SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For six months ended June 30, 1997 Commission File No. 283574
ISRAMCO, INC.
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(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)
575 Madison Avenue, Suite 1006, New York, New York 10022
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-605-0417
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
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26,398,523 Common Shares were outstanding as of June 30, 1997.
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ISRAMCO, INC.
INDEX
PAGE NO.
--------
Part I. Financial Information
Item 1. Financial statements
Condensed consolidated balance sheets:
- June 30, 1997 (unaudited)
- December 31, 1996 1
Condensed consolidated statements of operations:
- Three months ended June 30, 1997 and 1996 (unaudited)
- Six months ended June 30, 1997 and 1996 (unaudited) 2
Condensed consolidated statements of cash flows:
- Six months ended June 30, 1997 and 1996 (unaudited) 3
Notes to condensed consolidated financial statements 4-5
Item 2. Management's discussion and analysis of financial statements 6-10
Part II. Other information
Signatures 11
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ISRAMCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
ASSETS 1997 1996
------ ------------ ------------
(Unaudited)
Current assets:
Cash including cash equivalents $ 14,576,060 $ 15,999,022
Accounts receivable - oil and gas sales 198,852
Marketable securities, at market 7,317,055 6,477,954
Prepaid expenses and other 301,974 338,318
------------ ------------
Total current assets 22,393,941 22,815,294
Oil and gas properties, net 4,404,375
Equipment, net 131,203 65,172
Covenants not to compete, net 317,500 382,500
Other assets 94,238
------------ ------------
T O T A L $ 27,341,257 $ 23,262,966
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable and accrued expenses $ 396,445 $ 334,422
Current portion of long-term debt 781,200
------------ ------------
Total current liabilities 1,177,645 334,422
Long-term debt 3,086,834
------------ ------------
4,264,479 334,422
Minority interest 204,511
------------ ------------
4,468,990 334,422
Shareholders' equity:
Common stock, $.01 par value:
authorized 75,000,000
shares: issued 26,691,198 266,912 266,912
Additional paid-in-capital 25,927,635 25,927,635
Accumulated deficit (3,158,382) (3,102,105)
Treasury stock; 292,675 shares (163,898) (163,898)
------------ ------------
22,872,267 22,928,544
------------ ------------
T O T A L $ 27,341,257 $ 23,262,966
============ ============
See notes to financial statements.
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<TABLE>
<CAPTION>
ISRAMCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1997 1996 1997 1996
---------------------------- ----------------------------
Revenues:
<S> <C> <C> <C> <C>
Operator fees from related party $ 108,000 $ 126,000 $ 216,000 $ 252,252
Oil and gas sales 483,158 1,040,227
Interest income 255,726 262,803 540,246 570,409
Gain(loss) on marketable securities (571,770) 1,583,090 (236,244) 1,749,012
Office services to affiliates and other 136,467 120,094 255,731 252,470
------------ ------------ ------------ ------------
Total revenue 411,581 2,091,987 1,815,960 2,824,143
------------ ------------ ------------ ------------
Expenses:
Interest expense 129,834 1,517 160,158 1,993
Depreciation,depletion and amortization 125,551 9,927 305,719 20,062
Lease operating expenses 205,485 379,056
Operator costs 113,697 185,646 329,855 353,428
General and administrative - in part to
related parties 439,925 480,282 667,242 697,450
Research and development (1,041)
------------ ------------ ------------ ------------
Total expenses 1,014,492 677,372 1,842,030 1,071,892
------------ ------------ ------------ ------------
Income (loss) before taxes and minority interest (602,911) 1,414,615 (26,070) 1,752,251
Provision (benefit) for income taxes
------------ ------------ ------------ ------------
Income (loss) from operations before minority interest (602,911) 1,414,615 (26,070) 1,752,251
Minority interest 3,671 (30,207)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (599,240) $ 1,414,615 $ (56,277) $ 1,752,251
============ ============ ============ ============
Earnings (loss) per share $ (0.02) $ 0.05 $ -- $ 0.07
============ ============ ============ ============
Weighted average number of shares 26,398,523 26,495,009 26,398,523 26,592,562
============ ============ ============ ============
See notes to financial statements.
