SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Check One
|X| Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 2000
or
|_| Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 Commission file number 0-12500
ISRAMCO, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 13-3145265
(State or other Jurisdiction of I.R.S. Employer Number
Incorporation or Organization)
1770 St. James Place, Suite 607 Houston, TX 77056
(Address of Principal Executive Offices)
713-621-3882
(Issuer's Telephone Number, Including Area Code)
Indicate by check whether the registrant: (1) filed all reports required
to be filed by Section 13 or 15(d) of the 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 |_|
The number of shares of the registrant's Common Stock outstanding as of
May 15, 2000 was 2,639,809.
<PAGE>
2
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements
Notes to Consolidated Financial Statements
Item 2. Management's discussion and analysis of financial statements
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon senior securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule
Signatures
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3
ISRAMCO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except for share information)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 2000 1999
-------- --------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 18,268 $ 15,314
Marketable securities, at market 2,316 2,692
Accounts receivable 335 381
Prepaid expenses and other current assets 330 1,222
-------- --------
Total current assets 21,249 19,609
PROPERTY AND EQUIPMENT, (successful efforts
method for oil and gas properties), net 4,929 4,965
OTHER ASSETS:
Marketable securities, at Market 3,595 3,113
Investment in affiliate 2,858 2,925
Covenants not to compete, less accumulated amortization
of $400 at March 31, 2000 and $410
at December 31, 1999 respectively 50 60
Deferred tax asset -- 85
Other 6 7
-------- --------
Total assets $ 32,687 $ 30,764
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,311 $ 1,404
Accounts payable and accrued expenses 2,932 1,362
Advance payment received -- 1,701
-------- --------
Total current liabilities 4,243 4,467
-------- --------
Deferred tax liability 398 --
-------- --------
COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
SHAREHOLDERS' EQUITY:
Common stock $.0l par value; 75,000,000 shares
authorized, 2,669,120 shares issued and outstanding
at March 31,2000 and at December 31, 1999 27 27
Additional paid-in capital 26,168 26,168
Accumulated surplus (deficit) 627 (1,122)
Accumulated other comprehensive income - unrealized
gain on marketable securities, net of taxes 1,388 1,388
Treasury stock, 29,267 shares at March 31,2000 and
at December 31, 1999 (164) (164)
-------- --------
Total shareholders' equity 28,046 26,297
-------- --------
Total liabilities and shareholders' equity 32,687 30,764
======== ========
</TABLE>
See notes to the consolidated financial statements.
-1-
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4
ISRAMCO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except for share information)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------
2000 1999
--------- ---------
<S> <C> <C>
REVENUES:
Operator fees from related party 90 108
Oil and gas sales 394 328
Interest income 401 328
Office services to related party 219 137
Reimbursement of exploration costs -- 48
Gain on marketable securities 74 39
Gain on BG transaction 3,626 --
--------- ---------
Total revenues 4,804 988
--------- ---------
COSTS AND EXPENSES:
Interest expense 38 39
Depreciation, depletion and amortization 89 190
Lease operating expenses and severance taxes 121 86
Exploration costs 16 --
Operator expense 139 104
General and administrative 285 220
Equity in net loss of investees 67 --
--------- ---------
Total costs and expenses 755 639
--------- ---------
Income before income taxes and minority interest 4,049 349
Income taxes 2,300 45
--------- ---------
Net income $1,749 $304
========= =========
Earnings per common share-basic $0.66 $0.12
========= =========
Earnings per common share-diluted $0.66 $0.12
========= =========
Weighted average number of shares outstanding-basic 2,639,853 2,639,853
========= =========
Weighted average number of shares outstanding-diluted 2,653,439 2,639,853
========= =========
</TABLE>
See notes to the consolidated financial statements.
-2-
<PAGE>
5
ISRAMCO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,749 $ 304
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 89 190
Gain on marketable securities (74) (39)
Gain on BG transaction (3,626) --
Equity in net loss of investee 67 --
Changes in assets and liabilities
Accounts receivable 46 (262)
Prepaid expenses and other current assets 892 (106)
Other assets -- 3
Accounts payable and accrued expenses 1,570 (26)
-------- --------
Net cash provided by operating activities 713 64
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Addition to property and equipment (42) (60)
Investment in affiliate -- (149)
Purchase of remaining interests of
Jay Management, LLC -- (60)
Purchase of marketable securities (334) (194)
Proceeds from sale of marketable securities 785 682
Proceeds from BG transaction 1,925 --
-------- --------
Net cash provided by investing activities 2,334 219
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (93) (93)
-------- --------
Net increase in cash and cash equivalents 2,954 190
Cash and cash equivalents - beginning of year 15,314 14,240
-------- --------
Cash and cash equivalents - end of period $ 18,268 $ 14,430
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 38 $ 39
-------- --------
</TABLE>
See notes to the consolidated financial statements.
