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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
PURSUANT TO SECTION 13 OR 15(D) OF
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[ X ] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934[No Fee Required]
For the Calendar Year ended December 31, 1997
Commission File Number 0-12500
ISRAMCO, INC.
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(Registrant)
Delaware 13-3145265
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(State of other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
1770 St. James Place, Suite 607, Houston, Texas 77056
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 621-3882
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $.01 par value
Class A Redeemable Warrants
Class B Redeemable Warrants
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. [ X ]
Revenue for year ended December 31, 1997 was $3,797,000. The aggregate
market value of the voting stock held by nonaffiliates of the Registrant was
approximately $7,644,622 as of March 11, 1998, based upon the closing bid price
on the NASDAQ National Market System reported for such date. Shares of Common
Stock held by each officer and director and by each person who owns 5% or more
of the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
26,398,523 shares of Common Stock were issued and outstanding as of March
10, 1998.
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<PAGE>
Item 1. and Item 2. Business and Properties
------------------------
History
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The Company since its formation in 1982 has been active in the exploration
of oil and gas in Israel. From 1982 to 1985 the Company with certain affiliated
entities and other participants expended approximately $8.5 million for oil and
gas exploration in Israel and drilled four wells onshore Israel. The Company's
share of these expenditures was approximately $2.8 million. Although oil was
discovered at the Gurim 4 and 5 wells, only approximately 9,000 barrels have
been produced and none of the wells sustained commercial production.
The Company with related and unrelated parties formed the Negev 1 Venture
in 1985 to continue oil and gas exploration activities in Israel. These parties
included J.O.E.L.-Jerusalem Oil Exploration Ltd. ("JOEL"), Southern Shipping and
Energy (U.K.) ("SSE (U.K.)"), Pass-port Ltd. ("Pass-port"), East Mediterranean
Oil and Gas Ltd. ("EMOG"), Delek - The Israel Fuel Corporation Ltd. ("Delek"),
Delek Oil Exploration Ltd. ("DOEX"), Naphta Israel Petroleum Corporation Ltd.
("Naphta"), HEI Oil and Gas Ltd., a California limited partnership, Donesco
Venture Fund One, Mazal Oil Inc., and L.P.S. Israel Oil Inc. ("HEI").
The participants in the Negev 1 Venture expended approximately $19.2
million for oil and gas exploration activities including seismic exploration and
drilled two wells, both of which were dry holes. The Company's share of these
expenditures was approximately $576,000. The Negev 1 Venture received no
revenues from its activities.
Following the expiration of the Negev 1 Venture in 1988, the Negev 2
Venture was formed by the same participants and held two licenses - Negev Nirim
and Negev Ashquelon. Within the framework of the Negev 2 Joint Venture, two
offshore wells ("Yam 1" and "Yam 2") were drilled and seismic and geological
studies, both onshore and offshore were conducted at a cost of $44.55 million.
As of 1991, the activities with the Negev Nirim License were carried out within
the Bessor Carveout Area and as of 1993, the activities within the Negev
Ashquelon License were carried out within the Yam Carveout Area under Sole Risk
Agreements. In February 1995, the Negev Nirim License (including the Bessor
Carveout) was relinquished and in June 1996, the Negev Ashquelon License
(including the Yam Carveout) was relinquished by the Venture participants. The
Company, as the Operator is in the process of winding down the affairs of the
Negev 2 Joint Venture.
In 1991 the Negev 2 Venture participants (excluding HEI) received a
Preliminary Permit with Priority Rights to receive petroleum licenses (the Negev
Med Venture). When the Preliminary Permit expired the Venture participants were
granted five (5) licenses: Med Tel Aviv License, Med Yavne License, Med Ashdod
License, Med Hadera License, Med Hasharon License (the Med Licenses) with a
duration which has been extended until June 15, 2000. On January 24, 1994 the
participants in the Med Tel Aviv License spudded the Yam Yafo 1 well in the Yam
Yafo Structure approximately 20 kilometers northwest of the Tel Aviv coast.
There was no economic justification for producing oil and gas from this well.
The total cost of drilling the Yam Yafo well including tests, was approximately
$38 million of which the Company's share was $382,000.
- 1 -
<PAGE>
On November 15, 1994 the participants in the Med Yavne License spudded the
Yam West 1 well (the well is located approximately 32 kilometers northwest of
Ashdod in a water depth of 2,130 feet) which was declared a dry hole. The total
cost of the well was approximately $23 million of which the Company's share was
approximately $231,000.
In 1996 the Ministry of Energy awarded to the Company and other venture
participants an onshore drilling license called Shederot/265.
In 1997 the Company has expanded its activities outside of Israel by
acquiring membership interests in Jay Petroleum LLC which owns certain working
interests in oil and gas wells in the United States and by acquiring rights in
exploitation and exploration concessions in the Congo, Africa.
The Operator
The Company is the Operator of the Shederot Venture which consists of one
onshore license, the Negev Med Venture which consists of five offshore licenses
and the Yam Ashdod Carveout Venture which consists of one offshore license. As
the Operator, the Company is responsible for directing the oil exploration and
drilling activities of each Venture through its Branch Office in Tel Aviv,
Israel. With full-time (six) employees, outside consultants and subcontractors,
the Company carries out the operations of each Venture within the framework of
approved work programs and budgets and pursuant to the terms of a Joint
Operating Agreement.
The Operator charges each Venture participant for all costs incurred in
connection with the exploration and drilling activities conducted by each
Venture and is entitled to receive a fee for its administrative overhead equal
to 6% of all direct charges or minimum monthly compensation of $6,000 per each
License. During the year ended December 31, 1997, the Company was paid fees of
$288,000 in connection with the Negev Med Venture, fees of $100,891 in
connection with the Yam Ashdod Carveout Venture and fees of $72,000 in
connection with the Shederot Venture. See "Material Agreements". The minimum
monthly Operator's fee is currently $36,000 per month.
General Partner for the Negev 2 Limited Partnership
- ---------------------------------------------------
In 1989 the Company formed in Israel the Negev 2 Limited Partnership (the
"Limited Partnership") to acquire from the Company a substantial portion of its
working interest in the Negev 2 Venture. In exchange for working interests, the
Limited Partnership paid to the Company $700,000 and granted to the Company
certain overriding royalties. In 1992, the Company transferred to the Limited
Partnership additional rights in the Negev Ashquelon License, the Bessor
Carveout, and the Negev Med Permit with Priority Rights (now the Med Licenses)
in exchange for additional overriding royalties and reimbursement of expenses.
The Company created Isramco Oil and Gas Ltd. ("IOG"), a wholly-owned subsidiary
to act as the General Partner for the Limited Partnership and formed Isramco
Management (1988) Ltd., a wholly-owned subsidiary to act as the nominee holder
of Limited Partnership units held by public investors in Israel. Pursuant to the
Limited Partnership Agreement and the Trust Agreement, a Supervisor was
appointed on behalf of the Limited Partnership unit holders, with sole authority
- 2 -
<PAGE>
to appoint the sole director for Isramco Management (1988) Ltd. and to supervise
its activities on behalf of and for the benefit of the Limited Partnership unit
holders. The control and management of the Limited Partnership vests with the
General Partner, however, matters involving the rights of the Limited
Partnership unit holders are subject to the supervision of the Supervisor and in
certain instances the approval of the Limited Partnership unit holders. The firm
of Igal Brightman & Co., Accountants and Mr. David Valiano, Accountant have been
appointed as Supervisors.
The Company during 1992 and 1993, in order to assist the Limited
Partnership in the financing of its oil and gas exploration activities, acted as
offeror of Limited Partnership units to the public in Israel and assisted the
Limited Partnership in raising approximately $123 million from public in Israel.
The Company and its subsidiary, Isramco Underwriters Ltd., along with other
affiliated and non-affiliated companies also acted as an underwriter for the
Limited Partnership unit offerings and during the period March 1, 1992 through
December 31, 1994 received underwriting fees and expense reimbursements in the
approximate amount of $602,000 and fees in the amount of $160,000 for the
preparation of three prospectuses for the Limited Partnership unit offerings.
On March 1, 1998 the Limited Partnership had available approximately $64
million to finance its share of work obligations under the Licenses with regard
to the Petroleum Assets. The Limited Partnership is the largest holder of
Working Interests in the Negev 2 Venture, the Shederot Venture, the Negev Med
Venture and the Yam Ashdod Carveout Venture. See "Table of Petroleum Assets
(Working Interests) Oil and Gas Ventures".
The Company holds overriding royalties in certain Petroleum Assets through
the Limited Partnership and currently receives a management fee of $40,000 (as
of January 1997) per month from the Limited Partnership for office space,
management and other services. It has been significant to the Company that the
Limited Partnership (in part through the efforts of the Company and others), has
been able to raise monies from the public in Israel to fund the Limited
Partnership's share of the work programs for the Petroleum Assets in connection
with the continuation of oil and gas exploration activities in Israel and to
preserve the existence of the Company's overriding royalties. As of December 31,
1997 the Company held 0.01% of the issued Limited Partnership units and a
subsidiary of the Company, acting as General Partner for the Limited Partnership
held a 0.01% interest in the Limited Partnership.
Acquisition of Assets
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Jay Petroleum, LLC
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In February 1997, the Company acquired an interest in Jay Petroleum LLC
("Jay"), a Texas limited liability company. The Company (i) paid to NIR
Resources Inc. ("NIR") the sum of $677,500 for its 50% Membership Interest
(before recovery of contributions) in Jay which interest for profit allocation
purposes reduces to 37.5% after recovery of capital contribution; and (ii) paid
to Stonewall Resources LLC the sum of $363,750 for its 25% Membership Interest
before recovery of contributions in Jay which interest for profit allocation
purposes reduces to 18.75% after recovery of capital contributions. NIR is a
wholly owned subsidiary of Naphtha Israel Petroleum Corp. Ltd. See Security
- 3 -
<PAGE>
Ownership of Certain Beneficial Owners. Mr. Yossi Levy, the Branch Manager for
the Israel Branch Office of the Company is the General Manager of Naphtha Israel
Petroleum Corp. Ltd- ("Naphtha") and NIR. In addition, officers and directors of
the Company are associates of officers and directors of Naphtha.
On February 13, 1997 Jay acquired from Snyder Oil Corporation of Fort
Worth, Texas, various operated and non-operated interests in oil and gas wells
in Louisiana, Texas and Wyoming for a cost of $3.1 million excluding acquisition
costs and purchase price adjustments. The acquisition was financed primarily
with bank financing obtained by Jay through a $ 10 million Revolving Credit
Facility with Comerica Bank - Texas, Houston, Texas. The Company is neither a
borrower nor guarantor under this Revolving Credit Facility.
As part of the same transaction the Company made a $132,650 capital
contribution to Jay and acquired from Jay Resources Corp. a 7.9% Membership
Interest in Jay Petroleum LLC which interest increases to an allocation of
profits percentage of 13.81% after recovery of capital contributions.
In connection with this acquisition of interests in Jay the Company
received a Fair Market Value Letter from the firm of Albrecht and Associates
Inc., independent petroleum engineers, with regard to the oil and gas properties
held by Jay, The Fair Market Value Letter was based in part upon reserve
evaluation and net income projections prepared by Riseden Services Inc.,
independent petroleum engineers. A copy of the Fair Market Value Letter dated
January 27, 1997 and the Riseden Report dated January 16, 1997 have been filed
as Exhibits with Form 8-K filed by the Company for the month of February 1997.
As of December 31, 1997 the Company in the aggregate held an 82.9%
Membership Interest in Jay. Jay Natural Resources LLC which held a 10.65%
Membership Interest and Jay Resources Corp. held a 6.45% Membership Interest,
all of which interests are subject to adjustment after recovery of capital
contributions. The Company's share of profits (before recovery of capital
contribution) in Jay is 82.9% and after recovery of capital contribution the
allocation of profit participation will be reduced to 70.06%.
Jay owns both operated and non-operated varying working interests in over
fifty (50) oil and gas wells in the United States. Independent estimates of the
reserves held by Jay Petroleum LLC, which are located in Texas, Oklahoma,
Wyoming, Louisiana and New Mexico as of December 31, 1997 are approximately
115,000 net barrels of proven developed producing oil reserves; 3,883 net MMCF's
of proven developed producing natural gas reserves; 905 net MMCF's of proven
developed behind pipe natural gas; 926 net MMCF's of proven undeveloped natural
gas reserves; and, 12,000 net barrels of proven undeveloped oil reserves.
Jay has a Management Agreement with Jay Management Company LLC
("Management"), a Texas limited liability company to manage certain of the
producing oil and gas interests owned or to be acquired by Jay. The Company has
a 35% membership interest in Management. Pursuant to the Management Agreement,
Jay was obligated to pay to Management a management fee of $12,500 per month
through February 1998. Due to the sharp decline in oil prices and the resulting
effect on the cash flow of the Company, the obligation for the payment of this
fee was waived with the mutual consent of the parties as of March 1998.
Management also receives payments as operator pursuant to various operating
agreements for approximately 40 contract wells, which it operates.
- 4 -
<PAGE>
Effective October 27, 1997, Dr. Reuven Hollo was terminated as the Manager
of Jay and Management. See Legal Matters. J. Monroe Cutler was designated
Manager of Jay and NIR was designated manager of Management. Mr. Cutler is paid
by Jay a management fee of $5,000 per month. NIR was paid a management fee of
$5,000 per month, which fee was discontinued as of March 1998.
The acquisition of the interests in Jay, as well as the capital
contribution made by the Company to Jay were made out of working capital funds
available to the Company.
Jay Petroleum LLC's audited financial statements have been consolidated as
part of the Company's financial statements. The Company's investment in Jay
Management LLC has been accounted for under the equity method of accounting.
For information related to future cash inflows, future development and
production costs, future income tax expenses, future net cash flows, discount,
and standardized measure of discounted net cash flows relating to Jay Petroleum
LLC, see the Supplementary Oil and Gas Information immediately following the
notes to the Financial Statements.
In March 1998, the Company increased its membership interest in Jay to 100%
and its membership interest in Management to 65%. See Legal Matters. The
remainder of the membership interests in Management are owned by NIR.
CONGO
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On September 4, 1997 the Company acquired from Equital Ltd. (an Affiliated
company formerly known as Pass-port Ltd.) a 50 % participation in a Joint
Venture that holds the following two permits offshore of the Congo: (1) the
Marine III Exploration permit which has a term of four years with an extension
right of three years; and, (2) the Tilapia Exploitation permit to develop the
Tilapia Field, which has a term of ten years with an extension right of five
years. The purchase price was $2.55 million for the Tilapia permit and $150,000
for the Marine III permit for an aggregate purchase price of $2.7 million.
The Company's participation in the Joint Venture is subject to an 8%
carried interest payable to Equital Ltd. after payout of its rights regarding
the production sharing contract on the Tilapia Permit. "Payout" in this Joint
Venture means all of the investments to be done by the Company in the Tilapia
permit (excluding the Purchase Price paid by the Company to Equital Ltd.). The
Company received a fair market valuation of the two permits from Forrest A. Garb
& Associates, Inc., petroleum consultants, Dallas, Texas. The valuation in the
Tilapia permit made by Forrest A. Garb & Associates, Inc. reflects a significant
discount in value based upon technology, economics and political uncertainties
for the proposed work program.
The Joint Venture holds 100% of the rights under the production sharing
contract for the Tilapia permit and 50% of the rights with regard to the
production sharing contract in the Marine III permit. The other participant in
the Joint Venture is Naphtha Israel Petroleum Corp. Ltd. See Security Ownership
of Certain Beneficial Owners. Work programs for the two permits were prepared by
the operator, Naphtha Congo Ltd., a wholly owned subsidiary of Naphtha Israel
Petroleum Corp. Ltd.
- 5 -
<PAGE>
Oil was discovered within the area of the Tilapia Exploitation Permit in
the Tilapia Marine I exploration well drilled by the previous operator of the
permit, to a total depth of 5,018 feet. The well tested 2,040 barrels of oil per
day from a 31 foot thick sandstone reservoir, at a depth of 3,874 feet. The
discovery well is located 9.5 nautical miles north of the Point Indienne
productive oil field and less than one mile from the share line.
The Marine III Exploration Permit covers an area of approximately 236,000
acres and is located in shallow water, 0-80 feet deep, along the coast. No wells
have yet been drilled on this permit. The area of the two permits is covered by
a dense grid of two dimensional seismic lines.
The Joint Venture's rights in the production sharing contract on the
Tilapia Exploration Permit is subject to a 12.5% carried interest and payment of
$350,000 after payout of the Joint Venture's investment costs.
As a result of the civil instability that existed in 1997 in the Congo a
new government has taken control of this country. Due to these events the
operator (Naphtha Congo) has temporarily ceased its activities in the Congo. In
February 1998 the operator presented to the new Petroleum Minister its work plan
for Tilapia and Marine III. The economic and political and civil instability in
the Congo and the change of government could cause significant difficulties for
the operator in connection with the execution of a work program and the possible
development of both the Marine III permit and the Tilapia permit.
OIL AND GAS VENTURES AND PETROLEUM ASSETS
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LOCATED IN UNITED STATES AND CONGO
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See Acquisition and Supplementary Oil and Gas Information immediately following
Notes to Financial Information.
OIL AND GAS VENTURES AND PETROLEUM ASSETS LOCATED IN ISRAEL
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The table below sets forth the Working Interests and Petroleum Assets of
the Company and all affiliated and non-affiliated participants in (i) the
Ventures, (ii) the Petroleum Assets, (iii) the total acreage of each Petroleum
Asset, and (iv) the expiration dates of each of the licenses. This information
pertains only to Petroleum Assets located in Israel. The Company also holds
Overriding Royalties in the Petroleum Assets. See "Table of Overriding
Royalties".
