<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For six months ended June 30, 1995 Commission File No. 283574
ISRAMCO, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3145265
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(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
800 Fifth Avenue, Suite 21D, New York, New York 10021
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-888-0200
NOT APPLICABLE
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(Former name, former address and formal 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 twelve months (or for such shorter period that the
registrant was required to such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
26,691,198 Common Shares were outstanding as of June 30, 1995.
<PAGE> 2
ISRAMCO, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Part I. Financial Information
Item 1. Financial statements
Consolidated balance sheets:
- June 30, 1995 (unaudited)
- December 31, 1994 2
Consolidated statements of operations:
- Three months ended June 30, 1995 and 1994 (unaudited)
- Six months ended June 30, 1995 and 1994 (unaudited) 3
Consolidated statements of cash flows:
- Six months ended June 30, 1995 and 1994 (unaudited) 4
Notes to condensed consolidated financial statements 5-6
Item 2. Management's discussion and analysis of financial statements 7-11
Part II. Other information
Signatures 12
</TABLE>
<PAGE> 3
ISRAMCO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ---------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
-----------------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash including cash equivalents $16,975,607 $17,339,105
Marketable securities, at market 5,993,766 4,360,596
Prepaid expenses and Other 254,397 225,611
----------- -----------
Total current assets 23,223,770 21,925,312
Exploration in progress 0 0
Equipment, less accumulated depreciation
of $80,827 and $65,229 at June 30, 1995
and December 31, 1994, respectively 131,741 151,932
----------- -----------
$23,355,511 $22,077,244
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 318,437 $ 449,513
Shareholders' equity:
Common stock, $0.01 par value;
authorized 75,000,000 shares, issued
and outstanding 26,691,198 shares at
June 30, 1995 and December 31, 1994 266,912 266,912
Additional paid-in capital 25,927,635 25,927,635
Accumulated deficit (3,157,473) (4,566,816)
----------- -----------
23,037,074 21,627,731
----------- -----------
$23,355,511 $22,077,244
=========== ===========
</TABLE>
See notes to the consolidated financial statements.
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<PAGE> 4
ISRAMCO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- -------------------------------------
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1995 1994 1995 1994
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Operator fees from related party $ 147,827 $ 715,029 $ 910,770 $ 1,374,630
Interest income 285,882 171,778 562,124 308,437
Gain or (loss) on marketable securities 846,247 (1,286,713) 530,443 (2,074,965)
Office services to related party and other 107,717 107,550 217,287 220,764
------------ ------------ ------------ ------------
1,387,673 (292,356) 2,220,624 (171,134)
------------ ------------ ------------ ------------
EXPENSES:
Interest expense 1,031 1,337 1,260 3,331
Depreciation 9,484 8,528 19,263 17,819
Exploration costs 20,281 7,094 156,635 24,169
Operator expense 121,041 223,146 223,906 367,736
General and administrative - In part to
related parties 200,669 328,365 382,583 434,265
Research and development
4,997 17,024 27,634 55,747
------------ ------------ ------------ ------------
357,503 585,494 811,281 903,067
------------ ------------ ------------ ------------
Net income (loss) $ 1,030,170 $( 877,850) $ 1,409,343 $( 1,074,201)
============ ============ ============ ============
Income (loss) per common share:
Primary and fully diluted $ 0.04 $ (0.03) $ 0.05 $ (0.04)
============================== ==============================
Weighted average number of shares:
Primary and fully diluted 26,691,198 26,541,365 26,691,198 26,538,643
============ ============ ============ ============
</TABLE>
See notes to the consolidated financial statements.
