SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For nine months ended September 30, 1998 Commission File No. 0-12500
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ISRAMCO INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3145265
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(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
1770 St. James Place, Suite 607 Houston, TX 77056
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 713-621-3882
575 Madison Avenue, Suite 1006, New York, New York 10022
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(Former name, former address and formal fiscal year
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
registrant was required to such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
<PAGE>
ISRAMCO INC.
INDEX
PAGE NO.
--------
Part I. Financial Information
Item 1. Financial statements
Condensed Consolidated balance sheets: 1
- September 30, 1998 (unaudited)
- December 31, 1997
Condensed Consolidated statements of operations:
- Three months ended September 30, 1998 and 1997 (unaudited) 2
- Nine months ended September 30, 1998 and 1997 (unaudited)
Condensed Consolidated statements of cash flows:
- Nine months ended September 30, 1998 and 1997 (unaudited) 3
Notes to condensed consolidated financial statements 4-5
Item 2. Management's discussion and analysis of financial statements 5-9
Part II. Other information
Signatures 10
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<TABLE>
<CAPTION>
ISRAMCO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
ASSETS 1998 1997
---- ----
(Unaudited)
Current assets
<S> <C> <C>
Cash including cash equivalents $ 13,529 $ 9,741
Certificate of deposit -0- 1,900
Accounts receivable 437 446
Marketable securities, at market 4,626 7,113
Prepaid expenses and other 507 353
-------- --------
Total current assets $ 19,099 $ 19,553
Oil and gas properties, net 6,441 6,769
Equipment, net 96 121
Covenants not to compete, net 155 252
Other assets 79 88
-------- --------
TOTAL ASSETS $ 25,870 $ 26,783
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 433 $ 485
Current portion of tong-term debt 539 781
-------- --------
Total current liabilities $ 972 $ 1,266
Long-term debt 2,333 2,446
Minority interest 61 156
Shareholders' equity:
Common stock $.0l par value authorized
75,000,000 shares: issued 2,669,076 27 27
Additional paid-in-capital 26,168 26,168
Accumulated deficit (3,527) (3,116)
Treasury stock; 29,267 shares (164) (164)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 22,504 22,915
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 25,870 $ 26,783
======== ========
See notes to the condensed consolidated financial statements
-1-
</TABLE>
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<TABLE>
<CAPTION>
ISRAMCO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts) (unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C>
Oil and gas sales $ 378 $ 537 $ 1,258 $ 1,577
Operator fees from related party 232 108 630 324
Interest income 129 264 422 804
Gain (loss) on marketable securities (352) 168 (755) (68)
Office services to affiliates and other 169 145 468 401
Reimbursement of exploration costs 54 -0- 152 -0-
Equity earnings of Jay Management 1 -0- 16 -0-
Gain from sale of oil and gas
properties and equipment 129 -0- 139 -0-
------- ------- ------- -------
Total revenue 740 1,222 2,330 3,038
------- ------- ------- -------
Expenses:
Interest expense 108 94 261 254
Depreciation, depletion and amortization 190 91 551 397
Lease operating expenses 175 241 672 619
Operator costs 67 78 320 408
General and administrative - in part to
related parties 183 522 863 1,190
Explorations costs 19 -0- 71 -0-
------- ------- ------- -------
Total expenses 742 1,026 2,738 2,868
------- ------- ------- -------
Income (loss) before taxes and minority interest (2) 196 (408) 170
Provision (benefit) for income taxes 14 -0- 14 -0-
------- ------- ------- -------
Income (loss) from operations before minority interest (16) 196 (422) 170
Minority interest (4) 15 11 (15)
------- ------- ------- -------
NET INCOME (LOSS) $ (20) $ 211 $ (411) $ 155
======= ======= ======= =======
Earnings (loss) per share - basic and diluted $ (0.01) $ 0.08 $ (0.16) $ 0.06
======= ======= ======= =======
Weighted average number of shares 2,640 2,640 2,640 2,640
======= ======= ======= =======
See notes to the condensed consolidated financial statements
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</TABLE>