-3-
<PAGE>
6
NOTES TO CONSOLIDATED 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 consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. 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 month period ended March 31, 2000, are not necessarily indicative of the
results that may be expected for the year ended December 31, 2000. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999.
NOTE 3 - 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 Resources Inc., a British Virgin Islands company, its wholly
owned subsidiary, Jay Petroleum, L.L.C., (Jay) and a wholly-owned foreign
subsidiary. Intercompany balances and transactions have been eliminated in
consolidation.
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 three months of 2000.
NOTE 5 - Long-term Debt
As of March 31, 2000, Jay had outstanding indebtedness of $1,311,000 under a
bank loan facility of $10 million from Comerica Bank-Texas (the "Comerica
Loan"). On May 2000, the principal on the Comerica Loan, as well as accrued
interest, was re-paid in full. The interest rate on the Comerica Loan was prime
plus 1.5%.
Note 6 - Earnings Per Share Computation
SFAS No. 128 requires a reconciliation of the numerator (income) and denominator
(shares) of the basic earnings per share ("EPS") computation to the numerator
and denominator of the diluted EPS computation. In the three-month period ended
March 31, 1999, there were no potential dilutive common shares. The Company's
reconciliation is as follows:
For the Three Months Ended March 31,
------------------------------------
2000 1999
---------------------- --------------------
Income Shares Income Shares
---------- --------- -------- ---------
Earnings per common share-Basic $1,749,000 2,639,853 $304,000 2,639,853
Effect of dilutive securities:
Stock Options -- 13,586 -- --
---------- --------- -------- ---------
$1,749,000 2,653,439 $304,000 2,639,853
========== ========= ======== =========
NOTE 7 - New Pronouncements
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, was
issued by the FASB in June 1998. SFAS No. 133, as amended by SFAS No. 137,
standardizes the accounting for and disclosures of derivative instruments,
including certain derivative instruments embedded in other contracts. SFAS No.
133 is effective for periods beginning after June 15, 2000. The Company is in
the process of determining the impact, if any, this statement will have on its
consolidated financial statements.
<PAGE>
7
NOTE 8 - Geographical Segment Information
The Company's operations involve a single industry segment--the exploration,
development, production and transportation of oil and natural gas. Its current
oil and gas activities are concentrated in the United States, Israel, and the
Republic of Congo, Africa. 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, and production 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 (in thousands):
Geographic Segment
<TABLE>
<CAPTION>
United Consolidated
States Israel Africa Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Identifiable assets at March 31, 2000 $ 2,108 $ 121 $ 2,700 $ 4,929
Cash and corporate assets $ 27,758
--------
Total Assets at March 31, 2000 $ 32,687
========
Identifiable assets at December 31, 1999 $ 2,175 $ 90 $ 2,700 $ 4,965
Cash and corporate assets $ 25,799
--------
Total assets at December 31, 1999 $ 30,764
========
Three Months Ended March 31, 2000
Sales and other operating revenue $ 420 $ 283 $ -- $ 703
Costs and operating expenses $ (204) $ (161) $ -- $ (365)
-------- -------- -------- --------
Operating profit $ 216 $ 122 $ -- $ 338
======== ======== ========
Interest Income, gain on marketable
securities, gain on BG transaction
and other corporate revenues $ 4,034
General corporate expenses $ (285)
Interest expense $ (38)
Income taxes $ (2,300)
--------
Net Income $ 1,749
========
</TABLE>
<PAGE>
8
<TABLE>
<CAPTION>
United Consolidated
States Israel Africa Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Three Months Ended March 31, 1999
Sales and other operating revenue $ 345 $ 276 $ -- $ 621
Costs and operating expenses $ (274) $ (106) $ -- $ (380)
-------- -------- -------- --------
Operating profit $ 71 $ 170 $ -- $ 241
======== ======== ========
Interest Income $ 328
General corporate expenses $ (220)
Interest expense, loss on marketable securities and other $ --
Income taxes $ (45)
--------
Net Income $ 304
========
</TABLE>
NOTE 9 - Marketable securities
At March 31, 2000 and December 31, 1999, the Company had net unrealized gains on
trading securities of $60,000 and $8,000, respectively. The change in the net
unrealized holding gains or losses included in earnings is a gain of $52,000 for
the three months ended March 31, 2000.