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<PAGE> 5
ISRAMCO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30,
1995 1994
------------------------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,409,343 $( 1,074,201)
ADJUSTMENT TO RECONCILE NET INCOME (LOSS)
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Depreciation 19,263 17,819
Exploration costs 156,635 24,169
(Gain) or loss on marketable securities (530,443) 2,074,965
Gain or (loss) on sale of equipment 473 (2,426)
CHANGES IN ASSETS AND LIABILITIES:
Prepaid expenses and other current assets (28,786) (114,341)
Accounts payable and accrued expenses (131,076) (130)
Purchase of marketable securities (1,205,850) (9,426,685)
Proceeds from sale of marketable securities 103,123 8,908,016
------------- ------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (207,318) 407,186
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration and development costs (156,635) (212,073)
Purchase of equipment (631) (67,796)
Proceeds from sale of equipment 1,086 23,081
------------- ------------
NET CASH (USED IN) INVESTING ACTIVITIES (156,180) (256,788)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock pursuant
to exercise of warrants and options 0 127,801
------------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 0 127,801
------------- ------------
Net increase (decrease) in cash and cash equivalents (363,498) 278,199
Cash and cash equivalents, beginning of period 17,339,105 16,666,735
------------- ------------
Cash and cash equivalents, end of period $ 16,975,607 $ 16,944,934
==============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 1,260 $ 3,331
==============================
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 6
ISRAMCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. As used in these financial statements the term "Company" refers to
Isramco, Inc. and Subsidiaries.
2. The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of Management, all adjustments (consisting of only normal recurring
adjustments) considered necessary for a fair presentation have been
included. Operating results for the six month period ended June 30,
1995 are not necessarily indicative of the results that may be expected
for the year ended December 31, 1995. For further information, refer to
the Consolidated Financial Statements and footnotes thereto
incorporated by reference in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.
3. Consolidation:
The consolidated financial statements include the account of the
Company, its direct and indirect wholly owned subsidiaries Isramco Oil
& Gas Ltd. ("Oil & Gas") and Isramco Underwriters, Ltd., both Israeli
companies, Isramco Resources, Inc., a British Virgin Islands company
and an immaterial foreign wholly owned subsidiary. All intercompany
balances and transactions have been eliminated. Another wholly owned
subsidiary of the Company, Isramco Management (1988) Ltd., an Israeli
company, is not included in the consolidation because the Company has
no voting rights. This entity serves as the nominee for the unit
holders of a Limited Partnership and has no significant assets or
operations.
4. Research and Development:
The research agreement with the Technion Research and Development
Foundation in Israel for the development of an improved catalytic
converter for automobile emissions has been completed. Research and
development costs incurred during the six months ended June 30, 1995
amounted to $27,634. The Company intends to explore with potential
users the viability and validity of the research results.
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<PAGE> 7
5. Exploration and Development Costs:
The Company completed drilling the Yam West 1 well on March 21, 1995.
The participants, based on the analysis of electric logs, decided not
to carry out any production tests and the well has been declared a dry
hole. Accordingly, the Company wrote off costs associated with drilling
the well of $146,142 in the six month period ended June 30, 1995.
6. Shareholders' Equity:
The Board of Directors approved the extension of the expiration date of
the Company's Class A warrants and Class B warrants to April 16, 1996.
7. Contingencies:
A statement of claim was filed with the Tel-Aviv-Jaffa District Court
in Israel in connection with an accident which occurred in the Yam 2
well site on January 28, 1990. The relief sought by the plaintiff is
compensation in the aggregate amount of approximately $5 million. The
Company's insurance coverage is $50 million with respect to any one
accident or occurrence. Recently, another statement of claim was filed
against the Company with the court in connection with the above
accident. The defense of these claims is being handled by the insurance
carrier.
In a Statement of Claim filed in the District Court of Tel Aviv - Jaffa
on December 1, 1993 (the "Claim"), the Company along with Isramco-Negev
2 Limited Partnership, Isramco Oil and Gas Ltd., Dr. Joseph Elmaleh
(Chairman of the Board of the Company), East Mediterranean Oil & Gas
Limited, The Trust Company of Kesselman and Kesselman (Trustees 1991)
Ltd. and Mr. Danny Toledano (an officer and director of the Company)
have been named Defendants in a lawsuit commenced by Mr. Chaim Chazan
(the "Plaintiff"). In the Statement of Claim the Plaintiff alleges
damages and loss of profits arising out of his purchase of
Participation Units and Warrants pursuant to the fourth and fifth
Prospectuses issued by the Limited Partnership in Israel based on
alleged misleading statements set forth in each Prospectus, alleged
breach of obligations contained in each Prospectus and alleged
misleading current reports filed with the Israeli Securities Authority
and with the Tel Aviv Stock Exchange. The dollar amount of the Claim is
between $238,000 and $566,000. Plaintiff has requested that the court
recognize the Claim as a class action. If so recognized, the Plaintiff
values the damages and loss of profits to the class to be between
$13,832,000 and $32,880,000. It is the Company's intention to
vigorously defend against this claim. Based on the opinion of counsel,
management believes that it is too early in the proceedings to
determine whether any liability will inure to the Company.