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<TABLE>
<CAPTION>
ISRAMCO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (unaudited)
Nine Months Ended September 30,
-------------------------------
1998 1997
---- ----
Cash flow from operating activities:
<S> <C> <C>
Net income (loss) $ (411) $ 155
Adjustment to reconcile net income (loss) to net
Cash (used in) operating activities
Depreciation, depletion and amortization 551 397
Minority interest (11) 15
Loss on marketable securities 973 68
Gain on sale of property and equipment (139) (3)
Changes in assets and liabilities
Accounts receivable 336 (87)
Prepaid expenses and other current assets (204) (53)
Other assets (2) 247
Accounts payable and accrued expenses (482) 61
Purchase of marketable securities (1,886) (5,261)
Proceeds from sale of marketable securities 3,400 2,637
Certificate of deposit 1,900 -0-
-------- --------
Net cash provided by (used in) operating activities 4,025 (1,824)
-------- --------
Cash flows from investing activities:
Addition to oil and gas properties (37) (5,477)
Purchase of equipment (16) (72)
Proceeds from sale of equipment and oil and gas properties 240 6
Purchase of remaining ownership of Jay Petroleum, LLC
and additional interest in Jay Management, LLC,
net of cash acquired (69) (1,036)
Others -0- 27
-------- --------
Net cash used provided by (used in) investing activities 118 (6,552)
-------- --------
Cash flows from financing activities:
Proceeds from long term debt 136 2,590
Principal payments on long term debt (491) (41)
-------- --------
Net cash provided by (used in) financing activities (355) 2,549
-------- --------
NET INCREASE (DECREASE ) IN CASH AND CASH EQUIVALENTS 3,788 (5,827)
Cash and cash equivalents, beginning of period 9,741 15,999
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,529 $ 10,172
======== ========
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 261 $ 254
======== ========
See notes to the condensed consolidated financial statements.
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</TABLE>
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1:
- -------
As used in these financial statements, the term "Company" refers to Isramco,
Inc. and subsidiaries.
NOTE 2:
- -------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of Management, all adjustments (consisting of only normal recurring adjustments)
considered necessary for a fair presentation have been included. Results for the
three and nine month periods ended September 30, 1998 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1998. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1997.
NOTE 3 - Consolidation:
- -----------------------
The consolidated financial statements include the accounts of the Company, its
direct and indirect wholly owned subsidiaries, Isramco Oil & Gas Ltd. ("Oil &
Gas") an Israeli company, Isramco Resources Inc., a British Virgin Islands
company, Jay Petroleum LLC ("Jay"), its majority owned subsidiary Jay Management
Company LLC, Isramco B.V. and an immaterial foreign wholly owned subsidiary. All
intercompany balances and transactions have been eliminated. Another wholly
owned subsidiary of the Company, Isramco Management (1988) Ltd., an Israeli
company, is not included in the consolidation because the Company has no voting
rights. This entity serves as the nominee for the unit holders of a limited
partnership and has no significant assets or operations.
NOTE 4 - Acquisition of Oil and Gas Properties:
- -----------------------------------------------
Although the Company continues to seek to acquire oil and gas properties, no
such purchases were made in the first nine months of 1998.
NOTE 5 - Long-term Debt:
- ------------------------
At September 30, 1998, Jay has outstanding indebtedness of $2,872,000 under a
bank loan facility of $10 million. The loan bears interest at prime plus 1%
(9.5% at September 30, 1998) with monthly payments of $45,000 plus interest and
matures in February 2000. The loan is collateralized by oil and gas properties
and cannot exceed the "Borrowing Base", as defined, which is subject to annual
determination. Isramco Inc. is not a borrower or guarantor under this bank
financing.
NOTE 6 - Jay Petroleum, L.L.C.:
- -------------------------------
In April, 1998, Isramco Inc., as part of its settlement of a lawsuit with Jay
Resources, acquired Jay Resource's remaining interest in Jay Petroleum, L.L.C.
and Jay Management, L.L.C. for $323,000.