Trading securities, which are primarily traded on the Tel-Aviv Stock Exchange,
consists of the following:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
Cost Market Value Cost Market Value
---- ------------ ---- ------------
<S> <C> <C> <C> <C>
Debentures and
Convertible Debentures $1,563,000 $1,567,000 $2,012,000 $1,968,000
Equity securities $ 693,000 $ 749,000 $ 517,000 $ 569,000
Investment Trust Fund $ -- $ -- $ 155,000 $ 155,000
---------- ---------- ---------- ----------
$2,256,000 $2,316,000 $2,684,000 $2,692,000
========== ========== ========== ==========
</TABLE>
Available-for-sale securities, which are primarily traded on the Tel-Aviv Stock
Exchange, consist of equity securities, with amortized cost of $1,725,000, gross
unrealized holding gains of $1,870,000 and a fair market value of $3,595,000 at
March 31, 2000.
Sales of marketable securities resulted in realized gains of $22,000 for the
three months ended March 31, 2000.
<PAGE>
9
NOTE 10
The Company's comprehensive income for the three months ended March 31, 2000 and
1999 was as follows:
Three months ended March 31,
----------------------------
2000 1999
---------- ----------
Net Income $1,749,000 $ 304,000
Other comprehensive gain (loss)
- available-for-sale securities $ -- $ (125,000)
---------- ----------
Comprehensive income $1,749,000 $ 179,000
========== ==========
NOTE 11 - BG Transaction
During the three months ended March 31, 2000, the Company completed its
transaction with BG International Limited, a member of the British Gas Group,
("BG") which included the sale of participation interests in certain licences to
BG and BG's replacement of the Company as operator of the Med Yavne license. As
a result of the transaction, the Company recognized a net gain of appproximately
$3,626,000 during the three months ended March 31, 2000.
ITEM 2. 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
$2,954,000 from $15,314,000 at December 31, 1999 to $18,268,000 at March 31,
2000 is primarily attributable to operating activities and proceeds received
from the BG transaction.
Net cash flow provided by investing activities for the three months period
ended March 31, 2000 was $2,334,000 compared to $219,000 for the three months
period ended March 31, 1999. The increase is primarily due to proceeds received
for the BG transaction.
As of March 31, 2000, Jay had outstanding indebtedness of $1,311,000 under
a bank loan facility of $10 million from Comerica Bank-Texas (the "Comerica
Loan"). On May 2000, the principal on the Comerica Loan, as well as accrued
interest, was re-paid in full. The interest rate on the Comerica Loan was prime
plus 1.5%.
The Company believes that existing cash balances and cash flows from
activities will be sufficient to meet its financing needs. The Company intends
to finance its ongoing oil and gas exploration activities from working capital.
Results of Operations
<PAGE>
10
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999:
The Company reported net income of $1,749,000 ($1.04 per share) in the
three month ended on March 31, 2000 compared to a net income of $304,000 ($0.12
per share) for the same period in 1999. The net income for the 2000 period
compared to the income for the same period in 1999 is primarily attributable to
transactions with BG International Limited, a member of the British Gas Group,
("BG") providing for BG's replacement of the Company as operator of the Med
Yavne license.
Set forth below is a break-down of these results.
United States
Oil and Gas Revenues (in thousands)
Three Months Ended March 31,
2000 1999
---- ----
Oil Volume Sold (Barrels) 7 6
Gas Volume Sold (MMCF) 93 139
Oil Sales ($) 174 68
Gas Sales ($) 220 260
Average Unit Price
Oil ($/Bbl) * 24.85 11.33
Gas ($/MMCF) ** 2.37 1.87
* Bbl - Stock Market Barrel Equivalent to 42 U.S. Gallons
** MMCF - 1,000 Cubic Feet
Israel
The Negev Med License
In May 2000, the license participants approved a budget for the year 2000
for approximately $3.4 million, which amount includes payment for a 3D seismic
survey (that was conducted ) and its processing and interpretation, as well as
other actions relating to the license. Additionally, the partners approved the
operator's application to the petroleum commissioner respecting the grant of a
lease within the area covered by the Med Yavne License (that includes, amongst
others, the "Or 1" and the "Or South" structures, in which gas was found).
Med Ashdod
In April 2000, the Company, as operator of the Med Ashdod License
announced that a contract was signed with a drilling contractor to have the
drilling rig "Atwood Southern Cross" commence drilling during June 2000 within
the area covered by the "Yam Ashdod" Carveout. The operator advised the license
participants that prior to the commencement of the drilling, it will undertake
efforts to improve the quality of the seismic data respecting the number of
potential drilling sites, and that only following (and subject to) the results
of the data, it will decide whether to recommend that such drilling be
commenced. The license is scheduled to expire on June 14, 2000, except that in
the case a well is spuded before such date and discovery is made, the license
participants will be able to extend the scheduled license expiration date.
Offshore Preliminary Permit (Marine North)
In April 2000, the participants approved an AFE in the amount of
$1,167,000 to perform a 3D seismic survey, its processing and interpretation.