8. Income Taxes:
There is no income tax expense for the six months ended June 30, 1995
because the deferred tax asset valuation allowance was reduced by
approximately $456,000 for federal income taxes on the income which
would have otherwise been provided for.
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<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The decrease in the Company's consolidated cash including cash equivalents of
$363,498 from $17,339,105 at December 31, 1994 to $16,975,607 at June 30, 1995
is the result of net cash outflows of $207,318 from operating activities and
$156,180 cash outflows from investing activities.
In the six month period ended June 30, 1995 the Company invested $156,635 in
exploration for oil and gas, mainly in the drilling of the Yam West 1 well
offshore in the Med Yavne License. The Company invested $55,438 more in
exploration for oil and gas in the six month period ended June 30, 1994, during
which the Company invested in the drilling of the Yam Yaffo 1 well and in the
drilling and testing of the Bessor 1 well.
In the six month period ended June 30, 1995 the Company had net cash outflow
from the purchase and sales of marketable securities of $1,102,727 as compared
to net cash outflow of $518,669 in the six month period ended June 30, 1994. The
activities in the securities market are primarily influenced by the market
prices over which the Company has no control. The Company acquired in the three
month period ended June 30, 1995 shares of J.O.E.L. - Jerusalem Oil Exploration
Limited ("JOEL") traded on the Tel Aviv Stock Market at a cost of approximately
$905,000. The Company holds 5.47% of the issued and outstanding common stock of
JOEL.
The Company financed its operations during the six month periods ended June 30,
1995 and 1994 from its own funds and did not need to use any lines of credit or
loans. The Company does not presently have any lines of credit with any
institution. The Company believes that it has sufficient funds to fulfill its
present capital requirements.
The research agreement with the Technion Research and Development Foundation in
Israel for the development of an improved catalytic converter for automobile
emissions has now been completed. During the six month periods ended June 30,
1995 and 1994, the Company expended $27,634 and $55,747, respectively, in
connection with this agreement. The Company intends to explore with potential
users the viability and validity of the research results.
Results of Operations
The Company reported net income of $1,409,349 ($0.05 per share) in the six month
period ended June 30, 1995 compared to net loss of $1,074,201 ($0.04 per share)
in the six month period ended June 30, 1994.
The gain in the six month period ended June 30, 1995 is a result of income from
operator's fees, interest, gains from a rise in value of marketable securities
in this period and office services to a related party. Part of the gain is
offset by losses from the amount of exploration cost written off, general and
administrative expenses and operator expenses.
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<PAGE> 9
During the six month period ended June 30, 1995 the Company continued to
participate in work programs in the Bessor Carveout Venture, the Negev Med
Venture and the Yam Carveout Venture. The Company holds a 1.0043% working
interest in each of the Petroleum Assets held by the various ventures.
Negev Med Venture
(A) Yam West 1 Well (within the Med Yavne License)
On March 21, 1995 the Yam West 1 well, which had reached a final depth
of 17,225 feet was declared a dry hole. The cost of drilling the Yam
West 1 well was approximately $23.5 million. (The Company's share is
1.0043%).
(B) Yam Yaffo 1 Well (within the Med Tel Aviv License)
During the drilling of the Yam Yaffo 1 well, a question was raised
concerning the participants' possible Israeli tax obligations on
payments to foreign contractors involved in the drilling and testing
operations. After discussion with the income tax authorities, no tax
payments were required to be made in this regard.
