<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K/A

       [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
        EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

     [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                         COMMISSION FILE NUMBER: 0-12500

                                  ISRAMCO, INC.

             (Exact name of registrant as specified in its charter)


          Delaware                                       13-3145265
(State or Other Jurisdiction                  IRS Employer Identification No.)
      of Incorporation)


                      11767 KATY FREEWAY, HOUSTON, TX 77079
                    (Address of Principal Executive Offices)

                                  713-621-3882
              (Registrant's Telephone Number, including Area Code)

       Securities registered under Section 12(b) of the Exchange Act: None

         Securities registered under Section 12(g) of the Exchange Act:
                         Common Stock, par value $0.001
                                (Title of Class)

Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 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. |X| Yes |_| No

Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained in this Form, 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|

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). | | Yes |X| No

The aggregate market value of registrant's common stock at March 29, 2004 was
$9.67 million. Such market value was calculated by using the closing price of
such common stock as of such date reported on the NASDAQ market.

As of March 30, 2004, the Registrant had outstanding 2,639,853 shares of $0.01
par value Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

The information called for in Items 10, 11, 12, 13 and 14 in Part III will be
contained in the issuer's definitive proxy statement which the registrant
intends to file within 120 days after the end of the registrant's fiscal year
ended December 31, 2003 and such information is incorporated herein by
reference.

                               EXPLANATORY NOTICE

This Amendment No. 1 to our Annual Report on Form 10-K for the fiscal year ended
December 31, 2003, as originally filed on March 30, 2004, is being filed solely
to revise the Selected Quarterly Financial Data. Registrant has amended the 2003
quarterly financials on Form 10-Q/A to reflect the plugging and abandonment
obligations related to its oil and gas properties in accordance with the
Statement of Financial Accounting Standards No. 143, Accounting for Asset
Retirement Obligations ("SFAS 143") effective January 1, 2003.

Except as described above, no other changes have been made to the Report. This
Amendment No. 1 does not update any other disclosures to reflect developments
since the original date of filing.

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                           FORWARD LOOKING STATEMENTS

CERTAIN STATEMENTS MADE IN THIS ANNUAL REPORT ON FORM 10-K ARE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY TERMINOLOGY SUCH AS
"MAY", "WILL", "SHOULD", "EXPECTS", "INTENDS", "ANTICIPATES", "BELIEVES",
"ESTIMATES", "PREDICTS", OR "CONTINUE" OR THE NEGATIVE OF THESE TERMS OR OTHER
COMPARABLE TERMINOLOGY AND INCLUDE, WITHOUT LIMITATION, STATEMENTS BELOW
REGARDING EXPLORATION AND DRILLING PLANS, FUTURE GENERAL AND ADMINISTRATIVE
EXPENSES, FUTURE GROWTH, FUTURE EXPLORATION, FUTURE GEOPHYSICAL AND GEOLOGICAL
DATA, GENERATION OF ADDITIONAL PROPERTIES, RESERVES, NEW PROSPECTS AND DRILLING
LOCATIONS, FUTURE CAPITAL EXPENDITURES, SUFFICIENCY OF WORKING CAPITAL, ABILITY
TO RAISE ADDITIONAL CAPITAL, PROJECTED CASH FLOWS FROM OPERATIONS, OUTCOME OF
ANY LEGAL PROCEEDINGS, DRILLING PLANS, THE NUMBER, TIMING OR RESULTS OF ANY
WELLS, INTERPRETATION AND RESULTS OF SEISMIC SURVEYS OR SEISMIC DATA, FUTURE
PRODUCTION OR RESERVES, LEASE OPTIONS OR RIGHTS, PARTICIPATION OF OPERATING
PARTNERS, CONTINUED RECEIPT OF ROYALTIES, AND ANY OTHER STATEMENTS REGARDING
FUTURE OPERATIONS, FINANCIAL RESULTS, OPPORTUNITIES, GROWTH, BUSINESS PLANS AND
STRATEGY.... BECAUSE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES,
THERE ARE IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTS. ALTHOUGH
THE COMPANY BELIEVES THAT EXPECTATIONS REFLECTED IN THE FORWARD-LOOKING
STATEMENTS ARE REASONABLE, IT CANNOT GUARANTEE FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS. MOREOVER, NEITHER THE COMPANY NOR ANY OTHER PERSON ASSUMES
RESPONSIBILITY FOR THE ACCURACY AND COMPLETENESS OF THESE FORWARD-LOOKING
STATEMENTS. THE COMPANY IS UNDER NO DUTY TO UPDATE ANY FORWARD-LOOKING
STATEMENTS AFTER THE DATE OF THIS REPORT TO CONFORM SUCH STATEMENTS TO ACTUAL
RESULTS.

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

GENERAL

Since its formation in 1982, Isramco, Inc. ("Isramco" or the "Company") has been
active in the exploration of oil and gas in Israel and in the United States. In
Israel, the Company holds a participation interest in two long-term off-shore
leases and serves as an operator of one. In addition the Company holds a
participation interest in an off-shore license and also serves as the operator.
See "Summary of exploration efforts in Israel".

In the United States, the Company, through its wholly-owned subsidiaries, Jay
Petroleum LLC ("Jay Petroleum") and Jay Management LLC ("Jay Management"), is
involved in oil and gas exploration and production in the United States. Jay
Petroleum owns varying working interests in oil and gas wells in Louisiana,
Texas, Oklahoma and Wyoming. Independent estimates of the reserves held by Jay
Petroleum as of December 31, 2003 are approximately 136,000 net barrels of
proved developed producing oil and 2,785 MMCFs of proved developed producing
natural gas. See "Summary of Exploration Efforts in United States".

THE OPERATOR OF THE ISRAELI LEASES/LICENSES

Under a joint operating agreement entered into among the participants in the
off-shore leases and licenses (collectively, 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 (AFE's). 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 is currently the Operator of the Med Ashdod Lease and the 3-year
Marine South license granted in January 2002. As the Operator, the Company is
responsible for directing the oil exploration and drilling activities of each
Venture through its Branch Office in Petach Tikva, Israel. With [eight full-time
employees], outside consultants and subcontractors, the Company carries out the
operations of each Venture within the framework of approved work programs


                                        2

<PAGE>

and budgets and pursuant to the terms of a JOA. With respect to the Med Yavne
Lease, the Company furnishes to BG International Limited, a member of the
British Gas Group ("BG"), the operator of the lease, consulting services of an
administrative and technical nature for which it receives a monthly fee equal to
$10,000.

As operator, the Company 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/Lease. During the year ended December 31, 2003, the Company was paid a
total of $753,000 as operator fees.

GENERAL PARTNER FOR THE ISRAMCO NEGEV 2 LIMITED PARTNERSHIP

In 1989 the Company formed in Israel the Isramco Negev 2 Limited Partnership
(the "Limited Partnership") to acquire from the Company a substantial portion of
its working interest in the Negev 2 Venture, the venture which the Company and
related parties established to hold the rights to the certain oil and gas
properties. In exchange for working interests, the Limited Partnership granted
to the Company certain overriding royalties. In 1992, the Company transferred to
the Limited Partnership additional rights 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 Limited Partner and the nominee 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 certain 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 has been appointed as Supervisors.

The Company currently receives through IOG a management fee of $40,000 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. The Company currently holds 6.65% of the issued
Partnership units and IOG holds an additional 0.008% of the Partnership units.
On December 31, 2003, the Limited Partnership had cash, cash equivalents,
certificates of deposit and marketable securities with a value of approximately
$114 million.

Additionally, IOG (as the general partner) is entitled to 5% overriding
royalties in certain petroleum assets held by the Limited Partnership.

NON-OIL AND GAS PROPERTIES

In June 2002, the Company purchased non oil and gas producing real estate
located in Israel at an aggregate cost of $ 1,887,000. Concurrently with the
purchase of the real estate, the Company entered into a lease agreement with a
third party to lease the property for a 24-month period at a monthly rent of
$7,000.

In March 2004, the Company completed the purchase of a luxury cruise liner for
aggregate consideration of $8,050,000. The Vessel, a Bahamas flagged ship,
contains 270 passenger cabins spread out over nine decks. The Company has
secured commercial bank loans for approximately $7.5 million of the purchase
price, to be secured by a lien on the Vessel, marketable securities and a
Company guarantee. The Company is currently in discussions with several luxury
cruise operators for the purpose of commercially leasing the Vessel as a luxury
cruise liner. No assurance can be given that the Company will be able to
conclude any leasing arrangement on commercially acceptable terms.

In addition, the Company holds certain equity interests in a high-tech venture.
See "Management's Discussion and Analysis of Financial Condition--- Liquidity
and Capital Resources."

                    OIL AND GAS VENTURES AND PETROLEUM ASSETS


                                        3

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           OIL AND GAS VENTURES AND PETROLEUM ASSETS LOCATED IN ISRAEL

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 as of December 31, 2003. 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".

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



Name of Participant                    Med Yavne Lease*   Med Ashdod Lease**(2)

The Company                                 0.4584               0.3625

Affiliates

Isramco Negev 2, Limited                    32.411              19.1370
Partnership

I.N.O.C. Dead Sea                               --               5.0525
Limited Partnership

Naphtha                                     1.8033               1.8411

Naphtha Explorations                        2.2826               1.8411
Limited Partnership

JOEL                                        2.8807                   --

Equital                                     2.1639                   --

Non-affiliated entities

Delek Drilling LP                            8.000              21.7658

GRANIT - SONOL LP                               --               35.000

BG International Ltd.                       35.000                   --

Middle East Energy (MEE) LP                 13.200               13.200

DOR - Gas LP                                 1.800               1.8000

Total                                      100.000              100.000

Area (acres)                                13,100               61,800

Expiration Date                          6/10/2030            6/15/2030



* The lease was granted in June 2000 and is scheduled to expire in June 2030.

** The lease was granted in January 2002 and is scheduled to expire in June
2030.

(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/Leases.

(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.

(3) All of the Petroleum Assets are subject to a 12.5% Overriding Royalty due to
the Government of Israel under the Petroleum Law.


                                       4
<PAGE>

                    Name of Participant           Marine South

                    Company                               1

                    Isramco Negev 2                      59
                    Limited Partnership

                    Modein Energy Limited                10
                    Partnership

                    Naphtha Explorations                 15
                    Limited Partnership

                    I.N.O.C. Dead Sea                    15
                    Limited Partnership

                    Total                               100

                    Acres                            35,000

                    Expiration Date                 1/15/05



                    OVERRIDING ROYALTIES HELD BY THE COMPANY

The Company holds overriding royalties in certain petroleum assets.
Additionally, in connection with the BG Transaction, the Company is entitled to
receive from each member of the Isramco Group overriding royalties equal to 2%
of each such member's rights to any oil/gas produced within the existing
offshore licenses or within any new licenses or to any oil or gas rights which
may be obtained in lieu of existing offshore licenses. The Company holds the
following Overriding Royalties:

                          TABLE OF OVERRIDING ROYALTIES

From the Limited Partnership, on the first 10% of the Limited Partnership's
share of the following Petroleum Licenses


                                            Before Payout    After Payout

      Med Yavne Lease*                             1%             13%

      Med Ashdod Lease**                           1%             13%

         From JOEL                          On 8% of JOEL's Interest

                                            Before Payout    After Payout
      Med Ashdod Lease                           2.5%           12.5%

           From Delek Oil Exploration Ltd.
           (DOEX) (1)(2)                    On 6% of DOEX's Interest

                                            Before Payout    After Payout

      Med Ashdod Lease                           2.5%           12.5%

      From Naphtha, Naphtha Exploration LP,
      Joel, Equital, INOC Dead Sea L P on
      oil and/or gas produced on the Med Leases            2%

      To IOC On Certain petroleum rights held by
      Limited Partnership                                  5%


                                       5
<PAGE>

* A 30 year lease covering an area of approximately 53 square kilometers
(including the area of the gas discovery) was granted in June 2000.

** A 30-year lease covering an area of approximately 250 square kilometers
(including the area of the gas discovery) was granted in January 2002.

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

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 ".

                    SUMMARY OF EXPLORATION EFFORTS IN ISRAEL

MED YAVNE LEASE

Based on the gas finds known as "Or 1" and "Or South" , a 30 years lease was
granted in June 2000 (hereinafter: the "Med Yavne Lease"). The Med Yavne Lease
covers 53 square kilometers (approximately 13,000 acres) offshore Israel. The
operator of the Med Yavne Lease is BG International Limited, a member of the
British Gas Group ("BG").

According to the operator's estimated, which are based on the results of the
drillings in the "Or 1" and "Or South" wells, and a three-dimensional seismic
survey performed in the area of the lease, and which also covered parts of
nearby gas reserves (outside the area of the lease), the recoverable gas
reserves in the Med Yanve Lease is estimated at 93 billion cubic feet. In
November 2002, the Company received an opinion from a consulting firm in the
United States that performed a techno-economic examination for the development
of the "Or 1" reserve. The opinion indicates that, under certain assumptions,
development of the reserve by connection to a nearby extraction platform (at a
distance of 7 Miles) and from there via a transportation pipe to the coast, may
be economically feasible.

The Company's participation share of the Med Yavne Lease is 0.4585%.

MED ASHDOD LEASE

Following the results of "Nir 1" drilling, a 30 year lease was granted in
January 2002. The Med Ashdod Lease covers approximately 250 square kilometers
(approximately 62,000 acres) offshore Israel. The Company serves as the operator
of the Med Ashdod Lease and holds a 0.3625% interest therein.

Two prospects within the southern sector have been identified and recommended
for drilling, one of which is for gas and the second for gas or oil. The
operator has examined this report and, based thereon, has established the
priorities for continued exploration. The operator presented its recommendation
to the lease participants in October 2002 that drilling be commenced for oil
(Nizanim 1).

As no decision has yet been taken, the operator has determined to postpone the
drilling of Nitzanim and in lieu of such drilling, has presented an alternative
work program as follows: (i) During 2003 - drill a confirmation gas well (Nir-2)
in the Nir field, with a total budget of approximately $10 million; (ii) D 2004
- drill Nizanim - 1 to total depth of 5300 meters (17,400 feet), with a total
budget of approximately $35 million.


                                       6
<PAGE>

At a partners meeting held on April 3, 2003, certain of the partners announced
their readiness to participate in the confirmation well. On April 30, 2003, the
operator, on behalf of Isramco Negev 2 Limited Partnership, one of the partners,
issued to the partners a sole risk notice regarding the drilling of the
confirmation gas well (Nir-2). As certain of the partners declined to
participate in the well, the participation of Isramco Negev 2 Limited
partnership in the well increased to 56.17805%.

The Nir - 2 confirmation well was spud on September 1, 2003. On October 8, 2003,
production tests commenced, in accordance with the recommendation given by the
operator's consultants. On November 19, 2003 the operator presented the partners
with an analysis of the results of the production test, which indicated that it
is not economically feasible to produce gas from the "Nir 2" well . The total
cost of the "Nir 2" well amounted to $10 million. On February 15, 2004 the
operator notified the partners that based on the data analyzed, production of
gas from the "Nir 1" well is not economically feasible.

On February 15, 2004 the operator presented the partners with two drilling
prospect: a) Nizanim 1 well b) Yam-3 well to a total depth of 5700 meter (18,700
feet), with a total budget of $40 million. As of the filing of this report on
Form 10-K, the Company did not receive notice of the partners' decision.

MARINE CENTER LICENSE

On September 21, 1999, the Company was awarded a preliminary permit, Marine
Center covering an area of 194 square kilometers. The permit included a
preferential right to obtain a license. In December 2000, Israeli Petroleum
Commissioner issued a license in respect of the area covered by the permit
(hereinafter, the "Marine Center License"), which license continues in effect
through December 3, 2003. The Company served as the operator of the Marine
Center License and held a 1% participation interest therein. The remaining
interests were held by affiliated entities.

In December 2000, Romi 1 well was drilled. Following analysis of the logs, it
was decided to plug and abandon the well. In December 2003 the Marine Center
License expired.

