<PAGE>   1




                                   FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C.  20549


         [X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

       For the quarterly period ended         SEPTEMBER 30, 1995        
                                      -----------------------------------

                                       OR

         [ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

         For the transition period from                 to 
                                        ---------------    ---------------
         Commission file number                0-16621                
                                -------------------------------------------


                          GARNET RESOURCES CORPORATION                  
          ------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

              Delaware                                   74-2421851        
---------------------------------             ---------------------------------
(State or other jurisdiction of                         (IRS Employer
 incorporation or organization)                       Identification No.)

              333 Clay Street, Suite 4500, Houston, Texas   77002   
           ---------------------------------------------------------
           (Address of principal executive offices)       (Zip Code)

                                 (713) 759-1692                   
              ---------------------------------------------------- 
              (Registrant's telephone number, including area code)


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 
                          -------                 -------

As of November 14, 1995, 11,492,162 shares of Registrant's Common Stock, par
value $.01 per share, were outstanding.
<PAGE>   2
        GARNET RESOURCES CORPORATION (the "Registrant" or the "Company")


                                   I N D E X


PART I  -    FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                                    Page
                                                                    ----
<S>                                                                <C>
         Item 1. Financial Statements                           
                                                                
                   Consolidated Balance Sheets -                
                    September 30, 1995 (unaudited)              
                    and December 31, 1994                            3-4
                                                                
                   Consolidated Statements of                   
                    Operations for the Three Months             
                    and Nine Months Ended September 30, 1995    
                    and 1994 (unaudited)                              5
                                                                
                   Condensed Consolidated Statements of         
                    Cash Flows for the Nine Months Ended        
                    September 30, 1995 and 1994 (unaudited)           6
                                                                
                   Notes to Condensed Consolidated Financial    
                    Statements-September 30, 1995 (unaudited)        7-14
                                                                
                                                                
         Item 2. Management's Discussion and Analysis of        
                     Financial Condition and Results of         
                     Operations                                     14-17
                                                                
PART II  -   OTHER INFORMATION                                  
-------                                                         
                                                                
         Item 6. Exhibits and Reports on Form 8-K                   17-18
</TABLE>





                                       2
<PAGE>   3
PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.



                 GARNET RESOURCES CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS         


<TABLE>
<CAPTION>
                                                   September 30,    December 31,
ASSETS                                                 1995             1994   
------                                             ------------     -----------
                                                   (unaudited)
<S>                                                <C>              <C>
CURRENT ASSETS:
         Cash and cash equivalents                 $ 2,169,328      $ 7,990,605
         Accounts receivable                         2,108,948        2,276,500
         Inventories                                   989,209        1,257,207
         Prepaid expenses                              208,850          133,692
                                                   -----------      -----------

                 Total current assets                5,476,335       11,658,004
                                                   -----------      -----------

NET ASSETS HELD FOR DISPOSITION                        400,386          514,624
                                                   -----------      -----------

PROPERTY AND EQUIPMENT, at cost:
     Oil and gas properties
          (full-cost method)-
           Proved                                   43,133,803       35,948,942
           Unproved (excluded from
            amortization)                            7,415,953        6,416,808
                                                   -----------      -----------

                                                    50,549,756       42,365,750

         Other equipment                               136,216          142,993
                                                   -----------      -----------

                                                    50,685,972       42,508,743
         Less - Accumulated depreciation,
          depletion and amortization                (9,562,752)      (6,446,953)
                                                   -----------      ----------- 

                                                    41,123,220       36,061,790
                                                   -----------      -----------

OTHER ASSETS                                           968,737        1,065,619
                                                   -----------      -----------

                                                   $47,968,678      $49,300,037
                                                   ===========      ===========
</TABLE>




  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.





                                       3
<PAGE>   4
                GARNET RESOURCES CORPORATION AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS

                                   Continued


<TABLE>
<CAPTION>
                                                   September 30,    December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY                   1995             1994    
------------------------------------               ------------     ------------
                                                   (unaudited)
<S>                                                <C>              <C>
CURRENT LIABILITIES:
         Current portion of long-term debt         $   129,278      $ 1,932,156
         Accounts payable and accrued
          liabilities                                2,158,864        3,703,494
                                                   -----------      -----------

                 Total current liabilities           2,288,142        5,635,650
                                                   -----------      -----------

LONG-TERM DEBT, net of current portion              19,358,640       17,506,105
                                                   -----------      -----------

DEFERRED INCOME TAXES                                  354,635            -    
                                                   -----------      -----------

OTHER LONG-TERM LIABILITIES                            472,268          368,030
                                                   -----------      -----------

STOCKHOLDERS' EQUITY:
         Common stock, $.01 par value,
          20,000,000 shares authorized,
          11,492,162 shares issued and
          outstanding as of September 30,
          1995, 11,125,537 shares issued
          and outstanding as of
          December 31, 1994                            114,922          111,255
         Capital in excess of par value             52,491,212       51,395,004
         Retained earnings (deficit)               (27,111,141)     (25,716,007)
                                                   -----------      ----------- 

                 Total stockholders' equity         25,494,993       25,790,252
                                                   -----------      -----------

                                                   $47,968,678      $49,300,037
                                                   ===========      ===========
</TABLE>





  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.





