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, 1998 Commission File No. 0-12500
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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)
1770 St. James Place, Suite 607 Houston, TX 77056
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 713-621-3882
575 Madison Avenue, Suite 1006, New York, New York 10022
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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
<PAGE>
ISRAMCO INC.
INDEX
PAGE NO.
--------
Part I. Financial Information
Item 1. Financial statements
Condensed Consolidated balance sheets: 1
- June 30, 1998 (unaudited)
- December 31, 1997
Condensed Consolidated statements of operations:
- Three months ended June 30, 1998 and 1997 (unaudited) 2
- Six months ended June 30, 1998 and 1997 (unaudited)
Condensed Consolidated statements of cash flows:
- Six months ended June 30, 1998 and 1997 (unaudited) 3
Notes to condensed consolidated financial statements 4-6
Item 2. Management's discussion and analysis of financial statements 6-9
Part II. Other information
Signatures 10
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except for share amounts)
June 30, December 31,
ASSETS 1998 1997
---- ----
(Unaudited)
Current assets
Cash including cash equivalents $ 10,596 $ 9,741
Certificate of deposit 1,900 1,900
Accounts receivable 535 446
Marketable securities, at market 6,050 7,113
Prepaid expenses and other 176 353
-------- --------
Total current assets $ 19,257 $ 19,553
Oil and gas properties, net 6,671 6,756
Equipment, net 106 134
Covenants not to compete, net 187 252
Other assets 88 88
-------- --------
TOTAL ASSETS $ 26,309 $ 26,783
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 583 $ 485
Current portion of tong-term debt 539 781
-------- --------
Total current liabilities $ 1,122 $ 1,266
Long-term debt 2,606 2,446
Minority interest 57 156
Shareholders' equity:
Common stock $.0l par value authorized 75,000,000
shares: issued 2,669,076 27 27
Additional paid-in-capital 26,168 26,168
Accumulated deficit (3,507) (3,116)
Treasury stock; 29,267 shares (164) (164)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 22,524 22,915
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 26,309 $ 26,783
======== ========
See notes to the consolidated financial statements
-1-
<PAGE>
<TABLE>
<CAPTION>
ISRAMCO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts) (unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues
<S> <C> <C> <C> <C>
Oil and gas sales $ 473 $ 483 $ 880 $ 1,040
Operator fees from related party 208 108 398 216
Interest income 138 256 293 540
Gain (loss) on marketable securities (19) (572) (403) (236)
Office services to affiliates and other 179 137 299 256
Reimbursement of exploration costs 55 -0- 98 -0-
Equity earnings in Jay Management -0- -0- 15 -0-
Capital gain 10 -0- 10 -0-
------- ------- ------- -------
Total revenue 1,044 412 1,590 1,816
------- ------- ------- -------
Expenses:
Interest expense 77 130 153 160
Depreciation, depletion and amortization 185 126 361 306
Lease operating expenses 221 205 497 379
Operator costs 133 114 253 330
General and administrative - in part to
related parties 238 440 680 667
Explorations costs 52 -0- 52 -0-
------- ------- ------- -------
Total expenses 906 1,015 1,996 1,842
------- ------- ------- -------
Income (loss) before taxes and minority interest 138 (603) (406) (26)
Provision (benefit) for income taxes -0- -0- -0- -0-
------- ------- ------- -------
Income (loss) from operations before minority int 138 (603) (406) (26)
Minority interest (2) 4 15 (30)
------- ------- ------- -------
NET INCOME (LOSS) $ 136 $ (599) $ (391) $ (56)
======= ======= ======= =======
Earnings (loss) per share - basic and diluted $ 0.05 $ (0.23) $ (0.15) $ (0.02)
======= ======= ======= =======
Weighted average number of shares 2,640 2,640 2,640 2,640
======= ======= ======= =======
See notes to the consolidated financial statements
-2-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ISRAMCO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (unaudited)
Six Months Ended June 30,
-------------------------
1998 1997
---- ----
Cash flow from operating activities:
<S> <C> <C>
Net income (loss) $ (391) $ (56)
Adjustment to reconcile net income (loss) to net
Cash (used in) operating activities
Depreciation, depletion and amortization 361 306
Minority interest (15) 30
(Gain) loss on marketable securities 558 236
(Gain) loss on sale of property and equipment (10) (3)
