SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
             -------------------------------------------------------

                                    FORM 10-K
                                  ANNUAL REPORT
                       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, 1996

Commission File Number 2-83574

                                  ISRAMCO, INC.
                                  -------------
                                  (Registrant)

             Delaware                                   13-3145265
     ---------------------------                    ------------------
    (State of other jurisdiction                     (I.R.S. Employer
        of incorporation)                           Identification No.)

              575 Madison Avenue, Suite 1006, New York, N.Y. 10022
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (212) 605-0417
                  ---------------------------------------------

        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-K or any amendment to this Form 10-K. [ X ]

     The aggregate market value of the voting stock held by nonaffiliates of the
Registrant  was  approximately  $9,459,547  as of March 6, 1997,  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.


     26,691,198  shares of Common Stock were issued and  26,398,523  shares were
outstanding as of March 6, 1997.


<PAGE>

Item 1. and Item 2.  Business and Properties
                     -----------------------

History
-------

     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 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.  Expenses of the Yam West 1 well do not  include  three
invoices from Ben Line Steamers  Ltd. in an amount  totalling  $1.3 million with
respect to  damages  for costs of  repairs,  transport  and loss of income.  The
Operator has rejected these expenditures and no provision for these expenses has
been recorded in the books of the venture.

     In 1996 when the Petroleum  Commissioner approved the relinquishment of the
Negev Ashquelon License the boundaries of the Med Ashdod License were changed 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.

     In 1996 the  participants  in the Med Ashdod License signed an agreement to
create the Yam Ashdod  Carveout  Area in the  license to conduct an  exploration
program.

     In 1996 the  Ministry of Energy  awarded to the  Company and other  venture
participants an onshore  drilling license called  Shederot/265.  This license is
located in part within the area of the relinquished Negev Nirim License area.

The Operator

     The Company was the  Operator of the Negev 2 Venture  (which is being wound
down),  the Negev Med Venture,  the Bessor Carveout Venture (which wound down in
1995),  the Yam  Carveout  Venture  (which is being wound  down),  the  Shederot
Venture and the Yam Ashdod  Carveout  Venture.  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  (five)
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 ending  December 31, 1996 the Company was paid fees of
$324,252  in  connection  with the  Negev Med  Venture  and fees of  $36,000  in
connection with the Yam Carveout Venture, fees of $36,000 in connection with the
Yam Ashdod Carveout 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

                                      - 2 -


<PAGE>

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
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, 1997 the  Limited  Partnership  had  available  $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,
1996 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.



                                      - 3 -


<PAGE>

Acquisition of Assets
---------------------

     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 Petroleum
LLC ("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.   Naphtha  Israel   Petroleum  Corp.  Ltd.  owns
approximately 36.5% of the Company's common stock and warrants.) Mr. Yossi Levy,
the Branch  Manager for the Israel Branch Office of the Company is a director of
Naphtha Israel  Petroleum  Corp.  Ltd.  ("Naphtha")  and NIR. Mr. Yuval Ran, the
President  of the Company is also a director  of Naphtha  and NIR. In  addition,
officers and  directors of the Company are  associates of officers and directors
of Naphtha.

     In addition,  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 for the month of February 1997.

     In the aggregate the Company holds an 82.9% Membership Interest in Jay. 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%.

     The  membership  of Jay is  comprised  of the Company  which holds an 82.9%
Membership  Interest,  Jay Natural Resources LLC which holds a 10.65% Membership
Interest and Jay Resources Corp. which holds a 6.45% Membership Interest, all of
which   interests   are  subject  to  adjustment   after   recovery  of  capital
contributions.

         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 are  approximately  120,000  net  barrels of
proven  developed  producing  oil  reserves;  2,000  MMCF's of proven  developed
producing natural gas reserves;  220,000 net barrels of proven non-producing oil
reserves; and, 3,000 MMCF's of proven non-producing natural gas reserves.

     Jay has entered into a Management Agreement with Jay Management Company LLC
("Management"),  a newly formed Texas limited  liability company for the purpose
of  managing  certain  of the  producing  oil and gas  interests  owned or to be
acquired by Jay. For a capital  contribution of $350.00 the Company has received
a 35% membership interest in Management.

                                      - 4 -


<PAGE>

Pursuant to the  Management  Agreement,  Jay will pay to Management a management
fee of $12,500 per month.  Management will also receive all payments as Operator
for operations  pursuant to the Operating  Agreement for the contract wells. The
term of the  Management  Agreement is for ten (10) years,  unless  terminated by
either party on not less than one hundred eighty (180) days notice.

     The designated Manager of Jay is Dr. Reuven Hollo. Dr. Hollo will receive a
Management fee of $5,000 per month. Dr. Hollo is also the Manager of Management,
as well  as the  controlling  Member  in Jay  Resources  Corp.  and Jay  Natural
Resources LLC. (neither of which the Company has any interests).

     The   acquisition  of  the  interests  in  Jay,  as  well  as  the  capital
contribution  made by the Company to Jay was made out of working  capital  funds
available to the Company.

     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. 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.

     Based on outside reservoir engineering reports, the newly acquired reserves
from Snyder  consist of  approximately  160,000 net barrels of proven  developed
producing oil reserves;  2,800 MMCF of proven developed  producing gas reserves;
10,000 net barrels of proven  non-producing  oil  reserves;  and,  1,143 MMCF of
proven non-producing gas reserves.

OIL AND GAS VENTURES AND PETROLEUM ASSETS
-----------------------------------------

     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".



                                      - 5 -


<PAGE>
<TABLE>
<CAPTION>

                                   TABLE OF PETROLEUM ASSETS (WORKING INTEREST)
                                            OIL AND GAS VENTURES (1)(3)
                                               (% Interest of 100%)

                                Shederot             Negev Med                Yam Ashdod
                                Venture               Venture             Carveout Venture (2)
                                -------               -------             --------------------

                                Shederot         Med Tel Aviv License
                                 License           Med Yavne License
                                                  Med Ashdod License
                                                  Med Hadera License
                                                 Med Hasharon License
                                                 --------------------
Name of
Participant
-----------


The Company (4)
---------------
<S>                             <C>                    <C>                       <C>
The Company                     1.0043                 1.0043                    1.0043

Affiliates
----------
Isramco-Negev 2
 Limited Partnership           72.9957                70.9957                   53.0268
JOEL                            8.0000                 8.0000                    8.0000
Pass-port                       6.0000                 6.0000                    6.0000
Naphtha                         4.0000                 5.0000                   5.10145
Naphtha
 Explorations
 Limited
 Partnership                        --                 5.0000                   5.10145
                               -------                -------                  --------

Non-affiliated entities
-----------------------
Delek Drilling
 Limited Partnership            8.0000                 4.0000                   21.7660


Total                         100.0000                100.000                  100.0000

Area                            90,000                500,000                    84,220
(acres)

Expiration Date               12/31/98              6/15/2000                 6/15/2000
</TABLE>

--------------

(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.


                                      - 6 -


<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
                                                      -------------          ------------

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.

                                      - 7 -


<PAGE>



                                      [MAP

                          OFFSHORE AND ONSHORE LICENSES

                                   March 1997



                              Med Hasharon License
                                Tel Aviv License
                               Med Hadera License
                               Med Yavne License
                              Yam Ashdod Carveout
                               Med Ashdod License
                               Sherderot License



                                    Omitted]


                                      - 8 -

<PAGE>


Summary Description of the Ventures, the Petroleum Assets,
Related Work Obligations and Exploration Efforts
----------------------------------------------------------

Negev 2 Venture (Negev Ashquelon License and Negev Nirim License)
-----------------------------------------------------------------

     The Negev 2 Venture was formed in 1988 and the Company  was  designated  as
the Operator.  The Negev Nirim License  (including the Bessor Carveout Area) was
relinquished  by the Negev 2 Venture  participants  in  February of 1995 and the
Negev Ashquelon  License  (including the Yam Carveout Area) was  relinquished in
June of 1996.

     Within the framework of the Negev 2 Venture (not including the Yam Carveout
Venture or the Bessor  Carveout  Venture)  two  offshore  wells were drilled and
seismic and  geological  studies both onshore and offshore  were  conducted at a
cost of $44.55 million of which the Company's share of expenditures was $495,979
(of which $110,000 was funded by a grant from the Government of Israel).

Bessor Carveout Venture (within the Negev Nirim License)
--------------------------------------------------------

     The  participants in the Bessor  Carveout  Venture  relinquished  the Negev
Nirim License in 1995. Total expenses of the Bessor Carveout from inception date
to  December  31,  1995  were   $6,545,073  of  which  the  Company's  share  of
expenditures was $65,732.

Yam Carveout Venture (Within the Negev Ashquelon License)
---------------------------------------------------------

     In 1993 the participants in the Negev Ashquelon  License with the exception
of Isramco  Resources  Inc.  pursuant  to a Sole Risk  Agreement  formed the Yam
Carveout  Venture  by  delineating  the Yam  Carveout  Area  (within  the  Negev
Ashquelon  License  Area) to carry out  drilling of the Yam 3 well,  an offshore
well, at an estimated cost of $25 million (without production tests). In June of
1996, when the participants in the Negev 2 Venture  relinquished their interests
in the Negev Ashquelon  License,  the  relinquishment  included the Yam Carveout
Area. The Operator is in the process of winding down the Yam Carveout Venture.

Negev Med 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.

     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

                                      - 9 -


<PAGE>


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.

     During the period  from  inception  to December  31, 1996 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              $39,217.50                 $39,122.50
Med Yavne                  25,032.50                  24,884.50
Med Hasharon                1,514.00                   1,412.00
Med Hadera                    977.50                     889.50
Med Ashdod                    762.00                     762.00
                           ---------                  ---------

Total                     $67,503.50                 $67,070.50
                           =========                  =========



                                     - 10 -


<PAGE>

Shederot License
----------------

     On January 1, 1996 the Company and the Limited  Partnership were awarded an
onshore drilling license called  Shederot/265  covering an area of 88,750 acres.
The  Company  holds a 1.0043%  working  interest  in the license and the Limited
Partnership a 98.9557%  interest in the license.  The license is located in part
of the relinquished Negev-Nirim license area.