                                       4
<PAGE>   5

                 GARNET RESOURCES CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS    
                                  (Unaudited)


<TABLE>
<CAPTION>
                                       Three Months Ended            Nine Months Ended
                                          September 30,                September 30,
                                  ---------------------------    --------------------------
                                      1995            1994           1995           1994    
                                  -----------     -----------    -----------    -----------
<S>                               <C>           <C>            <C>             <C>
REVENUES:
   Oil sales                      $ 2,207,800   $ 1,119,462    $ 6,415,941     $ 2,754,546
   Interest                            24,670        98,606        180,218         293,489
                                  -----------   -----------    -----------     -----------
                                    2,232,470     1,218,068      6,596,159       3,048,035
                                  -----------   -----------    -----------     -----------
COSTS AND EXPENSES:
   Production                       1,000,342       506,567      2,698,769       1,713,629
   Exploration                         -              6,883         16,204           7,088
   General and
    administrative                    220,035       210,069      1,172,816         890,571
   Interest                           374,594       244,998      1,058,015         705,211
   Depreciation, depletion
    and amortization                1,018,155       509,062      3,128,299       1,248,020
   Foreign currency
    translation
    gain                             (193,954)      (34,847)      (704,654)         (1,433)
                                  -----------   -----------    -----------     ----------- 
                                    2,419,172     1,442,732      7,369,449       4,563,086
                                  -----------   -----------    -----------     -----------
INCOME (LOSS) BEFORE
   INCOME TAXES                      (186,702)     (224,664)      (773,290)     (1,515,051)

PROVISION FOR
 INCOME TAXES                         212,466       252,419        621,844         297,847
                                  -----------   -----------    -----------     -----------

NET LOSS                          $  (399,168)  $  (477,083)   $(1,395,134)    $(1,812,898)
                                  ===========   ===========    ===========     =========== 

NET LOSS PER SHARE                $      (.03)  $      (.04)   $      (.12)    $      (.16)
                                  ===========   ===========    ===========     =========== 

WEIGHTED AVERAGE
SHARES OUTSTANDING                 11,492,162    11,125,537     11,391,441      11,125,537
                                  ===========   ===========    ===========     ===========
</TABLE>





  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.





                                       5
<PAGE>   6
                 GARNET RESOURCES CORPORATION AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                            Nine Months Ended
                                                              September 30,
                                                        --------------------------
                                                            1995          1994   
                                                        -----------    -----------
<S>                                                     <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                             $(1,395,134)   $(1,812,898)
  Exploration costs                                          16,204          7,088
   Depreciation, depletion and
     amortization                                         3,128,299      1,248,020
   Deferred income taxes                                    354,635         41,940
   Changes in components of
     working capital                                     (1,184,280)      (511,402)
   Other                                                    264,613        134,647
                                                        -----------    -----------

       Net cash provided by (used for)
        operating activities                              1,184,337       (892,605)
                                                        -----------    ----------- 

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures                                  (7,702,595)    (6,114,209)
   Decrease in joint venture and
       contractor advances                                  895,784      2,167,134
   Acquisition of interests in Argosy Energy
       International, net of cash acquired                  (92,621)         -
   Other                                                    112,166        (21,758)
                                                        -----------    ----------- 

       Net cash used for
        investing activities                             (6,787,266)    (3,968,833)
                                                        -----------    ----------- 

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuances of debt                        -              4,161,080
  Repayments of debt                                       (161,063)      (582,714)
   Costs of debt issuances                                  (57,285)      (258,773)
                                                        -----------    ----------- 

       Net cash provided by (used for)
        financing activities                               (218,348)     3,319,593
                                                        -----------    -----------

NET DECREASE IN CASH AND CASH
 EQUIVALENTS                                             (5,821,277)    (1,541,845)

CASH AND CASH EQUIVALENTS
 AT BEGINNING OF PERIOD                                   7,990,605     11,332,144
                                                        -----------    -----------

CASH AND CASH EQUIVALENTS
 AT END OF PERIOD                                       $ 2,169,328    $ 9,790,299
                                                        ===========    ===========

Supplemental disclosures of cash flow
 information:

 Cash paid for -
  Interest, net of amounts capitalized                  $   998,801    $   621,962
  Income taxes                                              370,241         82,439
</TABLE>


  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.





                                       6
<PAGE>   7
                 GARNET RESOURCES CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1995                 
                                  (Unaudited)


(1)  Financial statement presentation-

     The condensed consolidated financial statements include the accounts of 
Garnet Resources Corporation, a Delaware corporation ("Garnet"), and its wholly
owned subsidiaries.  Garnet and its wholly owned subsidiaries are collectively
referred to as the "Company."  These financial statements have been prepared by
the Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission, and include all adjustments (which consist
solely of normal recurring adjustments) which, in the opinion of management,
are necessary for a fair presentation of financial position and results of
operations.  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, although the Company believes that the disclosures are adequate to
make the information presented not misleading.  It is suggested that these
condensed consolidated financial statements be read in conjunction with the
Company's prior audited consolidated financial statements and the notes
thereto.
        
