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 three months ended March 31, 1998 Commission File No. 0-12500
ISRAMCO, INC.
---------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3145265
------------------------------ -------------------------
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
1770 St. James Place, Suite 607 Houston, TX 77056
- ---- ---------------- --------- ----------- -----
(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
- --------------------------------------------------------------------------------
(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:
- March 31, 1998 (unaudited)
- December 31, 1997 1
Condensed Consolidated statements of operations:
- Three months ended March 31, 1998 and 1997 (unaudited) 2
Condensed Consolidated statements of cash flows:
- Three months ended March 31, 1998 and 1997 (unaudited) 3
Notes to condensed consolidated financial statements 4-5
Item 2. Management's discussion and analysis of financial statements 5-10
Part II. Other information
Signatures 11
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<TABLE>
<CAPTION>
ISRAMCO. INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except for share amounts)
March 31, December 31,
1998 1997
--------- ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets
Cash including cash equivalents $ 8,494 $ 9,741
Certificate of deposit 1,900 1,900
Accounts receivable 292 446
Marketable securities, at market 7,920 7,113
Prepaid expenses and other 363 353
-------- --------
Total current assets $ 18,969 $ 19,553
Oil and gas properties, net 6,659 6,756
Equipment, net 115 134
Covenants not to compete, not 220 252
Other assets 110 88
-------- --------
TOTAL ASSETS $ 26,073 $ 26,783
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 493 $ 485
Current portion of tong-term debt 539 781
-------- --------
Total current liabilities $ 1,032 $ 1,266
Long-term debt 2,513 2,446
Minority interest 139 156
Shareholders' equity:
Common stock $.0l par value authorized
75,000,000 shares:
issued 26,691,198 267 267
Additional paid-in-capital 25,928 25,928
Accumulated deficit (3,642) (3,116)
Treasury stock; 292,675 shares (164) (164)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 22,389 22,915
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 26,073 $ 26,783
======== ========
See notes to the consolidated financial statements
1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ISRAMCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
Three Months ended
March 31,
--------------------------------
1998 1997
-------- --------
<S> <C> <C>
Revenues
Operator fees from related party $ 190 $ 108
Oil and gas sales 407 557
Interest income 156 284
Gain(loss) on marketable securities (384) 336
Office services to affiliates and other 120 119
Reimbursement of exploration costs 43 -0-
Equity earnings in Jay Management 15 -0-
-------- --------
Total revenue 547 1,404
-------- --------
Expenses:
Interest expense 76 30
Depreciation,depletion and amortization 176 180
Lease operating expenses 276 174
Operator costs 120 216
General and administrative - in part to
related parties 442 227
-------- --------
Total expenses 1,090 827
-------- --------
Income (loss) before taxes and minority interest $ (543) $ 577
Provision (benefit) for income taxes -0- -0-
-------- --------
Income (loss) from operations before minority int $ (543) $ 577
Minority interest 17 (34)
NET INCOME (LOSS) $ (526) $ 543
======== ========
Earnings (loss) per share - basic and diluted $ (0.02) $ 0.02
======== ========
Weighted average number of shares $ 26,399 $ 26,399
======== ========
See notes to the consolidated financial statements
</TABLE>
2
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<TABLE>
<CAPTION>
ISRAMCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
March 31,
-----------------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ (526) $ 543
Adjustment to reconcile net income (loss) to net
Cash (used in) operating activities
Depreciation, depletion and amortization 176 180
Minority interest (17) 34
(Gain) loss on marketable securities 384 (336)
(Gain) loss on sale of property and equipment (3) 1
Changes in assets and liabilities
Accounts receivable 154 (788)
Prepaid expenses and other current assets (10) (40)
Other assets (48) (188)
Accounts payable and accrued expenses 9 159
Purchase of marketable securities (1,460) (1,510)
Proceeds from sale of marketable securities 269 726
-------- --------
Net cash used in operating activities (1,072) (843)
-------- --------
Cash flows from investing activities:
Purchase of oil and gas properties -0- (2,771)
Purchase of equipment -0- (20)
Proceeds from sale of equipment -0- 6
Purchase of Jay Petroleum, LLC from
affiliate, net of cash acquired -0- (1,036)
-------- --------
Net cash used in investing activities -0- (3,821)
-------- --------
Cash flows from financing activities:
Proceeds from long term debt -0- 2,981
Principal payments on long term debt (175) -0-
Other -0- 27
-------- --------
Net cash provided by (used in)
financing activities (175) 3,008
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,247) (1,656)
Cash and cash equivalents, beginning of period 9,741 15,999
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,494 $ 14,343
======== ========
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 76 $ 30
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. Operating
results for the three-month period ended March 31, 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 incorporated by reference in the Company's Annual Report
on Form 10-K 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") and Isramco Underwriters Ltd., both Israeli companies, Isramco Resources
Inc., a British Virgin Islands company, its majority owned subsidiary, Jay
Petroleum LLC ("Jay"), 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 actively seek lucrative oil and gas
properties, no such purchases were made in the first quarter of 1998.
