
o During April 1994, the Company was sued in an action
entitled Kathy M. McIlhenny vs. The Exploration Company
of Louisiana, Inc. (15th Judicial District Court,
Parish of Lafayette, Louisiana, Docket No. 941845).
Kathy McIlhenny, former wife of a former director of
the Company, has asserted a claim in the aggregate
amount of approximately $500,000 in respect of
compensation for certain services alleged to have been
performed on behalf of the Company and under an alleged
verbal employment agreement and, by amendment, asserted
a claim for payments arising from purported rights to
mineral interests. The Company believes that such
claim is without merit and rejects the existence of any
such alleged agreement.
o On July 26, 1996, Mr. Frank Armstrong of Corpus Christi,
Texas, individually and on behalf of others (the
"Plaintiffs") filed three lawsuits against XCL-Texas,
Inc., a wholly-owned subsidiary of the Company.
The first lawsuit entitled Stroman Ranch Company Ltd.,
et al v. XCL-Texas, Inc. (229th Judicial District, Jim
Hogg County, Texas, Cause No. 4550) alleges that in
order to secure from Plaintiffs an amendment to an oil
and gas lease in order to allow for the creation of a
voluntary pooled unit, the Company represented to the
Plaintiffs, that it (1) would make a series of payments
totaling $80,000 and (2) would commence drilling a well
prior to December 31, 1993, or pay $500,000 as
liquidated damages. Further, the Plaintiffs allege that
the Company has supplied false and misleading
information to them in order to deprive them of their
rightful share of an oil, gas and mineral estate and
revenue therefrom; that being a 50 percent interest in
the pooled unit rather than the 30 percent interest
actually received. Plaintiffs allege actual damages of
$580,000, any additional amounts to result from an
accounting of the amount of damages suffered by the
Plaintiffs, exemplary damages, court costs and
interest. The Company denies liability and expects not
only to enter affirmative defenses but to counter claim
for damages to the Company caused by the actions of the
Plaintiffs.
The second lawsuit entitled Frank Armstrong, et al v.
XCL-Texas, Inc. (229th Judicial District, Jim Hogg
County, Texas, Cause No. 4551) alleges that the Company
did not adequately represent the interests of the
Plaintiffs before a Texas Railroad Commission hearing,
therefore, the Plaintiffs incurred legal and related
expenses totaling $56,473.00 for which they seek
reimbursement. The Company denies liability and
intends to vigorously defend itself.
The third lawsuit entitled Stroman Ranch Company Ltd.,
et al v. XCL-Texas, Inc. (229th Judicial District, Jim
Hogg County, Texas, Cause No. 4552) alleges that, with
respect to a lease executed in 1938 and assigned to the
Company by Edwin L. and Berry R. Cox (the "Cox Group"),
ceased producing in paying quantities prior to November
11, 1987 and therefore should be declared terminated.
In the alternative, the Plaintiffs seek a declaratory
judgment that the Cox Group engaged in bad faith,
invalid and wrongful pooling of the 1938 lease with
another lease executed in 1985. Further, the Plaintiffs
seek damages in excess of $1 million to effect
environmental restoration arising from damage caused by
the Company's operation of the leases in question.
Finally, Plaintiffs seek an accounting and the damages
determined from such accounting, of all oil and gas
production and revenues from the sale of the same under
the 1938 lease, attorneys fees and court costs. The
Company believes the claims made in this lawsuit are
without merit and intends to vigorously defend itself.
o The Company may be subject to other legal proceedings
which arise in the ordinary course of its business. In
the opinion of Management, the amount of ultimate
liability with respect to these actions will not
materially affect the financial position of the Company
or results of operations of the Company.
o The Company is subject to existing federal, state and
local laws and regulations governing environmental
quality and pollution control. Although management
believes that such operations are in general compliance
with applicable environmental regulations, risks of
substantial costs and liabilities are inherent in oil
and gas operations, and there can be no assurance that
significant costs and liabilities will not be incurred.
<PAGE>
XCL LTD. AND SUBSIDIARIES
June 30, 1996
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
The Company has incurred recurring net losses and currently
has a working capital deficit. The Company anticipates
insufficient cash flows from operations to meet its current
obligations, including expenditures required for the development
of the Company's assets. Since 1994, the Company has been able
to meet its financial obligations by obtaining funds from sales
of equity in the Company and sales of various assets. Management
believes that it will be able to continue to meet its financial
obligations and fund the development of its investments through
joint ventures with partners, continued sales of assets and
continued sales of equity instruments. However, as of August 1,
1996, the Company did not have sufficient commitments in place to
insure that the Company's obligations for 1996 could be
satisfied. Included in such obligations are trade payables (net
of disputed amounts) of approximately $1.0 million as of August
1, 1996, of which 59 percent are unpaid in excess of 120 days
from the invoice date. Further, in addition to such trade
payables, as of July 31, 1996, the Company has accrued
liabilities of approximately $3.2 million in dispute with Apache
arising from joint interest billings and cash calls. An audit of
Apache conducted by Company personnel has called into question
approximately $.5 million of charges in one category of costs in
dispute. While the Company believes that certain of the
remaining charges are valid, it does not have sufficient
liquidity to make payment at this time. Until alternative sources
of funds are obtained, substantial doubt exists regarding the
Company's ability to continue as a going concern. Management is
presently pursuing several financing arrangements, which if
consummated, may provide the necessary funds to satisfy its
working capital requirements.
At June 30, 1996, the Company had an operating cash balance
of $200,000 and a working capital deficit of $28 million, which
includes $4.9 million in limited recourse debt collateralized
only by the Lutcher Moore Tract and $17.3 million in bank debt.
The bank debt is collateralized by the Company's domestic oil and
gas properties and the stock of certain subsidiaries. During
1995, the Company's bank agreement was amended to modify certain
covenant requirements through September 29, 1995. These covenants
were subsequently amended to modify requirements through April 1,
1996, and again amended through September 30, 1996. Should
improvements in the Company's financial position not occur, the
Company would be in violation of its credit agreement subsequent
to October 1, 1996, giving the bank the right to accelerate
payment of the debt after applicable grace periods. Further, the
borrowing base under this credit agreement is determined, in
part, by the value of the Company's domestic proved reserves
which are applicable to properties classified in the balance
sheet as assets held for sale.
The Company did not make an interest payment of $367,000 due
the bank on August 6, 1996, resulting in an event of default
under the terms of the credit agreement. Subsequent to that
date the Company concluded a transaction which generated
sufficient funds and the payment was made on August 14, 1996.
The Company also has $4.9 million of Limited Recourse debt
outstanding which is collateralized by the Lutcher Moore Tract,
of which $2.4 million is due on December 17, 1996. Payments of
principal and interest on the remaining $2.5 million of the
Lutcher Moore limited recourse debt are past due. No action has
been taken by the holders of the debt. Should the Company not be
successful in its attempts to sell the property or refinance the
debt on the property the holders have recourse only to the
property itself, as the Company is not liable for the debt.
The Company's Series A Preferred Stock dividend requirements
are approximately 2.6 million pounds sterling (U.K.) annually and
currently insufficient liquidity exists to continue to pay such
amounts. The Company declared the Series A Preferred Stock
dividend payable June 30, 1995. A portion of this dividend was
paid with shares of Common Stock and approximately $900,000
remains to be paid in cash. As the Company was unable to pay this
dividend by June 30, 1996, the holders of Series A Preferred
Stock can now require Board of Director representation. The
December 31, 1995 dividend payment on the Series A Preferred
Stock has been declared payable in additional shares of Series A
Preferred Stock, however such shares cannot be issued until the
shares allocated to withholding taxes are sold for cash and the
proceeds remitted to the taxing authorities. The Board of
Directors elected not to declare the dividend payable June 30,
1996.
The Company's cash flow forecast for July 1 - December 31,
1996 projects that approximately $11 million of additional
working capital will be required to fund operational activities
and further develop China projects. Management's plans to
obtain the necessary capital include:
o The sale of the Lutcher Moore Tract. The Company is in
ongoing negotiations for the sale of this property.