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ISRAMCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
--------------------------------
1997 1996
------------ ------------
Cash flow from operating activities:
<S> <C> <C>
Net income (loss) $ (56,277) $ 1,752,251
Adjustment to reconcile net income (loss) to net
cash (used in) operating activities
Depreciation, depletion and amortization 305,719 29,264
Minority interest 30,207
(Gain) Loss on marketable securities 236,244 (1,749,012)
(Gain) Loss on sale of property and equipment (2,984) 6,588
Changes in assets and liabilities:
Accounts receivable (39,364)
Prepaid expenses and other current assets 107,544 (253,489)
Other assets 207,293 (447,500)
Accounts payable and accrued expenses (26,937) 30,075
Purchase of marketable securities (2,070,281) (1,211,073)
Proceeds from sale of marketable securities 994,936 887,163
------------ ------------
Net cash (used in) operating activities (313,900) (955,733)
Cash flows from investing activities:
Purchase of oil and gas properties (2,774,842) (9,202)
Purchase of equipment (69,868) (2,120)
Proceeds from sale of equipment 5,616 460
Purchase of Jay Petroleum LLP from (1,035,673)
affiliate, net of cash acquired
Other 27,360
------------ ------------
Net cash (used in) investing activities (3,847,407) (10,862)
------------ ------------
Cash flows from financing activities:
Purchase of treasury stock (163,898)
Proceeds of borrowings, net 2,785,534
Payment of loan cost (47,189)
------------ ------------
Net cash provided by (used in) financing activities 2,738,345 (163,898)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,422,962) (1,130,493)
Cash and cash equivalents, beginning of period 15,999,022 16,506,242
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 14,576,060 $ 15,375,749
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 160,158 $ 1,993
See notes to financial statements.
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</TABLE>
<PAGE>
ISRAMCO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(NOTE 1):
- ---------
As used in these financial statements, the term "Company" refers to
Isramco, Inc. and subsidiaries.
(NOTE 2):
- ---------
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB.
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, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997. 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 year ended December 31, 1996.
(NOTE 3)- Consolidation:
- ------------------------
The consolidated financial statements include the accounts 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, its majority owned
subsidiary, Jay Petroleum, LLC ("Jay") 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.
(NOTE 4) - Acquisition of Oil and Gas Properties:
- -------------------------------------------------
On February 5, 1997 the Company acquired an 82.9% membership interest in
Jay at an aggregate cost of $1.2 million; $677,500 for a 50% interest from NIR
Resources, Inc. ("NIR"), $363,750 for a 25% interest from Stonewall Resources,
LLC, and $132,650 as a capital contribution to Jay for a 7.9% interest. The
Company's share of profits after recovery of its investment is 70.06%. NIR is a
wholly owned subsidiary of Naphtha Israel Petroleum Corporation Limited, holder
of 36% of the Company's outstanding common stock.
(continued)
4
<PAGE>
ISRAMCO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(NOTE 4) - Acquisition of Oil and Gas Properties: (continued)
- -------------------------------------------------
On February 13, 1997 Jay acquired from Snyder Oil Corporation of Fort
Worth, Texas, various operated and nonoperated interests in oil and gas wells in
Louisiana, Texas and Wyoming for a cost of $3.1 million. The acquisition was
financed primarily with bank financing obtained by Jay through a $10 million
Master Note Facility with Comerica Bank - Texas, Houston, Texas. Isramco, Inc.
is not a borrower or guarantor under this Master Note Facility.
The acquisitions have been accounted for as purchases. Accordingly, the
consolidated financial statements include the operations of the acquired
entities from the dates of acquisition.
(NOTE 5) - Income Taxes:
- ------------------------
The provision (benefit) for income taxes (current or deferred) for the
three and six month periods presented was fully offset by a decrease or increase
in the valuation allowance.
(NOTE 6) - Long-term Debt:
- --------------------------
At June 30, 1997, Jay has outstanding indebtedness of $3,868,000 under
a bank loan facility of $10 million. The loan bears interest at prime plus 1.5%
with monthly payments of $65,000 plus interest and matures in February 2000. The
loan is secured by oil and gas properties and shall never exceed the "Borrowing
Base", as defined, which is subject to annual redetermination.
5
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
During the six month period ended June 30, 1997 the Company invested in certain
oil and gas activities in the United States through Jay Petroleum LLC ("Jay")
and continued to participate in work programs in the Negev Med Venture, the Yam
Ashdod Carveout and the Shederot Venture in Israel as hereinafter discussed.
The consolidated financial statements for the six month period ended June 30,
1997 include the operations of Jay from the date of acquisition.
Liquidity and Capital Resources
- -------------------------------
The decrease in the Company's consolidated cash and cash equivalents of
$1,422,962 from December 31, 1996 to $14,576,060 at June 30, 1997 is the result
of net cash outflows of $3,847,407 from investing activities, $313,900 from
operating activities and $2,738,345 cash inflows from financing activities. The
investing activities consist principally of approximately $1,000,000 used by the
Company to purchase its membership interest in Jay and approximately $2,770,000
used by Jay to acquire from Snyder Oil Corporation of Fort Worth, Texas
("Snyder") various operated and non-operated interest in oil and gas wells in
Louisiana, Texas and Wyoming. The financing activities relate to non-recourse
bank financing of the Snyder acquisition. Isramco, Inc. is not a borrower or
guarantor under this bank financing.