MARINE SOUTH LICENSE

In January 2000, the Company was awarded an offshore preliminary permit known as
Marine South, covering an area of approximately 142 square kilometers offshore
Israel known as "Marine South" and an additional permit known as "Marine South
B", covering an area of approximately 40 square kilometers offshore Israel. The
permits include a preferential right to obtain a license. In January 2002,
Israeli Petroleum Commissioner issued a license in respect of the area covered
by the Marine South permit (hereinafter, the "Marine South License"), which
license continues in effect through January 15, 2005 and is subject to (i) the
performance of a seismic 3D survey and the processing of the results thereof no
later than February 15, 2004, (ii) the preparation of an oil drilling prospect
by June 15, 2004 and (iii) the drilling of a well no later than December 15,
2004. The Company serves as operator of the License and holds a 1% participation
interest in the License; the remaining participation interests are held by
affiliated entities.

As there were no seismic vessels in the general vicinity, a seismic survey was
not conducted by February 15, 2004 and, consequently, in February 2004, the
Petroleum Commissioner requested that the Company relinquish the license. The
Company is currently appealing this decision.


                                       7
<PAGE>

               SUMMARY OF EXPLORATION EFFORTS IN THE UNITED STATES

The Company, through its wholly-owned subsidiaries, Jay Petroleum LLC ("Jay
Petroleum") and Jay Management LLC ("Jay Management"), is involved in oil and
gas production in the United States. Jay Petroleum owns varying working
interests in oil and gas wells in Louisiana, Texas, Oklahoma and Wyoming.
Independent estimates of the reserves held by Jay Petroleum as of December 31,
2003 are approximately 136,000 net barrels of proved developed producing oil and
2,785 net MMCFs of proved developed producing natural gas. Jay Management acts
as the operator of certain of the producing oil and gas interests owned or
acquired by Jay Petroleum.

In March 2003 gas production from Hoover 4 well located in Oklahoma commenced.
In June 2003 the Company purchased a 55% working Interest in 13 non producing
wells located in west Texas for an aggregate purchase price of approximately
$264,000. Certain of the wells were re-entered for purposes of commercial
production and are currently producing. The Company's share of the re-entry
costs is approximately $125,000. The Company anticipates re-entering the
remaining wells.

In addition, the Company purchased a 30% interest in a currently non-producing
well for aggregate purchase price of approximately $28,000. To date, the Company
expended approximately $100,000 to commence commercial production. The well is
currently producing.

                 WRITE-OFF/EXPIRATION OF INTERESTS IN THE CONGO

The Company formerly held oil and gas properties in the Congo. These consisted
of the Marine III Exploration Permit and the Marine 9 Exploration Permit. The
Company held a 25% participation interest in the Marine III Exploration Permit
(through its affiliate Naphtha Congo Ltd). The Company's participation interest
in the Marine 9 Exploration Permit was comprised of 5% (through Naphtha Congo
(1995) Limited Partnership, an affiliate); the remaining participants in the
Marine 9 License are recognized well-known oil companies.

In March 2003, Naphtha Congo, the operator of the Marine III Exploration Permit,
decided to discontinue the planned work program principally because it did not
believe that the continuation of such program was commercially reasonable. Based
on management's belief the Company wrote-off during the year, 2003 the amount of
$150,000 representing the Company's investment in Marine III Permit. In June
2003 the Marin III Permit expired.

In April 2003, Naphtha Congo received notice from the Congolese Ministry of oil
that the republic of the Congo has decided to retrieve the rights of Naphtha
Congo Ltd in Marine III, providing as a reason Naphtha Congo's non-performance
of the required work program. Under applicable law, the Congolese Government is
entitled to request reimbursement in the amount of funds not expended on the
required work program. Naphtha Congo received a letter dated May 16, 2003 from
the Congolese Government official supervising oil and gas exploration demanding
that Naphtha Congo remit an unspecified amount equivalent to the aggregate work
obligations that were not undertaken and a penalty of $294,000.

In December 2003 the Marine 9 Exploration Permit expired.

EMPLOYEES

As of March 29, 2004, the Company had eight employees at its branch office in
Israel and three employees in its office in Houston, Texas.

                                  RISK FACTORS

In addition to the other information contained in this Annual Report on Form
10-K, investors should consider carefully the following risks. If any of these
risks occurs, the Company's business, financial condition or operating results
could be adversely affected.

          OIL AND GAS DRILLING IS A SPECULATIVE ACTIVITY AND IS RISKY.

The Company is engaged in the business of oil and natural gas exploration and
the resulting development of productive oil and gas wells. The Company's growth
will be materially dependent upon the success of its future drilling


                                       8
<PAGE>

program. Drilling for oil and gas involves numerous risks, including the risk
that no commercially productive oil or natural gas reservoirs will be
encountered. The cost of drilling, completing and operating wells is substantial
and uncertain, and drilling operations may be curtailed, delayed or cancelled as
a result of a variety of factors beyond the Company's control, including
unexpected drilling conditions, pressure or irregularities in formations,
equipment failures or accidents, adverse weather conditions, compliance with
governmental requirements and shortages or delays in the availability of
drilling rigs or crews and the delivery of equipment. Although the Company
believes that its use of 3-D seismic data and other advanced technology should
increase the probability of success of its wells and should reduce average
finding costs through elimination of prospects that might otherwise be drilled
solely on the basis of 2-D seismic data and other traditional methods, drilling
remains an inexact and speculative activity. In addition, the use of 3-D seismic
data and such technologies requires greater pre-drilling expenditures than
traditional drilling strategies and the Company could incur losses as a result
of such expenditures. The Company's future drilling activities may not be
successful and, if unsuccessful, such failure could have an adverse effect on
the Company's future results of operations and financial condition. Although the
Company may discuss drilling prospects that have been identified or budgeted
for, the Company may ultimately not lease or drill these prospects within the
expected time frame, or at all. The Company may identify prospects through a
number of methods, some of which do not include interpretation of 3-D or other
seismic data. The drilling and results for these prospects may be particularly
uncertain. The final determination with respect to the drilling of any scheduled
or budgeted wells will be dependent on a number of factors, including (i) the
results of exploration efforts and the acquisition, review and analysis of the
seismic data, (ii) the availability of sufficient capital resources to the
Company and the other participants for the drilling of the prospects, (iii) the
approval of the prospects by other participants after additional data has been
compiled, (iv) economic and industry conditions at the time of drilling,
including prevailing and anticipated prices for oil and natural gas and the
availability of drilling rigs and crews, (v) the Company's financial resources
and results (vi) the availability of leases and permits on reasonable terms for
the prospects and (vii) the payment of royalties to lessors. There can be no
assurance that these projects can be successfully developed or that the wells
discussed will, if drilled, encounter reservoirs of commercially productive oil
or natural gas. There are numerous uncertainties in estimating quantities of
proved reserves, including many factors beyond the Company's control.

        THE OIL AND NATURAL GAS RESERVE DATA INCLUDED IN THIS REPORT ARE ONLY
ESTIMATES AND MAY PROVE TO BE INACCURATE.

There are numerous uncertainties inherent in estimating oil and natural gas
reserves and their estimated values. The reserve data in this report represent
only estimates that may prove to be inaccurate because of these uncertainties.
Estimates of economically recoverable oil and natural gas reserves depend upon a
number of variable factors, such as historical production from the area compared
with production from other producing areas and assumptions concerning effects of
regulations by governmental agencies, future oil and natural gas prices, future
operating costs, severance and excise taxes, development costs and workover and
remedial costs, some or all of these assumptions may in fact vary considerably
from actual results. For these reasons, estimates of the economically
recoverable quantities of oil and natural gas attributable to any particular
group of properties, classifications of such reserves based on risk of recovery,
and estimates of the future net cash flows expected therefrom prepared by
different engineers or by the same engineers but at different times may vary
substantially. Accordingly, reserve estimates may be subject to downward or
upward adjustment. Actual production, revenue and expenditures with respect to
the Company's reserves will likely vary from estimates, and such variances may
be material.

         THERE IS A POSSIBILITY THAT THE COMPANY WILL LOSE THE LEASES TO ITS OIL
AND GAS PROPERTIES.

The Company's oil and gas revenues are generated through leases to the oil and
gas properties or, in the case of Israeli based properties, licenses that,
subject to certain conditions, may result in leases being granted. The leases
are subject to certain obligations and are renewable at the discretion of
various governmental authorities, as such, the Company may not be able to
fulfill its obligations under the leases which may result in the modification or
cancellation of such leases, or such leases may not be renewed or may be renewed
on terms different from the current leases. The modification or cancellation of
the Company's leases may have a material impact on the Company's revenues.

        COMPETITION IN THE INDUSTRY MAY IMPAIR THE COMPANY'S ABILITY TO EXPLORE,
DEVELOP AND COMMERCIALIZE ITS OIL AND GAS PROPERTIES.

The oil and natural gas industry is very competitive. Competition is
particularly intense in the acquisition of prospective oil and natural gas
properties and oil and gas reserves. The Company competes with a substantial
number of other companies having larger technical staffs and greater financial
and operational resources. Many such companies not only engage in the
acquisition, exploration, development and production of oil and natural gas
reserves, but also carry on


                                       9
<PAGE>

refining operations, electricity generation and the marketing of refined
products. The Company also competes with major and independent oil and gas
companies in the marketing and sale of oil and natural gas, and the oil and
natural gas industry in general competes with other industries supplying energy
and fuel to industrial, commercial and individual consumers. The Company
competes with other oil and natural gas companies in attempting to secure
drilling rigs and other equipment necessary for drilling and completion of
wells. Such equipment may be in short supply from time to time.

        THE COMPANY'S BUSINESS MAY BE ADVERSELY AFFECTED BY OIL AND GAS PRICE
VOLATILITY.

Historically, natural gas and oil prices have been volatile. These prices rise
and fall based on changes in market demand and changes in the political,
regulatory and economic climate and other factors that affect commodities
markets that are generally outside of the Company's control. Some of the
Company's projections and estimates are based on assumptions as to the future
prices of natural gas and crude oil.. These price assumptions are used for
planning purposes. The Company expects that its assumptions will change over
time and that actual prices in the future may differ from its estimates. Any
substantial or extended decline in the actual prices of natural gas and/or crude
oil may have a material adverse effect on the Company's financial position and
results of operations (including reduced cash flow and borrowing capacity), the
quantities of natural gas and crude oil reserves that it can economically
produce and the quantity of estimated proved reserves that may be attributed to
its properties

        THE COMPANY HAS NO MEANS TO MARKET ITS OIL AND GAS PRODUCTION WITHOUT
THE ASSISTANCE OF THIRD PARTIES.

The marketability of the Company's production depends upon the proximity of its
reserves to, and the capacity of, facilities and third party services, including
oil and natural gas gathering systems, pipelines, trucking or terminal
facilities, and processing facilities. The unavailability or lack of capacity of
such services and facilities could impair or delay the production of new wells
or the delay or discontinuance of development plans for properties. A shut-in or
delay or discontinuance could adversely affect the Company's financial
condition. In addition, regulation of oil and natural gas production
transportation in the United States or in other countries may affect its ability
to produce and market its oil and natural gas on a profitable basis.

        THE COMPANY'S NON-OIL AND GAS PROPERTIES MAY PROVE RISKY.

The Company completed the purchase in March 2004 of a luxury cruise liner for
approximately $8 million. The Company also owns real estate properties in the
state of Israel. See "Description of Business." While the Company believes that
it will be able to exploit commercial opportunities associated with leasing the
luxury liner and leasing or developing the real estate, no assurance can be
given that the Company will be able to conclude any such agreeements on
commercially acceptable terms.

      THE COMPANY IS SUBJECT TO RISKS ASSOCIATED WITH OPERATIONS IN ISRAEL.

The Company is involved in oil and gas exploration activities in Israel as
operator of certain offshore licenses or otherwise. The Company also purchased
significant non-oil and gas real-estate properties in Israel. The Company also
maintains a significant presence within Israel. Accordingly, a significant
portion of the Company's business is directly affected by prevailing economic,
military and political conditions that affect Israel. Any major hostilities
involving Israel might have a material adverse effect on the Company's business,
financial condition or results of operations.

        THE COMPANY IS SUBJECT TO RISKS ASSOCIATED WITH INTERNATIONAL
OPERATIONS.

The Company conducts business from its facilities in Israel and the United
States. Its international operations and activities subject the Company to a
number of risks, including the risk of political and economic instability,
difficulty in managing foreign operations, potentially adverse taxes, higher
expenses and difficulty in collection of accounts receivable. Although the
Company Israeli subsidiary receives most of its operating funds in U.S. dollars,
a portion of its payroll and other expenses and certain of its investments are
fixed in the currency of Israel. Because the Company's financial results are
reported in U.S. dollars, they are affected by changes in the value of the
various foreign currencies that the Company uses to make payments in relation to
the U.S. dollar.

        THE COMPANY'S OPERATIONS MAY BE IMPACTED BY CERTAIN RISKS COMMON IN THE
INDUSTRY.

The Company's exploration and drilling operations are subject to various risks
common in the industry, including cratering, explosions, fires and
uncontrollable flows of oil, gas or well fluids. The drilling operations are
also subject to the risk that no commercially productive natural gas or oil
reserves will be encountered. The cost of drilling, completing and operating
wells is often uncertain, and drilling operations may be curtailed, delayed or
canceled as a result of a variety of factors, including drilling conditions,
pressure or irregularities in formations, equipment failures or accidents and
adverse weather conditions.


                                       10
<PAGE>

In accordance with industry practice, the Company maintains insurance against
some, but not all, of the risks described above. The Company cannot provide
assurance that its insurance will be adequate to cover losses or liabilities.
Also, it cannot predict the continued availability of insurance at premium
levels that justify its purchase.

        GOVERNMENT REGULATION AND LIABILITY FOR ENVIRONMENTAL MATTERS MAY
ADVERSELY AFFECT THE COMPANY'S BUSINESS AND RESULTS OF OPERATIONS.

Oil and natural gas operations are subject to various federal, state and local
government regulations, which may be changed from time to time.. Matters subject
to regulation include discharge permits for drilling operations, drilling bonds,
reports concerning operations, the spacing of wells, unitization and pooling of
properties and taxation. From time to time, regulatory agencies have imposed
price controls and limitations on production by restricting the rate of flow of
oil and natural gas wells below actual production capacity in order to conserve
supplies of oil and natural gas. There are federal, state and local laws and
regulations primarily relating to protection of human health and the environment
applicable to the development, production, handling, storage, transportation and
disposal of oil and natural gas, by-products thereof and other substances and
materials produced or used in connection with oil and natural gas operations. In
addition, the Company may be liable for environmental damages caused by previous
owners of property it purchases or leases. As a result, the Company may incur
substantial liabilities to third parties or governmental entities. The Company
is also subject to changing and extensive tax laws, the effects of which cannot
be predicted. The implementation of new, or the modification of existing, laws
or regulations could have a material adverse effect on the Company's business.

        THE COMPANY'S STOCK PRICE IS VOLATILE AND COULD CONTINUE TO BE VOLATILE.

Investor interest in the Company's common stock may not lead to the development
of an active or liquid trading market. The market price of the Company's common
stock has fluctuated in the past and is likely to continue to be volatile and
subject to wide fluctuations. In addition, the stock market has experienced
extreme price and volume fluctuations. The stock prices and trading volumes for
the Company's stock has fluctuated widely and may continue to so for reasons
that may be unrelated to business or results of operations. General economic,
market and political conditions could also materially and adversely affect the
market price of the Company's common stock and investors may be unable to resell
their shares of common stock at or above their purchase price.

        PENNY STOCK REGULATIONS ARE APPLICABLE TO INVESTMENT IN SHARES OF THE
COMPANY'S COMMON STOCK.

Broker-dealer practices in connection with transactions in "penny stocks" are
regulated by certain penny stock rules adopted by the Securities and Exchange
Commission. Penny stocks generally are equity securities with a price of less
than $5.00 (other than securities registered on certain national securities
exchanges or quoted on the Nasdaq system, provided that current prices and
volume information with respect to transactions in such securities are provided
by the exchange or system). The penny stock rules require a broker-dealer, prior
to a transaction in a penny stock not otherwise exempt from the rules, to
deliver a standardized risk disclosure document that provides information about
penny stocks and the risks in the penny stock market. The broker-dealer also
must provide the customer with current bid and offer quotations for the penny
stock, the compensation of the broker-dealer and its salesperson in the
transaction, and monthly account statements showing the market value of each
penny stock held in the customer's account. In addition, the penny stock rules
generally require that prior to a transaction in a penny stock the broker-dealer
make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written agreement to
the transaction. These disclosure requirements may have the effect of reducing
the level of trading activity in the secondary market for a stock that becomes
subject to the penny stock rules. Many brokers will not deal with penny stocks;
this restricts the market.