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<PAGE>
<TABLE>
<CAPTION>
TABLE OF PETROLEUM ASSETS (WORKING INTEREST)
OIL AND GAS VENTURES (1)(3)
(% Interest of 100%)
Shederot Negev Med Yam Ashdod Med Yavne
Venture Venture Carveout Venture (2) License
------- ------- -------------------- -------
Shederot Med Tel Aviv License
License Med Ashdod License
Med Hadera License
Med Hasharon License
--------------------
Name of
Participant
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<S> <C> <C> <C> <C>
The Company (4)
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The Company 1.0043 1.0043 1.0043 1.0043
Affiliates
Isramco-Negev 2
Limited Partnership (5) 77.9957 70.9957 53.0268 70.9957
I.O.C. Limited Partnership (6) 14.0000 14.0000 14.0000 ----
Naphtha 4.0000 5.0000 5.10145 5.0000
Naphtha Explorations
Limited Partnership ---- 5.0000 5.10145 5.0000
JOEL (6) ---- ---- ---- 8.0000
Equital (6) ---- ---- ---- 6.0000
Non-affiliated entities
Delek Drilling
Limited Partnership (5) 3.0000 4.0000 21.7660 4.0000
Total 100.0000 100.000 100.0000 100.0000
Area 90,000 400,000 84,220 100,000
(acres)
Expiration Date 12/31/98 6/15/2000 6/15/2000 6/15/2000
</TABLE>
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(1) Subject to the fulfillment of applicable provisions of the Israel Petroleum
Law and Regulations, and the conditions and work obligations of each of the
above licenses.
(2) Under the Grant Agreement with the Government of Israel, the Government may
claim that the Company is contingently obligated to repay to the Government
the Grant monies in the amount of $110,000 and to pay a 6. 5 % Overriding
Royalty on all production from the area. See Grant Agreement with the
Company.
(3) All of the Petroleum Assets are burdened by a 12.5% Overriding Royalty due
to the Government of Israel under the Petroleum Law.
(4) The Company and its subsidiaries also hold the Overriding Royalties and
0.02% of the Limited Partnership Units.
(5) On November 11, 1997, Delek Drilling Limited Partnership has transferred 5%
of its rights in the Shederot License to Isramco-Negev 2 Limited
Partnership.
(6) During November 1997 JOEL and Equital sold to I.O.C. Limited Partnership
its Working Interests in the Shederot Venture, the Negev Med Venture
(excluding Med Yavne) and the Yam Ashdod Carveout Venture.
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<PAGE>
Overriding Royalties held by the Company
- ----------------------------------------
The Company holds the following Overriding Royalties:
<TABLE>
<CAPTION>
TABLE
OF
OVERRIDING ROYALTIES
On the First 10% of the
Limited Partnership Share of the
From The Limited Partnership * following Petroleum Licenses
- ------------------------------ ----------------------------
Before Payout After Payout
------------- ------------
<S> <C> <C>
Med Tel Aviv License 1.06% %3.83
Med Yavne License 1.06% %3.83
Med Ashdod License 1.06% %3.83
Med Hadera License 1.06% %3.83
Med Hasharon License 1.06% %3.83
Yam Ashdod Carveout 1.06% %3.83
Shederot License 5.00% %3.00
From JOEL On 8% of JOEL's Interest
- --------- ------------------------
Before Payout After Payout
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Yam Ashdod Carveout 2.5% 12.5%
From Delek Oil Exploration Ltd. (DOEX) (1)(2) On 6% of DOEX's Interest
- --------------------------------------------- ------------------------
Before Payout After Payout
------------- ------------
Yam Ashdod Carveout 2.5% 12.5%
From Delek (1)(2) On 2% of DOEX's Interest
- ----------------- ------------------------
Before Payout After Payout
------------- ------------
Yam Ashdod Carveout 2.5% 12.5%
</TABLE>
The Company has no financial obligation with regard to the Overriding Royalties,
however, in the event the Limited Partnership, JOEL, DOEX or Delek, fails to
fund its obligation with regard to a Petroleum Asset to which an Overriding
Royalty exists, the Company could lose its interest in such Overriding Royalty.
See Glossary for definition of "Payout".
- ------------------------
(1) The Working Interests of Delek and DOEX have been assigned to Delek
Drilling Limited Partnership.
(2) In a prospectus of the Delek Limited Partnership dated January 26, 1994 it
is stated that the Interest which the Delek L.P. received from Delek and
DOEX is free from any encumbrances except that Isramco, Inc. may argue that
the Interests are subject to an overriding royalty. The Company has no
information available to it as to why this statement is in the Delek L.P.
prospectus.
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<PAGE>
MAP
OFFSHORE AND ONSHORE LICENSES
[Map Graphic Omitted]
- 9 -
<PAGE>
Summary Description of the Ventures, the Petroleum Assets,
Related Work Obligations and Exploration Efforts in Israel
- ----------------------------------------------------------
Negev Med Venture and Yam Ashdod Carveout Venture
- -------------------------------------------------
When the Negev Med Venture was formed in October of 1991 the Petroleum
Commissioner granted to the participants the Negev Med Preliminary Permit with
priority rights. The Negev Med Preliminary Permit expired on April 28, 1993 and
the participants requested and received five new drilling licenses (the Med
Licenses) valid until June 14, 1996. The duration of the Med Licenses has been
extended until June 15, 2000.
In November 1997, the Petroleum Commissioner gave his consent to the Operator's
request to amend the conditions of the license held by the offshore venture
participants. In his letter the Petroleum Commissioner specified the new terms
as follows:
1. A seismic survey of at least 186 miles to be conducted no later than
February 1, 1998, which will assist in the upgrading of the prospects in the Med
Ashdod license.
2. Three wells at least 3,000 meters (approximately 9,800 feet) deep shall
be drilled on the licenses held by the Company and the participants. The first
well shall be drilling no later than January 1, 1999. The drilling of the second
well shall begin before June 1, 1999 and the third shall begin no later than
December 1, 1999. Deepening of any of the old wells shall be considered as a new
well. If the conditions of the license are not satisfied the license may
terminate.
The Med Licenses are the Med Tel Aviv License, the Med Yavne License, the
Med Hadera License, the Med Ashdod License and the Med Hasharon License. In June
of 1996, upon the relinquishment of the Negev Ashquelon License, the boundaries
of the Med Ashdod License were modified to include the area of the structure on
which the Yam 1 and Yam 2 wells were drilled, as well as, another additional
structure which was part of the area of the relinquished Negev Ashquelon
License. The participants in the Negev Med License have delineated the Yam
Ashdod Carveout Area within the Med Ashdod License and this Carveout Area
includes all of the areas which were transferred from the Negev Ashquelon
License. Each participants' share in this new Carveout is the same as it was in
the Yam Carveout Venture (which was part of the Negev Ashquelon License). The
activities of the Yam Ashdod Carveout Venture including the accounts and
expenses of the Carveout are reported separately. As of July 1996, the expenses
of the Negev Med Venture set forth herein relate to four (4) licenses only.
There has been no exploration activity within the Med Ashdod Area which is not
within the Yam Ashdod Carveout, and no operating fee is charged under the Joint
Operating Agreement with respect to the Med Ashdod License Area outside of the
Yam Ashdod Carveout.
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<PAGE>
During the period from inception to December 31, 1997 the participants
authorized expenditure (AFE) in the various licenses and paid advances as
detailed below:
Authorization Advances
for paid
Expenditure
--------------- --------------
U.S. Thousands U.S. Thousands
License
Med Tel Aviv $39,282.50 $39,122.50
Med Yavne 25,097.50 24,884.50
Med Hasharon 1,579.00 1,412.00
Med Hadera 1,042.50 889.50
Med Ashdod 762.00 762.00
--------- ---------
Total $67,763.50 $67,070.50
========= =========
Shederot License
- ----------------
On January 1, 1996 the Petroleum Commissioner awarded the Company and other
participants an onshore drilling license called Shederot/265 covering an area of
88,750 acres.
On March 18, 1996 the Petroleum Commissioner agreed to enlarge the Shederot
License Area to 98,800 acres and added an additional condition to the terms of
the license according to which the participants must commence drilling of a
second well to the same depth as the first not later than December 31, 1998.
In January 1997 the Operator recommended to the participants in the
Shederot Venture drilling the Gevim-1 well on the onshore "Shederot" license.
In July 1997 an AFE of $6.3 million was approved by the participants for
the Gevim 1 well. In January 1998, the drilling in Gevim 1 Well commenced within
the license area. The well is located approximately 1.24 miles south of the town
Shederot and is planned for a total depth of 14,765 feet. Estimated drilling
time is ninety-five (95) days at an estimated cost of U.S. $6.3 million. The
Company's share is $63,221. As of March 22, 1998 the drilling has reached a
depth of approximately 7,000 feet.
Accounting Treatment of Oil and Gas Properties on the Company's
Financial Statements
- ---------------------------------------------------------------
The Company uses the "successful efforts" method of accounting whereby all
costs of acquiring acreage, costs of drilling successful exploration wells and
development costs are capitalized. Producing and non-producing properties are
evaluated periodically, and if conditions warrant (i.e., should a well prove to
be dry and abandoned, or not of commercial value or no development activity is
contemplated in the near future), the related costs are written off. Annual
lease rentals and exploration costs, including geologic and geophysical costs
and exploratory dry hole costs, are charged to expense as incurred.
- 11 -
<PAGE>
MATERIAL AGREEMENTS
The Negev 2 Joint Venture Agreement (the "Joint Venture Agreement") and the
Negev 2 Joint Operating Agreement (the "JOA"), as amended were entered into
between the participants of the Negev 2 Venture to explore, develop and produce
petroleum and/or gas in certain areas onshore and offshore in Israel. The Joint
Venture Agreement is governed by and construed in accordance with the laws of
the State of California, USA, and the place of jurisdiction is the courts of the
State of California. Subject to the provisions of the Joint Venture Agreement
and the JOA, each party participates in all the costs, expenses and obligations
incurred in relation to a contract area in the same proportion as its rights and
interests in such contract area. Under the JOA, the Operator carries out all the
operations contemplated in the JOA, in the framework of approved Work Programs
and within the limitations of approved budgets (AFEs). Subject to the general
supervision of the Operating Committee, the Operator controls and manages all
operations conducted pursuant to the JOA. The Operator may be removed for cause,
by notice in writing given by two or more of the other parties representing at
least 65% of the total interests in a contract area. The Company with its
affiliates hold more than 65% of the total interest in each contract area,
however, the Company only holds a 1.0043% interest in each Venture and does not
control the affiliated parties which are public companies. See "Table of
Petroleum Assets and Oil and Gas Ventures".
Under the JOA, the Operator bills the participants in each Venture for all
costs incurred in the Operator's head office, field office, on site or elsewhere
in connection with a contract area, including, without limitation, rentals,
labor, consultants, materials, transportation, contract services, taxes, legal
and audit expenses, premiums for insurance, losses of joint property, repairs
for damages not covered by insurance and reasonable personal and travel
expenses.
The services and related costs incurred by the Operator in connection with
a contract area (provided they are not charged as a direct charge), are covered
by a monthly overhead charge equal to 6% of all gross direct charges. An
Operating Committee on an annual basis may verify that the monthly overhead
charge of the Operator equitably compensates the Operator for actual costs
incurred. Based on the results of this annual cost analysis, the percentage
chargeable for the benefit of the Operator can be adjusted, upward or downward
as determined by the participants in a contract area.
The holders of the Negev Med Licenses have also entered into a Deed of
Arbitration dated November 10, 1993 to the effect that the parties agreed to
submit to a single arbitrator the following question:
Is it justified, by custom, industry practice, history of
previous agreements between the parties, or otherwise, that
in the majority required under the JOA applicable to the
Licenses constituting a "determining vote" there should be
included a party which is not a member of the "Isramco
Group" (namely a party other than Isramco-Negev 2 Limited
Partnership, J.O.E.L. - Jerusalem Oil Exploration Ltd.,
Pass-port Ltd. or Isramco, Inc.).
- 12 -
<PAGE>
The person to be appointed as arbitrator was to be selected by mutual
agreement of the parties within thirty (30) days from November 10, 1993,
however, if they failed to do so, an arbitrator will be appointed at the request
of either party by Mr. Avigdor Bartel. The parties have not selected a mutually
agreed upon arbitrator.
Consulting Agreement with Haim Tsuff
- ------------------------------------
In May of 1996 the Company entered into a Consulting Agreement with
Goodrich Global L.T.D. B.V.I., a company owned and controlled by Haim Tsuff, the
Chairman of the Board of Directors and Chief Executive Officer of the
Corporation. Pursuant to this Consulting Agreement which had a term of two (2)
years, the Company agreed to pay the sum of $144,000 per annum in installments
of $12,000 per month, in addition to reimbursing all reasonable business
expenses incurred during the term in connection with the performance of services
on behalf of the Company. In April 1997 the consulting compensation was
increased to $240,000 per annum and in December 1997 the term was extended to
May 31, 2001. The Consulting Agreement as amended, provides that the term shall
be automatically extended for an additional term of three (3) years, commencing
June 1, 2001, unless the Company has given notice at least ninety (90) days
prior to June 1, 2001 that it does not intend that the term be renewed.
Consulting Agreement with Yuval Ran
- -----------------------------------
In August of 1996 the Company entered into a Consulting Agreement with
Yuval Ran, the then President of the Corporation. Pursuant to this Consulting
Agreement which had a term of three (3) years, the Company agreed to pay Mr. Ran
the sum of $144,000 per annum in installments of $12,000 per month, in addition
to reimbursing all reasonable business expenses incurred during the term in
connection with the performance of services on behalf of the Company. In April
1997 the consulting compensation was increased to $240,000 per annum. On July
15, 1997 Mr. Ran resigned as President of the Company, the Consulting Agreement
terminated.
Consulting Agreement with Daniel Avner
- --------------------------------------
In August of 1997 the Company entered into a Consulting Agreement with
Romulas Investment Ltd. (which Agreement has been assigned to Remarkable
Holdings Ltd.), a company owned and controlled by Daniel Avner, the President of
the Company. Pursuant to this Consulting Agreement which has a term of one (1)
year through July 31, 1998, the Company has agreed to pay the sum of $7,500 per
month plus expenses. The Company has also agreed to provide a company car and
company furnished apartment to Consultant, if available.
EMPLOYEES
During calendar year ending December 31, 1997, the Company had six (6)
employees at its Branch Office in Israel.
- 13 -
<PAGE>
OFFICES
Israel
- ------
In 1997 the Company paid JOEL $30,267 for rental space, office services,
secretarial services and computer services for the period 01/01/97 until
04/15/97. On 04/15/97 the Company relocated to a building owned by Naphtha on
Granit St, 8, Petach Tikva and paid $49,770 to Naphtha for the same services for
the period 04/15/97 until 12/31/97. The Company believes that the payment for
the above services are reasonable compared to other similar locations.
United States
- -------------
As of December 1, 1997 the Company officially moved its offices from New
York City to Houston, Texas. The Company has a lease for office premises
(approximately 2,146 square feet) at 1770 St. James Place, Suite 607, Houston,
Texas 77056 for a term of three (3) years, with an annual rental of $30,473,
payable in monthly installments of $2,539. The Company charges Jay $2,000 per
month to use its offices in Houston, Texas.
The Company has also leased a corporate apartment in the City of Houston
for term of six (6) months expiring March 31, 1998 and continuing thereafter on
a month to month basis, at a monthly rental charge of $1,110 per month. This
apartment is for use by the Company's officers, directors and employees in
connection with their activities relating to the business of the Company.
Recent Developments
- -------------------
On March 13, 1998 the Company announced that it had extended the Expiration
Date of the Class A and Class B Warrants to April 16, 1999.
The Nasdaq Stock Market (Nasdaq) 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. On February 27, 1998 the staff of Nasdaq
advised the Company that its common stock is not in compliance with the new
Nasdaq SmallCap Market minimum bid price requirement and has provided the
Company with a ninety (90) calendar day period, which expires May 28, 1998 in
order to regain compliance with this standard.
The Company believes that it is in the best interest of the Company and its
shareholders for its shares to remain listed by Nasdaq.
In order to satisfy the Nasdaq requirements the Board of Directors has
approved a resolution, subject to stockholders' approval, to amend the Company's
Certificate of Incorporation to effect a 10 to 1 reverse stock split of the
Company's common stock. The proposal will be submitted to the stockholders at
the Company's annual meeting which is presently planned in May of 1998. There
can be no assurance that the proposed reverse stock split will cause the price
per share of the Company's shares to be sustained for any prolonged period of
time.
Consummation of the reverse stock split will not change the number of
shares of common stock authorized by the Company's Certificate of Incorporation
which will remain at 75,000,000 or the par value of the common stock per share.
The reverse stock split, if approved by stockholders, will become effective as
of 5:00 P.M., New York time (the "Effective Date"), on the date that the
Certificate of Amendment to the Company's Certificate of Incorporation is filed
with the Secretary of State of the State of Delaware.
- 14 -
<PAGE>
Item 3. Legal Proceedings
-----------------
Effective October 27, 1997 Mr. Reuven Hollo was removed by the Company as
Manager of Jay Petroleum LLC and Jay Management Company LLC. The Company
commenced a law suit against Reuven Hollo which proceeding was stayed pending
resolution of an arbitration proceeding by Reuven Hollo, Jay Resources
Corporation, Jay Natural Resources Inc., Jay Petroleum LLC and Jay Management
Company LLC, as Claimants against the Company, NIR Resources Inc., Jay Petroleum
LLC and Jay Management Company LLC, as Respondents. The arbitration proceeding
and the law suit have 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. The Claimants are hereinafter referred to as the "Hollo Group" and
the Respondents are hereinafter referred to as the "Isramco Group".