In the six month periods ended June 30, 1997 and 1996 the Company had net cash
outflow from the purchase and sale of marketable securities of $1,075,345 and
$323,910, respectively. As of June 30, 1997, the Company owned 5.5% of the
issued shares of J.O.E.L. - Jerusalem Oil Exploration Ltd. ("JOEL"), the
controlling shareholder of Naphtha Israel Petroleum Company Ltd. ("Naphtha"),
Naphtha through a wholly owned subsidiary holds approximately 37% of the
Company's outstanding common stock. Shares of JOEL and Naphtha are traded on the
Tel Aviv Stock Market.
Jay has outstanding indebtedness of $3,868,000 under a credit facility with
Comerica Bank - Houston, Texas. The credit facility provides for an interest
rate of prime plus 1.25% with payments of $65,000 plus interest monthly. The
loan is due on February 5, 2000. Additional draw downs under the Comerica Bank
Credit Facility require bank approval and the loan is subject to an annual
borrowing base redetermination review.
The Company believes that it has sufficient funds to fulfill its present capital
requirements.
- 6 -
<PAGE>
Oil and Gas Revenues
- --------------------
Three Months Ended Six Months Ended
June 30, 1997 June 30, 1997
-------------------------------------------
Oil Volume Sold (Barrels)
Farmers 3,921 8,921
Snyder 5,811 9,411
Total 9,732 18,332
Gas Volume Sold (MCF)
Farmers 67,027 122,827
Snyder 96,423 189,323
Total 163,450 312,150
Oil Sales ($)
Farmers 77,851 186,851
Snyder 107,698 186,698
Total 185,549 373,549
Gas Sales ($)
Farmers 121,236 266,236
Snyder 176,443 400,443
Total 297,679 666,679
Average Unit Price
Oil ($/Bbl) * $19.07 $20.38
Gas ($/MCF) ** $ 1.82 $ 2.14
* Bbl - Stock Market Barrel Equivalent to 42 U.S. Gallons
** MCF - 1,000 Cubic Feet
- 7 -
<PAGE>
Results of Operations
- ---------------------
United States
- -------------
During the second quarter Jay completed the installation of the water flood
project in Jack County, Texas. Jay is monitoring response of the producing wells
to the water injection. Drilling of the gas well in Garfield County, Oklahoma,
which was originally scheduled for the second quarter was delayed. Jay plans to
drill the well in the fourth quarter of 1997.
Israel
- ------
Negev Med Venture
- -----------------
During the six month period ended June 30, 1997 the Negev Med Venture extended
$219,976. The Company's share is 1.0043% or $2,209.
Yam Ashdod Venture (within the Med Ashdod License)
- --------------------------------------------------
During the six month period ended June 30, 1997, the work program in the Yam
Ashdod Carveout Venture consisted of searching for suitable rig for re-entry and
deepening the Yam 2 well and/or another deep well and continue attempts of
coordination with Ministry of Defense. The Company as of this date has not been
successful with its efforts in this regard. In this period a survey and
inspection of the wellhead of the Yam 2 well were carried out. The findings were
sent to an engineering company for valuation and for preparing a risk analysis.
During the six month period ended June 30, 1997 the Yam Ashdod Carveout Venture
expended $113,311. The Company's share is 1.0043% or $1,138.
Shederot Venture
- ----------------
During the six month period ended June 30, 1997, the Company as the operator
continued the preparatory work of the drilling prospect, the drilling program
(including locating the availability of equipment and materials in Israel) and
surveying the proposed well site.
On July 24, 1997 the Company as the Operator signed a drilling contract with
Lapidoth Israel Oil Prospectors Corporation, Ltd. to drill the Gevim 1 well. The
well is planned to a depth of approximately 14,700 feet at an estimated cost of
$6.3 million including production tests. The spud date is planned for November
1997 with the length of drilling expected to be approximately three to four
months. The participants in the license have been requested to approve an
authorization for expenditure (AFE) for $6.3 million to drill the well by August
31, 1997. The Company's share is 1.0043% of $63,271. Isramco - Negev 2 Limited
Partnership has notified the Company that in case there is not full response
from all the participants for the AFE, it will issue a sole risk announcement,
which will enable it to enlarge its percentage in order to complete the full
100% participation in the well.
- 8 -
<PAGE>
During the six month period ended June 30, 1997, the Shederot Venture expended
$80,645. The Company's share is 1.0043% or $810. The total AFEs approved by the
participants from inception date until June 1997 is $441,000. The Company's
share is 1.0043% of $4,429.