Changes in assets and liabilities
Accounts receivable 238 (39)
Prepaid expenses and other current assets 127 108
Other assets (2) 207
Accounts payable and accrued expenses (332) (27)
Purchase of marketable securities (1,485) (2,070)
Proceeds from sale of marketable securities 1,990 994
-------- --------
Net cash provided by (used in operating activities) 1,039 (314)
-------- --------
Cash flows from investing activities:
Additions to oil and gas properties (37) (2,775)
Purchase of equipment (16) (70)
Proceeds from sale of equipment 20 6
Purchase of remaining ownership of Jay Petroleum, LLC
and additional interest in Jay Management, LLC,
net of cash acquired (69) (1,096)
Others 0 27
-------- --------
Net cash used in investing activities (102) (3,848)
-------- --------
Cash flows from financing activities:
Proceeds from long term debt 136 2,786
Principal payments on long term debt (218) (47)
-------- --------
Net cash provided by (used in) financing activities (82) 2,739
-------- --------
NET INCREASE (DECREASE ) IN CASH AND CASH EQUIVALENTS 855 (1,423)
Cash and cash equivalents, beginning of period 9,741 15,999
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,596 $ 14,576
======== ========
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 120 $ 160
See notes to the consolidated financial statements.
-3-
</TABLE>
<PAGE>
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. Results for the
three and six month periods ended June 30, 1998 are not necessarily indicative
of the results that may be expected for the year ended December 31, 1998. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1997.
(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") an Israeli company, Isramco Resources Inc., a British Virgin Islands
company, Jay Petroleum LLC ("Jay"), its majority owned subsidiary Jay Management
Company LLC, Isramco B.V. 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:
- -------------------------------------------------
Although the Company continues to seek lucrative oil and gas properties, no such
purchases were made in the first six months of 1998.
(NOTE 5) - Long-term Debt:
- --------------------------
At June 30, 1998, Jay has outstanding indebtedness of $3,145,000 under a bank
loan facility of $10 million. The loan bears interest at prime plus 1% (9.5% at
June 30, 1998) with monthly payments of $45,000 plus interest and matures in
February 2000. The loan is collateralized by oil and gas properties and cannot
exceed the "Borrowing Base", as defined, which is subject to annual
redetermination. Isramco, Inc. is not a borrower or guarantor under this bank
financing.
-4-
<PAGE>
(NOTE 6) - Jay Petroleum, L.L.C.:
- ---------------------------------
In April, 1998, Isramco, as part of its settlement of a lawsuit with Jay
Resources, acquired Jay Resource's remaining interest in Jay Petroleum, L.L.C.
and Jay Management, L.L.C. for $323,000.
(NOTE 7) - Reverse stock split
- ------------------------------
The Company declared a one for ten reverse stock split during 1998. The effect
of this reverse stock split has been reflected in all share and per share
amounts in the accompanying financial statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Statements in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and elsewhere in this document as well as statements
made in press releases and oral statements that may be made by the Company or by
officers, directors or employees of the Company acting on the Company's behalf
that are not statements of historical or current fact constitute "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements involve known and unknown
factors that could cause the actual results of the Company to be materially
different from the historical results or from any future results expressed or
implied by such forward looking statements.
Liquidity and Capital Resources
- -------------------------------
The increase in the Company's consolidated cash and cash equivalents of $855,000
from $9,741,000 at December 31, 1997 to $10,596,000 at June 30, 1998 is the
result of net cash outflows of $460,000 from operating activities, $82,000, net
cash outflows from payment of the long term debt to Comerica bank by Jay
Petroleum and $102,000 cash outflow due to investment in the Company's oil and
gas properties and acquisition of equipment and the acquisition of the remaining
ownership interests in Jay Petroleum, LLC and additional interest in Jay
Management, LLC.