(C) Seismic Survey and Acquisition
During 1994, two seismic surveys were carried out. A total of 1,066
kilometers were shot in the Med Tel Aviv, Med Yavne, Med Hasharon, Med
Hadera and Med Ashdod licenses at a cost of approximately $1.33 million
(of which the Company's share is approximately $13,000). The data
acquired, together with former seismic data and the data acquired from
drilling Yam Yaffo 1 and Yam West 1, is now being interpreted and
mapped.
Authorization for Expenditure (AFE) in the Negev Med Licenses
<TABLE>
<CAPTION>
Total Accumulated
Expenses from
Inception Date
Expended in of Licenses
License AFE January-June 1995 from May 1, 1993 Company's Share
- ------- -------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Med Tel Aviv (*)$38,843,000 $ (3,277) $37,886,486 $380,494
Med Yavne 24,724,000 14,163,533 23,506,346 236,074
Med Hasharon 1,305,000 162,501 1,079,590 10,842
Med Hadera 710,000 98,728 553,084 5,555
Med Ashdod 690,000 115,318 612,688 6,153
----------- ----------- ----------- --------
$66,272,000 $14,536,803 $63,638,194 $639,118
</TABLE>
- --------------
(*) $6 million that were approved for possible Israeli tax payment was
deducted from the total AFE.
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<PAGE> 10
The Yam Carveout Venture (within the Negev Ashquelon License)
The participants in the Yam Carveout Venture previously approved the drilling of
the Yam 3 well to a target depth of approximately 19,300 feet, subject to
obtaining all governmental approvals, at the estimated cost of $25 million for a
dry hole plus $3 to $4 million for testing, if required. Authorizations for
Expenditure (AFE) in the amount of $2.9 million have been approved for
preparatory work and for the purchase of casing and wellhead equipment (the
Company's share is 1.0043%). Since no approval has been obtained from the
Ministry of Defense to drill the Yam 3 to date no major preparation work has
been performed. During the six month period ended June 30, 1995 the Yam Carveout
expenses were $39,347. The Company's share is 1.0043% or $395.
In January 1995 at the participants' request, the term of the Negev Ashquelon
License (including the Yam Carveout) was extended to January 30, 1996. The
Petroleum Commissioner in granting the requested extension indicated in writing
to the participants that he had the authority to extend the term of this license
for an additional two years should there be necessity and justification under
law.
On May 7, 1995 in response to the participants' further request, the Petroleum
Commissioner notified the participants in writing that he has decided to
postpone the required spudding date for the Yam 3 well (as established under the
conditions of the "Negev Ashquelon" license) to the next drilling phase which
according to the conditions of the offshore licenses should occur towards the
middle of 1996. The Commissioner noted in his May 7, 1995 letter that the
participants in the offshore licenses have the option to drill Yam 3 in sequence
with other wells that are planned in the other offshore licenses provided that
Yam 3 is the first in the sequence, unless the participants are prevented to do
so by governmental authorities.
According to the terms of the license the participants are required to
pre-coordinate their activities in the license area on a "timely" basis with a
number of government authorities. Should this coordination not be attainable
within the license term the license may expire without the Yam 3 well being
drilled. As of this date the Ministry of Defense has not approved the drilling
of the Yam 3 well.
The Bessor Carveout Venture (within the Negev Nirim License)
On February 9, 1995 the participants in the Bessor Carveout Venture relinquished
the Negev Nirim License (including the Bessor Carveout) to the Ministry of
Energy. The Operator is presently winding up the affairs of the Bessor Carveout
Venture. The total expenses of the Bessor Carveout from inception date to June
30, 1995 were $6,542,211. The Company's share was 1.0043% or $65,703.
Kishon License
On May 9, 1995 the Company relinquished the Kishon License onshore Israel to the
Ministry of Energy. In the six month period ended June 30, 1995 the Company
expended approximately $4,000 in the license area.