ITEM 2. PROPERTIES

The Company maintains offices in Houston, Texas. The Company has a lease for
office premises (approximately 2,015 square feet) at 11767 Katy Freeway,
Houston, TX 77079 expiring in October 2006 with a monthly rental of $2,400. The
Company anticipates that it will be able to extend the lease, or find
replacement premises, on commercially reasonable terms.

The Company also leases office space in Israel from Naphtha at 8 Granit St.,
Petach Tikva. In 2003, the Company paid Naphtha an aggregate of $197,000 for
rental space, office services, secretarial services and computer services. The
Company believes that the payment for the above services are reasonable compared
to other similar locations.


                                       11
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

The Company, together with Naphtha Congo Ltd., an Israeli and related entity
("Naphtha Congo"), were served in October 2002 in District Court of Harris
county, Texas, with summons and complaint by Romfor International Ltd., a
contractor ("Contractor") who provided drilling services in the Tilapia permit
in the Congo, alleging breach of contract and damages of approximately $1.5
million and moving for court ordered arbitration. The Contractor and Naphtha
Congo entered into a drilling agreement in October 2000 with respect to the
Tilapia 1 well. The Company indirectly held, through Naphtha Congo, a 50%
participation interest in the Tilapia 1 well.

The Company filed its answer on October 18, 2002, wherein it denied all
allegations made and denied that it is a proper party to the suit and moved to
dismiss the complaint. On March 20, 2003 , the court granted the Company's
motion to compel arbitration against Naphtha Congo, Subsequently, the contractor
moved for a new trial and, on July 8, 2003, the court denied the contractor's
motion for a new trial. On November 3, 2003 the arbitrator's award was forwarded
to Naphtha Congo. According the Arbitrator's award, Naphtha Congo is obliged to
pay the contractor the amount of $693,523 as funds due under the drilling
contract and in addition, interest at the rate of 18% per annum.

From time to time, the Company is involved in disputes and other legal actions
arising in the ordinary course of business. In management's opinion, none of
these other disputes and legal actions is expected to have a material impact on
the Company's consolidated financial position or results of operations.

RECENT DEVELOPMENT

On February 10, 2004, the Company initiated a lawsuit in the Superior Court of
California, County of Los Angeles, against several named defendants
(collectively, the "Defendants"), alleging breach of contract and tort claims in
connection with an agreement between the Company and the Defendants to jointly
purchase and develop certain parcels of real estate outside Los Angeles. In its
lawsuit, the Company is seeking damages in excess of $50 million. Responses are
not due until April 9, 2004.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of the fiscal year covered by this report, no matter
was submitted to a vote of security holders of the Company.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The number of record holders of the Company's Common Stock on March 29, 2004 was
approximately 565, not including an undetermined number of persons who hold
their stock in street name. The Company's stock trades under the symbol ISRL.

The high and low daily closing sales prices as reported on the National
Association of Securities Dealers Automated Quotations System National Market
System are shown in the table below for each quarter during 2003 and 2002.


                                                     Common Stock

          Quarter Ended                            High         Low

          2003
          March 31                                $4.43        $2.35
          June 30                                 $4.60        $2.78
          September 30                            $4.60        $3.66
          December 31                             $7.74        $3.95

          2002

          March 31                                $4.25        $3.60
          June 30                                 $4.20        $3.25
          September 30                            $3.50        $2.23
          December 31                             $3.15        $1.89




                                       12
<PAGE>

The Company has not declared or paid any cash dividends on its Common Stock. The
Company does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future. The Company intends to retain all earnings for use in its
business operations and in expansion.

(ii) The following table sets forth certain required information relating to the
shares of Common Stock issuable on an aggregated basis under the Company's 1993
Stock Option Plan.

<TABLE>
<CAPTION>
                                               EQUITY COMPENSATION PLAN INFORMATION

            Plan Category                  Number of       Weighted-          Number of
                                         securities to      average           securities
                                           be issued    exercise price of     remaining
                                             upon          outstanding      available for
                                          exercise of       options.           future
                                          outstanding                          issuance.
                                           options.
<S>                                         <C>              <C>                <C>
Equity compensation plans approved by
         security holders                   29,750           $21.00             20,250

Equity compensation plans not approved
         by security holders               139,990           $ 4.28                 --
                                         ---------          --------          ---------
               Total
                                           169,740           $ 7.21             20,250
</TABLE>

ITEM 6. SELECTED FINANCIAL DATA (CONSOLIDATED)

        The data presented below with respect to the Company should be read in
conjunction with the Consolidated Financial Statements and related Notes thereto
of the Company included elsewhere in this Report and Item 7-- "Management's
Discussion and Analysis of Financial Condition and Results of Operations." (in
Thousands)

<TABLE>
<CAPTION>
                                                         2003         2002        2001        2000          1999
<S>                                                      <C>          <C>         <C>         <C>           <C>
Operator's fees                                          $753         $249        $234        $1,265        $1,744
Oil and Gas Sales                                        $3,439       $2,423      $3,068      $2,080        $1,107
Interest income                                          $760         $738        $541        $1,277        $1,011
Office services to related parties and other             $939         $913        $857        $1,018        $881
Equity in earnings (losses) of investees                 $1,098       $(440)      $(177)      $106          $108
Reinbursement of exploration cost                        $--          $--         $--         $--
Gain from sale of oil and gas properties and equipment    --           --         $4          $6            $17
Capital Gai                                              $549          --          --          --            --
Gain (Loss) on marketable securities                     $872         $(189)      $(199)      $(9)          $1,264
Other                                                    $475         $49         $--         $--           $13
Realized gain on investment in affiliate                 $--          $--         $--         $--           $100
Gain on BG Transaction                                    --           --         $--         $3,626        $--
Impairment of oil & gas properties                       $617          --         $--         $2,550        $--
Impairment of Investment                                  --           --         $--         $400          $--
Exploration costs                                        $165         $1,747      $204        $2,956        $154
Lease operating expenses and severance
Taxes                                                    $872         $844        $905        $630          $469
Depreciation, depletion and
Amortization                                             $621         $642        $564        $443          $609
Operator expense                                         $795         $791        $696        $634          $514
General and administrative expenses                      $2,012       $1,422      $2,048      $1,740        $1,061
Interest Expense                                         $52          $210        $--         $55           $157
Accretion Expence                                        $43           --          --          --            --
</TABLE>


                                       13
<PAGE>
<TABLE>
<CAPTION>
<S>                                                      <C>                <C>         <C>          <C>          <C>
Income tax expense (benefit)                             $1,188             $114        $50          $(356)       $298
Net Income (loss) before cumulative effect               $2,520             $(1,799)    $(139)       $317         $2,983
Cumulative effect of change in accounting principles     $(264)             $3,516      --           --           --
Basic and diluted earnings (loss) per share for:
Net income (loss) before cumulative effect               $0.95              $(0.68)     $(0.05)      $0.12        $1.13
Cumulative effect of accounting change, net              $(0.10)              1.33      --           --           --
Net income (loss)                                        $0.85              $ 0.65      $(0.05)      $0.12        $1.13

Weighted average number of
common shares outstanding - basic                        2,639,853          2,639,853   2,639,853    2,639,853    2,639,853

Weighted average number of
common shares outstanding - diluted                      2,639,853          2,639,853   2,639,853    2,706,731    2,639,853
</TABLE>


                                           December 31,

                         2003       2002       2001       2000       1999

Balance Sheet Data

Total assets           $32,614    $28,667    $26,615     $27,281    $30,713
Total liabilities      $ 2,733    $ 2,175    $ 1,160     $ 1,449    $ 4,537
Shareholders' equity   $29,881    $26,492    $25,455     $25,832    $26,176


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

THE FOLLOWING COMMENTARY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES CONTAINED ELSEWHERE IN THIS FORM 10-K.
THE DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THESE STATEMENTS RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL
PERFORMANCE. IN SOME CASES, YOU CAN IDENTIFY THESE FORWARD-LOOKING STATEMENTS BY
TERMINOLOGY SUCH AS "MAY," "WILL," "SHOULD," "EXPECT," "PLAN," "ANTICIPATE,"
"BELIEVE," "ESTIMATE," "PREDICT," "POTENTIAL," "INTEND," OR "CONTINUE," AND
SIMILAR EXPRESSIONS. THESE STATEMENTS ARE ONLY PREDICTIONS. OUR ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS
AS A RESULT OF A VARIETY OF FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE SET
FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS FORM 10-K.

OVERVIEW

Isramco, Inc., a Delaware company, is active in the exploration of oil and gas
in Israel and the United States. The Company acts as an operator of certain
leases and licenses and also hold participation interests in certain other
interests. The Company also holds certain non-oil and gas properties. See
"Business".

CRITICAL ACCOUNTING POLICIES

In response to the SEC's Release No. 33-8040 "CAUTIONARY ADVICE EGARDING
DISCLOSURE AND CRITICAL ACCOUNTING POLICIES", the Company identified the
accounting principles which it believes are most critical to the reported
financial status by considering accounting policies that involve the most
complex of subjective decisions or assesment.

The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of customers to make required payments. If the
financial condition of customers were to deteriorate, resulting in an impairment
of their ability to make payments, additional allowances may be required.


                                       14
<PAGE>

The Company records an investment impairment charge when it believes an
investment has experienced a decline in value that is other than is temporary.
Future adverse changes in market conditions or poor operating results of
underlying investments could result in losses or an inability to recover the
carrying value of the investment that may not be reflected in an investment's
current carrying value, thereby possibly requiring an impairment charge in the
future.

The Company records a valuation allowance to reduce its deferred tax assets to
the amount that is more likely than not to be realized. While the Company has
considered future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for the valuation allowance, in the event that
the Company were to determine that it would be able to realize its deferred tax
assets in the future in excess of its net recorded amount, an adjustment to the
deferred tax asset would increase net income in the period such determination
was made.

The Company does not participate in, nor has it created, any off-balance sheet
special purpose entities or other off-balance sheet financing. In addition, the
Company does not enter into any derivative financial instruments.

The Company records a liability for asset retirement obligation at fair value in
the period in which it is incurred and a corresponding increase in the carrying
amount of the related long live assets.

LIQUIDITY AND CAPITAL RESOURCES

The Company finances its operations primarily from cash generated by operations.
The Company's operating activities provided net cash of $1,288,000, $1,372,000
and $1,667,000 in 2003, 2002 and 2001, respectively. The availability of cash
generated by operations could be affected by other business risks discussed in
the "Risk Factors" section of this annual report.

Working capital (current assets minus current liabilities) was $6,645,000 and
$3,618,000 at December 31, 2003 and 2002, respectively. The increase in working
capital is primarily attributable to increased oil and gas prices and value of
marketable securities.

Net cash used in investing activities in 2003 was $476,000 compared to
$4,554,000 in 2002. The cash used in 2002 was primarily attributable to
purchases of marketable securities, capitalization of drilling cost expended
during 2002 and purchase in June 2002 of non oil and gas producing real estate
located in Israel at an aggregate cost of $1,887,000. The real estate is located
in an area that is currently zoned for agricultural purposes. Concurrently with
the purchase of the real estate, the Company entered into a lease agreement with
an unaffiliated third party to let the entirety of such property for a 24 month
period at a monthly rent of $7,000. The cash used in investing activities in
2003 was primarily attributable to purchase of oil and gas properties.

Capital expenditures for property and equipment were $676,000 and $1,617,000 in
2003 and 2002, respectively. Capital expenditures are primarily attributable to
purchase of oil and gas properties.

In June 2000, the Company established IsramTec, Inc., a Delaware corporation and
wholly-owned subsidiary (hereinafter, "IsramTec") for purposes primarily of
identifying and investing in promising high-tech ventures. In July 2000,
IsramTec invested approximately $400,000 in a high tech company. In 2001 and
2002, the Company invested, by way of convertible loans, in such entity
additional aggregate amounts of $171,000 and $50,000 respectively. In December
2001, the Company determined the original investment to be impaired and,
accordingly, charged $400,000 to impairment expenses. In 2002, the entire amount
invested in such entity was converted into equity capital therein. In December
2003, the Company sold part of its equity interests for aggregate consideration
of approximately $609,000.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002.

The Company reported net income before cumulative effect of $2,520,000 (income
of $0.95 per share) in 2003 compared to a net loss before cumulative effect
$1,799,000 (loss of $ 0.68 per share) in 2002. The increase in the net income is
primarily attributable to an increase in oil and gas price in 2003 and due to
the gain in marketable securities and net income of investees.


                                       15
<PAGE>

Set forth below is a break-down of these results.

UNITED STATES

OIL AND GAS VOLUME AND REVENUES (IN THOUSANDS)


                                               2003                2002
        Oil Volume Sold (Bbl)                    19                  21

        Gas Volume Sold (MCF)                   600                 720

        Oil Sales ($)                           542                 470

        Gas Sales ($)                         2,897               1,953

        Average Unit Price

        Oil ($/Bbl) *                         28.09               22.54
        Gas ($/MCF) **                         4.82                2.71


*       Bbl - Barrel Equivalent to 42 U.S. Gallons

**      MCF - 1,000 Cubic Feet


                                       16
<PAGE>

THE OFFSHORE LICENSES (ISRAEL)

In each of 2003 and 2002, the Company expended approximately $88,243 and
$27,000, respectively, in respect of the Offshore Licenses.

OIL AND GAS EXPLORATION COSTS

The Company expended in 2003 approximately $165,000 in oil and gas exploration
costs as compared to approximately $1,747,000 expended in 2002. The exploration
cost in 2003 attributable to the investment in Tilapia (Congo) and in respect of
the Israeli offshore wells (Nir 2 and Nir 2). The oil and gas exploration costs
in 2002 is primarily attributable to the unsuccessful drilling of the Read well
in Texas and the unsuccessful drilling in the Marine 9 permit (the Congo).

OPERATOR'S FEES

In 2003 the Company earned $ 753,000 in operator fee compared to $ 249,000 in
2002. The increase is due to the drilling of Nir 2 well.

OIL AND GAS REVENUES

In 2003 and 2002 the Company had oil and gas revenues of $3,439,000 and
$2,423,000, respectively. The increase is due mainly to the increase in the oil
and gas price during 2003.

LEASE OPERATING EXPENSES AND SEVERANCE TAXES

Lease operating expenses and severance taxes were incurred primarily in
connection with oil and gas fields in the United States. Oil and gas lease
operating expenses and severance taxes were $872,000 and $844,000 for 2003 and
2002, respectively.

INTEREST AND DIVIDEND INCOME

Interest income during the year ended December 31, 2003 was $760,000 compared to
738,000 for the year ended December 31, 2002. The increase in interest income is
primarily attributable to interest receivable on marketable securities
(Debentures).

GAIN ON MARKETABLE SECURITIES

In 2003, the Company recognized net realized and unrealized gain on marketable
securities of $872,000 compared to net realized and unrealized losses on
marketable securities of $189,000 in 2002.

Increases or decreases in the gains and losses from marketable securities are
dependent on the market prices in general and the composition of the portfolio
of the Company.

OPERATOR EXPENSES

In 2003 the Company expended $795,000 in respect of the operator expenses
compare to $791,000 in 2002.


                                       17
<PAGE>

GENERAL AND ADMINISTRATIVE EXPENSES

In 2003, the Company incurred $2,012,000 as general and administrative expenses
compared to $1,422,000 incurred in 2002. The relatively higher amount in 2003 is
primarily attributable to bonuses awarded to senior officers and increase in
legal fees.

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001.

The Company reported net loss before cumulative effect of $1,799,000 (loss of
$0.68 per share) in 2002 compared to a net loss of $139,000 (loss of $0.05 per
share) in 2001. The increase in net loss in 2002 compared to 2001 is primarily
attributable to an increase in exploration costs from $204,000 in 2001 to
$1,747,000 in 2002 and to a decrease in gas prices in 2002.

Set forth below is a break-down of these results.