     Stipulations in the license are:

     (a)  a  seismic  survey of about 35 miles  (if  necessary)  by July 1, 1996
          (this work was not undertaken because it was unnecessary);

     (b)  a contract with a drilling contractor not later than July 1, 1997;

     (c)  spudding of a deep well (about  13,120 feet) not later than January 1,
          1998.

     On January 29, 1996 the Company and the Limited  Partnership signed a Joint
Venture Agreement and according to this agreement both parties adopted the Negev
2 Joint  Venture Joint  Operating  Agreement  dated June 30, 1988,  with certain
amendments.  The  Company is the  Operator  of the  license  and  entitled to an
Operator's fee equal to the greater of 6% of direct expenses of the Venture, but
not less than $6,000 per month.  On January 30, 1996 the Company and the Limited
Partnership  approved an AFE in the amount of $160,000  (the  Company  share was
1.0043%) for carrying out reinterpretation and remapping of the license area.

     The Limited  Partnership  approached the other former  participants  in the
relinquished Bessor Carveout Venture to participate in the new license according
to  proportionate  share  which  they  held at the time of the  Bessor  Carveout
Venture.  See Table of Petroleum  Assets and Working  Interests for the share of
working  interests  held by each  participant.  The  Company's  interest in this
license is 1.0043%.

     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.
The well will be located approximately 1.24 miles south of the town Shederot. It
is  planned  for a total  depth  of  14,765  feet.  Estimated  drilling  time is
ninety-five  (95) days at an estimated  cost of $6 million (U.S.) (the Company's
share would be  $80,344).  In March 1997 an AFE of $80,000  was  approved by the
participants  for preparatory  work for the Gevim-1 well. The Company's share is
$803.



                                     - 11 -


<PAGE>

Yam Ashdod Carveout Venture
---------------------------

     In September  1996,  the  participants  in the Med Ashdod License signed an
agreement to create the Yam Ashdod  Carveout  Area within the license to conduct
an exploration  program. The Carveout Area includes the area of the structure on
which the Yam 1 and Yam 2 wells were drilled, as well as an additional structure
which was part of the area of the  relinquished  Negev  Ashquelon  License.  See
Table of  Petroleum  Assets  and Oil and Gas  Ventures  for a  breakdown  of the
working interest of each participant. The Company's working interest is 1.0043%.

     The  participants  in the Yam Ashdod  Carveout  Venture  have  adopted  the
provisions of the Joint Operating  Agreement of the Negev 2 Venture,  subject to
adjustments  and  modifications.  The Company as the  Operator is entitled to an
Operating  fee of 6% of all gross direct  charges,  but not less than $6,000 per
month.  As long as no  exploration  activity  takes place  within the Med Ashdod
License  Area,  outside the Yam Ashdod  Carveout  Area, no Operating fee will be
charged with respect to the license  area outside the Yam Ashdod  Carveout.  The
participants  have  also  agreed  that the  license  rentals  under  the  Israel
Petroleum  Law will be paid and treated as an  expenditure  under the Yam Ashdod
Carveout Venture.

     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.  The total cost of  acquisition,  processing and
interpretation  is estimated to be about  $775,000 of which the Company's  share
will be  $7,783.  The time  table  schedule  depends  on the  availability  of a
suitable  seismic  vessel in the area.  The seismic work was not done during the
beginning  of 1997 due to the fact that an  appropriate  seismic  vessel was not
available.  To  finance  the  preparatory  work for the  proposed  re-entry  and
deepening of the Yam 2 well, the  participants  approved an AFE in the amount of
$75,000 of which the Company's share is $753.

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.


                                     - 12 -


<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.).

                                   - 13 -


<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 Dr. Joseph Elmaleh and Termination
------------------------------------------------------------

     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 term of the Consulting  Agreement was
to expire July 31, 1997. On April 17, 1996  pursuant to a Termination  Agreement
entered into between the Company and Dr. Joseph Elmaleh, 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 and (i)
paid to Dr.  Elmaleh  the sum of  $123,750  representing  the  balance of unpaid
consulting  fees; (ii) Dr. Elmaleh agreed not to 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  for a term of three (3) years in  consideration
for the lump sum payment of $270,000.  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 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 has a term  commencing June 1, 1996 through May 31,
1998,  the  Company  agreed  to pay the sum of  $144,000  per annum  payable  in
installments  of $12,000 per month,  in addition to  reimbursing  all reasonable
business  expenses  incurred  during the consulting  term in connection with the
performance of consulting services on behalf of the Company.

Consulting Agreement with Yuval Ran
-----------------------------------

     In August of 1996 the Company  entered  into a  Consulting  Agreement  with
Yuval  Ran,  the  President  of the  Corporation.  Pursuant  to this  Consulting
Agreement which has a term commencing  August 1, 1996 through July 31, 1999, the
Company  agreed  to pay  Mr.  Ran the  sum of  $144,000  per  annum  payable  in
installments  of $12,000 per month,  in addition to  reimbursing  all reasonable
business  expenses  incurred  during the consulting  term in connection with the
performance of consulting services on behalf of the Company.

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

                                     - 14 -

<PAGE>

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,  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.

                                    EMPLOYEES

     During  calendar year ending  December 31, 1996,  the Company had eight (8)
full-time  employees  at its  Branch  Office in Israel  in  connection  with its
activities in Israel.  With the exception of Mr. Toledano (whose  employment has
been terminated), all employees of the Company were located at the Branch Office
in Israel. As of the date hereof the Company has five (5) full-time employees at
its Branch Office.

                                     OFFICES

     On July 14,  1992,  the  Company  became a tenant in the offices of JOEL at
Shavit  House,  4  Raoul  Wallenberg   Street,   Tel  Aviv  69174,   Israel.  In
consideration  for  occupying  these  offices the Company as of October 15, 1996
pays to JOEL the sum of $8,000  per month for  rental  space,  office  services,
secretarial  services and computer  services (this amount was reduced in October
1996 from $15,000 per month to $8,000 per month upon Naphtha taking occupancy in
the offices and paying its respective  share of charges).  The rental payable to
JOEL also  includes the right of the Limited  Partnership  to occupy and use the
Company's  offices.  The  Company  believes  that the payment for its office and
office services is comparable to charges the Company would be required to pay to
non-affiliated parties at other similar locations in Tel Aviv.

Office Facilities and Various Agreements
----------------------------------------

     The Company as of  September  1996 moved its New York office to 575 Madison
Avenue,  New York, New York.  Pursuant to a month to month rental  agreement the
Company pays $275 per month for shared executive office facilities.  Previously,
the  Company  had a license  agreement  from  Petronav  Inc. to use its New York
office at 800 Fifth Avenue,  New York,  New York.  During 1996, the Company paid
$24,000 to  Petronav  Inc.  under this  license  agreement.  Petronav  Inc. is a
company 100% owned and controlled by Dr. Joseph Elmaleh (the former  Chairman of
the Board of Directors and Chief Executive  Officer of the Company).  Management
believes that the cost for these office  premises is comparable to other similar
office space in New York City.


                                     - 15 -


<PAGE>

Item 3.  Legal Matters
         -------------

     The Claim and  Summons  issued  by the Tel Aviv - Jaffa  District  Court in
Israel (C.C.  No.  2448/90) on December 31, 1990 against the Company and others,
along with 1995 claim by the  National  Insurance  Institute  with regard to the
same action has been settled.  The Company's share of the settlement  amount was
approximately $600.00.

     The Claim  filed in the  District  Court of Tel Aviv - Jaffa on December 1,
1993 by Chaim  Chazan  Claim  against the Company and others has been settled by
the  Limited  Partnership  paying on behalf of the parties  $345,000.  The other
defendants  (including the Company) are waiting for an arbitrator's  decision as
to whether they must reimburse the Limited  Partnership and if so, the amount of
each defendant's respective share.

     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
         ---------------------------------------------------

         No matters were submitted to a vote of shareholders  during the quarter
ended December 31, 1996.




                                     - 16 -


<PAGE>



                                                      PART II

Item 5.  Market for the Registrant's Common Stock
                  and Related Security Holder Matters

         The number of record holders of the Company's  Common Stock on March 6,
1997 was approximately 1,062 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
-------------           ----           ---              ----           ---         ----             ---

1996
----

<S>                      <C>           <C>              <C>             <C>         <C>              <C>
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


1995
----

March 31                1 5/16         9/16             7/32            1/16        3/32             1/32
June 30                 17/32          15/32            1/16            1/16        1/32             1/32
September 30            19/32          1/2              5/32            3/32        1/16             1/16
December 31             3/4            1/2              1/16            1/32        1/32             13/32
</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.

                                     - 17 -


<PAGE>


Item 6.  Selected Financial Data
         -----------------------

Statement of Operations Data
<TABLE>
<CAPTION>

                                                     Year Ended 12/31


                                        1996              1995              1994             1993             1992
                                        ----              ----              ----             ----             ----

<S>                                  <C>            <C>               <C>                <C>              <C>
Operator's fees                      468,252        $1,114,980        $3,148,826         $784,845         $345,505
Oil revenue                              335               644                              2,930

Interest income                    1,175,391         1,125,616           769,067          378,752          144,580

Office services and other            463,142           427,915           444,043          507,827          269,663

Gain (Loss) on                       705,859         (366,167)       (2,269,347)        2,580,529           22,341
 marketable securities

Exploration costs                     34,466           173,288           532,272           55,457            9,125
 written off

Operator expenses                    656,742           618,666           704,017          579,725          618,315

General & admini-                  1,253,900           720,356           719,659          597,749          353,242
 strative expenses

Net income (loss)                    828,331           634,619            59,208        3,293,850        (128,319)
Net income (loss)                       0.03              0.02              0.00             0.15            (.01)
 per share

Weighted average
 number of shares                 26,494,745        26,691,198        26,602,912       21,778,678       11,100,092



Balance Sheet Data
------------------

Total assets                      23,262,966        22,620,629        22,077,244       21,662,620        4,447,091

Total liabilities                    334,668           358,279           449,513          405,310          226,183

Shareholders' equity              22,928,298        22,262,350        21,627,731       21,257,310        4,220,908
</TABLE>

                                                     - 18 -


<PAGE>


Item 7.   Management's Discussion and Analysis of
          Financial Condition and Results of Operations
          ---------------------------------------------

Liquidity and Capital Resources
-------------------------------

In the calendar year 1996 the Company spent $34,466 in  exploration  for oil and
gas  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.  During  the  second and third  quarters  of 1996,  a
comparative  examination  of the  different  prospects was made to determine the
order of priority for the continuation of the exploration  program.  In the same
period, the Company, as an operator, continued its search for and examination of
the  availability  of marine  drilling  rigs for its work plans in the  offshore
licenses,  and  negotiations  with  the  Ministry  of  National  Infrastructures
concerning the modification of the special conditions in the offshore licenses.