Should a sale be completed, $4.9 million of the
proceeds would be applied to the limited recourse debt
with additional proceeds used to further prepay bank
debt and satisfy working capital requirements.
o On April 23, 1996, the Company sold in Regulation S
transactions, an additional 30 Units of Common Stock
and Warrants at $15,000 per Unit. The Company received
approximately $349,000 of net proceeds, after deduction
of offering costs and expenses. An aggregate of
1,800,000 shares of Common Stock and Warrants to
acquire an additional 1,800,000 shares of Common stock
were issued at closing.
o In June and July 1996, the Company sold 970,000 shares of
Common Stock held as Treasury Stock in Regulation S
transactions for net proceeds after fees and discounts
of $146,775.
o Negotiating joint venture agreements with potential
partners to supply the cash needed to pursue various
China projects. Discussions with several potential
partners are in progress.
o Until July 29, 1996, the Company was engaged in attempts
to sell its remaining domestic oil and gas properties.
On that day it received service of three lawsuits filed
by lessors of the most productive remaining lease,
effectively thwarting the Company's ability to
consummate a sale by casting doubt as to the Company's
rights to certain interests in the leases and demanding
damages. While the Company believes that the charges
are without merit, it is of the opinion that the
property cannot be sold until such time as the
litigation is concluded.
With respect to short term requirements to fund the
Company's ongoing general and administrative costs, the Company
believes that working capital will be made available from certain
of its major stockholders or other investors, should the Company
enter into a letter(s) of intent with potential joint venture
participants to provide funds for the Company's further overhead
expenditures and for the capital requirements of the China
projects. By shareholder vote on July 30, 1996, the shareholders
approved an increase of 150,000,000 authorized shares of Common
Stock and 1,200,000 authorized shares of Preferred Stock.
Longer term liquidity is dependent on the Company's
commencement of production in China and continued access to
capital markets, including its ability to issue additional debt
and equity securities, which in certain cases may require the
consent of INCC and holders of the Company's Subordinated Debt
and Preferred Stock.
Other General Considerations
- ----------------------------
The Company believes that inflation has had no material
impact on the Company's sales, revenues or income during the
reporting periods. Drilling costs and costs of other related
services during the relevant periods have remained stable.
The Company is subject to existing federal, state and local
laws and regulations governing environmental quality and
pollution control. Although management believes that such
operations are in general compliance with applicable
environmental regulations, risks of substantial costs and
liabilities are inherent in oil and gas operations, and there can
be no assurance that significant costs and liabilities will not
be incurred.
Results of Operations
- ---------------------
During the three and six month periods ended June 30, 1996,
the Company incurred net losses of $3.1 million and $4.7 million,
respectively, as compared to net losses of $13.3 million and
$14.9 million, respectively, during the corresponding periods in
1995. The loss in 1996 reflects the effect of a $1.3 million
writedown of the Company's investments. The six months results
for 1995 include a $10.7 million provision for impairment of oil
and gas properties. The carrying amounts of the Company's
properties in Texas were written down by $10.7 million in the
second quarter of 1995 in order to comply with the ceiling
limitation prescribed by the Securities and Exchange Commission
(the "SEC") principally due to downward revisions in estimated
reserves.
Oil and gas revenues for the three and six month periods
ended June 30, 1996, were $.4 million and $.9 million compared to
$.7 million and $1.4 million during the corresponding periods in
1995. Revenues and associated expenses will continue to decline
as the Company completes its announced program of selling
substantially all of its U.S. producing properties. Net interest
charges are not expected to increase significantly throughout
1996, as the Company has made $7.8 million in principal payments
on its bank debt in the first and second quarters of 1996.
As the Company continues to focus its resources on
exploration and development of the Zhao Dong Block future oil and
gas revenues will initially be directly related to the degree of
drilling success experienced in the Zhao Dong Block. The Company
does not anticipate significant increases in its oil and gas
production in the short-term and expects to incur operating
losses until such time as sufficient revenues from the China
projects are realized which exceed operating costs.
<PAGE>
XCL LTD. AND SUBSIDIARIES
June 30, 1996
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In October 1991, lessors under two leases dated July 20,
1982, and February 1, 1985, which were subsequently pooled to
form the R. Gonzalez No. 1 Gas Unit covering 526 acres in the
Berry R. Cox Field, filed suit against the Company and others who
hold or previously held working interests in the Gas Unit in an
action entitled The Elia G. Gonzalez Mineral Trust, et al. v.
Edwin L. Cox, et al. (341st Judicial District, Webb County,
Texas, Docket No. C-91-747-D3). The suit alleged non-performance
under certain express and implied terms of the leases, including
an allegation that defendants failed to protect the leases
against drainage from wells on adjacent tracts and failed to
properly pay royalties, and seeking an accounting of revenues and
expenses, damages and attorney's fees. The Court ordered that the
parties subject the dispute to non-binding mediation. As a
result of the mediation, the parties agreed to an amount for a
settlement payment and to the terms of a settlement agreement
dispensing with all issues and dismissing the suit. The
Company's share of the settlement payment amounted to $750,000.
The parties executed and consummated the settlement on December
31, 1993.
Two groups filed interventions in this matter on March 5,
1993, and March 15, 1993, The first group are non-participating
royalty owners claiming under the same group of leases as the
original plaintiffs. The second group sued under different
leases. The interventions were opposed by the original plaintiffs
and all defendants. After hearing arguments, the court ordered
the interventions stricken on July 14, 1993. During 1994, the
first group appealed and the second group filed a new lawsuit.
The Company settled the new lawsuit filed by the second group
with its share of the settlement being $20,000. During December
1994, the appellate court affirmed the trial court's decision to
deny the intervention to the first group. The Company in March
1995, was named as a third party defendant by the original lessor
who had been previously sued by the nonparticipating royalty
owners comprising the first group. Management believes that the
outcome of the lawsuit will not have a material adverse effect on
the Company's financial position or results of operations. The
Company intends to defend diligently all claims asserted by the
first group in its lawsuit.
During December 1993, the Company and two of its wholly-
owned subsidiaries, XCL-Texas, Inc. and XCL Acquisitions, Inc.
were sued in separate law suits entitled Ralph Slaughter,
Secretary of the Department of Revenue and Taxation, State of
Louisiana vs. Exploration Company of Louisiana, Inc. (15th
Judicial District, Parish of Lafayette, Louisiana, Docket No. 93-
5449); Ralph Slaughter, Secretary of the Department of Revenue
and Taxation, State of Louisiana vs. XCL-Texas, Incorporated
(15th Judicial District, Parish of Lafayette, Louisiana, Docket
No. 93-5450); and Ralph Slaughter, Secretary of Department of
Revenue and Taxation, State of Louisiana vs. XCL Acquisitions,
Inc. (15th Judicial District, Parish of Lafayette, Louisiana,
Docket No. 93-5337) by the Louisiana Department of Revenue for
Louisiana State corporate franchise and income taxes. The claims
relate to assessments for the 1987 through 1991 fiscal years. The
aggregate amount of the assessments as of December 31, 1995,
including penalties and interest, is approximately $2.25 million.
The Company believes that these assessments have been adequately
provided for in the consolidated financial statements. The
lawsuits are all in their initial stages. The Company has filed
answers to each of these suits and intends to defend them
vigorously. The Company believes that it has meritorious defenses
and has instructed its counsel to contest these claims.
During April 1994, the Company was sued in an action
entitled Kathy M. McIlhenny vs. The Exploration Company of
Louisiana, Inc. (15th Judicial District Court, Parish of
Lafayette, Louisiana, Docket No. 941845). Kathy McIlhenny,
former wife of a former officer and director of the Company, has
asserted a claim in the aggregate amount of approximately
$500,000 in respect of compensation for certain services alleged
to have been performed on behalf of the Company and under an
alleged verbal employment agreement and, by amendment, asserted a
claim for payments arising from purported rights to mineral
interests. The Company believes that such claim is without merit
and rejects the existence of any such alleged agreement.