The survey was completed in May 2000 and the data is being processed.
Offshore Preliminary Permit (Marine Center)
In April 2000, the participants approved an AFE in the amount of $776,000
to perform a 3D seismic survey, its processing and interpretation. The survey
was completed in May 2000 and the data is being processed.
Operator's Fees
During the three months ended March 31, 2000, the Company earned $90,000
in operator fees, compared to $108,000 in respect of the same period in 1999.
Oil and Gas Revenues
For the three months ended March 31, 2000, the Company had oil and gas
revenues of $394,000 compared to $328,000 for the same period in 1999.
Lease Operating Expenses and Severance Taxes
<PAGE>
11
Lease operating expenses and severance taxes were primarily in connection
with oil and gas fields in the United States. Oil and gas lease operating
expenses and severance taxes for the three months ended on March 31, 2000, were
$121,000 compared to $86,000 for the same period in 1999.
Interest Income
Interest income during the three months ended March 31, 2000 was $401,000
compared to $328,000 for the same period in 1999.
Gain on Marketable Securities
During the three months ended March 31, 2000, the Company recognized net
realized and unrealized gains on trading securities of $74,000 compared to
net realized and unrealized gains of $39,000 for the same period in 1999.
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
There was no material change in operator costs for the three months ended
March 31, 2000 compared to the same period in 1999.
General and Administrative Expenses
General and administrative expenses for the three months period ended on
March 31, 2000 was $285,000 compared to $220,000 for the same period in 1999.
The increase was primarily due to increased staffing.
Year 2000 Issue
The Year 2000 Issue ("Y2K") is a general term used to describe the various
problems that may arise as a 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 data-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. The Y2K software compliance issues
affect the Company and most companies in the world.
To address this issue, the Company conducted a review of its operations to
identify those systems that could have been affected by the Y2K issues. The
review covered information systems, mainframe and personal computers, and the
Company's delivery systems. The Company's information systems include
administrative and financial applications, such as order processing and
collection. In addition, the Company also considered various alternatives and
developed contingency plans, including alternative source of supply, customer
communication, plant, and business response plans, and performance of certain
functions manually that had been performed manually before the applicable
computer system was in use.
The Company did not encounter any critical financial and administrative
system failures during the date rollover to the Year 2000, and has not
experienced any disruptions of
<PAGE>
12
business activities as a result of Year 2000 failures encountered by third
parties (customers, suppliers, and service providers). To date, the Company has
not incurred, and does not expect to incur any material expenditures in
connection with identifying, assessing, or remediating Y2K compliance issues.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Market risks relating to changes in interest rates and foreign currency
exchanges rates were reported in Item 7A of the Company's Annual Report on Form
10-K for the year ended December 31, 1999. There has been no material change in
these market risks since the end of the fiscal year 1999.
PART II
Item 1. Legal Proceedings
Not Applicable
Item 2. Change in Securities & Use of Proceeds
Set forth below is certain information concerning sales by the Company of
unregistered securities during the first quarter of 2000. The issuances by the
Company of the securities sold in the transactions referenced below were not
registered under the Securities Act of 1933, pursuant to the exemption
contemplated by Section 4(2) thereof for transactions not involving a public
offering.
On March 25, 2000, the Company issued to each of Haim Tsuff, Chairman of
the Board of Directors and Chief Executive Officer and Jackob Maimon, President
of the Company, 5 year option to purchase up to 69,995 shares of the Company's
Common Stock Par value $0.001 each, at an exercise price per share of $4.28.
Item 3. Default Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on 8-K
a) Reports on From 8-K for the three month period ended Mach 31, 2000
None
b) Exhibit 27 -- Financial Data Schedule
<PAGE>
13
SIGNATURES
In accordance with 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, thereunto duly authorized.
ISRAMCO, INC.
Registrant
Date: May 23, 2000 By /s/ Haim Tsuff
Chairman of the Board,
Chief Executive Officer
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 12,268
<SECURITIES> 5,911
<RECEIVABLES> 335
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,249
<PP&E> 7,031
<DEPRECIATION> 2,102
<TOTAL-ASSETS> 32,687
<CURRENT-LIABILITIES> 4,243
<BONDS> 0
0
0
<COMMON> 27
<OTHER-SE> 28,019
<TOTAL-LIABILITY-AND-EQUITY> 32,687
<SALES> 394
<TOTAL-REVENUES> 4804
<CGS> 121
<TOTAL-COSTS> 650
<OTHER-EXPENSES> 105
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38
<INCOME-PRETAX> 4,049
<INCOME-TAX> 2,300
<INCOME-CONTINUING> 1,749
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,749
<EPS-BASIC> 0.66
<EPS-DILUTED> 0.66
</TABLE>