In the six month period ended June 30, 1998 and 1997 the Company had net cash
outflow from the purchase and sale of marketable securities of $505,000 and
($1,076,000), respectively. As of June 30, 1998 the Company owned 5.5% of the
issued shares of J.O.E.L. - Jerusalem Oil Exploration Ltd. ("JOEL"), the
controlling shareholder of Naphtha Israel Petroleum Company Ltd. ("Naphtha").
Naphtha through a wholly owned subsidiary holds approximately 49.9% of the
Company's outstanding common stock (assuming the exercise of all stock options
only by Naphtha). Shares of JOEL and Naphtha are traded on the Tel Aviv Stock
Market.
The Company believes that it has sufficient funds to fulfill its present capital
requirements.
-5-
<PAGE>
Results of Operations
- ---------------------
United States
- -------------
Oil and Gas Revenues (in thousands)
Three Months ended Six Months ended
June 30 June 30
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
Oil Volume Sold (Barrels)
Total 7 10 16 18
Gas Volume Sold (MCF)
Total 199 163 339 312
Oil Sales ($)
Total 86 186 227 374
Gas Sales ($)
Total 388 298 653 667
Average Unit Price
Oil ($/Bbl) * $12.29 $19.07 $14.19 $20.38
Gas ($/MCF) ** $ 1.95 $ 1.82 $ 1.93 $ 2.14
* Bbl - Stock Market Barrel Equivalent to 42 U.S. Gallons
** MCF - 1,000 Cubic Feet
Israel
- ------
The Med Licenses Venture
- ------------------------
During the six-month period ended June 30, 1998 the Med Venture expended
$157,000. The Company's share is 1.0043% or $1,600.
The Company is examining legal options to lift the limiting conditions imposed
by the Ministry of Defense so that drilling can be carried out within the
licenses areas. It is currently impossible to evaluate the outcome of these
efforts.
-6-
<PAGE>
Yam Ashdod Carveout Venture (within the Med Ashdod License)
- -----------------------------------------------------------
During the six-month period ended June 30, 1998 the Yam Ashdod Carveout Venture
expended $94,000. The Company's share is 1.0043% or less than $1,000.
Processing of the seismic data that was acquired over the Yam Ashdod Carveout
was completed. Interpretation is currently in progress in purpose to verify the
existence of a drilling prospect in this area.
Shederot License
- ----------------
The Gevim 1 well was spuded on January 1998 within the license area. The well
was planned to reach a total depth of 14,765 feet at a A.F.E. of $6.3 million
dollars (including production tests). The Company share is 1.0043%.
On May 1998 the drilling was completed at total depth of 15,157 feet. After
analysis of the electric logs, the partners in the well decided to conduct
production tests at depths between 14,895 and 15,014 feet at a total A.F.E. of
approximately $ 1.1 million. On August 11th the production test has been
completed. During the test salt water and small and noncommercial quantities of
gas were indicated. Upon test results, it has been decided to finish the test
and plug and abandon the well. Total well expenditures (including tests) are
about $6.7 million dollars. The share of Isramco inc., is about $67,000. From
this sum $44,000 were included on the Statements of Operation for the three
months ended June 30 1998.
Congo
- -----
The Operator, Naphtha Congo, has submitted to the Congolese Ministry of
Petroleum a work program for the development of the Tilapia and Marine 3
concessions. A meeting between Naphtha Congo and the Congolese Ministry of
Petroleum scheduled for July 1998 was postponed. The Ministry has informed
Naphtha Congo that only after obtaining all approvals required under the
Congolese law can this meeting take place. Naphtha Congo believes that the
meeting was postponed due to current political situation in Congo.