In calendar year 1995 the Company  invested  $173,288 in exploration for oil and
gas,  mainly in the  drilling  of the Yam West 1 well  offshore in the Med Yavne
license.  The Company  invested  $306,640 more in exploration for oil and gas in
the  calendar  year 1994,  mainly as a result of the drilling and testing of the
Bessor 1 well (onshore) in the Bessor  Carveout,  the Yam Yafo 1 well (offshore)
in the Med Tel Aviv license and the  drilling of the Yam West 1 well  (offshore)
in the Med Yavne license.

During the second  half of 1996,  the  Company  invested  approximately  $18,500
examining investment opportunities in oil and gas fields in the United States.

In the calendar year 1996 the Company had net cash outflow from the purchase and
sales of  marketable  securities  of $3,000 as compared  to net cash  outflow of
$1,773,091 and $2,178,063 in the calendar years 1995 and 1994, 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, the Company did not purchase or sell shares of
JOEL.  As of December 31, 1996,  the Company  owned 5.5% of the issued shares of
JOEL.

The Company  financed its operations  during the calendar  years 1996,  1995 and
1994 from its own  funds,  and did not need to use any lines of credit or loans.
The Company does not  presently  have any lines of credit with any  institution.
The Company believes that it has sufficient funds to fulfill its present capital
requirements.

Results of Operations
---------------------

The Company  reported  net income of $828,331  ($0.03 per share) in the calendar
year 1996  compared  to net income of  $634,619  ($0.02  per share) and  $59,208
($0.00 per share) in the calendar  years 1995 and 1994,  respectively.  The gain
during 1996 is a result of income from operator's fees,  interest,  gains from a
rise in value of marketable securities and office services to a related party.

                                     - 19 -


<PAGE>

Part of the gain is offset by increase in general  and  administrative  expenses
and operator expenses.

During 1996, the Company  continued to participate in work programs in the Negev
Med Venture,  the Shederot Venture,  the Yam Carveout Venture and the Yam Ashdod
Carveout Venture (as of July 1996). The Company holds a 1.0043% working interest
in each of the petroleum assets held by the various ventures.

Negev Med Venture
-----------------

Two seismic  surveys were carried out and two wells were drilled (the Yam Yafo 1
and the Yam West 1) by the Negev Med Venture  since its  inception.  During 1995
and the  beginning  of 1996,  seismic  interpretation,  subsurface  mapping  and
prospects  evaluation  have  been  carried  out over the  five  licenses  of the
Venture.

The accumulated data on Authorization for Expenditure (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 1996           from May 1, 1993          Company's Share
-------                    ---              ----------------           ----------------          ---------------

<S>                     <C>                     <C>                       <C>                       <C>
Med Tel Aviv            $39,217,500             $104,388                  $38,494,240               $386,598
Med Yavne                25,032,500              220,855                   23,592,658                236,941
Med Hasharon              1,514,000              107,187                    1,308,783                 13,144
Med Hadera                  977,500              110,055                      795,089                  7,985
Med Ashdod                  762,000               67,930                      759,934                  7,632
                         ----------            ----------                 -----------               --------

                        $67,503,500             $610,415                  $64,950,704               $652,300
</TABLE>

In  June  1996,  the  Petroleum  Commissioner  at the  Ministry  of  Energy  and
Infrastructure  extended  the  duration  of the Med Tel  Aviv,  Med  Yavne,  Med
Hasharon,  Med Hadera and Med Ashdod  licenses by an additional four years until
June 15, 2000  pursuant to the  following  conditions:  During the period of the
extension,  the Company will have to carry out a seismic  survey of at least 500
kilometers.  Two wells are required to be drilled in the area of the licenses to
a minimum  depth of 9,840  feet.  The first well should be spudded no later than
January  1, 1998 and the  second  one by no later  than one year after the first
well. In addition,  the Company is required to carry out deepening and retesting
of the Yam 2 well by no later than  January 1, 1998.  If the  conditions  of the
licenses are not satisfied the licenses may terminate.

In June 1996,  the Petroleum  Commissioner  approved the  relinquishment  of the
Negev Ashquelon  license and the change of boundaries of the Med Ashdod license.
As a result of these boundary  changes,  the Med Ashdod license now includes 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  delineated a carveout within the area
of the Med Ashdod  license and this  carveout  includes all the areas which were
transferred from the Negev Ashquelon license as described above. The Company

                                     - 20 -

<PAGE>

expects to be entitled to the same  royalties in this carveout as to those which
were in the relinquished  Negev Ashquelon license  (including the Yam Carveout).
The  participants'  share  in the new  carveout  will be the  same as in the Yam
Carveout (which was part of the Negev Ashquelon license).

The Yam Carveout Venture (within the Negev Ashquelon License)
-------------------------------------------------------------

In June  1996,  the  participants  in the  Negev 2  Venture  relinquished  their
interest in the Negev Ashquelon  license including the Yam Carveout area and the
operator  is in the  process of  winding  down the  affairs of the Yam  Carveout
Venture. The Company's share was 1.0043%.

Shederot Venture
----------------

During  the  calendar  year  1996,  the work  program  in the  Shederot  license
consisted of reprocessing  selected seismic  sections,  reinterpretation  of the
entire seismic data set and remapping prospective  structures.  During 1996, the
Shederot Venture expended $361,169. The Company's share is 1.0043% or $3,627.

The Yam Ashdod Carveout (within the Med Ashdod License)
-------------------------------------------------------

In  September  1996,  the  participants  in the Med  Ashdod  license  signed  an
agreement to create a carveout area within the license in which the  exploration
program would be conducted and in which the respective  interests of the parties
would  be as they  were in the Yam  Carveout.  The  parties  adopted  the  Joint
Operating  Agreement  (J.O.A.) of the Negev 2 Joint Venture dated June 30, 1988,
subject to amendments,  adjustments and modifications.  According to the J.O.A.,
the Company is the  operator  and is entitled to an  operating  fee of 6% of all
gross  direct  charges,  but not  less  than  $6,000  per  month.  As long as no
exploration  activity  takes place  within the license  area but outside the Yam
Ashdod Carveout,  no operating fee will be charged under the J.O.A. with respect
to the license area outside the Yam Ashdod Carveout.  The participants  approved
an AFE in the amount of $173,000. The Company's share is 1.0043% or $1,737.

During the six month  period  ending  December  31,  1996,  the Ashdod  Carveout
Venture expended $52,580. The Company's share is 1.0043% or $528.

Future Activities
-----------------

Israel
------

In January 1997, the Company,  as Operator of the oil exploration in Israel, had
recommended to the participants the following work program for 1997:

1.   Re-entry of the Yam 2 well, deepening the well 984 feet to a total depth of
     approximately  16,404  feet  and  carrying  out of  production  tests at an
     estimated cost of $12 million (US). These activities  depend on engineering
     evaluation  of the  well,  on the  availability  of a  suitable  rig and on
     permission from the Defense Authorities.

                                     - 21 -

<PAGE>

2.   Shooting a two dimensional  seismic survey of approximately  186 line miles
     in the area of the Yam Ashdod Carveout  followed by seismic data processing
     and   interpretation.   Total   cost   of   acquisition,   processing   and
     interpretation  is estimated to be about  $775,000  (US). The time schedule
     depends on the availability of a suitable seismic vessel in the area.

3.   Drilling the Gevim-1 well on the onshore Shederot license. The well will be
     located  approximately 1.24 miles south of the town Shederot. It is planned
     for a total depth of 14,765 feet.  Estimated  drilling time is  ninety-five
     (95) days at an estimated cost of $6 million (US).

In March 1997, the participants approved an authorization for expenditures (AFE)
for the shederot  license in the amount of $80,000 to finance  preparatory  work
for the planned well and an AFE in the amount of $75,000 to finance  preparatory
work for the proposed  re-entry  and  production  tests of the Yam 2 well.  As a
seismic vessel is not available in the area to do the seismic work that had been
planned for the beginning of 1997, this part of the AFE was not approved.

United States
-------------

     The Company in February  1997  purchased  for $1 million an interest in Jay
Petroleum  LLC ("Jay").  The Company (i) paid to NIR  Resources  Inc. 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 all capital  contribution  made to Jay;  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 all  capital  contributions  made by the
members.

     The Company also made a $132,650  capital  contribution to Jay and received
from Jay  Resources  Corp.  a 7.9%  Membership  Interest  in Jay which  interest
increases to an  allocation of profits  percentage  of 13.81% after  recovery of
capital contributions. The total capital contribution made by the members to Jay
to date is $846,000.

     The Company now holds an 82.9%  Membership  Interest in Jay. 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 are  approximately  120,000  net  barrels of
proven  developed  producing  oil  reserves;  2,000  MMCF's of proven  developed
producing natural gas reserves;  220,000 net barrels of proven non-producing oil
reserves; and, 3,000 MMCF's of proven non-producing natural gas reserves.