Pursuant to the terms of the Settlement Agreement and Release, the Hollo
Group assigned all of their right, title and interest in Jay Petroleum LLC and
Jay Management Company LLC including their complete ownership interest and any
and all rights to undistributed profits in these entities to the Company in
consideration for the Company (i) paying to Jay Resources Corporation and Jay
Natural Resources Inc. the sum of $255,000, (ii) agreeing to assume any tax
liabilities or tax burdens arising solely from such undistributed profits, and
(iii) agreeing to assume a debt of $69,754 reflected as an accounts receivable
of Jay Resources Corporation owed to Jay Petroleum LLC. In addition, the Isramco
Group agreed to use its best efforts, without cost, to effect a removal of the
Hollo Group as a guarantor and/or co-maker of any loan of Jay Petroleum LLC
and/or Jay Management Company LLC. The effective date of the Settlement
Agreement is as of December 31, 1997.
As a result of the Settlement Agreement and Release, the Company increased
its membership interest in Jay Petroleum LLC to 100% and its membership interest
in Jay Management Company LLC to 65%.
The Company's Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by Delaware Law and the By-laws of the
Corporation provide for indemnification of officers and directors of the Company
as permitted by Section 145 of the Delaware General Corporation Law. The Company
has also entered into agreements to indemnify its officers and directors and the
officers and directors of its subsidiaries.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company held its Annual Meeting of Shareholders on October 24, 1997 and
the shareholders voted as to the following: (a) election of Haim Tsuff, Daniel
Avner, Tina Maimon Arckens and Avihu Ginzburg as directors to serve for a term
of one (1) year or until his/her successor is duly elected; and (b) the approval
of the firm of Richard A. Eisner & Company, LLP as auditors for the year ending
December 31, 1997.
No other matters were submitted to a vote of shareholders during the quarter
ended December 31, 1997.
- 15 -
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
--------------------------------------------------------
The number of record holders of the Company's Common Stock on March 11,
1998 was approximately 982 not including an undetermined number of persons who
hold their stock in street name. The high and low bid prices as reported on the
National Association of Securities Dealers Automated Quotations System National
Market System are shown in the table below. These over-the-market quotations
reflect prices between dealers, without retail mark-ups, mark-downs or
commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
Class A Class B
Common Stock Warrants Warrants
------------ -------- --------
Quarter Ended High Low High Low High Low
- ------------- ---- --- ---- --- ---- ---
1997
- ----
<S> <C> <C> <C> <C> <C> <C>
March 31 3/4 17/32 3/32 1/16 1/16 1/32
June 30 5/8 17/32 3/32 1/16 1/32 1/32
September 30 1 1/8 19/32 5/16 5/32 7/32 1/16
December 31 3/32 5/8 17/64 5/32 1/8 1/16
1996
March 31 9/16 7/32 1/16 1/16 1/8 3/32
June 30 13/16 21/32 5/32 9/64 3/32 3/32
September 30 5/8 19/32 1/16 1/16 1/16 1/16
December 31 9/16 1/2 1/16 1/16 1/32 1/32
</TABLE>
The Company has never paid a dividend on its Common Stock. The payment by
the Company of dividends, if any, in the future rests within the discretion of
its Board of Directors and will depend, among other things, upon the Company's
earnings, capital requirements and financial condition.
- 16 -
<PAGE>
Item 6. Management's Discussion and Analysis and Selected Financial Data
-----------------------------------------------------------------
Statement of Operations Data
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operator's fees $ 460,891 $ 468,252 $1,114,980 $3,148,826 $784,845
Oil and Gas revenue 2,001,635 335 644 2,930
Interest income 1,085,189 1,175,391 1,125,616 769,067 378,752
Office services and other 483,023 463,142 427,915 444,043 507,827
Equity in earnings
of Jay Management LLC 38,930
Gain (Loss) on (272,658) 705,859 (366,167) (2,269,347) 2,580,529
marketable securities
Exploration costs 10,637 34,466 173,288 532,272 55,457
written off
Lease operating expenses 971,782
Depletion and amortization 502,000
of oil and gas properties
Operator expense 507,421 656,742 618,666 704,017 579,725
General and administrative 1,288,847 1,253,900 720,356 719,659 597,749
expenses
Interest expense 340,711
Net income (loss) $ (13,949) $ 828,331 $ 634,619 $ 59,208 $ 3,293,850
Net income (loss) $0 $0.03 $0.02 $0.00 $0.15
per share
Weighted average
number of shares 26,398,523 26,494,745 26,691,198 26,602,912 21,778,678
December 31,
------------
Balance Sheet Data 1997 1996 1995 1994 1993
- ------------------ --------------------------------------------------------------------------
Total assets $26,782,877 $23,262,966 $22,620,629 $22,077,244 $21,662,620
Total liabilities 3,868,278 334,668 358,279 449,513 405,310
Shareholders' equity $22,914,599 $22,928,298 $22,262,350 $21,627,731 $21,257,310
- 17 -
</TABLE>
<PAGE>
Liquidity and Capital Resources
- -------------------------------
In the calendar year 1997 the Company spent $10,637 in exploration for oil and
gas compared to $34,466 in 1996, principally in the activity of seismic
interpretation and subsurface mapping, and the evaluation of prospects over the
areas of the offshore licenses and the onshore license,
In the calendar year 1997 the Company has invested $1,036,000 in acquiring
interests in Jay, and $2,700,000 in the two Congo licenses. See Acquisition of
Assets.
In the calendar year 1997 the Company had net cash outflow from the purchase and
sales of marketable securities of $2,603,000 as compared to net cash outflow of
$3,000 and $1,773,091 in the calendar years 1996 and 1995, respectively. In 1995
the Company acquired shares of J.O.E.L. - Jerusalem Oil Exploration Ltd.
("JOEL") at a cost of approximately $974,000 (which shares are traded on the Tel
Aviv Stock Market). During 1996 and 1997, the Company did not purchase or sell
shares of JOEL. As of December 31, 1997, the Company owned 5.5% of the issued
shares of JOEL.
During 1997 Jay paid $2,507,000, including acquisition costs and purchase price
adjustments, in acquiring the Snyder properties. Jay generated $307,813 in cash
flows from operations from the purchase date to December 31, 1997. At December
31, 1997, Jay had outstanding indebtedness of $3,227,434 under a bank loan
facility of $10 million from Comerica Bank - Texas (the "Comerica Loan"). The
Comerica Loan bears interest at prime plus 1.25% with monthly payments of
$65,100 plus interest and matures in February 2000. The Comerica Loan is
collateralized by oil and gas properties held by Jay and cannot exceed the
"Borrowing Base" (as defined under the loan documents), which is subject to
annual redetermination by Comerica. The Company is not a borrower or guarantor
under the Comerica Loan and Master Note Facility.
As a result of the sharp decline in oil prices toward the end of 1997 and the
first ten (10) weeks of 1998, the Company has deemed it necessary to take the
following measures in order to enable Jay to meet its financial obligations
under the Comerica Loan: (1) the Company is in discussions with Comerica to
adjust the monthly loan payment to approximately $45,000; and (2) Jay with the
consent of Management and NIR has temporarily terminated their respective
monthly management fees. All these measures combined should enable Jay to
continue to operate without requiring cash injections from the Company, provided
that oil and gas prices do not decline further. If these negotiations with
Comerica are not successful, Jay may require a cash infusion from the Company or
may be required to dispose of some or all of its properties to pay its
obligations to Comerica.
The Company believes that it has sufficient funds to fulfill its present capital
requirements.
- 18 -
<PAGE>
Results of Operations
- ---------------------
The Company reported net loss of $13,949 ($0.00 per share) in the calendar year
1997 compared to net income of $828,331 ($0.03 per share) and $634,619 ($0.02
per share) in the calendar years 1996 and 1995, respectively. The loss during
1997 compared to 1996 is mostly a result of the loss on marketable securities of
$272,000 compared to a gain in 1996 of $705,859. See Loss on Marketable
Securities.
Negev Med Venture and Yam Ashdod Carveout
- -----------------------------------------
In January 1997, the Operator recommended to the participants in the Yam Ashdod
Carveout Venture the following work program for 1997:
1. Re-entry of the Yam 2 well, deepening the well 900 feet to a total depth
of approximately 18,500 feet and carrying out production tests at an estimated
cost of $12 million of which the Company's share would be approximately
$120,000. These activities will depend upon engineering evaluation of the well,
the availability of a suitable rig and permission from the Defense Authorities.
2. Shooting a two dimensional seismic survey of approximately 170 line
nautical miles in the area of the Yam Ashdod Carveout, following by seismic data
processing and interpretation in order to evaluate the prospect of the "Yam
Nitzanim" lead.
On December, 1997, a seismic survey in the Med Ashdod in the "Yam Nitzanim" area
was performed. The cost of the data acquisition is approximately U.S. $600,000.
The data derived from the said survey was transferred for processing to the
Geophysics Institute. Estimated time for the processing stage is four months. As
of the date of the financial statements, the processing stage was still in
progress. The estimated cost for the standard stage totals U.S. $30,000. An AFE
of $980,000 in connection with this area was approved by the venture
participants.
In connection with the Yam 2 well an engineering examination was performed, the
top of the well was spotted and photographed, and a report attaining to the
risks involved in the deepening of the well was received. In conjunction,
contacts have been made with a drilling company and other companies who work in
the Middle East, for mobilization of a drilling platform which would enable the
deepening of the well in 1998. Due to restrictions placed upon the Operator by
the Ministry of Defense in connection with this well, the above efforts have
been temporarily discontinued. The Operator is negotiating with the Ministry of
Defense in order to remove the restricting conditions so that the deepening of
the "Yam 2" well or the drilling of a new well, the "Yam 3", will be possible.
There is no certainty that these negotiations will be successfully completed
prior to the expiration date in June 2000.
- 19 -
<PAGE>
The accumulated data on the AFEs in the five licenses of the Venture is as
follows:
<TABLE>
<CAPTION>
Total Accumulated
Expenses from
Inception Date
of Licenses
License AFE Expended in 1997 from May 1, 1993 Company's Share
- ------- --- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Med Tel Aviv $39,282,500 $ 94,299 $38,588,539 $387,545
Med Yavne 25,097,500 127,675 23,720,334 238,223
Med Hasharon 1,579,000 87,832 1,396,616 14,026
Med Hadera 1,042,500 87,723 882,812 8,866
Med Ashdod 762,000 24 759,958 7,632
---------- ------- ----------- ---------
$67,763,500 $397,553 $65,348,259 $656,293
</TABLE>
Shederot Venture
- ----------------
In July 1997 an AFE amounting to $6.3 million was approved by the participants
of the venture for the drilling of the Gevim 1 well. In January 1998 the
drilling has commenced. As of March 1998, the drilling has reached a depth of
approximately 7,000 feet.
Future Activities
- -----------------
Israel
- ------
Onshore:
In January 1998, the Gevim 1 well was spudded in the Shederot license. The well
is located approximately 1.2 miles south of the town Shederot and is planned for
a total depth of 14,760 feet. The depth is estimated to be reached in May 1998.
Offshore:
To process and interpret the seismic data that was acquired in December 1997
over the "Yam-Nitzanim" lead in the Yam-Ashdod Carveout, as well as pre-existing
seismic data in the same area, is currently in progress and is estimated to be
completed in September 1998. A prospect for drilling will be subsequently
prepared if justified by the seismic result.
In 1998 the Operator intends to continue its efforts to coordinate the offshore
drilling operations with the Ministry of Defense. Efforts will also continue in
the search for a suitable offshore rig.
Congo
- -----
To obtain approval of the Management Committee under the Production Sharing
Agreement (which Committee includes representatives of the Ministry of Petroleum
for the Congo and Operator) for the operator's work program. Subject to this
approval, in 1998 preparations will be made for the drilling of an onshore well
within the Tilapia concession area and for further processing of seismic data
for the future development of the Marine III concession.
- 20 -
<PAGE>
United States
- -------------
The Company completed in March 1998 negotiations to buy the membership interests
in Jay Petroleum and Jay Management LLC which were held by Jay Resources Corp.
and Jay Natural Resources LLC, and now holds 100% of Jay Petroleum LLC and 65%
of Jay Management Company LLC. See Legal Matters.
Jay Petroleum, LLC will seek during 1998 to acquire producing oil and gas
properties that it deems acceptable in order to provide a reasonable rate of
return on its investment.
Operator's Fees
- ---------------
In 1997 the Company earned $460,891 in operator fees, compared to $468,252 in
1996 and $1,114,980 in 1995. Operator fees in 1995 were significantly higher
than 1996 and 1997 primarily because of fees derived from the drilling of the
Yam West 1 well.
Interest Income
- ---------------
Interest income decreased in the year of 1997 compared to 1996 and 1995,
respectively, due to lower average interest rates and/or lower average
investment balances.
Interest Expenses
- -----------------
In 1997 the Company incurred interest expenses of $341,000, versus virtually
none in 1996 and 1995, as a result of long term debt arising in 1997 from the
acquisition of oil and gas properties by Jay.
Loss on Marketable Securities
- -----------------------------
In the calendar year 1997 the Company had losses from marketable securities of
$273,000 comprised of $465,000 from unrealized holding losses and $193,000 from
realized gains. Sales of marketable securities resulted in a realized gain
(loss) of ($160,000) for 1996 and $210,000 for 1995. At December 31, 1997 and
1996 the Company had net unrealized losses of $866,000 and $400,000,
respectively on securities held for trading.
In 1997 the Company had an unrealized holding loss of $271,000 from its
investment in JOEL.
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.
Exploration Cost
- ----------------
During 1997 the Operator continued with the prospect evaluation of the onshore
Shederot license and the necessary preparation for drilling the Gevim 1 well.
The major activity on offshore licenses consisted of preparation and execution
of 2D seismic survey in the Med Ashdod license.
- 21 -
<PAGE>
Operator's Expenses
- -------------------
Operator's expenses decreased in the calendar year 1997 by $149,000, as compared
to $656,000 for calendar year 1996, primarily as a result of fewer office
expenses and professional services.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses were virtually unchanged in 1997 as compared
to the calendar year 1996.
General and administrative expenses increased in 1996 as compared to the
calendar year 1995. General and administrative expenses in 1996 included
expenses as a result of officers' salaries and payments made according to
agreements which the Company entered into with Dr. Joseph Elmaleh and Mr. Danny
Toledano. In April 1996, Dr. Joseph Elmaleh resigned as Chairman of the Board,
Chief Executive Officer and as a director of the Company. Pursuant to a
Termination Agreement, the Company agreed to pay Dr. Elmaleh $123,750
representing the balance of unpaid consulting fees, $270,000 in consideration of
a covenant not to compete for a period of three years, and, purchased from
Southern Shipping and Energy Inc., a company which Dr. Elmaleh controls, 292,675
shares of the Company's common stock for $208,238. In connection with this
agreement, the Company recorded a charge to earnings of approximately $235,000
in 1996 and will take a charge of $22,500 in each of the following nine (9)
quarters. In June 1996, Mr. Danny Toledano resigned as the President and Chief
Operating Officer of the Company. Pursuant to a Termination Agreement, the
Company terminated its October 1995 Employment Agreement with Mr. Toledano and
paid to Mr. Toledano the sum of $72,000. The Company also paid to Mr. Toledano
$200,000 in consideration of a covenant not to compete for a period of five
years, and entered into a Consulting Agreement with a company owned by Mr.
Toledano for a term of one year and paid the sum of $72,000 as an advance
consulting payment. In connection with these agreements, the Company recorded a
charge to earnings of approximately $210,000 in 1996 and expects to take a
charge of $28,000 in each of the following two (2) quarters and $10,000 in each
of the sixteen (16) quarters thereafter.
Impact of the Year 2000 Issue
- -----------------------------
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Based on a preliminary recent assessment, the Company determined that it may be
required to replace its accounting system software so that its computer systems
will properly utilize dates beyond December 31, 1999. The Company presently
believes that with modifications to existing software and conversions to new
software, the Year 2000 Issue can be mitigated. However, if such modifications
and conversions are not made, or are not completed timely, the Year 2000 Issue
could have an impact on the operations of the Company.
- 22 -
<PAGE>
The Company has not initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
Issue.
The Company will utilize both internal and external resources to replace its
accounting software. The Company plans to replace its accounting software and
complete its Year 2000 project not later than December 31, 1999. The total cost
of the Year 2000 project is not material to the Company and will be funded
through operating cash flows.
The costs of the project and the date on which the Company plans to complete the
Year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
- 23 -
<PAGE>
Item 7. Financial Statements and Supplementary Data
-------------------------------------------
- 24 -
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
Consolidated Financial Statements
and
Independent Auditor's Report
December 31, 1997
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Isramco Inc.
We have audited the consolidated balance sheet of Isramco Inc. and Subsidiaries
as of December 31, 1997, and the related consolidated statements of operations,
changes in shareholders' equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Isramco, Inc. and
Subsidiaries as of December 31, 1997, and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
HEIN + ASSOCIATES LLP
Houston, Texas
March 24, 1998
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Isramco Inc.