On December 1, 1995, the Company submitted certain
accounting disputes to arbitration arising from Apache's
operations at the Zhao Dong Block. In the initial submission,
the Company disputed certain amounts charged to the Company by
Apache in the August, September and October 1995 joint interest
billings and the November and December 1995 cash calls. Amounts
involved in later months joint interest billings and cash calls
were subsequently added to the submission. As of July 31, 1996,
the total amount in dispute and claimed by Apache to be owed by
the Company was $3.2 million. An audit of Apache by Company
personnel called into question approximately $.5 million of
charges in one category of costs in dispute. While the Company
believes that certain charges are valid, and has fully provided
for them in the consolidated financial statements, it does not
have sufficient liquidity to make payment at this time.
On July 26, 1996, Mr. Frank Armstrong of Corpus Christi,
Texas, individually and on behalf of others (the "Plaintiffs")
filed three lawsuits against XCL-Texas, Inc., a wholly-owned
subsidiary of the Company.
The first lawsuit entitled Stroman Ranch Company Ltd., et al
v. XCL-Texas, Inc. (229th Judicial District, Jim Hogg County,
Texas, Cause No. 4550) alleges that in order to secure from
Plaintiffs an amendment to an oil and gas lease in order to allow
for the creation of a voluntary pooled unit, the Company
represented to the Plaintiffs, that it (1) would make a series of
payments totaling $80,000 and (2) would commence drilling a well
prior to December 31, 1993, or pay $500,000 as liquidated
damages. Further, the Plaintiffs allege that the Company has
supplied false and misleading information to them in order to
deprive them of their rightful share of an oil, gas and mineral
estate and revenue therefrom; that being a 50 percent interest in
the pooled unit rather than the 30 percent interest actually
received. Plaintiffs allege actual damages of $580,000, any
additional amounts to result from an accounting of the amount of
damages suffered by the Plaintiffs, exemplary damages, court
costs and interest. The Company denies liability and expects not
only to enter affirmative defenses but to counter claim for
damages to the Company caused by the actions of the Plaintiffs.
The second lawsuit entitled Frank Armstrong, et al v. XCL-
Texas, Inc. (229th Judicial District, Jim Hogg County, Texas,
Cause No. 4551) alleges that the Company did not adequately
represent the interests of the Plaintiffs before a Texas Railroad
Commission hearing, therefore, the Plaintiffs incurred legal and
related expenses totaling $56,473.00 for which they seek
reimbursement. The Company denies liability and intends to
vigorously defend itself.
The third lawsuit entitled Stroman Ranch Company Ltd., et al
v. XCL-Texas, Inc. (229th Judicial District, Jim Hogg County,
Texas, Cause No. 4552) alleges that, with respect to a lease
executed in 1938 and assigned to the Company by Edwin L. and
Berry R. Cox (the "Cox Group"), ceased producing in paying
quantities prior to November 11, 1987 and therefore should be
declared terminated. In the alternative, the Plaintiffs seek a
declaratory judgment that the Cox Group engaged in bad faith,
invalid and wrongful pooling of the 1938 lease with another lease
executed in 1985. Further, the Plaintiffs seek damages in excess
of $1 million to effect environmental restoration arising from
damage caused by the Company's operation of the leases in
question. Finally, Plaintiffs seek an accounting and the damages
determined from such accounting, of all oil and gas production
and revenues from the sale of the same under the 1938 lease,
attorneys fees and court costs. The Company believes the claims
made in this lawsuit are without merit and intends to vigorously
defend itself.
Other than disclosed above, there are no material pending
legal proceedings to which the Company or any of its subsidiaries
is a party or to which any of their properties are subject.
Item 4. Submission of Matters to a Vote of Security-Holders.
On July 1, 1996, the Company held an Annual Meeting of
Shareholders at the Lafayette Petroleum Club, 111 Heymann
Boulevard, Lafayette, Louisiana. A quorum was present, and the
matters put to a vote at the meeting were (1) election of two
Class III directors of the Company's Board of Directors, and (2)
approval of an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of
Common Stock and Preferred Stock.
The Company's Board of Directors is divided into three
Classes with each Class consisting of at least one executive
director and at least one non-executive director serving three
year terms. Messrs. John T. Chandler and Fred Hofheinz were
elected as Class III directors at this meeting. A total of not
fewer than 235,488,467 votes, constituting a plurality of all of
the votes cast at the meeting by holders of share present in
person or by proxy, were voted for each of the named persons
elected as Class III directors to the Company to serve until the
Annual Meeting of Shareholders to be held in 1999.
Class I directors are Messrs. David A. Melman, Arthur W.
Hummel, Jr., and Sir Michael Palliser, whose terms expire at the
1997 Annual Meeting of Shareholders and Class II directors are
Messrs. Marsden W. Miller, Jr. and Francis J. Reinhardt, Jr.,
whose terms expire at the 1998 Annual Meeting of Shareholders.
Mr. McIlhenny, a Class II director, resigned effective June 26,
1996.
With respect to the resolution relating to the approval and
adoption of an amendment to Article FOURTH of the Company's
Certificate of Incorporation to increase the Company's total
current authorized capital stock from 351,200,000 shares to
502,400,000 shares, consisting of 500,000,000 shares of Common
Stock, par value $.01 per share, and 2,400,000 shares of
Preferred Stock, par value $1.00 per share, a quorum was not
reached and the meeting was adjourned until July 30, 1996, to
allow for additional time in which to solicit the required number
of votes.
The adjourned Annual Meeting of Shareholders was held July
30, 1996, at the Lafayette Petroleum Club, 111 Heymann Boulevard,
Lafayette, Louisiana. A quorum was present, and the matter put to
a vote at the meeting was approval of an amendment to the
Company's Certificate of Incorporation to increase the number of
authorized shares of Common Stock and Preferred Stock.
With respect to the resolution relating to the approval and
adoption of an amendment to Article FOURTH of the Company's
Certificate of Incorporation to increase the Company's total
current authorized capital stock from 351,200,000 shares to
502,400,000 shares, consisting of 500,000,000 shares of Common
Stock, par value $.01 per share, and 2,400,000 shares of
Preferred Stock, par value $1.00 per share, a total of
170,273,372 votes were cast to ratify the amendment, as follows:
144,911,492 votes in favor
20,098,783 votes against
5,263,097 abstentions
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits required by Item 601 of Regulation S-K.
1.0 Not applicable
2.0 Not applicable
3(i) Articles of incorporation
3.1 Certificate of Incorporation of the Company dated
December 28, 1987. (A)(i)
3.2 Certificate of Amendment to the Certificate of
Incorporation of the Company dated March 30, 1988.