UNITED STATES

OIL AND GAS VOLUME AND REVENUES (IN THOUSANDS)


                                               2002                2001
        Oil Volume Sold (Bbl)                    21                  20

        Gas Volume Sold (MCF)                   720                 643

        Oil Sales ($)                           470                 477

        Gas Sales ($)                         1,953               2,591

        Average Unit Price
        Oil ($/Bbl) *                          22.54              23.59
        Gas ($/MCF) **                          2.71               4.03


*       Bbl - Barrel Equivalent to 42 U.S. Gallons ** MCF - 1,000 Cubic Feet

THE OFFSHORE LICENSES (ISRAEL)

In each of 2002 and 2001, the Company expended approximately $27,000 and $5,000,
respectively, in respect of the Offshore Licenses.


                                       18
<PAGE>

OIL AND GAS EXPLORATION COSTS

The Company expended in 2002 approximately $1,747,000 in oil and gas exploration
costs as compared to approximately $204,000 expended in 2001. The increase is
oil and gas exploration costs is primarily attributable to the unsuccessful
drilling in 2002 of the Read well in Texas and the unsuccessful drilling in the
Marine 9 permit (the Congo).

OPERATOR'S FEES

In 2002 the Company earned $ 249,000 in operator fees, compared to $ 234,000 in
2001.

OIL AND GAS REVENUES

In 2002 and 2001 the Company had oil and gas revenues of $2,423,000 and
$3,068,000, respectively. The decrease is due mainly to the decrease in the gas
price.

LEASE OPERATING EXPENSES AND SEVERANCE TAXES

Lease operating expenses and severance taxes were incurred primarily in
connection with oil and gas fields in the United States. Oil and gas lease
operating expenses and severance taxes were $844,000 and $905,000 for 2002 and
2001, respectively. The relatively higher amounts in 2001 in lease operating
expenses and severance taxes is primarily due to the work-overs performed in
connection with producing wells in 2001.

INTEREST AND DIVIDEND INCOME

Interest income during the year ended December 31, 2002 was $738,000 compared to
$541,000 for the year ended December 31, 2001. The increase in interest income
is primarily attributable to interest receivable on marketable securities
(Debentures).

GAIN ON MARKETABLE SECURITIES

In 2002, the Company recognized net realized and unrealized losses on marketable
securities of $189,000 compared to net realized and unrealized losses on
marketable securities of $199,000 in 2001.

Increases or decreases in the gains and losses from marketable securities are
dependent on the market prices in general and the composition of the portfolio
of the Company.

OPERATOR EXPENSES

In 2002 the Company expended $791,000 in respect of the operator expenses
compare to $696,000 in 2001. The increase in operator expense is primarily
attributable to increased office lease payments.

GENERAL AND ADMINISTRATIVE EXPENSES

In 2002, the Company incurred $1,422,000 as general and administrative expenses
compared to $2,048,000 incurred in 2001. The relatively higher amount in 2001 is
primarily attributable to bonuses awarded to senior officers.

CONTRACTUAL OBLIGATIONS

The Company leases office facilities in Texas and in Israel and certain
equipment pursuant to non-cancellable operating lease agreements. Future minimum
lease payments pursuant to these leases as of December 31, 2003 were as follows
(in thousands).

<TABLE>
<CAPTION>

                      Total     2004      2005      2006     2007     2008    Thereafter
                      -----     ----      ----      ----     ----     ----    ----------
<S>                   <C>       <C>       <C>       <C>      <C>      <C>     <C>
Operating Leases:
         Texas:       83,000    28,000    29,000    26,000   --       --      --
</TABLE>




                                       19
<PAGE>

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, and subsequently revised the Interpretation in
December 2003 (FIN 46R). This Interpretation of Accounting Research Bulletin No.
51, Consolidated Financial Statements, addresses consolidation by business
enterprises of variable interest entities, which have certain characteristics.
As revised, FIN 46R is now generally effective for financial statements for
interim or annual periods ending on or after March 15, 2004. We have no
identified any variable interest entities. In the event a variable interest
entity is identified, we do not expect the requirements of FIN 46R to have a
material impact on our consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Instruments
with Characteristics of Both Liabilities and Equity," ("SFAS 150") which
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
150 requires that an issuer classify a financial instrument that is within its
scope, which may have previously been reported as equity, as a liability (or an
asset in some circumstances). This statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003 for public companies. The adoption of SFAS No 150 did not have a material
impact on our consolidated financial statements.

In July 2003, an issue was bought before the Financial Accounting Standards
Board regarding whether or not sontract-based oil and gas mineral rights held by
lease or contact ("mineral rights") should be recorded or disclosed as
intangible assets. The issue presents a view that these mineral rights are
classified assests as defined in SFAS No. 141, "Business Combinations," and
therefore, should be classified separately on the balance sheet as intangible
assets. SFAS No. 141 and SFAS No. 142, "Goodwill and Other Intangible Assets,"
became effective for transactions subsquent to June 30, 2001, with the
disclosure requirments of SFAS No. 142 required as of January 1, 2002. SFAS No.
141 requires that all business combinations initiated after June 30, 2001 be
accounted for using the purchase method and that intangible assets be
disaggregated and reported separately from goodwill SFAS No. 142 established new
accounting guidelines for both finite lived intangible assets and indefinite
lived intangible assets. Under the statement, intangible assets should be
separately reported on the face of the balance sheet and accompanied by
disclosure in the notes to financial statements. SFAS No. 142 does not apply to
accounting utilized by the oil and gas industry as prescribed by SFAS No. 19,
and is silent about whether ot not its disclosure provisions apply to oil and
gas mineral rights to an upcoming agenda, which may result in a change in how
Isramco classifies these assets.

Should such a change be required the amounts related to business combinations
and major asset purchases that would be classified as "intangible mineral
interest" are estimated to be $4,617,333 as of December 31, 2003 and $4,434,828
as December 31, 2002.



                                       20
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk, including adverse changes in commodity
prices.

The Company produces and sells natural gas and crude oil.. As a result, the
Company's financial results can be significantly affected if these commodity
prices fluctuate widely in response to changing market forces.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information called for by this Item 8 is included following the "Index to
Financial Statements" contained in this Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES . The Company maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Company's Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure
based closely on the definition of "disclosure controls and procedures" in Rule
13a-14(c). In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.

As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with participation of management,
including our Chief Executive Officer and our Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on the foregoing, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
effective.

CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING . During the quarter ended
December 31, 2003, there have been no changes in our internal controls over
financial reporting that have materially affected, or are reasonably likely to
materially affect, these controls.

                                    PART III

The information called for by items 10, 11, 12 13 and 14 will be contained in
the Company's definitive proxy statement which the Company intends to file
within 120 days after the end of the Company's fiscal year ended December 31,
2002 and such information is incorporated herein by reference.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

The Company has adopted a code of conduct and ethics applicable to all of senior
executive officers and senior financial officers, including the Chief Executive
Officer. A copy of such code of conduct and ethics is filed as Exhibit 14.1 to
this Annual Report on Form 10-K.


                                       21
<PAGE>

GLOSSARY

"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.

"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 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.

"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.

"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.


                                       22
<PAGE>

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

        (a)     Exhibits

        3.1     Articles of Incorporation of Registrant with all amendments
                filed as an Exhibit to the S-l Registration Statement, File No.
                2-83574.

        3.2     Amendment to Certificate of Incorporation filed March 17, 1993,
                filed as an Exhibit with the S-l Registration Statement, File
                No. 33-57482.

        3.3     By-laws of Registrant with all amendments, filed as an Exhibit
                to the S-l Registration Statement, File No. 2-83570.

        10.1    Oil Marketing Agreement, filed as Exhibit with the S-l
                Registration Statement, File No. 2-83574.

        10.2    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 Pat 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.

        10.3    Grant Agreement with the Government of Israel, undared, 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.

        10.4    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.

        10.5    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-l Registration
                Statement. File No. 2- 83574.

        10.6    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.

        10.7    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.


                                       23
<PAGE>

        10.8    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.

        10.9    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.

        10.10   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.

        10.11   Agreement by and among Naphtha Congo Ltd., Equital Ltd. and the
                Company dated September 4, 1997, filed as an Exhibit to Form 8-K
                for the month of September, 1997 and incorporated herein by
                reference.

        10.12   Amendment to Consulting Agreement between Goodrich Global L.T.D.
                B.V.I. and the Company dated December _, 1997, filed as an
                Exhibit to Form 8-K for the month of December, 1997 and
                incorporated herein by reference.

        10.13   Consulting Agreement between Romulas Investment Ltd. and the
                Company dated August _, 1997, filed as an Exhibit to Form 8-K
                for the month of September, 1997 and incorporated herein by
                reference, assigned by Romulas Investment Ltd. on December 31,
                1997 to Remarkable Holdings Ltd.

        10.14   Inventory Services Management Agreement dated December 1997
                between the Company and Equital Ltd. filed herewith as Exhibit
                10.70.

        10.15   Consulting Agreement dated as of November 1, 1999 between the
                Company and Worldtech, Inc.

        10.16   Agreement dated June 12, 2002 between the Company and Mati
                Properties and Construction Ltd. and Boaz Avrahami, filed as an
                Exhibit to the Form 10-Q for the quarter ended June 30, 2002.

        14.1    Code of Ethics *

        31      Certification of Chief Executive and Principal Financial Officer
                pursuant to Section 302 of Sarbanes-Oxley Act *

        32      Certification of Chief Executive and Principal Financial Officer
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                Section 906 of the Sarbanes-Oxley act of 2002. *

        99.1    Financial Statements of Isramco Negev 2 Limited Partnership as
                of December 31, 2003 *

*       Attached hereto as an exhibit

        (b)     Reports on Form 8-K

Isramco filed a report on Form 8-K on December 9, 2003 announcing the
resignation of its Vice President and the appointment of Mr. Doron Avrahan as
its new Vice President.

        (c)     Financial Statements



                                       24
<PAGE>

                                   SIGNATURES

In accordance with 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.





                                 /S/ HAIM TSUFF,
                             CHAIRMAN OF THE BOARD,
                           CHIEF EXECUTIVE OFFICER AND
                          PRINCIPAL FINANCIAL OFFICER



Date: August 16, 2004




                                       25
<PAGE>

INDEX TO FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

Independent Auditors' Reports                                               F-1

Consolidated Balance Sheets at December 31, 2003 and 2002                   F-2

Consolidated Statements of Operations for the years ended December 31,
2003,2002,and 2001                                                          F-3

Consolidated Statements of changes in Shareholders' Equity for the years
ended December 31, 2003, 2002 and 2001                                      F-4

Consolidated Statements of Cash Flows for the years ended December 31,
2003, 2002 and 2001                                                         F-5

Notes to Consolidated Financial Statements                                  F-6



                                       (i)



                                       26
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Shareholders and Board of Directors of Isramco, Inc. and Subsidiaries

We have audited the consolidated balance sheets of Isramco, Inc. and
subsidiaries (the "Company") as of December 31, 2003 and 2002, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 2003. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the financial
statements of Isramco Oil and Gas, Ltd.; Isramco B.V., Cruquius; or Isramco,
Inc. - Israel Branch, which are wholly owned subsidiaries whose combined
statements reflect total assets of $ 11,249,799 and $ 12,494,523 as of December
31, 2003 and 2002, respectively, and total revenues of $ 3,422,000 and
$1,728,732 for the years then ended, respectively. Those statements were audited
by other auditors whose reports have been furnished to us, and our opinion,
insofar as it relates to the amounts included for these subsidiaries, is based
solely on the reports of the other auditors.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and reports of the other
auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Isramco, Inc. and
subsidiaries at December 31, 2003 and 2002, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2003 in conformity with accounting principles generally
accepted in the United States.

As discussed in Note A, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 143 "Accounting for Asset Retirement
Obligations" as of January 1, 2003. Also discussed in Note A, the Company
adopted the provisions of Atatement of Financial Accounting Standard No. 142
"Goodwill and Other Intangible Assets in 2002".





/S/ MANN FRANKFORT STEIN & LIPP CPAS, LLP

HOUSTON, TEXAS
MARCH 5, 2004


                                      F-1
<PAGE>
<TABLE>
<CAPTION>

                                                 ISRAMCO INC. AND SUBSIDIARIES
                                                  CONSOLIDATED BALANCE SHEETS
                                          (in thousands except for share information)


                                                                                                         DECEMBER 31
                                                                                                -----------------------------
                                                                                                      2003               2002
                                                                                                ----------         ----------
<S>                                                                                             <C>                <C>
                                                            ASSETS
CURRENT ASSETS
         Cash and cash equivalents                                                              $    2,429         $    1,617
         Marketable securities, at market                                                            4,064              3,177
         Accounts receivable - trade                                                                   503                558
         Accounts receivable - other                                                                   609                 --
         Prepaid FIT expenses                                                                          407                315
         Prepaid expenses and other current assets                                                     197                126
                                                                                                ----------         ----------

         TOTAL CURRENT ASSETS                                                                        8,209              5,793

Property and equipment, net (successful efforts
method for oil and gas properties)                                                                   3,264              3,505
Real Estate                                                                                          1,887              1,887
Marketable securities, at market                                                                     8,572              7,733
Investment in affiliates                                                                            10,520              8,641
Deferred tax asset                                                                                      --                887
Other                                                                                                  162                221
                                                                                                ----------         ----------

TOTAL ASSETS                                                                                    $   32,614         $   28,667
                                                                                                ==========         ==========

                                             LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
         Accounts payable and accrued expenses                                                  $      798         $    2,175
                                                                                                ----------         ----------

         TOTAL CURRENT LIABILITIES                                                                     798              2,175
                                                                                                ----------         ----------

Asset retirement obligations                                                                           766                 --
Deferred tax liability                                                                               1,169                 --

SHAREHOLDERS' EQUITY
         Common stock $ 0.0l par value; authorized 7,500,000 shares;                                    27                 27
         issued 2,669,120 shares; outstanding 2,639,853 shares
         Additional paid-in capital                                                                 26,240             26,240
         Retained earnings (accumulated deficit)                                                     3,189                933
         Accumulated other comprehensive income (loss)                                                 589              (544)
         Treasury stock, 29,267 shares at cost                                                       (164)              (164)
                                                                                                ----------         ----------
         Total shareholders' equity                                                                 29,881             26,492
                                                                                                ----------         ----------

Total liabilities and shareholders' equity                                                      $   32,614         $   28,667
                                                                                                ==========         ==========
</TABLE>


See notes to the consolidated financial statements.


                                                             F-2
<PAGE>
<TABLE>
<CAPTION>

                                                 ISRAMCO INC. AND SUBSIDIARIES
                                             CONSOLIDATED STATEMENTS OF OPERATIONS
                                          (in thousands except for share information)


                                                                                            YEAR ENDED DECEMBER 31,
                                                                              -----------------------------------------------
                                                                                    2003              2002               2001
                                                                              ----------        ----------         ----------
<S>                                                                           <C>               <C>                <C>
Revenues and other income :                                                                            ---                ---
Operator fees from related party                                              $      753        $      249         $      234
Oil and gas sales                                                                  3,439             2,423              3,068
Interest income                                                                      760               738                541
Office services
         To related parties                                                          635               773                754
         To others                                                                   304               140                103
Gain on sale of investment                                                           549
Gain from sale oil and gas properties and
Equipment                                                                            ---               ---                  4
Gain on marketable securities                                                        872               ---                ---
Equity in net income of investees                                                  1,098               ---                ---
Other                                                                                475                49                ---
                                                                              ----------        ----------         ----------

                 Total revenues and other income                                   8,885             4,372              4,704
                                                                              ----------        ----------         ----------
Expenses :
Interest expense                                                                      52               210                ---
Accretion expense                                                                     43               ---                ---
Depreciation, depletion and amortization                                             621               642                564
Lease operation expense and severance taxes                                          872               844                905
Exploration costs                                                                    165             1,747                204
Operator expense                                                                     795               791                696
General and administrative
         To related parties                                                          317               120                240
         To others                                                                 1,695             1,302              1,808
Loss on sale of marketable securities                                                ---               189                199
Equity in net loss of investees                                                      ---               440                177
Impairment of oil and gas assets                                                     617               ---                ---
                                                                              ----------        ----------         ----------

                 Total expenses                                                    5,177             6,285              4,793
                                                                              ----------        ----------         ----------

Income (loss) before income taxes                                                  3,708            (1,913)               (89)
Income taxes (benefit)                                                             1,188               114                 50
                                                                              ----------        ----------         ----------

Net income (loss) before cumulative effect of change in accounting principle       2,520            (1,799)              (139)
Cumulative effect of change in accounting principle, net                            (264)            3,516                ---
                                                                              ----------        ----------         ----------

Net income (loss)                                                             $    2,256        $    1,717         $     (139)
                                                                              ==========        ==========         ==========
Earnings (loss) per share
Basic and diluted earnings (loss) per share for:
   Net income (loss) before cumulative effect                                 $     0.95        $    (0.68)        $    (0.05)
   Cumulative effect of accounting change, net                                $    (0.10)       $     1.33         $      ---
                                                                              ----------        ----------         ----------
Net income (loss)                                                             $     0.85        $     0.65         $    (0.05)
                                                                              ==========        ==========         ==========
Weighted average number of common shares
   outstanding-basic                                                           2,639,853         2,639,853          2,639,853
                                                                              ==========        ==========         ==========
Weighted average number of common shares outstanding -diluted                  2,639,853         2,639,853          2,639,853
                                                                              ==========        ==========         ==========
</TABLE>


See notes to the consolidated financial statements.