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<PAGE> 11
Future Activities
The exploration work program presently consists mainly of seismic interpretation
and mapping and on carrying out additional seismic surveys and other studies as
may be required. The current work program will be sufficiently completed by the
beginning of 1996 to evaluate all prospects in the different licenses and to
rank them according to the probability of finding commercial quantities of oil
or gas before any further drilling is recommended.
If a decision is taken to drill one or more prospects, depending on the
availability of equipment and appropriate drilling rig and subject to approval
of governmental authorities, where required, a well would be spudded in the
second half of 1996.
Operator's Fees
In the six month period ended June 30, 1995, the Company earned Operator's fees
of $676,770 above the minimum monthly compensation (which was $234,000 for six
months) primarily from the drilling of the Yam West 1 well. In the six month
period ended June 30, 1994, the Company earned Operator's fees of $1,122,630
above the minimum monthly compensation (which was $42,000 per month for six
months or $253,000), primarily from the Yam Yaffo 1 well. The Company believes
that Operator's fees during July - December 1995 will be significantly lower and
will be based mainly on the minimum monthly compensation which now is $36,000
per month.
Interest Income
Interest income increased in the six and three month periods ended June 30, 1995
compared to interest income in the six and three month period ended June 30,
1994, due to larger cash and cash equivalent balance on the Company had during
the reporting period.
Gain on Marketable Securities
In the six month period ended June 30, 1995 the Company had gains from
marketable securities or $530,443 comprised of $534,796 from unrealized holding
gains and $4,353 from realized losses.
Exploration Cost
The drilling of the Yam West 1 was completed and declared a dry hole in March
1995. In the six month period ended June 30, 1995, the Company wrote off
$146,676 in connection with the Negev Med Venture. In the six month period ended
June 30, 1994, the Company wrote off $14,830 in connection with the drilling of
the Bessor 1 well and the geophysical activities in the Negev Med Venture.
Operator's Expenses
Operator's expenses decreased in the six and three month periods ended June 30,
1995 as compared to the six and three month periods ended June 30, 1994, mainly
as a result of a decrease in the dollar exchange rate to the Israeli shekel and
bonuses paid to employees during the six month period ended June 30, 1994.
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<PAGE> 12
General and Administrative Expenses
General and administrative expenses decreased in the six and three month periods
ended June 30, 1995 as compared to the six and three month periods ended June
30, 1994, primarily as a result of decrease in consulting and professional fees.
Part of the decrease was offset by U.S. income taxes and payment of fees for
accounting services for the previous year.
Environment
In oil exploration activities there is always the possibility that pollution or
seepage may occur. The Company with its participants hold insurance policies for
this risk in the amount of $100 million.
Income Taxes
There is no income tax expense for the six months ended June 30, 1995 because
the deferred tax asset valuation allowance was reduced by approximately $456,000
for federal income tax on the income which would have otherwise been provided
for.
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<PAGE> 13
ISRAMCO, INC.
PART II. OTHER INFORMATION
Item 6. Reports on Form 8-K
Form 8-K for the month of June, 1995 dated June 21, 1995.
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 hereunto duly authorized.
ISRAMCO, INC.
ISRAMCO, INC.
(Registrant)
Date: August 9, 1995
By: /s/ JOSEPH ELMALEH
-----------------------------
(Signature)
Joseph Elmaleh
Chairman of the Board
Chief Executive Officer
Chief Financial Officer and
Chief Accounting Officer
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<PAGE> 14
EXHIBIT INDEX
Exhibit 27 - Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q for the six months ended June 30, 1995.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 16,975,607
<SECURITIES> 5,993,766
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 23,355,511
<PP&E> 213,393
<DEPRECIATION> 81,652
<TOTAL-ASSETS> 23,355,511
<CURRENT-LIABILITIES> 318,437
<BONDS> 0
<COMMON> 266,912
0
0
<OTHER-SE> 22,770,162
<TOTAL-LIABILITY-AND-EQUITY> 23,355,511
<SALES> 0
<TOTAL-REVENUES> 2,220,624
<CGS> 0
<TOTAL-COSTS> 223,906
<OTHER-EXPENSES> 587,375
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,260
<INCOME-PRETAX> 1,409,343
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,409,343
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