We have audited the consolidated balance sheets of Isramco Inc. and subsidiaries
as at December 31, 1996 and the related consolidated statements of operations,
changes in shareholders' equity and cash flows for each of the years in the
two-year period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of Isramco, Inc. and
subsidiaries as at December 31, 1996 and the consolidated results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
Richard A. Eisner & Company, LLP
New York, New York
March 14, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
ISRAMCO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
---------------------
1997 1996
--------- --------
ASSETS (in thousands except
------ for share information)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 9,741 $ 15,999
Marketable securities, at market 7,113 6,478
Certificate of deposit 1,900 --
Accounts receivable:
Trade 93 --
Amount due from investor 68 --
Amount due from related party 285 --
Prepaid expenses and other current assets 353 338
-------- --------
Total current assets 19,553 22,815
Property and equipment, (successful efforts method for oil and gas properties), 6,890 65
net of accumulated depreciation, depletion, amortization and provision for
impairment of $632 and $98 at December 31, 1997 and 1996, respectively
Other assets:
Covenants not to compete, less accumulated amortization of $218 and 252 383
$87 at December 31, 1997 and 1996, respectively
Other 88 --
-------- --------
Total assets $ 26,783 $ 23,263
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 781 $ --
Accounts payable and accrued expenses 485 334
-------- --------
Total current liabilities 1,266 334
Long-term debt 2,446 --
-------- --------
Total liabilities 3,712 334
Minority interest 156 --
Commitments, contingencies and other matters (Note I)
Shareholders' equity:
Common stock, $.01 par value; authorized 75,000,000 shares;
26,691,198 shares issued and outstanding at
December 31, 1997 and 1996 267 267
Additional paid-in capital 25,928 25,928
Accumulated deficit (3,116) (3,102)
Treasury stock, 292,675 shares at December 31, 1997 and 1996 (164) (164)
-------- --------
Total shareholders' equity 22,915 22,929
-------- --------
Total liabilities and shareholders' equity $ 26,783 $ 23,263
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ISRAMCO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995
------------ ------------- ------------
(in thousands except for share information)
<S> <C> <C> <C>
Revenues:
Operator fees from related party $ 461 $ 468 $ 1,115
Oil and gas sales 2,001 -- 1
Interest income 1,085 1,175 1,126
Gain (loss) on marketable securities (272) 706 (366)
Office services to related party 483 464 428
Equity in earnings of Jay Management, L.L.C 39 -- --
------------ ------------ ------------
Total revenues 3,797 2,813 2,304
------------ ------------ ------------
Expenses:
Interest expense 341 2 5
Depreciation, depletion, amortization and 696 37 40
provision for impairment
Lease operating expense and severance taxes 972 -- --
Exploration costs 11 34 173
Operator expense 507 656 619
General and administrative - in part to related parties 1,289 1,254 721
Research and development -- -- 28
------------ ------------ ------------
Total expenses 3,816 1,983 1,586
------------ ------------ ------------
Income (loss) before taxes and minority interest (19) 830 718
Minority interest 5 -- --
Provision for income taxes -- -- 83
------------ ------------ ------------
NET INCOME (LOSS) $ (14) $ 830 $ 635
============ ============ ============
Earnings per share (basic and diluted) $ -- $ .03 $ .02
============ ============ ============
Weighted average number of shares outstanding 26,398,523 26,494,745 26,691,198
============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ISRAMCO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Common Stock Additional
----------------------- Paid-In Accumulated
Shares Amount Capital Deficit
---------- ---------- ---------- ----------
(in thousands execpt for share information)
<S> <C> <C> <C> <C>
Balances --
January 1, 1995 26,691,198 $ 267 $ 25,928 $ (4,567)
Net income -- -- -- 635
---------- ---------- ---------- ----------
Balances --
December 31, 1995 26,691,198 267 25,928 (3,932)
Net income -- -- -- 830
Purchase of treasury stock from -- -- -- --
related party ---------- ---------- ---------- ----------
Balances --
December 31, 1996 26,691,198 267 25,928 (3,102)
---------- ---------- ---------- ----------
Net loss -- -- -- (14)
---------- ---------- ---------- ----------
Balances --
December 31, 1997 26,691,198 $ 267 $ 25,928 $ (3,116)
========== ========== ========== ==========
ISRAMCO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
CONTINUED
Treasury Stock Total
------------------------ Shareholders'
Shares Amount Equity
---------- ---------- ----------
(in thousands except for share information)
Balances --
January 1, 1995 -- $ -- $ 21,628
Net income -- -- 635
---------- ---------- ----------
Balances --
December 31, 1995 -- -- 22,263
Net income -- -- 830
Purchase of treasury stock from (292,675) (164) (164)
related party ---------- ---------- ----------
Balances --
December 31, 1996 (292,675) (164) 22,929
---------- ---------- ----------
Net loss -- -- (14)
---------- ---------- ----------
Balances --
December 31, 1997 (292,675) $ (164) $ 22,915
========== ========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ISRAMCO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
--------------------------------------------
1997 1996 1995
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (14) $ 830 $ 635
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation, depletion, amortization and provision 539 37 40
for impairment
Amortization of intangibles 157 87 --
Minority interest (5) -- --
Exploration costs 11 34 173
(Gain) loss on marketable securities 68 (706) 366
(Gain) loss on sale of equipment (3) 8 1
Changes in assets and liabilities:
Increase in accounts receivable (215) -- --
(Increase) decrease in prepaid expenses and other (15) (122) 9
current assets
Decrease in other assets (78) -- --
Increase (decrease) in accounts payable and 61 (24) (91)
accrued expenses
Purchase of marketable securities (5,667) (2,851) (3,080)
Proceeds from sale of marketable securities 3,064 2,848 1,307
Payment for covenants not to compete -- (470) --
-------- -------- --------
Net cash used in operating activities (2,097) (329) (640)
-------- -------- --------
Cash flows from investing activities:
Exploration costs (11) (34) (173)
Purchase of equipment (96) (3) (21)
Purchase of oil and gas properties (5,196) -- --
Purchase of Jay Petroleum, L.L.C., net of cash acquired (1,036) -- --
Proceeds from sale of equipment 6 23 1
Other 27 -- --
-------- -------- --------
Net cash used in investing activities (6,306) (14) (193)
-------- -------- --------
Cash flows from financing activities:
Purchase of treasury stock -- (164) --
Proceeds from long-term debt 3,000 -- --
Principal payments on long-term debt (855) -- --
-------- -------- --------
Net cash provided by (used in) financing 2,145 (164) --
activities -------- -------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (6,258) (507) (833)
Cash and cash equivalents - beginning of year 15,999 16,506 17,339
-------- -------- --------
Cash and cash equivalents - end of year $ 9,741 $ 15,999 $ 16,506
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 341 $ 2 $ 5
======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
</TABLE>
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) -- General and Summary of Significant Accounting Policies:
- -------------------------------------------------------------------
[1] The Company:
Isramco Inc. and subsidiaries (the "Company"), is engaged in the
acquisition, exploration, operation and development of oil and gas properties
and the temporary investment of surplus funds in securities. As of December 31,
1997, the Company owns properties in Texas, Michigan, Louisiana, Wyoming, New
Mexico, the Republic of Congo, Africa, and a 1.0043% working interest in various
properties located in Israel.
[2] Consolidation:
The consolidated financial statements include the accounts of the Company,
its direct and indirect wholly-owned subsidiaries Isramco Oil and Gas Ltd. ("Oil
and Gas") and Isramco Underwriters, Ltd. ("Underwriters"), both Israeli
companies, Isramco Resources Inc., a British Virgin Islands company, its
majority owned subsidiary, Jay Petroleum, L.L.C., ("Jay") and an immaterial
wholly-owned foreign subsidiary. Intercompany balances and transactions have
been eliminated in consolidation. 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 a Limited Partnership and has no significant assets or
operations. The Company holds a 35% interest in Jay Management, L.L.C. ("Jay
Management"). This investment is accounted for under the equity method of
accounting.
[3] Method of Accounting for Oil and Gas Operations:
The Company follows the "successful efforts" method of accounting for its
oil and gas properties. Under this method of accounting, all property
acquisition costs and costs of exploratory and development wells are capitalized
when incurred, pending determination of whether the well has found proved
reserves. If an exploratory well has not found proved reserves, the costs of
drilling the well are charged to expense. The costs of development wells are
capitalized whether productive or nonproductive. Geological and geophysical
costs and the costs of carrying and retaining undeveloped properties are
expensed as incurred. Management estimates that the salvage value of lease and
well equipment will approximately offset the future liability for plugging and
abandonment of the related wells. Accordingly, no accrual for such costs has
been recorded.
Depletion and depreciation of capitalized costs for producing oil and gas
properties is provided using the units-of-production method based upon proved
reserves. Depreciation, depletion, amortization and provision for impairment
expense for the Company's oil and gas properties amounted to approximately
$502,000 for the year ended December 31, 1997, and none for 1996 and 1995.
F-7
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[4] Marketable Securities:
Statement of Financial Accounting Standard No. 115 ("SFAS No. 115")
requires that marketable securities held for trading be recorded at their market
value. Company management considers the Company's marketable securities to be
held for trading purposes as defined by SFAS No. 115, and as such the securities
are reported at fair value. This includes such investment securities of related
parties. Realized gains and losses from the sale of marketable securities are
determined on the specific identification method. Unrealized gains and losses
arising from marketable securities are reflected in current operations.
[5] Equipment:
Equipment, consisting of motor vehicles, office furniture and equipment, is
carried at cost less accumulated depreciation, computed on the straight-line
method over the estimated useful lives of the assets.
[6] Translation of Foreign Currencies:
Foreign currency is translated in accordance with Statement of Financial
Accounting Standards No. 52, which provides the criteria for determining the
functional currency for entities operating in foreign countries. The Company has
determined its functional currency is the United States ("U.S.") dollar since
all of its contracts are in U.S. dollars. The financial statements of Oil and
Gas, Isramco Underwriters and the Israel branch have been remeasured into U.S.
dollars as follows: at rates prevailing during the year for revenue and expense
items (except depreciation); at year-end rates for assets and liabilities except
for fixed assets and prepaid expenses which are translated at the rate in effect
at the time of their acquisition. Depreciation is remeasured based on the
historical dollar cost of the underlying assets. The net effects of currency
translations were not material in any period.
[7] Income Per Common Share:
At December 31, 1997, 1996 and 1995 earnings per share amounts are based on
the weighted average number of shares outstanding. The assumed conversion of
warrants and exercise of options do not result in material dilution. The
implementation of Statement of Financial Accounting Standards No. 128 entitled
"Earnings per Share" during 1997 had no impact on reported earnings per share
for any of the years presented in the accompanying financial statements.
[8] Cash Equivalents:
Cash equivalents include short-term investments with original maturities of
90 days or less and are not limited in their use.
[9] Noncompete Agreements:
Noncompete agreements are amortized over the period to be benefited,
generally from three to five years.
F-8
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[10] New Pronouncements:
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income
and SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information. SFAS No. 130 establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
No. 130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that displays these items with the same prominence as other
financial statements. SFAS No. 131 supersedes SFAS No. 14, Financial Reporting
for Segments of a Business Enterprise. SFAS No. 131 establishes standards on the
way that public companies report financial information about operating segments
in annual financial statements and requires reporting of selected information
about operating segments in interim financial statements issued to the public.
It also establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating segments as
components of a company in which separate financial information is available
that is evaluated regularly by the chief operating decision maker in deciding
how to allocate resources and in assessing performance.
SFAS Nos. 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, the standards
may have on the future financial statement disclosures. Results of operations
and financial position, however, will be unaffected by implementation of these
standards.
[11] Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
related notes. Actual results could differ from those estimates.
Oil and gas reserve quantities are the basis for the calculation of
depreciation, depletion and impairment of oil and gas properties. An independent
petroleum-engineering firm determines the Company's reserve estimates. However,
management emphasizes that reserve estimates are inherently imprecise and that
estimates of more recent discoveries and non-producing reserves are more
imprecise than those for properties with long production histories. At December
31, 1997, approximately 14% of the Company's oil and gas reserves were
attributable to non-producing properties. Accordingly, the Company's estimates
are expected to change as future information becomes available.
F-9
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
As mandated under SFAS No. 121, the Company is required under certain
circumstances to evaluate the possible impairment of the carrying value of its
long-lived assets. For proved oil and gas properties, this involves a comparison
to the estimated future undiscounted cash flows, as described in the paragraph
below. In addition to the uncertainties inherent in the reserve estimation
process, these amounts are affected by historical and projected prices for oil
and natural gas which have typically been volatile. It is reasonably possible
that the Company's oil and gas reserve estimates will materially change in the
forthcoming year.
[12] Impairment of Long-Lived Assets:
In March 1995, the FASB issued SFAS No. 121, Accounting For the Impairment
of Long-Lived Assets and For Long-Lived Assets To be Disposed Of. SFAS No. 121
changes the Company's method of determining impairment for all long-lived
assets, including proved oil and gas properties. SFAS No. 121 requires the
Company to assess impairment whenever events or changes in circumstances
indicate that the carrying amount of a long-lived asset may not be recoverable.
When an assessment for impairment of oil and gas properties is performed, the
Company is required to compare the net carrying value of proved oil and gas
properties on a field-by-field basis (the lowest level at which cash flows can
be determined on a consistent basis) to the related estimates of undiscounted
future net cash flows for such properties. If the net carrying value exceeds the
net cash flows, then impairment is recognized to reduce the carrying value to
the estimated fair value.
[13] Income Taxes:
The Company accounts for income taxes using the liability method as
prescribed by SFAS No. 109, "Accounting for Income Taxes". Deferred tax assets
and liabilities are determined based on differences between the financial
reporting and tax bases of assets and liabilities, and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse. The measurement of deferred tax assets is reduced, if
necessary, by a valuation allowance for any tax benefits which are not expected
to be realized. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in the period that such tax rate changes are enacted.
[14] Oil and Gas Revenues:
The Company recognizes oil and gas revenues as production occurs. As a
result, the Company accrues revenue relating to production for which the Company
has not received payment.
(NOTE B) -- Transactions with Affiliates and Related Parties:
- -------------------------------------------------------------
The Company acts as Operator for joint ventures engaged in the exploration
for oil and gas for which it receives operating fees equal to the larger of 6%
of the actual direct costs or minimum monthly fees of $6,000 per license.
F-10
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Operator fees earned and related operator expenses are as follows:
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
------ ------ ------
(in thousands)
Operator fees:
Negev Med Venture $ 288 $ 324 $1,025
Shederot Venture 72 72 --
Yam Ashdod Carveout 101 36 --
Yam Carveout -- 36 72
Bessor Carveout -- -- 18
------ ------ ------
$ 461 $ 468 $1,115
====== ====== ======
Operator expenses $ 507 $ 656 $ 619
====== ====== ======
In November 1996, Jerusalem Oil Exploration Limited ("JOEL"), then a 36%
holder of the Company's issued and outstanding common stock and 33% holder of
the Company's outstanding Class A and Class B Warrants, sold such shares and
warrants to Naphtha Israel Petroleum Corporation Limited ("Naphtha"), its
majority owned subsidiary. naphtha subsequently transferred the investments to a
wholly owned subsidiary, Naphtha Holding Ltd. JOEL and Naphtha are Israeli
corporations whose shares are traded on the Tel-Aviv Stock Exchange.
During 1997, 1996, and 1995, the Company paid JOEL $30,000, $162,500, and
$180,000 respectively, for rent, office, secretarial and computer services.
Effective in October 1996 the Company began paying JOEL $8,000 per month for
such services. From April 1997 through September 1997, the Company paid Naptha
$6,000 per month and then effective October 1997, $5,000 per month for such
services.
The Company paid JOEL a consulting fee of $6,000 per month for financial
and supervisory services from January 1, 1992 through March 1996.
A subsidiary of the Company is the general partner of Isramco-Negev 2
Limited Partnership from which it received management fees and expense
reimbursements of $480,000 for the year ended December 31, 1997 and $420,000 in
each of the years in the two-year period ended December 31, 1996.
The Company occupied facilities of Petronav, Inc., a company owned by the
Company's former Chief Executive Officer, in New York, on a month-to-month
basis, at a rental of $2,000 per month through March 1995 and $3,000 through
August 1996.
Equital, Ltd. ("Equital"), formerly known as Pass-Port Ltd. ("Pass-Port"),
a significant investor in JOEL, is an Israeli company whose shares are traded on
the Tel-Aviv Stock Exchange. The Company's former Chief Executive Officer and
Chairman of the Board had served as Chairman of the Board of Directors and
General Manager of Equital. The Company paid Equital $6,000 for consulting
services during 1995. In 1996, the Company received $15,000 from Equital for
consulting services.
F-11
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
During the years ended December 31, 1997, 1996 and 1995, the Company
incurred $-0-, $-0-, and $98,000, respectively, for legal services and $253,900,
$5,000, and $5,000, respectively, for consulting services rendered by
officers/directors of the Company.
In October 1995, the Company entered into a one-year employment agreement
with its former President at an annual salary of $144,000. In June 1996, the
President resigned from his office and pursuant to a termination agreement the
Company paid him $72,000. The Company also paid him $200,000 in consideration
for a five year covenant not to compete and entered into a consulting agreement
with a company owned by the former President for a term of one year. In 1996,
$72,000 was paid in advance in connection with this agreement. The Company
recorded a charge to earnings of approximately $128,000 relating to these
agreements in 1996 which is included in general and administrative expenses.
The Company agreed to pay its former Chief Executive Officer, $8,250 per
month through July 1997 for consulting services. During the period of January
through April 1996 and the year ended December 31, 1995 payments of $33,000, and
$99,000, respectively, were made to other entities as directed by the executive,
and are included in general and administrative expenses. In April 1996, the
executive resigned from his position. Pursuant to a termination agreement, the
Company agreed to pay him $123,750 representing the balance of unpaid consulting
fees, $270,000 in consideration for a three year covenant not to compete, and,
purchased from Southern Shipping and Energy, Inc., a company controlled by the
former Chief Executive Officer, 292,675 shares of the Company's common stock for
$208,238. In connection with the termination agreement, the Company recorded a
charge to earnings of approximately $235,000, which is included in general and
administrative expenses. The charge includes $44,000 representing the excess of
the purchase price of the Company's common stock over its fair market value at
the time of the transaction.