(2)  Colombian operations-

     Through its ownership of interests in Argosy Energy International, a
Utah limited partnership ("Argosy"), the Company has an indirect interest in a
risk sharing contract in Colombia (the "Santana Contract") with Empresa
Colombiana de Petroleos, the Colombian national oil company ("Ecopetrol").  The
Santana Contract currently entitles Argosy and its joint venture partner to
explore for oil and gas on approximately 86,000 acres located in the Putumayo
Region of Colombia (the "Santana Block"), and provides for a 10-year
exploration period expiring in 1997, subject to a requirement for additional
partial relinquishments in 1997, and for a production period expiring in 2015.
Argosy and its joint venture partner also have two association contracts (the
"Fragua Contract" and the "Yuruyaco Contract") with Ecopetrol.  The Fragua
Contract covers an area of approximately 32,000 acres contiguous to the
northern boundary of the Santana Block (the "Fragua Block"), while the Yuruyaco
Contract covers an area of approximately 39,000 acres contiguous to the eastern
boundaries of the Santana Block and the Fragua Block (the "Yuruyaco Block").
The Yuruyaco Contract is expected to become effective in November 1995, after
ratification by Colombia's Ministry of Mines and Energy.  The 10-year
exploration periods provided by the Fragua Contract and the Yuruyaco Contract
will expire in 2002 and 2005, respectively, and the 28-year contract terms will
expire in 2020 and 2023, respectively.  Argosy and its joint venture partner
also have the right until 2003 to explore for and produce oil and gas from
approximately 77,000 acres located in the Putumayo Region (the "Aporte Putumayo
Block") pursuant to other agreements with Ecopetrol.  Argosy





                                       7
<PAGE>   8
and its joint venture partner have notified Ecopetrol that they intend to
relinquish the Aporte Putumayo Block and have recently suspended production
from the wells on the block, which were first placed on production in 1976,
because declining production rates have made continued operation economically
unattractive under the terms of the contract with Ecopetrol for sale of the oil
production.

     Argosy serves as the operator of the Colombian properties under joint
venture agreements.  The Santana Contract, the Fragua Contract and the Yuruyaco
Contract provide that Ecopetrol will receive a royalty equal to 20% of
production on behalf of the Colombian government and, in the event a discovery
is deemed commercially feasible, Ecopetrol will acquire a 50% interest in the
production, bear 50% of the development costs, and reimburse the joint venture,
from Ecopetrol's share of future production, for 50% of the joint venture's
costs of certain exploration activities.  In the event accumulated oil
production from the Santana Contract exceeds seven million barrels, Ecopetrol
will continue to bear 50% of development costs, but its interest in production
revenues and operating costs will increase to 65%.  If a commercial field on
the Fragua Block produces in excess of 60 million barrels, Ecopetrol's interest
in production and costs increases in 5% increments from 50% to 70% as
accumulated production from the field increases in 30 million barrel increments
from 60 million barrels to 150 million barrels.  If a commercial field on the
Yuruyaco Block produces in excess of 60 million barrels, Ecopetrol's interest
in production and costs ranges from 50% to 75%, based on annual measurements of
profitability as defined in the contract.  The joint venture paid all costs of
the exploration program for the Santana Block during the first two years of the
contract and thereafter the joint venture and Ecopetrol have been obligated to
pay 70% and 30%, respectively, of such exploration costs.  The joint venture
bears all costs and risks of exploration activities on the Fragua Block and the
Yuruyaco Block, subject to Ecopetrol's right to acquire a 50% interest in
commercial discoveries.  In the event a discovery is made and is not deemed by
Ecopetrol to be commercially feasible, the joint venture may continue to
develop the field at its own expense and will recover 200% of the costs
thereof, at which time Ecopetrol will acquire a 50% interest therein at no cost
to Ecopetrol or further reimbursement by Ecopetrol to Argosy.

     In March 1995 the Company increased its ownership in Argosy by exchanging 
366,625 shares of Garnet's common stock with a value of $3.00 per share and 
cash totalling $142,703 for the partnership interests held by certain of 
Argosy's limited partners.

     The Company's net participations in revenues and costs for the Santana
Contract, the Fragua Contract and the Yuruyaco Contract are as follows:





                                       8
<PAGE>   9
<TABLE>
<CAPTION>
                                        Production   Operating    Exploration   Development
                                         Revenues      Costs         Costs         Costs   
                                        ----------   ---------    -----------   -----------
<S>                                        <C>         <C>           <C>            <C>
Santana Contract:
  Before seven million barrels
   of accumulated production               21.8%       27.2%         38.1%          27.2%
  After seven million barrels
   of accumulated production               15.3%       19.1%         38.1%          27.2%

Fragua Contract:
  Before 60 million barrels
   of accumulated production               21.8%       27.3%         54.6%          27.3%
  After 150 million barrels
   of accumulated production               13.1%       16.4%         54.6%          27.3%

Yuruyaco Contract:
  Before 60 million barrels
   of accumulated production               22.0%       27.5%         55.0%          27.5%
  After 60 million barrels of
   accumulated production at
   maximum profitability                   11.0%       13.8%         55.0%          27.5%
</TABLE>


     The joint venture has completed its seismic acquisition and drilling
obligations for the first eight years of the Santana Contract, resulting in the
discovery of four oil fields, all of which have been declared commercial by
Ecopetrol.  The joint venture has the right to continue the exploration program
through 1997 with an obligation to conduct exploration programs to be approved
by Ecopetrol in 1995 through 1997.  The joint venture has also completed its
obligations for the first two years of the Fragua Contract; no wells have yet
been drilled in the contract area.