(A)(ii)
3.3 Certificate of Amendment to the Certificate of
Incorporation of the Company dated June 22, 1990. (B)(i)
3.4 Certificate of Amendment to the Certificate of
Incorporation of the Company dated June 12, 1993. (C)
3.5 Certificate of Amendment to the Certificate of
Incorporation of the Company dated June 8, 1992, whereby
Article Fourth was amended to increase the number of shares
of Common Stock authorized. (D)(i)
3.6 Certificate of Amendment to the Certificate of
Incorporation of the Company dated September 29, 1993,
whereby Article Fourth was amended to increase the number of
shares of Common Stock authorized. (E)(i)
3.7 Certificate of Amendment dated July 1, 1994, whereby
Article Fourth was amended to increase the number of shares
of Common Stock and the name of the Company was changed. (F)(i)
3.8 Certificate of Amendment dated June 19, 1995, whereby
Article Fourth was amended to increase the number of shares
of Common Stock. (N)(i)
3.9 Certificate of Amendment dated July 30, 1996, whereby
Article Fourth was amended to increase the number of shares
of Common Stock and Preferred Stock. *
3(ii) Amended and Restated Bylaws of the Company as currently
in effect. (A)(iii)
4.0 Instruments defining rights of security holders,
including indentures:
4.1 Form of Common Stock Certificate. (A)(iv)
4.2 Certificate of Designation of Series A, Cumulative
Convertible Preferred Stock. (G)
4.3 Form of Series A, Cumulative Convertible Preferred Stock
Certificate. (B)(ii)
4.4 Certificate of Designation of Series B, Cumulative
Preferred Stock. (H)(i)
4.5 Form of Series B, Cumulative Preferred Stock Certificate. (H)(ii)
4.6 Form of Class B Warrants issued to China Investment &
Development Co. Ltd. to purchase 2,500,000 shares of Common
Stock at $2.00 per share payable upon redemption of the
Series B, Cumulative Preferred Stock. (H)(iii)
4.7 Form of Amendment to Certificate of Designation of Series
B Preferred Stock dated August 7, 1992. (D)(ii)
4.8 Certificate of Designation of Series C, Cumulative
Convertible Preferred Stock. (E)(ii)
4.9 Copy of Amendment to Certificate of Designation of Series
C Preferred Stock dated February 18, 1994.(I)(i)
4.10 Form of Series C, Cumulative Convertible Preferred Stock
Certificate. (I)(iii)
4.11 Certificate of Designation of Series D, Cumulative
Convertible Preferred Stock. (I)(iv)
4.12 Form of Amendment to Certificate of Designation of
Series D Preferred Stock dated January 24, 1994. (I)(ii)
4.13 Form of Series D, Cumulative Convertible Preferred Stock
Certificate. (E)(v)
4.14 Form of Warrant dated January 31, 1994 to purchase
2,500,000 shares of Common Stock at an exercise price of
$1.00 per share, subject to adjustment, issued to INCC. (I)(iii)
4.15 Form of Registrar and Stock Transfer Agency Agreement,
effective March 18, 1991, entered into between the
Company and Manufacturers Hanover Trust Company (predecessor
to Chemical Bank), whereby Chemical Bank serves as the
Company's Registrar and U.S. Transfer Agent. (J)
4.16 Copy of Warrant Agreement and Stock Purchase Warrant
dated March 1, 1994 to purchase 500,000 shares of Common
Stock at an exercise price of $1.00 per share, subject to
adjustment, issued to EnCap Investments, L.C. (I)(iv)
4.17 Copy of Warrant Agreement and form of Stock Purchase
Warrant dated March 1, 1994 to purchase an aggregate 600,000
shares of Common Stock at an exercise price of $1.00 per
share, subject to adjustment, issued to principals of San
Jacinto Securities, Inc. in connection with its financial
consulting agreement with the Company. (I)(v)
4.18 Form of Warrant Agreement and Stock Purchase Warrant
dated April 1, 1994, to purchase an aggregate 6,440,000
shares of Common Stock at an exercise price of $1.25 per
share, subject to adjustment, issued to executives of the
Company surrendering all of their rights under their
employment contracts with the Company. (F)(ii)
4.19 Form of Warrant Agreement and Stock Purchase Warrant
dated April 1, 1994, to purchase an aggregate 878,900 shares
of Common Stock at an exercise price of $1.25 per share,
subject to adjustment, issued to executives of the Company
in consideration for salary reductions sustained under their
employment contracts with the Company. (F)(iii)
4.20 Form of Warrant Agreement and Stock Purchase Warrant
dated April 1, 1994, to purchase 200,000 shares of Common
Stock at an exercise price of $1.25 per share, subject to
adjustment, issued to Thomas H. Hudson. (F)(iv)
4.21 Form of Warrant Agreement and Stock Purchase Warrant
dated May 25, 1994, to purchase an aggregate 100,000 shares
of Common Stock at an exercise price of $1.25 per share,
subject to adjustment, issued to the holders of Purchase
Notes B, in consideration of amendment to payment terms of
such Notes. (F)(v)
4.22 Form of Warrant Agreement and Stock Purchase Warrant
dated May 25, 1994, to purchase an aggregate 100,000 shares
of Common Stock at an exercise price of $1.25 per share,
subject to adjustment, issued to the holders of Purchase
Notes B, in consideration for the granting of an option to
further extend payment terms of such Notes. (F)(vi)
4.23 Form of Amendment to Certificate of Designation of
Series B Preferred Stock dated June 30, 1994. (F)(vii)
4.24 Form of Warrant Agreement and Stock Purchase Warrant
dated January 31, 1995, to purchase 100,000 shares of Common
Stock at an exercise price of $.75 per share, subject to
adjustment, issued to Energy Advisors, Inc. (L)(i)
4.25 Copy of Amendment to Certificate of Designation of
Series A Preferred Stock dated October 31, 1995. (N)(ii)
4.26 Copy of Certificate of Designation of Series E,
Cumulative Convertible Preferred Stock dated November 2,
1995. (N)(iii)
4.27 Form of Purchase Agreement between the Company and each
of the Purchasers of Units in the Regulation S Unit Offering
conducted by Rauscher Pierce & Clark with closings as
follows:
December 22, 1995 116 Units
March 8, 1996 34 Units
April 23, 1996 30 Units (O)(i)
4.28 Form of Warrant Agreement between the Company and each
of the Purchasers of Units in the Regulation S Unit Offering
conducted by Rauscher Pierce & Clark, as follows:
Closing Date Warrants Exercise Price
------------ -------- --------------
December 22, 1995 6,960,000 $.50
March 8, 1996 2,040,000 $.35
April 23, 1996 1,800,000 $.35 (O)(ii)
4.29 Form of Warrant Agreement between the Company and
Rauscher Pierce & Clark in consideration for acting as
placement agent in the Regulation S Units Offering, as
follows:
Closing Date Warrants Exercise Price
------------ -------- --------------
December 22, 1995 696,000 $.50
March 8, 1996 204,000 $.35
April 23, 1996 180,000 $.35 (O)(iii)
4.30 Form of Amendment of Certificate of Designation of
Series A Preferred Stock dated April 11, 1996. (O)(iv)
10.0 - Material Contracts
10.1 Contract for Petroleum Exploration, Development and
Production on Zhao Dong Block in Bohai Bay Shallow Water Sea
Area of The People's Republic of China between China
National Oil and Gas Exploration and Development Corporation
and XCL - China, Ltd., dated February 10, 1993. (E)(vi)
10.2 $35,000,000 Credit Agreement dated as of January 31,
1994 between the Company and Internationale Nederlanden
(U.S.) Capital Corporation ("INCC"), as Agent. (I)(vi)
10.3 Copy of Subordination Agreement among the Company, INCC
and the holders of the Secured Notes dated. (I)(vii)
10.4 Form of First Amendment of Secured Subordinated Note
dated January 31, 1994. (I)(viii)
10.5 Form of First Amendment of Limited Recourse Secured
Lease Note dated January 31, 1994. (I)(ix)
10.6 Stock Pledge Agreement dated January 31, 1994, among the
Company and INCC. (I)(x)
10.7 Deed of Trust, Mortgage, Assignment, Security Agreement
and Financing Statement from XCL-Texas, Inc. to INCC dated
January 31, 1994. (I)(xi)
10.8 Form of Net Revenue Interest Assignment dated February
23, 1994, between the Company and the purchasers of the
Company's Series D, Cumulative Convertible Preferred Stock. (I)(xii)
10.9 Modification Agreement for Petroleum Contract on Zhao
Dong Block in Bohai Bay Shallow Water Sea Area of The
People's Republic of China dated March 11, 1994, between the
Company, China National Oil and Gas Exploration and
Development corporation and Apache China Corporation LDC. (I)(xiii)
10.10 Letter Agreement dated May 25, 1994 between the
Company, L.M. Holdings Associates, L.P. and vendors holding
Purchase Note B with respect to the Lutcher Moore Tract. (E)(vii)
10.11 Letter Agreement dated June 30, 1994 between the
Company, China Investment & Development Co. Ltd. and China
Investment and Development Corporation. (F)(ix)
10.12 Letter Agreement dated July 10, 1994 between the
Company and holders of the Lease Notes. (F)(x)
10.13 Stock Purchase Agreement between the Company and
Provincial Securities Limited dated May 17, 1994. (F)(xi)
10.14 Consulting agreement between the Company and Sir
Michael Palliser dated April 1, 1994. (K)(i)
10.15 Consulting agreement between the Company and Mr. Arthur
W. Hummel, Jr. dated April 1, 1994. (K)(ii)
10.16 Letter Agreement between the Company and Mr. William
Wang dated June 2, 1992, executed effective February 10,
1993. (K)(iii)
10.17 First Amendment to Credit Agreement between the Company
and Internationale Nederlanden (U.S.) Capital Corporation
dated April 13, 1995. (L)(ii)
10.18 Letter of Intent between the Company and CNPC United
Lube Oil Corporation for a joint venture for the manufacture
and sale of lubricating oil dated January 14, 1995. (L)(iii)
10.19 Purchase and Sale Agreement dated May 10, 1995, between
XCL Land, Ltd., a wholly owned subsidiary of the Company
("Seller") and The Succession of Edward M. Carmouche,
Matilda Gray Stream, Harold H. Stream, III, The Opal Gray
Trust, Matilda Geddings Gray Trust for Harold H. Stream,
III, Matilda Geddings Gray Trust for William Gray Stream,
Matilda Geddings Gray Trust for Sandra Gray Stream, M.G.