(NOTE 5) - Income Taxes:
- ------------------------
The provision (benefit) for income taxes (current or deferred) for the
three-month periods presented was fully offset by a decrease or increase in the
valuation allowance.
4
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(NOTE 6) - Long-term Debt:
- --------------------------
At March 31, 1998, Jay has outstanding indebtedness of $3,052,000 under a bank
loan facility of $10 million. In March 1998, Jay Petroleum renegotiated its loan
with Comerica bank in order to reduce the monthly payment. The loan bears
interest at prime plus 1.0% 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.
(NOTE 7) - 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 $255,000.
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 decrease in the Company's consolidated cash and cash equivalents of
$1,247,000 from December 31, 1997 to $8,494,000 at March 31, 1998 is the result
of net cash outflows of $1,072,000 from operating activities (which includes the
purchase of a $1,460,000 six month piece of commercial paper) and $175,000 cash
outflows from payment of the long term debt to Comerica bank by Jay Petroleum.
Isramco, Inc. is not a borrower or guarantor under this bank financing.
In the three month period ended March 31, 1998 and 1997 the Company had net cash
outflow from the purchase and sale of marketable securities of $1,200,000 and
$784,000, respectively. As of March 31, 1998 the Company owned 5.0% 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).
Shares of JOEL and Naphtha are traded on the Tel Aviv Stock Market.
5
<PAGE>
Jay has outstanding indebtedness of $3,052,000 under a credit facility with
Comerica Bank - Texas, Houston, Texas. In March 1998, Jay Petroleum renegotiated
its loan with Comerica. The new credit facility provides for an interest rate of
prime plus 1.00% with monthly payments of $45,000 plus interest down from
$65,000 plus interest paid monthly. The loan is due on February 5, 2000.
Additional drawdowns under the Comerica Bank Credit Facility require bank
approval and the loan is subject to an annual borrowing base redetermination
review.
The Company believes that it has sufficient funds to fulfill its present capital
requirements.
6
<PAGE>
Results of Operations
- ---------------------
United States
- -------------
Oil and Gas Revenues (Three months ended March 31)
(in thousands)
1998 1997
---- ----
Oil Volume Sold (Barrels)
Total 9 9
Gas Volume Sold (MCF)
Total 140 149
Oil Sales ($)
Total 141 188
Gas Sales ($)
Total 265 369
Average Unit Price
Oil ($/Bbl) * $15.67 $21.77
Gas ($/MCF) ** $ 1.89 $ 2.48
* Bbl - Stock Market Barrel Equivalent to 42 U.S. Gallons
** MCF - 1,000 Cubic Feet
7
<PAGE>
Israel
- ------
Negev Med Venture
- -----------------
During the three-month period ended March 31, 1998 the Negev Med Venture
expended $82,000. The Company's share is 1.0043% or $1,000.
Yam Ashdod Venture (within the Med Ashdod License)
- --------------------------------------------------
During the three-month period ended March 31, 1998 the Yam Ashdod Carveout
Venture expended $34,000. The Company's share is 1.0043%
or less than $1,000.
Shederot Venture
- ----------------
During the three-month period ended March 31, 1998 the Shederot Venture expended
$2,235,000. The Company's share is 1.0043% or $22,000. These funds were
primarily expended for the drilling of the Gevim-1 well.
As of May 5, 1998 drilling on the Gevim - 1 well, located on-shore in Israel
near the town of Shederot, had reached the depth of 12,670 feet. Drilling is
proceeding as planned and no difficulties have occurred. The target zone in the
well is expected to be encountered in June at approximately 14,500 feet.