-4-
<PAGE>
NOTE 7 - Reverse stock split:
- -----------------------------
The Company declared a one for ten reverse stock split during 1998. The effect
of this reverse stock split has been reflected in all share and per share
amounts in the accompanying financial statements.
NOTE 8 - Marketable securities:
- -------------------------------
In September the company purchased 14,999,000 units (approximately- 9.7%) of
Hanal Yam-Hamelach Limited Partnership for $ 265,000. I.O.C. - The Israeli Oil
Company Ltd. (fully owned subsidiary of Naphtha Israel Petroleum Corporation
Ltd.) is the general manager of the Limited Partnership.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Statements in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and elsewhere in this document as well as statements
made in press releases and oral statements that may be made by the Company or by
officers, directors or employees of the Company acting on the Company's behalf
that are not statements of historical or current fact constitute "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements involve known and unknown
factors that could cause the actual results of the Company to be materially
different from the historical results or from any future results expressed or
implied by such forward looking statements.
Liquidity and Capital Resources
- -------------------------------
The increase in the Company's consolidated cash and cash equivalents of
$3,788,000 from $9,741,000 at December 31, 1997 to $13,529,000 at September 30,
1998 is the result of net cash receipts of $4,025,000 from operating activities,
$355,000 net cash outflows from payment of the long term debt to Comerica bank
by Jay Petroleum and $118,000 cash from investment in the Company's oil and gas
properties and acquisition of equipment and the acquisition of the remaining
ownership interests in Jay Petroleum, LLC and additional interest in Jay
Management, LLC.
In the nine month period ended September 30, 1998 the Company had net cash
inflow from purchase and sale of marketable securities of $1,514,000 as compared
to a net cash outflow from purchase and sale of marketable securities of
$2,624,000 in the nine months ended September 30, 1997. As of September 30, 1998
the Company owned 5.5% of the issued shares of J.O.E.L. - Jerusalem Oil
Exploration Ltd. ("JOEL"), the controlling shareholder of Naphtha Israel
Petroleum Company Ltd. ("Naphtha"). Naphtha through a wholly owned subsidiary
holds approximately 55% of the Company's outstanding common stock (assuming the
exercise of all Class A & B Warrants held by Naphtha). Shares of JOEL and
Naphtha are traded on the Tel Aviv Stock Market.
The Company believes that it has sufficient funds to fulfill its present capital
requirements.
-5-
<PAGE>
Results of Operations
---------------------
United States
- -------------
Oil and Gas Revenues (in thousands)
Three Months ended Nine Months ended
September 30 September 30
--------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
Oil Volume Sold (Barrels)
Total 9 11 23 29
Gas Volume Sold (MCF)
Total 201 213 491 525
Oil Sales ($)
Total 99 206 326 579
Gas Sales ($)
Total 279 331 932 998
Average Unit Price
Oil ($/Bbl) * $10.53 $18.49 $13.13 $19.66
Gas ($/MCF) ** $1.76 $1.56 $1.87 $1.90
* Bbl - Stock Market Barrel Equivalent to 42 U.S. Gallons
** MCF - 1,000 Cubic Feet
On August 27, 1998, Jay Petroleum sold 100% working interest in 25 wells
located in Jack & Clay Counties Texas, in a sum of $220,000. The effective
date of this sale was August 1, 1998.
During October 1998, Jay Petroleum sold:
a. 100% working Interest in 5 wells located in Beckham County, Oklahoma
in a sum of $195,200. The effective date of this sale was October 1.
b. 81.3% working interest in one gas well located in Devil field,
Jefferson County, Texas. The amount received is $1,000,000, and an
overriding royalty interest of 2.02% on 320 acre gas unit which
includes the production of the gas well. The effective date of this
sale was July 1, 1998.
The impact of the August and October sales is a monthly reduction of about
22,000 MCF of gas and 90 Barrels of oil, and a reduction in cash flow of
approximately $16,000 per month.
As a result of the above October sales, the company paid down its debt with
Comerica Bank in October by the amount of $1,000,000, and reduced the
monthly loan payment from $45,000 to $31,200.