Stream Trust for Harold H. Stream, III, M.G. Stream Trust
for William Gray Stream, and M.G. Stream Trust for Sandra
Gray Stream ("Purchasers") whereby the Purchasers will
acquire Seller's fee interest in and to a parcel of
southwestern Louisiana land known as the Phoenix Lake
Tract. (L)(iv)
10.20 Farmout Agreement dated May 10, 1995, between XCL China
Ltd., a wholly owned subsidiary of the Company and Apache
Corporation whereby Apache will acquire an additional
interest in the Zhao Dong Block, Offshore People's Republic
of China. (L)(v)
10.21 Modification Agreement of Non-Negotiable Promissory
Note and Waiver Agreement between Lutcher & Moore
Cypress Lumber Company and L.M. Holding Associates, L.P.
dated June 15, 1995. (M)(i)
10.22 Third Amendment to Credit Agreement between Lutcher-
Moore Development Corp., Lutcher & Moore Cypress Lumber
Company, The First National Bank of Lake Charles, Mary
Elizabeth Mecom, The Estate of John W. Mecom, The Mary
Elizabeth Mecom Irrevocable Trust, Matilda Gray Stream, The
Opal Gray Trust, Harold H. Stream III, The
Succession of Edward M. Carmouche, Virginia Martin
Carmouche and L.M. Holding Associates, L.P. dated June 15,
1995. (M)(ii)
10.23 Second Amendment to Appointment of Agent for
Collection and Agreement to Application of Funds between
Lutcher-Moore Development Corp., Lutcher & Moore Cypress
Lumber Company, L.M. Holding Associates, L.P. and The
First National Bank of Lake Charles, dated June 15,
1995. (M)(iii)
10.24 Contract of Chinese Foreign Joint Venture dated July
17, 1995, between United Lube Oil Corporation and XCL
China Ltd. for the manufacturing and selling of
lubricating oil and related products. (M)(iv)
10.25 Letter of Intent dated July 17, 1995 between CNPC
United Lube Oil Corporation and XCL Ltd. for discussion of
further projects. (M)(v)
10.26 Form of Letter Agreement dated June 26, 1995
between the Company and three of its U.S. holders of
Series A Preferred Stock, whereby the following such
holders have agreed to accept Common Stock in respect of
dividends payable December 31, 1994 and June 30, 1995 in the
amounts set forth:
12/31/94 6/30/95
Holder Dividend Dividend Shares
------ -------- -------- ------
Kayne Anderson
Investment Management $627,788.12 $689,238.87 2,225,024
Cumberland Associates $429,056.51 $445,838.59 1,487,294
T. Rowe Price &
Associates, Inc. $159,975.00 $166,232.25 554,543 (M)(vi)
10.27 Copy of Letter Agreement dated March 31, 1995, between
the Company and China National Administration of Coal
Geology for the exploration and development of coal bed
methane in Liao Ling Tiefa and Shanxi Hanchang Mining
Areas. (N)(iv)
10.28 Copy of Second Amendment to Credit Agreement between
the Company and Internationale Nederlanden (U.S.) Capital
Corporation dated effective as of September 29, 1995. (N)(v)
10.29 Copy of Fee Agreement dated October 26, 1995, between
the Company and EnCap Investments L.C. for past services and
proposed European equity offering. (N)(vi)
10.30 Copy of Engagement Letter dated November 9, 1995,
between the Company and Rauscher Pierce & Clark for a
proposed Unit offering to be conducted in Europe. (N)(vii)
10.31 Memo of Understanding dated December 14, 1995, between
XCL Ltd. and China National Administration of Coal Geology. (O)(v)
10.32 Copy of Purchase and Sale Agreement dated December 28,
1995, between XCL Ltd., XCL-Texas, Inc. and Cody Energy
Corporation, for the sale to Cody Energy of the Mestena
Grande Field located in Texas. (O)(vi)
10.33 Form of Fourth Amendment to Credit Agreement between
Lutcher-Moore Development Corp., Lutcher & Moore Cypress
Lumber Company, The First National Bank of Lake Charles,
Mary Elizabeth Mecom, The Estate of John W. Mecom, The
Mary Elizabeth Mecom Irrevocable Trust, Matilda Gray
Stream, The Opal Gray Trust, Harold H. Stream III, The
Succession of Edward M. Carmouche, Virginia Martin
Carmouche and L.M. Holding Associates, L.P. dated January
16, 1996. (O)(vii)
10.34 Form of Third Amendment to Appointment of Agent for
Collection and Agreement to application of Funds between
Lutcher-Moore Development Corp., Lutcher & Moore Cypress
Lumber Company, L.M. Holding Associates, L.P. and The
First National Bank of Lake Charles, dated January 16,
1996. (O)(viii)
10.35 Copy of Purchase and Sale Agreement dated March 8,
1996, between XCL-Texas, Inc. and Tesoro E&P Company, L.P.
for the sale of the Gonzales Gas Unit located in south
Texas. (O)(ix)
10.36 Copy of Limited Waiver between the Company and
Internationale Nederlanden (U.S.) Capital Corporation
dated April 3, 1996. (O)(x)
10.37 Copy of Purchase and Sale Agreement dated April 22,
1996, between XCL-Texas, Inc. and Dan A. Hughes Company
for the sale of the Lopez Gas Unites located in south Texas. (P)
10.38 Form of Sale of Mineral Servitude dated June 18, 1996,
whereby the Company sold its 75 percent mineral interest in
the Phoenix Lake Tract to the Stream Family Limited Partners
and Virginia Martin Carmouche Gayle. *
11. Statement re computation of per share earnings *
16. Not applicable.
17. Not applicable.
20. Not applicable.
23. Not applicable.
24. Not applicable.
27. Financial Data Schedule *
99. Glossary of Terms *
- ------------
* Filed herewith.
(A) Incorporated by reference to the Registration Statement
on Form 8-B filed on July 28, 1988, where it appears as: (i)
through (iii) as Exhibits 3(a) through 3(c), respectively;
and (iv) as Exhibit 4.1.
(B) Incorporated by reference to a Quarterly Report on Form
10-Q filed on August 14, 1990, where it appears as: (i)
Exhibit 3 and (ii) Exhibit 4.4.
(C) Incorporated by reference to an Annual Report on Form 10-
K filed on March 30, 1992, where it appears as Exhibit
(3)(g).
(D) Incorporated by reference to a Quarterly Report on Form
10-Q filed August 14, 1992, where it appears as: (i)
Exhibit 4.25 and (ii) Exhibit 4.28.
(E) Incorporated by reference to a Registration Statement on
Form S-3 (File No. 33-68552) where it appears as: (i)
Exhibit 4.27; (ii) Exhibit 4.14; (iii) Exhibit 4.16; (iv)
Exhibit 4.17; (v) Exhibit 4.19; (vi) Exhibit 10.1; and (vii)
Exhibit 10.6.