                                                             F-3
<PAGE>
<TABLE>
<CAPTION>

                                                 ISRAMCO INC. AND SUBSIDIARIES
                                  CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                     FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


                                                                          COMMON STOCK
                                                                   --------------------------

                                                                                                               ACCUMULATED
                                                                                                ADDITIONAL           OTHER
                                                                         NUMBER                    PAID-IN   COMPREHENSIVE
                                                                      OF SHARES        AMOUNT      CAPITAL   INCOME (LOSS)
                                                                   ------------  ------------  ------------  -------------
                                                                                $ IN THOUSANDS, EXCEPT SHARE AMOUNTS
<S>                                                                   <C>                  <C>       <C>               <C>
Balances at December 31, 2000                                         2,669,120            27        26,240            374

Comprehensive income:

Net Income                                                                    -             -             -              -
Net unrealized loss on available for sale marketable
securities, net of taxes                                                      -             -             -           (238)


Total comprehensive income
                                                                   ------------  ------------  ------------  -------------

Balances at December 31, 2001                                         2,669,120            27        26,240            136

Comprehensive income:

Net Income                                                                    -             -             -              -
Net unrealized loss on available for sale marketable
securities, net of taxes                                                      -             -             -           (243)
Net realized gain (loss) on foreign exchange rates, net of taxes              -             -             -           (437)

Total comprehensive income
                                                                   ------------  ------------  ------------  -------------

Balances at December 31, 2002                                         2,669,120  $         27  $     26,240  $        (544)
Comprehensive income:

Net Income
Net unrealized gain on available for sale marketable                          -             -             -              -
securities, net of taxes                                                      -             -             -            524
Net realized gain (loss) on foreign exchange rates, net of taxes              -             -             -            609
Total comprehensive income
                                                                   ------------  ------------  ------------  -------------
Balances at December 31, 2003                                         2,669,120  $         27  $     26,240  $         589
                                                                   ============  ============  ============  =============

(CONTINUED)

                                                                      RETAINED
                                                                       EARNINGS                        TOTAL
                                                                   (ACCUMULATED      TREASURY  SHAREHOLDERS'
                                                                       DEFICIT)         STOCK         EQUITY
                                                                   ------------  ------------  -------------



Balances at December 31, 2000                                              (645)         (164)        25,832

Comprehensive income:

Net Income                                                                 (139)            -           (139)
Net unrealized loss on available for sale marketable
securities, net of taxes                                                      -             -           (238)
                                                                                               -------------

Total comprehensive income                                                                              (377)
                                                                   ------------  ------------  -------------

Balances at December 31, 2001                                              (784)         (164)        25,455

Comprehensive income:

Net Income                                                                1,717             -          1,717
Net unrealized loss on available for sale marketable
securities, net of taxes                                                      -             -           (243)
Net realized gain (loss) on foreign exchange rates, net of taxes              -             -           (437)
                                                                                               -------------

Total comprehensive income                                                                             1,037
                                                                   ------------  ------------  -------------

Balances at December 31, 2002                                      $        933  $       (164) $      26,492
Comprehensive income:

Net Income                                                                2,256                        2,256
Net unrealized gain on available for sale marketable
securities, net of taxes                                                      -             -            524
Net realized gain (loss) on foreign exchange rates, net of taxes              -             -            609
                                                                                               -------------
Total comprehensive income                                                                             3,389
                                                                   ------------  ------------  -------------
Balances at December 31, 2003                                      $      2,929  $       (164) $      29,881
                                                                   ============  ============  =============
</TABLE>


                                                             F-4
<PAGE>
<TABLE>
<CAPTION>

                                                 ISRAMCO INC. AND SUBSIDIARIES
                                             CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                        (in thousands)


                                                                                            YEAR ENDED DECEMBER 31,
                                                                              -----------------------------------------------
                                                                                    2003              2002               2001
                                                                              ----------        ----------         ----------
<S>                                                                           <C>               <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                                                                  2,256        $    1,717         $     (139)

Adjustments to reconcile net income (loss) to cash provided by operating
 activities:

Depreciation, depletion, amortization and provision for impairment                 1,238               642                564
Accretion of asset retirement obligation                                              43
Dry hole costs                                                                        99             1,642                  -
Loss (gain) on marketable securities                                                (872)              189                199
Gain on sale of investment                                                          (549)                -                  -
Gain on sale of oil properties and equipment                                                             -                 (4)
Equity in net loss (income) of investees                                          (1,098)              440                177
Cumulative effect of an accounting change                                            264           (3,516)                  -
Employee stock awards                                                                  -                 -                  -

Deferred taxes                                                                     1,532               195                  -
Changes in assets and liabilities:
Accounts receivables                                                                  53              (103)               376
Prepaid expenses and other current assets                                           (163)             (329)               468
Other                                                                                  -                 -               (166)
Accounts payable and accrued expenses                                             (1,377)            1,015               (289)
Marketable securities-trading                                                       (138)             (519)               481
                                                                              ----------        ----------         ----------
Net cash provided by operating activities                                          1,288             1,372              1,667
                                                                              ----------        ----------         ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment                                                  (676)           (1,617)            (2,276)
Proceeds from sale of oil and gas properties and equipment                             -                10                  3
Purchase of real estate                                                                -            (1,887)                 -
Purchase of marketable securities                                                 (3,070)             (491)            (6,706)
Proceeds from BG transaction                                                         ---                 -                  -
Proceeds from sale of marketable securities                                        3,270                 -                  -
Purchase of convertible promissory note                                                -               (50)                 -
Purchase of investment in affiliates                                                   -                 -             (1,114)
                                                                              ----------        ----------         ----------

Net cash used in investing activities                                               (476)           (4,035)            (9,612)
                                                                              ----------        ----------         ----------
CASH FLOWS FROM FINANCING ACTIVITIES

Principal payments on long-term debt                                                   -                 -                  -
                                                                              ----------        ----------         ----------
Net cash used in financing activities                                                  -                 -                  -
                                                                              ----------        ----------         ----------

NET INCREASE (DECREASE)  IN CASH AND CASH EQUIVALENTS                                812            (2,663)            (8,426)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                     1,617             4,280             12,706
                                                                              ----------        ----------         ----------

CASH AND CASH EQUIVALENTS AT END OF YEAR                                           2,429        $    1,617         $    4,280
                                                                              ==========        ==========         ==========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

CASH PAID DURING THE YEAR FOR INTEREST                                        $        -        $        -         $        -
                                                                              ==========        ==========         ==========

CASH PAID DURING THE YEAR FOR TAXES                                           $        -        $        -         $       25
                                                                              ==========        ==========         ==========
</TABLE>


See notes to the consolidated financial statements.


                                                             F-5
<PAGE>

                          ISRAMCO INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(NOTE A) -- GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

[1]     The Company

Isramco Inc. and subsidiaries (the Company) is primarily engaged in the
acquisition, exploration, operation and development of oil and gas properties.
As of December 31, 2003, the Company has oil and gas interest in Texas,
Louisiana, Oklahoma, Wyoming, New Mexico, the Republic of Congo, Africa, and

approximately a 0.5% working interest in various properties located in Israel.
In addition the company purchased real estate in Israel in 2002.

[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 Resources Inc., a British Virgin Islands company, its wholly
owned subsidiary, Jay Petroleum, L.L.C., (Jay), Jay Management L.L.C (Jay
Management), IsramTec Inc. (IsramTec) and a wholly-owned foreign subsidiary.
Intercompany balances and transactions have been eliminated in consolidation.

[3]     Method of Accounting for Oil and Gas Operations

The Company follows the "successful efforts" method of accounting for its oil
and gas properties. Under this method of accounting, all property acquisition
costs and costs of exploratory and development wells are capitalized when
incurred, pending determination of whether the well has found proved reserves.
If an exploratory well has not found proved reserves, the costs of the well are
charged to expense. The costs of development wells are capitalized whether
successful or unsuccessful. Geological and geophysical costs and the costs of
carrying and retaining undeveloped properties are expensed as incurred.
Management estimates that the salvage value of lease and well equipment will
approximately offset the future liability for plugging and abandonment of the
related wells. Accordingly, no accrual for such costs has been recorded.

In July 2003, an issue was brought before the Financial Accounting Standards
Board regarding whether or not contract-based oil and gas mineral rights held by
lease or contract ("mineral rights") should be recorded or disclosed as
intangible assets. The issue presents a view that these mineral rights are
intangible assets as defined in SFAS No. 141, "Business Combinations," and
therefore, should be classified separately on the balance sheet as intangible
assets. SFAS No. 141 and SFAS No. 142, "Goodwill and Other Intangible Assets,"
became effective for transactions subsequent to June 30, 2001, with the
disclosure requirements of SFAS No. 142 required as of January 1, 2002. SFAS No.
141 requires that all business combinations initiated after June 30, 2001 be
accounted for using the purchase method and that intangible assets be
disaggregated and reported separately from goodwill. SFAS No. 142 established
new accounting guidelines for both finite lived intangible assets and indefinite
lived tangible assets. Under the statement, intangible assets should be
separately reported on the face of the balance sheet and accompanied by
disclosure in the notes to financial statements. SFAS No. 142 does not apply to
accounting utilized by the oil and gas industry as prescribed by SFAS No. 19,
and is silent about whether or not its disclosure provisions apply to oil and
gas companies. The Emerging Issues Task Force (EITF) has added the treatment of
oil and gas mineral rights to an upcoming agenda, which may result in a change
in how Isramco classifies theses assets.

Should such a change be required, the amounts related to business combinations
and major asset purchases that would be classified as "intangible mineral
interest" are estimated to be $4,617,333 as of December 31, 2003 and $4,434,828
December 31, 2002.

Depletion and depreciation of capitalized costs for producing oil and gas
properties is provided using the units-of-production method based upon proved
reserves. Depreciation, depletion, amortization and provision for impairment
expense for the Company's oil and gas properties amounted to approximately
$1,179,000, $2,589,000 and $519,000 for 2003, 2002 and 2001, respectively.

In accordance with SFAS 143, the Company has recorded an asset retirement
obligation in connection with the plugging and abandonment of its oil and gas
properties. The fair value of the liability is added to the carrying amount of
the associated asset and this additional carrying amount is depreciated over the
life of the asset.

[4]     Marketable Securities


                                      F-6
<PAGE>

Statement of Financial Accounting Standard No. 115 (SFAS No. 115), Accounting
for Certain Investments in Debt and Equity Securities, requires the Company to
classify its debt and equity securities in one of three categories: trading,
available-for-sale and held-to-maturity. Trading securities are bought and held
principally for the purposes of selling them in the near term. Held-to-maturity
securities are those securities in which the Company has both the ability and
intent to hold the security until maturity. All other securities not included in
trading or held-to-maturity are classified as available-for-sale.

Trading and available-for-sale securities are recorded at fair market value. The
Company holds no held-to-maturity securities. Unrealized holding gains and
losses on trading securities are included in earnings. Unrealized holding gains
or losses, net of the related tax effects, on available-for-sale securities are
excluded from earnings and are reported net of applicable taxes as accumulated
other comprehensive income, a separate component of shareholders' equity, until
realized.

[5]     Investment in Affiliates

The Company accounts for its investments in affiliate entities in which it has
the ability to exercise significant influence over operating and financial
policies using the equity method.


                                      F-7
<PAGE>

[6]     Equipment

Equipment, consisting of motor vehicles, office furniture and equipment, is
carried at cost less accumulated depreciation, computed on the straight-line
method over the estimated useful lives of the assets.

[7]     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
and the Israel branch have been remeasured into U.S. dollars as follows: at
rates prevailing during the year for revenue and expense items (except
depreciation); at year-end rates for assets and liabilities except for fixed
assets and prepaid expenses which are translated at the rate in effect at the
time of their acquisition. Depreciation is remeasured based on the historical
dollar cost of the underlying assets. The net effects of currency translations
were not material for any period.

[8]     Earnings Per Share (EPS)

The Company follows SFAS No. 128, Earnings per Share, for computing and
presenting earnings per share, which requires, among other things, dual
presentation of basic and diluted loss per share on the face of the statement of
operations. Basic EPS is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common shares were exercised or converted
into common shares or resulted in the issuance of common shares that then shared
in the earnings of the entity. For the years ended December 31, 2003, 2002 and
2001, the Company's stock options were anti-dilutive.

[9]     Cash Equivalents

Cash equivalents include short-term investments with original maturities of
ninety days or less and are not limited in their use.

[10]    Non-compete Agreements

Non-compete agreements are amortized over the period to be benefitted, generally
from three to five years.


                                      F-8
<PAGE>

[12]    Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and related notes.
Actual results could differ from those estimates.

Oil and gas reserve quantities are the basis for the calculation of
depreciation, depletion and impairment of oil and gas properties. An independent
petroleum-engineering firm determines the Company's reserve estimates. However,
management emphasizes that reserve estimates are inherently imprecise and that
estimates of more recent discoveries and non-producing reserves are more
imprecise than those for properties with long production histories. At December
31, 2003, approximately 18% of the Company's oil and gas reserves were
attributable to non-producing reserves. Accordingly, the Company's estimates are
expected to change as future information becomes available.

As mandated under SFAS No. 144, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be disposed of, the Company is required
under certain circumstances to evaluate the possible impairment of the carrying
value of its long-lived assets. For proved oil and gas properties, this involves
a comparison to the estimated future undiscounted cash flows, as described in
the paragraph below. In addition to the uncertainties inherent in the reserve
estimation process, these amounts are affected by management`s estimates for
projected prices for oil and natural gas, which have typically been volatile. It
is reasonably possible that the Company's oil and gas reserve estimates will
materially change in the forthcoming year.

[13]    Impairment of Long-Lived Assets

The Company adopted SFAS No. 144, "ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF
LONG-LIVED ASSETS" (SFAS No. 144) as from January 1, 2002. This Statement
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to undiscounted future cash flows
expected to be generated by the asset or used in its disposal. If the carrying
amount of an asset exceeds its estimated undiscounted future cash flows, an
impairment charge is recognized equal to the amount by which the carrying amount
exceeds the fair market value of the asset. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to sell.
During 2003 the company recorded impairment charge of $ 248,000 relating to its
proved properties and $ 81,000 related to the retirement obligation assets.

Unproved oil and gas properties that are individually significant are
periodically assessed for impairment value, and a loss is recognized to the
extent, if any, that the cost of the property has been impaired. During 2003,
the Company recorded an impairment of $ 288,000 relating to its unproved
properties. There are no such impairments recognized during 2002 and 2001.

[14]    Income Taxes

The Company accounts for income taxes using the asset and liability method as
prescribed by SFAS No. 109, Accounting for Income Taxes. Deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax bases of assets and liabilities, and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. The measurement of deferred tax assets is reduced, if necessary, by a
valuation allowance for any tax benefits which, are not expected to be realized.
The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in the period that such tax rate changes are enacted.

[15]    Oil and Gas Revenues

The Company records oil and gas revenues following the entitlement method of
accounting for production, in which any excess amounts received above the
Company's share is treated as a liability. If less than the Company's share is
received, the underproduction is recorded as an asset. The Company's imbalance
position was not significant in terms of volumes or values at December 2003 and
2002.