In May of 1996 the Company entered into a Consulting Agreement with
Goodrich Global L.T.D. B.V.I., a company owned and controlled by Haim Tsuff, the
Chairman of the Board of Directors and Chief Executive Officer of the
Corporation. Pursuant to this Consulting Agreement which had a term of two
years, the Company agreed to pay the sum of $144,000 per annum in installments
of $12,000 per month, in addition to reimbursing all reasonable business
expenses incurred during the term in connection with the performance of services
on behalf of the Company. In April 1997 the consulting compensation was
increased to $240,000 per annum and in December 1997 the term was extended to
May 31, 2001. The Consulting Agreement, as amended, provides that the term shall
be automatically extended for an additional term of three years, commencing June
1, 2001, unless the Company has given notice at least 90 days prior to June 1,
2001 that it does not intend that the term be renewed. In the event that Mr.
Tsuff is terminated by the Company, he shall be entitled to receive a lump sum
severance payment equal to the balance of the unpaid consulting fee due for the
remaining term of the agreement.
For additional related party transactions, see acquisitions Footnote J.
F-12
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE C) - Marketable Securities:
- ---------------------------------
At December 31, 1997 and December 31, 1996 the Company owned 4,576,561
shares (approximately 5%) of JOEL, a related party (see Note B), with a cost and
market value of $2,316,000 and $1,573,000, respectively, in 1997 and $2,316,000
and $1,844,000, respectively, in 1996.
At December 31, 1997 and December 31, 1996, the Company owned 319,529 units
of the Isramco-Negev 2 Limited Partnership, a related party (see Note B), with a
cost and market value of $22,000 and $3,000 in 1997 and 1996, respectively.
Sales of marketable securities resulted in realized gains (losses) of
$193,000, $(160,000), and $210,000 for the years ended December 31, 1997, 1996
and 1995, respectively.
At December 31, 1997 and 1996, the Company had net unrealized losses on
marketable securities of $866,000 and $400,000, respectively. The change in the
net unrealized holdings gain or loss included in earnings is a loss of $466,000
in 1997, a gain of $867,000 in 1996, and a loss of $577,000 in 1995.
Marketable securities, which are primarily traded on the Tel-Aviv Stock
Exchange, consist of the following:
DECEMBER 31,
-------------------------------------------------
1997 1996
----------------------- -----------------------
Market Market
Cost Value Cost Value
---------- ---------- ---------- ----------
Debentures $5,152,000 $5,068,000 $3,660,000 $3,714,000
Convertible debentures -- -- 97,000 90,000
Investment trust fund -- -- 671,000 705,000
Equity securities 2,827,000 2,045,000 2,450,000 1,969,000
---------- ---------- ---------- ----------
Total $7,979,000 $7,113,000 $6,878,000 $6,478,000
========== ========== ========== ==========
F-13
<PAGE>
<TABLE>
<CAPTION>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE D) - Oil and Gas Properties:
- ----------------------------------
Total
Capitalized
Unproved Proved Costs
----------- ----------- -----------
<S> <C> <C> <C>
Balance--January 1, 1995 $ -- $ -- $ --
Changes in the year ended December 31, 1995:
Exploration costs in progress 173,000 -- 173,000
Exploration costs written off (173,000) -- (173,000)
----------- ----------- ------------
Balance--December 31, 1995 -- -- --
Changes in the year ended December 31, 1996:
Exploration costs in progress 34,000 -- 34,000
Exploration costs written off (34,000) -- (34,000)
----------- ----------- ------------
Balance--December 31, 1996 -- -- --
Changes in the year ended December 31, 1997:
Acquisition costs 2,700,000 4,571,000 7,271,000
Exploration costs in progress 11,000 -- 11,000
Exploration costs written off (11,000) -- (11,000)
----------- ----------- ------------
Balance--December 31, 1997 $ 2,700,000 $ 4,571,000 $ 7,271,000
=========== =========== ===========
F-14
</TABLE>
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE E) -- Equipment:
- ----------------------
December 31,
-------------------------------------
1997 1996 1995
--------- --------- ---------
Cost:
Balance--beginning of year $ 163,000 $ 233,000 $ 217,000
Purchases 97,000 3,000 21,000
Sales and dispositions (9,000) (73,000) (5,000)
--------- --------- ---------
Balance--end of year 251,000 163,000 233,000
--------- --------- ---------
Accumulated depreciation:
Balance--beginning of year 98,000 102,000 65,000
Depreciation expense 37,000 37,000 40,000
Depreciation of equipment that
was sold or retired (5,000) (41,000) (3,000)
--------- --------- ---------
Balance--end of year 130,000 98,000 102,000
--------- --------- ---------
Balance--cost less accumulated
depreciation $ 121,000 $ 65,000 $ 131,000
========= ========= =========
Annual rates of depreciation are
as follows:
Office equipment and furniture 7%--20%
Motor vehicles 15%--20%
A summary of property and equipment is as follows:
DECEMBER 31,
---------------------------
1997 1996
----------- -----------
Unproved properties $ 2,700,000 $ --
Oil and gas properties 4,571,000 --
Transportation equipment 142,000 107,000
Office equipment 109,000 56,000
----------- -----------
7,522,000 163,000
Less accumulated depletion, depreciation,
amortization and provision for impairment (632,000) (98,000)
----------- -----------
$ 6,890,000 $ 65,000
=========== ===========
F-15
<PAGE>
<TABLE>
<CAPTION>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE F) - Shareholders' Equity:
- --------------------------------
The Company's stock option plan (the "Plan") which expired on January 31,
1993, provided for both incentive stock options and nonqualified stock options.
The 1993 stock option plan (the "1993 Plan") was approved at the Annual
General Meeting of Shareholders held on August 13, 1993. 500,000 shares of
common stock are reserved under the 1993 Plan. Options granted under the 1993
Plan may be either incentive stock options under the Internal Revenue Code or
options which do not qualify as incentive stock options. Options are granted for
a period of up to ten years from the grant date. The exercise price for an
incentive stock option may not be less than 100% of the fair market value of the
Company's common stock on the date of grant. The options granted under this plan
were fully vested at grant date. The exercise price for a nonqualified stock
option may be set by the administrator.
Summary of the status of the Company's stock options is presented below:
Year Ended December 31,
------------------------------------------------------------------------------------
1997 1996 1995
------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
"1993 Plan" and the "Plan":
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning 297,500 $ 2.08 337,500 $ 1.99 572,500 $ 2.45
of year
Granted -- -- -- -- 30,000 0.56
Expired -- -- (40,000) 1.37 (265,000) 2.76
Outstanding at end of year 297,500 2.08 297,500 2.08 337,500 1.99
Options exercisable at end 297,500 2.08 297,500 2.08 337,500 1.99
of year
Weighted average fair value
of options
Granted during the year $ - 0 - $ 0 - $ .43
======= ======== ========
</TABLE>
As of December 31, 1997, 297,500 options were outstanding and exercisable
with a price range of $0.56 -- $2.31, with a weighted-average remaining
contractual life and weighted-average exercise price of 6.3 years and $2.08,
respectively.
F-16
<PAGE>
<TABLE>
<CAPTION>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31,
------------------------------------------------------------------------------------
1997 1996 1995
------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
"Consultants and others":
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 20,000 $ 2.31 550,000 $ 1.98 517,500 $ 1.84
Granted -- -- -- -- 550,000 1.98
Expired -- -- (530,000) 1.96 (517,500) 1.84
Outstanding at end of year 20,000 2.31 20,000 2.31 550,000 1.98
Options exercisable at year- 20,000 2.31 20,000 2.31 550,000 1.98
end
Weighted average fair value
of options
Granted during the year $ - 0 - $ - 0 - $ .04
======== ======== ========
</TABLE>
As of December 31, 1997, 20,000 options were outstanding and exercisable at
a price of $2.31 with a remaining contractual life of 5.7 years.
During 1995, the Company granted 30,000 options to a director under the
1993 Plan exercisable through July 2005 at an exercise price of $0.56 per share.
During 1995, options to acquire 517,500 of the Company's common stock,
granted pursuant to consulting arrangements, expired.
On March 16, 1995, the Company granted 500,000 options pursuant to a
one-year consulting arrangement at an exercise price of $2.00 which expired on
March 16, 1996. The value of these options was not significant.
In March 1995, the Company issued 50,000 options to a former director of
the Company to replace, on the same terms, incentive stock options which
terminated at the time he ceased to be a director; 20,000 options at an exercise
price of $2.31 exercisable through August 2003 and 30,000 options at an exercise
price of $1.37 which expired in December 1996. The value of these options was
not significant.
F-17
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
The Company has outstanding Class A Redeemable Warrants and Class B
Redeemable Warrants which it issued pursuant to a public offering in 1993. A
Class A Redeemable Warrant entitles the holder to purchase one share of common
stock at a price of $2.00 at any time after the date of issuance until April 16,
1999 (extended from April 16, 1998). A Class B Redeemable Warrant entitles the
holder to purchase one share of common stock at a price of $4.00 at any time
after issuance until April 16, 1999 (extended from April 15, 1998). At December
31, 1997, 7,498,894 Class A Redeemable Warrants and 7,675,000 Class B Redeemable
Warrants are outstanding. The Class A and Class B warrants are subject to
redemption by the Company at a price of $.001 per warrant on thirty days' notice
after the price of the Company's common shares exceeds $2.10 and $4.20,
respectively.
In connection with the offering the Company issued to the Underwriter a
warrant to purchase 225,000 units (the "Underwriter Warrant") exercisable one
year after issuance but not later than five years at a price of $6.60 per unit.
Each unit is identical to those sold to the public except that the exercise
prices of the Class A Redeemable Warrants and Class B Redeemable Warrants are
$3.20 and $6.40, respectively. Each unit consists of four shares of common
stock, two Class A Redeemable Warrants and two Class B Redeemable Warrants.
Shares of common stock reserved for future issuance are:
Options granted under the 1993 Plan 297,500
Options available for grant under the 1993 Plan 202,500
Class A Redeemable Warrants 7,498,894
Class B Redeemable Warrants 7,675,000
Shares underlying the Underwriter Warrant 1,800,000
Other 20,000
----------
Total 17,493,894
==========
The Company applies Accounting Principles Bulletin Opinion No. 25 and
related interpretations in accounting for its options. Accordingly, no
compensation cost has been recognized for its stock option grants. Had
compensation cost for the Company's stock option grants been determined based on
the fair value at the grant dates for awards consistent with the method of SFAS
No. 123, the Company's net income and earnings per share would have been reduced
to the pro forma amounts indicated below (in thousands except per share data).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1997 1996 1995
------------- ------------- -----------
<S> <C> <C> <C>
Net income (loss) -- as report $ (14,000) $ 830,000 $ 635,000
============= ============= ===========
-- pro forma $ (14,000) $ 830,000 $ 610,000
============= ============= ===========
Earnings per share -- as reported $ -- $ .03 $ .02
============= ============= ===========
-- pro forma $ -- $ .03 $ .02
============= ============= ===========
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1995; dividend yield of zero (0%) percent,
expected volatility of 61%, risk free interest rates ranging from 5.51% to
7.13%, and weighted average expected life of 1.7 years.
F-18
</TABLE>
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE G) -- Income Taxes:
- -------------------------
Income (loss) before income taxes from U.S. and foreign results of
operations is as follows:
1997 1996 1995
--------- --------- ---------
U.S. $ (25,000) $(151,000) $ (84,000)
Foreign 10,000 981,000 802,000
--------- --------- ---------
Total $ (15,000) $ 830,000 $ 718,000
========= ========= =========
The provision for income taxes is as follows:
1997 1996 1995
--------- --------- ---------
Current:
U.S. $ 0 $ 34,000 $ 455,000
Deferred:
U.S. 0 (34,000) (372,000)
--------- --------- ---------
Total $ -- $ -- $ 83,000
========= ========= =========
Deferred taxes are provided principally in relation to temporary
differences in unrealized appreciation (depreciation) in marketable securities
and net operating losses. Income taxes in 1995 arose from the federal
alternative minimum tax.
The deferred tax assets as of December 31, 1997 and 1996 are as follows:
ASSETS
-----------------------
1997 1996
--------- ---------
Unrealized depreciation of
marketable securities $ 300,000 $ 137,000
U.S. Federal net operating losses 499,000 659,000
U.S. Federal alternative minimum tax credits 89,000 89,000
--------- ---------
888,000 885,000
Valuation allowance (888,000) (885,000)
--------- ---------
$ -- $ --
========= =========
The change in the valuation allowance from December 31, 1996 to December
31, 1997 amounted to $3,000 and was caused primarily by the change by the
reduction of the net operating loss carryforward.
F-19
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
A reconciliation between the actual income tax expense and income taxes
computed by applying the U.S. Federal income tax rate to income before income
taxes is as follows:
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
--------- --------- ---------
Computed at U.S. statutory rates $ 140,000 $ 282,000 $ 252,000
Reduction resulting from
net operating
loss carryforward (140,000) (282,000) (169,000)
--------- --------- ---------
$ $ -- $ 83,000
========= ========= =========
At December 31, 1997, net operating loss carryforwards available to reduce
future federal taxable income amounted to approximately $1,426,000, expiring at
various dates through 2007. Due to certain changes in ownership by shareholders
owning greater than 5% of the Company's outstanding common stock, the net
operating loss carryforward may be subject to annual limitations.
The Company also has net operating loss carryforwards of approximately
$4,000,000 available to reduce future Israeli taxable income from its Israel
Branch and its Israeli subsidiaries. These net operating loss carryforwards are
not limited by an expiration date. The ultimate realization of the tax benefits
is dependent upon these entities earning future taxable income and accordingly,
the Company has established an offsetting valuation allowance because it is not
presently able to predict that such taxable income will be earned.
(NOTE H) -- Concentration of Credit Risk:
- -----------------------------------------
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
The Company's customer base includes several of the major United States oil and
gas operating and production companies. Although the Company is directly
affected by the well-being of the oil and gas production industry, management
does not believe a significant credit risk exists at December 31, 1997.
The Company maintains deposits in banks which may exceed the amount of
federal deposit insurance available. Management periodically assesses the
financial condition of the institutions and believes that any possible deposit
loss is minimal.
A significant portion of the Company's cash and cash equivalents is
invested in three money-market funds.
Substantially all marketable securities owned by the Company are held by
two banks in Israel.
F-20
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE I) -- Commitments and Contingencies:
- ------------------------------------------
Commitments: The Company leases corporate office facilities under a
three-year operating lease expiring September 2000 at a monthly rental of
$2,540. The Company shares office space with Jay Management L.L.C., an
affiliate, and received $4,000 in rents under an informal sublease arrangement
for use of such facilities during November and December 1997.
At December 31, 1997, future minimum lease payments under noncancellable
operating leases are approximately:
YEARS ENDING DECEMBER 31, AMOUNT
------------------------- ------
1998 $ 30,000
1999 30,000
2000 20,000
---------
$ 80,000
=========
Rent expense for the years ended December 31, 1997, 1996 and 1995 was
immaterial.
Contingencies: The Company is involved in various legal proceedings arising
in the normal course of business. In the opinion of management, the Company's
ultimate liability, if any, in these pending actions would not have a material
adverse effect on the financial position or operating results of the Company.
(NOTE J) -- Acquisitions:
- -------------------------
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
N.I.R. 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 assumed long-term bank debt of approximately $1,065,000,
resulting in a total purchase price of $2,141,000 substantially all of which was
allocated to oil and gas properties. The acquisition was accounted for on the
purchase method of accounting. No goodwill arose from the acquisition. The
Company's share of profits after recovery of its investment is 70.06%. NIR is a
wholly owned subsidiary of Naphtha. The Branch Manager of the Company's Israel
Branch is the General Manager of Naphtha and the Company's President is also a
director of Naphtha. In addition, officers and directors of the Company are
associates of officers and directors of Naphtha.
Jay entered into a Management Agreement with Jay Management, a Texas
limited liability company formed in February 1997 for the purpose of operating
certain oil and gas interests and managing certain oil and gas interests owned
F-21
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
or to be acquired by Jay. For a capital contribution of $350.00 the Company
acquired a 35% interest in Jay Management. Pursuant to the Management Agreement,
Jay will pay to Jay Management a management fee of $12,500 per month. Jay
Management also receives all operating fees pursuant to the Operating Agreement
for the contract wells. The term of the Management Agreement is for ten years,
unless terminated by either party on not less than one hundred eighty days
notice. The designated manager of Jay Management receives a management fee of
$5,000 per month.
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 $2,669,000 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. The Company is
not a borrower or guarantor under this Master Note Facility.
On September 4, 1997 the Company acquired from Equital Ltd.Can affiliated
company formerly known as Pass-port Ltd., which controls JOEL (see Note B)--a
50% participation in a joint venture that holds two permits offshore of the
Republic of Congo, the Marine III Exploration permit and the Tilapia
Exploitation permit to develop the Tilapia Field. The purchase price was $2.7
million, all of which was paid in cash. In addition, the Company granted Equital
an 8% carried interest after payout in its rights regarding the
production-sharing contract on the Tilapia permit. "Payout" as defined in the
agreement means recovery of all of the investments to be done by the Company in
the Tilapia permit, excluding the purchase price paid by the Company to Equital
Ltd. for Tilapia of $2.55 million. The other participant in the joint venture is
Naphtha Israel Petroleum Corp. Ltd., which controls the Company. The operator
for this project is Naphtha Congo Ltd., a wholly owned subsidiary of Naphtha
Israel Petroleum Corp. Ltd. Naphtha Congo is paid $14,000 annually which costs
are shared equally between the Company and Naphtha annually in consideration for
office services, accounting and overhead. It will also receive from these
parties fees as to be detailed in a joint operating agreement. The Company
received a fair market valuation of the two permits from an independent
petroleum engineering consultant.