(F) Incorporated by reference to Post-Effective Amendment No.
2 to Registration Statement on Form S-3 (File No. 33-68552)
where it appears as: (i) through (iii) Exhibits 4.28 through
4.30, respectively; (iv) through (viii) Exhibits 4.34
through 4.38, respectively; and (ix) through (xi) Exhibits
10.8 through 10.10, respectively.
(G) Incorporated by reference to a Current Report on Form 8-K
filed on August 13, 1990, where it appears as Exhibit 4.
(H) Incorporated by reference to Quarterly Report on Form 10Q
filed May 15, 1991, where it appears as: (i) Exhibit 4.1;
(ii) Exhibit 4.2; and (iii) Exhibit 4.5.
(I) Incorporated by reference to Amendment No. 1 to Annual
Report on Form 10-K filed April 15, 1994, where it appears
as: (i) Exhibit 4.35; (ii) Exhibit 4.31; (iii) Exhibit
4.32; (iv) Exhibit 4.36; (v) Exhibit 4.37; (vi) through
(xii) Exhibit 10.41 through Exhibit 10.47, respectively; and
(xii) Exhibit 10.49.
(J) Incorporated by reference to an Annual Report on Form 10K
for the fiscal year ended December 31, 1990, filed April 1,
1991, where it appears as Exhibit 10.27.
(K) Incorporated by reference to Amendment No. 1 to an Annual
Report on Form 10-K/A No. 1 for the fiscal year ended
December 31, 1994, filed April 17, 1995, where it appears
as: (i) through (iii) Exhibits 10.22 through 10.24,
respectively.
(L) Incorporated by reference to Quarterly Report on Form
10-Q for the quarter ended March 31, 1995, filed May
15, 1995, where it appears as: (i) Exhibit 4.28; and (ii)
through (v) Exhibits 10.25 through 10.28, respectively.
(M) Incorporated by reference to Quarterly Report on Form
10-Q for the quarter ended June 30, 1995, filed August 14,
1995, where it appears as: (i) through (vi) Exhibits 10.29
through 10.34, respectively.
(N) Incorporated by reference to Quarterly Report on Form
10-Q for the quarter ended September 30, 1995, filed
November 13, 1995, where it appears as: (i) Exhibit
3.8; (ii) and (iii) Exhibits 4.29 and 4.30, respectively;
and (iv) through (vii) Exhibits 10.35 through 10.38,
respectively.
(O) Incorporated by reference to Annual Report on Form 10-K
for the year ended December 31, 1995, filed April 15, 1996,
where it appears as: (i) through (iv) Exhibits 4.28
through 4.31, respectively; and (v) through (x)
Exhibits 10.31 through 10.36, respectively.
(P) Incorporated by reference to Quarterly Report on Form 10-
Q for the quarter ended March 31, 1996, filed May 15, 1996,
where it appears as Exhibit 10.37.
(b) Reports on Form 8-K
A current report on Form 8-K was filed on April 1, 1996, to
report that the Company had completed the sale of the Gonzales
Gas Unit to Tesoro E&P Company, L.P.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
XCL Ltd.
/s/ David A. Melman
By: __________________________
David A. Melman
Executive Vice President and
General Counsel
Date: August 14, 1996
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF THE STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT
COPY OF THE CERTIFICATE OF AMENDMENT OF "XCL LTD.", FILED IN THIS
OFFICE ON THE THIRTIETH DAY OF JULY, A.D. 1966, AT 4 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO
THE NEW CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
[DELWARE STATE SEAL]
[SECRETARY'S SEAL] /s/ Edward J. Freel
-------------------------
Edward J. Freel,
Secretary of State
2147839 8100 AUTHENTICATION: 8062168
960222474 DATE: 08-09-96
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
XCL LTD.
________________________________
XCL Ltd., a Delaware corporation, in order to amend its
Certificate of Incorporation pursuant to Section 242 of the
General Corporation Law of the State of Delaware, hereby
certifies as follows:
FIRST: On March 21, 1996, the Board of Directors of said
Corporation has duly adopted a resolution proposing and declaring
advisable the following amendment to the Certificate of
Incorporation of the Corporation:
RESOLVED: That the first sentence of Article FOURTH (A)
of the Certificate of Incorporation be amended to
read in full as follows:
"The total number of shares which the Corporation shall
have authority to issue is 502,400,000 of which
500,000,000 shares of par value $.01 per share
shall be designated `Common Stock' and 2,400,000
shares of par value $1.00 per share shall be
designated `Preferred Stock.'"
SECOND: The proposed amendment was presented at the
adjourned annual meeting of shareholders of the Corporation which
was originally convened on July 1, 1996, in Lafayette, Louisiana,
pursuant to written notice duly given required by Section 222 of
the General Corporation Law of the State of Delaware and
adjourned to July 30, 1996 at Lafayette, Louisiana.
THIRD: As of May 3, 1996, the official record date of the
special meeting in lieu of annual meeting of shareholders, there
were outstanding; 266,040,305 shares of Common Stock, entitled to
one vote per share; 599,244 shares of Series A, Cumulative
Convertible Preferred Stock, entitled to 21 votes per share; and
44,954.2858 shares of Series B, Cumulative Preferred Stock,
entitled to 50 votes per share, for an aggregate 280,872,143
votes entitled to be cast at the meeting. A majority of the votes
entitled to be cast at the meeting constitutes a quorum for the
transaction of business. An aggregate of 247,258,939 shares of
Common Stock were represented at the annual meeting of
shareholders either in person or by proxy and accordingly a
quorum was present. The aforementioned, proposed amendment to
the Certificate of Incorporation was voted upon, approved and
adopted by shareholders casting votes at said meeting as follows:
FOR: 144,911,492
AGAINST: 20,098,783
ABSTAIN: 5,263,097
FOURTH: Said amendment was, accordingly, duly adopted by
the votes of the holders of at least a majority of all the
outstanding shares entitled to vote thereon at the meeting in
accordance with Section 242 of the General Corporation Law of the
State of Delaware and Article 4B(5) of the Corporation's
Certificate of Incorporation, as amended.
FIFTH: The capital of said Corporation shall not be
reduced under or by reason of the said amendment.
SIXTH: The foregoing amendment shall become effective on
the date of the filing of this Certificate with the office of the
Secretary of State of Delaware.
IN WITNESS WHEREOF, the said Corporation has caused this
Certificate of Amendment to be signed and attested by its
officers thereunto duly authorized and its corporate seal to be
affixed this 30th day of July, 1996.
/s/ David A. Melman
_____________________________
David A. Melman
Executive Vice President
ATTEST:
/s/ Lisha C. Falk
_______________________________
Lisha C. Falk
Assistant Secretary
<PAGE>
STATE OF LOUISIANA )
:ss:
PARISH OF LAFAYETTE )
BE IT REMEMBERED that on this 30th day of July, 1996,
personally came before me, a Notary Public in and for the State
and Parish aforesaid, David A. Melman and Lisha C. Falk, the
Executive Vice President and the Assistant Secretary,
respectively, of XCL Ltd., the corporation described in the
foregoing instrument and known to me personally to be such, and
acknowledged the said instrument to be their own act and deed and
the act and deed of said corporation; that the signatures are in
their own handwriting , and that the facts stated in said
instrument are true.
/s/ Suzanne Marse Bourque
________________________________
Notary Public
My commission expires: At Death
SALE OF MINERAL SERVITUDE
This Sale of Mineral Servitude (the "Sale") is made and
entered into by and between:
XCL LAND, LTD., a Delaware corporation whose mailing address
is 110 Rue Jean Lafitte, Lafayette, Louisiana, 70508, and
whose Tax I.D. Number is 51-0334575 ("Seller");
STREAM FAMILY LIMITED PARTNERSHIP. a Texas limited
partnership, (Tax I.D. Number 72-1311449) represented
herein by Matilda Stream Management, Inc., a Louisiana
business corporation, its Managing General Partner, herein
represented by its Executive Vice President, Harold II.