     Under the terms of a contract in force through December 31, 1994, oil
produced from the Santana Block either was sold to Ecopetrol or was exported if
Ecopetrol elected not to purchase it.  If the joint venture's share of crude
production from the Santana Block was required for Colombia's domestic market,
the price paid by Ecopetrol was based on the equivalent value of products
refined from the crude, less a stipulated refining cost.  Under the terms of a
new contract effective January 1, 1995, all oil produced from the Santana Block
is sold to Ecopetrol.  If Ecopetrol exports the oil, the price paid is the
export price received by Ecopetrol adjusted for quality differences less a
handling and commercialization fee of $.465 per barrel.  If Ecopetrol does not
export the oil, the price paid is based on quoted prices for Colombia's Cano
Limon crude oil adjusted for quality differences, plus or minus a sales value
differential to be determined by independent analysis, less Ecopetrol's cost to
transport the crude to Cartagena and a handling and commercialization fee of
$.365 per barrel.  Prices determined under terms of the new contract are not
expected to be significantly different than those calculated pursuant to the
previous contract.  Under the terms of contracts with Ecopetrol, 25% of all
revenues from oil sold to Ecopetrol is paid in Colombian pesos which may only
be utilized in Colombia.  To date, Argosy has experienced no difficulty in
repatriating the remaining 75% of such payments which are payable in United
States dollars.

     As general partner, the Company's subsidiary is contingently liable for
any obligations of Argosy and may be contingently liable





                                       9
<PAGE>   10
for claims generally related to the conduct of Argosy's business.

(3)  Exploration licenses in Papua New Guinea-

     Garnet PNG Corporation, a wholly owned subsidiary of Garnet ("Garnet
PNG"), owns working interests in two petroleum prospecting licenses in Papua
New Guinea which entitle it and its joint venture partners to explore for oil.
Garnet PNG owns a 7.73% interest (the "PPL-174 Interest") in Petroleum
Prospecting License No. 174 ("PPL-174") which covers 126,000 acres (the
"PPL-174 Area"), and a 6% interest (the "PPL-181 Interest") in Petroleum
Prospecting License No. 181 ("PPL-181") which covers 952,000 acres (the
"PPL-181 Area").  Until September 1995, Garnet PNG also held a 40% interest
(the "PPL-77 Interest") in Petroleum Prospecting License No. 77 ("PPL-77"),
which included most of the area now covered by PPL-181 and was surrendered in
connection with the issuance of PPL-181, as further described below.  In 1986
oil was discovered approximately 10 miles from the northern border of PPL-181
in an adjoining license area operated by Chevron Niugini Pty. Limited, a
subsidiary of Chevron Overseas Petroleum Inc. ("Chevron").

     In 1989 Garnet PNG, Niugini Energy Pty. Limited ("Niugini") and
Chevron entered into a farmout agreement, pursuant to which Chevron paid 100%
of certain exploration costs on PPL-77 including the drilling of an exploratory
well, which was plugged and abandoned as a dry hole in 1990, and a 400-mile
seismic survey, which resulted in interpretation of a large potential oil
prospect (the "Kamusi Prospect") on PPL-77 and two adjoining licenses.  In 1991
Chevron withdrew from the joint venture with Garnet PNG and Niugini, and
reassigned its interest in PPL-77 to Garnet PNG and Niugini.  As Garnet PNG was
unable to consummate a farmout agreement or make other arrangements to drill
the well which was then required to be drilled by December 1992, management of
the Company concluded in 1992 that the Company's investment in PPL-77 should be
charged to expense.

     Notwithstanding this conclusion, the Company continued its efforts to
arrange for the drilling of a well on the Kamusi Prospect and entered into an
agreement in 1994 with several other companies to fund the costs of such well.
In January 1995 the Government of Papua New Guinea issued PPL-174 to Garnet PNG
and its joint venture partners.  PPL-174 covers the Kamusi Prospect and
includes a portion of the acreage formerly within the boundaries of PPL-77 and
adjoining areas.  Garnet PNG expects to contribute approximately $238,000 to
the costs of the well.

     In April 1995 the Company entered into an agreement with Occidental
International Exploration and Production Company ("Occidental") covering
PPL-77.  Under the agreement, an application for a new license was submitted to
the Papua New Guinea Government. PPL-181 was issued in September 1995 and is
owned by Occidental (88%), Garnet PNG (6%) and Niugini (6%).  Occidental agreed
to drill and complete at its cost a test well on the PPL-181 Area within the
first two years.





                                       10
<PAGE>   11
     In connection with its acquisition of the PPL-77 Interest from Niugini
in 1987, Garnet PNG agreed to pay the first $2,545,000 of the costs to be
incurred by Garnet PNG and Niugini in connection with an exploration program on
PPL- 77 (the "Commitment Amount"), all of which has been paid.  Garnet PNG has
agreed to continue to pay 100% of certain costs until the well on the Kamusi
Prospect has been drilled, and will recoup Niugini's 60% share of such costs
out of Niugini's net share of proceeds from production, if any.  Such costs in
excess of the Commitment Amount are expected to include only nominal amounts to
be incurred in concluding the aforementioned contractual arrangements for
drilling the well on the Kamusi Prospect.