8
<PAGE>
Operator's Fees
- ---------------
In the three-month periods ended March 31, 1998 and 1997, the Company earned
$190,000 and $108,000, respectively, which were based on the minimum monthly
compensation for each period.
Oil and Gas Revenues
- --------------------
In the three-month period ended March 31, 1998 and 1997 the Company had oil and
gas revenues of $407,000 and $557,000, respectively. The decrease is due mainly
to the drop in oil and gas prices.
Lease Operating Expenses
- ------------------------
In the three month period ended March 31, 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 three month
periods ended March 31, 1998 and 1997 respectively were approximately $276,000
and $174,000, 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. As a result of a workover the
Kirkendall well, which had stopped producing, is now producing again. Jay
Petroleum also attempted to produce what was thought to be a previously
unproduced zone in the Hoover well. This workover was unsuccessful. Other
workover expenses include charges from an unaffiliated company for revamping a
salt-water disposal system in which Jay Petroleum has a working interest.
Interest Income
- ---------------
Interest income decreased in the three-month period ended March 31, 1998
compared to interest income in the three-month period ended March 31, 1997
mainly due to lower average investment balances.
Loss on Marketable Securities
- -----------------------------
In the three-month period ended March 31, 1998 the Company had a net realized
and unrealized loss of $(384,000) compared to a gain of $336,000 in the same
period in 1997.
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.
9
<PAGE>
Operator Costs
- --------------
Operator's costs decreased in the three month period ended March 31, 1998 as
compared to the three month period ended March 31, 1998, primarily as a result
of lower manpower costs and reduced rent payments for the Company offices in
Israel.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses increased during the three-month period
ended March 31, 1998 as compared to the same period in 1997. General and
administrative expenses in the three-month period ended March 31, 1998 includes
approximately $190,000 from legal expenses related to the settlement with Mr.
Reuvan Hollo, Jay Resources Inc. and Jay Natural Resources. Non cash charges to
income included approximately $52,000 resulting from amortization of non-compete
agreements with former employees and good will relative to the acquisition of
Isramco's interest in Jay Petroleum. Directors' fees and officers' salaries
increased during the three-month period ended March 31, 1998 as compared to the
same period of 1997.
Minority Interest
- -----------------
Minority interest for the three-month period ended March 31, 1998 represents the
minority share (17.1%) of Jay's net income. See Part II, Item 1.
10
<PAGE>
ISRAMCO, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The arbitration and law suit against Mr. Reuven Hollo, Jay Resources
Inc. and Jay Natural Resources has been resolved pursuant to a
Settlement Agreement and Release, a copy of which was filed as an
Exhibit to Form 8-K for the month of March, 1998.
Item 5. Other Information
-----------------
The Nasdaq Stock Market has modified its requirements with regard to
standards for a company's shares being listed by Nasdaq SmallCap
Market. Among other requirements, the minimum bid price for a security
trading on the Nasdaq SmallCap Market is now $1.00. In order to meet
the minimum requirements of Nasdaq, the Board of Directors has adopted
a resolution, subject to the stockholders' approval, to amend the
Company's Certificate of Incorporation to effect a reverse stock split
of the Company's common stock, pursuant to which each ten (10) shares
of common stock will be converted into one (1) share of common stock.
Item 6. Reports on Form 8-K
-------------------
Form 8-K for the month of March 1998 dated March 31, 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: May 13, 1998
By: /s/ Haim Tsuff
------------------------
(Signature)
Haim Tsuff
Chairman of the Board
And Chief Executive Officer
By: /s/ Daniel Avner
------------------------
(Signature)
Daniel Avner
President, Secretary
And Principal Accounting Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from Form 10-QSB
for the first quarter of 1998 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 8,494
<SECURITIES> 7,920
<RECEIVABLES> 292
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,969
<PP&E> 7,522
<DEPRECIATION> 863
<TOTAL-ASSETS> 26,073
<CURRENT-LIABILITIES> 1,032
<BONDS> 0
0
0
<COMMON> 267
<OTHER-SE> 22,122
<TOTAL-LIABILITY-AND-EQUITY> 26,073
<SALES> 190
<TOTAL-REVENUES> 547
<CGS> 0
<TOTAL-COSTS> 1,014
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76
<INCOME-PRETAX> (543)
<INCOME-TAX> 0
<INCOME-CONTINUING> (543)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (543)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