                                      F-9
<PAGE>

[16]    Environmental

The Company is subject to extensive federal, state, local and foreign
environmental laws and regulations. These laws, which are constantly changing,
regulate the discharge of materials into the environment and may require the
Company to remove or mitigate the environmental effects of the disposal or
release of petroleum or chemical substances at various sites. Liabilities for
expenditures of no capital nature are recorded when environmental assessment
and/or remediation is probable, and the costs can be reasonably estimated. No
significant amounts for environmental liabilities are recorded at December 31,
2003 and 2002.

[17]    STOCK-BASED COMPENSATION

SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation plans at fair value. In December 2002, the FASB issued SFAS No.
148, ACCOUNTING FOR STOCK-BASED COMPENSATION-TRANSITION AND DISCLOSURE-AN
AMENDMENT OF FASB STATEMENT NO. 123, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. The statement also amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
compensation and the effect of the method used on reported results.

The Company has chosen to contimue to account for stock-based compensation
issued to employees using the intrinsic value method prescribed in Accounting
Principles Board (APB) Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES,
and related interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
the stock.

The fair value of options is calculated using the Black-Scholes option-pricing
model. Had the Company adopted the fair value method of accounting for stock
based compensation, compensation expense would have been higher, and net loss
and net loss attributable to common shareholders would have increased for the
periods presented. No change in cash flows would occur. The effects of applying
SFAS No. 123 in this pro forma disclosure are not indicative of future amounts.

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                                    -------------------------
                                                                     2003     2002      2001
                                                                    ------   ------    ------
<S>                                                                 <C>      <C>       <C>
Net income (loss) reported.....................................     $2,256   $1,717    $(139)
     Deduct:
          Total stock based employee compensation expense
            determined under fair value based method for all
            awards, net of related income tax..................         --       --       --
Pro forma net (loss)...........................................      2,256    1,717     (139)
Net Loss Per Share.............................................
     Basic-as reported.........................................     $  .85   $  .65    $(.05)
     Basic-pro forma...........................................        .85      .65     (.05)
     Diluted-as reported.......................................        .85      .65     (.05)
     Diluted-pro forma.........................................        .85      .65     (.05)
</TABLE>

[18]    ACCOUNTING CHANGES

Effective January 1, 2003, the Company adopted SFAS No. 143 "Accounting for
Asset Retirement Obligations" and recognized a loss of $264,000 that is included
as a cumulative effect of change in accounting principle. Effective January 1,
2002, the Company applied the provisions of Statement SFAS No.142 "Goodwill and
Other Intangible Assets". In 2002, the Company performed the transitional
impairment evaluation as provided in the said standard. Accordingly, the Company
recognized a gain in the amount of $ 3,516,000 from a negative goodwill that is
included as a cumulative effect of a change in accounting principle.

(19)    Reclassifications

Certain amounts in prior financial statements have been reclassed to conform to
the 2003 financial statements presentation.

[19]    New Pronouncements

In May 2002, the FASB issued Statement of Financial Accounting Standards No. 145
("SFAS 145"), "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections".. This Statement rescinds FASB
Statements No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an
amendment of Statement No. 4 and FASB Statement No. 64, Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements. This Statement also rescinds FASB
Statement No. 44, Accounting for Intangible Assets of Motor Carriers. This
Statement amends FASB Statement No. 13, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. SFAS 145 is effective
for fiscal years beginning after May 15, 2002. The Company's management does not
expect the adoption of SFAS 145 to have a material effect on the Company's
financial condition and results of operations.

In June 2002, the Financial Accounting Standard Board (FASB) issued SFAS 146,
ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES which nullifies
EITF 94-3, LIABILITY RECOGNITION FOR CERTAIN EMPLOYEE TERMINATION BENEFITS AND
OTHER EXIT COSTS TO EXIT AN ACTIVITY (INCLUDING CERTAIN COSTS INCURRED IN A
RESTRUCTURING). The principal difference between Statement 146 and Issue 94-3
relates to its requirements for recognition of a liability for a cost associated
with an exit or disposal activity. Statement 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized when


                                      F-10
<PAGE>

the liability is incurred. Under Issue 94-3, a liability for an exit cost as
defined in Issue 94-3 was recognized at the date of an entity's commitment to an
exit plan. SFAS 146 is required to be adopted for exit or disposal activities
initiated after December 31, 2002.

On December 31, 2002, the FASB issued Accounting for Stock-Based Compensation
("SFAS No. 148") amending FASB No. 123, to provide alternative methods of
transition to the fair value method of accounting for stock-based employee
compensation. The three methods provided in SFAS No 148 include (1) the
prospective method which is the method currently provided for in SFAS No. 123,
(2) the retroactive restatement method which would allow companies to restate
all periods presented and (3) the modified prospective method which would allow
companies to present the recognition provisions of all outstanding stock based
employee compensation instruments as of the beginning of the fiscal year of
adoption. In addition, SFAS No. 148 amends the disclosure provisions of SFAS No.
123 to require disclosure in the summary of significant accounting policies of
the effects of an entity's accounting policy with respect to stock-based
employee compensation on reported net income and earnings per share in annual
and interim financial statements. FASB No. 148 does not amend SFAS No. 123 to
require companies to account for their employee stock-based awards using the
fair value method. However, the disclosure provisions are required for all
companies with stock-based employee compensation, regardless of whether they
utilize the fair method of accounting described in SFAS No. 123 or the intrinsic
value method described in APB Opinion No. 25, Accounting for Stock Issued to
Employees. The Company does not intend on adopting the fair value method of
accounting for stock-based compensation of SFAS123 and accordingly SFAS 148 is
not expected to have a material impact on the Company's reported results of
operations or financial position in 2003.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, and subsequently revised the Interpretation in
December 2003 (FIN 46R). This Interpretation of Accounting Research Bulletin No.
51, Consolidated Financial Statements, addresses consolidation by business
enterprises of variable interest entities, which have certain characteristics.
As revised, FIN 46R is now generally effective for financial statements for
interim or annual periods ending on or after March 15, 2004. We have no
identified any variable interest entities. In the event a variable interest
entity is identified, we do not expect the requirements of FIN 46R to have a
material impact on our consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Instruments
with Characteristics of Both Liabilities and Equity," ("SFAS 150") which
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
150 requires that an issuer classify a financial instrument that is within its
scope, which may have previously been reported as equity, as a liability (or an
asset in some circumstances). This statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003 for public companies. The adoption of SFAS No 150 did not have a material
impact on our consolidated financial statements.

(NOTE B) - Transactions with Affiliates and Related Parties

The Company acts as operator for joint ventures with related parties in Israel
engaged in the exploration of 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.

Operator fees earned and related operator expenses are as follows:

                             YEAR ENDED DECEMBER 31,


                                 2003             2002              2001
                            --------------   --------------    --------------
                            $ IN THOUSANDS   $ IN THOUSANDS    $ IN THOUSANDS
                            --------------   --------------    --------------


  Operator fees:
  Nir 2                          559                  -                     -
  Med Ashdod Lease                56                 55                    54
  GAL C                            -                 27                     -
  Marine North                     -                 23                    72
  Marine Center                   66                 72                    72
  Marine South                    72                 72                    36
                                                      -                     -
                            --------------   --------------    --------------

                                 753                249                   234
                            ==============   ==============    ==============

  Operator expenses              795                791                   696
                            ==============   ==============    ==============


                                      F-11
<PAGE>

In August 1997 the Company entered into a Consulting Agreement with Romulas
Investment Ltd. (which Agreement has been assigned to Remarkable Holdings Ltd.),
a company which is wholly owned and controlled by Daniel Avner, the Vice
President of the Company. Pursuant to this Agreement, the Company agreed to pay
the Consultant the sum of $7,500 per month plus expenses. In February 1999, the
Consulting Agreement was amended to increase the monthly compensation payable
thereunder to $15,000 and pursuant to the amendment, the reimbursement of
expenses was disallowed. The Consulting Agreement was extended until July 2004.
On December 9, 2003, following the resignations of Daniel Avner from his
position as Vice President, the Consulting Agreement was terminated.

On December 9, 2003, the company entered into a Consulting Agreement with Doron
Avraham, the new Vice President of the Company. Pursuant to this Agreement the
Company agreed to pay the Consultant the sum of $ 15,000 Per month, in addition
to reimbursement of all business expenses. The Consulting Agreement is in effect
through November 30, 2004.

The Company paid Naphtha $ 6,500 per month for rent, office, secretarial and
computer services from July 1998 through April 30, 2000 , $9,125 per month from
May 1, 2000 and $15,760 per month from January 1, 2002 for such services. The
company paid Naphtha a sum of $197,000 for the year 2003 and a sum of $ 192,000
for 2002. A subsidiary of the Company is the general partner of Isramco-Negev 2
Limited Partnership from which it received management fees and expense
reimbursements of $480,000 for each of the years ended December 31, 2003, 2002.

In May of 1996 the Company entered into a Consulting Agreement with Goodrich
Global L.T.D. B.V.I., a company owned and controlled by Haim Tsuff, the Chairman
of the Board of Directors and Chief Executive Officer of the Corporation.
Pursuant to this Consulting Agreement which had a term of two years, the Company
agreed to pay the sum of $144,000 per annum in installments of $12,000 per
month, in addition to reimbursing all reasonable business expenses incurred
during the term in connection with the performance of services on behalf of the
Company. In April 1997 the consulting compensation was increased to $240,000 per
annum in installments of $20,000 per month and in December 1997 the term was
extended to May 31,2001. The Consulting Agreement was extended in 2001 and is in
effect through May 31, 2004. In the event that the Company shall terminate the
services provided by Mr. Tsuff, he shall be entitled to receive a lump sum
severance payment equal to the balance of the unpaid consulting fee due for the
remaining term of the agreement.

In November of 1999 the Company entered into a Consulting Agreement with
Worldtech Inc., a Mauritus company of which Jackob Maimon, the President of the
Company, is a director. Pursuant to this Consulting Agreement, which is in
effect through May 31, 2004, the Company agreed to pay the sum of $240,000 per
annum in installments of $20,000 per month, in addition to reimbursing all
reasonable business expenses incurred during the term in connection with the
performance of services on behalf of the Company. In the event that the Company
terminates the services provided by Mr. Maimon, he shall be entitled to receive
a lump sum severance payment equal to the balance of the unpaid consulting fee
due for the remaining term of the agreement.

In November, 2001 the Company awarded bonuses of $125,000 to the chairman of the
board, $125,000 to the president and $75,000 to the vice president.

In December 2003 the company awarded bonuses of $125,000 to the chaiman of the
board and $125,000 to the president.

On January 1, 2001 the Company retained the services of I.O.C. Israel Oil
Company LTD in connection with the operation of Jay Petroleum LLC and Jay
Management Company LLC (a wholly owned subsidiaries of the Company). The Company
agreed to pay I.O.C. the sum of $240,000 for the year 2001 and $120,000 for each
of the years 2002 and 2003.

(NOTE C) - Investments in Affiliate

A wholly owned subsidiary of the Company is the General Partner in the Isramco
Negev 2 Limited Partnership. The daily management of the Limited Partnership
vests with the General Partner, however, matters involving the rights of


                                      F-12
<PAGE>

the Limited Partnership unit holders, are subject to supervision of the
Supervisor, appointed to supervise the Limited Partnership activities, and in
some instances the approval of the Limited Partnership unit holders. The
Company's General Partner's interest in the Limited Partnership is 0.05% which
is accounted for by the equity method of accounting due to its ability to
exercise significant influence.

At December 31, 2003 and 2002, the Company also owned 283,171,196 units (6.65%of
the issued Partnership units) of the Isramco Negev 2 Limited Partnership with a
cost of $5,018,000. This investment is also accounted for under the equity
method of accounting.

Summarized financial information of Isramco Negev 2 Limited Partnership is as
follows (amounts in thousands):

                               AS OF DECEMBER 31,


Balance Sheet                                        2003         2002
                                                   --------     --------
Current Assets                                     $114,900     $ 95,000
Other Assets                                          1,700        4,000
                                                   --------     --------

Total Assets                                       $116,600     $ 99,000
                                                   ========     ========
Current Liabilities                                $    100            -
Equity                                             $116,500       99,000
                                                   --------     --------

Total liabilities and equity                       $116,600     $ 99,000
                                                   ========     ========



                                      F-13
<PAGE>

                                         Year Ended December 31,
                                   -----------------------------------
    Statement of Operations          2003         2002          2001
                                   --------     --------      --------

    Income                         $ 19,700     $  1,000      $  8,000
    Expenses                       $  8,500        3,000         7,000
                                   --------     --------      --------

    Net income (loss)              $ 11,200     $ (2,000)     $  1,000
                                   ========     ========      ========

At December 31, 2003 and 2002 the Company also owned 7,877,248 units (24.72% of
the issued Partnership units) of the I.N.O.C Dead Sea Limited Partnership with a
cost of $ 1,270,067. This investment is also accounted for under the equity
method of accounting.

Summarized financial information of I.N.O.C. Dead Sea Limited Partnership is as
follows (amount in thousand - unaudited):


                               AS OF DECEMBER 31,

    Balance Sheet                                        2003         2002
                                                       --------     --------

    Current Assets                                     $ 11,330     $  9,300
    Other Assets                                              -          600
                                                       --------     --------

    Total Assets                                       $ 11,330     $  9,900
                                                       ========     ========

    Current Liabilities                                $     60            -
    Equity                                             $ 11,270     $  9,900
                                                       --------     --------

    Total liabilities and equity                       $ 11,330     $  9,900
                                                       ========     ========


                                      F-14
<PAGE>

                                         Year Ended December 31,
                                   -----------------------------------
    Statement of Operations          2003         2002          2001
                                   --------     --------      --------
    Income                         $  2,070     $    680      $    620
    Expenses                       $  1,400        1,900         1,058
                                   --------     --------      --------

    Net income (loss)              $   670      $ (1,220)     $   (438)
                                   ========     ========      ========


(NOTE D) - Marketable Securities

At December 31, 2003, 2002 and 2001, the Company had net unrealized gains
(losses) on marketable securities of $524,000, $ (371,000) and (179,000),
respectively.

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

<TABLE>
<CAPTION>
                                                     DECEMBER 31, 2003                              DECEMBER 31, 2002
                                                     -----------------                              -----------------

                                               COST                 MARKET VALUE               COST               MARKET VALUE
                                               ----                 ------------               ----               ------------
<S>                                          <C>                       <C>                  <C>                     <C>
Debentures and Convertible Debentures        2,423,000                 3,170,000            $2,953,000              $2,603,000
Equity securities                            1,201,000                   735,000               595,000                 574,000
Investment Trust Funds                         157,000                   159,000                    --                      --

                                            $3,781,000                $4,064,000            $3,548,000              $3,177,000
                                             ---------                 ---------            ==========              ==========
</TABLE>

Available-for-sale securities, which are primarily traded on the Tel-Aviv Stock
Exchange and on OTC, consist of the following:

<TABLE>
<CAPTION>
                                                     DECEMBER 31, 2003                              DECEMBER 31, 2002
                                                     -----------------                              -----------------

                                               COST                 MARKET VALUE               COST               MARKET VALUE
                                               ----                 ------------               ----               ------------
<S>                                         <C>                       <C>                   <C>                     <C>
                                            $8,068,000                $8,572,000            $8,172,000              $7,733,000
                                             ---------                 ---------             ---------               ---------
</TABLE>

Sales of marketable securities resulted in realized gains (losses) of $95,000,
$3,000 and ($3,000) for the years ended December 31, 2003, 2002 and 2001
respectively. Amounts reclassified from accumulated other comprehensive income
into earings associated with the particular marketable securities were $51,000
for the year ended December 31, 2003. There were no reclassifications from
accumulated other comprehensive income into earnings for the year ending
December 31, 2002.

(NOTE E) - Other assets - Investment in a high-tech company.

In July 2000, the Company invested approximately $400,000 in a high-tech company
through the purchase of 5% convertible promissory note issued by such company,
convertible at the discretion of the Company, under certain conditions, into
equity capital of the company. On December 31, 2001 the Company determined the
investment to be impaired and recorded an impairment charge for the full amount
of the note.

The Company invested, by way of a convertible loan in such high-tech company
approximately $50,000 and $171,000 during 2002 and 2001 respectively. During
2002 the company converted the loans into equity capital.

The Company sold 203,000 shares of Eyeblast for $609,000 recognizing a gain of
$549,000 in December of 2003.