                                     - 22 -


<PAGE>

     Jay is managed by Jay Management Company LLC  ("Management"),  newly formed
Texas limited liability company  established for the purpose of managing certain
of the  producing  oil and gas  interests  owned or to be acquired  by Jay.  The
Company has received a 35% interest in Management.  Jay will pay to Management a
management fee of $12,500 per month.  The  Management  Company will also receive
all payments to Operator for operations  pursuant to the Operating Agreement for
the contract wells.

     The   acquisition  of  the  interests  in  Jay,  as  well  as  the  capital
contribution  made by the Company to Jay was made out of working  capital  funds
available to the Company.

     In February  1997 Jay acquired  from Snyder Oil  Corporation  ("Snyder") 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.  The
acquisition was financed primarily with bank financing obtained by Jay Petroleum
through a $10 million  Revolving  Credit  Facility  with  Comerica Bank - Texas,
Houston,  Texas. The Company is not a borrower or guarantor under this Revolving
Credit Facility.

     Based on outside reservoir engineering reports, the newly acquired reserves
from Snyder  consist of  approximately  160,000 net barrels of proven  developed
producing oil reserves;  2,800 MMCF of proven developed  producing gas reserves;
10,000 net barrels of proven  non-producing  oil  reserves;  and,  1,143 MMCF of
proven non-producing gas reserves.

Operator's Fees
---------------

In 1996 the  Company  earned  $468,000  which was based on the  minimum  monthly
compensation  of $42,000  per month  until June 1996 and $36,000 per month as of
July 1996.

In 1995 the Company earned Operator's fees of $664,980 above the minimum monthly
compensation  (which  was  $450,000  for the  entire  year)  primarily  from the
drilling of the Yam West 1 well. In 1994 the Company received Operator's fees of
$2,644,826  above the minimum monthly  compensation  (which was $504,000 for the
entire year),  as a result of the drilling and testing the Bessor 1 well and the
Yam Yafo 1 well and the drilling of the Yam West 1 well.

Interest Income
---------------

Interest income increased in the years 1996 and 1995 compared to interest income
in 1994, due to higher average  interest rates and/or higher average  investment
balances.



                                     - 23 -

<PAGE>

Gain on Marketable Securities
-----------------------------

In the calendar  year 1996 the Company had gains from  marketable  securities of
$705,859  comprised of $865,606 from unrealized  holding gains and $159,747 from
realized losses.  Sales of marketable  securities  resulted in realized gains of
$209,888  and  $159,407  for 1995 and 1994.  At  December  31, 1996 and 1995 the
Company had net unrealized  losses of $400,000 and  $1,267,000,  respectively on
securities held for trading.

In 1996  the  Company  had an  unrealized  holding  gain of  $771,165  from  its
investment in JOEL. As at March 18, 1997, that gain increased by $160,740.

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  1996,  the  primary  activity  of the  exploration  program  was seismic
interpretation, subsurface mapping and evaluation of prospects. The Company also
examined  investment  opportunities  in oil and gas fields in the United States.
The Company expended  $139,000 less on oil and gas exploration in Israel than in
the previous period in 1995 when the drilling of the Yam West 1 well took place.

Operator's Expenses
-------------------

Operator's  expenses  increased  in the calendar  year 1996,  as compared to the
calendar  year  1995,  primarily  as a  result  of  the  costs  relating  to the
termination of certain employees and an expense from foreign currency  exchange.
Part of the  increase  was  offset by fewer  office  expenses  and  professional
services.

Operator's  expenses in 1996 were less than in 1994 mainly as a result of office
rent and expenses which were reduced in 1996 as compared to 1994.

General and Administrative Expenses
-----------------------------------

General  and  administrative  expenses  increased  in  1996 as  compared  to the
calendar  years  1995  and  1994.   Directors'  fees,   officers'  salaries  and
professional fees during 1996 were more than during 1995 and 1994.

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


                                     - 24 -


<PAGE>

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.

In June 1996, the Company  entered into a two year  Consulting  Agreement with a
company  which  employs  Haim Tsuff,  Chairman of the Board and Chief  Executive
Officer of the Company, and in August 1996 the Company entered into a three year
Consulting  Agreement  with Yuval Ran,  recently  elected  as  President  of the
Company.  In  connection  with  these  agreements,  each of the  consultants  is
entitled to an annual  compensation of $144,000,  payable in monthly payments of
$12,000 plus  reimbursement  for all reasonable  business  expenses  incurred by
them.


                                     - 25 -


<PAGE>



Item 8.  Financial Statements and Supplementary Data













                                     - 26 -

<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  December  31, 1995 and the related
consolidated statements of operations,  changes in shareholders' equity and cash
flows for each of the years in the  three-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 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 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  December  31,  1995  and the
consolidated  results of their  operations  and their cash flows for each of the
years in the  three-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-1

<PAGE>
<TABLE>
<CAPTION>

                                ISRAMCO INC. AND SUBSIDIARIES

                                 CONSOLIDATED BALANCE SHEETS

                                                                     December 31,
                                                            ----------------------------------
                                          A S S E T S        1996                   1995
                                          -----------       ------                 ------

                                                                   (in thousands
                                                                   except for share
                                                                     information)
Current assets:
<S>                                                       <C>                     <C>
   Cash and cash equivalents                              $ 15,999                $ 16,506
   Marketable securities, at market                          6,478                   5,768
   Prepaid expenses and other current assets                   338                     216
                                                          --------                --------


          T o t a l                                         22,815                  22,490
*
Equipment, less accumulated depreciation of $98 and
   $102 at December 31, 1996 and December 31, 1995,
   respectively                                                 65                     131

Covenants not to compete, less accumulated
   amortization of $87 at December 31, 1996                    383
                                                          --------                --------


          T O T A L                                       $ 23,263                $ 22,621
                                                          ========                ========


                                   LIABILITIES AND SHAREHOLDERS' EQUITY
                                   ------------------------------------

Current liabilities:
   Accounts payable and accrued expenses                  $    334                $    358
                                                          --------                --------

Commitments, contingencies and other matters


Shareholders' equity:
   Common stock, $.01 par value; authorized
     75,000,000 shares; issued
     26,691,198 shares                                         267                     267
   Additional paid-in capital                               25,928                  25,928
   Accumulated deficit                                      (3,102)                 (3,932)
   Treasury stock, 292,675 shares at
     December 31, 1996                                        (164)
                                                          --------                --------

                                                            22,929                  22,263
                                                          --------                --------

          T O T A L                                       $ 23,263                $ 22,621
                                                          ========                ========





                 The accompanying notes to financial statements
                          are an integral part hereof.

                                       F-2
</TABLE>

<PAGE>
                          ISRAMCO INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                 Year Ended December 31,
                                     ------------------------------------------
                                        1996            1995           1994
                                     -----------    ------------   ------------
                                          (in thousands except for share
                                                 information)

Revenues:
   Operator fees from related
     party                          $        468   $      1,115    $      3,149
   Oil sales                                                  1
   Interest income                         1,175          1,126             769
   Gain (loss) on marketable
     securities                              706           (366)         (2,269)
   Office services to related
     party                                   464            428             444
   Underwriting fee                                                          91
                                    ------------   ------------    ------------

          Total revenues                   2,813          2,304           2,184
                                    ------------   ------------    ------------

Expenses:
   Interest expense                            2              5               5
   Depreciation                               37             40              43
   Exploration costs                          34            173             533
   Operator expense                          656            619             704
   General and administrative -
     in part to related parties            1,254            721             720
   Research and development                                  28             120
                                    ------------   ------------    ------------

          Total expenses                   1,983          1,586           2,125
                                    ------------   ------------    ------------

Income before taxes                          830            718              59


Provision for income taxes                                   83
                                    ------------   ------------    ------------

NET INCOME                          $        830   $        635    $         59
                                    ============   ============    ============

Earnings per share                  $        .03   $        .02    $        .00
                                    ============   ============    ============

Weighted average number of shares
   outstanding                        26,494,745     26,691,198      26,602,912
                                    ============   ============    ============


                 The accompanying notes to financial statements
                          are an integral part hereof.

                                       F-3

<PAGE>
<TABLE>
<CAPTION>
                                                    ISRAMCO INC. AND SUBSIDIARIES

                                     CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY



                         Common Stock                 Additional                         Treasury Stock               Total
                     -----------------------           Paid-In      Accumulated      ----------------------        Shareholders'
                      Shares          Amount           Capital        Deficit         Shares         Amount          Equity
                     -------          ------          ---------      ---------       --------        ------         -------
                                     (in thousands except for share information)
<S>                 <C>            <C>            <C>             <C>             <C>               <C>           <C>
Balance -
   January 1,
   1994             26,535,592    $        265    $     25,618    $     (4,626)                                    $     21,257

Issuance of
   common stock
   pursuant to
   the exercise
   of Class A
   warrants             155,606               2             310                                                             312

Net income                                                                   59                                              59
                    ------------   ------------    ------------    ------------                                    ------------



Balance -
   December 31,
   1994              26,691,198             267          25,928          (4,567)                                         21,628

Net income                                                                  635                                             635
                   ------------    ------------    ------------    ------------                                    ------------

Balance -
   December 31,
   1995              26,691,198             267          25,928          (3,932)                                         22,263

Net income                                                                  830                                             830

Purchase of
   treasury
   stock from
   related party                                                                       (292,675)   $       (164)           (164)
                   ------------    ------------    ------------    ------------    ------------    ------------    ------------

BALANCE -
 DECEMBER 31,
 1996                26,691,198    $        267    $     25,928    $     (3,102)       (292,675)   $       (164)   $     22,929
                   ============    ============    ============    ============    ============    ============    ============


                                        The accompanying notes to financial statements
                                                 are an integral part hereof.