     Upon presentation of a tax clearance certificate evidencing Garnet PNG's
compliance with the relevant provisions of Papua New Guinea's income tax laws,
profits, dividends and certain other payments, if any, up to an amount of
500,000 kina (approximately $US380,000) per year may be fully remitted out of
Papua New Guinea.  Amounts in excess of 500,000 kina may also be remitted,
subject to clearance from the Bank of Papua New Guinea.

(4)  Long-term debt-

     Long-term debt at September 30, 1995 and December 31, 1994 consisted of
the following:

<TABLE>
<CAPTION>
                                                               1995                1994   
                                                           -----------         -----------
       <S>                                                 <C>                 <C>
       9 1/2% convertible subordinated                     $15,000,000         $15,000,000
         debentures

       Note payable by Argosy to a
         U.S. bank                                           4,358,640           4,161,080

       Note payable by Argosy to a
         Colombian bank                                        129,278             277,181
                                                           -----------         -----------

                                                            19,487,918          19,438,261

       Less - Current portion                                 (129,278)         (1,932,156)
                                                           -----------         ----------- 

                                                           $19,358,640         $17,506,105
                                                           ===========         ===========
</TABLE>


     In 1993 Garnet issued $15,000,000 of convertible subordinated debentures 
(the "Debentures") due December 1998.  The Debentures bear interest at 9 1/2%
per annum payable quarterly and are convertible at the option of the holders
into Garnet common stock at $5.50 per share.  If the Company elects to prepay
the Debentures under certain circumstances, it will issue warrants under the
same economic terms as the Debentures.  At the option of a holder, in the event
of a change of control of the Company, the Company will be required to prepay
such holder's Debenture at a 30% premium.  The Debentures are secured by a
pledge of all of the common stock of Garnet's wholly owned subsidiary which
serves as the general partner of Argosy (see Note 2).  Under the terms of an
agreement with the holders of its Debentures, Garnet has
        




                                       11
<PAGE>   12
agreed that it will not pay dividends or make distributions to the holders of
its common stock.

     In May 1994 Argosy entered into a finance agreement with Overseas Private 
Investment Corporation, an agency of the United States government ("OPIC"),
pursuant to which OPIC agreed to guarantee up to $9,200,000 in bank loans to
Argosy.   The loan was funded in two stages of $4,400,000 in August 1994 and
$4,800,000 in October 1995.  The Company plans to use these funds to drill
development wells and complete the construction of its production facilities in
Colombia.  OPIC's guaranty is secured by Argosy's interest in the Santana
Contract and related assets, as well as the pledge of Garnet's direct and
indirect interests in Argosy.  The terms of the guaranty agreement also
restrict Argosy's ability to make distributions to its partners prior to the
repayment of the guaranteed loans.  The maximum term of the loans is not to
exceed seven years, and the principal amortization schedule is based on
projected cash flows from wells on the Santana Block.  The loans bear interest
at the lender's eurodollar deposit rate plus .25% per annum for periods of two,
three or six months as selected by Argosy.  The interest rate at September 30,
1995 was 6 1/8%.  In addition Argosy paid the lender a commitment fee of .25%
per annum on the undisbursed and uncancelled amount of the guaranty and a
facility fee of $46,000.  In consideration for OPIC's guaranty, Argosy agreed
to pay OPIC certain fees, including a facility fee of $92,000, a guaranty fee
of 2.4% per annum on the outstanding balance of the loans guaranteed, a
commitment fee of .67% per annum on the undisbursed and uncancelled amount of
the guaranty, and a cancellation fee equal to .67% of the amount canceled.
        
     In 1993 Argosy received a loan from a Colombian bank, which is secured by 
receivables from Ecopetrol for well costs allocable to Ecopetrol but paid by
Argosy.  The loan bears interest at U.S. prime plus 2%, and is repaid in
varying amounts from Ecopetrol's share of production from the wells.  The
interest rate at September 30, 1995 was 10 3/4%.

(5)  Stockholders' equity-

     Stock option plans-

     Garnet and a predecessor entity have adopted stock option plans (the
"Employees' Plans") pursuant to which an aggregate of 1,488,000 shares of
Garnet's common stock is authorized to be issued upon exercise of options
granted to officers, employees, and certain other persons or entities who
perform substantial services for or on behalf of Garnet or its subsidiaries.

     The Stock Option and Compensation Committee of Garnet's Board of Directors
(the "Committee") is vested with sole and exclusive authority to administer and
interpret the Employees' Plans, to determine the terms upon which options may
be granted, to prescribe, amend and rescind such interpretations and
determinations and to grant options to directors.  Current Committee members
are not eligible to receive options under the Employees' Plans.





                                       12
<PAGE>   13
     In addition, Garnet has adopted the 1990 Directors' Stock Option Plan (the
"Directors' Plan") pursuant to which an aggregate of 470,000 shares of Garnet's
common stock is authorized to be issued to directors who are not employees of
the Company.  Under the terms of the Directors' Plan, as amended, options may
be granted at the discretion of the Board of Directors, provided, however, that
the timing of option grants is restricted to the second quarter of Garnet's
fiscal year.