Stream III, duly authorized by Resolution of the Board of
Directors of the corporation, a certified copy of which is
attached hereto, whose mailing address is Post Office Box
40, Lake Charles, Louisiana, 70602, herein sometimes
referred to as the "Partnership"; and
VIRGINIA MARTIN CARMOUCHE GAYLE, wife of Willis W. Gayle, a
resident of Calcasieu Parish, Louisiana (Social Security
No. ###-##-####), whose mailing address is 3820 Lake
Street, Lake Charles, Louisiana, 70605, who together with
the Partnership are sometimes herein collectively referred
to as the "Stream Group"
Section 1. Prior Conveyance. By instrument dated May 18,
1995, and duly filed for record in the Conveyance Records of
Calcasieu Parish, Louisiana under Entry No. 2253446, and in the
Conveyance Records of Cameron Parish, Louisiana, in Conveyance
Book 816, at Entry No. 240851, (the "Prior Conveyance") Seller
did convey all of Seller's undivided interest in the immovable
property described on Exhibit "A" attached thereto (the "Phoenix
Lake Tract"). In the Prior Conveyance. Seller reserved and
retained unto itself, and its successors and assigns, a mineral
servitude of seventy-five percent (75%) of its seven-ninths (7/9)
interest in and to (a) the oil, gas and other minerals therein
conveyed and (b) all mineral and royalty rights whatsoever under
the interest conveyed. (Except that Seller did not reserve any
mineral servitude whatsoever with respect to: (a) Section 32,
Township 11 South, Range 13 West, Calcasieu Parish, being all of
Tract I described in Exhibit "A" to the Prior Conveyance; and (b)
fractional Section 30, Township 11 South, Range 13 West,
Calcasieu Parish, being a portion of Tract II described in
Exhibit "A" to the Prior Conveyance.)
Section 2. Sale. Seller does hereby GRANT, CONVEY,
BARGAIN, SELL, TRANSFER, ASSIGN, SET OVER AND DELIVER, unto the
Stream Group, and their successors and assigns, in the
proportions set forth opposite the name of each member of the
Stream Group as follows:
STREAM GROUP PROPORTIONATE SHARE
Stream Family Limited Partnership 95.34%
Virginia Martin Carmouche Gayle 4.66%
all of Seller's undivided 7/9ths interest being all of Seller's
undivided interest in and to the mineral servitude reserved by
Seller in the Prior Conveyance described above. To have and to
hold unto the Stream Group and the Stream Group's successors,
heirs and assigns forever.
This Sale is made and accepted for and in consideration of
We price and sum of FOUR HUNDRED SEVENTEEN THOUSAND AND NO/100
($417,000.00) DOLLARS, cash in hand paid, the receipt and
adequacy of which is hereby acknowledged by Seller. Seller and
the Stream Group agree that TWO HUNDRED SIXTY-FIVE THOUSAND AND
NO/100 ($265,000.00) DOLLARS of the purchase price shall be paid
to The First National Bank of Lake Charles (the "Bank") for
payment of principal and interest on that certain promissory note
payable to the order of Bank dated June 15, 1995, in the original
principal amount of $2,883,717.84 and secured by that certain
Collateral Mortgage Note dated November 16, 1987 in the principal
amount of S10,000,000.00 payable to Bearer, due on demand. and
bearing interest at the rate of 20% per annum from the date
thereof until paid, which note is secured by and paraphed for
identification with a Collateral Mortgage and Collateral Chattel
Mortgage dated November 16, 1987 recorded in the public records
of Ascension Parish in MOB 418 and COB 430 under Entry No.
251602, in the public records of St. James Parish in MOB 162 and
COB 291 under Entry No. 74929, and in the public records of St.
John the Baptist Parish in MOB 203 and COB 228 under Entry No.
116937. Such payment to the Bank shall be made under such terms
and conditions as agreed upon between Seller and the Bank.
Section 3. Warranty. Seller warrants title to the mineral
servitude conveyed herein with a covenant of special warranty by,
through and under Seller and no further, but with full
substitution and subrogation in and to all rights of warranty
that Seller may have against all previous owners or vendors.
Section 4. Further Assurances. Seller agrees to execute,
acknowledge where necessary. and deliver unto the Stream Group
all such other and additional instruments, notices, and other
documents and to do all such other and further acts and things
necessary to fully grant, convey, and assign the mineral
servitude to the Stream Group.
Section 5, Governing Law. This Sale is made under and
shall be construed in accordance with and governed by the laws of
the United States of America and the State of Louisiana without
giving any effect to principles of conflicts of laws.
Section 6. Waiver of Resolutory Condition. Seller and the
Stream Group agree that should any obligation of this Sale of
Mineral Servitude give rise to or create a resolutory condition,
both Seller and the Stream Group waive and renounce any right
that either might have to dissolve this Sale of Mineral Servitude
for reason of such resolutory condition.
Section 7. Counterparts. This Sale may be executed in
counterparts, all of which are identical. and all such
counterparts together shall constitute one and the same
instrument. For purposes of recording this Sale, the signature
pages of counterparts executed by different parties may be
amalgamated to form one or more complete documents.
IN WITNESS WHEREOF, this Sale is executed this 18th day of
June 1996.
WITNESSES: XCL LAND, LTD.
- ---------------------- By:----------------------
Name:----------------- Name:--------------------
Title:-------------------
- ----------------------
Name:-----------------
STREAM FAMILY LIMITED PARTNERSHIP
- ---------------------- By:-----------------------
Name:----------------- Name:---------------------
Title:--------------------
- ----------------------
Name:-----------------
VIRGINIA MARTIN CARMOUCHE GAYLE
- ---------------------- --------------------------
Name:-----------------
- ----------------------
Name:-----------------
<TABLE>
XCL Ltd. and Subsidiaries
Exhibit 11-Computation of Earnings Per Common and Common
Equivalent Share
(Amounts in thousands except, per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30 June 30
------- -------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY:
Net loss $(3,062) $(13,263) $(4,703) $(14,875)
Dividends on preferred stock (416) (2,464) (447) (2,464)
------ ------- ------ -------
Net loss attributable to
common stock $(3,478) $(15,727) $(5,150) $(17,339)
====== ======= ====== =======
Weighted average number of
shares common stock
outstanding 263,343 236,966 260,061 235,739
Common stock equivalents
(computed using treasury
stock method) -- -- -- --
------- ------- ------- -------
Average number of shares of
common stock and common
stock equivalents
outstanding 263,343 236,966 260,061 235,739
======= ======= ======= =======
Net loss per common and
common equivalent share $ (.01) $ (.07) $ (.02) $ (.07)
====== ====== ===== =======
FULLY DILUTED:
Fully diluted net loss
per common and common
equivalent share (1) (1) (1) (1)
(1) All amounts are anti-dilutive or immaterial and therefore
not presented in the financial statements.
</TABLE>
GLOSSARY OF TERMS
The following is a glossary of commonly used terms in the
oil and gas industry which is being provided for ease of
reference and convenience purposes only.
"area of mutual interest" or "AMI" - An agreement by which
parties attempt to describe a geographical area within which
they agree to share certain existing and additional leases
acquired by any of them in the future.
"APO/BPO" - After payout/before payout.
"Btu/MMBtu" - British Thermal Units, a measure of the
heating value of fuel. MMBtu stands for one million Btu.
"Bbls/MBbls" - A Bbl. or barrel is 42 U.S. gallons of crude
oil or condensate measured at 60 degrees Fahrenheit. MBbls
stands for one thousand Bbls.
"carried interest" - A fractional working interest in an oil
and gas lease, the holder of which is carried and has no
liability for a portion or all of the attirubtable
development and operating costs. The person advancing the
costs is the carrying party; the other is the carried party.
"casing point" - The time when the operator recommends that
a completion attempt be made, or when the well is plugged
and abandoned without a completion attempt being made.