Operator's Fees
- ---------------
In the six month periods ended June 30, 1997 and 1996, the Company earned
$216,000 and $252,252, respectively, which were based on the minimum monthly
compensation for each period. The Company believes that operator's fees during
July - December 1997 will be approximately $130,000 above the minimum monthly
compensation which at present is $36,000 per month, as a result of the spudding
of the Gevim 1 well.
Oil and Gas Revenues
- --------------------
In the six month and three month periods ended June 30, 1997 the Company had oil
and gas revenues of $1,040,227 and $483,158, respectively. There were no oil and
gas revenues for the comparable period.
Lease Operating Expenses
- ------------------------
In the six month period ended June 30, 1997, the oil and gas expenses were
mainly in connection with oil and gas fields in the United States, as compared
to the same period in 1996 in which all these expenses were mainly in the
various ventures in Israel and are included in depreciation, depletion and
amortization expenses. Oil and gas lease operating expenses in the United States
in the six and three month periods ended June 30, 1997 were approximately
$379,000 and $205,000, respectively.
Interest Income
- ---------------
Interest income decreased in the six month period ended June 30, 1997 compared
to interest income in the six month period June 30, 1996 mainly due to lower
average investment balances.
Loss on Marketable Securities
- -----------------------------
In the six and three month periods ended June 30, 1997 the Company had net
realized and unrealized losses of $236,244 and $571,770, respectively, compared
to gains of $1,749,012 and $1,583,090 in the same periods in 1996, mainly as a
result of the change in the dollar rate exchange to the Israeli shekel and the
decrease in JOEL share price in the Tel Aviv Stock Market. The loss for 1997
includes an unrealized loss of $121,709 from the Company's investment in JOEL
(in the six month period ended June 30, 1996 - unrealized gain of $1,884,716).
As of August 10, 1997, that loss increased by approximately $187,000.
- 9 -
<PAGE>
Increase or decrease in the gains and losses from marketable securities are
dependent on the market prices in general and the composition of the portfolio
of the Company.
Operator Costs
- --------------
Operator's costs decreased in the six and three month periods ended June 30,
1997 as compared to the six and three month periods ended June 30, 1996,
primarily as a result of lower manpower costs and rent payments for the Company
offices in Israel. Part of the decrease was offset by expenses from foreign
currency exchange and legal expenses.
General and Administrative Expenses
- -----------------------------------
General and Administrative expenses during the six month period ended June 30,
1997 in the aggregate were comparable to those during the six month period ended
June 30, 1996.
General and administrative expenses for the six month period ended June 30, 1997
includes approximately $119,000 added from the operations of Jay and
approximately $65,000 of charges resulting from non-compete agreements.
Officers' salaries and office services in New York decreased during the six
month period ended June 30, 1997 as compared to the same period of 1996. Tax
payments during the six month period ended June 30, 1997 were higher than in the
same period ended June 30, 1996.
Minority Interest
- -----------------
Minority interest for the six month period ended June 30, 1997 represents the
minority share (17.1%) of Jay's net income.
PART II. OTHER INFORMATION
Item 5. OTHER INFORMATION
-----------------
In July 1997 Haim Tsuff, the Chairman of the Board of Isramco, Inc., acquired
control of United Kingsway Ltd. from Robert Arckens. United Kingsway Ltd.
controls 74% of YHK Limited Partnership ("YHK"). YHK owns 44.5% of Pass-port
Ltd. Pass-port Ltd. owns 43.4% of J.O.E.L. - Jerusalem Oil Exploration Ltd.
("JOEL"). JOEL owns 9.6% of Pass-port Ltd. and 86.6% of Naphtha Israel Petroleum
Company Ltd. ("Naphtha"). Naphtha owns 100% of Naphtha Holdings Ltd. Naphtha
Holdings Ltd. owns of record approximately 37% of the outstanding common stock
of the Company. Naphtha Holdings also holds 2,500,000 Class A and 2,500,000
Class B Warrants. The Company holds 5.5% of the shares of JOEL. As a result of
the foregoing, Haim Tsuff may be deemed to control the Company.
Item 6. REPORTS ON FORM 8-K
-------------------
Form 8-K for the month of May, 1997 dated May 21, 1997.
- 10 -
<PAGE>
ISRAMCO, INC.
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.
---------------------------------------
(Registrant)
Date: August 14, 1997
By: /s/ Haim Tsuff
-----------------------------------
(Signature)
Haim Tsuff
Chairman of the Board and
Chief Executive Officer
By: /s/ Daniel Avner
-----------------------------------
(Signature)
Daniel Avner
President and
Principal Accounting Officer
- 11 -
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0
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