(NOTE K) - Long-term Debt:
- --------------------------
The Company has a $10 million bank line of credit facility in place to
finance acquisitions of oil and gas prospects for Jay. The loan bears interest
at the base rate of the bank plus 1.5% (9.75% at December 31, 1997) and matures
in February 2000. Advances outstanding under the bank loan facility are
collateralized by the oil and gas properties acquired and are limited to the
"Borrowing Base", as defined, which is subject to an annual redetermination.
Payments of $65,100 per month, plus interest, are required until the April 1,
1998 redetermination date.
Under the terms of the financing agreement with the bank, the Company must
meet certain covenant requirements. The most restrictive covenants include
maintenance of a positive working capital ratio, exclusive of current maturities
of amounts outstanding under the bank loan facility.
F-22
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Future principal payments on the bank loan facility as of December 31, 1997
are as follows:
YEAR ENDED DECEMBER 31,
-----------------------
1998 $ 781,000
1999 781,000
2000 1,665,000
------------
Less: current portion (781,000)
------------
Long-term debt $ 2,446,000
============
(NOTE L) - Geographical Segment Information:
- --------------------------------------------
The Company's operations involve a single industry segment--the
exploration, development, production and transportation of oil and natural gas.
Its principal oil and gas activities are concentrated in foreign countries.
Operating in foreign countries subjects the Company to inherent risks such as a
loss of revenues, property and equipment from such hazards as exploration,
nationalization, war and other political risks, risks of increases of taxes and
governmental royalties, renegotiation of contracts with government entities and
changes in laws and policies governing operations of foreign-based companies.
The Company's oil and gas business is subject to operating risks associated
with the exploration, production and refining of oil and gas, including
blowouts, pollution and acts of nature that could result in damage to oil and
gas wells, production facilities or formations. In addition, oil and gas prices
have fluctuated substantially in recent years as a result of events which were
outside of the Company's control.
Financial information, summarized by geographic area, is as follows:
F-23
<PAGE>
<TABLE>
<CAPTION>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Geographic Segment
---------------------------------------------
United Consolidated
1997 States Israel Other Total
- ------------------------------------ -------- -------- ------- --------
(in thousands)
<S> <C> <C> <C> <C>
Sales and other operating revenue $ 2,001 $ 944 $ -- $ 2,945
Total revenue
Costs and operating expense (1,668) (518) -- (2,186)
-------- -------- ------- --------
Operating profit (loss) $ 333 $ 426 $ -- $ 759
======== ======== ======= ========
Interest income and other 852
corporate revenues --------
General corporate expenses -- -- -- (1,289)
Interest expense (341)
Minority interest 5
--------
Net loss (14)
========
Identifiable assets at December 31, 1997 $ 4,107 $ 83 $ 2,700 $ 6,890
======== ======== =======
Corporate assets 19,893
--------
Total assets at December 31, 1997 $ 26,783
========
Depreciation, depletion and
amortization rate per equivalent
barrel of oil $ 3.57 $ -- $ -- $ 3.57
======== ======== ======= ========
Capital Expenditures $ 3,532 $ 96 $ 2,700 $ 6,328
======== ======== ======= ========
</TABLE>
(NOTE M) - Subsequent Events:
- -----------------------------
In March 1998, the Company purchased the remaining 17.1% ownership interest
in Jay Petroleum held by Jay Resources Corporation and Jay Natural Resources,
Inc. as a result of arbitration.
In March 1998 the Company acquired an additional 30% interest in Jay
Management from Jay Natural Resources, Inc. as a result of arbitration with the
former manager of Jay Management. The transfer of ownership was effective on
December 31, 1997. This transaction will give the Company a 65% ownership
interest in Jay Management.
F-24
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
SUPPLEMENTARY OIL AND GAS INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
The accompanying unaudited oil and gas disclosures are presented as
supplementary information in accordance with Statement No. 69 of the Financial
Accounting Standards Board.
Capitalized costs relating to oil and gas activities and costs incurred in oil
and gas property acquisition, exploration and development activities for each
year are shown below. The Company had no oil and gas assets or operations prior
to 1997.
Capitalized costs:
1997
----------------------
UNITED
STATES CONGO
------- -------
(in thousands)
Unproved property $ -- $ 2,700
Proved and unproved properties 4,571 --
Accumulated depreciation, depletion,
amortization and provision for
impairment (502) --
------- -------
Net capitalized costs $ 4,069 $ 2,700
======= =======
Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development
Activities:
Property acquisition costs--proved $ 4,571 $ 2,700
and unproved properties
Exploration Costs -- --
Development costs -- --
Results of Operations for Oil and Gas Producing Activities:
Oil and gas sales $ 2,001 $ --
Lease operating expense and
severance taxes 972 --
Depreciation, depletion, amortization
and provision for impairment 502 --
Explorations costs -- --
------- -------
1,474 --
------- -------
Income before tax provision 527 --
Provision (benefit) for income taxes -- --
------- -------
Results of operations $ 527 $ --
======= =======
F-25
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
SUPPLEMENTARY OIL AND GAS INFORMATION (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Oil and Gas Reserves:
Oil and gas proved reserves cannot be measured exactly. Reserve estimates are
based on many factors related to reservoir performance which require evaluation
by the engineers interpreting the available data, as well as price and other
economic factors. The reliability of these estimates at any point in time
depends on both the quality and quantity of the technical and economic data, the
production performance of the reservoirs as well as extensive engineering
judgment. Consequently, reserve estimates are subject to revision as additional
data become available during the producing life of a reservoir. When a
commercial reservoir is discovered, proved reserves are initially determined
based on limited data from the first well or wells. Subsequent data may better
define the extent of the reservoir and additional production performance, well
tests and engineering studies will likely improve the reliability of the reserve
estimate. The evolution of technology may also result in the application of
improved recovery techniques such as supplemental or enhanced recovery projects,
or both, which have the potential to increase reserves beyond those envisioned
during the early years of a reservoir's producing life.
The following table represents the Company's net interest in estimated
quantities of proved developed and undeveloped reserves of crude oil,
condensate, natural gas liquids and natural gas and changes in such quantities
at December 31, 1997, and for the year then ended. Net proved reserves are the
estimated quantities of crude oil and natural gas which geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions. Proved developed reserve are proved reserve volumes that can be
expected to be recovered through existing wells with existing equipment and
operating methods. Proved undeveloped reserves are proved reserve volumes that
are expected to be recovered from new wells on undrilled acreage or from
existing wells where a significant expenditure is required for recompletion. All
of the Company's proved reserves are in the United States. The Company had no
proved reserves prior to 1997.
OIL BBLS GAS MCF
---------- ----------
January 1, 1997 -- --
Acquisition of minerals in place 155,879 5,392,558
Production (39,943) (604,010)
---------- ----------
December 31, 1997 115,396 4,788,548
========== ==========
The Company's proved developed reserves are as follows:
OIL BBLS GAS MCF
---------- ----------
December 31, 1997 115,396 4,788,548
========== ==========
F-26
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
SUPPLEMENTARY OIL AND GAS INFORMATION (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Standardized Measure of Discounted Future Net Cash Flow:
The standardized measure of discounted future net cash flows relating to the
Company's proved oil and gas reserves is calculated and presented in accordance
with Statement of Financial Accounting Standards No. 69. Accordingly, future
cash inflows were determined by applying year-end oil and gas prices to the
Company's estimated share of the future production from proved oil and gas
reserves. Future production and development costs were computed by applying
year-end costs to future years. Future income taxes were derived by applying
year-end statutory tax rates to the estimated net future cash flows. A
prescribed 10% discount factor was applied to the future net cash flows.
In the Company's opinion, this standardized measure is not a representative
measure of fair market value. The standardized measure is intended only to
assist financial statement users in making comparisons among companies.
1997
------------
Future cash inflows $ 15,410,237
Future development costs (541,678)
Future production costs (5,905,863)
------------
Future net cash flows 8,962,696
Annual discount 10% rate (3,625,706)
------------
Standardized measure discounted
future net cash flows $ 5,336,990
============
Estimated future income taxes were eliminated because estimated future tax
deductions related to oil and gas properties exceeded estimated future net
revenues based on oil and gas prices and related costs at December 31, 1997.
Changes in Standardized Measure of Discounted Future Net Cash Flows:
The principal sources of change in the standardized measure of discounted future
net cash flows for the year ended December 31, 1997 were as follows:
Beginning of year $ --
Sales and transfer of oil and gas
produced, net of production costs (1,029,853)
Net changes in prices and production
costs (329,000)
Acquisition of minerals in place 6,125,843
Accretion of discount 570,000
-----------
End of year $ 5,336,990
===========
F-27
<PAGE>
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
---------------------------------------------
Effective as of February 9, 1998 the Company terminated the firm of Richard
A. Eisner & Company, LLP and appointed the firm of Hein + Associates, LLP as its
principal auditors. Richard A. Eisner & Company LLP's report on financial
statements of the Company for either of the past two years did not contain an
adverse opinion or disclaimer of opinion and was not qualified as to
uncertainty, audit scope, or audit principles. See Form 8-K for the month of
February, 1998 filed by the Company on February 9, 1998 and incorporated herein
by reference.
PART III
Item 9. Directors and Executive Officers of the Registrant
--------------------------------------------------
Daniel Avner has been a director and Secretary of the Company since May 1996.
Since July 1997 Mr. Avner has been President of the Company. Mr. Avner since
1992 has been the General Manager of E.D.R. GMBH Co., a company which engages in
investment, development and management of residential property in Germany. From
1991 to 1992 Mr. Avner was a Financial Analyst with Proctor & Gamble Company in
Germany. Mr. Avner holds a BA Degree in Accounting and Economics from the
University of Tel Aviv and a Masters of Business Administration from Duke
University. Age 35.
Tina Maimon Arckens has been a director of the Company and a director of Isramco
Oil and Gas Ltd. since March 1997. Mrs. Arckens is a director of YHK General
Manager Ltd. Mrs. Arckens is the sister of Jackob Maimon, the Chairman of the
Board of Directors of Naphtha Holdings Ltd. and Naphtha Israel Petroleum Corp.
Ltd. Mrs. Maimon Arckens is a housewife. Age 43.
Linda Canina has been a director of the Company since December 1997. From 1993
to the present Dr. Canina has held the position of Professor of Finance at
Cornell University, Ithaca, New York. Dr. Canina also holds the position of
Visiting Assistant Professor of Finance at the Recanati School of Business in
Tel Aviv, Israel. From July 1992 - January 1993 Dr. Canina was a Research
Fellow, Johnson Graduate School of Management, Cornell University. Age 42.
Avihu Ginzburg has been a director of the Company since July 1997. Dr. Ginzburg
is currently Emeritus Professor in Geophysics at Tel Aviv University. In 1996 he
was Visiting Professor in Exploration Geophysics at Curtin University, Perth,
Western Australia; and, Research Fellow at the Department of Geological
Sciences, University College, London. From 1992 - 1995 Dr. Ginzburg held the
position of Chairman of Geophysics and Planetary Science at Tel Aviv University.
Age 71.
- 25 -
<PAGE>
Yossi Levy has been Branch Manager of the Company's Branch Office in Israel.
Since 1988 Mr. Levy has held the position of General Manager of Naphtha - Israel
Petroleum Corp. (Naphtha), a public company in the oil and gas business in
Israel. Since 1995 Mr. Levy has been General Manager of N.I.R. (Naphtha
International Resources) Ltd. Naphtha through its subsidiary (Naphtha Holdings
Ltd.) may be deemed to be a controlling shareholder of the Company Age 46.
Haim Tsuff has been a director of the Company since January 1996 and the
Chairman of the Board of Directors and Chief Executive Officer since May 1996.
Mr. Tsuff is the sole director and owner of United Kingsway Ltd. and Chairman of
YHK General Manager Ltd. (which entity effectively controls Equital Ltd., JOEL
Ltd., Naphtha, Naphtha Holdings Ltd., public companies in Israel) and may be
deemed to control the Company. During the past five years, Mr. Tsuff has served
as General Manager of Painton Chemical Industries Ltd., a private company which
produces printed material. Mr. Tsuff is also the Managing Director and Chairman
of the Board of Y. Habaron Ltd. (real estate), Painton Chemical Factors Ltd.
(printed material), Madad Ltd. (printed material), Benfica Holdings Ltd.
(construction) and Benfica Ltd. (construction), all of which are private
companies. See Security Ownership of Certain Beneficial Owners. Age 39.
- 26 -
<PAGE>
Item 10. Executive Compensation
----------------------
SUMMARY OF COMPENSATION
-----------------------
The following table sets forth the compensation paid for years 1995 - 1997
to the Chief Executive Officer and the five (5) other highly paid officers
and/or key employees of the Company.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term Compensation
------------------- ----------------------
Name and Year Salary/ Bonus Other Annual Securities All Other
Principal Consulting Compensation Underlying Compensation
Position Fee (6) Options
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Haim Tsuff 1997 216,000
Chairman of the Board 1996 84,000 ---- ---- ---- ----
and Chief Executive Officer (1)
Daniel Avner
President and Secretary (2) 1997 37,900
Pincus Pincus 1997 -0-
Controller Branch Office
Yossi Levy 1997 92,230
Branch Manager (3) 1996 36,055 ----
Joshua Folkman 1997 101,128
Exploration Manager 1996 106,441 ----
Branch Office 1995 92,777 25,000 ----
Yuval Ran 1997 151,000
Former President (4) 1996 60,000 ---- ----
Raanan Wiessel (5) 1997 91,358 ----
Former Treasurer 1996 70,565 ---- ---- 20,000 ----
Controller
Branch Office
</TABLE>
- 27 -
<PAGE>
Notes
(1) In May of 1996 the Company entered into a Consulting Agreement with a
company owned and controlled by Haim Tsuff, the Chairman of the Board and
Chief Executive Officer of the Corporation. Pursuant to this Consulting
Agreement as amended April 1997, the Company pays to consultant the sum of
$240,000 per annum in installments of $20,000 per month in addition to
reimbursing all reasonable business expenses incurred in connection with
the services rendered on behalf of the Company.
(2) In August of 1997 the Company entered into a Consulting Agreement with
Romulas Investment Ltd. (which Agreement has been assigned to Remarkable
Holdings Ltd.), a company which is wholly owned and controlled by Daniel
Avner, the President of the Company. Pursuant to this Agreement, the
Company has agreed to pay the Consultant the sum of $7,500 per month plus
expenses. The Company has also agreed to provide a company car and company
furnished apartment to Consultant, if available.
(3) In November of 1996 the Company entered into an Employment Agreement with
Yossi Levy, the Managing Director of Naphtha Israel Petroleum Company Ltd.
to employ Mr. Levy as the General Manager of the Israel Branch of the
Company.
(4) In August of 1996 the Company entered into a Consulting Agreement with
Yuval Ran, the former President of the Corporation. Pursuant to the
Consulting Agreement as amended April 1997, the Company has agreed to pay
to Mr. Ran the sum of $240,000 per annum payable in installments of $20,000
per month in addition to reimbursing all reasonable business expenses
incurred in connection with performing the consulting services on behalf of
the Company. Mr. Ran resigned as President of the Company on July 15, 1997.
(5) The services of Raanan Wiessel were terminated in December 1997.
(6) Does not include personal benefits which do not exceed 10% of the cash
compensation of all officers as a group.
- 28 -
<PAGE>
The following table sets forth information concerning the exercise of stock
options during 1997 by each of the named executive officer and key employee and
the year end value of unexercised options.
<TABLE>
<CAPTION>
Aggregated Option Exercises
in 1997
and Year End Option Values
Name Shares Value Number of Value of
Acquired Realized ($) Securities Unexercised
on Exercise Underlying In the Money
Unexercised Options at
Options (#) Year End ($)(2)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Joshua Folkman 0 0 20,000 0
Raanan Wiessel (1) 0 0 25,000 0
</TABLE>
Notes
(1) Ceased his relationship with the Company in December 1997.
(2) The value reported is based on the closing price of the common stock of the
Company as reported on NASDAQ on the date of the exercise less the exercise
price.
- 29 -
<PAGE>
The following table sets forth information concerning individual grants of
stock options made during the 1997 fiscal year to each named executive officer
and key employee. The Corporation did not grant any stock appreciation rights
during 1997 and has no outstanding SAR's.
Option Grants in 1997
Individual Grants
Name No. of % of Total Exercise Expiration
Shares Options Price Date
Underlying Granted to ($/SH)
Options Employees
Granted
- --------------------------------------------------------------------------------
NONE
All stock options were granted with an exercise price equal to the market
price of the common stock on the date of grant.
The Company during 1997 did not amend or adjust the exercise price of
outstanding stock options previously awarded to any of the named executive
officers or directors or employees. The only incentive plan which the Company
has is its 1993 Stock Option Plan (the "Stock Option Plan").
Stock Option Plan
- -----------------
The Company's Stock Option Plan was adopted with the intention of
encouraging stock ownership by directors, officers, employees and consultants of
the Company and its subsidiaries. The plan provides for stock options of up to
500,000 shares of common stock of the Company. Options may either be options
intended to qualify as "incentive stock options" or "non-statutory stock
options", as those terms are defined in the Internal Revenue Code.
Employees (including officers) of the Company are eligible to receive
incentive stock options, however, non-statutory stock options may be granted to
officers, directors, employees and consultants of the Company and its
subsidiaries. Options are granted for a period of up to ten (10) years from the
grant date for an exercise price of not less than 100% of the fair market value
of the securities of the Company's common stock on the date of grant. As of this
date no persons have been appointed to fill the current vacancies on the
committee which administers this plan.