     Each option is exercisable for a period of 10 years and 30 days from the
date of grant.  The purchase price of shares issuable upon exercise of an
option may be paid in cash or by delivery of shares with a value equal to the
exercise price of the option.  The Committee has determined that the right to
exercise non-incentive options issued to employees vests over a period of four
years, so that 20% of the option becomes exercisable on each anniversary of the
date of grant.  Non-incentive options issued to directors and other eligible
participants generally are fully exercisable on and after the date of grant.

     The following is a summary of stock option activity in connection with the
Employees' Plans and the Directors' Plan:

<TABLE>
<CAPTION>
                                                              Shares          Price Range
                                                              ------          -----------
<S>                                                        <C>               <C>               
Options outstanding at December 31, 1992                      952,500        $2.50-$13.83
Options granted                                               310,000         4.78-  5.75
Options exercised                                              (3,000)           2.50
Options expired                                               (30,000)        4.78- 13.83
                                                            ---------        ------------

Options outstanding at December 31, 1993                    1,229,500         2.50- 13.83
Options granted                                               140,000            4.05    
                                                            ---------        ------------

Options outstanding at December 31, 1994                    1,369,500         2.50- 13.83
Options granted                                               618,000         2.50-  2.87
Options expired                                              (658,398)        2.50- 13.83
                                                            ---------        ------------

Options outstanding at September 30, 1995                   1,329,102         $2.50-$13.83
                                                            =========         ============
</TABLE>

     As of September 30, 1995, options for 1,071,878 shares were exercisable.

(6)  Income taxes-

     The provisions for income taxes relate to the Colombian activities of 
Argosy.  No United States deferred taxes were provided because the tax bases of
the Company's assets exceed the financial statement bases, resulting in a
deferred tax asset which the Company has determined is not presently
realizable.

     As of December 31, 1994, the Company had a regular tax net operating loss
carryforward and an alternative minimum tax loss carryforward of approximately
$22,500,000 and $22,100,000, respectively.  These loss carryforwards will
expire beginning in 2001 if not utilized to reduce U.S. income taxes otherwise
payable in future years, and are limited as to utilization because of the
occurrences of "ownership changes" (as defined in Section 382 of the Internal





                                       13
<PAGE>   14
Revenue Code of 1986, as amended) in 1991 and earlier years.  Such loss
carryforwards also exclude regular tax net operating loss carryforwards
aggregating approximately $4,500,000 attributable to certain of Garnet's
subsidiaries, which can be used in certain circumstances to offset taxable
income generated by such subsidiaries.

(7)  Acquisition of RGO Energy Inc. and RGO Partners, Ltd.-

     In 1991, in transactions accounted for as purchases, Garnet acquired RGO 
Energy Inc. and RGO Partners, Ltd., two privately-owned entities (referred
to collectively herein as "the RGO Entities").  At the date of acquisition,
approximately 60% of the assets of the RGO Entities was comprised of cash, with
the balance being primarily working, royalty and mineral interests in producing
and undeveloped oil and gas properties in the United States.  All of the
working interests acquired in the mergers were sold in 1993.  Because
management intends to sell the remaining royalty and mineral interests when the
market conditions are suitable, these assets are reflected as "Net assets held
for disposition" in the accompanying consolidated balance sheets.

Item 2.   Management's Discussion and Analysis of Financial Condition and
Results of Operations.

Liquidity and Capital Resources

     Since December 31, 1994, the Company has expended approximately
$8,100,000 for the acquisition, exploration and development of its oil and gas
properties.  Such expenditures include approximately $7,200,000 for exploration
and development activities on the Santana Block and Fragua Block in Colombia,
approximately $100,000 for exploration and related costs in Papua New Guinea,
and approximately $800,000 for exploration activities in Turkey and other
countries.

     Funding for these activities was provided primarily by cash flow from
operations and by available cash balances.  Other than the OPIC guaranty, the
Company has no significant lines of credit.

     Argosy and its joint venture partner have completed the seismic
acquisition and drilling obligations for the first eight years of the Santana
Contract, resulting in the discovery of four oil fields.  The joint venture has
the right to continue the exploration program through 1997 with an obligation
to conduct exploration programs to be approved by Ecopetrol in 1995 through
1997.  The Company plans to perform additional seismic work and to drill an
additional exploratory well on the Santana Block during 1996, with estimated
total costs to the Company of $2,150,000.  The seismic programs required during
the first two years of the Fragua Contract have also been completed.  An
additional seismic survey is planned for 1996, for which the Company's share of
the costs is estimated to be $250,000.  The Company also plans to conduct a
seismic program on the Yuruyaco Block in 1996, for which its share of the costs
is estimated to be $400,000.

     The Toroyaco and Linda fields, the first two fields discovered





                                       14
<PAGE>   15
on the Santana Block, began producing in 1992.  The Mary and Miraflor fields,
the last two fields discovered, were declared commercial by Ecopetrol in 1993.
In August 1994 the Company resumed a limited early production program from one
well in the Mary field, and added additional wells in the Mary and Miraflor
fields to this program in the first and second quarters of 1995.  Production
from the four fields is presently approximately 7,000 barrels of oil per day.
The Company's share of such production is 21.8%; it also receives an additional
21.8% of the production from certain wells until it recovers the drilling and
completion costs for those wells allocable to Ecopetrol but paid by the
Company.