                                                              F-4
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                                    ISRAMCO INC. AND SUBSIDIARIES

                                                CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                          Year Ended December 31,
                                                                -------------------------------------------
                                                                 1996              1995                1994
                                                                ------            ------              -----
                                                                              (in thousands)

<S>                                                             <C>               <C>                <C>
Cash flows from operating activities:
   Net income                                                  $    830           $    635           $     59
   Adjustments to reconcile net income to net
     cash provided by (used in) operating activities:
       Depreciation                                                  37                 40                 43
       Amortization                                                  87
       Exploration costs                                             34                173                526
       (Gain) loss on marketable securities                        (706)               366              2,269
       (Gain) loss on sale of equipment                               8                  1                 (7)
       Changes in assets and liabilities:
         (Increase) decrease in prepaid expenses and
           other current assets                                    (122)                 9                130
         Increase (decrease) in accounts payable and
           accrued expenses                                         (24)               (91)                44
         Purchase of marketable securities                       (2,851)            (3,080)           (11,121)
         Proceeds from sale of marketable securities              2,848              1,307              8,943
         Payment for covenants not to compete                      (470)
                                                               --------           --------           --------

             Net cash provided by (used in)
               operating activities                                (329)              (640)               886
                                                               --------           --------           --------
Cash flows from investing activities:
   Exploration costs                                                (34)              (173)              (481)
   Purchase of equipment                                             (3)               (21)               (70)
   Proceeds from sale of equipment                                   23                  1                 25
                                                               --------           --------           --------

             Net cash (used in) investing activities                (14)              (193)              (526)
                                                               --------           --------           --------
Cash flows from financing activities:
   Proceeds from exercise of warrants                                                                     312
   Purchase of treasury stock                                      (164)
                                                               --------                              --------
             Net cash provided by (used in)
               financing activities                                (164)                                  312
                                                               --------                              --------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS               (507)              (833)               672


Cash and cash equivalents - beginning of year                    16,506             17,339             16,667
                                                               --------           --------           --------

CASH AND CASH EQUIVALENTS - END OF YEAR                        $ 15,999           $ 16,506           $ 17,339
                                                               ========           ========           ========



Supplemental disclosure of cash flow information:
   Cash paid during the period for interest                    $      2           $      5           $      5







                                       The accompanying notes to financial statements
                                              are an integral part hereof.

                                                         F-5
</TABLE>

<PAGE>
                          ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


(NOTE A) - 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.

     [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 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.

     [3] Method of accounting for oil and gas operations:
     ----------------------------------------------------

     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  nonproducing  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 dryhole costs, are charged to expense as incurred.

     [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 as defined by SFAS No. 115,  and as such are  reported at fair
value.

(continued)


                                       F-6

<PAGE>
                          ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


(NOTE A) - Summary of Significant Accounting Policies:  (continued)
------------------------------------------------------

     [5] Equipment:
     --------------

     Equipment, consisting of motor vehicles, office furniture and
equipment,  is carried at cost less  accumulated  depreciation,  computed by 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 translation
were not material in any period.

     [7] Income per common share:
     ----------------------------

     At December 31, 1996,  December 31, 1995 and December 31, 1994 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.

     [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  benefitted,
generally from three to five years.

(continued)


                                       F-7

<PAGE>
                          ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


(NOTE A) - Summary of Significant Accounting Policies:  (continued)
------------------------------------------------------

     [10] New pronouncement:
     -----------------------

     In October 1995, the Financial  Accounting  Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123") "Accounting
for Stock-Based  Compensation  Arrangements".  SFAS No. 123 permits a company to
either  choose a new fair  value-based  method of  accounting  for  stock  based
compensation,  or retain the  intrinsic  value-based  method of  accounting  for
stock-based  compensation.  The statement  requires pro forma disclosures of net
income (loss) and earnings (loss) per share computed as if the fair  value-based
method had been applied in financial  statements  of companies  that continue to
follow the intrinsic  value-based method of accounting.  The Company has adopted
SFAS No. 123 for disclosure purposes only, and as a result, the adoption of SFAS
No. 123 has not materially  impacted the Company's financial position or results
of operations.

     [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.

     [12] Income taxes:
     ------------------

     The  Company  accounts  for  income  taxes  using the  liability  method as
prescribed by Statement of Financial  Accounting  Standards 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 is the period that
such tax rate changes are enacted.


(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.

(continued)


                                       F-8

<PAGE>
                          ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


(NOTE B) - Transactions With Affiliates and Related Parties:
           (continued)
------------------------------------------------------------

     Operator fees earned and related operator expenses are as follows:

                                            Year Ended December 31,
                                            -----------------------
                                             1996    1995     1994
                                             ----    ----     ----
                                               (in thousands)
     Operator fees:
            Negev Med Venture               $324   $1,025   $2,942
            Sherdot Venture                   72
            Yam Ashdod Carveout               36
            Yam Carveout                      36       72       72
            Bessor Carveout                            18      135
                                            -----  -------  ------

                                            $468   $1,115   $3,149
                                            =====  =======  ======

     Operator expenses                      $656   $  619   $  704
                                            =====  =======  ======

     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 1996,  1995 and 1994, the Company paid JOEL  $162,500,  $180,000 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.

     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 $420,000 in each of the years in the three-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.

(continued)


                                       F-9

<PAGE>
                          ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


(NOTE B) - Transactions With Affiliates and Related Parties:
           (continued)
------------------------------------------------------------

     During the year ended December 31, 1994, the Company, through Underwriters,
earned  $91,000  in  underwriting  commissions  from  Isramco-  Negev 2  Limited
Partnership unit offerings.

     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  Pass-Port.  The Company paid
Pass-Port $6,000 for consulting services during 1995 and $36,000 during 1994. In
1996, the Company received $15,000 from Pass-Port for consulting services.

     During the years ended  December 31,  1996,  December 31, 1995 and December
31, 1994, the Company incurred $- 0 - , $98,000 and $97,000,  respectively,  for
legal  services  and $5,000,  $5,000 and $- 0 -,  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. $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  January -
April 1996 and the years ended  December 31, 1995 and December 31, 1994 payments
of $33,000,  $99,000 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.

(continued)


                                      F-10

<PAGE>
                          ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


(NOTE B) - Transactions With Affiliates and Related Parties:
           (continued)
------------------------------------------------------------

     In June 1996, the Company entered into a two-year consulting agreement with
a  company  which  employs  the  present  Chairman  of the  Board  and the Chief
Executive Officer of the Company,  and in August 1996 the Company entered into a
three-year  consulting  agreement with the present President of the Company.  In
connection  with these  agreements,  each of the  consultants  is entitled to an
annual  compensation  of $144,000,  payable in monthly  payments of $12,000 plus
reimbursement for all reasonable business expenses incurred by them.


(NOTE C) - Marketable Securities:
---------------------------------

     At December  31, 1996 and  December  31, 1995 the Company  owned  4,576,561
(approximately 5%) of JOEL, a related party (see Note B), with a cost and market
value of $2,316,000  and  $1,844,000,  respectively,  in 1996 and $2,316,000 and
$1,073,000, respectively, in 1995.

     At December 31, 1996 and December 31, 1995, 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 1996 and 1995, respectively.

     Sales of  marketable  securities  resulted  in realized  gains  (losses) of
$(160,000),  $210,000  and  $159,000  for the years  ended  December  31,  1996,
December 31, 1995 and December 31, 1994, respectively.  The first-in,  first-out
method is used to determine the realized gain or loss on a sale.

     At December 31, 1996 and December 31, 1995,  the Company had net unrealized
losses on marketable  securities of $400,000 and $1,267,000,  respectively.  The
change in net unrealized  holdings included in earnings is a gain of $867,000 in
1996, a loss of $577,000 in 1995 and a loss of $2,429,000 in 1994.

(continued)


                                      F-11

<PAGE>
                          ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


(NOTE C) - Marketable Securities:  (continued)
---------------------------------  -----------

     Marketable  securities,  which are primarily  traded on the Tel-Aviv  Stock
Exchange, consist of the following:

                                  D e c e m b e r  3 1,
                     ------------------------------------------------
                             1 9 9 6                  1 9 9 5
                     -----------------------  -----------------------
                                   Market                    Market
                        Cost        Value        Cost         Value
                     ----------  ----------   ----------   ----------

Debentures           $3,660,000  $3,714,000   $2,185,000   $2,199,000

Convertible
   debentures            97,000      90,000      102,000       82,000

Investment trust
   fund                 671,000     705,000    2,361,000    2,368,000

Shares                2,450,000   1,969,000    2,386,000    1,118,000
                     ----------- -----------  -----------  ----------

     T o t a l       $6,878,000  $6,478,000   $7,034,000   $5,767,000
                     =========== ===========  ===========  ==========


(NOTE D) - Oil and Gas Properties:
----------------------------------

                                                              Total
                                                           Capitalized
                                        Unproved   Proved     Costs
                                      ----------   ------  ----------
Balance - January 1, 1994              $  45,000   $- 0 -  $  45,000

Changes in the year ended
  December 31, 1994:
     Exploration costs in progress       481,000             481,000
     Exploration costs written off      (526,000)           (526,000)
                                       ----------  ------  ----------

Balance - December 31, 1994               - 0 -     - 0 -     - 0 -

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               - 0 -     - 0 -     - 0 -

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            $  - 0 -    $- 0 -  $  - 0 -
                                       ==========  ======  ==========

(continued)


                                      F-12

<PAGE>
                          ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


(NOTE E) - Equipment:
---------------------

                                                     December 31,
                                            ----------------------------
                                               1996     1995     1994
                                            --------- --------- --------

         Cost:
            Balance - beginning of period   $233,000  $217,000  $227,000
            Purchases                          3,000    21,000    70,000
            Sales and dispositions           (73,000)   (5,000)  (80,000)
                                            --------- --------- ---------

            Balance - end of period          163,000   233,000   217,000
                                            --------- --------- --------

         Accumulated depreciation:
            Balance - beginning of period    102,000    65,000    84,000
            Depreciation expense              37,000    40,000    43,000
            Depreciation of equipment
              that was sold or retired       (41,000)   (3,000)  (62,000)
                                            --------- --------- ---------

            Balance - end of period           98,000   102,000    65,000
                                            --------- --------- --------

         Balance - cost less
            accumulated depreciation        $ 65,000  $131,000  $152,000
                                            ========= ========= ========

         Annual rates of depreciation are as follows:

              Office furniture                            7%

              Office equipment and vehicles            15% - 20%


(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  exercise  price  for a
nonqualified stock option may be set by the administrator.