- 30 -
<PAGE>
Item 11. Security Ownership of Directors, Officers and Key Employees
-----------------------------------------------------------
On March 11, 1998 the Directors, executive Officers and certain key
employees of the Company beneficially owned or controlled, the aggregate
15,786,225 shares of the Company's common stock (comprising 49.9% of the shares
of common stock if the Company's Class A and Class B Warrants were exercised)
including 20,000 shares under options which are currently exercisable. Unless
otherwise indicated, the individuals named hold sole voting and investment power
over the shares listed below.
Name Position Number of
Shares
Owned
Beneficially
- --------------------------------------------------------------------------------
Haim Tsuff Chairman of the Board, 15,766,225 (1)
Chief Executive Officer,
Chief Financial Officer,
and Director
Daniel Avner President, Principal Accounting Officer
Secretary and Director 0
Joshua Folkman Exploration Manager (Israel) 20,000 (2)
Yossi Levy Manager of Branch Office (Israel) 0
Pincus Pincus Controller of Branch Office Israel) 0
Avihu Ginzburg, Ph.D. Director 0
Linda Canina, Ph.D. Director 0
Tina Maimon Arckens Director 0
All Directors, Officers and Key Employees as a Group _________
(nine persons) 15,766,225
Notes
(1) Haim Tsuff owns 100% of United Kingsway Ltd. which through YHK General
Manager Ltd. controls various entities, which may be deemed to control the
Company. For more information see Security Ownership of Certain Beneficial
Owners.
(2) Includes 20,000 shares of common stock issuable upon exercise of Stock
Options.
- 31 -
<PAGE>
Security Ownership of Certain Beneficial Owners
Set forth below is certain information with respect to ownership of the
Company's securities as of March 11, 1998 by persons or entities who are known
by the Company to own beneficially more than 5% of the outstanding shares of the
common stock, as determined in accordance with Rule 13d-3 under the Act.
Name of No. of
Beneficial Owner Common Shares Percentage
- ---------------- ------------- ----------
Naphtha Holdings Ltd. * 15,766,225 49.9% +
Haim Tsuff *
United Kingsway Ltd. *
YHK Investment Limited Partnership *
Notes
* Haim Tsuff owns and controls 100% of United Kingsway Ltd. (Kingsway) which
holds a 74% interest in YHK Investment Limited Partnership (YHK). Avraham
Livnat Ltd. through its subsidiary Carmen Management and Assets (1997) Ltd.
owns 26% of YHK. The General Partner of YHK is YHK General Manager Ltd. and
Haim Tsuff, Joseph Tsuff (the father of Haim Tsuff) and Tina Maimon-Arckens
(the sister of the Chairman of the Board of Naphtha are the directors of
YHK General Manager Ltd. YHK owns of record 42.3% of Equital Ltd. (formerly
known as Pass-port Ltd.), Equital Ltd. owns 43.4% of J.O.E.L. - Jerusalem
Oil Exploration Ltd. (JOEL), JOEL owns 86.6% of Naphtha, which holds 100%
of Naphtha Holdings Ltd. JOEL also owns 9.6% of the shares of Naphtha.
Naphtha Holdings Ltd. owns of record approximately 47.3% (if the Class A
and Class B Warrants are exercised) of the issued and outstanding common
stock of the Company, Naphtha holds 2.6% (if the Class A and Class B
Warrants are exercised) of the issued and outstanding common stock of the
Company. Naphtha Holdings Ltd. holds 2,500,000 Class A Warrants and
2,500,000 Class B Warrants of the Company.
Information regarding these relationships is set forth on the Chart of
Ownership and in Schedule 13d filings and amendments made thereto made on
behalf of the above entities which are on file with the Securities and
Exchange Commission.
As a result of the foregoing, Haim Tsuff, Kingsway, YHK, Equital Ltd.,
JOEL, Naphtha and Naphta Holdings Ltd. may be deemed to control the
Company.
+ This percentage is based on 26,398,523 shares of common stock outstanding
March 11, 1998 plus the issuance of an additional 5,000,000 shares of
common stock in the event of the exercise of the Class A and Class B
Warrants by Naphtha Holdings Ltd.
- 32 -
<PAGE>
The following chart sets forth the chain of ownership of the Company.
<TABLE>
<CAPTION>
<S> <C>
AVRAHAM LIVNAT LTD.
100%
UNITED KINGSWAY LTD. CARMEN MANAGEMENT AND
(Owned by Haim Tsuff) ASSETS (1997) LTD.
74% 26%
Y.H.K.
LIMITED PARTNERSHIP (Israel) 2.5%
42.3%
EQUITAL LTD.
9.6% 43.4%
J.O.E.L. LTD.
86.6%
NAPHTHA ISRAEL PETROLEUM
CORPORATION LTD. 5.5%
99.99% 100% 2.6%
I.O.C. NAPHTHA HOLDING LTD.
ISRAEL
OIL COMPANY
47.3% (1)
ISRAMCO INC.
ISRAMCO OIL AND GAS LTD.
GENERAL PARTNER
ISRAMCO NEGEV 2 LIMITED PARTNERSHIP
</TABLE>
- ------------------------
1 Assuming exercise of all warrants
- 33 -
<PAGE>
Item 12. Certain Relationships and Related Transactions
----------------------------------------------
Agreements with Danny Toledano
In October 1995 the Company entered into an Employment Agreement with Mr.
Toledano which provided for a payment of annual salary of $144,000 per annum
payable in installments of $12,000 per month. The term of the agreement was for
one (1) year. In June of 1996 the Company terminated its Employment Agreement
with Mr. Toledano and paid to Mr. Toledano a lump sum of $72,000 for the balance
of the employment term. Pursuant to the terms of a Termination Agreement entered
into between the Company and Mr. Toledano, Mr. Toledano resigned as President
and Chief Operating Officer of the Company, and executed a Covenant Not to
Compete Agreement with the Company. Pursuant to the terms of the Covenant Not to
Compete, Mr. Toledano agreed that for a period of five (5) years he would not
directly or indirectly compete with the Company in connection with the
exploration for oil and gas in the State of Israel, the territorial waters off
Israel or the territories currently under control of the State of Israel. In
consideration for the Covenant Not To Compete, the Company paid to Mr. Toledano
the sum of $200,000. The Company also entered into a Consulting Agreement with
Natural Resources Exploration Services B.V., a Netherlands corporation
controlled by Mr. Toledano. Pursuant to the Consulting Agreement between the
Company and Natural Resources Exploration Services B.V., the Company paid a lump
sum payment of $72,000 to Natural Resources Exploration Services B.V. to provide
the services of Mr. Toledano to the Company through June 23, 1997.
Consulting Agreement with Dr. Joseph Elmaleh and Subsequent
Termination Agreement
In July of 1995 the Company formalized its existing oral consulting
agreement with Dr. Joseph Elmaleh and entered into a written Consulting
Agreement for the payment to Dr. Elmaleh of an annual fee of $99,000 payable in
equal monthly installments of $8,250. The expiration of the term of the
Consulting Agreement commenced August 1, 1995 and was to expire July 31, 1997.
Under the terms of a Termination Agreement made on April 17, 1996, Dr. Elmaleh
resigned as the Chairman of the Board, Chief Executive Officer and a director of
Isramco and its subsidiaries, the Company terminated the 1995 Consulting
Agreement with Dr. Elmaleh and (i) paid to him the sum of $123,750 representing
the balance of unpaid consulting fees; (ii) paid to him the sum of $270,000 for
a non-compete agreement for a term of three (3) years in connection with the
exploration for oil and gas in the State of Israel, the territorial waters off
Israel or the territories currently under control of the State of Israel. The
Company also purchased from Southern Shipping and Energy Inc. (a company
controlled by Dr. Elmaleh) 292,675 shares of the common stock of the Company
held by Southern Shipping and Energy Inc. for a purchase price of $208,238.
Consulting Agreement with Haim Tsuff
In May of 1996 the Company entered into a Consulting Agreement with
Goodrich Global L.T.D. B.V.I., a company owned and controlled by Haim Tsuff, the
Chairman of the Board of Directors and Chief Executive Officer of the
Corporation. Pursuant to this Consulting Agreement which had a term of two (2)
years, the Company agreed to pay the sum of $144,000 per annum in installments
of $12,000 per month, in addition to reimbursing all reasonable business
- 34 -
<PAGE>
expenses incurred during the term in connection with the performance of services
on behalf of the Company. In April 1997 the consulting compensation was
increased to $240,000 per annum and in December 1997 the term of the Agreement
was extended to May 31, 2001. The Consulting Agreement provides that the term
shall be automatically extended for an additional term of three (3) years,
commencing June 1, 2001, unless the Company has given notice at least ninety
(90) days prior to June 1, 2001, that it does not intend that the term be
renewed.
Consulting Agreement with Yuval Ran
- -----------------------------------
In August of 1996 the Company entered into a Consulting Agreement with
Yuval Ran, the then President of the Corporation. Pursuant to this Consulting
Agreement which had a term of three (3) years, the Company agreed to pay Mr. Ran
the sum of $144,000 per annum in installments of $12,000 per month, in addition
to reimbursing all reasonable business expenses incurred during the term in
connection with the performance of services on behalf of the Company. In April
1997 the consulting compensation was increased to $240,000 per annum. Mr. Ran
resigned as President of the Company on July 15, 1997, his Consulting Agreement
terminated.
Consulting Agreement with Daniel Avner
- --------------------------------------
In August of 1997 the Company entered into a Consulting Agreement with
Romulas Investment Ltd. (which Agreement has been assigned to Remarkable
Holdings Ltd.), a company which is wholly owned and controlled by Daniel Avner,
the President of the Company. Pursuant to this Agreement which has a term of one
(1) year through July 31, 1998, the Company has agreed to pay the Consultant the
sum of $7,500 per month plus expenses. The Company has also agreed to make
provide a company car and company furnished apartment to Consultant, if
available.
Agreement with Equital Ltd.
- ---------------------------
In December of 1997 the Company entered into a Inventory Service Management
Agreement with Equital Ltd. pursuant to which the Company is obligated to pay to
Equital Ltd. $1,650 plus VAT payable December, March, June and September of each
year during the term of the Agreement. In the case of the drilling of a well if
the total monthly hours of services provided to the Company by Equital Ltd.
exceed 30 hours per month, then the Company shall pay an additional $40.00 per
hour plus VAT for services rendered. The Agreement may be terminated on three
(3) month's written notice. The Company believes that the prices charged by
Equital Ltd. to the Company for these services are comparable to the cost for
such services negotiated in arm's length transactions. Equital Ltd. may be
deemed to be a control person to the Company.
- 35 -
<PAGE>
GLOSSARY
--------
"Authorization for Expenditure (AFE)" shall mean a proposal for financial
expenditure within the framework of petroleum explorations, which the Operator
proposes from time to time to the partners in the Petroleum Assets which it
manages, for the purpose of the approval of the participants. When approved by
them, it constitutes the budget for the execution of the petroleum exploration
and the remainder of the operations of the Petroleum Assets.
"Carveout" shall mean an area in a Petroleum License or Lease in which the
ownership is different from the ownership in the License or Lease.
"Grant Agreement" shall mean the agreement between the Company and the
Government of Israel pursuant to which the Government of Israel has provided
assistance to the Company in connection with its investment in the Negev 2
Venture by providing a grant of 44.34(cent) for each U.S. dollar ($1.00)
invested and expended by the Company in oil and gas activities in Israel within
the framework of the Negev 2 Venture. The Government financing provided for
under the Grant is repayable only from funds emanating from commercial
production in any payout area and then, only to the extent of 30% of the
recipient's share of the net revenue from said payout area, as and when
received. The Grant Agreement entitles the Government of Israel, to receive a
12.5% royalty on oil sales, as well as an overriding royalty of 6.5% of the
Company's share in the petroleum produced and saved after payout. If there is no
commercial discovery of oil, the Company will not be required to repay the grant
monies. A grant agreement was also entered into between the Government of Israel
and HEI, Donesco, L.P.S.
and Mazal Oil.
"Joint Operating Agreement" shall mean the Joint Operating Agreement of the
Negev 2 Venture which was signed as of the 30th day of June, 1988, between the
participants in the Negev 2 Venture, as amended or as shall be amended from time
to time.
"Joint Venture Agreement" shall mean the Joint Venture Agreement of the
Negev 2 Venture which was signed as of the 30th of June, 1988 between the
participants in the Negev 2 Venture, as amended from time to time.
"Limited Partnership" shall mean Isramco-Negev 2 Limited Partnership, a
Limited Partnership founded pursuant to a Limited Partnership Agreement made on
the 2nd and 3rd days of March, 1989 (as amended on September 7, 1989, July 28,
1991, March 5, 1992 and June 11, 1992) between the Trustee on part as Limited
Partner and Isramco Oil and Gas Ltd., as General Partner on the other part.
"Limited Partnership Agreement" shall mean the Limited Partnership
Agreement made the 2nd and 3rd days of March, 1989 (as amended September 7,
1989, July 28, 1991, March 5, 1992 and June 11, 1992), between Isramco Oil and
Gas Ltd., as General Partner, and Isramco Management (1988) Ltd. as the Limited
Partner.
- 36 -
<PAGE>
"Negev 2 Venture" shall mean the venture between HEI Oil and Gas Ltd.
Partnership (hereinafter "HEI"), SSE (U.K.), JOEL, Pass-port, Delek Israel Oil
Fuel Ltd., Delek Petroleum Explorations Ltd., Isramco, Inc., Naphtha Israel
Petroleum Company Ltd., L.P.S. Oil Inc., Donesco Venture Fund and Mazal Oil Inc.
with regard to joint operations for oil and gas explorations in various areas of
Israel, both offshore and onshore.
"Negev 2 Venture Agreements" shall mean the Joint Venture Agreement, the
Joint Operating Agreement, the Voting Agreement and every agreement into which
the parties to said agreements have entered, in connection with the Negev 2
Venture.
"Overriding Royalty Interest" shall mean a percentage interest over and
above the base royalty and is free of all costs of exploration and production,
which costs are borne by the Grantor of the Overriding Royalty Interest and
which is related to a particular Petroleum License.
"Payout" shall mean the defined point at which one party has recovered its
prior costs.
"Petroleum" shall mean any petroleum fluid, whether liquid or gaseous, and
includes oil, natural gas, natural gasoline, condensates and related fluid
hydrocarbons, and also asphalt and other solid petroleum hydrocarbons when
dissolved in and producible with fluid petroleum.
"Petroleum Exploration" shall mean test drilling; any other operation or
search for petroleum, including geological, geophysical, geochemical and similar
investigations and tests; and, drilling solely for obtaining geological
information.
"Petroleum Law" shall mean the Israel Petroleum Law, 5712-1952.
"Petroleum Production" shall mean the production of petroleum from a
petroleum field and all operations incidental thereto, including handling and
treatment thereof and conveyance thereof to tankers, a pipe line or a refinery
in or in the vicinity of the field.
"Preliminary Permit", "Preferential Right to Obtain a License", "License"
shall have the meaning(s) set forth in the Petroleum Law of Israel.
"Sole Risk operation" is an operation in which fewer than all of the
participants in a venture participate, and the non-consenting participant has no
financial obligation but also loses his right to participate in the results of
the operation.
"Test Drilling" shall mean the drilling of test wells for the purpose of
finding of petroleum or ascertaining the size or boundaries of a petroleum
field.
"Trust Agreement" shall mean the Trust Agreement made on the 3rd day of
March, 1989 (as amended September 7, 1989, July 28, 1991, March 5, 1992 and June
11, 1992) for the Trust Company of Kesselman and Kesselman.
"Voting Agreement" shall mean the Voting Agreement made the 30th day of
June, 1988 between the Negev 2 Venture participants, excluding HEI.
- 37 -
<PAGE>
"Working Interest" shall mean an interest in a Petroleum Asset granting the
holder thereof the right to participate pro rata in exploiting the Petroleum
Asset for petroleum exploration, development and petroleum production, subject
to its pro rata participation in the expenses involved therein after acquiring
the Working Interest.
Israel Petroleum Law
- --------------------
The Company's business in Israel is subject to regulation by the State of
Israel pursuant to the Petroleum Law, 1952. The administration and
implementation of the Petroleum Law is vested in the Minister of National
Infrastructure (the "Minister") and an Advisory Council.
The following includes brief statements of certain provisions of the
Petroleum Law in effect at the date of this Prospectus. Reference is made to the
copy of the Petroleum Law filed as an exhibit to the Registration Statement
referred to under "Additional Information" and the description which follows is
qualified in its entirety by such reference.
The holder of a preliminary permit is entitled to carry out petroleum
exploration, but not test drilling or petroleum production, within the permit
areas. The term of a preliminary permit is determined by the Commissioner and it
may not exceed eighteen (18) months. The Minister may grant the holder a
priority right to receive licenses in the permit areas, and for the duration of
such priority right no other party will be granted a license or lease in such
areas.
Drilling for petroleum is permitted pursuant to a license issued by the
Commissioner. The term of a license is for three (3) years, subject to extension
under certain circumstances for an additional period up to four (4) years. A
license holder is required to commence test drilling within two (2) years from
the grant of a license (or earlier if required by the terms of the license) and
not to interrupt operations between test drillings for more than four (4)
months.
If any well drilled by the Company is determined to be a commercial
discovery prior to expiration of the license, the Company will be entitled to
receive a Petroleum Lease granting it the exclusive right to explore for and
produce petroleum in the lease area. The term of a lease is for thirty (30)
years, subject to renewal for an additional term of twenty (20) years.