-6-
<PAGE>
Israel
- ------
The Med Licenses Venture
- ------------------------
During the nine month period ended September 30, 1998 the Med Venture expended
$157,000. The Company's share was $1,600.
Several meetings were held with the representatives of the Ministry of Defense
and the Petroleum Commissioner, to discuss a possible solution to the
restrictive conditions of the licenses so as to enable the Company to carry out
prospective drillings within the licenses area. Inspite of all efforts, no
solution has yet been found. Due to the restrictive conditions in the licenses,
the company has requested that the period from June 1996 until now be excluded
from the period of the licenses, so that the period of the licenses, which
expire in June 2000, will be effectively extended.
Yam Ashdod Carveout Venture (within the Med Ashdod License)
- -----------------------------------------------------------
During the nine month period ended September 30, 1998 the Yam Ashdod Carveout
Venture expended $174,000. The Company's share was $1750. Standard processing of
the seismic data that was acquired in connection with Yam Ashdod Carveout was
completed. Interpretation is currently in final stages. The preliminary results
of the interpretation indicate the existence of a drillable prospect in the
southern past of the Carveout (Yam Nizanim prospect). The Company has evaluated
different drilling companies concerning their availability to supply an offshore
drilling unit in order to explore the possibility of drilling of the Yam- 3
well, subject to the approval of Ministry of Defense, or the Yam Nizanim well
during the year of 1999. The Company has received positive responses from
several drilling companies that are willing and capable to drill the above
wells.
If the Company reaches an agreement with the Ministry of Defense, the Company
shall give priority to the drilling of the Yam - 3 well or possibly deepening
and re-testing of the Yam - 2 well. If no such agreement is reached, the Company
shall consider drilling the Nizanim well.
Shederot License
- ----------------
The Gevim 1 well was spudded in January 1998 within the license area. The well
was planned to reach a total depth of 14,765 feet at a A.F.E. of $6.3 million
(including production tests). The Company share is 1.0043%.
On May 1998 the drilling was completed at a total depth of 15,157 feet. After
analysis of the electric logs, the partners in the well decided to conduct
production tests at depths between 14,895 and 15,014 feet at a total A.F.E. of
approximately $1.1 million.
On August 11th the production test has been completed. During the test salt
water and small and noncommercial quantities of gas were indicated. Upon
reviewing test results, it was been decided to finish the test and plug and
abandon the well. Total well expenditures (including tests) are about $6.7
million US Dollars. Isramco Inc.'s share was about $67,000. From this sum
$21,000 was included in the Statements of Operation for the three months ended
September 30 1998.
-7-
<PAGE>
Congo
- -----
The Operator, Naphtha Congo, has submitted to the Congolese Ministry of
Petroleum a work program for the development of the Tilapia and Marine 3
concessions. A Management Committee meeting between Naphtha Congo and the
Congolese Ministry of Petroleum scheduled for July 1998 was postponed. On August
26, 1998 the Minister of Petroleum of Congo informed the company that according
to the Decree submitted to the company and signed by the President, Prime
Minister, Minister of Petroleum and Minister of Finance, the permits will become
effective from the date of publishing the production sharing contracts as a law,
and that the Management Committee meeting can only be held after the completion
the formality of these process. Therefor, until the publishing of the law , the
company cannot go forward with the work program.
The two permits are included in oil and gas properties in the balance sheet at a
sum of $2.7 million. Management believes that the permits are not impaired at
September 30, 1998.
Operator's Fees
- ---------------
In the nine month periods ended September 30, 1998 and 1997, the Company earned
$630,000 and $324,000, respectively. In the three month periods ended September
30, 1998 and 1997, the Company earned $232,000 and $108,000, respectively.
Operator's Fees were based on the minimum monthly compensation for each period,
and 6% of the total expenditure of Gevim 1 well.
Oil and Gas Revenues
- --------------------
In the nine month periods ended September 30, 1998 and 1997 the Company had oil
and gas revenues of $1,258,000 and $1,577,000, respectively. In the three month
periods ended September 30, 1998 and 1997 the Company had oil and gas revenues
of $378,000 and $537,000, respectively. The decrease is due mainly to the drop
of 34%-43% in oil prices.