(continued)


                                      F-13

<PAGE>

                                               ISRAMCO INC. AND SUBSIDIARIES

                                               NOTES TO FINANCIAL STATEMENTS


(NOTE F) - Shareholders' Equity:  (continued)

         Summary  of the status of the  Company's  stock  options  is  presented
below:

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                  -------------------------------------------------------------------------------
                                                            1996                        1995                       1994
                                                  ------------------------      -----------------------    ----------------------
                                                                  Weighted-                   Weighted-                 Weighted-
                                                                  Average                     Average                   Average
                                                                  Exercise                    Exercise                  Exercise
                                                    Shares         Price        Shares         Price       Shares         Price
                                                    ------        -------       ------        -------       ------       -------
<S>                                                <C>            <C>          <C>            <C>          <C>           <C>
"1993 Plan" and the "Plan":
   Outstanding at beginning of year ..........      337,500       $   1.99      572,500       $   2.45     547,500      $   2.48
   Granted ...................................                                   30,000           0.56      25,000          1.91
   Expired ...................................      (40,000)          1.37     (265,000)          2.76
   Outstanding at end of year ................      297,500           2.08      337,500           1.99     572,500          2.45
   Options exercisable at year end ...........      297,500           2.08      337,500           1.99     572,500          2.45

   Weighted average fair value of options
     granted during the year .................                      $- 0 -                  $    .43
                                                                  ========                  ========
</TABLE>


         As  of  December  31,  1996,   297,500  options  were  outstanding  and
exercisable  with a  price  range  of  $.56  -  $2.31,  with a  weighted-average
remaining contractual life and weighted-average  exercise price of 7.3 years and
$2.08, respectively.

<TABLE>
<CAPTION>

                                                                        Year Ended December 31,
                                                 -----------------------------------------------------------------------------
                                                         1996                      1995                        1994
                                                 -----------------------   -----------------------    ------------------------

                                                               Weighted-                 Weighted-                   Weighted-
                                                               Average                   Average                     Average
                                                               Exercise                  Exercise                    Exercise
                                                 Shares         Price       Shares        Price        Shares         Price
                                                 ------         -----       ------        -----        ------         -----
<S>                                              <C>           <C>         <C>            <C>          <C>            <C>
"Consultants and others":
   Outstanding at beginning of year ........     550,000       $   1.98    517,500       $   1.84      667,500       $   1.80
   Granted .................................                               550,000           1.98
   Expired .................................    (530,000)          1.96   (517,500)          1.84     (150,000)          1.66
   Outstanding at end of year ..............      20,000           2.31    550,000           1.98      517,500           1.84
   Options exercisable at year-end .........      20,000           2.31    550,000           1.98      517,500           1.84

   Weighted average fair value of options
     granted during the year ...............                   $  - 0 -                  $    .04
                                                               ========                  ========
</TABLE>


     As of December 31, 1996, 20,000 options were outstanding and exercisable at
a price of $2.31 with a remaining contractual life of 6.7 years.

     During 1994, the Company granted 25,000 options to an employee  pursuant to
the 1993 Plan  exercisable  through  March 2004 at an  exercise  price of $1.91.
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 and 1994,  517,500 and 150,000 options,  respectively,  granted
pursuant to consulting arrangements expired.

(continued)


                                      F-14

<PAGE>


                          ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


(NOTE F) - Shareholders' Equity:  (continued)
--------------------------------  -----------

     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.

     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,
1997 (extended from April 16, 1996). 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, 1997 (extended from April 15, 1996).  At December
31, 1996, 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.

(continued)


                                      F-15

<PAGE>
                          ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


(NOTE F) - Shareholders' Equity:  (continued)
--------------------------------

     During  1994,  155,606  of  Class A  Redeemable  Warrants  were  exercised.
Accordingly, the Company received proceeds of $312,000.

         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
                                                      ----------

                   T o t a l                          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.

                                                  Year Ended
                                                  December 31,
                                               -------------------
                                                 1996       1995
                                               ---------  --------

         Net income - as reported              $830,000   $635,000
                                               =========  ========
                    - pro forma                $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 percent,  risk free interest rates ranging from 5.51%
to 7.13%, and weighted average expected life of 1.7 years.

(continued)


                                      F-16

<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:

                           1996       1995         1994
                        ----------  ---------  --------

          U.S.          $(151,000)  $(84,000)  $(1,813,000)
          Foreign         981,000    802,000     1,872,000
                        ----------  ---------  -----------

            Total       $ 830,000   $718,000   $    59,000
                        ==========  =========  ===========

         The provision for income taxes is as follows:

                           1996        1995         1994
                        ---------   ----------   -------

          Current:
             U.S.       $ 34,000    $ 455,000    $ 920,000

          Deferred:
             U.S.        (34,000)    (372,000)    (920,000)
                        ---------   ----------   ----------

             Total      $ - 0 -     $  83,000    $  - 0 -
                        =========   ==========   ==========

     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  arise  from  the  federal
alternative minimum tax.

     The deferred tax assets as of December 31, 1996, are as follows:

                                                      Assets
                                                    ---------
          Unrealized depreciation of marketable
             securities                             $ 137,000
          U.S. Federal net operating losses           659,000
          U.S. Federal alternative minimum
             tax credits                               89,000
                                                     --------
                                                      885,000

          Valuation allowance                        (885,000)
                                                    ---------
                                                    $  - 0 -
                                                    =========

(continued)


                                      F-17

<PAGE>
                          ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


(NOTE G) - Income Taxes:  (continued)
------------------------

     A  reconciliation  between the actual  income tax expense and income  taxes
computed by applying the U.S.  Federal income tax rate to income before taxes is
as follows:

                                        Year Ended December 31,
                                    ------------------------------
                                       1996       1995      1994
                                    ---------  ---------  --------

          Computed at U.S.
             statutory rates        $ 282,000  $ 252,000  $ 21,000
          Reduction of valuation
             allowance               (282,000)  (169,000)  (21,000)
                                    ---------- ---------- ---------

                                    $  - 0 -   $  83,000  $ - 0 -
                                    ========== ========== =========

     At December 31, 1996, net operating loss carryforwards  available to reduce
future federal taxable income amounted to approximately $1,884,000,  expiring at
various dates through 2008. 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
$4,012,000  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:
----------------------------------------

     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.


(NOTE I) - Subsequent Events:
-----------------------------

     On February 5, 1997 the Company  acquired an 82.9%  membership  interest in
Jay Petroleum, LLC ("Jay") at an aggregate cost of $1.2 million;  $677,500 for a
50% interest from NIR 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's  share of profits after recovery of its investment


(continued)


                                      F-18

<PAGE>
                          ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS

(NOTE I) - Subsequent Events:  (continued)
-----------------------------

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 has entered into a Management  Agreement  with Jay  Management  Company
LLC, a newly formed Texas limited liability company for the purpose of operating
certain oil and gas interests and managing  certain oil and gas interests  owned
or to be acquired by Jay. For a capital  contribution of $350.00 the Company has
acquired  a 35%  interest  in  Jay  Management  Company  LLC.  Pursuant  to  the
Management  Agreement,  Jay will pay to Jay Management  Company LLC a management
fee of $12,500 per month. The Management  Company will also receive all payments
to the operator  for  operations  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 will receive 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 $3.1 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.

                                      F-19

<PAGE>

Item 9.  Changes in and Disagreements with Accountants
         on Accounting and Financial Disclosure
-------------------------------------------------------

     See Form 8-K for the  month of July,  1994  filed by the  Company  July 25,
1994.

                                    PART III

Item 10. Directors and Executive Officers of the Registrant
-----------------------------------------------------------

Daniel Avner has been a director of the Company since May 1996.  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. Mr. Avner is the Secretary of the Company. Age 34.

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.  and since  1995 has been  Chief  Executive  Officer  of N.I.R.
(Naphtha International  Resources) Ltd. Mr. Levy has been the Manager of Naphtha
Israel  Petroleum  Corp.  Ltd., a public  company in the oil and gas business in
Israel which through its direct  subsidiary is a controlling  shareholder of the
Company. Age 45.

Zvika Livnat has been a director of the Company since September 1996. Since 1981
Mr. Livnat has been the commercial  manager of Taavura Cement Containers Ltd., a
company  located in Israel which is engaged in a number of businesses  including
inland transportation.  Mr. Livnat holds a H.N.D. Degree in Business Studies and
Transportation  Studies  from the Dorset  Institute  of Higher  Education in the
United Kingdom.  Mr. Livnat and his family own a controlling  interest in Carmen
Assets and Investments Ltd. See Security Ownership of Certain Beneficial Owners.
Age 43. Mr. Livnat resigned as a director of the Company on March 2, 1997.

Yeheskel  Nathaniel  has been a director of the Company  since  September  1996.
Since 1990 Mr.  Nathaniel has been a managing  director of Tanax BMBG, a company
located in Berlin,  Germany which is engaged in the business of  commercial  and
residential  real  estate.  Mr.  Nathaniel  holds  a post  graduate  diploma  in
management  studies  (DMS) at  Middelsex  University,  London  and a masters  in
business  administration from Henley University,  England. Age 34. Mr. Nathaniel
resigned as a director of the Company in March 1997.

Ido Rosen has been a director of the Company and the Principal Financial Officer
since May 1996.  Mr. Rosen since 1995 has been the Director and Chief  Financial
Officer of the El-AD  Group,  a private  company  which  invests,  develops  and
manages real estate in the New York  Metropolitan  Area.  From 1993 through 1995
Mr. Rosen was Controller of Y.L.R.  Capital Markets (1992) Ltd. and from 1990 to
1993 was Senior  Accountant with Kesselman & Kesselman,  CPAs. Mr. Rosen holds a
Bachelor of Accounting and Economics from Tel Aviv University. Age 30. Mr. Rosen
resigned as a director of the Company and Principal  Financial  Officer on March
2, 1997.