     As of September 30, 1995, the Company was completing the construction of 
production facilities for the Mary and Miraflor fields, for which the Company's
 share of the remaining costs is expected to be approximately $1,000,000.  
The Company also plans to drill three additional development wells in the 
Toroyaco and Linda fields in 1996.  The Company's share of the costs of 
drilling and completing each of the wells in these fields is expected to range
from $800,000 to $1,000,000.  To increase producing rates in existing wells,
the Company plans to perform hydraulic fracture stimulations on seven wells in
1995, at an estimated total cost to the Company of $950,000.

     Garnet PNG expects to contribute approximately $238,000 to the costs of 
the exploratory well on the Kamusi Prospect in Papua New Guinea well in
1996.

     As described herein, the Company's operations are primarily located 
outside the United States.  Although certain of such operations are conducted
in foreign currencies, the Company considers the U.S. dollar to be the
functional currency in most of the countries in which it operates.  In
addition, the Company has no significant operations in countries with highly
inflationary economies.  As a result, the Company's foreign currency
transaction gains and losses have not been significant.  Exchange controls
exist for the repatriation of funds from Colombia and Papua New Guinea. The
Company believes that the continuing viability of its operations in these
countries will not be affected by such restrictions.

     It is anticipated that the Company's foreign exploration and development 
activities will require substantial amounts of capital.  To finance its planned
exploration and development activities, the Company intends to utilize its
existing working capital, cash flow from production in Colombia, the $4.8
million proceeds of the second stage of the OPIC-guaranteed financing received
in October 1995, and cash proceeds expected to be received from the sale of
assets held for disposition, although there can be no assurance that any of
such assets can be sold on terms acceptable to the Company.  The Company has
also identified and is implementing more than $1.5 million in annual reductions
of U.S. and Colombian general and administrative expenses and production costs. 
The Company may also consider entering into arrangements whereby certain costs
of exploration will be paid by others to earn an interest in the properties.    

     The present environment for financing the acquisition of oil





                                       15
<PAGE>   16
and gas properties or the ongoing obligations of an oil and gas business is
uncertain due, in part, to the substantial instability in oil and gas prices in
recent years and to the volatility of financial markets.  There can be no
assurance that the additional financing which may be necessary to fund the
Company's operations and obligations will be available on economically
acceptable terms.  In addition, the Company's ability to continue its
exploration and development programs may be dependent upon its joint venture
partners financing their portion of such costs and expenses.  There can be no
assurance that the Company's partners will contribute, or be in a position to
contribute, their costs and expenses of the joint venture programs.  If the
Company's partners cannot finance their obligations to the joint ventures, the
Company may be required to accept an assignment of the partners' interests
therein and assume their financing obligations.  If sufficient funds cannot be
raised to meet the Company's obligations in connection with its properties, the
interests in such properties might be sold or forfeited.

Results of Operations

             Three months and nine months ended September 30, 1995
                    compared with the same periods in 1994        
             -----------------------------------------------------

     The Company reported net losses of $399,168 ($.03 per share) and $477,083
($.04 per share) for the three months ended September 30, 1995 and 1994,
respectively, and $1,395,134 ($.12 per share) and $1,812,898 ($.16 per share)
for the nine months ended September 30, 1995 and 1994, respectively.

     Increases in 1995 in oil and gas revenues, production costs and
depreciation, depletion and amortization primarily reflect higher oil prices
and production from new wells in Colombia.  Production costs per barrel for the
first nine months of 1995 decreased because of a lower tariff on the
Trans-Andean pipeline which became effective in February 1994, and because of
reduced trucking charges resulting from the completion of the
Uchupayaco-Santana pipeline in June 1994. The Company's comparative average
daily sales volumes in barrels of oil per day ("BOPD"), average sales prices
and costs per barrel in Colombia for such periods were as follows:

<TABLE>
<CAPTION>
                                Three Months Ended        Nine Months Ended
                                   September 30,             September 30,
                                ------------------       --------------------
                                   1995     1994           1995        1994 
                                --------- --------       -------     --------
<S>                               <C>     <C>            <C>          <C>
Average oil sales (BOPD)           1,486      929         1,434          797
Average oil price per barrel      $16.15   $13.09        $16.38       $12.66
Production costs per barrel       $ 7.32   $ 5.92        $ 6.89       $ 7.88
Depreciation, depletion and
 amortization per barrel          $ 7.42   $ 5.92        $ 7.96       $ 5.70
</TABLE>


     General and administrative expenses increased as a result of charges
incurred in connection with management changes in 1995.  The increase in 1995
in interest expense, net of amounts capitalized,





                                       16
<PAGE>   17
is attributable primarily to the OPIC-guaranteed loan received in August 1994.
The foreign currency translation gain recorded in 1995 resulted from an
approximate 17% devaluation in the Colombian peso during the first nine months
of 1995 and the settlement of a liability.  The provision for income taxes, all
of which relates to Colombian operations, was higher because of a deferred tax
provision recorded in 1995 and a deferred tax benefit recorded in 1994.


Item 6. Exhibits and Reports on Form 8-K.