Lease Operating Expenses
- ------------------------
In the nine month periods ended September 30, 1998 and 1997, lease operating
expenses were mainly in connection with oil and gas fields in the United States.
Oil and gas lease operating expenses in the nine month periods ended September
30, 1998 and 1997 were $672,000 and $619,000, respectively. The increase in
lease operating expenses is due mainly to workover expenses on several wells in
the second quarter which totaled $77,000. Lease operating expenses in the three
month periods ended September 30, 1998 and 1997 were $175,000 and $241,000,
respectively .Due to the recent sales of oil and gas properties, the company
anticipates reduction of lease operating expenses.
-8-
<PAGE>
Interest Income
- ---------------
Interest income decreased in the nine month period and in the three month period
ended September 30, 1998 compared to interest income in the nine month period
ended September 30, 1997 mainly due to lower average interest earning investment
balances and to devaluation of the Israeli currency toward the American Dollar.
Loss on Marketable Securities
- -----------------------------
In the nine month period ended September 30, 1998 the Company had a net realized
and unrealized loss of $755,000 compared to a loss of $68,000 in the same period
in 1997. In the three month period ended September 30, 1998 the Company had a
net realized and unrealized loss of $352,000 compared to a gain of $168,000 in
the same period in 1997.
Increases or decreases in the gains and losses from marketable securities are
dependent on the market prices in general and the composition of the portfolio
of the Company.
Operator Costs
- --------------
Operator's costs decreased in the three and nine month periods ended September
30, 1998 as compared to the three and nine month periods ended September 30,
1997, primarily as a result of lower manpower costs and reduced rent payments
for the Company's offices in Israel.
General and Administrative Expenses
- -----------------------------------
The decrease in general and administrative expenses during the three month
period and the nine month period ended September 30, 1998 compared to the same
periods in 1997 was mainly due to a decrease in consulting fees and salaries.
General and administrative expenses in the nine month period ended September 30,
1998 include approximately $190,000 of legal expenses related to the settlement
with Mr. Reuven Hollo, Jay Resources Inc. and Jay Natural Resources
Minority Interest
- -----------------
Minority interest for the three and nine month periods ended September 30, 1998
represents the minority share (35%) of Jay Management, L.L.C.'s net income.
-9-
<PAGE>
ISRAMCO INC.
PART II. OTHER INFORMATION
Item 5. Other Information
-----------------
The Company at its Annual Meeting of Shareholders approved a proposal to
effect a 1 for 10 reverse split of its Common Shares. As a result of the Reverse
Stock Split, the Common Shares underlying Class A and Class B Warrants were also
reduced in number by a ratio of 10 to 1.
Item 6. Reports on Form 8-K
-------------------
Form 8-K for the month of July, 1998 dated July 15, 1998;
Form 8-K for the month of August, 1998 dated August 12, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ISRAMCO, INC.
-----------------------------------
(Registrant)
Date: November 13, 1998
By: /s/ Haim Tsuff
-------------------------------------
(Signature)
Haim Tsuff
Chairman of the Board
Chief Executive Officer
And Chief Financial Officer
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 13521
<SECURITIES> 4626
<RECEIVABLES> 437
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19099
<PP&E> 7718
<DEPRECIATION> 1314
<TOTAL-ASSETS> 25870
<CURRENT-LIABILITIES> 972
<BONDS> 0
0
0
<COMMON> 27
<OTHER-SE> 22477
<TOTAL-LIABILITY-AND-EQUITY> 25070
<SALES> 1258
<TOTAL-REVENUES> 2330
<CGS> 0
<TOTAL-COSTS> 2230
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 261
<INCOME-PRETAX> (397)<F1>
<INCOME-TAX> 14
<INCOME-CONTINUING> (411)<F2>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (411)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
<FN>
<F1> Includes minority interest of 11
<F2> Includes minority interest and provision for income taxes
</FN>
</TABLE>