                                     - 27 -


<PAGE>


Yuval Ran has been the  President of the Company  since August 1996.  during the
past  five (5)  years  Mr.  Ran has been the  Chairman  of the  Board  and Chief
Executive  Officer of Israel Credit Lines (Central) Ltd. and Israel Credit Lines
Complimentary  Financial Services Ltd., public companies which engage in finance
activities  in Israel and  Manager of Prime  Financial  Consultants  and Promote
Finance and Credit and Promote  Underwriters Ltd. Group of Companies (engaged in
financial  services).  In March 1997 Mr. Ran became the Chairman of the Board of
JOEL. Mr. Ran is a director of KU Integrated  Holding Ltd., the general  partner
of KU Limited Partnership.  See Security Ownership of Certain Beneficial Owners.
Age ____.

Natan  Schwartz  has been a director of the Company  since  November 3, 1995 and
also serves a director of Isramco Oil and Gas Ltd. Mr. Schwartz in the past five
(5) years has served as manager and a board  member of Prime 2000 Ltd. and Prime
Financial  Consultants  (finance and financial consulting  activities),  Promote
Construction Ltd. (construction),  Promote Finance and Credit Ltd. (real estate)
and Promote  Underwriters  Ltd.  (real estate and  investment  activities).  Mr.
Schwartz is also a member of the board of  directors of the  following  non-U.S.
public companies: Navigator Nadlan Ltd., Ace - Spade Investments Ltd., Oki - Dok
Investments Ltd., Oktova Holdings Ltd., Navigator Investment Ltd. Age 53.

Haim Tsuff has been a director of the Company since  January 8, 1996.  Mr. Tsuff
is Chairman of the Board of Pass-port Ltd. and a director of Isramco Oil and Gas
Ltd. During the past five (5) years,  Mr. Tsuff has served as General Manager of
Firestone  Chemical  Industries  Ltd., a private company which produces  printed
material. Mr. Tsuff is also the Managing Director or Chairman of the Board of Y.
Habaron Ltd. (real estate),  Firestone Chemical Factors Ltd. (printed material),
Madad Ltd. (printed material),  Benfica Holdings Ltd. (construction) and Benfica
Ltd. (construction),  all of which are private companies. Age 38. Mr. Tsuff is a
director of United  Kingsway Ltd. See Security  Ownership of Certain  Beneficial
Owners.






                                     - 28 -


<PAGE>

Item 11.  Executive Compensation
--------  ----------------------

     SUMMARY OF COMPENSATION
     -----------------------

     The following table sets forth the compensation  paid for years 1994 - 1996
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                                                                        Compensation      Underlying      Compensation
Position                                                                                  (8)      Options
--------------------------------------------------------------------------------------------------------------------------------

<S>                                 <C>          <C>              <C>               <C>             <C>               <C>
Haim Tsuff                          1996         84,000             ----              ----            ----             ----
  Chairman of the Board
  and Chief Executive Officer (1)

Yuval Ran                           1996         60,000             ----              ----
  President (2)

Raanan Wiessel                      1996         70,565             ----              ----                             ----
  Treasurer                         1995         67,962           34,000
  Controller                        1994         56,128           39,000
  Branch Office                                                                                     25,000

Yossi Levy                          1996         36,055                                                                ----
 Branch Manager (3)

Joseph Elmaleh (4)                  1996                                           156,750                             ----
  Former Chairman of                1995           ----                             99,000
  ------
  the Board and                     1994           ----          100,000            99,000
  and Former Chief Executive
  Officer

Danny Toledano (5)                  1996        144,000
  Former President,                 1995         30,000             ----
  ------
  Former Chief Operating Officer    1994           ----           80,000                                               ----
  ------
  and                                              ----                                             30,000
  Former Chief Financial Officer

Alex Helfman (6)                    1996        157,960             ----
  Former Oil and                    1995        126,211           55,000                                               ----
  ------
  Gas Supervisor                    1994        114,100           77,100
                                                                                                    30,000

Joshua Folkman                      1996        106,441             ----
  Exploration Manager               1995         92,777           20,000                                               ----
  Branch Office                     1994         92,468           10,000
                                                                                                    20,000

Conrad E. Maher (7)                 1996           ----             ----            99,600
  Former Operations and             1995        112,005             ----              ----
  ------
  Technical Manager                 1994        109,791             ----            78,000          25,000
  Branch Office                                                                                     75,000             ----

                                                                  - 29 -
</TABLE>

<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,  the Company pays to consultant the sum of $144,000 per annum in
     installments of $12,000 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 1996 the Company  entered  into a  Consulting  Agreement  with
     Yuval Ran, the  President of the  Corporation.  Pursuant to the  Consulting
     Agreement, the Company has agreed to pay to Mr. Ran the sum of $144,000 per
     annum  payable  in  installments  of  $12,000  per  month  in  addition  to
     reimbursing all reasonable  business  expenses  incurred in connection with
     performing the consulting services on behalf of the Company.

(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.  The Employment Agreement may be terminated by either party on six
     (6) months' notice.

(4)  On  April  17,  1996 Dr.  Elmaleh  resigned  as  Chairman  of the  Board of
     Directors,  Chief Executive Officer and a director of the Company. In April
     of 1996 the Company pursuant to a Termination Agreement paid to Dr. Elmaleh
     the balance of unpaid consulting fees which is reflected under other Annual
     Compensation and $270,000 in consideration of a covenant not to compete for
     a period of three (3) years.  The  Company  also  purchased  from  Southern
     Shipping and Energy Inc. (a company which Dr. Elmaleh  controlled)  292,675
     shares of the Company's common stock for $208,238.

(5)  In June of 1996 Danny  Toledano  resigned as President and Chief  Operating
     Officer  of the  Company  and in August  1996 Mr.  Toledano  resigned  as a
     director.  The Company  pursuant  to a  Termination  Agreement  paid to Mr.
     Toledano  the  balance of monies due under his 1995  Employment  Agreement,
     which sum is reflected under salary above,  $200,000 in  consideration of a
     covenant  not to compete and entered  into a  Consulting  Agreement  with a
     company owned by Mr.  Toledano and made an advance  payment to said company
     of $72,000.

(6)  Alex Helfman left the Company in September of 1996.

(7)  Conrad E. Maher left the Company in April of 1996 and  continued  to render
     services to the Company through December 1996.

(8)  Does not  include  personal  benefits  which do not  exceed 10% of the cash
     compensation of all officers as a group.



                                     - 30 -

<PAGE>

     The following table sets forth information concerning the exercise of stock
options during 1996 by each of the named executive  officer and key employee and
the year end value of unexercised options.

<TABLE>
<CAPTION>

                           Aggregated Option Exercises
                                     in 1996
                           and Year End Option Values
                           --------------------------


Name                       Shares           Value              Number of        Value of
                           Acquired         Realized ($)       Securities       Unexercised
                           on Exercise                         Underlying       In the Money
                                                               Unexercised      Options at
                                                               Options (#)      Year End ($)(5)

-----------------------------------------------------------------------------------------------

<S>                        <C>               <C>               <C>              <C>
Danny Toledano (1)          0                 0                 30,000           0

Alex Helfman (2)            0                 0                 30,000           0


Joshua Folkman              0                 0                 20,000           0

Raanan Wiessel              0                 0                 25,000           0

Conrad Maher (3)            0                 0                100,000           0

Barry Sahgal (4)            0                 0                 30,000           0


</TABLE>


Notes

(1)  Ceased to be an officer of the  Company in June 1996 and a director  of the
     Company in August 1996.

(2)  Ceased to be an employee in September 1996.

(3)  Ceased his relationship with the Company in December 1996.

(4)  Ceased to be a director of the Company in May 1996.

(5)  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.



                                     - 31 -


<PAGE>

     The following table sets forth information  concerning individual grants of
stock options made during the 1996 fiscal year to each named  executive  officer
and key employee.  The Corporation did not grant any stock  appreciation  rights
during 1996 and has no outstanding SAR's.


                              Option Grants in 1996
                              ---------------------

                              Individual Grants (1)
                              ---------------------

Name              No. of           % of Total         Exercise      Expiration
                  Shares           Options            Price         Date
                  Underlying       Granted to         ($/SH)
                  Options          Employees
                  Granted (1)
-------------------------------------------------------------------------------

                                      NONE


Notes

(1)  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  1996 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.

                                     - 32 -


<PAGE>

Item 12.  Security Ownership of Directors, Officers and Key Employees

     On  March  6,  1997 the  Directors,  executive  Officers  and  certain  key
employees of the Company  beneficially owned, the aggregate 45,000 shares of the
Company's  common  stock  (comprising  less than 1% of the  shares  outstanding)
including  45,000 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 (1)         Chairman of the Board,                           0
                       Chief Executive Officer,
                       and Director

Yuval Ran (2)          President                                        0

Daniel Avner           Secretary and Director                           0

Joshua Folkman         Exploration Manager                         20,000
                                                                       (6)

Raanan Wiessel         Treasurer - Controller                      25,000
                                                                       (7)

Natan Schwartz (3)     Director                                         0

Yeheskel Nathaniel (5) Director                                         0

Ido Rosen (4)          Director                                         0

Zvika Livnat (4)       Director                                         0

All Directors, Officers and Key Employees as a Group            _________
 (nine persons)                                                    45,000


Notes

(1)  Haim Tsuff is also the Chairman of the Board of Pass-port  Ltd.  which owns
     and controls 43% of JOEL which  controls  86% of Naphtha  Israel  Petroleum
     Corporation  Ltd. For more  information  see Security  Ownership of Certain
     Beneficial Owners.