        (a)  Exhibits

<TABLE>
<CAPTION>
                 Item                                                   Exhibit
                  No.                 Item Title                           No. 
                 ----    --------------------------------------         -------
                 <S>     <C>                                             <C>
                 (2)     Plan of acquisition, reorganization,                                
                         arrangement, liquidation or succession:
                         Not Applicable

                 (3)     Articles of Incorporation and By-Laws:
                         Not Applicable

                 (4)     Instruments defining the rights of
                         security holders, including indentures:
                         Not Applicable

                 (10) Material contracts:

                         (A)      Petroleum Prospecting License
                                  No. 181.                               10(A)

                         (B)      Papua New Guinea PPL-77 Agreement
                                  dated April 27, 1995 among Garnet
                                  PNG Corporation, Niugini Energy Pty.
                                  Limited and Occidental International
                                  Exploration and Production Company.    10(B)

                         (C)      Amendment No. 2 dated March 24, 1995
                                  to Finance Agreement between Argosy
                                  Energy International and Overseas
                                  Private Investment Corporation.        10(C)

                         (D)      Amendment No. 3 dated September 26,
                                  1995 to Finance Agreement between
                                  Argosy Energy International and
                                  Overseas Private Investment
                                  Corporation.                           10(D)

                         (E)      Stage II Promissory Note dated
                                  October 25, 1995 from Argosy
                                  Energy International to Texas
                                  Commerce Bank National Association
                                  in the principal amount of
                                  $4,800,000.                            10(E)
</TABLE>





                                       17
<PAGE>   18
<TABLE>
<S>             <C>                                                      <C>
                         (F)      Letter Agreement dated June 28,
                                  1995 between George M. Nevers and
                                  Garnet Resources Corporation           10(F)

                 (11) Statement regarding computation of per
                      share earnings is not required because
                      the relevant computations can be clearly
                      determined from the material contained
                      in the Financial Statements included
                      herein.

                 (15) Letter re unaudited interim financial
                      information:  Not Applicable

                 (18) Letter re change in accounting principles:
                      Not Applicable

                 (19) Report furnished to security holders:
                      Not Applicable

                 (22) Published report regarding matters
                      submitted to vote of security holders:
                      Not Applicable

                 (23) Consents of experts and counsel:
                      Not Applicable

                 (24) Power of attorney:  Not Applicable

                 (27) Financial Data Schedule.                           27

                 (99) Additional Exhibits:  Not Applicable
</TABLE>

        (b)  Reports on Form 8-K

             No Reports on Form 8-K were filed by Registrant during the
three months ended September 30, 1995.





                                       18
<PAGE>   19


                                   SIGNATURES


        Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                         GARNET RESOURCES CORPORATION
                                
                                
                                
Date:  November 14, 1995                 /s/ W. Kirk Bosche'         
                                         ----------------------------
                                         W. Kirk Bosche',
                                         Vice President and Treasurer
                                         (As both a duly authorized
                                         officer of Registrant and as
                                         principal financial officer
                                         of Registrant)





                                       19
<PAGE>   20
                                EXHIBIT INDEX

<TABLE>
<CAPTION>
                 Item                                                   Exhibit
                  No.                 Item Title                           No. 
                 ----    --------------------------------------         -------
                 <S>     <C>                                             <C>
                 (2)     Plan of acquisition, reorganization,                                
                         arrangement, liquidation or succession:
                         Not Applicable

                 (3)     Articles of Incorporation and By-Laws:
                         Not Applicable

                 (4)     Instruments defining the rights of
                         security holders, including indentures:
                         Not Applicable

                 (10) Material contracts:

                         (A)      Petroleum Prospecting License
                                  No. 181.                               10(A)

                         (B)      Papua New Guinea PPL-77 Agreement
                                  dated April 27, 1995 among Garnet
                                  PNG Corporation, Niugini Energy Pty.
                                  Limited and Occidental International
                                  Exploration and Production Company.    10(B)

                         (C)      Amendment No. 2 dated March 24, 1995
                                  to Finance Agreement between Argosy
                                  Energy International and Overseas
                                  Private Investment Corporation.        10(C)

                         (D)      Amendment No. 3 dated September 26,
                                  1995 to Finance Agreement between
                                  Argosy Energy International and
                                  Overseas Private Investment
                                  Corporation.                           10(D)

                         (E)      Stage II Promissory Note dated
                                  October 25, 1995 from Argosy
                                  Energy International to Texas
                                  Commerce Bank National Association
                                  in the principal amount of
                                  $4,800,000.                            10(E)
</TABLE>





<PAGE>   21
<TABLE>
<S>             <C>                                                      <C>
                         (F)      Letter Agreement dated June 28,
                                  1995 between George M. Nevers and
                                  Garnet Resources Corporation           10(F)

                 (11) Statement regarding computation of per
                      share earnings is not required because
                      the relevant computations can be clearly
                      determined from the material contained
                      in the Financial Statements included
                      herein.

                 (15) Letter re unaudited interim financial
                      information:  Not Applicable

                 (18) Letter re change in accounting principles:
                      Not Applicable

                 (19) Report furnished to security holders:
                      Not Applicable

                 (22) Published report regarding matters
                      submitted to vote of security holders:
                      Not Applicable

                 (23) Consents of experts and counsel:
                      Not Applicable

                 (24) Power of attorney:  Not Applicable

                 (27) Financial Data Schedule.                           27

                 (99) Additional Exhibits:  Not Applicable
</TABLE>