"choke/choke size" - A pipe section having an orifice for
restricting and controlling the flow of oil and gas. Choke
size is the orifice diameter and is commonly expressed in
64ths of an inch.
"continuous drilling" - A lease clause providing that
drilling of another well be commenced within a specified
time after completion of the preceding well. As a general
rule, if this is not done, all undeveloped acreage must be
released.
"development" - The drilling of a well within the productive
area of an oil or gas reservoir, as indicated by reasonable
interpretation of available data, with the object of
completing the well in that reservoir.
"exploration" - Operations conducted in search of
undiscovered oil, gas and/or condensate.
"farmout/farmin" - An agreement providing for assignment of
a lease. A typical characteristic of a farmout is the
obligation of the assignee to conduct drilling operations on
the assigned acreage as a pre-requisite to completion of the
assignment. The assignor will usually reserve some type of
interest in the lease. The transaction is characterized as
a farmout to the assignor and farmin to the assignee.
"field" - An area within a lease or leases where production
of oil, gas and/or condensate has been established and which
has been so designated by the appropriate regulatory
authority.
"gathering facilities" - Pipelines and other facilities
used to collect gas from various wells and bring it by
separate and individual lines to a central point where it is
delivered into a single line.
"gathering gas" - The first taking or the first retaining of
possession of gas for transmission through a pipeline, after
the severance of such gas, and after the passage of such gas
through any separator, drip, trap or meter that may be
located at or near the well. In the case of gas containing
gasoline or liquid hydrocarbons that are removed or
extracted in commercial quantities at a plant by scrubbing,
absorption, compression, or any similar process, the term
means the first taking or the first retaining of possession
of such gas for transmission through a pipeline after such
gas has passed through the outlet of such plant. The act of
collecting gas after it has been brought from the earth.
"gathering line" - Pipes used to transport oil or gas from
the lease to the main pipeline in the area. In the case of
oil, the lines run from the lease tanks to a central pump
station at the beginning of the main pipeline. In the case
of gas, the flow is continuous from the well head to the
ultimate consumer, since gas cannot be stored. Gathering
lines collect gas under fluctuating pressures which are then
regulated by regulating stations before the gas is
introduced into trunk or transmission lines.
"gathering system" - The gathering lines, pumps, auxiliary
tanks (in the case of oil), and other equipment used to move
oil or gas from the well site to the main pipeline for
eventual delivery to the refinery or consumer, as the case
may be. In the case of gas, the gathering system includes
the processing plant (if any) in which the gas is prepared
for the market.
"gross/net" - The term "gross" is used when reference is
made, for example, to the total acreage of a lease. The
term "net" is used when reference is made to the working
interest or net revenue interest in a lease of one
particular leaseholder. The same term may be applied to a
leaseholder's interest in reserves and/or production from a
lease.
"held by production" or "HBP" - A provision in a lease to
the effect that such lease will be kept in force as long as
there is production from the lease in paying quantities.
"lease bonus" - A cash payment by the lessee for the
execution of an oil and gas lease by the mineral owner.
"lease" or "leasehold" - An interest for a specified term in
property allowing for the exploration for and production of
oil, gas and/or condensate.
"log" - A record of the formations penetrated by a well,
from which their depth, thickness, rock properties and (if
possible) contents may be obtained.
"Mcf/MMcf/Bcf" - Mcf stands for one thousand cubic feet of
gas, measured at 60 degrees Fahrenheit and at atmospheric
pressure of 14.7 pounds per square inch. MMcf stands for one
million cubic feet of gas. Bcf stands for one million Mcf.
"net revenue interest" or "NRI" - The share of revenues to
which the holder of a working interest is entitled upon
fulfilling the obligations, after deduction of all
royalties, overriding royalties or similar burdens,
attributable to his working interest.
"operator" - The person or company having the operational
management responsibility for the drilling of or production
from any oil, gas and/or condensate well.
"overriding royalty" - A form of royalty, entitling the
holder to receive a percentage of oil, gas and/or condensate
produced from the wells on a specified lease, or the
revenues arising from the sale thereof, free of all expenses
arising therefrom, save for production taxes. Generally, the
rights accruing to working interest holders are subject to
the rights of overriding royalty holders and any rights of
overriding royalty holders terminate upon cancellation or
reversion of the underlying lease.
"pay" - The geological deposit in which oil, gas and/or
condensate is found in commercial quantities.
"payout" - Generally, that point in time, determined by
agreement, when a person has recouped his investment in the
drilling, development, equipping and operating of a well or
wells.
"permeability" - A measure of the resistance offered by rock
to the movement of fluids through it.
"porosity" - The volume of the pore spaces between mineral
grains as compared to the total rock volume. Porosity is a
measure of the capacity of rock to hold oil, gas and water.
"probable reserves" - The estimated quantities of
commercially recoverable hydrocarbons associated with known
accumulations, which are based on engineering and geological
data similar to those used in the estimates of proved
reserves but, for various reasons, these data lack the
certainty required to classify the reserves as proved. In
some cases, economic or regulatory uncertainties may dictate
the probable classification. Probable reserves are less
certain to be recovered than proved reserves.
"prospect" - One lease comprising, or several leases which
together comprise, a geographical area believed to contain
commercial quantities of oil, gas and/or condensate.
"prospective" - A geographical area or structure believed to
contain commercial quantities of oil, gas and/or condensate.
"proved reserves" - Estimated quantities of crude oil,
condensate, natural gas, and natural gas liquids that
geological and engineering data demonstrate with reasonable
certainty to be commercially recoverable in the future from
known reservoirs under existing conditions using established
operating procedures and under current governmental
regulations.
"psig" - Pounds per square inch, gauge.
"rental payment" - A sum of money payable to the lessor by
the lessee for the privilege of deferring the commencement
of drilling operations or the commencement of production
during the primary term of the lease.
"reserves" - The estimated value of oil, gas and/or
condensate which is economically recoverable. Reserves may
be categorized as proved or probable.
"reservoir" - A porous, permeable, sedimentary rock
containing commercial quantities of oil, gas and/or
condensate.
"salt dome" - A mass or plug of salt which has pushed or
domed up sedimentary beds around it; this type structure is
favorable to oil and gas accumulation.
"sand" - A sedimentary rock consisting mostly of sand
grains.
"shut-in royalty" - A payment made when a gas well, capable
of producing in paying quantities, is shut-in for lack of a
market for the gas.
"structure" - A configuration of subsurface rock formations
considered, on the basis of geological or geographical
interpretation, to be capable of containing a reservoir.
"target depth" - The primary geological formation or depth
identified in an agreement applicable to the relevant well
or wells.
"test well" - An exploratory well.
"tight formation" - A zone of relatively low permeability
and thus low well productivity. Wells in such zones usually
require fracturing or other stimulation. Typically, the
productive capacity of a new well completed in a tight zone
declines rapidly for several months or longer after
completion.
"working interest" or "WI" - An interest in a lease carrying
the obligation to bear a proportion of drilling and
operating costs and the right to receive a proportion of the
production or gross revenues attributable thereto.
"workover" - Remedial operations on a well with the
intention of restoring or increasing production.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of XCL Ltd. and subsidiaries for the three
month period ended June 30, 1996, and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 200
<SECURITIES> 0
<RECEIVABLES> 263
<ALLOWANCES> 101
<INVENTORY> 0
<CURRENT-ASSETS> 463
<PP&E> 34,280
<DEPRECIATION> 1,916
<TOTAL-ASSETS> 62,559
<CURRENT-LIABILITIES> 28,454
<BONDS> 0
0
667
<COMMON> 2,678
<OTHER-SE> 12,593
<TOTAL-LIABILITY-AND-EQUITY> 62,559
<SALES> 937
<TOTAL-REVENUES> 937
<CGS> 3,964
<TOTAL-COSTS> 3,964
<OTHER-EXPENSES> 469
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,207
<INCOME-PRETAX> (4,703)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,703)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,703)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> 0
</TABLE>