-7-
<PAGE>
Operator's Fees
- ---------------
In the six-month periods ended June 30, 1998 and 1997, the Company earned
$398,000 and $216,000, respectively, which were based on the minimum monthly
compensation for each period.
Oil and Gas Revenues
- --------------------
In the six-month period ended June 30, 1998 and 1997 the Company had oil and gas
revenues of $880,000 and $1,040,000, respectively. The decrease is due mainly to
the drop of 30% in oil prices.
Lease Operating Expenses
- ------------------------
In the six month period ended June 30, 1998 and 1997, the oil and gas expenses
were mainly in connection with oil and gas fields in the United States. Oil and
gas lease operating expenses in the United States in the six month periods ended
June 30, 1998 and 1997 respectively were approximately $497,000 and $379,000,
respectively. The increase in lease operating expenses is due mainly to workover
expenses on several wells which totaled over $77,000, overhead charges from
previous years which were not billed until this quarter and the yearly COPAS
overhead escalation.
Interest Income
- ---------------
Interest income decreased in the six-month period ended June 30, 1998 compared
to interest income in the six-month period ended June 30, 1997 mainly due to
lower average interest earning investment balances.
Loss on Marketable Securities
- -----------------------------
In the six-month period ended June 30, 1998 the Company had a net realized and
unrealized loss of $ 403,000 compared to a loss of $236,000 in the same period
in 1997.
Increases or decreases 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 month period ended June 30, 1998 as
compared to the six month period ended June 30, 1997, primarily as a result of
lower manpower costs and reduced rent payments for the Company's offices in
Israel.
-8-
<PAGE>
General and Administrative Expenses
- -----------------------------------
General and administrative expenses remained stable during the six-month period
ended June 30, 1998 as compared to the same period in 1997. General and
administrative expenses in the six-month period ended June 30, 1998 includes
approximately $190,000 of legal expenses related to the settlement with Mr.
Reuven Hollo, Jay Resources Inc. and Jay Natural Resources. Non cash charges to
income included approximately $113,000 resulting from amortization of
non-compete agreements with former employees and goodwill relative to the
acquisition of Isramco's interest in Jay Petroleum.
Minority Interest
- -----------------
Minority interest for the three-month period ended June 30, 1998 represents the
minority share (35%) of Jay Management LLC net income.
-9-
<PAGE>
ISRAMCO INC.
PART II. OTHER INFORMATION
Item 5. Other Information
-----------------
The Company at its Annual Meeting of Shareholders approved a proposal to
effect a 1 for 10 reverse split of its Common Shares. As a result of the Reverse
Stock Split, the Common Shares underlying Class A and Class B Warrants were also
reduced in number by a ratio of 10 to 1.
Item 6. Reports on Form 8-K
-------------------
Form 8-K for the month of July, 1998 dated July 15, 1998
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 13, 1998
By: /s/ Haim Tsuff
-------------------------------
(Signature)
Haim Tsuff
Chairman of the Board
Chief Executive Officer
And Chief Financial Officer
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER>1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 10,596
<SECURITIES> 7,950
<RECEIVABLES> 535
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,257
<PP&E> 7,833
<DEPRECIATION> 1,055
<TOTAL-ASSETS> 26,309
<CURRENT-LIABILITIES> 1,122
<BONDS> 0
0
0
<COMMON> 27
<OTHER-SE> 22,497
<TOTAL-LIABILITY-AND-EQUITY> 26,309
<SALES> 880
<TOTAL-REVENUES> 1,590
<CGS> 0
<TOTAL-COSTS> 1,843
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 153
<INCOME-PRETAX> (391)
<INCOME-TAX> 0
<INCOME-CONTINUING> (391)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (391)
<EPS-PRIMARY> (.15)<F1>
<EPS-DILUTED> (.15)<F1>
<FN>
<F1> The Company declared a one for ten (10) reverse stock split, effective May
18, 1998. Prior financial data schedules have not been restated.
</FN>
</TABLE>