(NOTE F) - Oil and Gas Properties

                                                              TOTAL  CAPITALIZED
                                                              -----  -----------
                                UNPROVED          PROVED                   COSTS
                                --------          ------                   -----

Balance - December 31, 2000     $277,000        $4,012,000           $4,289,000
Acquisition costs                     --         1,599,000            1,599,000
Development costs                     --           624,000              624,000

Balance - December 31, 2001     $277,000        $6,235,000           $6,512,000



                                      F-15
<PAGE>

                                                              TOTAL  CAPITALIZED
                                                              -----  -----------
                                UNPROVED          PROVED                   COSTS
                                --------          ------                   -----

Acquisition costs                194,000           443,000              637,000
Development costs            -----------          (694,000)            (694,000)
                             -----------       -----------           -----------
Balance - December 31, 2002     $471,000        $5,984,000           $6,455,000
                             ===========       ===========           ===========

Acquisition costs                     --           292,000              292,000
Development costs               (150,000)          384,000              234,000
                             -----------       -----------           -----------
Balance - December 31, 2003     $321,000        $6,660,000           $6,981,000



ANNUAL RATES OF DEPRECIATION ARE AS FOLLOWS:


Office equipment and furniture                              7%--20%
Motor vehicles                                             15%--30%

A summary of property and equipment is as follows:

                                                      2003                2002
                                                      ----                ----
Unproved properties                                     --            $471,000
Oil and gas properties                           6,981,000           5,984,000
Retirement obligation assets                       449,000                  --
Transportation equipment                           142,000             142,000
Office equipment                                   133,000             111,000
                                                   -------             -------
                                                 7,705,000           6,708,000
  Less accumulated depletion, depreciation,
amortization and provision for impairment        4,441,000           3,203,000
                                                 ---------           ---------
                                                 3,264,000          $3,505,000
                                                 =========          ==========


                                      F-16
<PAGE>

(NOTE G) - EPS COMPUTATION

SFAS No. 128, "Earnings per share", requires a reconciliation of the numerator
(income) and denominator (shares) of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. The company's reconciliation is
as follows:

<TABLE>
<CAPTION>
                                                                      FOR THE YEAR ENDED DECEMBER 31,
                                                                      -------------------------------
                                                    2003                             2002                         2001
                                                    ----                             ----                         ----
                                           INCOME          SHARES           INCOME         SHARES         INCOME          SHARES
                                           ------          ------           ------         ------         ------          ------
<S>                                     <C>               <C>           <C>               <C>         <C>               <C>
Earnings per common share-basic         $  2,256,000      2,639,853     $ 1,717,000       2,639,853   $ (139,000)       2,639,853
Effect of dilutive securities:
Stock options                                                                    --              --           --               --
Earnings per common share-Diluted       $  2,256,000      2,639,853     $ 1,717,000       2,639,853   $ (139,000)       2,639,853
</TABLE>

(NOTE H) - STOCK OPTION

        The 1993 stock option plan (the 1993 Plan) was approved at the Annual
General Meeting of Shareholders held on August 13, 1993. At December 31, 2002,
2001 and 2000, 50,000 shares of common stock are reserved under the 1993 Plan.
Options granted under the 1993 Plan might be either incentive stock options
under the Internal Revenue Code or options which do not qualify as incentive
stock options. Options are granted for a period of up to ten years from the
grant date. The exercise price for an incentive stock option may not be less
than 100% of the fair market value of the Company's common stock on the date of
grant. The options granted under this plan were fully vested at grant date. The
administrator may set the exercise price for a nonqualified stock option.

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

                                               WEIGHTED-AVERAGE
                                               ----------------
1993 Plan:                           OPTIONS                      EXERCISE PRICE
                                     -------                      --------------
Outstanding at December 31, 2000       29,750                         $21.00
Granted                                    --                             --
Expired                                    --                             --
Outstanding at December 31, 2001       29,750                         $21.00
Granted                                    --                             --
Expired                                    --                             --
Outstanding at December 31, 2002       29,750                         $21.00
Granted                                    --                             --
Expired                               (24,250)                            --
Outstanding at December 31, 2003        5,500                         $10.45


As of December 31, 2003, 5,500 options were outstanding and exercisable at a
price of $10.45 and a weighted average remaining contractual life of .5 years.
During 1994, the Company granted 2,500 options to an employee pursant to the
1993 Plan exercisable through March 2004 at an exercise price of $ 19.1. During
1995 the Company granted 3,000 options to a director under the 1993 Plan
exercisable through July 2005 at an exercise price of $5.06 per share.

                                               WEIGHTED-AVERAGE
                                               ----------------
Consultants and others:              OPTIONS                      EXERCISE PRICE
                                     -------                      --------------
Outstanding at December 31, 2000        2,000                         $23.00
Granted                                    --                             --
Expired                                    --                             --
Outstanding at December 31, 2001        2,000                         $23.00
Granted                                    --                             --
Expired                                    --                             --
Outstanding at December 31, 2002        2,000                         $23.00
Granted                                    --                             --
Expired                                (2,000)                            --
Outstanding at December 31, 2003           --                             --



                                      F-17
<PAGE>

No stock options were granted during 2003. Shares of common stock reserved for
future issuance are:

        Options granted under the 1993 Plan                          5,500
        Options available for grant under the 1993 Plan             20,250
        Options granted to directors                               139,990
                                                                   -------
        Total                                                      165,740
                                                                   =======

Pursuant to requirements of SFAS No. 123, the weighted average fair market value
of options granted during 2000 was $3.57 per share. The weighted average closing
bid prices for the Company's stock at the date the options were granted during
2000 was $5.13 per share. The fair market value pursuant SFAS No. 123 of each
option granted is estimated on the date of grant using the Black-Scholes
options-pricing model. The model assumes expected volatility of 76 %, risk-free
interest rate of 6.51% for grants during 2000, an expected life of 5 years and
no dividend yield. Actual value realized, if any, is dependant on the future
performance of the Company's common stock and overall stock market conditions.
There is no assurance the value realized by an optionee will be at or near the
value estimated by the Black-Scholes model.

The Company applies Accounting Principles Bulletin Opinion No. 25 and related
interpretations in accounting for its options. Accordingly, compensation expense
of $118,000 has been recognized for its stock option grants to its directors
during 2000.

NOTE I) -- INCOME TAXES

Income (loss) before income taxes from U.S. and foreign results of operations is
as follows:

<TABLE>
<CAPTION>
                                                                                 YEAR ENDED DECEMBER 31,
                                                                                 -----------------------
                                                                  2003                     2002                    2001
                                                                  ----                     ----                    ----
<S>                                                           <C>                      <C>                     <C>
U.S.                                                          $  1,022,000             $  (203,000)            $   605,000
Foreign                                                          2,426,000             $(1,710,000)            $ (694,000)
                                                              ------------               ----------            -----------
  Total                                                       $  3,448,000             $(1,913,000)            $  (89,000)
                                                              ============             ============            ===========
</TABLE>

Total income tax expense (benefit) for each of the years ended December 31,
2002, 2001 and 2000 were allocated as follows:

<TABLE>
<CAPTION>
                                                                  2003                     2002                    2001
                                                                  ----                     ----                    ----
<S>                                                           <C>                        <C>                   <C>
Income taxes (benefit)                                        $  1,188,000               $(114,000)            $    50,000
Shareholders' equity for unrealized holding
   gains (loses) on marketable securities                           80,000                 (43,000)            $  (63,000)
                                                              ------------               ----------            -----------
Total                                                         $  1,268,000               $(157,000)            $  (13,000)
                                                              ============               ==========            ===========
</TABLE>


                                      F-18
<PAGE>

Income tax expense (benefit) attributable to income from continuing operations
consist of:

<TABLE>
<CAPTION>

                                                                                 YEAR ENDED DECEMBER 31,
                                                                                 -----------------------
                                                                  2003                     2002                    2001
                                                                  ----                     ----                    ----
<S>                                                           <C>                        <C>                   <C>
Current:
       State                                                        17,000                    6,000                 10,000
       Federal                                                   1,171,000                 (315,000)                73,000
       Foreign                                                          --                       --                276,000
Deferred federal                                                        --                  195,000               (309,000)
                                                              ------------               ----------            -----------
Total                                                         $  1,188,000               $ (114,000)           $    50,000
                                                              ============               ==========            ===========
</TABLE>

The deferred tax assets (liabilities) as of December 31, 2003 and 2002 are as
follows:

<TABLE>
<CAPTION>
                                                                                                AS OF DECEMBER 31,
                                                                                                ------------------
                                                                                           2003                    2002
                                                                                           ----                    ----
<S>                                                                                      <C>                   <C>
Net unrealized depreciation (appreciation) of marketable securities                      $ (130,000)           $   275,000
Basis differences in property and equipment                                                 356,000                 48,000
Losses carry forward                                                                             --                724,000
Other timing differences                                                                 (1,655,000)               202,000
                                                                                         ----------            -----------
Total                                                                                    (1,169,000)             1,249,000
Valuation allowance                                                                              --               (362,000)
                                                                                         ----------            -----------
                                                                                        ($1,169,000)           $   887,000
                                                                                         ==========            ===========
</TABLE>

        The Company has determined that a valuation allowance of $362,000 was
required for deferred tax assets for 2002. A valuation allowance for such assets
was not required at December 31, 2001.This determination considered, among other
things, estimated future cash flows from proved reserves and the market value of
securities and expected resulting taxable income.

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

<TABLE>
<CAPTION>
                                                                                 YEAR ENDED DECEMBER 31,
                                                                                 -----------------------
                                                                  2003                     2002                    2001
                                                                  ----                     ----                    ----
<S>                                                           <C>                        <C>                   <C>
Computed at U.S. statutory rates                                    (35.0)%                 (35.0)%                (35.0)%
State income taxes, net of federal benefit                            0.5%                   (3.1)%                (11.2)%
Adjustment to valuation allowance                                      --                    18.9%                    --
Other                                                                1.05%                   13.2%                   (10)%
                                                              ------------               ----------            -----------
                                                                   (34.45)%                  (6.0)%                (56.2)%
</TABLE>

(NOTE J) -- Concentrations of Credit Risk

Financial instruments, which potentially expose the Company to concentrations of
credit risk, consist primarily of trade accounts receivable. The Company's
customer base includes several of the major United States oil and gas operating
and production companies. Although the Company is directly affected by the
well-being of the oil and gas production industry, management does not believe a
significant credit risk exists at December 31, 2003.

The Company maintains deposits in banks, which may exceed the amount of federal
deposit insurance available. Management periodically assesses the financial
condition of the institutions and believes that any possible deposit loss is
minimal.

A significant portion of the Company's cash and cash equivalents is invested in
marketable securities. Substantially, all marketable securities owned by the
Company are held by banks in Israel and Switzerland.

(NOTE K) -- Commitments and Contingencies

COMMITMENTS:


                                      F-19
<PAGE>

The Company leases corporate office facilities under a 3-year operating lease
expiring October 2006 at a monthly rental of $ 2,400 with an escalation to $2500
on November 2005. The Company shares office space with Jay Petroleum, L.L.C. and
Jay Management L.L.C., affiliates, under an informal sublease agreement. The
Company is also responsible for its prorate share of the operating expenses that
exceed a certain threshold.

At December 31, 2003, future minimum lease payments under non-cancelable
operating leases are approximately $ 83,000.

Further annual minimum lease payments are follows:


                                   Year Ending
                                   December 31,

                            2004               28,000
                            2005               29,000
                            2006               26,000
                                               ------
                                               83,000


CONTINGENCIES:

The Company is involved in various other legal proceedings arising in the normal
course of business. In the opinion of management, the Company's ultimate
liability, if any, in these pending actions would not have a material adverse
effect on the financial position, operating results or liquidity of the Company.

The Company, together with Naphtha Congo Ltd,. as Israeli and related entity
("Naphthat Congo"), were served in October 2002 in District Court of Harris
County, Texas, with summons and complaint by Romfar International Ltd., a
contractor ("Contractor") who provided drilling services in the Tilapia permit
million and movig for court ordered arbitraction. The Contractor and Naphtha
Tilapia 1 well. The Company indirectly held, througth Naphtha Congo, a 50%
participation interest in the Tilapia 1 well.

The Company filed it answer on October 18, 2002, where it denied all allegations
made and denied that it is a proper party to the suit and moved to dismiss the
complaint. On March 20, 2003, the courtgranted the Company's motion to compel
arbitraction against Naphtha Congo. Subsequently, the contractor motion for a
new trial and on July 8, 2003, the court denied the contractor's motion for a
new trial. On November 3, 2003 the arbitrator's award was forwarded to Naphtha
Congo. According the Arbitrator's award, Naphtha Congo is obliged to pay the
contractor the amount of $693,523 as funds due under the drilling contract and
in addition, interest at the rate of 18% per annum. The Company extinguished
this oblogation on November 19, 2003.

(NOTE L) - Geographical Segment Information

The Company's operations involve a single operating segment--the exploration,
development, production and transportation of oil and natural gas. Its current
oil and gas activities are concentrated in the United States, Israel, and the
Republic of Congo, Africa. Operating in foreign countries subjects the Company
to inherent risks such as a loss of revenues, property and equipment from such
hazards as exploration, nationalization, war and other political risks, risks of
increases of taxes and governmental royalties, renegotiation of contracts with
government entities and changes in laws and policies governing operations of
foreign-based companies.

The Company's oil and gas business is subject to operating risks associated with
the exploration, and production of oil and gas, including blowouts, pollution
and acts of nature that could result in damage to oil and gas wells, production
facilities or formations. In addition, oil and gas prices have fluctuated
substantially, in recent years as a result of events, which were outside of the
Company's control. Financial information, summarized by geographic area, is as
follows (in thousands):


                                      F-20
<PAGE>
<TABLE>
<CAPTION>

                                                                                     GEOGRAPHIC SEGMENTS
                                                                                     -------------------
                                                                                                                     CONSOLIDATED
                                                             UNITED STATES           ISRAEL             CONGO            TOTAL
                                                             -------------           ------             -----            -----
<S>                                                            <C>                <C>                 <C>               <C>
                            2003
Sales and other operating revenue                              $  3,582           $  1,549                  --          $ 5,131
Costs and operating expenses                                     (1,960)              (820)               (150)          (2,930)
                                                                -------              -----               -----          -------
Operating profit (loss)                                        $  1,622           $    729            $   (150)         $ 2,201

Interest income and other corporate revenues                                                                                760
Net gain in investee and gain on marketable                                                                               1,098
securities
General corporate expenses                                                                                               (2,012)
Interest expense                                                                                                            (52)
Capital gain                                                                                                                549
Other income                                                                                                                475
Accretion expenses                                                                                                          (43)
Income taxes                                                                                                             (1,188)
Net income                                                                                                                2,256
Identifiable assets at December 31, 2003                       $  2,987           $     81                  --          $ 3,068
Net property and equipment
Cash and corporate assets                                                                                                29,627
Total assets at December 31, 2003                                                                                       $32,614
                                                                                                                         ======

                                                                                     GEOGRAPHIC SEGMENTS
                                                                                     -------------------
                                                                                                                     CONSOLIDATED
                                                             UNITED STATES           ISRAEL             CONGO            TOTAL
                                                             -------------           ------             -----            -----
                            2002
Sales and other operating revenue                              $  2,563           $  1,022            $     --          $ 3,585
Costs and operating expenses                                     (2,021)              (817)               (887)          (4,024)

Operating profit (loss)                                             243                205                (887)            (439)
                                                                -------              -----               -----          -------
Interest income and other corporate revenues                                                                                787
loss on marketable securities and net loss in investee                                                                     (629)
General corporate expenses                                                                                               (1,422)
Interest expense                                                                                                           (210)
Income taxes                                                                                                                114
Net loss                                                                                                                 (1,717)
Identifiable assets at December 31, 2002                       $  3,178           $    177            $    150          $ 3,505
Cash and corporate assets                                                                                                25,162
Total assets at December 31, 2002                                                                                       $28,667
                                                                                                                         ======

                                                                                     GEOGRAPHIC SEGMENTS
                                                                                     -------------------
                                                                                                                     CONSOLIDATED
                                                             UNITED STATES           ISRAEL             CONGO            TOTAL
                                                             -------------           ------             -----            -----
                           2001
Sales and other operating revenue                              $  3,171           $    988            $     --          $ 4,159
Costs and operating expenses                                     (1,451)              (723)               (199)          (2,373)
                                                                -------              -----               -----          -------
Operating profit (loss)                                        $  1,720           $    265            $   (199)         $ 1,786
Interest income and other corporate revenues                                                                                545
General corporate expenses                                                                                               (2,044)
Loss on marketable securities and
net loss in investee                                                                                                       (376)
Income taxes                                                                                                                (50)
Net loss                                                                                                                $  (139)
Identifiable assets at December 31, 2001
Net property and equipment                                     $  3,850           $    180            $    150          $ 4,180
Cash and corporate assets                                                                                               $22,435
Total assets at December 31, 2001                                                                                       $26,615
                                                                                                                         ======
</TABLE>


                                      F-21
<PAGE>

(NOTE M) - Asset Retirement Obligations

We recognize the fair value of a liability for an asset retirement obligation in
the period at which time th asset was placed in service. The associated asset
retirement costs are capitalized as part of the carrying amount of the asset.
The fair value of a liability for an asset retirement obligation is the amount
which that liability could be settled in a current transaction between willing
parties. The Company uses the expected cash flow approach for calculating asset
retirement obligations. The liability is discounted using the credit-adjusted
risk-free interest rate in effect when the liability is initially recognized.
The changes in the liability for an asset retirement obligation due to the
passage of time are measured by applying an interest method of allocation to the
amount of the liability at the beginning of the period. This amount is
recognized as an increase in the carrying amount of the liability and as
accretion expense classified as an operating item in the statement of
operations.