The Company, as a lessee, will be required to pay the State of Israel the
royalty prescribed by the Petroleum Law which is presently, and at all times
since 1952 has been, 12.5% of the petroleum produced from the leased area and
saved, excluding the quantity of petroleum used in operating the leased area.
The Minister may require a lessee to supply at the market price such
quantity of petroleum as, in the Minister's opinion, is required for domestic
consumption, subject to certain limitations.
As a lessee, the Company will also be required to commence drilling of a
development well within six (6) months from the date on which the lease is
granted and, thereafter, with due diligence to define the petroleum field,
develop the leased area, produce petroleum therefrom and seek markets for and
market such petroleum.
- 38 -
<PAGE>
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K
----------------------------------------------------------------
(a) Financial Statements
The following documents are filed as part of this report:
Page No.
--------
Independent Auditors' Report F-1
Independent Auditors' Report F-2
Isramco, Inc. and Subsidiaries Consolidated
Financial Statements
Balance Sheets as of December 31, 1997 and 1996 F-3
Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995 F-4
Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995 F-5
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7 - F-24
Supplementary Oil and Gas Information for the Years
Ended December 31, 1997, 1996 and 1995 F-25 - F-27
(b) Reports on Form 8-K
1. Form 8-K for the month of February 1997 dated February 14, 1997;
2. Form 8-K for the month of March 1997 dated March 31, 1997;
3. Form 8-K for the month of May 1997 dated May 21, 1997;
4. Form 8-K for the month of July 1997 dated July 23, 1997;
5. Form 8-K for the month of September 1997 dated September 9, 1997;
6. Form 8-K for the month of October 1997 dated October 29, 1997;
7. Form 8-K for the month of December 1997 dated December 18, 1997.
- 39 -
<PAGE>
(c) Exhibits
1.1 Underwriting Agreement, filed as an Exhibit with the S-1
Registration Statement, File No. 33-57482.
1.2 Selected Dealers Agreement, filed as an Exhibit with the S-1
Registration Statement, File No. 33-57482.
1.3 Underwriter's Warrant Agreement, filed as an Exhibit with
the S-1 Registration Statement, File No. 33-57482.
3.1 Articles of Incorporation of Registrant with all amendments
filed as an Exhibit to the S-1 Registration Statement, File
No. 2-83574.
3.2 Amendment to Certificate of Incorporation filed March 17,
1993, filed as an Exhibit with the S-1 Registration
Statement, File No. 33-57482.
3.3 By-laws of Registrant with all amendments, filed as an
Exhibit to the S-1 Registration Statement, File No. 2-83570.
4.1 Form of Warrant Agreement with respect to Class A and Class
B Redeemable Warrants, filed as an Exhibit with the S-1
Registration Statement, File No. 33-57482.
4.2 Form of Deposit Agreement, filed as an Exhibit with the S-1
Registration Statement, File No. 33-57482.
10.1 Oil Marketing Agreement, filed as Exhibit with the S-1
Registration Statement, File No. 2-83574.
10.3 License Agreement dated February 29, 1984 between the
Company and Petronav, Inc., filed as an Exhibit to Form 10-K
Fiscal 1984, and incorporated herein by reference.
10.5 Consulting Agreement dated April 1, 1985 between the Company
and Elmco Holdings Limited (subsequently assigned by Elmco
Holdings Ltd. to H.G. Finance Ltd.), filed as an Exhibit to
Form 10-K Fiscal 1985, and incorporated herein by reference.
10.6 Employment Agreement and Stock Option Agreement dated March
1, 1985 between the Company and William W. Houck, filed as
an Exhibit to Form 10-K Fiscal 1985, and incorporated herein
by reference (now expired).
10.9 Farmout Agreement dated March 30, 1986 between the Company
and Naphtha Israel Petroleum Corp. Ltd, filed as an Exhibit
to Form 10-K Fiscal 1986, and incorporated herein by
reference.
- 40 -
<PAGE>
10.12 Exchange Agreement dated May 22, 1986 between the Company
and SSE (UK), filed as an Exhibit to Form 8-K for the month
of May 1986 and incorporated herein by reference.
10.1 Assignment Agreement dated as of May 5, 1988 between the
Company and SSE (UK), filed as an Exhibit to Form 8-K for
the month of June 1988 and incorporated herein by reference.
10.14 Joint Venture Agreement and Joint Operating Agreement dated
June 30, 1988 by and among HEI Oil and Gas Limited
Partnership, JOEL - Jerusalem Oil Exploration Ltd., Delek
Oil Exploration Ltd., Delek, The Israel Fuel Corporation
Ltd., the Company, Southern Shipping and Energy (U.K.),
Naphtha, Israel Petroleum Company Ltd., Oil Exploration of
Paz Ltd., LPS Israel Oil Inc., Donesco Venture Fund One, a
Limited Partnership and Mazaloil Inc. filed as an Exhibit to
Form 8-K for the month of September 1988.
10.15 Agreement (re: Negev Joint Venture No. 2 - Assignment of
Interest) dated December 9, 1988 between the Company and
Southern Shipping and Energy (U.K.), filed as an Exhibit to
Form 8-K for the month of November 1988 and incorporated
herein by reference.
10.17 Amendment No. 1 to Agreement (re: Negev Joint Venture No. 2
- Assignment of Interest) with Southern Shipping and Energy
(U.K.) dated January 12, 1989 between the Company and
Southern Shipping and Energy (U.K.), filed as an Exhibit to
Form 8-K for the month of January 1989 and incorporated
herein by reference.
10.19 Management Services Agreement dated November , 1988 and
effective as of July 1, 1988 between the Company and H.G.
Finance Ltd., filed as an Exhibit to Form 10-Q for the
Company for the quarter ending September 30, 1988 and
incorporated herein by reference.
10.20 Grant Agreement with the Government of Israel, undated,
between the Company and the Government of Israel on behalf
of the State of Israel, filed as an Exhibit to Form 10-Q for
the Company for the period ending September 30, 1988 and
incorporated herein by reference.
10.23 Translated from Hebrew, Transfer of Rights Agreement between
the Company and Isramco-Negev 2 dated March 5, 1989, filed
as an Exhibit to Form 8-K for the month of March 1989 and
incorporated herein by reference.
10.24 Translated from Hebrew, Limited Partnership Agreement
between Isramco Oil and Gas Ltd. and Isramco Management
(1988) Ltd. dated March 2, 1989, filed as an Exhibit to Form
8-K for the month of March 1989 and incorporated herein by
reference.
- 41 -
<PAGE>
10.25 Translated from Hebrew, Trust Agreement between Isramco
Management (1988) Ltd. and Kesselman and Kesselman dated
March 3, 1989, filed as an Exhibit to Form 8-K for the month
of March 1989 and incorporated herein by reference.
10.26 Translated from Hebrew, Indemnity Agreement between the
Company and Isramco Management (1988) Ltd. dated March __,
1989, filed as an Exhibit to Form 8-K for the month of March
1989 and incorporated herein by reference.
10.27 Consulting and Option Agreement dated March 17, 1989 between
the Company and M.H. Meyerson & Co., Inc., filed as an
Exhibit to Form 8-K dated March 20, 1989 and incorporated
herein by reference.
10.29 Agreement dated as of March 30, 1989 between the Company and
SSE (U.K.) and filed as an Exhibit to Form 8-K for the month
of June 1989 and incorporated herein by reference.
10.33 Negev Ashquelon/224 License, filed with Post-effective
Amendment No. 7 to Form S-1 Registration Statement and
incorporated herein by reference. File No. 2-83574.
10.34 Consulting and Option Agreement dated December 4, 1989
between the Company and Ladenburg, Thalmann & Co., Inc.,
filed as an Exhibit to Form 8-K for the month of December
1989.
10.3 Amendment No. 1 to the Negev 2 Venture Agreement made as of
August 1, 1989 and Amendment No. 2 to the Negev 2 Venture
Agreement made as of September 22, 1989 by and between the
Negev 2 Venture Participants, filed as an Exhibit to the
Post-effective Amendment No. 8 to Form S-1 Registration
Statement. File No. 2-83574.
10.37 Amendment Agreement to Grant Agreement between the Company
and the Government of Israel, filed as an Exhibit to this
Post-effective Amendment No. 8 to Form S-1 Registration
Statement. File No. 2- 83574.
10.38 Amendment to Agreement between the Company and M.H. Meyerson
& Co., Inc. made as of February 28, 1991, as filed as an
Exhibit to Form 8-K for the month of February, 1991 and
incorporated herein by reference.
10.40 Stock Option Agreement dated as of May 25, 1990 between the
Company and J. Jerome Williams, filed as an Exhibit to Form
8-K for the month of May, 1990 and incorporated herein by
reference.
- 42 -
<PAGE>
10.41 Supplement to Transfer of Rights Agreement dated July 22,
1991 between the Company and Isramco-Negev 2 Limited
Partnership filed as an Exhibit to Form 8-K of the Company,
dated August 27, 1991, and incorporated herein by reference.
10.42 Clarification Agreement dated March 3, 1992 between the
Company and JOEL - Jerusalem Oil Exploration Ltd., filed as
an Exhibit to Form 10-K for Calendar Year ended December 31,
1991 dated March 26, 1992, and incorporated herein by
reference.
10.43 Underwriting Agreement dated March 11, 1992 between
Isramco-Negev 2 Limited Partnership, Isramco Oil and Gas
Ltd., Paz Oil Exploration Limited, JOEL - Jerusalem Oil
Exploration Ltd., Isramco Management (1988) Limited, East
Mediterranean Oil and Gas Limited and the Company (executed
in Hebrew with an English translation attached), filed as an
Exhibit to Form 10-K for Calendar Year ended December 31,
1991 dated March 26, 1992, and incorporated herein by
reference.
10.44 Assignment of Rights Agreement dated March 8, 1992 between
JOEL - Jerusalem Oil Exploration Ltd., Paz Oil Exploration
Limited, the Company and Isramco-Negev 2 Limited Partnership
(executed in Hebrew with an English translation attached),
filed as an Exhibit to Form 10-K for Calendar Year ended
December 31, 1991 dated March 26, 1992, and incorporated
herein by reference.
10.45 Supplement to Assignment of Rights Agreement dated March 8,
1992 between JOEL -Jerusalem Oil Exploration Ltd., Paz Oil
Exploration Limited, the Company and Isramco-Negev 2 Limited
Partnership (executed in Hebrew with an English translation
attached), filed as an Exhibit to Form 10-K for Calendar
Year ended December 31, 1991 dated March 26, 1992, and
incorporated herein by reference.
10.46 Sole Risk Agreement #1 (NIRIM) dated as of October 1, 1991
between Isramco-Negev 2 Limited Partnership, JOEL -
Jerusalem Oil Exploration Ltd., the Company, Delek Oil
Exploration Ltd., Delek - The Israeli Fuel Corporation Ltd.,
Oil Exploration of Paz Ltd. and Naphtha Israel Petroleum
Company Ltd., filed as an Exhibit to Form 10-K for Calendar
Year ended December 31, 1991 dated March 26, 1992, and
incorporated herein by reference.
10.47 Sole Risk Notice (Nirim) dated August 30, 1991, filed as an
Exhibit to Form 10-K for Calendar Year ended December 31,
1991 dated March 26, 1992, and incorporated herein by
reference.
- 43 -
<PAGE>
10.48 Deed of Assignment for Petroleum License No. 224/Negev
Ashquelon and Petroleum License No. 227/Nirim for the
benefit of Isramco Resources Inc. filed as an Exhibit to
Form 8-K for the month of ended August 1992 and dated
September 9, 1992.
10.49 Service Letter Agreement dated June 28, 1992 between
J.O.E.L. - Jerusalem Oil Exploration Ltd. and the Company
regarding office space and services filed as an Exhibit to
Form 10-Q for the six (6) months ending June 30, 1992, dated
August 10, 1992 and incorporated herein by reference.
10.50 Cancellation of Forfeiture and Ratification Agreement and
Amendment No. 1 to Cancellation of Forfeiture and
Ratification Agreement filed as an Exhibit to Form 8-K for
the month of January 1993 dated January 21, 1993 and
incorporated herein by reference.
10.51 Option Agreement between Isramco Resources Inc. and Naphtha
Petroleum Corporation Ltd. filed as an Exhibit to Form 8-K
for the month of January 1993 dated January 21, 1993 and
incorporated herein by reference.
10.52 Option Agreement between Isramco Resources Inc. and J.O.E.L.
- Jerusalem Oil Exploration Ltd., Oil Exploration of Paz
Ltd., Isramco- Negev 2 Limited Partnership and the Company
filed as an Exhibit to Form 8-K for the month of January
1993 dated January 21, 1993 and incorporated herein by
reference.
10.53 Equalization of Rights Agreement between Isramco-Negev 2
Limited Partnership and Delek Oil Exploration Ltd. and Delek
- The Israel Fuel Corporation Ltd. filed as an Exhibit to
Form 8-K for the month of January 1993 dated January 21,
1993 and incorporated herein by reference.
10.54 Option Agreement between Isramco Resources Inc. and Delek
Oil Exploration Ltd. and Delek - The Israel Fuel Corporation
Ltd. filed as an Exhibit to Form 8-K for the month of
January 1993 dated January 21, 1993 and incorporated herein
by reference.
10.55 Letter to Isramco-Negev 2 Limited Partnership dated as of
January 6, 1993 re: Negev Ashquelon License and Negev Nirim
License filed as an Exhibit to Form 8-K for the month of
January 1993 dated January 21, 1993 and incorporated herein
by reference.
10.56 Agreement between the Company and Technion Research and
Development Foundation dated November 2, 1992 filed as an
Exhibit to Form 10-K for 1993 and incorporated herein by
reference.
- 44 -
<PAGE>
10.57 Investment Banking Agreement, filed as an Exhibit with the
S-1 Registration Statement, Filed No. 33-574482.
10.58 Consulting Agreement with Dr. Joseph Elmaleh dated June 20,
1995, filed as an Exhibit to Form 8-K for the month of July,
1995 and incorporated herein by reference.
10.59 Employment Agreement with Danny Toledano made as of the 16th
day of October, 1995, filed as an Exhibit to Form 8-K for
the month of November, 1995 and incorporated herein by
reference.
10.60 Consulting Agreement with Zenith Holdings Ltd., a company
which employs Haim Tsuff made May __, 1996, filed as an
Exhibit to Form 8-K for the month of June, 1996 and
incorporated herein by reference.
10.61 Termination Agreement between the Company and Danny Toledano
made as of the 23rd day of June, 1996, filed as an Exhibit
to Form 8-K for the month of June, 1996 and incorporated
herein by reference.
10.62 Non-Compete Agreement between the Company and Danny Toledano
made as of the 23rd day of June, 1996, filed as an Exhibit
to Form 8-K for the month of June, 1996 and incorporated
herein by reference.
10.63 Consulting Agreement between the Company and Danny Toledano
made as of the 23rd day of June, 1996, filed as an Exhibit
to Form 8-K for the month of June, 1996 and incorporated
herein by reference.
10.64 Termination Agreement between the Company and Dr. Joseph
Elmaleh dated April 16, 1996, filed as an Exhibit to Form
10-Q for the three month period ending March 31, 1996 and
incorporated herein by reference.
10.65 Consulting Agreement between the Company and Yuval Ran dated
the 1st day of August, 1996, filed as an Exhibit to Form 8-K
for the month of August, 1996 and incorporated herein by
reference.
10.66 Agreement by and among Naphtha Congo Ltd., Equital Ltd. and
the Company dated September 4, 1997, filed as an Exhibit to
Form 8-K for the month of September, 1997 and incorporated
herein by reference.
10.67 Amendment to Consulting Agreement between Goodrich Global
L.T.D. B.V.I. and the Company dated December __, 1997, filed
as an Exhibit to Form 8-K for the month of December, 1997
and incorporated herein by reference.
- 45 -
<PAGE>
10.68 Consulting Agreement between Romulas Investment Ltd. and the
Company dated August __, 1997, filed as an Exhibit to Form
8-K for the month of September, 1997 and incorporated herein
by reference, assigned by Romulas Investment Ltd. on
December 31, 1997 to Remarkable Holdings Ltd.
10.69 Settlement Agreement and Release dated March __, 1998
between Reuven Hollo, Jay Resources Corporation, Jay Natural
Resources Inc., Jay Petroleum LLC and Jay Management Company
LLC, as Claimants and the Company, NIR Resources Inc., Jay
Petroleum LLC and Jay Management Company LLC, as
Respondents, filed as an Exhibit to Form 8-K for the month
of March, 1998 and incorporated herein by reference.
10.70 Inventory Services Management Agreement dated December __,
1997 between the Company and Equital Ltd. filed herewith as
Exhibit 10.70.
10.71 Consulting Agreement dated August 20, 1997 between the
Company and JFC Enterprises, LLC filed herewith as Exhibit
10.71.
- 46 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ISRAMCO, INC.
March 30, 1998 By: /s/ Haim Tsuff
----------------------------------------
Haim Tsuff
Chairman of the Board, and
Chief Executive Officer
By: /s/ Daniel Avner
----------------------------------------
Daniel Avner
President and
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated:
/s/ Haim Tsuff Chairman of the Board, March 30, 1998
- ------------------------ Chief Executive Officer
Haim Tsuff and Director
/s/ Daniel Avner President, Principal March 30, 1998
- ------------------------ Accounting Officer
Daniel Avner and Director
/s/ Tina Maimon Arckens Director March 30, 1998
- ------------------------
Tina Maimon Arckens
/s/ Linda Canina Director March 30, 1998
- ------------------------
Linda Canina
/s/ Avihu Ginzburg Director March 30, 1998
- ------------------------
Avihu Ginzburg
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