(2)  Yuval Ran is also the Chairman of the Board and Chief Executive  Officer of
     JOEL,   Israel  Credit  Lines   (Central)  Ltd.  and  Israel  Credit  Lines
     Complimentary   Financial   Services  Ltd.  ("Credit   Lines").   For  more
     information see Security Ownership of Certain Beneficial Owners.

(3)  Natan Schwartz is also a director of Credit Lines.

(4)  Ido Rose and Zvika  Livnat  resigned as  directors  of the Company in March
     1997. For more  information  see Security  Ownership of Certain  Beneficial
     Owners.


(5)  Yeheskel Nathaniel resigned as a director of the Company in March 1997.

(6)  Includes  20,000  shares of common stock  issuable  upon  exercise of Stock
     Options.

(7)  Includes  25,000  shares of common stock  issuable  upon  exercise of Stock
     Options.


                                     - 33 -


<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, 1997 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. *                14,874,225                   47.3% +

Notes

*    In a  recent  Schedule  13D  filed by  Naphtha,  J.O.E.L.,  Pass-port  Ltd.
     ("Pass-port"),  Israel Credit Lines Ltd.  ("Credit  Lines"),  Israel Credit
     Lines  Complimentary,  Financial  Services  Ltd.  ("Complimentary"),   K.U.
     Limited Partnership  (1995), K.U. Integrated Holdings Ltd. ("KU"),  Michlol
     Kanot  Holdings  Ltd.  ("Michlol"),  Carmen  Assets  and  Investments  Ltd.
     ("Carmen"), United Kingsway Ltd. ("Kingsway") (the Naphtha Schedule 13D) it
     was  announced  that  Naphtha has  transferred  to a newly  formed  holding
     company (Naphtha Holdings Ltd.) 9,874,225 shares of the common stock of the
     Company and 2.5 million  Class A Warrants and 2.5 million Class B Warrants.
     Accordingly, Naphtha Holdings Ltd. may be deemed to be the beneficial owner
     of 47.3% of the  shares of the  Company if the Class A and Class B Warrants
     are exercised.  (The Warrants  expire on April 16, 1997.) Naphtha  Holdings
     Ltd. is a subsidiary of Naphtha,  which is a subsidiary of JOEL, which is a
     subsidiary   of   Pass-port   Ltd.   See  Chart  of   Security   Ownership.

     According  to  information  received  by the  Company,  on February 2, 1997
     Complimentary  and Kingsway (a company 100% owned by Mr. Robert  Arckens of
     Belgium) formed YHK Investment LP (YHK) with each owning 35% and 65% of YHK
     respectively.  YHK General  Managers Ltd. is the general partner of YHK and
     Haim  Tsuff,  Josef  Tsuff,  Yuval  Ran  and  Tina  Mimon-Arckens  are  its
     directors.  On March 2, 1997, YHK purchased all the shares of Passport Ltd.
     ("Pass-port") owned by KU. This transaction  eliminated KU and Michlol from
     the chain of ownership  reported in the Naphtha Schedule 13D. YHK now owns,
     of record,  44.5% of Pass-port Ltd. Pass-port owns 43.4% of JOEL. JOEL owns
     86.6% of Naphtha,  which owns 100% of Naphtha Holding Ltd.  Naphtha Holding
     Ltd.  owns, of record  [47.3%]  36.5% of the common stock of Isramco,  Inc.
     assuming the exercise by Naphtha  Holding Ltd. of all the Class A and Class
     B Warrants.

     Simultaneously with these transactions, Zvika Livnat (whose family controls
     Carmen and Michlol) and Ido Rosen  resigned  from the Board of Directors of
     the Company. The vacancies so created have not been filled.

     Haim Tsuff is the  Chairman  of the Board,  Chief  Executive  Officer and a
     director  of the  Company  and  Chairman  of the  Board and a  director  of
     Pass-port  Ltd.,  and Kingsway.  Yuval Ran, the President of the Company is
     the  Chairman  of the  Board of  JOEL,  Chairman  of the  Board  and  Chief
     Executive Officer of Complimentary and Credit Lines. Mr. Ran holds 8.21% of
     the shares of  Complimentary.  Prior to the formation  YHK, Mr. Ran and Mr.
     Livnat,  jointly by power of attorney acted on behalf of four  corporations
     which are board members of J.O.E.L. and on behalf of two corporations which
     are board  members of Pass-port  Ltd.  Zvika Livnat is a director of Carmen
     and Michlol.  Natan  Schwartz is a director of Credit Lines and holds 2.51%
     of the shares of Complimentary.

     As a result of the  foregoing,  Robert  Arckens,  Yuval Ran,  Credit Lines,
     United  Kingsway,  and YHK  Limited  Partnership  may be deemed to  control
     Pass-port Ltd., JOEL, Naphtha and the Company.

     Information  regarding  these  relationships  is more  fully  available  in
     Schedule  13D filing  and  amendments  thereto  made on behalf of the above
     entities which are on file with the Securities and Exchange Commission.

+    This percentage is based on 26,398,523  shares of common stock  outstanding
     March 6, 1997 plus the required 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 Holding Ltd.


                                     - 34 -


<PAGE>
<TABLE>
<CAPTION>



     The following chart sets forth the chain of ownership of the Company.


         <S>                                         <C>                        <C>

                                                     YUVAL RAN                 NATAN SCHWARTZ


                                                     8.21%                     2.51%

         UNITED                                               COMPLIMENTARY (Public)
         KINGSWAY LTD.
         (controlled by Robert Arckens)

         65%                                         35%

                          Y.H.K.
                  LIMITED PARTNERSHIP (Israel)

                          44.5%

                  PASS-PORT LTD.

                          43.4%


                                   10.1%

                  J.O.E.L. LTD.

                          86.6%

                  NAPHTHA


                          100%

                  NAPHTHA HOLDING LTD.               5.5%

                          36.5%

                  ISRAMCO, INC.


                  ISRAMCO OIL AND GAS LTD.


                  GENERAL PARTNER
                  ISRAMCO NEGEV 2 LIMITED PARTNERSHIP

                                     - 35 -

</TABLE>

<PAGE>


Item 13.  Certain Relationships and Related Transactions

Office Facilities and Various Agreements
----------------------------------------

     The Company as of  September  1996 moved its New York office to 575 Madison
Avenue,  New  York,  New York  pursuant  to a month to month  rental  agreement.
Previously,  the Company had a license  agreement  from Petronav Inc. to use its
New York  office at 800 Fifth  Avenue,  New York,  New York.  During  1996,  the
Company paid $24,000 to Petronav  Inc.  under this license  agreement.  Petronav
Inc. is a company 100% owned and  controlled by Dr.  Joseph  Elmaleh (the former
Chairman of the Board of Directors and Chief Executive  Officer of the Company).
Management  believes  that the cost for these office  premises is  comparable to
other similar office space in New York City.

Service Agreement with J.O.E.L.
-------------------------------

     From  January  1996  through  October 15, 1996 the Company paid to J.O.E.L.
$15,000 per month for office rental,  office services,  secretarial services and
computer  services in Tel Aviv,  Israel. In October 1996 this monthly charge was
reduced to $8,000 per month. The payment for 1996 was $162,500.  The charge also
includes the usage of offices and office  services for  Isramco-Negev  2 Limited
Partnership.  Management believes that the amount which it pays to J.O.E.L.  for
rent and office  services is comparable to charges for rent and office  services
in comparable locations in Israel.

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 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.



                                     - 36 -


<PAGE>

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 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 for a term of three (3) years.
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 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 has 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.

Consulting Agreement with Yuval Ran
-----------------------------------

     In August of 1996 the Company  entered  into a  Consulting  Agreement  with
Yuval  Ran,  the  President  of the  Corporation.  Pursuant  to this  Consulting
Agreement which has 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.

                                     - 37 -


<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.



                                     - 38 -


<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.

                                     - 39 -

<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.

                                     - 40 -


<PAGE>
                                     PART IV

Item 14.  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

          Isramco, Inc. and Subsidiaries Consolidated
             Financial Statements

              Balance Sheets as of December 31, 1996 and 1995          F-2

              Statements of Operations for the Years
              Ended December 31, 1996, 1995 and 1994                   F-3

              Statements of Changes in Shareholders' Equity
              for the Years Ended December 31, 1996, 1995 and 1994     F-4

              Statements of Cash Flows for the Years
              Ended December 31, 1996, 1995 and 1994                   F-5

              Notes to Consolidated Financial Statements        F-6 - F-19

     (b) Financial Statement Schedules:
         ------------------------------

         None

     (c) Reports on Form 8-K

         1.  Form 8-K for the month of January 1996 dated January 18, 1996;
         2.  Form 8-K for the month of April 1996 dated April 1, 1996;
         3.  Form 8-K for the month of April 1996 dated April 17, 1996;
         4.  Form 8-K for the month of May 1996 dated May 6, 1996;
         5.  Form 8-K for the month of May 1996 dated June 10, 1996;
         6.  Form 8-K for the month of June 1996 dated July 2, 1996;
         7.  Form 8-K for the month of August 1996 dated August 7, 1996;
         8.  Form 8-K for the month of August 1996 dated August 22, 1996.



                                     - 41 -


<PAGE>



     (d) 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.

                                     - 42 -


<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.

         10.13      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.

                                     - 43 -


<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.

         10.36      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.



                                     - 44 -

<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.



                                     - 45 -

<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.

         10.57      Investment Banking  Agreement,  filed as an Exhibit with the
                    S-1 Registration Statement, Filed No. 33-574482.

                                     - 46 -


<PAGE>

         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.





                                     - 47 -


<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 ___, 1997                     By:
                                        ---------------------------------------
                                            Haim Tsuff
                                            Chairman of the Board, and
                                            Chief Executive Officer


                                    By:
                                        ----------------------------------------
                                            Daniel Avner
                                            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:



---------------------------      Chairman of the Board,          March   , 1997
Haim Tsuff                       Chief Executive Officer
                                 and Director


---------------------------      Principal Accounting Officer    March   , 1997
Daniel Avner                     and Director



---------------------------      Director                        March   , 1997
Natan Schwartz