Effective January 1, 2003, the Company adopted SFAS No. 143, "Accounting for
Asset Retirement Obligations." SFAS No. 143 requires entities to record a
liability for asset retirement obligations at fair value in the period in which
it is incurred and a corresponding increase in the carrying amount of the
related long-lived asset. As of January 1, 2003, the Company recorded asset
retirement costs of $458,581 and asset retirement obligations of $650,240. The
cumulative effect of change in accounting principle was $263,955, after taxes of
$39,158.

The reconciliation of the beginning and ending asset retirement obligations as
of December 31, 2003 is as follows (in thousands):


Asset retirement obligations, as of December 31, 2002              $          -
Liabilities upon adoption of SFAS No. 143 on January 1, 2003                650
Liabilities incurred                                                         73
Liabilities settled                                                           -
Accretion expense                                                            43
Revisions in estimated cash flows                                             -
                                                                   -------------
Asset retirement obligations, as of December 31, 2003              $        766
                                                                   =============

The following table summarizes the PRO FORMA net income and earnings per share
for the years ended December 31, 2002 and 2001 as if SFAS No. 143 had been
adopted on January 1, 2000 (in thousands, except per share amounts):

                                   YEAR ENDED
                                  DECEMBER 31,

                                                        2002           2001
                                                    ------------   ------------
Net income (loss):
      As reported                                   $      1,717   $      (139)
      Pro forma                                            1,663          (186)
Net income (loss) per share, as reported:
      Basic & diluted                               $        .65   $      (.05)
Net income (loss) per share, pro forma:
      Basic & diluted                               $        .63   $      (.07)



                                      F-22
<PAGE>

The following table summarizes PRO FORMA asset retirement obligations as of
December 31, 2002 and 2001 as if SFAS No. 143 had been adopted on January 1,
2000 (in thousands):

                               AS OF DECEMBER 31,


                                                           2002          2001
                                                         ---------     --------
Asset retirement obligations, beginning of year          $    613      $   482
Liabilities incurred                                     $      -      $    96
Accretion expense                                        $     37      $    35
                                                         ---------     --------
Asset retirement obligations, end of year                $    650      $   613
                                                         =========     ========


(NOTE N) - Subsequent Event

In March 2004, the Company completed the purchase of a luxury cruise liner for
aggregate consideration of $8,050,000. The vessel, a Bahamas flagged ship,
contains 270 passenger cabins spread out over nine decks. The Company has
secured commercial bank loans for approximately $7.5 million of the purchase
price, to be secured by a lien on the vessel, marketable securities anda company
guarantee. The Company is currently in discussions with several luxury cruise
operators for the purpose of commercially leasing the vessel as a luxury cruise
liner. No assurance can be given that the Company will be able to conclude any
leasing arrangement on commercially acceptable terms.

                      SUPPLEMENTARY OIL AND GAS INFORMATION

For the years ended December 31, 2003, 2002 and 2001 (unaudited)

The following supplemental information regarding the oil and gas activities of
the Company is presented pursuant to the disclosure requirements promulgated by
the Securities and Exchange Commission and SFAS No. 69, Disclosures About Oil
and Gas Producing Activities. Capitalized costs relating to oil and gas
activities and costs incurred in oil and gas property acquisition, exploration
and development activities for each year are shown below.

CAPITALIZED COST OF OIL AND GAS PRODUCING ACTIVITIES (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                            2003                         2002                      2001
                                                     ------------------          ------------------        ------------------
                                                     UNITED       CONGO          UNITED       CONGO        UNITED       CONGO
                                                     STATES                      STATES                    STATES
                                                     ------       -----          ------       -----        ------       -----
<S>                                                   <C>         <C>            <C>          <C>          <C>          <C>
Unproved properties not being amortized                             150             194       $ 150        $  123       $ 150
Proved property being amortized                       6,352          --           5,504          --         5,632          --
Accumulated depreciation, depletion
  amortization and impairment                        (3,338)       (150)         (2,526)         --        (1,937)         --
                                                     ------       -----          ------       -----        ------       -----
Net capitalized costs                                $3,014          --          $3,172       $ 150        $3,818       $ 150
                                                     ======       =====          ======       =====        ======       =====
</TABLE>

COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION, AND DEVELOPMENT
ACTIVITIES (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                            2003                         2002                      2001
                                                     ------------------          ------------------        ------------------
                                                     UNITED       CONGO          UNITED       CONGO        UNITED       CONGO
                                                     STATES                      STATES                    STATES
                                                     ------       -----          ------       -----        ------       -----
<S>                                                   <C>         <C>            <C>          <C>          <C>          <C>
Property acquisition costs--proved and
  unproved properties                                $  260                      $   --       $  --        $1,059       $  --
Exploration costs                                        22          54             833         887           765         199
Development costs                                       393                         500          --           399          --
                                                     ------       -----          ------       -----        ------       -----
(Israel exploration costs in 2003-$ 88; 2002-27$
2001 - $5)
</TABLE>


                                      F-23
<PAGE>
<TABLE>
<CAPTION>

RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES (IN THOUSANDS)

                                                            2003                         2002                      2001
                                                     ------------------          ------------------        ------------------
                                                     UNITED       CONGO          UNITED       CONGO        UNITED       CONGO
                                                     STATES                      STATES                    STATES
                                                     ------       -----          ------       -----        ------       -----
<S>                                                   <C>         <C>            <C>          <C>          <C>          <C>
Oil and gas sales                                    $3,439          --          $2,423          --        $3,068       $  --
Lease operating expense and
  severance taxes                                      (872)         --            (844)         --          (905)         --
Depreciation, depletion,
  amortization and provision for
  impairment                                         (1,088)       (150)           (589)         --          (519)         --
Exploration costs                                       (22)        (54)           (833)        809            (5)        199
                                                     ------       -----          ------       -----        ------       -----
Income (Loss) before tax provision                    1,457        (204)            155        (809)        1,639        (199)
Provision for income taxes                               --          71                         283          (535)         70
                                                     ------       -----          ------       -----        ------       -----
Results of operations                                $1,457       $(133)         $  155       $ 526        $1,104       $(129)
                                                     ======       =====          ======       =====        =======      =====
</TABLE>


OIL AND GAS RESERVES

Oil and gas proved reserves can not be measured exactly. The engineers
interpreting the available data, as well as price and other economic factor base
reserve estimates on many factors related to reservoir performance, which
require evaluation. The reliability of these estimates at any point in time
depends on both the quality and quantity of the technical and economic data, the
production performance of the reservoirs as well as extensive engineering
judgment. Consequently, reserve estimates are subject to revision, as additional
data become available during the producing life of a reservoir. When a
commercial reservoir is discovered, proven reserves are initially determined
based on limited data from the first well or wells. Subsequent data may better
define the extent of the reservoir and additional production performance, well
tests and engineering studies will likely improve the reliability of the reserve
estimate. The evolution of technology may also result in the application of
improved recovery techniques such as supplemental or enhanced recovery projects,
or both, which have the potential to increase reserves beyond those envisioned
during the early years of a reservoir's producing life.

The following table represents the Company's net interest in estimated
quantities of proved developed and undeveloped reserves of crude oil, condense,
natural gas liquids and natural gas and changes in such quantities at December
31, 2003, 2002 and 2001, and for the years then ended. Net proved reserves are
the estimated quantities of crude oil and natural gas which geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions. Proved developed reserves are proved reserve volumes that can be
expected to be recovered through existing wells with existing equipment and
operating methods. Proved undeveloped reserves are proved reserve volumes that
are expected to be recovered from new wells on undrilled acreage or from
existing wells where a significant expenditure is required for recompilation.
All of the Company's proved reserves are in the United States. The Company's oil
and gas reserves are priced at $ 30.56 per barrel and $ 5.16 per Mcf,
respectively, at December 31, 2003.


                                      F-24
<PAGE>

                                                       OIL BBLS        GAS MCF
                                                      ----------      ----------
December 31, 2000                                       182,036       5,559,366
Revisions of previous estimates                         (19,580)        118,727
Acquisition of minerals in place                         47,689         190,345
Sales of minerals in place                                   --              --
Net discoveries and extensions                               --              --
Production                                              (19,835)       (656,169)
                                                      ----------      ----------

December 31, 2001                                       190,310       5,212,269

Revisions of previous estimates                          (7,525)       (572,723)
Acquisition of minerals in place                             --              --
Sales of minerals in place                                   --              --
Net discoveries and extensions                               --              --
Production                                              (20,852)       (720,072)
                                                      ----------      ----------
December 31, 2002                                       161,933       3,919,474

Revisions of previous estimates                          55,261        (317,234)
Acquisition of minerals in place                             --              --
Production                                              (19,294)       (599,000)
                                                      ----------      ----------

December 31, 2003                                       197,900       3,003,240


The Company's proved reserves are as follows:

<TABLE>
<CAPTION>
                                                   DEVELOPED                        UNDEVELOPED
                                            OIL BBLS        GAS MCF          OIL BBLS        GAS MCF
                                            --------        --------         --------        --------
<S>                                         <C>            <C>               <C>             <C>
December 31, 2003                            197,900       3,003,240               --         516,440
December 31, 2002                            161,933       3,919,474               --         138,050
December 31, 2001                            190,310       5,212,269               --              --


                                            OIL BBLS        GAS MCF
                                            --------        --------
Interest in proved reserves
  of unconsolidated affiliates
    December 31, 2003                             --       1,979,000
    December 31, 2002                             --       1,979,000
    December 31, 2001                             --       1,979,000
</TABLE>


STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOW

The standardized measure of discounted future net cash flows relating to the
Company's proved oil and gas reserves is calculated and presented in accordance
with Statement of Financial Accounting Standards No. 69. Accordingly, future
cash inflows were determined by applying year-end oil and gas prices to the
Company's estimated share of the future production from proved oil and gas
reserves.

Future production and development costs were computed by applying year-end costs
to future years. Applying year-end statutory tax rates to the estimated net
future cash flows derived future income taxes. A prescribed 10% discount factor
was applied to the future net cash flows.

In the Company's opinion, this standardized measure is not a representative
measure of fair market value. The standardized measure is intended only to
assist financial statement users in making comparisons among companies.


                                      F-25
<PAGE>
<TABLE>
<CAPTION>
                                                            2003                   2002             2001
                                                       --------------        --------------     ------------
<S>                                                     <C>                  <C>                <C>
Future cash inflows                                     $  21,705,930        $   20,637,745     $ 16,363,650
Future development costs                                     (160,780)             (189,877)        (141,574)
Future production costs                                    (7,472,950)           (6,131,777)      (5,180,472)
                                                       --------------        --------------     ------------
Future net cash flows                                      14,091,190            14,862,770       11,041,604
Future income tax expenses                                 (4,791,004)           (4,904,714)      (3,643,729)
Annual 10% discount rate                                   (4,650,009)           (4,082,803)      (3,020,874)
                                                       --------------        --------------     ------------
Standardized measure discounted future net cash
flows                                                  $    4,650,177        $    5,875,253     $  4,377,001
                                                       ==============        ==============     ============
</TABLE>

CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS

        The principal sources of change in the standardized measure of
discounted future net cash flows for the years ended December 31, 2003, 2002 and
2001 were as follows:

<TABLE>
<CAPTION>
                                                            2003                   2002             2001
                                                       --------------        --------------     ------------
<S>                                                    <C>                   <C>                <C>
Beginning of the year                                  $    5,875,253        $    4,377,001     $ 14,874,872
Sales and transfers of oil and gas produced,
  net of production costs                                          --                    --               --
Sales of reserves in place                                         --                    --               --
Net changes in prices and production costs                 (1,341,179)            1,498,252       (4,100,459)
Net changes in income taxes                                  (113,710)                   --               --
Changes in estimated future development costs,
  net of current development costs                                 --                48,303         (284,951)
Acquisition of minerals in place                                   --                    --     $  1,212,580
Revision of previous estimates                                     --                    --       (7,325,041)
Changes in production rate and other                               --                    --               --
Accretion of discount                                              --                    --               --
End of year                                                 4,650,177             5,875,253     $  4,377,001
                                                       ==============        ==============     ============
</TABLE>

Selected Quarterly Financial Data (amounts in thousands, except per share data)
(Unaudited):

<TABLE>
<CAPTION>

                                                                                 QUARTER ENDED
                                                                                 -------------

                                                      MARCH 31     JUNE 30       SEPTEMBER 30       DECEMBER 31         TOTAL
                                                          2003        2003               2003              2003          2003
                                                          ----        ----               ----              ----          ----
<S>                                                    <C>         <C>                <C>              <C>            <C>
Total Revenues                                         $ 1,974     $ 2,942            $ 1,928          $  2,041       $ 8,885
Net Income (loss) before taxes                         $   852     $ 1,906            $   826          $  (124)       $ 3,708
Cumulative effect of an accounting change                 (264)          -                             $     -        $  (264)
Net Income (loss)                                      $   588     $ 1,906            $   808          $(1,046)       $ 2,256

Earnings (loss) per Common Share
-Basic and Diluted                                     $  0.22     $  0.72            $  0.31          $ (0.40)       $  0.85
</TABLE>


                                      F-26
<PAGE>
<TABLE>
<CAPTION>

                                                                                 QUARTER ENDED
                                                                                 -------------

                                                      MARCH 31     JUNE 30       SEPTEMBER 30       DECEMBER 31         TOTAL
                                                          2002        2002               2002              2002          2002
                                                          ----        ----               ----              ----          ----
<S>                                                    <C>         <C>                <C>              <C>            <C>
Total Revenues                                         $ 1,076     $ 1,021            $ 1,047           $ 1,228       $ 4,372
Net Income (loss) before taxes                         $ (160)     $(1,834)           $   (60)          $   141       $(1,913)
Cumulative effect of an accounting change              $ 3,516          --                 --                --       $ 3,516
Net Income                                             $ 3,356     $(1,370)           $   (60)          $  (209)      $ 1,717

Earnings (loss) per Common Share
-Basic and Diluted                                     $  1.27     $ (0.52)           $ (0.02)          $ (0.09)      $  0.65


                                                                                 QUARTER ENDED
                                                                                 -------------

                                                      MARCH 31     JUNE 30       SEPTEMBER 30       DECEMBER 31         TOTAL
                                                          2001        2001               2001              2001          2001
                                                          ----        ----               ----              ----          ----
Total Revenues                                         $ 1,475     $ 1,555            $ 1,002           $   672       $ 4,704
Net Income (loss) before taxes                         $   352     $   767            $  (277)          $  (931)      $   (89)
Net Income                                             $   195     $   524            $  (177)          $  (681)      $  (139)

Earnings (loss) per Common Share
-Basic and Diluted                                     $  0.07     $  0.20            $  (0.07)         $  (0.24)     $ (0.05)
</TABLE>


                                      F-27